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Fiber's Sticky Wicket

Column
Column
Column
8/24/2004

When will the growth of fiber-to-the-premises (FTTP) finally meet our industry’s high expectations?

The answer, I’m afraid, is when the population of immigrant sports nuts becomes the dominant U.S. consumer group. I’m talking about people who get up at 4 a.m. to watch an Indian-Australian cricket test match or who take the afternoon off to watch Hamburg battle Munich in soccer. This is the kind of demographic that is willing to pay enough to support profitable substitution of fiber for copper.

For the other 99 percent of us, all of FTTP’s benefits – bandwidth that can, in one glorious package, support real-time transmission of the most distant events, infinite programming, and full-action HDTV – simply aren’t worth the extra costs. And those extra costs seem unlikely to go away soon, since they are based on the necessity of digging new trenches for fiber installation by guys making $22.75 an hour.

So the rest of us will do just fine with copper, thank you, using incremental improvements like ADSL2+ to squeeze out more bandwidth. And what we don’t get with copper, we’ll make up for with such things as TiVo and other storage devices, which continue to move unimpeded down the most powerful and reliable price/performance curve in all of electronics. (Have you noticed lately that it’s less than a dollar a gigabyte on a hard drive and less than 10 cents a gigabyte on a DVD-R?)

It’s time to abandon our long-held fantasy about fiber’s prospects for rapid growth. Will ubiquitous fiber happen in our lifetime? You bet. Will it happen in the next 10 years? In 20 years? No and no. That’s because fiber deployment will grow no more rapidly than the existing copper infrastructure deteriorates. Unless the federal government intervenes in some unexpected way, fiber will be a big industry, but it will be an industry built on incremental growth.

This is heresy, I know, but I feel I have earned the right to state it. I was part of the group that coined the phrase “Fiber-to-the Curb” in the late 1980s. I helped design the first commercial Passive Optical Network that was deployed in Germany in 1992. I still have BellSouth’s late-80s forecast that said 80 percent of homes would be wired with fiber by 2005:

Like many of my industry peers, I have had my hopes raised as, time and time again, the RBOCs have dangled an RFP hook in front of potential residential broadband system builders, saying, in effect, “We’re going to install fiber. Who has the best system?” And, just as we bite, the hook gets pulled back.

One cannot, in a sense, blame the RBOCs. Why should they invest billions of dollars in fiber infrastructure that may not be driving significant revenue for years? Only a (highly unlikely) guarantee of monopoly would provide the 20- to 25-year payback they require.

And remind me again why we are so enamoured of putting fiber in the ground in the first place. It may be smaller and glass and generally “cool.” But our ability to drive bits down copper (or wireless, for that matter) continues to expand. Do we really need to install fiber all the way to the premises?

Continuing this line of questioning: How many bits do we really need? If we’re sending mere text, we’ve had enough bits to do that job since we began sending messages with two cans and a string. Voice is also trivial. If we’re sending still pictures (like Web pages), we require nothing more than a bit rate of 100 to 200 kbit/s. Even very high quality audio requires no more than 200 kbit/s.

That leaves us with video. To watch a video in real time on HDTV would require about 12 to 15 Mbit/s. If you have three HDTVs operating simultaneously in one home, you could run into requirements of 40 Mbit/s. This extreme scenario might call for fiber to the home.

But who would ever conceivably need some 40 Mbit/s in real time? The models we have had for video-on-demand have been, first, Blockbuster and, more recently, Netflix. Both suffer from latency, but latency that many people find quite tolerable. For Blockbuster, I have to climb in my car, drive 10 minutes, pick up a hit video or DVD, drive back home and then, after viewing the movie, hop in my car and return it. For Netflix, I trade off climbing into a car for receiving DVDs via the mail. The latency is a minimum of two days, but I get a much wider selection. I can program my Netflix membership so that I automatically receive every first-run romantic comedy and every classic comedy as they come out on DVD.

As the wide range of choices expands, the attractiveness of real-time viewing decreases. In fact, the question of how much bandwidth I need often comes down to just one final question: How impulsive am I? If I’ve just received the Marx Brothers’ “A Night at the Opera” from Netflix, but decide I’d really rather watch the madcap quartet in another film – say, “Duck Soup” – how much am I really willing to pay to indulge that whim?

With more choice, the answer is becoming an increasingly obvious “not that much.” Only our prototypical immigrant sports nut, craving the instant gratification of real-time, non-local, HDTV cricket action, really needs, and might be willing to pay for, what only fiber could potentially offer.

