Chapter 2
Deciding to Build an FTTx Network
Abstract
The primary competition for fiber-to-the-home (FTTH) will be the cable TV operator's hybrid fiber-coax (HFC) network, possibly with competition from the telephone company's digital subscriber line (DSL) service in areas where they have suitable plant. The prime area of competition today is data speed. Cable operators are able to exceed 100 Mb/s in some places, and have plans to go higher, though how much higher they can go while maintaining expected video service is questionable. If you deploy your network correctly you will win over the cable operator every time, but don't expect him to give up easily—he won't.
This chapter reviews several deployed networks to give you a flavor of what people have done so far, and the partnerships they have used to get to where they need to be. It introduces a number of things you need to consider before you build your network.
Keywords
Data speed; Fiber-to-the-home (FTTH); Hybrid fiber-coax (HFC); Partnerships
Introduction
If you build an FTTx (a generic term for fiber-to-the-anywhere-you-want-to-take-it) network, you will have the most advanced network possible, with the ability to deliver all of the telecommunications services known today, to residential and small and medium business customers, with advances permitting you to move up the ladder to ever larger enterprises. However, building a new physical network is not an undertaking to be treated lightly. Installing physical plant is an expensive proposition for anyone, regardless of the technology used; just how expensive depends on who owns existing plant and rights-of-way, and local conditions. Many types of organizations are building fiber-to-the-home (FTTH) systems today, and each has different motivation and different financial expectations of that network. In any event, it behooves you to go into the venture with a full understanding of what you are getting into, and how you are going to deal with the pitfalls. We say this not to discourage you from undertaking construction, but rather to help you be successful when you get it built.
“If you build it they will come” is a euphemism, not an immutable law of the universe. We like to say that customers don’t care how they get telecommunications services. If rats carrying little pieces of tape through the sewer system gives them the services they want, if those services are low in cost and simple to use, then that is what the subscribers will choose—technology for the sake of technology is just not that important to Joe Sixpack. Now, of course, rats carrying little pieces of tape will not give people what they want, but the point is, any technology that best does what the consumer wants is going to be what he chooses. Of course we believe that FTTH will let you provide subscribers with the best customer experience at the best price, but you will need to be able to take that message to the consumer in a way that he or she understands it. The first thing this means is to understand your competition (and you do have it). People high in your organization should be subscribing to satellite video services, telephone-based services, and cable services, whatever is in your area already. And you will need to get together to compare notes, so that you objectively evaluate your competition before you set your services and prices (and this in turn will drive your design).
We have seen municipal and utility companies build FTTH networks in competition with cable TV providers that had pretty good networks—not up to FTTH standards, but not bad. The FTTH provider offered 5 Mb/s data service, which of course is trivial or slower for any FTTH network. But the provider thought it plenty, and sized his Internet connection accordingly. The cable operator immediately upped his download speed to at least twice that (possible for a cable TV operator, though pushing closer to the limit than might be comfortable, depending on how the network is built—some hybrid fiber-coax (HFC) networks are now offering download speeds exceeding 100 Mb/s). So it looked like a 15-year-old HFC network was trumping a new FTTH network. Nothing was farther from the truth, but rather, the FTTH operator was losing the speed race as a result of his own short-sighted policy. To give you a concrete example, as we have been writing this, we have also had occasion to upload and download several large video files. Using our cable modem connection, we are consistently seeing downstream speeds of exceeding 60 Mb/s and upload speeds greater than 5 Mb/s to Internet locations not under the control of our cable operator. We just checked again, and on our local HFC network (not going over the Internet), we got 90 Mb/s downstream and 12 Mb/s upstream (experience has shown that we are unlikely to experience this over the Internet, but speeds are still fast). We are not even buying the provider’s fastest package. Cable has a faster modem technology in the works (DOCSIS 3.1), though it may strain some operators to find the spectrum required to take full advantage of its speed. So let that set the bar for what you have to beat. You will beat HFC every time if you take full advantage of the technology you have, but if you get too conservative in how you deploy it, you may find yourself in second place in terms of speed.
