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FTTP Bulls Talk Billions

Light Reading
News Analysis
Light Reading
8/27/2004

Will Verizon Communications Inc. (NYSE: VZ) make fiber to the premises (FTTP) a multibillion-dollar business in the U.S.?

There's no immediate answer to that question, but at least two developments this week hint at tremendous opportunity and optimism for the FTTP business.

The first development: Verizon president Lawrence Babbio told a crowd at the Progress & Freedom Foundation’s Aspen Summit this week that Verizon could possibly increase its FTTP deployment plans if the government would be unambiguous in its regulatory treatment of fiber.

Verizon did not say it was increasing its plans to pass one million homes this year and two million homes next year with fiber (see Verizon's FTTP Texas Feeler). Still, Babbio's speech sent off a spurt of second-guessing, with folks wondering just how much the industry would benefit if Verizon did up its FTTP plans.

"Verizon management said that it could increase the number of homes added to the FTTP network in 2005 to 4 million," writes UBS Investment Research analyst Nikos Theodosopoulos, in a note to clients on Friday. "In our view, such an increase in homes passed would be significant from a capex perspective."

How significant? Theodosopoulos puts pen to paper and explains: "Verizon has stated it will spend roughly $800 million in 2004 to pass the 1 million homes, or about $800/home passed. The $800 million in FTTP capex in 2004 compares to a total wireline budget of $6.5 to 7.0 billion… If Verizon were to pass an additional 4 million homes next year, it would seemingly require about $3.2 billion at the current $800.home passed rate. This implies Verizon would need to spend an incremental $2.4 billion over the $800 million level spent in 2004."

This spending boost, if it does happen, could benefit ADC Telecommunications Inc. (Nasdaq: ADCT), Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), Corning Inc. (NYSE: GLW), Motorola Inc. (NYSE: MOT), Scientific-Atlanta Inc. (NYSE: SFA), and Harmonic Inc. (Nasdaq: HLIT), Theodosopoulos writes.

Verizon's reaction? "We haven't said we'd increase [the number of homes passed] yet," writes a spokesman in an email to Light Reading.

The company has, however, said it would spend at least $3 billion on FTTP, wireless broadband services, and VOIP through 2005 (see Telco Video & VOIP Stakes Rising).

The second optimistic FTTP development this week is a new report from KMI Research that predicts that the total market for FTTP equipment, cable, etc., will reach $3.2 billion by 2009 (see Fiber Makers Perk Up).

In fact, by the time 2009 rolls around, telecom carriers will represent 70 percent of the market, with municipalities, utility companies, real estate developers, and other “non-telcos” making up the rest, KMI says.

Patrick Fay, senior analyst at KMI, says there will be about 1.6 million homes passed with fiber in 2004, with a 6 percent customer take rate among telecom carriers (mostly Verizon). In 2009, Fay predicts, the number of homes passed will be more than 6 million, with an average of fewer than 4 million homes passed per year in the previous years.

KMI's assumptions do factor in price declines in equipment, but they don't necessarily bank on any of the other RBOCs matching Verizon's FTTP enthusiasm (nor its numbers).

"We certainly don't think our numbers are outlandish or overly aggressive," says the report's author.

One factor that could slow down the anticipated steady march of FTTP is the training required for splicing and other field deployment techniques, Fay says. Another is how quickly Verizon can deliver a TV and video service to complete its triple-play offering and increase customer acceptance.

— Phil Harvey, News Editor, Light Reading

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alcabash
alcabash
12/5/2012 | 1:19:47 AM
re: FTTP Bulls Talk Billions
$54 BILLION MARKET FORECAST FOR DWDM, REPORTS KMI

Newport, RI, USA (December 12, 2000) The DWDM systems market will grow with a compound annual growth rate (CAGR) of 43% through 2005 when the market will reach 54 billion, according to KMI Corporation's latest report, "Worldwide Markets for Dense Wavelength Division Multiplexing (DWDM)."

This growth reflects several trends: a maturation of the long distance segment of the DWDM equipment market, stiffening competition that will lead to price pressures, and shorter-distance products in the market. By 2005, the short distance segment will exceed $9.6 billion and represent 18% of the market.


whyiswhy
whyiswhy
12/5/2012 | 1:19:45 AM
re: FTTP Bulls Talk Billions
Yea, and somewhere down the list was a $1B 980nm pump market, declining due to pressure from emerging 1480 Raman for wavelength switched 40G DM Soliton LH links.

Sigh...

-Why
Balet
Balet
12/5/2012 | 1:19:28 AM
re: FTTP Bulls Talk Billions
I believe that FTTP is one of very few existing and potentially growing telecom markets; however, there are already too many players on both component and system levels.
It reminds me a microbubble. There is a chance it will grow. There is an equal or higher chance it will burst.
Let's see what copper offers and what will happen in optical pricing.
cyber_techy
cyber_techy
12/5/2012 | 1:19:28 AM
re: FTTP Bulls Talk Billions




...Verizon could possibly increase its FTTP deployment plans if the government would be unambiguous in its regulatory treatment of fiber.





Is this just to feed hype to LR? How legally binding is "could"?
photonsu
photonsu
12/5/2012 | 1:19:27 AM
re: FTTP Bulls Talk Billions
I believe (religous argument{:>o) that without FTTP the fiber industry is dead! While I'm still suffering with a 38Kbaud link, I will not buy anything short of fiber.

Did you hear that Verizon? Bell South? SBC? I'll bet that has you shaking in your boots!

But on a more serious note. Fiber optic component cost is not the issue any longer, nor has it been for a long time. It's all about vision and the intestinal fortitude to go where no man has gone before.

If it where up to me as CEO of Verizon I'd deploy FTTH and challange the government to take it away from me\ and let the chips fall where they may. Afterall, the future of my company (if not my golden parachute)is at stake!
wap545
wap545
12/5/2012 | 1:18:58 AM
re: FTTP Bulls Talk Billions
It is the OPEX STupid.
The low operating costs of FTTH/Premise Passive Optical Networks specifically is what will make this a profitable business and be the driver long term for the RBOC and Independants.
Not must operating expensive in a Passive Fiber Network when all the DLC/Electronics (their power and manpower overhead)are eliminated out of the Last Mile Network.
Just wait until the Broadband Wireless Markets come of age: Air is Free
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