FTTP REPORT CARD

Company Headquarters FTTP Location Type

Oxford Networks Buckfield, Maine Auburn, Lewiston and Norway, Maine CLEC

Oxford Networks likes to think of itself as a company that has a long history of thinking outside the box. When the company had the opportunity to begin selling long-distance service, it formed an IXC. And like many incumbent carriers, Oxford dove headfirst into the CLEC market in 2000, building out a 5000-line network in Norway, Maine, to compete with Verizon.

“We kind of made the leap of faith that CLECs were the wave of the future,” said Steve Perry, product manager for Oxford.

However, it's in the towns of Auburn and Lewiston, where the company has deployed Optical Solutions' FiberPath 500 Gigabit passive optical network (GPON) platform to provide voice, high-speed data and IP video service, that it's making its most aggressive move.

“The logic behind it was that as a telephone company, we faced two basic groups of competitors: the wireless carriers and cable/entertainment operators,” Perry said. “There's no phone cord in the world long enough for us to compete with cellular. So with that in mind, we looked at the cable companies and said, ‘What they have is something we can provide if we gain competency.’ The fierce competition hasn't hit us as much as the Bell operating companies, but we can see it coming.”

In the first phase of a five-year, $15 million plan, the company has brought fiber to 5500 residential units (both single family and multi-dwelling units) across both towns where it competes with Verizon and Adelphia. The second phase, currently ongoing, will hit an additional 1200 units.

“The desire is to overbuild the whole area,” said Matt Jankovic, marketing manager for Oxford, noting that there are about 20,000 homes, apartments and condos between the two cities.

Opening up a business office in Lewiston, the company is home running all fiber from Auburn through Lewiston and connecting up with its 400-mile fiber ring that spans between Bangor, Maine, and Portsmouth, N.H. That same ring also serves as an uplink for the company's DSLAMs in its ILEC territory, which encompasses about 1000 square miles and 14,000 access lines in western and central Maine, said Todd DeWitt, chief technology officer of Oxford.

“Everything eventually heads down to Portland,” he said, noting that the company has two DS-3 circuits and one OC-3 to connect with Tier 1 providers. In addition, the company is using the ring to provide backhaul for wireless operators in the area.

The company also has set up Tut Systems' headend to provide MPEG-2-based video across both the CLEC and ILEC areas.

“It's IP video already, so it makes it real easy to distribute,” DeWitt said. “If another ILEC wanted to take that stream, we could do that, too.”

For the moment, though, the company is leveraging its ability to blend and bundle services in ways that competitors can't. Among the most popular services is Caller ID on TV, which neither Verizon nor Adelphia offer.

“Predominantly, it's our video product that's attracting people, but that's not to say that the allure of fiber-based Internet is not attractive,” Perry said.

Currently, the company is offering 2 Mb/s downstream and 1 Mb/s up but is in the process of bumping that to 3 Mb/s downstream throughout its fibered areas.

Ironically, for a company that is aggressively pushing the CLEC concept, Oxford is holding back on voice over IP (VoIP), deploying a Nortel DMS 10 in Lewiston. In part, the decision is based on OSI's support of POTS capabilities. At the same time, customers haven't really asked for the service yet, Jankovic said.

“It's obviously a buzzword out there, but I haven't run into any specific requests,” he said.

However, he added, the company is looking into the technology, not because of the new applications it may offer but because of the simplicity it may bring to deploying triple-play services.

Company Headquarters FTTP Location Type

CC Communications Fallon, Nev. Fernley, Nev. New build in fast-growth market

Talk to Dave Tilley, supervisor of broadband engineering for CC Communications, for any length of time, and you'll notice right away an enthusiasm that has long since passed out of most employees in the telecom industry. Most carriers, though, don't have the same growth prospects as CC.

Based in Fallon, Nev., which also happens to be home to the Fallon Naval Air Station and the “Top Gun” School, CC at first glance looks like any other rural telco. It has slightly more than 13,000 access lines serving roughly 4900 square miles. But go a few dozen miles away from the county seat of Fallon and into Fernley, and you find a housing boom by any definition.

“We've got about 3000 new homes in process with about 10 to 12 different developers,” Tilley said. “We're an hour outside of Reno, and Fernley has turned into a bedroom community. We're getting a lot of influx from California. They're already used to driving an hour to work and only going 20 miles. Here, it's an hour to go 60 miles. A lot of people also are coming out for the high desert.”

Whatever the reason, the influx has given CC (formerly Churchill County Telephone) a reason to dive deep into the FTTP market. Using Wave7 Optics' Last Mile Link platform, the carrier is putting fiber up to every new home built in the area, offering voice, high-speed data and video.

“We are looking at brownfields, too,” Tilley said. “We're trying to get our feet wet with good, clean fiber installations.”