Types of Organizations Building FTTH Networks
Depending on the location, a number of different types of organizations may be building FTTH networks. Large telephone and cable TV companies have built them, but in North America, with a few notable exceptions, the majority of construction to-date has been done by smaller telephone companies, municipalities (often through owned utility operations), and independent for-profit utility companies. The cable TV industry is embracing FTTH, first for business application, then later for residential. Depending on what type of organization you are, you may have different payback time expectations for the investment, you may have access to capital under widely different conditions, and you may have different nonfinancial needs. For example, municipalities have built networks in order to attract new business and hence jobs to their communities, and we know of a number of cases in which this has been successful. So even if the FTTH system takes a long time to pay back, a municipality may be satisfied with the investment. But if you are a stockholder firm, you will not be all that impressed with the result if you don’t get payback in a shorter time.
Without naming the systems, we shall describe several successful but different early systems built in different countries, with widely differing financial and technical models.i
System 1: US Municipal Electric System
As the state’s oldest municipal electric system, and the first system in the state to receive power from the Tennessee Valley Authority, System 1 has a unique and unrivaled history of service. The municipality was voted an All-America City in 1993, with its industry-friendly environment and its beautiful country-side setting located near a major Interstate corridor. The Electric System currently serves nearly 15,000 customers and operates 1242 miles of line throughout the county.
In 2006 they decided to expand their service to include video, voice, and data. Initially they had planned to use the GPON standard, but their construction plans preceded the widespread availability of GPON equipment, so they decided to go with EPON, with a system that would allow them to change later if they needed to (they continue to operate the original EPON system).
The system is based on conventional broadcast video. Video is received on their own antenna farm and locally processed to both analog and digital broadcast video, which is modulated onto a 1550-nm optical carrier and amplified in Erbium Doped Fiber Amplifiers (EDFAs) as needed. Their contracted voice over internet protocol (VoIP) softswitch and peering to the public switched telephone network are located in a large metropolitan area about 220 miles to the southeast. Redundant dedicated circuits and core routers ensure reliable connection. Quality Internet connectivity was available locally.
System 2: Incumbent Local Exchange Carrier, Small European Country
As the official public telecommunications company of this small European country, this local exchange carrier (LEC) was formed as a public company for the management and exploitation of telecommunications and broadcasting networks for the people of that country. With a population of approximately 82,000, the country attributes its prosperity mainly to tourism, with 11 million tourists annually attracted by the many winter and ski resorts. The LEC currently serves nearly 47,000 customers and is the primary provider of POTS (plain old telephone service), data, video, mobile services, and full DVB-T (terrestrial broadcasting) radio and television broadcast.
Early in 2007, they decided to transition their existing voice, video, and data services from a traditional copper network with some dedicated fiber connectivity, to an FTTH architecture servicing each of its points of service (both business and residential). At the time, the LEC was managing a multitude of different network architectures and technologies, which had grown over the years as technologies changed and more bandwidth was required for the subscriber. With them being responsible for the national telecommunications infrastructure, universal services must be offered to 100% of the subscriber base in this rather mountainous region of Europe. As a result, they were faced with a rather extensive operational network, which was difficult to bring under a single management system.
Pressure to expand their video offerings, along with the complexity of their operational model, encouraged them to move to an all-fiber passive network to each of their wireline customers. As with the first example, they began the deployment of their network using EPON technology, choosing a system which will allow them to transition to other technologies with little impact to their overall operational or service models should they want to later (they continue to expand this system).
The network is based on a Next-Generation Network (NGN) architecture providing all services, POTS (serving existing analog telephones, based on VoIP within the network), voice (serving IP telephones), video, and data, over an all-IP-over-Ethernet implementation. Video is received from content providers at the LEC’s facilities and encoded into MPEG-4 for high definition and MPEG-2 for standard definition, for transmission as internet protocol television (IPTV) over the FTTH network. Voice services are provided locally with a dedicated VoIP softswitch located in their central office, with peering to their public switched telephone network. Eventually, they will be transitioning all voice services, both POTS and cellular, to a single IMS voice platform, allowing for a complete integration of services between both technologies. The LEC provides redundant service interfaces to external service providers in two adjacent countries.
System 3: Northern European Municipal Power Utility
The city dates back to the early 13th century and has historically been a maritime region due to its ease of accessibility to the shipping channels throughout northern Europe and the Baltic States. It is also the headquarters of the subject major utility company which provides connectivity to a total of 30,000 electrical customers.
