Tag Archives: FTTP

The End of the Central Office?

One of the traditional costs for bringing fiber to a new market has always included the creation of some kind of central office space. This might mean modifying space in an existing building or building a new building or large hut. In years past a central office required a lot of physical space, but we are finally to the point with technology where the need for a big central office is often disappearing.

A traditional central office started with the need to house the fiber terminating electronics that connect the new market to the outside world. There also is the need to house and light the electronics facing the customers – although in some network design configurations some of the customer facing electronics can be housed in remote huts in neighborhoods.

A traditional central office needs room for a lot of other equipment. First is significant space for batteries to provide short-term backup in case of power outages. For safety reasons the batteries are often placed in a separate room. Central offices also need space for the power plant used to make the conversion from AC power to DC power. Central offices also usually need significant air conditioning and need room to house the cooling units. If the fiber network terminating to a central office is large enough there is also the requirement for some kind of fiber management system needed to separate the individual fibers in a neat and sensible way. Finally, if the above needs meant building a large enough space, many ISPs also built space to provide working and office space for technicians.

Lately I’ve seen several fiber deployments that don’t require the large traditional central office space. This is largely due to the evolution of the electronics used for serving customers in a FTTP network. For example, the OLTs (optical line terminations) electronics has been significantly compressed in size and density and a shelf of equipment can now perform the same functions that would have required much of a full rack a decade ago. As that equipment has reduced in size, the power requirements have also dropped, reducing the size of the power plant and the batteries.

I’ve seen several markets where a large cabinet provides enough room to replace what would have required a full central office a decade ago. These are not small towns, and two of the deployments are for towns with populations over 20,000.

As the footprint for the ‘central office’ has decreased there’s been a corresponding drop in costs. There are several supply houses that will now pre-install everything needed into the smaller cabinet / hut and deliver the whole unit complete and ready to go after connecting to power and splicing to fiber.

What I find interesting is that I still see some new markets built in the more traditional way. In that same market of 20,000 people it’s possible to still use a configuration that constructs several huts around the city to house the OLT electronics. For purposes of this blog I’ll refer to that as a distributed configuration.

There are pros and cons to both configurations. The biggest benefit of having one core hut or cabinet is lower cost. That means one pre-fab building instead of having to build huts or cabinets at several sites.

The distributed design also has advantages. A redundant fiber ring can be established with a network consisting of at least three huts, meaning that fewer parts of the market will lose service due to a fiber cut near to the core hub. But the distributed network also means more electronics in the network since there is now the need for electronics to light the fiber ring.

The other advantage of a distributed network is that there are fewer fibers terminating to each hut compared to having all customer fibers terminating to a single hut. The distributed network likely also has smaller fibers in the distribution network since fiber can be sized for a neighborhood rather than for the whole market. That might mean less splicing required during the initial construction.

Anybody building a new fiber network needs to consider these two options. If the market is large enough then the distributed network becomes mandatory. However, many engineers seem to be stuck with the idea that they need multiple huts and a fiber ring even for smaller towns. That means paying a premium price to achieve more safety against customer outages. However, since raising the money to build a fiber network is often the number one business consideration, the ability to save electronics costs can be compelling. It would not be unusual to see the single-hub configuration save half a million dollars or more. There is no configuration that is the right choice for all situations. Just be sure if you’re building FTTP in a new market that you consider the options.

AT&T’s Fiber Strategy

On the most recent earnings call with investors, AT&T’s EVP and CFO John Stevens reported that AT&T has only 800,000 customers nationwide remaining on traditional DSL. That’s down from 4.5 million DSL customers just four years ago. The company has been working hard to work its way out of the older technology.

The company overall has 15.8 million total broadband customers including a net gain of 82,000 customers in the first quarter. This compares to overall net growth for the year of 2017 of only 114,000 customers. The company has obviously turned the corner and after years of stagnant growth is adding broadband customers again. The overall number of AT&T broadband customers has been stagnant for many years, and if you go nearly a decade the company had 15 million broadband customers, with 14 million on traditional DSL.

