For years, we’ve been checking the prices of next-generation passive optical network (PON) technology as we help clients consider building a new residential fiber network. As recently as last year there was still at least a 15% or more price penalty for buying 10 Gbps PON technology using the NG-PON2 or XGS-PON standards. But recently we got a quote for XGS-PON that is nearly identical in price to buying the GPON that’s been the industry standard for over a decade.

New technology is usually initially more expensive for two reasons. Manufacturers hope to reap a premium price from those willing to be early adapters. You’d think it would be just the opposite since the first buyers of new technology are the guinea pigs who have to help debug all of the inevitable problems that crop up in new technology. But the primary reason that new technology costs more is economy of scale for the manufacturers – prices don’t drop until manufacturers start manufacturing large quantities of a new technology.

The XGS-PON standard provides a lot more bandwidth than GPON. The industry standard GPON technology delivers 2.4 Gbps download and 1 Gbps upload speed to a group of customers – most often configured at 32 passings. XGS-PON technology delivers 10 Gbps downstream and 2.5 Gbps upstream to the same group of customers—a big step up in bandwidth.

The price has dropped for XGS-PON primarily due to its use by AT&T in the US and Vodaphone in Europe. These large companies and others have finally purchased enough gear to drive down the cost of manufacturing.

The other next-generation PON technology is not seeing the same price reductions. Verizon has been the only major company pursuing the NG-PON2 standard and is using it in networks to support large and small cell sites. But Verizon has not been building huge amounts of last-mile PON technology and seems to have chosen millimeter-wave wireless technology as the primary technology for reaching into residential neighborhoods. NG-PON2 works by having tunable lasers that can function at several different light frequencies. This would allow more than one PON to be transmitted simultaneously over the same fiber but at different wavelengths. This is a far more complex technology than XGS-PON, which basically has faster lasers than GPON.

One of the best features of XGS-PON is that some manufacturers are offering this as an overlay onto GPON. An overlay means swapping out some cards in a GPON network to provision some customers with 10 Gbps speeds. An overlay means that anybody using GPON technology ought to be able to ease into the faster technology without a forklift upgrade.

XGS-PON is not a new technology and it’s been around for around five years. But the price differential stopped most network owners from considering the technology. Most of my clients tell me that their residential GPON networks average around 40% utilization, so there have been no performance reasons to need to upgrade to faster technology. But averages are just that and some PONs (neighborhood nodes) are starting to get a lot busier, meaning that ISPs are having to shuffle customers to maintain performance.

With the price difference finally closing, there is no reason for somebody building a new residential network to not buy the faster technology. Over the next five years as customers start using virtual reality and telepresence technology, there is likely to be a big jump up in bandwidth demand from neighborhoods. This is fueled by the fact that over 9% of homes nationwide are now subscribing to gigabit broadband service – and that’s enough homes for vendors to finally roll out applications that can use gigabit speeds. I guess the next big challenge will be in finding 10 gigabit applications!