Early in 2005, the Board of Directors commissioned a separate entity to be managed by the Board, to roll out telecommunication services to their servicing community. The separate entity had a mission to provide voice, video, broadband, and mobile services to the community as an alternative to existing services. In the case of mobile services, they decided to make an agreement with a local leading mobile provider as a reseller, providing direct billing and customer support. With the remaining service options to be offered, the team made a decision to initially outsource voice and data services, allowing their team to focus on deploying the network infrastructure and building out an RF video headend. Additional video was provided by a third party. Initially a trap system was used to control the distribution of premium video. Later premium video was transitioned to IPTV using the data portion of the FTTH network. The IPTV content was provided by a third-party provider, and interfaced at their Internet point-of-presence.
They began with the installation of a core network utilizing their electrical substations as the nodes on their network. From each of these nodes, the optical line terminal (OLT) equipment was installed with an all-passive architecture from each of these points to the customers. As an additional benefit of this architecture, they were able to actively monitor the health of each of the substations, allowing them better visibility into the possible failure of electrical services.
For the first 2 years of the deployment, they utilized a third-party service provider for both POTS and broadband services. These two areas of expertise were critical pieces of their service offering and they didn’t want to take on more than they could support, as they were new to being a telecommunications provider. As the network began to grow and they were able to focus efforts on becoming a telecommunications provider, they chose to support all services directly, with the purchase of a Voice softswitch and media gateway, as well as providing redundant connections to local Internet service providers (ISPs) in their region.
System 4: US Municipality-Owned Utility
This system was a very early adopter of FTTH, preceding even the EPON standard—it used a prestandard system much like the EPON system that would be ready a few years later. As of this writing, the system has been in use for about a dozen years, and the utility is contemplating changing it out for a standards-based system so that they can offer advanced services not available that long ago.
The utility operated electric, water, and wastewater services in this town of some 20,000 residences, and at the time it decided to install FTTH, was being underserved by a large telephone company and a large cable MSO (Multiple System Operator—a large company owning a number of cable TV systems), neither of which expressed particular interest in providing updated telecommunication services. So the utility decided that since it owned the poles, and had a good bit of experience with their internal data network, it could build an FTTH system and take over much of the business of the incumbents. Now sometimes we have seen this attitude as a recipe for problems. But in this case, the utility invested sufficiently, and hired expertise from the telecommunications and cable TV industries, and they have been very successful.
Initially they ran into problems from a local ISP, who sued to stop the build. The ISP was dial-up-based at the time and was concerned that faster FTTH connections would decimate his business (a given, considering what has happened in the intervening years). The solution was to initially allow the ISP to be the Internet and voice provider on the FTTH network, while the utility became the video provider. Later another third party was a data and voice provider for a short time, but was bought out by the utility, who then became the second data and voice provider on the network. This is about the only known case in North America of multiple service providers on the same network, though that model has become fairly common in parts of Europe and the Far East.
The Decision-Making Process
The decision to build an FTTH network can lead to great success, but it can also lead to failure and disappointment (to say nothing of lost jobs) if not done properly. There are business, technology, and organizational factors to consider. A lot will depend on where you are now—what applicable resources you have available, what resources you will hire, and what resources you will contract. This section is written assuming that you are a new entrant into the triple play telecommunications area. If you are already a player, you may know much of this already.
Business Considerations
As we said earlier, the first thing is to understand the services that are available now from other providers, and your own service if you are already a provider. If you build a system, how will your competitors respond? We have seen competitors respond by cutting prices, and/or improving their service. We have also seen competitors respond by essentially conceding the race, closing local offices, and serving their declining subscriber base out of other offices. Whatever the response, it will affect you, either positively or negatively. If you are a smaller region and your potential competitors are large national telephone and cable operators, and if their local plant is old, they may not have that much interest in competing. On the other hand, if your area is attractive enough to them, they may decide to stand and fight, and they will have the resources to do it. Getting to know their local managers may give you some insight as to their likely response to you.
We know of one case currently in the early stages of planning, which expects to serve an underserved area. In parts of the proposed service area, there are a few very small cable TV systems with ancient plant, who have expressed interest in coming onto the FTTH network. They see that as more cost-effective than upgrading their old plant.