The 15 million customers not served by traditional DSL are served directly by fiber-to-the-premises (FTTP) or fiber-to-the-node (FTTN) – the company doesn’t disclose the number on each technology. The FTTN customers in AT&T are served with newer DSL technologies that bond two copper pairs. This technology generally has relatively short copper drops of less than 3,000 feet and can deliver broadband download speeds above 40 Mbps download. AT&T still has a goal to pass 12.5 million possible customers with fiber by the end of 2019, with an eventual goal to pass around 14 million customers.

The AT&T fiber buildout differs drastically from that done by Verizon FiOS. Verizon built to serve large contiguous neighborhoods to enable mass marketing. AT&T instead is concentrating on three different customer segments to reach the desired passings. They are building fiber to business corridors, building fiber to apartment complexes and finally, offering fiber to homes and businesses that are close to their many existing fiber nodes. Homes close enough to one of these nodes can get fiber while those only a block away probably can’t. It’s an interesting strategy that doesn’t lend itself to mass marketing, which is probably why the press has not been flooded with stories of the company’s fiber expansion. With this buildout strategy I assume the company has a highly targeted marketing effort that reaches out only to locations it can easily reach with fiber.

To a large degree AT&T’s entire fiber strategy is one of cherry picking. They are staying disciplined and are extending fiber to locations that are near to their huge existing fiber networks that were built to reach large businesses, cell sites, schools, etc. I work across the country and I’ve encountered small pockets of AT&T fiber customers in towns of all sizes. The cherry picking strategy makes it impossible to map their fiber footprint since it consists of an apartment complex here and a small cluster of homes there. Interestingly, when AT&T reports these various pockets they end up distorting the FCC’s broadband maps, since those maps count a whole census block as having gigabit fiber speeds if even only one customer can actually get fiber.

Another part of AT&T’s strategy for eliminating traditional DSL is to tear down rural copper and replace DSL with cellular broadband. That effort is being funded to a large extent by the FCC’s CAF II program. The company took $427 million in federal funding to bring broadband to over 1.1 million rural homes and businesses. The CAF II program only requires AT&T and the other telcos to deliver speeds of 10/1 Mbps. Many of these 1.1 million customers had slow DSL with typical speeds in the range of 1 Mbps or even less.

AT&T recently said that they are not pursuing 5G wireless local loops. They’ve looked at the technology that uses 5G wireless links to reach from poles to nearby homes and said that they can’t make a reasonable business case for the technology. They say that it’s just as affordable in their expansion model to build fiber directly to customers. They also know that fiber provides a quality connection but are unsure of the quality of a 5G wireless connection. That announcement takes some of the wind out of the sails for the FCC and legislators who are pressing hard to mandate cheap pole connections for 5G. There are only a few companies that have the capital dollars and footprint to pursue widespread 5G, and if AT&T isn’t pursuing this technology then the whole argument that 5G is the future of residential broadband is suspect.

This is one of the first times that AT&T has clearly described their fiber strategy. Over the last few years I wrote blogs that wondered where AT&T was building fiber, because outside of a few markets where they are competing with companies like Google Fiber it was hard to find any evidence of fiber construction. Instead of large fiber roll-outs across whole markets it turns out that the company has been quietly building a fiber network that adds pockets of fiber customer across their whole footprint. One interesting aspect of this strategy is that those who don’t live close to an AT&T fiber node are not likely to ever get their fiber.

Fiber Electronics and International Politics

In February six us Intelligence agencies warned Americans against using cellphones made by Huawei, a Chinese manufacturer. They warned that the company is “beholden” to the Chinese government and that we shouldn’t trust their electronics.

Recently Sen Liz Cheney introduced a bill into Congress that would prohibit the US Government or any contractors working for it to use electronics from Huawei or from another Chinese company ZTE Corp. Additionally, any US military base would be prohibited from using any telecom provider who has equipment from these two vendors anywhere in their network.

For anybody who doesn’t know these two companies, they manufacture a wide array of telecom gear. ZTE is one of the five largest cellphone makers in the world. They also make electronics for cellular networks, FTTP networks and long-haul fiber electronics. The company sells under it’s own name, but also OEMs equipment for a number of other vendors. That might make it hard for a carrier to know if they have gear originally manufactured by the company.