The rest of us have more access to entertainment than we know what to do with (or are even that aware of). For decades our cable systems have poured hundreds of simultaneous channels into our homes around the clock – like water from a faucet with no one there to drink. And our DSL connections add ever-expanding Internet programming 24 hours a day at around a megabit per second. It’s all there, even though we dip into just one program and one channel at a time.

Why do we let this all go to waste? What we need is a stopper that captures enough flowing data to fill our information bathtub. In other words: storage.

What has hindered this until recently has been the high cost of storage. If storage were cheap, we could all be downloading all the information we want and keep it as long as we like. Even at the lowest-cost DSL transmission rate today, I could download one HDTV movie per day. That that adds up to five HDTV movies I’ve got ready to watch in your average workweek. Pretty good!

And, guess what? The cost of storage is falling more rapidly and more predictably than those other realms of electronics governed by famous price/performance “laws.” Moore’s Law for semiconductor performance, which says that the processing power should double every 18 months while costing the same, appears to be slowing. The law of WAN access, which predicts a halving of network costs every two to three years, may face an R&D challenge and VC funding gap. But, like clockwork, the cost of storage drops by half every 12 to 15 months. By the end of the decade, we may see homes connected at only 10 Mbit/s, but we’ll be able to store 10 terabytes of information on a device the size of a handheld tape recorder – and it will cost just $250!

To my mind, that’s the “infinity” we’ll be accessing. We’ll need intelligent agents to sort through it all. (As an example of emerging intelligent agents, take a look at Akimbo Systems, a company in which Morgenthaler is not an investor.)

The measly 384 kbit/s typical of today’s average household access doesn’t even begin to tax copper’s capacity. If we could push fiber to within a mile of homes, we could easily get 10 Mbit/s over twisted pair copper. And at that rate, when you arrive home after a long day, you’d have an unwatchable amount of HDTV movies and other programming waiting for you.

Of course, the current DSL network has not been designed to pump bits 24 hours a day. But making it pump continuous bits does not require digging up everyone’s front lawn. The changes that are essential will come in the core of the network and the central office. Some such innovations, like XFP modules and 10-gigabit transmission, are fully productized and on their way to becoming industry standards (see Jumbo Optics).

So, as long as the copper in the ground is still intact, it can do everything we reasonably want it to do. And when the copper grows so old or becomes so torn up by storms that it needs replacement, then digging trenches and installing fiber is the right step, yes. But, in the meantime, it doesn’t make sense to tear up perfectly good copper.

[Editor’s note: That is, unless the price of copper keeps rising, in which case it might be nice to sell for scrap – see the chart below.] What it all comes down to is that, for most scenarios, the copper plant will provide adequate broadband coverage. As storage costs plummet and the existing network elements find deployment, the rapid, universal uptake of FTTP will be increasingly seen as a purist’s dream, a flawed extrapolation of Web-viewing behavior to TV-viewing behavior. It will never materialize. By contrast, the real-world network that we have here today is evolving incrementally before our eyes and will provide us with more viewing and listening opportunities than we can realistically consume.

— Drew Lanza is a general partner at Morgenthaler and is based in Menlo Park, Calif. He was also a founder of Raynet, E/O Networks, and Lightwave Microsystems, so he actually knows something about fiber.


For another take on the FTTP debate, tune into tomorrow's Light Reading Webinar: Fiber to the Premises: Closing the Capacity Loop, sponsored by Alcatel, Cisco Systems, Entrisphere, and World Wide Packets.

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jggveth
jggveth
12/5/2012 | 1:20:36 AM
re: Fiber's Sticky Wicket
. . . romantic comedy? ugh?

Musing on storage: if it becomes cheap enough we can buy devices that already have all the existing content on it and there will be little need for bandwidth.

What I'd pay to see more of . . . even more POKER on TV!!!!
Tony Li
Tony Li
12/5/2012 | 1:20:36 AM
re: Fiber's Sticky Wicket

I think that there's an aspect that's left out of the crystal ball here. That's all about new applications. Bandwidth is an enabling technology and with it can come some new and astounding bandwidth hungry applications.

Fifteen years ago, there was no 'web'.
Ten years ago, there were no "peer to peer" filesharing applications. Since clever people were given access to excess bandwidth, they created applications that drove further growth in bandwidth.

I have high hopes that high bandwidth (medium irrelevant) to the prem will generate even more innovative applications. Drew correctly points out that audio is a trivial amount of bandwidth today. However, what we know as a phone call today can easily migrate to a video call, definitely upping the bandwidth requirements. I think that it's fair to assume that there's at least one company out there working on consumer video calls with VoIP.

