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Cable Tech

FTTP Bidders Slashing Prices?

Pricing has become the hot topic du jour following last week's public update on the fiber-to-the-premises (FTTP) request for proposal (RFP) from SBC Communications Inc. (NYSE: SBC), BellSouth Corp. (NYSE: BLS), and Verizon Communications Inc. (NYSE: VZ) (see Carriers Give FTTP Update). Though none of the vendors we contacted would speak about pricing on the record, rumors are afoot that some vendors priced systems below cost in order to remain in contention for a contract.

Privately, vendors say a well-worn practice called "forward pricing" has reared its head. Forward pricing involves pricing equipment cheaply today, based on anticipated volumes in the future.

"The ticket to the dance is that you have to be willing to drop your pants and savage your margins in the near term," says Kermit Ross, founder of Millennium Marketing and a veteran of vendor-carrier contract negotiations. [Ed. note: And past master of the mixed metaphor.]

What vendors are counting on at this point is that the carriers will eventually order their gear at volumes that will make the price cuts worthwhile. Secondly, the winning vendors might have first dibs on other network elements that need replacing, such as next-generation digital loop carriers.

But will carriers ever follow through and order as much gear as they promise at the bargaining table? Industry sources remain split on the issue.

Some say that the carriers' public statements have wed them to a huge FTTP rollout over time. Verizon vice chairman and president Larry Babbio has said that his company will reach 60 percent of its consumer revenue base with a fiber solution within five years.

But the other RBOCs involved in the big FTTP RFP haven't been so forthright about their deployment plans. "We can't make any deployment decisions until we've completed the RFP," says SBC spokesman Wes Warnock. "We're still heavily involved in the process."

That said, BellSouth and SBC will start first office application (FOA) trials during the second half of 2004, and only after that will they finally award an equipment contract. In greenfield applications, where the first FTTP rollouts will most likely occur, BellSouth expects to reach 135,000 new homes a year out of the 315,000 new homes in its territory, said Peter Hill, VP of technology planning and development at BellSouth, during a presentation at the United States Telecom Association (USTA) meeting last week.

Verizon is already said to have picked Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) for its first run of trials and deployments, according to analysts' reports (see Speculations Boost AFC). Not surprisingly, AFC's competitors quickly point out the likelihood that "aggressive pricing" factored heavily in the carrier's decision.

For AFC, having an installed base of digital loop carriers that can be upgraded to handle PON applications also helped keep its costs down. "Since carriers already deploy the [AFC] AccessMax, we know it works with current circuit switches (i.e., it supports standard interfaces TR08, GR57 and GR303, all of which are included in the FTTP RFP)," writes Merrill Lynch & Co. Inc. analyst Simon Leopold in an August 27 note to clients.

There is a historical precedent for forward pricing. In late 1996, Ameritech, BellSouth, Pacific Bell, and Southwestern Bell all signed multi-year contracts with Alcatel SA (NYSE: ALA; Paris: CGEP:PA) to deploy its ADSL DSLAMs and related equipment. Industry lore has it that Alcatel won the deal largely because of its ability to price its gear based on anticipated volumes. "The RFP was designed to help the individual companies meet growing customer need for high-speed data network access by creating volume orders for equipment, thereby driving down ADSL costs and speeding deployment," the companies said in a joint press release.

The effect of the huge RFP win was obvious. Alcatel quickly became the market leader in ADSL DSLAMs, delivering more than 400 DSLAMs in North America during 1998, according to RHK Inc. By the end of 1999, RHK notes that Alcatel held 51 percent of the ADSL DSLAM market, with no other vendor commanding more than 16 percent share.

While today's FTTP race isn't exactly analogous to Alcatel's early conquest of the DSL equipment market, the similarities are strong enough to make a case for forward pricing. Vendors say they were each asked to provide a five-year forecast at three different volume levels, but none will divulge the levels.

There are only two constants in carrier contract negotiations, vendors say. The first is that the initial price a vendor gives in response to an RFP is never the final price. The second is that, whatever the circumstances, carriers won't let a vendor bid at a higher price than its initial RFP response.