You must provide service to the subscribers that exceeds that of the competition, at a good price, and that price must provide you with the return on investment that you need. Since there are so many variables, we shall refrain from trying to provide a cookie-cutter approach to the service and financial model. However, if you can’t do the models yourself, you absolutely need to hire a good consultant (and they are out there) who can help you with the model.
So the first decision is about services to be offered at what price point, in order to be competitive with other providers, even if they answer you by cutting their prices or improving their services. And, of course, you need a realistic assessment of your own costs to build the system, and your likely penetration. You may want to do customer surveys to get a better estimate of the number of subscribers likely to move to your service.
Of course you need valid estimates of equipment and construction costs, which can vary significantly from one location to another, and depending on how much plant will be underground versus aerial. For aerial plant, how much make-ready is needed before you can start construction? If you don’t have this expertise in-house, it is available for hire. Don’t forget the cost of drops to each subscriber. This can be a very significant expense in built-up areas. In greenfields (new subdivisions), you want to get in early while trenches are open, and then the installation cost of drops will be much lower.
Your operational expenses (op-ex) will be lower than those of your competition because fiber plant is much, much more economical to operate. But it will not be zero. People have been known to cut fibers when burying other cables (“backhoe fade”) and vehicles still hit telephone poles and snap cables. Subscribers get confused about how to use their equipment and often expect free help from the service provider. There will be expenses for customer service representatives, whether in-house or contracted, and on-going expenses for Internet and telephone interconnect, and for video service. On rare occasions, equipment will break. A frequent source of service interruption is improperly cleaned fiber optic connections.
Technology Considerations
There are a number of technical decisions that must be made early in planning the network. Some can change later, but there must be decisions made early-on in order to reduce the inefficiencies that will develop later if they are not made. One decision is what services to carry. The three fundamental services, the so-called triple play, are video, voice, and data. Unless you have some very unusual circumstances, you should plan on carrying all three. Otherwise, you seriously risk being outperformed by someone with lesser technology. Experience has shown that the more services you sell to a particular subscriber, the “stickier” that subscriber tends to be. And keeping a subscriber is a lot less expensive than acquiring one.
We have seen some systems attempt to launch without, say, a video service. The rationale is that it is relatively hard to get a video service started if you are unfamiliar with it (those familiar with video will find it not hard at all), and the profit margin on video is not what it is for voice and data, depending on how you account for your network costs. So the thought has been to just let people use over-the-top (OTT) video services, video from the likes of Netflix, Hulu, Amazon, and others. We certainly agree that there is a lot of interest in these services now, and that interest is likely to continue to build for a while. But the amount of conventional linear TV viewing is also growing, and accounts for many more hours of TV watching than does OTT. Video is a service that almost every subscriber understands and wants.
You will have a choice of either broadcast video as the cable companies do it now, using a 1550-nm overlay, or using IPTV. The choice in many cases will depend on what businesses you are in now and where your comfort point is. The nice thing about FTTH is that you have the widest range of options of any provider. You can start with a broadcast service and migrate some or all programming over to IPTV if it makes sense. Or you can provide premium service over IPTV, while operating a broadcast service for those not wanting premium service, and you will be able to service those people without any of your capital [in the form of set-top boxes (STBs)] in the subscribers’ homes.
In the early days of discussions about delivering various digital services, there used to be a saying that “a bit is a bit is a bit,” meaning that you could treat all services equally, operating one network for all of your services. Experience has shown this to be a very false and dangerous assumption, one which has gotten a number of people into serious trouble. Yes, you can operate all services on one network, but it is not easy, and you cannot do it with bargain-basement switching equipment. Nor can the equipment be configured by anyone other than an expert who knows the pitfalls and how to avoid them (he has probably learned that by falling into the pit more than once). We have seen many people who were “pretty good” voice and/or data operators get themselves into trouble by thinking that they were ready to provide triple play over an all-IP network. We have also seen people who did know what they were doing, and who were willing to make the requisite investment, be very successful with a single-network triple play.
Even people who can successfully set up their headend to provide reliable IP triple play have encountered unexpected expenses at the home. Most homes in North America and other places have been wired for coaxial cable (coax, the cable TV physical medium), which can be used by the FTTH operator if he is providing broadcast video service (under FCC rules, in most cases the coax belongs to the homeowner, even if a previous service provider installed it). But if you are providing IPTV service, you are going to have to get Ethernet from the ONT to the STB on the subscriber’s TV. You can do this by installing cat. 5 cable, or you can add data-over-coax adaptors (MoCA or HPNA), or if you’re feeling lucky, you can install wireless data (WiFi), but all of these solutions are going to cost you money in every home.