In many ways, the 100-employee company is used to pushing the envelope. It was among the first telcos in the country to offer video over copper facilities, lays claim to be the first to use Myrio's middleware and has been an early test bed for numerous other vendors. In the FTTP deployments, the company also is pushing the limits by planning to offer a combined 120 Mb/s to each home. (The company also is offering a combined 4 Mb/s over in areas where it has copper.)

“We're still testing, but we've been running eight video streams on it in the lab,” Tilley said.

The company also is trying to run ahead of the competitive curve. Charter, which battles CC for video and broadband customers in several areas, hasn't started offering its voice service yet, but Tilley thinks that FTTP and its other video efforts are a good buffer.

“It's a war out here,” he said. “Charter kind of centralizes themselves out of Reno, and we've taken at least 10% of their customers. We're going to a lot of places that Charter is not. When we put our facility in Sand Creek, Charter didn't even [bring their plant] to the house. I think we got the message across there.”

Throughout the whole process of being early to market with video, CC has learned a few lessons that run counter to conventional wisdom among other rural telcos, Tilley said. Number one is not to rely too much on being the “hometown” player.

“A lot of times in the past, we were able to rely on customer loyalty, but that's disappearing,” he said. “Part of the problem is, as we get more influx from over the hills [from California], less people care about that.”

Number two is that despite the cable industry's long history of barely breaking even with video-on-demand (VOD) products, the tide is definitely turning in time for telcos' entry into the market.

“The question used to be, are you ever going to make money on VOD?” he said. “I think five years from now, we can honestly say we're going to be making good money.”

Company Headquarters FTTP Location Type

Dakota Central Telecommunications Carrington, N.D. Jamestown, N.D. CLEC competing against Qwest

Distance is all relative — and based largely on existing surrounds and experience. So when Robin Anderson, marketing manager for Dakota Central Telecommunications, says the company is deploying a FTTP network in “the next town over” from the company's Carrington, N.D., headquarters, someone from the East Coast might assume it's a mile or two away. Try 42 miles, which qualifies as “the next town over.”

The same applies to a CLEC that says it's getting a “healthy” percentage of the market. Initially constructing a fiber backbone using Optical Solutions Inc.'s platform through the Stutsman County seat in 2000 — and approaching individuals and businesses — Dakota Central (Daktel) has captured market share that most telcos can only dream about.

“When we went out and sold to individual businesses, we had about a 90% take rate of those we approached,” Anderson said.

Since then, the company has divvied up the town of 16,000 into three zones and is pushing fiber to every home to offer voice, high-speed data and video. Eventually, the company will do the same in Carrington, though it will take a little more time to retire the existing copper plant.

In addition, the company has plans to use the headend built for Jamestown in a DSL-based video offer for Carrington (pop. 2200)

In both towns, the company faces incumbent cable competition that hasn't made an aggressive move into data or voice, and Qwest serves as the incumbent telco in Jamestown. Thus far, the company has been most aggressive building out Jamestown's north and south zones, where most of the 6000 residential units are located.

And despite the clear technical advantages Daktel has over its competitors, Anderson said, marketing and pricing are key elements to the solid take rate.

“You have to create an incentive for them because people don't like change,” she said.

Marketing starts well before potential customers can even order service. About five weeks before construction crews come through the area, Anderson sends out a letter of introduction that alerts people that there will be some trenching being done nearby. Two weeks before the digging, the company sends out a second letter inviting residents to an open house where they can see and play with the services that will be offered.

That is quickly followed up by a door-to-door sales effort, which has proved to bump penetration rates up to 15% and allows the company to answer any specific concerns.

“A lot of people had questions that you might not expect, like ‘how big are you going to trench through my yard?’” Anderson said. “We had to explain that it wasn't like traditional trench. People get the perception when they see the main line trenches and think that's going to be coming through their yard.”

The company also uses numerous pricing schemes as part of the marketing effort — and to save some cost for itself. For example, Daktel offers to run category 5 Ethernet cable around homes (up to two TVs and one PC) for free if residents call during the construction phase. After that time, it notes in marketing material, Daktel adds $400 on for the install.

For its voice service, which currently is being run off its existing class 5 switch but may shift to VoIP in the future, the telco gives people incentive not to port their numbers, which add costs for Daktel

“We charge them $2.95 per month if they want to port their number,” Anderson said. “Hearing that, 91% of the customers have opted to keep their old numbers. The key thing was to make it high enough. We did a little research before and found that at $1 per month, almost everyone would keep their number.”

It seems to be working. As of the end of the first quarter, the company reported that 50% of residents in the north zone were taking at least one service while in the south zone, 42% were doing the same.

“In Jamestown, the penetration rate breaks out at about 40% get phone — 40% of that get video and 40% of that get high-speed,” Anderson said.

Company Headquarters FTTP Location Type

SureWest Communications Roseville, Calif. Sacramento CLEC competing against SBC

SureWest Communications has long been an anomaly among incumbent carriers. Though based in Roseville, Calif., the carrier serves areas that more closely resemble suburbia than the bucolic vision of rural America. Its FTTP network, which serves Sacramento proper, fits right into the anomaly role.

