FTTP AWAKENING

Like 3G wireless technology and VDSL2, fiber-to-the-premises deployment in America languished for years before the sudden spike in deployment it's currently experiencing. This current surge of activity is likely to spawn even further growth.

FTTP has come a long way from the days when one of the few pre-eminent showcases of the technology in the U.S. was SBC Communications' slow-moving trial in San Francisco's Mission Bay development, which consumed years but served few. And in a quantitative sense, the real transformation happened very suddenly. On a chart created by researchers Render Vanderslice & Associates plotting the number of homes in North America passed by fiber (for FTTP, not fiber-to-the-curb or fiber-to-the-node), a line lopes steadily along the bottom, throughout 2002, 2003 and early 2004. But in the six-month period ending in September 2004, the line shoots up, with the addition of more than 780,000 homes, an increase of more than 413% from the preceding period, which saw less than 5% growth. Even the healthy 64% increase in homes passed during the summer of 2003 is puny compared with the explosive summer of 2004.

Render Vanderslice will issue updated data this week, and although fiber deployment during the winter months is generally expected to be less prolific than that during the summer (for several reasons, not the least of which is the difficulty of digging trenches in cold ground), company President Michael Render expects the new numbers to reflect continued vibrant growth.

Last month, research analysis firm In-Stat predicted the number of U.S. homes passed by FTTP to grow more than 520% between 2004 and 2009.

Though much of the recent jump in FTTP is attributable to the defensive reflexes of a single carrier in a high-pressure market, a wide variety of existing deployments are opening FTTP floodgates, not just by delivering the economic benefits of scale but simply by fleshing out the business case and dispelling much of the fog of uncertainty that has enveloped FTTP in recent years.

The primary reason behind the FTTP surge in mid-2004 is no doubt Verizon Communications, which responded to cable and wireless competitors with an aggressive bid to grow video and broadband revenue while still retaining its voice customers. According to In-Stat, Verizon alone accounted for about half of the 1.9 million U.S. homes passed by FTTP last year, and the carrier's stated goal is to literally double its efforts this year.

But although Verizon topped the charts, it wasn't the only American service provider to herald a new wave of new FTTP activity that summer. In August, three months after Verizon kicked off its FTTP deployment in Keller, Texas, SureWest Communications, one of the leading FTTP providers in the country, reported an 80% year-over-year increase in FTTP subscribers. All told, the West Coast CLEC grew its FTTP subscriber base 41% last year (to 15,689) and expanded its addressable FTTP market 58% to pass nearly 68,000 homes.

In fact, while Verizon alone can take credit for half of last year's FTTP deployment, FTTP as a service was much more of a team effort. When it comes to actually marketing the service, other types of providers kept pace with Verizon, at least as of September 2004, the date of the most current available data. At that time, according to Render Vanderslice, 28% of homes to which FTTP was being marketed were the targets of CLECs and overbuilders — roughly the same portion collectively targeted by the Bells at the time. Municipalities and public utilities marketed to another 21%. Real-estate developers — often working with service providers — contributed another 13%, and rural incumbents rounded out the list with 11%.

While Verizon plows on, the progress of existing municipal FTTP projects is simultaneously breeding new projects just by shedding light on the process and providing models for others to follow. Thus far, even municipalities that already were convinced of the benefits of FTTP were often hesitant to take action, citing a scarcity of well-proven precedents. The city of Palo Alto, Calif., for example, after conducting a successful field trial of muni fiber, put further deployment plans on hold last summer because, as the city's utility advisory board wrote, “there is no ‘cookie-cutter formula’” for financing such projects, and consultants told the city as recently as last year that muni FTTP is “a venture into uncharted territory.” That territory has been charted rigorously since then, however, with a variety of high-profile projects across the country, including a multi-city deployment in Utah and a statewide effort to create municipal FTTP entities in Iowa.

“You can now go to Bristol, [Va.], to Kutztown, [Pa.], to Dalton, [Ga.], to Jackson, Tenn., and various other places and see folks beating the path,” said Jim Baller, founder of the Washington-based Baller Herbst Law Group, which represents local governments and utilities with an interest in telecom. “All these things are happening at the same time and tend to reinforce one another.”

Verizon has perhaps done more than any other single entity to validate and demystify FTTP, and though the company has opposed muni FTTP, Verizon's efforts in the space — its cheerleading for the technology and its exploration of the business case — may all fuel muni FTTP deployment, Baller said. “We've been saying for years that [FTTP] is the right solution. When you get someone with the credibility of Verizon saying exactly the same thing, it validates the perspective we've had for quite some time.”

Also, since municipalities compete with each other for jobs and taxpayers — and since broadband is a key competitive enticement — each new FTTP town puts more pressure on the towns surrounding it to follow suit.

“There's more of a backlog [of muni FTTP projects] in the pipeline all the time,” Render said.

In addition, deployment — especially on the scale of Verizon's efforts — also breeds further deployment in the sense that it helps lower the cost of the technology. Generally speaking, the cost of connecting a home with fiber in 2004 was about 60% of what it cost in 2002, according to Render, though that number is based on a mix of variables, not just equipment costs.

Municipal deployment could, in turn, goose private deployment as carriers decide to capitalize on demonstrated consumer demand for it rather than lose customers to the public sector. After battling Utopia, Utah's multi-city FTTP network, for months, Qwest Communications — the only Bell company uninterested in the joint request for FTTP equipment proposals issued by its peers in the summer of 2003 — announced its first FTTP deployment last month. Of course, there's no evidence of a correlation between that greenfield development and Qwest's fight with Utopia, but the deployment would certainly give Qwest more credibility in any future efforts to convince municipalities to leave FTTP to the private sector.

To say that muni FTTP is accelerating is not to say that individual projects are moving ahead with blinding speed. Local politics, along with routine opposition from the private sector, can bog down even the most enthusiastic proponents of muni FTTP. For example, by the time residents in Lafayette, La., vote this summer on whether or not to proceed with a proposed public-utility FTTP project, they will have debated the subject for more than a year, the delay due in no small part to bitter public polemics between the city's utility and its incumbent phone and cable providers.

It's also important to point out that, in the context of nationwide penetration, FTTP is not exactly taking America by storm. As In-Stat pointed out, if the 11.8 million homes it expects to be passed by fiber in 2009 were instead wired today, it would still be just 11% of American homes. By 2009, of course, it will be an even smaller percentage, as the number of homes continues to grow.

Still, In-Stat's projection that the number of U.S. homes passed by FTTP in 2009 will be six times the number passed in 2004 indicates that the sudden explosion of FTTP seen last year was only the beginning.