Riding the FTTP cost curve

If fiber to the premises wasn't so expensive to deploy, there wouldn't be much debate about broadband network architectures. The good news is that players on all sides of this puzzle — service providers, hardware vendors, chip vendors — have whittled away at the cost of fiber, and it should continue to decrease. They can't do much about the price of moving dirt, but they're doing what they can.

Surveys conducted by research firm RVA suggest the approximate cost of connecting a home to fiber has dropped about 18% in the past two years, to about $1350 per home. But it's a rough estimate, as costs vary by carrier, region and even home. Verizon claims its cost to pass a home with fiber has fallen 22% over the past two years, from $1021 to $796 (lower than its mid-year prediction of $850). Its cost to connect a home fell 28%, from $1220 to $878. SureWest Communications — its FTTP network passes nearly 100,000 homes — has seen FTTP deployment costs per home drop 5% to 8% per year. The cost reductions come from a variety of places — the fruits of a fierce learning curve.

Some improvements are small and simple. For instance, last summer Tellabs began fitting its optical network terminals (ONTs) — the customer premises equipment (CPE) that hangs outside the home in an FTTP network — with a single screw mount centered at the top. Hang the ONT by that top screw, and it self-levels, saving installation time.

One big help in driving FTTP costs down, for some carriers at least, has been the implementation of pre-connectorized fiber drops. The traditional way to bring FTTP was to splice fiber in the field. At each site, workers determined how much fiber they needed to reach a home and cut that amount, sealing both ends of the fiber from moisture before connecting one end to the terminal on the street and the other end to the ONT at the home. Fiber is wasted this way, as the excess is tucked into a compartment behind the ONT.

Pre-connectorized fiber comes in set lengths: 50 feet, 75 feet and so on. (ADC Telecommunications offers 13 different lengths, for example.) Either end is already capped with watertight, hardened connectors. Introduced in limited volume in 2005 by companies like ADC and Corning, pre-connectorized fiber shipments swelled in 2006. “Now it's going gangbusters,” said Randy Reagan, ADC program manager.

This method isn't for everyone. For Verizon, which buys fiber in massive quantities, labor is easily a thornier cost. But SureWest, with just a fraction of Verizon's fiber footprint, finds the extra fiber more expensive than the extra time it takes to fusion-splice the fiber in the field.

One of the most nettlesome cost areas for SureWest is wiring the inside of the home.

“The cost to pass a home is declining year over year, but the cost to rewire a home has been static,” said Scott Barber, vice president of network operations for SureWest. “We're looking for HPNA, MoCA and other [technologies] to help us.”

Verizon has already reported that the shift to multimedia over coaxial cable has cut its installation time and labor costs by making use of existing wire in the home.

One trend expected to help lower the cost of FTTP further is the implementation of so-called systems on a chip (SoCs) in ONTs. SoCs move more of the functions of the ONT electronics into the silicon, thus eliminating the cost of those electronics. SoCs will take on digital signal processing for voice over IP, home networking technology (the technology that allows the signal to be transmitted over a home's coaxial cable or phone lines) and optical transceiver functions, ultimately leaving only the bidirectional optical subassembly outside the chip. SoC-based ONTs might be 15% less expensive, said Dan Parsons, marketing director for chip maker Broadlight.

PMC-Sierra and Broadlight have already introduced passive optical network (PON) SoCs in Asian markets, but in North America, the flow of Gigabit PON (GPON) SoCs will depend on Verizon. The pace at which Verizon will deploy GPON this year is a much-debated mystery. The market also poses some challenges for would-be SoC vendors because it's splintered into big carriers with unique requirements. If Verizon has a preference for, say, MoCA, but another carrier doesn't, it works against chip vendor economics.

“We silicon guys look to see what makes the most sense to integrate for the biggest volume,” Parsons said.

“My best guess is you're not going to see SoCs for GPON until very late this year or early next year,” said Jeff Heynen, directing analyst for broadband and IPTV at Infonetics Research.

Parsons predicts four or five chip vendors will be offering GPON SoCs by this summer.

Perhaps next year, SoC vendors will push even more functionality onto their chips by adding transceiver electronics to the silicon, resulting in what Parsons calls “an ONT on a chip.” That device might cost only two-thirds as much as today's ONTs.

Ask Tellabs when carriers might see the cost benefit of SoCs, and they'll tell you carriers like Verizon already are. The vendor has been “forward pricing” its ONTs to maintain a relationship with Verizon, and whatever cost benefits are yielded by SoC advancements, Tellabs is unlikely to pass them along to the customer.

Actiontec and Amedia Networks have promised to introduce later this year in-home gateways that will act as both ONTs and broadband home routers. The combination might trim some hardware costs out of the equation. “You've collapsed two CPE devices into one,” Heynen said. “Figure a router costs a service provider $25 per customer at most, maybe. That's a nice chunk of change.”

Beyond that, Amedia is hoping to foster a more multivendor environment in the space — one vendor's central office gear working with another vendor's CPE — that could drive carrier costs lower by promoting competition. Tellabs is currently working with Verizon to explore whether it might be better to move single-family ONTs from outside the house to inside the garage, the company said. But more entrants in the space might suit Tellabs just fine, considering the low margins it has suffered through as an ONT supplier.

“We're not sure we want a ton more ONT revenue,” Tim Wiggins, Tellabs' chief financial officer, said at a February investor conference.

“Now you've got this cottage industry of open ONTs that can work with any vendor's OLT,” Infonetics' Heynen said. “I don't think they're on the market currently, but they will be by the middle of this year.”

In calculating costs, carriers must consider operational costs as well as equipment prices. In Asia, for example, Ethernet PON (EPON) ONTs are anywhere from 35% to 50% cheaper than GPON ONTs, Heynen said. But major Western carriers are more likely to pick GPON anyway because, unlike EPON, it is well-defined by industry standards. And the volume deployments of those carriers will help GPON prices catch up (or down, as the case may be) with EPON.

“GPON ONTs will never reach the low price levels that EPON will, but they'll get close enough that it will be a no-brainer,” Heynen said.

Further down the road, Verizon may look to move from its current architecture, which sends radio frequency video to the home through a separate wavelength on the fiber, to one that uses IP video. Without the need for a separate, dedicated wavelength, Verizon could theoretically eliminate the extra optics involved in that task, saving more money.

For most carriers, cutting the cost of FTTP will come the hard way: through efficiency improvements learned in a trial by fire. As SureWest's Barber said, “We've gotten better at it just by experience.”

APPROXIMATE COST OF FIBER TO THE HOME, PER HOME CONNECTED

2002	$2800
2004	$1650
2006	$1350
Source: RVA