Huawei is even larger and is the largest maker of telecom electronics in the world, having passed Ericsson a decade ago. The company’s founder has close ties to the Chinese government and their electronics have been used to build much of the huge wireless and FTTP networks in China. The company makes cellphones, FTTP equipment and also is an innovator in equipment that can be used to upgrade cable HFC network.

This is not the first time that there has been questions about the security of electronics. In 2014 Edward Snowden released documents that showed that the NSA had been planting backdoor software into Cisco routers being exported overseas from the US and that these backdoors could be used to monitor internet usage and emails passing through the routers. Cisco says that they had no idea that this practice was occurring and that it was being added to their equipment after it left their control.

Huawei and ZTE Corp also say that they are not monitoring users of their equipment. I would assume that the NSA and FBI have some evidence that at least the cellphones from these companies can be used to somehow monitor customers.

It must be hard to be a telecom company somewhere outside of the US and China because our two countries make much of the telecom gear in wide use. I have to wonder what a carrier in South America or Africa thinks about these accusations.

I have clients who have purchased electronics from these two Chinese companies. In the FTTP arena the two companies have highly competitive pricing, which is attractive to smaller ISPs updating their networks to fiber. Huawei also offers several upgrade solutions for HFC cable networks that are far less expensive than the handful of other vendors offering solutions.

The announcements by the US government creates a quandary for anybody who has already put this gear into their network. At least for now the potential problems from using this equipment have not been specifically identified. So a network owner has no way of knowing if the problem is only with cellphones, if it applies to everything made by these companies, or even if there is a political nature to these warnings rather than a technical one.

Any small carrier using this equipment likely cannot afford to remove and replace electronics from these companies in their networks. The folks I know using ZTE FTTP gear speak high praises of the ease of using the electronics – which makes sense since these two companies have far more installed fiber customers worldwide than any other manufacturer.

Somebody with this equipment in their network has several quandaries. Do they continue to complete networks that already use this gear or should they somehow introduce a second vendor into their network – an expensive undertaking. Do they owe any warnings to their own customers (at the risk of losing customers). Do they do anything at all?

For now all that is in place is a warning from US intelligence agencies not to use the gear, but there is no prohibition from doing so. And even should the Senate bill pass it would only prohibit ISPs using the gear from providing telecom services to military bases – a business line that is largely handled by the big telcos with nationwide government contracts.

I have no advice to give clients on this other than to strongly consider not choosing these vendors for future projects. If the gear is as bad as it’s being made to sound then it’s hard to understand why the US government wouldn’t ban it rather than just warn about it. I can’t help but wonder how much of this is international wrangling over trade rather than any specific threat or risk.

A Hybrid Model for Rural America

Lately I’ve looked at a lot of what I call a hybrid network model for bringing broadband to rural America. The network involves building a fiber backbone to support wireless towers while also deploying fiber to any pockets of homes big enough to justify the outlay. It’s a hybrid between point-to-multipoint wireless and fiber-to-the home.

I’ve never yet seen a business model that shows a feasible model for building rural FTTP without some kind of subsidy. There are multiple small telcos building fiber to farms using some subsidy funding from the A-CAM portion of the Universal Service Fund. And there are state broadband grant programs that are helping to build rural fiber. But otherwise it’s hard to justify building fiber in places where the cost per passing is $10,000 per household or higher.

The wireless technology I’m referring is a point-to-multipoint wireless network using a combination of frequencies including WiFi and 3.65 GHz. The network consists of placing transmitters on towers and beaming signals to dishes at a customer location. In areas without massive vegetation or other impediments this technology can now reliably deliver 25 Mbps download for 6 miles and higher bandwidth closer to the tower.

A hybrid model makes a huge difference in financial performance. I’ve now seen an engineering comparison of the costs of all-fiber and a hybrid network in half a dozen counties and the costs for building a hybrid network are in the range of 20% – 25% of the cost of building fiber to everybody. That cost reductions can result in a business model with a healthy return that creates significant positive cash over time.