"If you win this, it could mean a lot of business," says one vendor bidding for the RFP. "If you don't, it means you could be shut out for a very long time."

— Phil Harvey, Senior Editor, Light Reading

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photonsu 12/4/2012 | 11:17:18 PM
re: FTTP Bidders Slashing Prices? Bonnyman,
What I'm talking about is the future, which get closer each day. In that scenario, an active FTTC node that is fully equipped (loaded with VCSEL array optics) costs less than the per-port cost of the passive splitter. It gets installed once, and connected to the drop cables also installed at the same time to save deployment $$$. Drop cable is most likely pulled through underground conduit that carries your current copper drop, which seems to be common for homes built over the last 15 to 20 years. Provisioning then is a matter of activating the VCSEL link remotely.
In that future model, power to the FTTC node will be backfed to the node from subscribers over the unused or shared copper pairs. Just need a watt or two.
bonnyman 12/4/2012 | 11:17:19 PM
re: FTTP Bidders Slashing Prices? photonsu writes (regarding PONs):
"2) Bandwidth upgrade strategies tend to speak of reducing subscriber count on a splitter. This means one needs to:
(a) install new splitters (or pay for them when first deployed) at passive node to feed existing subscribers (down time and truck roll).
(b) deploy new fiber to feed additional passive node splitters. This may be 20Km in length.
(c) place an EDFA at the passive node?

3) With passive splitter nodes, there is no opportunity to do remote provisioning. So unless one is willing to give up on security, trucks roll to bring on new subscibers as take rate changes. So much for OPEX and cheap labor (which we all are these days)."


A truck roll will be required to activate the first customer at a new location regardless of the FTTX technology used. Someone will have to mount the NID on the side of the house and run a drop cable to it.

If, as previously proposed in this thread, there's no NID and the house is wired with fiber (and its' TVs, VCRs, PCs, etc. are fiber-ready), a truck will probably still roll to run a 100' to 200' drop cable to the house. (I think it's unlikely anyone will run the fiber drop cable to the house until the homeowner subscribes -- that's not the FTTH deployment model for overbuilds so far).

For PONs, quick trip by the truck to the splitter box shouldn't take more than a few minutes on the way. For active electronics in the field, it's likely a truck will still roll to the box every so often to stick in another interface card of some sort to handle additional customers. (I doubt the telco will fully populate the active nodes at first.)

If the house is sold and a new owner moves in, no truck roll should be required using either FTTH technology.

The biggest OPEX savings in FTTH is in maintenance -- fiber is more reliable than copper, especially when trying to run high speed signals over electrically deficient copper cables. Existing high pair count copper cables often have bad pairs and various defects that require troubleshooting, tweaking and pair reassignments before upgrading services.
photonsu 12/4/2012 | 11:17:23 PM
re: FTTP Bidders Slashing Prices? Bonnyman,
Thanks for taking the time to read my input and between the lines.
photonsu

I bash PON because I know it well, and it simply doesn't scale. At the risk of beating a dead horse:

1) Point-to-point lower speed optics will always be cheaper than that required for PONs. It isn't that PON transceivers are difficult to make or the special requirements are daunting, but that PON forces high cost where it can be tolerated the least. In/on our homes. I may be biased, but I do not see buying an HDTV with $M00 optic interface. P-P optics at $20 are already here.

2) Bandwidth upgrade strategies tend to speak of reducing subscriber count on a splitter. This means one needs to:
(a) install new splitters (or pay for them when first deployed) at passive node to feed existing subscribers (down time and truck roll).
(b) deploy new fiber to feed additional passive node splitters. This may be 20Km in length.
(c) place an EDFA at the passive node?

3) With passive splitter nodes, there is no opportunity to do remote provisioning. So unless one is willing to give up on security, trucks roll to bring on new subscibers as take rate changes. So much for OPEX and cheap labor (which we all are these days).

