WAVE7 MUNICIPAL FTTP BUILD EXEMPLIFIES A TITANIC TREND

This week, fiber-to-the-premises equipment vendor Wave7 Optics will announce what it says is the largest fully funded FTTP deployment in North America. Jackson Energy Authority, the gas and water utility in Jackson, Tenn., will roll out fiber to 31,000 homes and businesses as part of a $15 million build early next year. Before the contract, Wave7's largest customer deployment was less than half that size.

The deal is part of a trend among municipalities that are deploying ever-larger FTTP networks as cities continue to toy with the business model, according to analysts.

“We're moving out of the stage where people did little trials of 1000 or 2000 homes,” said Danny Briere, CEO of research firm TeleChoice. “People are talking about doing 40,000 or 50,000 lines and getting them funded all at once.”

Last week the city of Fontana, Calif., finalized the collection of proposals for a citywide wholesale fiber network that would pass about 50,000 homes and an unknown number of businesses.

Researchers believe part of the reason deployments are ramping up is that larger communities have learned the lessons of smaller rollouts and trials.

“I can name 10 cities that built fiber optic networks that have miles of fiber in the ground right now that are dark,” said Jan McClintock, Fontana's information services manager. As a result, McClintock opted to combine the best attributes of several networks. To guarantee service providers use the city's fiber, she's considering granting time-limited exclusivity to those who commit to roll out services over it.

But as deployments get larger, they also get more complicated. Also, the take rates necessary to support such projects become more difficult to achieve, particularly where there are more private telecom competitors (see figure). And larger projects tend to become more political, which slows them down further. The much-anticipated but lethargic Utopia project — a consortium of 18 Utah cities with plans to connect 250,000 homes and 35,000 businesses with fiber — has cancelled or postponed its last few meetings as the group struggles to find funding.

“The challenge has been to demonstrate that the business case is secure enough to make it attractive to lenders,” said Roger Black, Utopia's COO. Critics believe Utopia may have had trouble securing a bond because, as a quasi-government entity with no assets, it has no collateral. Recently Utopia decided to ask its members' cities to essentially “co-sign” for a portion of the required debt, said Black.

To stay competitive, cities are often pressured to roll out fiber where broadband deployment is spotty. In an April report, research firm CIR predicted municipalities will account for more than 70% of the fiber-to-the-home market. With municipal bonds, cities have access to funding at lower interest rates than private companies, and municipal utilities, by virtue of being regulated, have guaranteed profits, which also make lenders comfortable.

Additionally, because cities often view FTTP as an economic development imperative, they sometimes can forgive projects whose break-even point is delayed if the economic effect of the deployment (e.g., attracting more residents and businesses to the city) brings enough new money into the community to achieve a net positive.

“Surveys of other municipalities that have deployed [fiber] networks indicate that every single one of them is able to articulate a measurable and acceptable [return on investment],” Nortel Networks wrote in its initial feasibility study for the Fontana plan. “The key is that it is acceptable to [municipalities].”