There are numerous rural WISPs that are building wireless networks using wireless backhaul rather than fiber to get bandwidth to the towers. That solution might work at first, although I often see new wireless networks of this sort that can’t deliver the 25 Mbps bandwidth to every customer due to backhaul restraints.  It’s guaranteed that the bandwidth demands from customers on any broadband network will eventually grow to be larger than the size of the backbone feeding the network. Generally, over a few years a network using wireless backhaul will bog down at the busy hour while a fiber network can keep up with customer bandwidth demand.

One key component of the hybrid network is to bring fiber directly to customers that live close to the fiber. This means bringing fiber to any small towns or even small pockets of 20 or more homes that are close together. It also means giving fiber to farms and rural customers that happen to live along the fiber routes. Serving some homes with fiber helps to hold down customer density on the wireless portion of the network – which improves wireless performance. Depending on the layout of a rural county, a hybrid model might bring fiber to as much as 1/3 of the households in a county while serving the rest with wireless.

Another benefit of the hybrid model is that it moves fiber deeper into rural areas. This can provide the basis for building more fiber in the future or else upgrading wireless technologies over time for rural customers.

A side benefit of this business plan is that it often involves build a few new towers. Areas that need towers typically already have poor, or nonexistent cellular cover. The new towers can make it easier for the cellular companies to fill in their footprint and get better cellular service to everybody.

One reason the hybrid model can succeed is the high customer penetration rate that comes when building the first real broadband network into a rural area that’s never had it. I’ve now seen the customer numbers from numerous rural broadband builds and I’ve seen customer penetration rates range between 65% and 85%.

Unfortunately, this business plan won’t work everywhere, due to the limitations of wireless technology. It’s much harder to deploy a wireless network of this type in an area with heavy woods or lots of hills. This is a business plan for the open plains of the Midwest and West, and anywhere else with large areas of open farmland.

County governments often ask me how they can get broadband to everybody in their county. In areas where the wireless technology will work, a hybrid model seems like the most promising solution.

What’s the Next FTTP Technology?

There is a lot of debate within the industry about the direction of the next generation of last mile fiber technology. There are three possible technologies that might be adopted as the preferred next generation of electronics – NG-PON2, XGS-PON or active Ethernet. All of these technologies are capable of delivering 10 Gbps streams to customers.

Everybody agrees that the current widely deployed GPON is starting to get a little frayed around the edges. That technology delivers 2.4 Gbps downstream and 1 Gbps upstream for up to 32 customers, although most networks I work with are configured to serve 16 customers at most. All the engineers I talk to think this is still adequate technology for residential customers and I’ve never heard of a neighborhood PON being maxed out for bandwidth. But many ISPs already use something different for larger business customers that demand more bandwidth than a PON can deliver.

The GPON technology is over a decade old, which generally is a signal to the industry to look for the next generation replacement. This pressure usually starts with vendors who want to make money pushing the latest and greatest new technology – and this time it’s no different. But after taking all of the vendor hype out of the equation it’s always been the case that any new technology is only going to be accepted once that new technology achieves and industry-wide economy of scale. And that almost always means being accepted by at least one large ISP. There are a few exceptions to this, like what happened with the first generation of telephone smart switches that found success with small telcos and CLECs first – but most technologies go nowhere until a vendor is able to mass manufacture units to get the costs down.

The most talked about technology is NG-PON2 (next generation passive optical network). This technology 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. But that makes this a complex technology and the key issue is if this can ever be manufactured at price points that can match other alternatives.

The only major proponent of NG-PON2 today is Verizon which recently did a field trial to test the interoperability of several different vendors including Adtran, Calix, Broadcom, Cortina Access and Ericsson. Verizon seems to be touting the technology, but there is some doubt if they alone can drag the rest of the industry along. Verizon seems enamored with the idea of using the technology to provide bandwidth for the small cell sites needed for a 5G network. But the company is not building much new residential fiber. They announced they would be building a broadband network in Boston, which would be their first new construction in years, but there is speculation that a lot of that deployment will use wireless 60 GHz radios instead of fiber for the last mile.