History suggests that as these new technologies are introduced and adopted, that the bandwidth that we deploy will be absorbed as quickly as we can light it up. Now, I have no wish to blindly repeat the "build it and they will come" mantra of the bubble nor do I wish to disagree with Drew, but after living with the Internet for awhile, I think it is not prudent to ignore the new applications side of the equation. Yes, current applications do not justify FTTP, but the future holds more than just our current applications.

Tony
Perceptor
Perceptor
12/5/2012 | 1:20:35 AM
re: Fiber's Sticky Wicket
One needs look no further than the pornography industry to get a feeling for the cutting edge trends in bandwidth consuption. A sad comment on civilization, maybe, but true.

Consider the bandwidth-intensive applications that were spearheaded by that industry: file-sharing, streaming video, webcams, etc. All backed up by real and working business models.

So Drew, consider that while you're content sitting there waiting a few days for your Netflix copy of Sleepless in Seattle (sorry, couldn't resist), there's potentially a significant amount of the population that would pay extra for a 3D-high-definition-virtual-reality-with-Dolby-5.1.-sound "encounter" with Pamela Anderson.

If that pushes fiber to the home while simultaneously making me a wealthy individual, well, then you can call me Hef.
c_headed
c_headed
12/5/2012 | 1:20:35 AM
re: Fiber's Sticky Wicket
Good points Tony, future-proofing their networks is one overlooked aspect of FTTP, but don't RBOC's also have regulatory reasons for bringing fiber closer to the home? Plus competition: any perceived latency and the RBOC/DSL is dead vs. the cable cos.

One comment on the storage theme: If large amounts of storage becomes cheap and ubiquitous and there is enough digital content to fill it up, doesn't that drive the use of bandwidth? There must be some law that addresses this (the square of the gigabits stored divided by pi approximates the bandwidth demand, etc.) But in reality, who would want all of that valuable data landlocked? Tivo's great, but when I'm away from home I want my programs zapped right to me and everything that's on my hard drive at home accessible. One doesn't have spend too much time imaging the new uses these networks will service, there was an announcement just today about HDTV video conferencing phone calls....
paolo.franzoi
paolo.franzoi
12/5/2012 | 1:20:34 AM
re: Fiber's Sticky Wicket

Well, I am somewhere between Drew and Tony.

Why?

Well, to me its very simple. The best network wins. At least in the long term. Now, from a consumer standpoint I can get my 3 HDTVs + Voice + High Speed Internet today. From my cable company. The Voice may be VoIP and yes I know this is not the exact same service as POTS. I do think this is highly substitutable.

Now, so what is it about Fiber. BellSouth and SBC go off and do their thing with ADSL2+ and VDSL2. They engineer a network for 20+ Mb/s to be delivered. Now, Verizon on the other hand builds an infrastructure with Fiber.

Now, what happens when we get to 50 Mb/s as a requirement to the household? Verizon might be required to update some units. SBC and BellSouth are redoing their networks. Given where we are do these companies want to bet that this need for higher speed will not be needed within the rollout horizon of these networks?

So, from my standpoint its all about investment. Should I invest in an infrastructure and:
- Build it to today's requirements and delivers today's services, OR
- Build it for the long term requirements
If I do the latter, can I save long term investment dollars? Can I gain a strategic edge over my competitors?

seven

paolo.franzoi
paolo.franzoi
12/5/2012 | 1:20:33 AM
re: Fiber's Sticky Wicket

So, arch_1 how many Billions of Dollars are you willing to spend on building a video network that has no or few real time channels? Given that all your competitors offer real time, how much cheaper will you have to be for this to be saleable?

seven
arch_1
arch_1
12/5/2012 | 1:20:33 AM
re: Fiber's Sticky Wicket
Drew is exactly right, but you may not know why.

Most prognosticators think of FTTH as a way to provide more real-time channels to everybody. This is implicitly based on the Cable TV paradigm, which in turn is based on the old broadcast TV paradigm. But TV became ubiquitous during the heyday of analog electronics. During that era, storage was unthinkable and real-time was the only option.

This began to change with the advent of the VCR, but the real cost (mostly in terms of operational complexity) hid the change. With the advent of digital transmisison of video, the actual cost (capital and operational) of storage is now very low. The only thing supporting the old broadcast model is inertia.

Look at your cable TV program listing. Note that well over 90% of it is non-realtime. This means that storage can substtute for bandwidth for almost all of the current TV offerings.

Even Drew's target demographic (fanatic immigrant sports fans) don't really need absolute real-time. If you are willing to accept a one-minute delay, The bandwidth needed to support a cricket match drops dramatically, because the peak-to-average bandwidth ratio for most sports transmissions is high.

