Ethernet Operators Face Up-Front Costs

Plenty of vendors and service providers are betting big money on gigabit Ethernet becoming the predominant protocol in access networks, on the basis of its ability to deliver big bandwidths with low-cost equipment.

But significant upfront costs in deploying gigabit Ethernet -- laying fiber to the user’s door -- emerged at last week’s Gigabit Ethernet Conference in San Jose, Calif.

One service provider rolling out gig E to the home, the Grant County Public Utility District, said it would spend $120 million in the next five years, laying fiber to "all the farms, homes, and businesses" in the rural, mid-Washington region (see http://www.gcpud.org/zipp/default2.htm for details).

The county doesn't expect full payback on its investment for at least 15 years, according to Jonathan Moore, its senior telecommunications engineer.

"Right now we're spending $3,500 per home, but we expect that to drop to about $2,100 per home by 2003," he told delegates at the conference. The county already has 1,700 customers using the open-access network to order Internet, phone, and cable television services from a growing list of providers, paying approximately $75 to $80 a month for a combination of all three.

Other operators also appear prepared to pay big bills to connect customers, judging by comments made at the conference by Steve Albanese, director of information systems at CPI Wireless, a former division of Varian, which manufactures microwave and satellite components.

Albanese says his company's decision to purchase Ethernet services from Yipes Communications Inc. was helped in part by the service provider's willingness to dig a trench for free.

"We didn't have to put down a penny until it worked," says Albanese, who admits that CPI got "an early-user discount" when Yipes paid for about $40,000 worth of fiber-digging and hookup costs to link CPI Wireless's building with the local fiber loop. Yipes also threw in an Extreme Networks Inc. (Nasdaq: EXTR) customer-premises Ethernet switch as part of its service.

Free gifts aside, Albanese says Yipes's services delivered as promised, allowing the company to completely replace the frame-relay network it used to rely on for its 1,300-node network, which spans six locations in the U.S. and Europe.

"We now have four times the bandwidth for about half the cost of the frame-relay network," says Albanese, adding that provisioning headaches with the previous network of T1 (1.5 Mbit/s) leased lines "almost made me quit my job."

In general, the cost of laying fiber to customer sites "is not so exorbitant that it gets in our way," says Jerry Parrick, Yipes’s CEO.

Parrick points out that fiber-access alternatives to digging trenches do exist, such as existing power or sewage conduits. However, he admits that fully half of Yipes's current customers have needed some type of construction work to bring fiber inside, a task that Parrick says can cost between $50,000 and $60,000 per building. Yipes is sometimes able to share the construction costs with other service providers, he adds.

Of course, having to lay fiber can also delay service provisioning considerably, and might also limit the speed at which Ethernet-based services can be deployed in general. If you’d like to share your views on this topic, take Light Research's new interactive poll, at The Future of the Metro.

-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com

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opto 12/4/2012 | 8:27:37 PM
re: Ethernet Operators Face Up-Front Costs DKP - Hsu is referring to a price for a purpose built stb for special networks such as Hotels, as noted in the article. That means this is not a consumer device, and especially not a digital video one. A box like this most likely has a traditional analog only input and output, and a separate, integrated DOCSYS (CableLabs' open standard) modem. This is very very far from a single input of FastE, producing RF out to a TV, along with Ethernet computer (and RJ45?), as used at Grant county.
DKP 12/4/2012 | 8:28:03 PM
re: Ethernet Operators Face Up-Front Costs
> FastE in, RF out, same fcns as current
> set tops, under a $100? What planet are you
> from?


"Using the StrongArm solution has allowed us to lower prices to $100 to $120 each," said Hsu.

Taiwan, Korea mfgs just focusing on OEM sales are starting to be very price aggressive. They have a different business model than GI/Motorola and Scientific Atlanta.

John Honovich 12/4/2012 | 8:28:05 PM
re: Ethernet Operators Face Up-Front Costs DKP,

I would, honestly, be very interested in knowing who is making IP stbs under $100. That would be great for IP video but I, unfortunately, haven't seen it.

Which vendors are selling IP stbs for less than a $100?

opto 12/4/2012 | 8:28:08 PM
re: Ethernet Operators Face Up-Front Costs DKP - FastE in, RF out, same fcns as current set tops, under a $100? What planet are you from?
DKP 12/4/2012 | 8:28:15 PM
re: Ethernet Operators Face Up-Front Costs > Myrio has acknowledged that Grant
> is using $500 IP set-top boxes.

IP set tops already cost lower than $100. Grant is either price insensitive, or they have added Personal VCR (hard disk) and DVD features to their box. IP video is very do-able right now, offering the same feel as CATV, but more interactive, multimedia, web-based features.

optinuts 12/4/2012 | 8:28:33 PM
re: Ethernet Operators Face Up-Front Costs thank you, opto for a very considered and sensible post.

i agree...ftth will only come when there is a compelling reason for it. i'm sorry, utility meter reading isn't it. neither is videophone. there are no killer apps for it. neither are there any competitive pressures. the economics doesnt justify it on its own. the japanese have tried this for 20 years without the necessary drivers. the penetration is still very low.

copper is still the medium to the home, twisted pair or cable. the regulators have to get out of the way to make that work.

there isn't enough competition in the industry to push anyone to spend the huge amounts to deploy ftth.
cfaller 12/4/2012 | 8:28:35 PM
re: Ethernet Operators Face Up-Front Costs "Given enough bandwidth, you have video-phone (meaning, for example, that you can plug your own video camera onto the network and send live images to family, friends,etc.), video-on-demand, interactive programming, and so much more" blah blah blah!