The big question is if Verizon can create an economy of scale to get prices down for NG-PON2. The whole industry agrees that NG-PON2 is the best technical solution because it can deliver 40 Gbps to a PON while also allowing for great flexibility in assigning different customers to different wavelengths. But the best technological solution is not always the winning solution and the concern for most of the industry is cost. Today the early NG-PON2 electronics is being priced at 3 – 4 times the cost of GPON, due in part to the complexity of the technology, but also due to the lack of economy of scale without any major purchaser of the technology.

Some of the other big fiber ISPs like AT&T and Vodafone have been evaluating XGS-PON. This technology can deliver 10 Gbps downstream and 2.5 Gbps upstream – a big step up in bandwidth over GPON. The major advantage of the technology is that is uses a fixed laser which is far less complex and costly. And unlike Verizon, these two companies are building a lot more FTTH networks that Verizon.

And while all of this technology is being discussed, ISPs today are already delivering 10 Gbps data pipes to customers using active Ethernet (AON) technology. For example, US Internet in Minneapolis has been offering 10 Gbps residential service for several years. The active Ethernet technology uses lower cost electronics than most PON technologies, but still can have higher costs than GPON due to the fact that there is a dedicated pair of lasers – one at the core and one at the customer site – for each customer. A PON network instead uses one core laser to serve multiple customers.

It may be a number of years until this is resolved because most ISPs building FTTH networks are still happily buying and installing GPON. One ISP client told me that they are not worried about GPON becoming obsolete because they could double the capacity of their network at any time by simply cutting the number of customers on a neighborhood PON in half. That would mean installing more cards in the core without having to upgrade customer electronics.

From what everybody tells me GPON networks are not experiencing any serious problems. But it’s obvious as the household demand for broadband keeps doubling every three years that the day will come when these networks will experience blockages. But creative solutions like splitting the PON could keep GPON working great for a decade or two. And that might make GPON the preferred technology for a long time, regardless of the vendors strong desire to get everybody to pay to upgrade existing networks.

Shaking Up the FTTP Industry

Every once in a while I see something in the equipment market that surprises me. One of my clients recently got pricing for building a gigabit PON FTTP network from the Chinese company ZTE. The pricing is far under the market price for other brands of equipment, and it makes me wonder if this is not going to put downward price pressure on the rest of the industry.

There are two primary sets of electronics in a PON network – the OLT and ONTs. The OLT (Optical Line Terminal) is a centrally located piece of equipment that originates the laser signal headed towards customers. The OLT is basically a big bay of lasers that talk to customers. The ONT (Optical Network Terminal) is the device that sits at a customer location that has the matching laser that talks back to the OLT.

ZTE’s pricing is industry shaking. They have priced OLTs at almost a third of the price of their competition. They have been able to do this partially by improving the OLT cards that hold the lasers and each of their cards can connect to twice as many customers as other OLTs. This makes the OLT smaller and more energy efficient. But that alone cannot account for the discount and their pricing is obviously aimed at gaining a foothold in the US market.

The ONT pricing is even more striking. They offer a gigabit Ethernet-only indoor ONT for $45. That price is so low that it almost turns the ONT into a throw away item. This is a very plain ONT. It has one Ethernet port and does not have any way to connect to existing inside wiring for telephone or cable TV. It’s clearly meant to work with WiFi at the customer end to deliver all services. Their pricing is made even more affordable by the fact that they offer lower-than-normal industry prices for the software needed to activate and maintain in future years.

This pricing is going to lead companies to reexamine their planned network design. A lot of service providers still use traditional ONTs that contain multiple Ethernet ports and that also have ports for connection to both telephone copper and cable company coaxial wiring. But those ONTs are still relatively expensive and the most recent quotes I’ve seen put these between $200 and $220.

Using an Ethernet-only ONT means dumping the bandwidth into a WiFi router and using that for all services. That means having to use voice adapters to provide telephone service, similar to what’s been used by VoIP providers for years. But these days I have clients that are launching fiber networks without a voice product, and even if they want to support VoIP the adapters are relatively inexpensive. This network design also means delivering only IPTV if there is a cable product and this ONT could not be used with older analog-based cable headends.