You said you don't get it! I think you do! It isn't that PON doesn't work. It's that on a large scale I don't think it will prove cost effective. This is why after 20 years the PON still struggles, and vendors dig deep with forward pricing. For me it is simple. What is best for all isn't the PON. We've all got to eat.

Again thanks!
bonnyman 12/4/2012 | 11:17:55 PM
re: FTTP Bidders Slashing Prices? photonsu wrote:

"Somehow I am not making myself clear. Let me try again.

What I am proposing is as follows:

One (bidirectional) or two (unidirectional) singlemode fibers from the CO to the neighborhood ONU as in traditional FTTC, fed with whatever bandwidth is appropriate for the size (subscriber cross-section) of the terminating ONU. CO link length can easily push 20Km and these optics are cheap and shared. An OC-48 will give 48 subscribers 100Mb/s each all-day and all-night.

Low power active ONU feeds subscribers using low power VCSEL array optics. Each subscriber gets a dedicated and private link that is capable of operating at GbE speeds (easy migration path) if needed as long as the drop length is <3Km, and 8Km if one is satisfied with 100/155Mb/s. (Currently I can only get about 33Kbaud, so 100Mb/s is like infinity and beyond). 850nm VCSEL and array technology leading to sub $20 per subscriber drop optics cost.
"

I wrote earlier against using multimode fiber, however, now that I better understand what you're proposing, I can see how this might work.

Having said that, the Bells are dead set against active nodes between their CO and the subscriber. This is because they don't want to power them. I don't necessarily see powered nodes as a big problem, but they do.

The irony is that the FTTC systems they are currently deploying require power. I don't know why they're inconsistent in this way. Certainly field-powered nodes have never bothered cable TV operators. Perhaps another reader can explain the reason for the Bells' aversion.

"So what about the NID? Totally passive! Just like the current copper NID. Nothing more than a passive transition point to the in-house drop cable. That cable will terminate on a fiber to whatever node you buy at Radio Shack (along with the terminated FO cable), Good Guys, Circuit City. WiFi, Tivo, PC, Fiber Fed HDTV, whatever. Simple fiber nodes would be less than $100.00. One will be able to buy what he wants just like you buy in-home equipment today. Once the Sonys of the world know FTTH is coming, there will be product on shelves to fill your every need, and at prices that all can afford."

This may be a good idea for greenfield developments in the future, but I think it's better to go with active NIDs for now. Rewiring a home is not a trivial matter. Take rates for FTTH services will go down if consumers have to rewire their homes when competing services (even if not as good) don't require it.

Even in a greenfield development, new home buyers will not want to replace all the existing home electronics they had in their old house.

"Notice no mention of triple-play. That is because we all know the world is going digital, so why if one is an RBOC, compete with old and costly technology that is destined for the junk pile or your basement if you are a techie."

Again, early deployments may require a triple play. People have lots of old TVs. They like having a cable TV lineup and surfing. It may take a while until video on demand becomes so pervasive, enough content arrangements are put in place and customers so comfortable with it that it's safe to totally junk the cable TV lineup.

Content in particular will be an issue. Example -- for at least another several years, NFL football will only be on ESPN. ESPN may require all of the ESPN channels be available 24 by 7 into the home. Or what about a polular show like Survivor that is supported by sponsors -- how would a video on demand system handle it?

Ultimately, I believe people will migrate to video on demand over IP. I would not want to bet against consumer behavior in the meantime.

You may be interested in a paper by Jim Farmer, CTO at Wave7:

"Video: By Broadcast, or IP?"
"Modern fiber-to-the-home (FTTH) systems are the first network architectures with the technical capability to deliver both broadcast video and IP video, if desired. This article outlines the two options and discusses pros and cons of each."

http://www.convergedigest.com/...

Farmer is one of the smartest guys in the cable TV business (and now the FTTH business).

Interestingly his technical approach to FTTH is somewhat similar to what you propose -- Wave7 is selling a system that looks like HFC (hybrid fiber coax) except with the "C" (coax) replaced with by fiber runs from an active powered node near the home.

