BELLS' LETTER ADDRESSES FIBER'S FUTURE

SBC Communications, Verizon Communications and BellSouth struck a pact last week to jointly pursue fiber-to-the-premises technology. The move could jump-start the nascent sector and will pit last-mile fiber vendors against one another as they vie to make the Bells' short list of suppliers.

The strategy harks back to a 1996 alliance among RBOCs that standardized ADSL across most incumbent networks, which led to a massive capital investment campaign in broadband, price drops and a consolidation of the vendor community.

Last week's development came in the form of a joint letter from SBC, Verizon and BellSouth telling more than 20 fiber access vendors they soon would receive a request for proposal for the basic network architecture the RBOCs plan to standardize throughout their footprints. In September, the three carriers will select their primary suppliers, and joint testing will begin. After each is vendor is certified with the consortium, however, carriers will negotiate supply contracts on their own.

The purpose is to prevent carriers from adopting incompatible technologies. But the RBOCs also expect to reduce the time between development and deployment, future-proof their networks and bring economies of scale to a market that so far has gained traction only among small independent telcos.

The impact on the vendor community may be more of a mixed blessing, though. While the consortium's interest signals a commitment to deploying FTTP technology, only a few vendors will make the group's final short list. And if history is any indication, one large vendor could dominate the market.

In 1996, the Joint Procurement Committee — consisting of Ameritech, BellSouth, Pacific Bell and SBC — named Alcatel as its lead vendor for ADSL. Alcatel soon controlled the ADSL market in the U.S. and became the world leader in the technology. The other vendors on the short list, Ericsson and Westell, saw few if any contracts in the U.S.

Keith Cambron, president and CEO of SBC Laboratories, said the RBOCs expect the new strategy to have similar results to the JPC. “It's not our intention to have one vendor dominate, but the market will certainly shake up,” he said. “You'll have a few significant vendors when this is done, and the best suppliers will generate very large markets.”

While many of the vendors tapped to receive the RFP may consider consolidation, partnerships between them are more likely.

“There have already been some informal discussions among the vendors about partnering,” said Mark Wegleitner, chief technology officer of Verizon. “I don't know if I would go as far as to say there will be a lot of different suppliers, but there will be more than one — some of them providing different solutions, some of them providing different parts of the same solution.”

Though none of the RBOCs said it favored a particular vendor, Alcatel appears to have an advantage. The vendor has an established relationship with the RBOCs in broadband and is one of the few large companies that stayed in the fiber-to-the-home market. Jay Fausch, senior director of marketing for Alcatel North America, said he's confident that Alcatel's ATM passive optical networking (PON) gear will play a part but doesn't believe the vendor has any inherent advantage.

“We haven't seen the RFP, so it's hard to say what this might portend,” Fausch said. “We're all starting with a clean slate. I can tell you it will be hotly contested, though.”

While he wouldn't predict which vendors might be candidates for the RBOCs' short list, Blaik Kirby, senior vice president for Adventis and head of the firm's carrier practice, said he expects the field will narrow quickly. “There are probably two or three vendors that could offer credible solutions,” he said. “You want to avoid competing proprietary technologies here.”

Small vendors such as Optical Solutions and Wave7Optics have won the majority of the small municipal and rural telco FTTP contracts so far. Trials with bigger incumbents, however, all went to the major vendors — Alcatel for SBC's trial in Mission Bay, Calif., and Marconi for Verizon's Brambleton, Va., trial and BellSouth's more extensive fiber-to-the-curb deployments in the South. But some smaller vendors are confident that they will win coveted preferred slots. Wave7 CEO Tom Tighe, for example, said his company's Last Mile Link Ethernet over PON platform seems to fit the consortium's criteria.

“We're ready to go, but I doubt any vendor's solution will perfectly meet every carrier's needs,” Tighe said. “How many bits you can deliver per dollar is what this all comes down to, though. In that regard, we feel very, very comfortable.”

The RBOCs are definitely looking for a specific solution. Though the consortium has yet to release its RFP, it sent informal surveys to suppliers in April asking for specific cost analyses on deploying PON-based asymmetrical architectures. The 14-page survey asked for incremental cost data for deploying everything from eight individual POTS lines to broadcast cable TV over various transmission protocols. The survey, however, made no reference to ATM vs. Ethernet-based networks, which would have cut a significant number of vendors from contention. But the questions did focus on video transmission.

The RBOCs have made no specific announcements about deploying video programming over their new fiber networks, but most industry observers believe it's a given considering cable's success at eating into phone companies' residential subscriber bases. Assuming a standard PON interface operating at 622 Mb/s upstream and 155 Mb/s downstream, there is practically no limit to what the RBOCs could shove into those optical pipes. While the Bells may not deploy full-fledged broadcast services immediately, the option will be available. Even if the carriers initially deploy voice and data only, they could still recoup their investments — especially in greenfield developments where the cost of deploying fiber and copper are essentially the same, said Darryl Ponder, CEO of Optical Solutions.

“Two services are enough to make fiber to the home economical for greenfields and refurbishments,” Ponder said. “You'll see a lot of fiber deployed for voice and data, but the capability will be there with the flip of a switch to do video.”

The RBOCs may be a bit more conservative. None of the three Bells has made any specific announcements about FTTP deployments beyond saying that they will come out in 2004. Even BellSouth, which said it has 1 million homes passed by fiber to the curb, isn't committing to any plans for filling that final 500 feet with optics.

“We can't economically justify fiber to the home at this point,” said Peter Hill, BellSouth's vice president of technology, planning and development. “We're going to see how this consortium effort pans out.”

There also is still a potential dark cloud hanging over the strategy: the FCC's triennial review, which ostensibly provided the incumbents with the broadband relief they sought. All three RBOCs are operating under the assumption they won't have to share any new fiber builds with competitive carriers.

Then there is Qwest Communications' noticeable absence from the consortium. Because the vendor selection process doesn't commit any RBOC to specific contracts, Qwest arguably had nothing to lose by joining. But given Qwest's investments in VDSL to provide video and high-speed data, it's probably not ready to leap headfirst into FTTH, Adventis' Kirby said.

“It would have made sense for them to participate, but this may not have been their highest priority right now,” he said.