ZTE is an interesting company. They are huge in China and are a $17 Billion company. They make a lot of cellphones, which is their primary product line. But they also make a lot of different kinds of telecom gear like this PON equipment. They claim they FTTP equipment is widely used in China and that they have more FTTP customers connected than most US-based vendors.

This blog is not a blanket endorsement of the company. They have a questionable past. They have been accused of bribery in making sales in Norway and the Philippines. They also were fined by the US Commerce Department for selling technology to North Korea and Iran, both under sanctions. And to the best of my knowledge they are just now trying to crack into the US market, which always is something to consider.

But this kind of drop in FTTP pricing has been needed. It is surprising that OLTs and ONTs from other manufacturers still basically cost the same as they did years ago. We generally expect that as electronics are mass produced that the prices will drop, but we have never seen this in a PON network. One can hope that this kind of pricing will shake up other manufacturers to sharpen their pencils. Larger fiber ISPs already get pricing cheaper than what I mentioned above on today’s equipment. But most of my clients are relatively small and they have little negotiating power with equipment vendors. I hope this shakes the industry a bit – something that’s needed if we want to deploy fiber everywhere.

AT&T’s Broadband Trials

John Donovan, the chief strategy officer for AT&T, spoke at the Mobile World Congress recently and said that the company was trying five different technologies for the last mile. This includes WLL (wireless local loop), G.Fast, 5G, AirGig and fiber-to-the-premise. He said the company would be examining the economics of all of different technologies. Let me look at each one, in relation to AT&T.

Wireless Local Loop (WLL). The technology uses the companies LTE bandwidth but utilizes a point-to-multipoint network configuration. By using a small dish on the house to receive the signal the company is getting better bandwidth than can be received from normal broadcast cellular. The company has been doing trials on various different versions of the technology for many years. But there are a few recent trials of the newest technology that AT&T will be using for much of its deployment in rural America as part of the CAF II plan. That plan requires the ISP to deliver at least 10/1 Mbps. AT&T says that the technology is delivering speeds of 15 to 25 Mbps. The company says that even at the edge of a cellular network that a customer can get 10 Mbps about 90% of the time.

G.Fast. This is a technology that uses high frequencies to put more bandwidth on telephone copper wire. Speeds are reported to be as high as 500 Mbps, but only for very short distances under 200 feet. AT&T recently announced a G.Fast trial in an apartment building in Minneapolis. The technology is also being tested by CenturyLink and Windstream. All of these trials are using existing telephone copper inside of existing apartment buildings to deliver broadband. So this is not really a last mile technology. AT&T brings fiber to the apartment complex and then uses G.Fast as an inside wire technology. If they find it to be reliable this would be a great alternative to rewiring apartments with fiber.

5G. AT&T recently announced a few trials of early 5G technologies in Austin. They are looking at several technology ideas such carrier aggregation (combining many frequencies). But these are just trials, and AT&T is one of the companies helping to test pre-5G ideas as part of the worldwide effort to define the 5G specifications. These are not tests of market-ready technologies, but are instead field trials for various concepts needed to make 5G work. There is no doubt that AT&T will eventually replace LTE wireless with 5G wireless, but that transition is still many years in the future. The company is claiming to be testing 5G for the press release benefits – but these are not tests of a viable last mile technology – just tests that are moving lab concepts to early field trials.

AirGig. This one remains a mystery. AT&T says it will begin trialing the technology later this year with two power companies. There has been a little bit of clarification of the technology since the initial press release. This is not a broadband over powerline technology – it’s completely wireless and is using the open lines-of-sight on top of power poles to create a clear path for millimeter wave radios. The company has also said that they don’t know yet which wireless technology will be used to go from the poles into the home – they said the whole range of licensed spectrum is under consideration including the LTE frequencies. And if that’s the case then the AirGig is a fiber-replacement, but the delivery to homes would be about the same as WLL.

