1. Broadband Access in the US: Does FTTH Raise its Head Again? Dr. Stefano Galli Telcordia Technologies, Inc. Room: MCC-1J124B 445 South Street Morristown, NJ 07960-6438 Tel.: (973) 829-4980 Fax: (973) 829-5886 Email: sgalli@research.telcordia.com Copyright © 2003 Telcordia Technologies. All Rights Reserved. 1 st OPTIMIST Workshop on Broadband Access, ECOC’03, September 21 st, 2003, Rimini, Italy.

2. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Access in the US Broadband rollout forecast (Yankee Group, 2001)

3. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Access in the US Actual USA broadband internet access lines (www.FTTHcouncil.org) Cable companies: 63%; RBOCs: 37% 2001 Forecast Error

4. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Access in the US The worldwide DSL trend is different than in the US (www.DSLforum.org) 4Q004Q013Q024Q02 1Q03 DSL lines 6.518.730.6 35.941.4 Cable modems unknown 1320 24 28 DSL subscribers per region

5. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Access in the US Cable versus DSL Cable has higher penetration in the US than in much of the world; Unfavorable regulatory issues (unbundling) for DSL in the US; Cable modems got to the market first!! Cable has high margins  40%, payback period < 1 year; Cable companies will soon offer telephone service (unlimited long distance) probably at  $40 for cable TV customers. The Regional Bell Operating Companies (RBOCs) are not yet competitive against cable TV services, but cable companies are under pressure from satellite TV. Number of residential phone lines going down (worldwide trend).

6. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 FFTH Conference (October 2002)  August report on FTTH installations showed a 200% growth rate in 2002.  In 2003, FTTH installations are expected to grow by 330% from 72,100 homes passed to 315,000 homes passed, ultimately reaching between 800,000 and 1.4 million homes by 2004.  Key market segments include developers of large housing developments and master planned communities, public electric companies (municipalities, public utility districts, and rural electric coops), ILECs, and CLECs.  Over the last six months, more than 1% of all new homes in the U.S were built with FTTH service available.  Currently, almost all FTTH homes are offered high-speed Internet, nearly 75% are offered video 66% are offered voice. To date, 60% of all FTTH homes are offered all 3 services. Access in the US

7. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Access in the US State Development, City or County Area currently planned CA Poppy Meadows-Development American Canyon CA Palo Alto Trial area CA Roseville Entire municipality CA Sacramento Part of municipality CO Colorado City Entire municipality CO Rye Entire municipality FL LPGA Community-Daytona Beach Development GA Dunwoody-Atlanta Development IA Guthrie Center Entire municipality IA Huxley Entire municipality IA Cambridge Entire municipality IA Slater Entire municipality ID Bear Creek-Meridian Development KS Almena Entire municipality KS Hill City Entire municipality KS Osborne Entire municipality KS Norton Entire municipality MN Morris Entire municipality MN Alberta Entire municipality MN Chokio Entire municipality MN Evermoor-Rosemount Development MN Town Lakes-Albertville Development MN East Ottertail Entire municipality NE Greenfield Addition-Blair Development State Development, City or County Area currently planned OR Woodburn Entire municipality PA Kutztown Entire municipality SC Daniel Island-Charleston Development SC Sandy Point-Bluffton Development TX Avery Ranch-Austin Development TX Burleson Part of municipality TX Laredo Part of municipality TX Canyon Gate Brazos-Houston Development TX Hometown-North Richland Hills Development TX Lakes on Eldridge-Houston Development TX Northpointe-Houston Development TX Rock Creek-Houston Development TX Stone Gate-Houston Development TX Grand Lake Estates-Houston Development TX Victory Lakes-Houston Development TX Crystal Falls-Leander Development UT Kamas Part of municipality UT Provo Trial area VA Southern Walk at Broadlands-AshburnDevelopment VA Lansdowne on the Potomac-LeesburgDevelopment VA Braemar-BristowDevelopment WA Chelan Co. Trial area WA Douglas Co. Entire county WA Grant Co. Entire county WA Issaquah Highlands-Seattle Development WA Mason Co. Entire county Optical Fiber Communities With Customers Served Today via FTTH

8. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 Tough times for US RBOCs Capital replacement cycle is getting shorter, but RBOCs are slowing their investment (John Ryan, RHK – NFOEC 2003): ($ Billions) 2000200120022003*2004* CAPEX103 84 33 30 31 OPEX142135123120120 Internet backbone revenues per Gbit are today around $6, decline rate around 45%/year Peer-to-Peer traffic (Napster, Gnutella, etc.) is  30% of overall internet traffic. Data transport: 60% traffic, 7% of revenues. There is something wrong with the business model!!

9. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 What’s new today US FCC’s Triennial Review (Feb. 20, intention –confirmed in August)  The Federal Communications Commission (FCC) recently decided not to require incumbent local exchange carriers (ILECs) to unbundle new optical access networks.  The FCC's ruling removes FTTH from unbundling rules, which require ILECs to lease facilities to competitors. “… carriers seeking to serve the mass market face varying levels of impairment without unbundled access to the transmission path between the central office and the customer premises depending upon…” type of plant and type of services. However, for “loops consisting of fiber from CO to the customer premises, i.e., FTTH loops, we find no impairment on a national basis.”

10. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 What’s new today …. but this is not the whole story: “… however, in a FTTH overbuild situation we must ensure continued access to an unbundled transmission path suitable for providing narrowband services to customers served by FTTH loops.” “… only in fiber loop overbuild situations where the ILEC elects to retire existing copper loops must the ILEC offer unbundled access to those fiber loops, and in such cases the fiber loops must be unbundled for narrowband services only. ILECs do not have to offer unbundled access to newly deployed or “greenfield” fiber loops.” What about FTTCurb?

11. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 The RFP Joint Request for Proposal (June 2003):  Three of the four remaining RBOCs (BellSouth, SBC, and Verizon) issued an RFP saying that they have adopted a set of common technical requirements based on established industry standards for what they call “fiber to the premises” (FTTP). Qwest did not participate.  FTTP is to allow an array of digital services, up to and including HDTV, on a common platform with volume-driven low prices.  BellSouth, SBC and Verizon will independently finalize their FTTP deployment plans after receiving and evaluating these proposals from vendors. The RFP reportedly asks for ITU-T G.983 (APON/BPON) standards compliance (the press reports that some companies have also proposed GPON and EPON).  These three big carriers indicate that they are looking into buying FTTP equipment for deployments in 2004 and beyond.

12. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 What’s FTTP FTTPremises

13. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 FCC ruling and RFP: comments in the press  The regulatory relief is for FTTH only, but “FTTcurb is a more cost effective solution.” – Bill Smith, BellSouth CTO (TelephonyOnline.com, 09/08/03).  There is not a lot of incentive to build out PON-based FTTP because the cost of the equipment and trenching are still too high. Copper-based DSL is “the key product in our fast-growing data business.” – Edward Whitacre, SBC CEO (Light Reading, 09/11/03).  Some press reports question whether the RBOCs will mass deploy FTTP.  The whole ruling is more than 500 pages long; many think that lawyers will have the last word.

14. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 The RFP  Regulatory relief the RBOCs did not have for copper will allow them to deploy new infrastructure and offer fiber-based services directly to the home user.  The RBOCs entered the residential high-speed market late, they are probably trying to move faster now.  It worked well for DSL: Joint Procurement Group (JPG) in 1996 successfully obtained an attractive bid (about half of then-typical prices) from Alcatel for mass quantities of DSL equipment. Why the RFP? Why now?

15. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 The RFP  Triple play solution of voice/video/data, provides the possibility of offering new services to grow their revenues.  Respond to cable companies offering voice/video/data bundles to existing cable TV customers.  Operating and maintenance costs are higher for copper-based networks than for fiber based ones, especially if PON architectures are used.  Cost effective commercialization of PON technology, and industry standard to support product interoperability.  The most significant portion of FTTP CAPEX is home and drop cost (60%), which is success-based. Why FTTP? Why PON-based?

16. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 FSAN FTTx families based on PON

17. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 PON: primary rationale  PASSIVE outside plant: pushes powering and power backup issues to the ends of the loop  Shared Fiber: single feeder fiber supporting up to 32 ONTs  Shared Equipment: single transceiver at CO supports up to 32 ONTs  Shared Bandwidth: statistical multiplexing, high peak rates with modest average rate as appropriate for web browsing  Symmetric: greater upstream bandwidth than cable modems or ADSL, particularly important for business customers  FULL SERVICE: voice, video (analog and digital), data

18. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 ONT 1 OLT ONT 2 ONT 3 User 1 User 2 User 3 13312 13312 13312 13312 11 2 33  Broadcast and Select  ONTs use ATM cell identifiers to select  Unicast or Multicast splitter ATM cells PON Downstream Operation

19. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 ONT 1 OLT ONT 2 ONT 3 User 1 13312 2 1 1 3 3 11 2 33  Ranging protocol allows precise time-interleaving of cells  OLT issues grants to ONTs to transmit combiner ATM cells + 3B headers PON Upstream Operation

20. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  Problem: Multiple access in the upstream direction –Ranging algorithm assures synchronized interleaving of upstream cells to one bit-time  Problem: Eavesdropping on downstream signals of other users –“Churn” provides additional protection at the TC layer on a per-VP basis, but is not as secure as encryption  Problem: “babbling ONU” blocks upstream channel –Passive denial of grants –Active “shut-up” command PON-Specific Challenges

21. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  Shared 1 fiber (2 wavelengths) or 2 fibers to splitter, dedicated fibers to each end user, reach (20km) with splitter (up to 32 way split)  For both FTTBusiness and FTTHome/FTTCurb (FTTPremises)  Passive OSP  Sharing of fiber facilities at CO  ATM-PON standardized in 1998 in ITU G.983.1; recent extensions: higher bit rates, wavelength overlay(s), dynamic bandwidth allocation, facilities protection O/E + NT O/E + NT O/E + NT O/E + NT O/E + NT Central Office Equipment Shared fiber Dedicated fibers Splitter/combiner Downstream  : 155 Mb/s, 622 Mb/s 1.5  m Upstream  : 155 Mb/s1.3  m Splitter-Based PON (ITU G.983.1, 10/1998)

22. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 WDM Overlay for Video (current, in RFP) OLTONT 1x32 Data/Voice 1.5-/1.5+ WDM Video TX V-ONT Video  Original range for downstream TX very wide (1480 - 1580 nm) –OLT TX is typically a DFB laser in temperature-stabilized environment and is highly shared –restrict the downstream wavelength range, free up EDFA band for broadcast video signal  Original notion: allow an additional downstream broadcast signal to deliver broadcast services (video) –Capitalize on distributive nature of PON –Easily removed for business areas with limited need for video

23. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  IEEE Ethernet-in-the-First-Mile group is producing standard 802.3ah for EPON, largely vendor-driven standard  Fundamentally similar to ATM-PON but: – Transports Ethernet frames/packets, not ATM cells – Minimum standardization, product differentiation  Specifically decided not to standardize the following : – Bandwidth allocation algorithm (DBA) – TDM and ATM support – Security, Authentication – WDM Overlay Plan, support for Analog Video – Protection, Diagnostics, Monitoring – Compliance with existing OSS – Vendor-specific products do support some of the above Why Not Ethernet-based PONs (EPON)?

24. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  Passive architectures are not currently in widespread use to serve residential or small-to-medium business customers  G.983 ATM-PONs are likely to be the near-term architecture of choice and will be deployed for small-to-medium business and new-build residential areas  Verizon –Proprietary (non-FSAN) PON system for residential customers in Brambleton Virginia development (spring 2001) –Begin ramp up in 2004 with increasing deployment in 2005 and 2006 PON Deployment

25. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  SBC –FTTBusiness—“Next Phase of Project Pronto”  On May 9, 2001 SBC announced its use of BPON for extending direct fiber connections to smaller business customers (T1 replacements) –FTTH  Alcatel WDM-overlay PON for residential customers (July 15 2002), 6000 homes in Mission Bay Development.  BellSouth –FTTBusiness PON still a prime contender –Considering three residential options, primarily new-build areas:  Current proprietary FTTC (single-vendor)  PON-based FTTC  PON-based FTTH PON Deployment

26. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003  SBC, Verizon, and BellSouth are attempting to recreate the success of the joint purchasing agreement that resulted in dramatically reduced costs for ADSL equipment –Common technical specifications, separate purchasing arrangements. –Triple-play platform will be based on G.983 ATM-PON standard, likely residential version will include broadcast video overlay. –FTTP could mean FTTHome, FTTCurb, FTTBuilding/FTTApartment.  Fiber-to-the-Home –PONs likeliest architectural choice, but active options are emerging. –ATM-PONs have the lead, but E-PONs could be a disruptive technology. –Small-to-medium business customers (FTTB) and new-build residential access (FTTH) likeliest first deployment targets. Conclusions  The broadband access “battle” is underway, with cable apparently winning

27. Telcordia Technologies Proprietary - Copyright 2003. ECOC 2003 – Is this RFP the sign that FTTH raises its head again? Questions Predictions are tough … especially about the future!! – Where will the heavy deployment be? New-build area/greenfield or overlay in established neighborhoods? Business customers? (Basically, fiber-to-the-whom?) –In the current economic climate, is there are vendor that will be able to offer forward pricing to make a viable business case? –Will the RBOCs follow up in their intentions? –FTTHome, FTTCurb, FTTBuilding… fiber-to-whatever?