The Technology

For those who witnessed the early days of DSL, the current state of the fiber-to-the-premises equipment space might seem like 1995 all over again, said Kevin Walsh, vice president of marketing for access equipment vendor Calix.

“There were different standards, different approaches, interoperability problems and some questionable business models but still a lot of interest and enthusiasm,” he said.

There are differences, of course. In 1995, DSL was the only residential high-speed data technology around. FTTP, on the other hand, is fractured — into broadband passive optical networks (BPON), Gigabit PON (GPON) and Ethernet architectures — and struggles to compete with ever-maturing forms of advanced DSL.

“It really complicates the FTTP market in terms of trying to assess how big it will be and how rapidly it will grow,” Walsh said. “No question it will be a big, important market, but every day DSL gets a little better, and compression algorithms for IP video get a little better. It makes it a lot more complicated than it was back in 1995 with DSL.”

Calix began shipping PON blades for its C7 access platform this quarter, but the volume of its FTTP business is “dwarfed” by that of its DSL business, Walsh said.

The FTTP equipment market hasn't yet matured to the point where a community of vendors offer interoperable gear, fostering the cost benefits and innovation that accompany competition. In fact, some worry that the pace of progress on that front may have hit a snag recently when Tellabs acquired Vinci Systems, a vendor of optical network terminals (ONTs) — the customer premises devices in an FTTP network. Vinci was rare in its position as an independent vendor of residential ONTs and might have greased the interoperability movement (it played arms dealer to rivals Entrisphere and Calix, for example).

But Tellabs may be less eager for Vinci gear to be sold as part of a competitor's overall system. Some analysts and industry members say keeping a loose leash on the Vinci portfolio could help grow Tellabs' access business while helping to grow the greater FTTP sector. Tellabs' CEO Krish Prabhu, in the company's latest earnings call, promised to work with rival vendors to establish interoperability with the Vinci product aimed at small businesses. But a source close to Vinci said the company is sending somewhat mixed messages about its willingness to cooperate with Tellabs' competitors.

The request for proposals issued by Verizon Communications, SBC Communications and BellSouth in the summer of 2003 carried the promise that the buying power of three telecom industry titans could compress the economics of FTTP in a way that technological advancements hadn't been able to. But Verizon became the only member of the trio truly dedicated to FTTP, and despite the growing pains felt by its equipment supplier Advanced Fibre Communications (now Tellabs), Verizon's deployment is, so far at least, unlikely to affect FTTP economics by itself, said IDC analyst Sterling Perrin.

It's unknown whether Verizon succeeded in passing 1 million homes with FTTP in 2004, the carrier's stated goal. But PON gear isn't required (even in the central office) in order to “pass” homes with fiber, Perrin said. It's only needed to sell the service. In that sense, he argued, Verizon's FTTP deployment is not terribly different from SBC's and BellSouth's advanced DSL rollouts: They're all mostly about putting fiber closer to customers.

“We just haven't seen [Verizon] light up much,” Perrin said. As of September, 970,000 North American homes were passed by fiber, according to Render, Vanderslice and Associates — a big jump that's no doubt tied to the Verizon rollout. But carriers were only marketing FTTP service to 413,000 of them (about 43%), and only 146,000 were connected.

Still, assured of the inevitability of fiber as a perfect communications medium, equipment vendors are already gearing up for the next phase of RBOC FTTP, which could occur in the next year or two, they say, opening up a more multi-vendor market. Tellabs owns most of the RBOC opportunity today, thanks to its acquisition of Verizon supplier AFC, which had itself acquired Marconi's FTTP business, a supplier to BellSouth. Motorola Broadband, with its acquisition of PON vendor Quantum Bridge, serves Verizon as a secondary supplier. Alcatel serves SBC's FTTP plans, such as they are — the carrier aims to pass 1 million homes with FTTP but 18 million with advanced DSL. In the next phase, major carriers will work with more than one or two suppliers, vendors say.

Optical Solutions, whose CEO was replaced after the company failed to translate widespread success with rural carriers into an RBOC contract, has leapfrogged its rivals technologically, leading — and virtually owning — the market for the next generation of incumbent-carrier FTTP: GPON. OSI, as it's known by shorthand, gave its wares an extended reach this month with a new optical line terminal that can sit more than 50 miles away from a central office. Carriers still don't know how much bandwidth residential FTTP customers will want a few years down the road, and OSI is betting high-definition television and other needs will send the major carriers back to the vendor they spurned back in 2003.

Entrisphere, which touts its FTTP gear as being expressly designed for major carriers such as the RBOCs, has been quiet since it lost the Bells' 2003 vendor smackdown (while partnered with Fujitsu). However, the company is exiting stealth mode this week with multiservice products, a publicly named telco customer and a persistent ambition to target top-tier carriers.

In the future, even vendors of Ethernet-based gear — such as Wave7 Optics and Worldwide Packets, which already are making headway with municipalities and independent telcos — are banking that RBOCs currently using ATM-based BPON will eventually open their minds to Ethernet-based FTTP. SBC's senior vice president of network planning and engineering told Telephony a year ago that, although “deployable” Ethernet FTTP solutions didn't exist when the carrier chose its FTTP vendor, Alcatel, back in 2002, “I'd like to see IP and Ethernet all the way.” And as Ethernet gear is deployed in high volume in Asia (large Japanese incumbent NTT is deploying Ethernet-based FTTP, for example), the cost of that equipment could drop, further enticing major U.S. carriers.

Meanwhile, leading telco TV suppliers such as Tandberg, Microsoft (which won Verizon's and SBC's video middleware business), Alcatel (which will integrate SBC's video) and Tut Systems (which promises big surprises to come from its recent acquisition of Copper Mountain) hope to meet the sector's video requirements. Tandberg, Microsoft, Alcatel and Tut aren't sharply differentiated at the moment, said Mike Arden, ABI Research analyst. And in the future, they may compete more on the basis of customer service (e.g., depth of network planning) than hardware and software features.

What the shifting FTTP equipment sector will look like in five years is tough to predict. Only two summers ago, some thought the Bells' exciting joint RFP for FTTP would begin a time warp to a future era. Little did they know that 18 months later, they'd find themselves back in 1995.

TELCO VIDEO OPTIONS

ADSL2+	Can offer 15 Mb to 20 Mb within 5000 feet. Potentially can be bonded for me. Standardized, but some interoperability questions.
VDSL 2	Up to 100 Mb/s over 3000 feet. Wild card of copper — SBC pushing for standard, likely only to be fully ready in 2006, but may get rushed.
BPON	622 Mb/s down — extended BPON 1.25 Gb/s. Deployed and ready, provides options for radio frequency.
EPON	1.25 Gb/s Symmetric. Asian deployment could impact cost curve.
GPON	1.25 Gb/s has the potential to reach 2.5 Gb/s. Most major vendors are preparing to build GPON in anticipation of a shift from BPON.
Active	100 Mb/s to each home. Flexibility and scalability the tradeoff for active electronics at the edge.
Source: The Yankee Group