"My conclusion, at the risk of being totally clueless is that PON technology is nothing more than a hold-over from the past, that only exists to protect the turf of the entrenched."

I see a lot of PON bashing on this board and I still don't get it. Municipal utilities, independent telcos and greenfield developers are all deploying PONs from companies like Optical Solutions. From everything I see, both the carriers and their customers are very happy with them.
sevenbrooks 12/4/2012 | 11:18:14 PM
re: FTTP Bidders Slashing Prices?
The major carriers in the US have broadly rejected FTTC. So in fact your fundamental assumption is flawed.

You are quite clear. Just the customers have rejected it. For 2 reasons:

1 - Cost of Power and the rest of the
2 - OPEX

You can put it any way you want, however you have clearly not dealt with OSP folks and their needs and problems. You have missed so many of the costs that its unreal.

seven
photonsu 12/4/2012 | 11:18:22 PM
re: FTTP Bidders Slashing Prices? Somehow I am not making myself clear. Let me try again.

What I am proposing is as follows:

One (bidirectional) or two (unidirectional) singlemode fibers from the CO to the neighborhood ONU as in traditional FTTC, fed with whatever bandwidth is appropriate for the size (subscriber cross-section) of the terminating ONU. CO link length can easily push 20Km and these optics are cheap and shared. An OC-48 will give 48 subscribers 100Mb/s each all-day and all-night.

Low power active ONU feeds subscribers using low power VCSEL array optics. Each subscriber gets a dedicated and private link that is capable of operating at GbE speeds (easy migration path) if needed as long as the drop length is <3Km, and 8Km if one is satisfied with 100/155Mb/s. (Currently I can only get about 33Kbaud, so 100Mb/s is like infinity and beyond). 850nm VCSEL and array technology leading to sub $20 per subscriber drop optics cost.

Now as I said, SMF is also a possibility. But it remains to be seen if 1310nm VCSELs and more expensive detector materials will be able to compete with the short wavelength component counterpart. I first bought Honeywell VCSELs at $6.00, Qty 10, back in 1998. So even if 1310nm does come on line will they ever be as cheap as 850nm parts currently selling in the 10s of millions per year? Given that they are likely to always be somewhat cheaper, is it enough of a cost advantage to make a difference? And do we need 1310nm to deliver the goods?

We need 1310nm technology mostly for reach if we accept my proposed architecture. And we get that whether one uses SMF or MMF. But if one accepts the hybrid FTTC followed by FTTH drops scenario, then do we need drops longer than 3Km or 8 Km from the neighborhood node?

So what about the NID? Totally passive! Just like the current copper NID. Nothing more than a passive transition point to the in-house drop cable. That cable will terminate on a fiber to whatever node you buy at Radio Shack (along with the terminated FO cable), Good Guys, Circuit City. WiFi, Tivo, PC, Fiber Fed HDTV, whatever. Simple fiber nodes would be less than $100.00. One will be able to buy what he wants just like you buy in-home equipment today. Once the Sonys of the world know FTTH is coming, there will be product on shelves to fill your every need, and at prices that all can afford.

Notice no mention of triple-play. That is because we all know the world is going digital, so why if one is an RBOC, compete with old and costly technology that is destined for the junk pile or your basement if you are a techie.

What price passive? Is the dream of PON reality? Every now and then one reads about ways to boost PON performance. Some have even suggested adding EDFAs to increase split ratios, speed or to amortize high PON costs over a greater subscriber cross-section. When I read these things I can only shake my head.

My conclusion, at the risk of being totally clueless is that PON technology is nothing more than a hold-over from the past, that only exists to protect the turf of the entrenched.

Just my honest opinion. Your turn.
dwdm2 12/4/2012 | 11:18:26 PM
re: FTTP Bidders Slashing Prices? Folks, much has been said and done about SMF vs MM fibers. In summary: as far as data transmission is concerned, Single Mode Fiber is the standard. "Why 155 mbps is not enough?" argument is not the way to justify using MMF, because, there is no end of this kind of questions -- Why not copper? Why not the way it is now? Why not the way it was 10 years ago? and so on.