Interactive TV? Ask Time Warner and the rest of the cable industry how they feel about that. They'll spew a few epithets, with the word "Qube" sprinkled around.

Videophone? What are you smoking? People don't want videophones, period.

Video on demand? Again, people don't want it, they would prefer to save a little money and drive to the local video store.

I believe FTTH is inevitable because of it's inherent flexibility, and it's going to be a long haul of probably 10-15 years before we see critical mass. But let's not get carried away- the new services that will be 'enabled' by FTTH have been tried before, and have been rejected by the market.
John Honovich 12/4/2012 | 8:28:37 PM
re: Ethernet Operators Face Up-Front Costs LightBeating,

I do not think we are denying the visionary possibilities that FTTH delivers. However, I would surmise that opto's point is the financial viability of Grant's deployment.

How much more does the World Wide Packet solution cost than comparable solution? One of the things that isn't even included in these numbers is the price of IP Video Set-top boxes. With an Ethernet platform to deliver video services to TV sets, this is a necessity. World Wide Packet's partner, Myrio has acknowledged that Grant is using $500 IP set-top boxes. Each TV that wants video service over the Ethernet network will need a separate set-top box or a (more expensive) residential gateway.

With all these things acknowledged, to be financially competitive with traditional solutions, how much more in revenue must they generate compared to these traditional solutions? 50%? More than that? How do they get that?

Grant County's people have acknowledged themselve a 15 year payback period. This is fantastically long.

So, lightbeating, i grant you the promise, but to speak to us about the financial reality of the deployment.

LightBeating 12/4/2012 | 8:28:39 PM
re: Ethernet Operators Face Up-Front Costs Opto wrote:

"Does anyone really believe that successful Telcos and Cablecos would deliberately use technology that does not get them the most services revenue for each dollar spent providing them?"

The answer is no. I believe the real answer, though, is in those two words: "service revenues".
Most people think of those services in terms of what is existing right now: broadcast TV, telephone, internet. Nobody seems to realize that given enough bandwidth, you don't need broadcast TV anymore, you don't need the telephone, and the internet becomes much more than a display of static, boring web pages. Given enough bandwidth, you have video-phone (meaning, for example, that you can plug your own video camera onto the network and send live images to family, friends,etc.), video-on-demand, interactive programming, and so much more. Forget your old computer and mouse, who needs that in a house anyway. The computer will be in the sophisticated set-top box that will deliver those services around the house to, for example, high-definition LCD or plasma displays and ambiophonic sound systems, with portable keyboards and mouse-like remote controls.

Just a few Mb/s bandwidth downstream and upstream opens a totally new realm of possible services, and if those services add to the entertainment and convenience that people look for, they will pay for them, because they already pay for telephone, cable TV, internet, movie rentals, etc.

Think about it. To say that FTTH is science fiction...the internet was science fiction 10 years ago, PC's were science fiction 20 years ago, pocket calculators were science fiction 30 years ago. For Heaven's sake, WDM was science fiction less than 10 years ago! I've heard big executives from companies such as Nortel or BT swear that they would NEVER need that sort of bandwidth! It took a visionnary like David Huber to found Ciena and dare offer commercial WDM systems and force the others to follow.

Who will be the next visionnary to offer both the bandwidth AND the services that go with it?

opto 12/4/2012 | 8:28:47 PM
re: Ethernet Operators Face Up-Front Costs Doco is right that those FTTH costs are just eqpt. Not so right about costs of large scale fiber to the home construction.

--- The 1990's FTTH trials went bust because of two things:
1) Not only is installing fiber to each and every home expensive, but maintaining it is as well. Why? For one, because it is hard to find enough field persons who can competently work with it. I gave training on fusion splicing in 1992. We found that in each class of journeymen splicers in the Telcos (very highly skilled workers compared with Telco home wiring installers), about half of each class would never learn to competently splice fiber. Even if we had the money, could we find enough people to install it and maintain it on a large scale, at any price? Unfortunately no.
2) It is never just about dumping a bunch of bits in each home. That does not a business make. Only a total systems view shows if the business potential is really there. Technology in use today is there because it is the most cost effective. Cable Co's and Telco's that are in business and profitable today are there because they focus on the customer, not the technology. Fiber is incrementally increasing in usage in both Telco (DLC's) and in Cable (Hybrid Fiber Coax), but it is not going to the home any time soon. Sure, there are always tradeoffs that make solving only a part of the total network look much better with some new technology. But when the rest of the network is considered, supposedly obvious improvements most often do not pan out.

--- on the comment about meter reading, friends at utilities have stated many times that their cost is extremely low. One person with tennis shoes, and that likes to run, can cover 100's of homes per day. It is very hard to compete with that...

Yes we all get excited about new technology. But it works best when the changes you ask customers to make for the new technology are relatively incremental. Every project like Grant Co.'s, that goes for full fiber builds, (and there have been quite a few) has failed due to cost overruns and due to competition. It is interesting to note that no mention is made in the article of the fact that this municipality is competing with For-Profit companies using bonds supported by rate payers, and using fundamentally more costly technology to provide undifferentiated services. Does anyone really believe that successful Telcos and Cablecos would deliberately use technology that does not get them the most services revenue for each dollar spent providing them? Hmmmm....
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