FTTP. Donovan referred to fiber-to-the-home as a trial, but by now the company understands the economics of fiber. The company keeps stretching the truth a bit about their fiber deployments. The company keeps saying that they have deployed fiber to 4 million homes, with 8 million more coming in the next three years. But the fact is they have actually only passed the 4 million homes that they can market to as is disclosed on their own web site. The twelve million home target was something that was dictated by the FCC as part of the settlement allowing the company to buy DirecTV.

We don’t know how many fiber customers AT&T has. They are mostly marketing this to apartment buildings, although there are residential customers around the country saying they have it. But they have not sold big piles of fiber connections like Verizon FiOS. This can be seen by looking at the steady drop in total AT&T data customers – 16.03 million in 2014, 15.78 million in 2015 and 15.62 million at the end of the third quarter of 2016. AT&T’s fiber is not really priced to be super-competitive, except in markets where they compete with Google Fiber. Their normal prices elsewhere on fiber are $70 for 100 Mbps, $80 for 300 Mbps and $99 for a gigabit.

Is Altice Really Bringing FTTP?

suddenlink-truckLate last week Altice released a press announcement that said they are going to bring fiber-to-the-home to all of their newly acquired US properties within five years. For those not familiar with Altice, the company is now the fourth biggest cable company in the US and was created through the recent acquisitions of Suddenlink Communications for $9.1 billion and of Cablevision for $17.7 billion. These acquisitions bring the company about 4.6 million customers.

But there are parts of the press release that have me scratching my head. The headlines announce ‘A full-scale fiber-to-the-home network investment plan’ which will bring ‘large scale fiber-to-the-home deployment across its footprint.’ That sure sounds like the company will give everybody FTTP.

But deeper in the press release are several statements that have me wondering what the company is really planning to do. For example, they say they will ‘drive fiber deeper into our infrastructure.’ Deeper into the infrastructure is not necessarily the same as providing fiber the whole way to the home. That is the same kind of language that Comcast used when they announced their mostly-imaginary 2 gigabit broadband product.

Even more puzzling is the statement that “the new architecture will result in a more efficient and robust network with a significant reduction in energy consumption. Altice expects to reinvest efficiency savings to support the buildout without a material change in its overall capital budget.’ If Altice has 4.6 million customers then they must have around 6 million passings. They will be able to build a lot of the needed network by overlashing fiber onto existing coaxial cable. But even that will probably cost in the range of $500 per passing, meaning an outlay of $3 billion. And to bring fiber into the home costs in the range of $600 to $800 per customer. Add to that the core FTTP electronics of at least $200 per customer and the cost to converting existing customers to the fiber could cost another $3.7 to $4.6 billion, for a total outlay of at least $6.7 billion to $7.6 billion.

The energy savings they are talking about would be due to shutting down the existing hybrid fiber-coaxial cable network. To achieve that savings they would have to convert every customer to fiber – since it take as much electricity to run a network for a handful of customers as it does to run it for everybody. But I have a hard time believing they can save enough in power costs to pay for an expensive new fiber network without having to increase capital budgets. I have a number of clients operating HFC networks and they do not have gigantic power bills of anywhere the magnitude needed to produce that kind of savings.

This FTTP plan also has to be compared back to Altice’s promises to their shareholders. They promised to bring significant cost savings after the acquisition of Suddenlink and Cablevision and it’s already hard to see how they are going to do that. For example, their largest property is in New York and they promised the PUC there not to eliminate any customer-facing jobs (technicians and customers service reps) for five years.

They also talk about their fiber rollouts in Portugal and France. In Portugal fiber is being deployed mostly due to heavy subsidies from the government which is hoping that fiber will boost a poor economy. And in France their business plan is different than the US and Altice benefits greatly from a quad play that includes cellular service. My quick analysis of their financial performance shows that wireless drives a big piece of their profitability there, and it’s unlikely they are going to figure out a profitable wireless play here in the US.

Finally, the company seems to have spent heavily this past year on upgrading existing HFC cable networks. I’ve read a dozen local press releases in Suddenlink markets that talk about completing digital conversions and upping data speeds to as much as a gigabit using DOCSIS 3.0. It’s curious they would pour that much money into their HFC networks if they are getting ready to abandon them for fiber.