Cheers
sevenbrooks 12/4/2012 | 11:18:27 PM
re: FTTP Bidders Slashing Prices?
Why is 155Mb/s too little?

If as we know that once leaving a serving area that there are 1,000s of subs per 155Mb/s what difference does it make to give them 1Gb/s for the last mile?

seven
bonnyman 12/4/2012 | 11:18:28 PM
re: FTTP Bidders Slashing Prices? bonnyman wrote:
"2. Those same dopants also give multimode its' higher attenuations (and thus reduced distances). If you read the entire Corning brochure, you'll see Corning is advocating it for premises links <300 m. (This is not likely to change in the future unless some new rare earths are discovered)"

to which photonsu replied:
"The 300 meter number is the range recommendation for 10Gb/s. If you go back and examine Corning press releases on the new MMFs, you will see that back in 1999ish they and Lucent with LazrSpeed demonstrated up to 3Km for GbE @ 850nm. My experiments demonstrated 8Km at 155Mb/s using a (1998 Honeywell) off the shelf $6.00 VCSEL."

See my earlier post citing Corning Cable Systems' specs for Infinicor multimode vs. their standard single mode fiber cables. Multimode fiber losses are 3.5 db/km at 850 nm and 1.0 db/km; single-mode losses are 0.4 db/km at 1310 nm. and 1550 db/km at 1550 nm.

10 Gig at 300 m -- much too short a distance for FTTH
1 Gig at 3 km -- still a short distance
155 Meg at 8 km -- too low a bandwidth, especially if it's shared with multiple users
bonnyman 12/4/2012 | 11:18:28 PM
re: FTTP Bidders Slashing Prices? bonnyman wrote (regarding single-mode fiber):
1. It's less expensive than multimode (and probably always will be). Multimode fiber needs careful (and possibly slower) preform manufacturing to get bandwidths as high as 2000 MHz-km. It also requires greater use of rare-earth dopants.
*****
to which photonsu replied:
Cost is a matter of volume. Whether MMF or SMF, the same amount of glass (and purity) is required as well as the time to deposit it. Your point on the dopant is valid, but it is my understanding that the incremental cost of the dopant is insignificant.
Todays differential between SMF and MMF is easily explained. The benefits in terms of I/O cost have allowed fiber manufactures to claim larger margins for MMF. To me it doesn't matter whether SMF of MMF wins, either way we achieve our collective goal.
Wasn't aware that Ge is a rare-earth.

You're right -- I was wrong. Germanium is not a rare earth.

Moving on to the rest of your post:

Perfect high bandwidth multi-mode fiber has a near-parabolic index of refraction curve. The fiber manufacturer lays down layers of soot on a rapidly rotating fiber "lathe" to build each layer of the preform. The thicker the layer, the more the index curve deviates from a perfect curve to something with a lot of steps trying to approximate a curve. This leads to lower bandwidths. To get higher bandwidths, you have take many more passes making thinner layers. (I've just described outside vapor deposition preform manufacture -- there are other methods, but all have the same issues of layer thickness and control to contend with.)

So far, making heavy machinery spit fire and rotate faster has not seemed to follow Moore's law.

Single-mode fiber has a much tinier core (<10 microns vs. 50 microns) and much simpler index of refraction profiles -- in some cases, just step changes between core and cladding.

As for purity, here is Corning Cable Systems' spec sheet for its' Altos outdoor fiber cables

http://www.corningcablesystems...:80/web/library/litindex.nsf/0/64bd202f3795f25b85256b6f007df95a/$FILE/CLT-93-EN.pdf

Attenuation for multimode fiber:
850 nm. 3.5 db/km
1300 nm. 1.0 db/km

Attenuation for single-mode fiber:
1310 nm. 0.4 db/km
1550 nm. 0.3 db/km

I'm traveling -- I don't have time to respond to the rest of your message for now.

A.B.
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