RBOCs To Pass 40M Homes with Fiber by 2010

Earlier this week Sanford Bernstein analysts Jeff Halpern and Craig Moffett shared their analysis of the planned RBOC fiber deployments in the U.S. and their potential impact on cable MSOs and satellite providers. By way of background, Verizon has announced aggressive plans to deploy fiber-to-the-premises (FTTP) technology to millions of homes in an effort to offer a video, voice and data bundle that meets or exceeds cable offerings. SBC says it plans to deploy FTTP in 'greenfield' markets, but use fiber-to-the-node (FTTN) with high-speed DSL to deliver a triple play to most homes it serves. In a nutshell, in their 'RBOC Fiber Builds: The Couch Potato Wars' presentation, Halpern and Moffet conclude that the greatest financial benefit to RBOCs in deploying FTTP is driving down the hefty operating costs of their legacy copper networks. Indeed, in they predict more than 50% of the EBITDA gains delivered by FTTP within four years of deployment would come from opex savings, with less that 15% coming from video services. In the presentation they estimated that RBOCs now incur $260 in annual opex per line/subscriber on their copper networks. Going to FTTN only reduces that total to $238, while FTTP drives it down to $135. Halpern and Moffet estimate FTTN will average $226 per passed customer in fixed capital, plus $669 per connected customer in variable capital. FTTP is estimated to cost $1,424 on average of per connected customer. The result is that telcos are looking at about a 10-year payback on their fiber deployments. Halpern and Moffet predict telcos will pass one-third of U.S. homes with fiber within six years (FTTP and FTTN), a total of about 40 million homes, and achieve 15% penetration for video services. This would provide RBOCs with about a 6% share of the video market. Counter-intuitively, they conclude satellite players could be hurt more than cable operators in the fiber wars. Why? Because DISH and DirecTV will see their key sales channels turn into competitors. And since video is satellite's sole business, they do not have the ability to sell bundles that soften the blow of video subscriber losses. For more information see http://www.bernsteinresearch.com
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