Originally built by a now-bankrupt company that had visions of serving 500 channels of video to customers, the SureWest FTTP network now provides a model for other carriers that want to act as a CLEC in hyper-competitive markets. Since acquiring the network in bankruptcy court, SureWest has used it to push across Sacramento while also launching several flavors of high-speed data and voice service.

The company also plans to expand that network into the Elk Grove and Lincoln, Calif., markets, among the fastest growing in the state. In all locations, it's competing not just against incumbent cable operators for video and SBC for voice, but both for high-speed data.

“When they talk about the economics of PON, they usually assume 100% penetration,” said Scott Barber, vice president of network operations for SureWest.

That would be a bad assumption for SureWest. However, by building out its network based on projected take rates and using many common elements, the company has been able to grow in an economically sound way. As of the end of 2004, SureWest had 67,700 homes on its FTTP network. Of those, it reported 15,689 subscribers taking at least one service and total revenue-generating units, or RGUs, (subscribers times the number of services they're taking) of 36,336, a 42% jump from the end of 2003 — 36% of the RGUs are from data, 33% are video and 31% are voice.

Like other carriers rolling out FTTP in competitive markets, SureWest is using door-to-door sales and local advertising. It's also targeting areas that span the economic strata of the region. Just as important — and perhaps because it is in such a competitive market — the company refuses to rest on its laurels and be content with its network.

“We continue to look at all the [technology] solutions just to make sure what we're doing is the most economical,” said Bill DeMuth, chief technology officer of SureWest.

Exhibit A: the company's existing FTTP network is based on the broadband PON (BPON) architecture, but it is testing GPON in the lab.

“A lot of it has to do with the densities you get,” DeMuth said.

SureWest also is experimenting with new applications that will give it a slight edge on competitors. One of the most recent was adding personal video recorder capabilities to its existing Amino IP set-top boxes. The company hasn't launched it yet but knows SureWest will continually have to push the envelope.

For the moment, that means delivering faster Internet access.

“There are about four competitors for video already, so data really has to be our flagship,” Barber said. “That's where we stand out from our competitors. It's more difficult to move those folks off of any service when they're entrenched.”

Company Headquarters FTTP Location Type

Pembroke Telephone Pembroke, Ga. North Bryan County, Ga. Greenfield developments

As America grows grayer, population booms are happening in the unlikeliest of places. Largely because of people fleeing urban centers for a quieter lifestyle, areas outside of Savannah, Ga., are experiencing their own mini-explosion. North Bryan County, which is served by Pembroke Telecom and sits about 28 miles west of Savannah, currently has five new subdivisions in various stages of construction. The smallest of those is 48 homes while two of the large ones are close to 200 homes.

Pembroke Telephone, which serves a total of 4200 lines, is targeting new construction as the ideal place to begin deploying FTTP and capture revenue from its three triple-play services.

“Right now, it's a lot of people moving out of Savannah,” said Steve Rogerson, central office supervisor for Pembroke Telecom. “People are realizing that 30 miles outside of Savannah isn't that far. We're definitely looking at a pretty good period of growth right now.”

Pembroke is using both Optical Solutions Inc.'s platform in two of its larger developments, though it also has signed a contract to use Tellabs FTTP platform because its legacy network is largely filled with AFC equipment.

“When we had a huge subdivision ready to go, we didn't like the idea of not having Gigabit feeding our fiber to the premises,” Rogerson said in explaining its use of Optical Solutions Inc. “We have a ton of AFC stuff in stock, and we're looking at a new subdivision to deploy that.”

Bandwidth, in fact, is one of the biggest factors in the decision to deploy FTTP. Though many of the new area residents are looking for a quieter lifestyle, the houses reflect changing tastes and often are outfitted with the latest audio/video gear and home theaters.

“With fiber to the home, you're unlimited on your bandwidth side,” Rogerson said. “It was a case of where if you have relatively decent size homes, you can ask, ‘How many set-tops do you want in your home?’ If you want six, you can have six.”

Like other telco video deployments, Pembroke uses multicasting technology, also because of bandwidth issues.

“If you're multicasting out your video, you can feed six set-top boxes and still give them 15 Meg left over for data,” Rogerson said.

Initially, Pembroke was getting its video feed from another telco but has since built its own headend. From there, the company is taking in content via the National Cable Television Cooperative and blending it with local content, which Rogerson said is a key way of differentiating service from cable and satellite competitors.

“Our big thing is we've come up with a way to combine our local content channel,” he said. “It's things like local government meetings. It gives us kind of a serious hometown feel.”

Eventually, the company wants to run fiber to all of its customers. Economics, particularly at the customer premises, isn't quite there, Rogerson said.

“In a brownfield application, it's not so much the labor of getting it to the house but getting it through the house,” he said. “The way we look at it is there are a lot of people competing for other people's business right now. We're figuring that if we offer voice, video and data, and do that to a large portion of our customers over fiber, then nobody can compete with us.”