On the other hand, most video service beyond basic TV requires two-way communications between the STB and the headend. There are ways to accommodate this using a broadcast tier on FTTH, sometimes at a very economical cost, and sometimes at a less economical cost, depending on the STB system chosen and the FTTH vendor. Providing two-way communications using IPTV comes naturally, at no additional cost.
Those Hidden Extras
There are a couple of hidden extras that you will likely hit that are not that bad once you know about them and how to handle them, but at first they may cause you headaches if you are not prepared.
If you offer video, you will likely need an audio override system. This is required of cable TV systems, such that in an emergency, a government official can quickly take over the audio of all your channels, to broadcast emergency messages. Commercial equipment is available to make this happen. We got a reminder of this while writing this chapter, listening to cable-delivered music in the background. All of a sudden the music was interrupted for an Amber Alert for an abducted child in the area. (We are pleased to say that the child was found unharmed the next day.)
There is a Congressional Act known as CALEA, the Communications Assistance for Law Enforcement Act, also known as Lawful Intercept. Under judicial supervision, law enforcement personnel can get certain call records from you, and can also get specified internet traffic. In order to comply with the law, most smaller organizations contract with so-called Trusted Third Parties (TTPs), who can assist in properly configuring your switching equipment, and who will receive and process lawful demands for data. There are several TTPs from which to choose.
Organizational Considerations
We have previously alluded to doing an objective assessment of the organizational skills you have versus those you will need. We have seen a number of new players struggle because they misunderstood the match between the skills they had and those they needed. Since every situation is different, we cannot give you a list of skills you lack. Rather, we can maybe point out some issues we have seen in over 12 years of helping subscribers roll out FTTH systems, and a lot of years prior to that helping people roll out other technologies.
You may have the best engineer in the world for managing your SCADA network if you are doing that now. But does he know how to configure your entire data network so that it will pass voice with low latency and jitter? Can he evaluate your network for integrity of IPTV, during times when you have lots of channel surfing because the big game half your subscribers are watching just went to commercial? Remember that “a bit is not a bit is not a bit.”
If you are the new entrant to the triple play service, you will be expected to meet a higher bar for good service than do the entrenched players. Understanding the economic difficulty faced by small entities, we strongly urge you to have a lab set-up identical to your deployed (“production”) network. If this is impossible due to economics, at least you need an isolated PON in your lab that you can equip whenever you need to deploy new hardware or software. There are so many ways to configure networks, and so many ways that disparate pieces of equipment can interact, that it is imperative to test a new configuration before deploying it to subscribers.
If you have not served residential consumers previously, you will be surprised by what you find in homes. You will need installers who have good people skills as well as who understand all aspects of the services you are offering. Some operators do initial configuration of a consumer’s data equipment as part of their service, others offer it as a revenue center for extra charge. You will want to think about how you will service your subscribers’ equipment, and what the revenue model for that will be. And be sure to factor in customer service people.
Industry Organization
You can never learn too much. One of your first moves should be to get involved with the FTTH industry by joining the FTTH Council.ii This is the industry’s primary organization of all parties who are active in the field. They sponsor an annual conference, which offers training seminars, a chance to meet vendors, and a chance to meet and learn from those who have already put in systems. CDs from earlier conferences should be available for purchase, and more recent conference proceedings are online for members. Through the Council you will be able to access statistics related to FTTH installations, and you will have access to training, both Council-originated and through external commercial training resources. Many consulting engineers are members, as are equipment vendors.
While not strictly an FTTH organization, there is a commercial magazine and conference organizer, Broadband Communities,iii which offers additional information of interest to people installing FTTH.
There are many consulting engineering firms who can help with everything from preparing budgets to overseeing construction of the network. They tend to work best for you when you can give them as much information as possible regarding what you want to do, and your realistic estimates of penetration. They can help you do trade-offs such as deciding how to offer video, and they may be able to spare you grief in getting your VoIP system working. You can locate some of them through the FTTH Council.
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