Building Fiber to the X

Fiber CableAnybody that is a client of CCG probably knows that we build business plans as one of our primary products. Over the years we have built business plans for just about every kind of network and technology imaginable. And as you might suspect, these days we build a whole lot of fiber-to-the-premise business models for markets of all sizes.

I recently realized that we are on the verge of being able to use FTTP networks to do a lot more than serve residents and businesses. My typical business plan concentrates on the revenue streams that can be gotten from residential and business customers. We also look at a few other revenue streams like selling to large customers like schools or cell phone towers. And we normally consider wholesale sales made to other carriers already in the market.

But everything I read tells me that there are soon going to a whole lot of new opportunities for using a fiber network, particularly in medium to large markets. We are seeing some of these opportunities today, but each of these areas promises to get larger as time goes by. Consider some of the following:

Outdoor WiFi Network: More and more cities and even some carriers are starting to foresee business plans that include numerous outdoor WiFi hotspots. This can be for law enforcement and municipal use, for roaming WiFi cellphones, to provide a digital divide solution, or just to provide a service to citizens or customers.

Smart Lampposts: Similar to WiFi hotspots are smart lampposts that include smarter lighting that saves energy coupled with WiFi hotspots.

Mini Cell Sites: As the cellular carriers contemplate going to 5G they are going to need a lot more and smaller cell sites located close to users. And these cell sites will need fiber.

Traffic Light Systems: There are new systems of intelligent traffic signals that promise to significantly improve traffic flows using AI.

Cameras: There is a proliferation of cameras today including private security cameras, traffic cameras, web-cams, and law enforcement security monitoring.

Digital Advertising Signs: There are now programmable billboards that can change the display through programming.

IoT Aggregation Points: Most carriers envision a network of IoT aggregation points that gather the traffic to and from outdoor and other IoT monitors as a separate Ethernet network.

Smart Meter Aggregation Points: Although wireless technology seems to have won the smart meter race, these networks need neighborhood aggregation points to gather signals from the wireless monitors.

SCADA Systems for Electric and Water Utility Monitoring: While many electric and water systems now have fiber networks to connect monitors in their system, as we develop more sophisticated monitoring there will be the need for more monitoring points.

On top of these applications there are others that nobody has yet thought of, into a business plan. But fiber is a long-term investment and there are going to be numerous revenue opportunities like these that are going to help to pay for fiber, assuming that a fiber network is deployed with these kinds of connections in mind. People always ask me what happens to a fiber network as cable TV and telephone penetration rates drop, and at least part of the answer is that there are going to be numerous locations in a community that are going to require a fiber connection. None of us knows yet how these future revenue streams will be priced, but we know these are all revenue opportunities and that they are all coming in the not-too-distant future.

The Shift To Proprietary Hardware

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There is a trend in the industry that is not good for smaller carriers. More and more I see the big companies designing proprietary hardware just for themselves. While that is undoubtably good for the big companies, and I am sure that it saves them a lot of money, it is not good for anybody else.

I first started noticing this a few years ago with settop boxes. It used to be that Comcast and the other large cable companies used the same settop boxes as everybody else. And their buying power is so huge that it drove down the cost of the settop boxes for everybody in the industry. It was standard for large companies to put their own name tag on the front of the boxes, but for the most part they were the same boxes that everybody else could buy, from the same handful of manufacturers.

But then I started seeing news releases and stories indicating that the largest cable companies had developed proprietary settop boxes of their own. One driver for this change is that the carriers are choosing different ways to bring broadband to the settop box. Another change is that the big companies are adding different features, and are modifying the hardware to go along with custom software. Cable companies are even experimenting with very non-traditional settop box platforms like Roku or the various game consoles.

I see this same thing going on all over the industry. The cable modems and customer gateways that the large cable companies and the large telcos use are proprietary and designed just for them. I recently learned that the WiFi units that Comcast and other large cable companies are deploying outdoors are proprietary to them. Google has designed its own fiber-the-the-premise equipment. And many companies including Amazon, Facebook, Google, Microsoft, and others are designing their own proprietary routers to use in their cloud data centers.

In all of these cases (and many other that I haven’t listed here), the big companies used to buy off-the-shelf equipment. They might have had a slightly different version of some of the hardware, but not different enough that it made a difference to the manufacturers. Telco has always been an industry where only a handful of companies make any given kind of electronics. Generally, smaller companies bought from whichever vendors the big companies chose, since those vendors had the economy of scale.

But now the big carriers are not only using proprietary hardware, but a lot of them are getting it manufactured for themselves directly, without one of the big vendors in the middle. You can’t blame a large company for this; I am sure they save a lot of money by cutting Alcatel/Lucent, Cisco, and Motorola out of the supply chain. But this tendency is putting a hurt on these traditional vendors and making it harder for vendors to survive.

It’s going to get worse. Currently there is a huge push in many parts of the telecom business to use software-defined networking (SDN) to simplify field hardware and control everything from the cloud. Since the large carriers will shift to SDN networks long before smaller carriers, the big companies will be using very different gear at the edges of the network – and those are the parts of the network that cost the most.

This is a problem for smaller carriers since they often no longer benefit from being able to buy the same devices that the large companies buy to take advantage of their huge economy of scale. Over time this is going to mean the prices for the basic components smaller carriers buy are going to go up. And in the worst case there might not be any vendor that can make a business case for manufacturing a given component for the small carriers. One of the advantages of having healthy large manufacturers in the industry was that they could take a loss on some product lines as long as the whole suite of products they sold made a good profit. That will probably no longer be the case.

I hate to think about where this trend is going to take the industry in five to ten years, and I add it to the list of things that small carriers need to worry about.