Tony confidently anticipates new realtime applications, based on past exemplars, notably the WWW. He misses the fact that there is likely to be a hard upper bound on the data rate an individual human can assimilate. My guess is that this limit is well below 10Mbps, assuming competent compression.
opto
opto
12/5/2012 | 1:20:32 AM
re: Fiber's Sticky Wicket
Drew, et al:

What's missing in this analysis, and therefore could potentially impact the prognosis, is the extent of the network development of the cable industry, and, more importantly, the evolution of the video programming supply chain.

Cable has, in fact, already wired fiber to about a mile from your home, no matter where you live in most of North America. It used to be one way, it is now assymetric two way, and the assymmetry ratio is diminishing. So lamenting there is not enough fiber in the loop is pointless. There already is a phenomenal amount of fiber in the loop. This has allowed cablecos to win so far in the broadband war for the residence.

But that is today, and the real question, I think, is where is video content delivery going, and can the telcos play in this market in the long run. If they can, they will be able to justify fiber deep architectures much faster than their current business.

Where is the video programming business going? The answer is extraordinary, and it's implications dramatic for Telcos. I believe there is actually a new window of opportunity for the Bell Heads. And this time, they are better suited for the model than before.

John Sie at Starz/Encore recently inked a deal with Rob Glaser at Real. You can now get Starz/Encore movies via the web. Video programming delivered via the internet will be, in my opinion, the primary delivery method for all the networks in less than 10 years. Why? Because the networks - CBS, NBC, TBS, etc. - can eliminate the middleman - the cable operator or DirecTV. Their margins go up, and prices can even go down a bit. (The internet has done this to dozens of industries already, and it will do it to video entertainment.) And, consumers can pay only for what they want, i.e. they can eliminate tiers/bundling, a favorite of cable, but no favorite at all for consumers.

Two things are required in order for this model to work:
1)Digital Rights Management (DRM), for video even more critical than for music, must be rock solid before studios will release content.
2) Cable modems will have to go to 50Mb/s or better. This is not needed for content that can be background-delivered and viewed at user's discretion. This is needed for things like sports events where live is required and HD is reguired as well.

The Starz/Real deal shows that DRM is there. Brian Roberts has said they see 50Meg modems in the future.

I suspect the biggest reason why cable modems were not rolled out faster is due to cable companies' fear of this happening. At some point, however, they realized that the business was just too damn good to pass up - they get their best margins from cable modems.

So this is where telco's come in. If they do fiber near the home and offer 50Meg IP connectivity, they will enable this direct sales model through the internet on a competitive basis. The cablecos and telcos will compete as common carriers on an equal footing. Telcos have a much better chance of winning in this scenario.

This model is better for them than a frontal assault on the current cable business model because this is more a common carrier model, not a content marketer model. Telcos were abject failures at marketing content, as we saw in the earliest days of Bell Atlantic in Toms River, and the many more trials that were done. But common carrier - now that is something they understand. Transactional billing - they understand that. Reliable networks - they understand that. This model fits every core competency they have.

So the debate about whether fiber goes all the way to the home - well the tech heads can debate that ad nauseum. But fiber deep architecture is clearly required, regardless of how good the copper is. The telcos, if they are smart enough to see this change coming, will be gearing up for it. They have a formidable competitor with cableco's, who are decisively winning the broadband war in North America right now.

There is a window for telcos to garner some of the money to be won in the consumer market. It will be interesting to see if they are smart enough to take action. SBC pairing up with DirecTV is a strategy that shows complete ignorance of this market trend. Everyone who knows anything about business strategy knows you don't chase the current market with me-too products - the key to winning is chasing the future market with superior future products.

If I were to bet money, I'd bet telco management is just not smart enough - not innovative enough. They could not strategize their way out of a wet paper bag. If they were smart, they'd take on this challenge with haste, as they can win. If they take it up, fiber deep will be the word, and optics will take off again. One can only hope...

Let the games begin!!

r/


Steve Wright.

Tony Li
Tony Li
12/5/2012 | 1:20:32 AM
re: Fiber's Sticky Wicket
He misses the fact that there is likely to be a hard upper bound on the data rate an individual human can assimilate. My guess is that this limit is well below 10Mbps, assuming competent compression.

Arch,

When I watch my teenage friends play video games of ever increasing realism, when I recall that a 1200 baud modem seemed fast, I lean towards your 'hard limit' being very much a function of time, both due to the ubiquity of the bandwidth and the available applications.

Consider that the folks in Japan and Korea are today already paying for 27Mbps and 100Mbps links to their homes.

Tony
rjmcmahon
rjmcmahon
12/5/2012 | 1:20:31 AM
re: Fiber's Sticky Wicket
Well, to me its very simple. The best network wins.

More bullshit from you. You're an advocate for the status quo which has little to with the deployment of a best network.
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