I hope I am wrong about this and I hope they bring fiber everywhere. That would certainly highlight Comcast and Charter’s decision to milk their HFC networks for decades to come. But the press-release as a whole sets off my radar and is reminiscent of similar press releases in recent years from AT&T and Comcast talking about gigabit deployments. There are just too many parts of this press release that don’t add up.

The Last Bell Company

Bell_logo_1969Cincinnati Bell is the only company in the US still using the Bell name. Founded in 1873 as a telegraph company, even before the invention of the telephone, the company has been serving a small 3-state area around Cincinnati since the founding of telephony. The company operated independently from the old Bell system because AT&T only owned a 32.6% share of the company.

The company abandoned the Bell name for a while in the 90s, changing its corporate name to the Broadwing Corporation, but changed its name back to Cincinnati Bell after a few years. The company has ventured outside its small footprint over the years. It bought IXC communications, a nationwide fiber network, and also spread out at one point as a CLEC to many parts of Ohio. The company’s biggest non-traditional offering was its wireless business which it sold to Verizon last year for $194 million. Like all independent wireless operators it was feeling the pinch of competition from the price wars going on in the wireless industry.

The company has seen the same drop-off of its traditional line of business as all telcos. The company’s traditional voice business of selling telephone lines fell from $520 million per year in 2004 to $203 million in 2014 and now represents only 16% of the company’s revenues. As homes and businesses ditched voice, the successful telcos have had to look elsewhere to replace those revenues.

Cincinnati Bell has undertaken a number of new business lines, and its most successful is its Fioptics business of building fiber to homes and businesses. The company reported at the end of 2014 that it had FTTP service in 91,000 homes and businesses, up from 11,000 in 2009. The company has also put a big emphasis on building fiber to businesses districts and has connected 5,800 commercial buildings in the region, compared to roughly 500 by main rival Time Warner.

In 2014 the company’s fiber business generated $310 million and expects those revenues to grow significantly as they expand the fiber network. The company plans on using the cash from the sale of its wireless business to further expand the fiber business, planning to spend $210 million on fiber expansion in 2015. At the end of 2014 the company had covered about 40% of the region with fiber and expects that to nearly double by the end of 2016.

The company has also done well serving the large corporations in their footprint like Proctor&Gamble and General Electric. The company has a full suite of large company products, such as cloud services, which it has now pushed down to smaller businesses. This business line generated $168 million in 2014 and is growing by double digits.

This effort makes Cncinnati Bell one of the largest fiber builders after Verizon FiOS. And like many fiber companies, they now offers a residential gigabit product priced at $89.99 per month for the first year and then going to $99.99. This is in a market where today Time Warner’s fastest product is 50 mbps download priced at a promotional price of $64.99 and reverting to $107.99 at the end of the promotion. Of course, we’ve seen Time Warner get much faster and become price competitive in other fiber markets like Austin.

For a company to reinvent itself is not easy or without risk. Like many companies that ventured into the CLEC business in the late 90s, Cincinnati Bell’s CLEC business came up a big bust. The company racked up $3 billion in debts and the business badly underperformed, threatening bankruptcy in 2003.

But the company made the right calls and changed directions again towards fiber and now seems to be on a solid path. The company has clearly reinvented itself again to be a fiber ISP. Companies who have been able to make that transition seem to be thriving. Offering the fastest data speeds of fiber in a given market seems to be a winning strategy and is letting companies like Cincinnati Bell benefit from the continuing growth of broadband services.

The company’s history is a good object lesson for others in the industry. The company foresaw the eventual death of voice as a viable business and took chances on launching into other areas. It fared poorly as a CLEC, a little better but not spectacularly as a wireless carrier, and seems to have hit a home run with fiber.

No company in this space can ever stop reinventing itself. The fiber business has thrived in part due to the continually growing demand for broadband, which has now achieved around 75% nationwide penetration of all households. But when that growth tops out, and as cable companies offer faster speeds, even fiber companies will need to stay nimble and creative to protect their revenues. Cincinnati Bell seems like a company that is always willing to take a fresh look at itself, and that’s a good lesson for all carriers.