Always room for fiber

First things first. Any discussion on the growing prominence of fiber to the home - the ultimate end game in the fixed-line broadband business - requires a little perspective. For a start, there were almost 350 million broadband subscribers in the world at the end of 2007, according to Point Topic. DSL accounts for 65% of that number - around 228 million. Cable modem users take up close to 22% (76.8 million). FTTx brings up the rear with 37.8 million users, which works out to just under 11% global market share.

Look closer, and the numbers start to get interesting. In the last quarter of 2007, FTTx was the faster grower of the three at 6.3% quarter on quarter. DSL also added to its user-base with 4.6% growth, but its quarterly growth rate has been in decline for the past year, Point Topic says.
The story in Asia Pacific is even more encouraging for fiber. The region dominates the FTTx world, with 31.6 million subscribers - that's 83% of the global base. And it's the only region in Point Topic's stats to see a drop in its DSL base (albeit by less than one percentage point).

Granted, the vast majority of Asia's FTTx subscribers are concentrated in a handful of countries - specifically, China, Japan and South Korea. It's also worth mentioning that in the FTTH Council's FTTx penetration report released in February, only 14 markets worldwide sported FTTx penetration over one percent. Still, that's three more markets since the council's first such report in July last year. And again, Asia topped the rankings, with South Korea, Hong Kong and Japan occupying the top three slots. Tellingly, the drop-off between third-ranked Japan and fourth-ranked Sweden is steep - from 21.3% penetration to 7.1%.

While all this seems to bode well for FTTx in Asia, the truth is a little more complex. Many of the factors that have held back FTTx rollouts in various Asian markets are still very much in play, and - Asia being the heterogeneous playground that it is - fiber isn't always going to be the right solution.

Low broadband penetration

That's not to say they hype is totally unjustified, says ABI Research analyst Serene Fong. 'The FTTH market is getting more interesting to watch as consumers get much higher bandwidth and more content at much lower prices than they ever would if ADSL remained the dominant transmission medium,' she told Telecom Asia.

Indeed, the quest for triple plays to drive growth and reduce churn, and the bandwidth demands that come with it, such as demand for richer multimedia content are key factors for telcos that are already deploying fiber access. IPTV and VOD are key drivers - particularly HDTV - but so are emerging applications like multiplayer online gaming, and even online karaoke sessions.
The catch is that, like any telecoms service, broadband is a balancing act. Telcos still have to balance consumer demand against CPE and infrastructure costs. Users want more for their monthly subscription; telcos want economies of scale to be able to give it to them. And that's just in the developed markets.

Which brings us to the other chief issue FTTx, or any other form of broadband, faces in Asia - broadband is the exception to the rule in many countries in the region.

 

'Broadband and PC penetration in the region is still relatively low compared to the rest of the world,' says Fong. 'Low PC literacy and internet use, along with affordability issues, poor infrastructure layout, and the slow unbundling of the local loop have hindered growth to a large extent.'

Of course, telecoms players as well in regulators in developing markets want broadband, both to narrow the digital divide and make their own economies more competitive on the international stage. And many of them are scrambling to develop new national broadband networks with the latest and fastest technology. But the result is likely to be a hodge-podge of access technologies tailored for specific areas, says Fong.

'Wireless technologies such as Wi-Fi, Wimax, satellite, or terrestrial broadband offer convenience to users, but they are still limited by their bandwidth capabilities,' she says. 'Hence, they are more likely to be used to supplement broadband needs in infrastructure-lacking rural areas.'

New initiatives

That said, where FTTx has taken root in Asia, typically it's done so with a vengeance. In some markets, FTTx is outpacing DSL in new adds. And while Korea, Japan and Hong Kong are the top markets, China and India are also expected to show significant growth in the next few years, and will likely help fuel Asian dominance of FTTx through sheer scale. Singapore and Australia are two other markets set for major FTTx pushes - thanks largely to government initiatives.

The Australian quest for FTTx stems from its Broadband Connect program for underserved and rural areas. The government initially gave $869 million to OPEL (a SingTel Optus/Elders JV) to build ADSL2+ and Wimax networks covering 889,322 underserved premises in rural and regional Australian at metro comparable prices. In April, however, Stephen Conroy - Australia's new minister for Broadband, Communications and the Digital Economy under PM Kevin Rudd - pulled funding for the whole project to clear the way for his plan to bring FTTx to 98% of Australian homes. A $4.3 tender process to build it is already underway.

In Singapore, meanwhile, the Infocomm Development Authority wants the entire island completely fibered up by 2015. To that end, it's created a staggering three-layered model comprising a 'NetCo' to design, build, and operate the passive infrastructure, an 'OpCo,' to deploy network infrastructure like routers and switches and serve as a capacity wholesaler, and retail service providers to actually use the resulting infrastructure. Ten consortiums have been shortlisted for the NetCo layer, and 11 for the OpCo layer. Winners for the NetCo tender will be announced in Q3 this year.

Fragmented PONs

All this activity is undoubtedly being welcomed by infrastructure vendors, which have bemoaned the relatively slow uptake of FTTx. According to Ovum RHK, business has been picking up for vendors thanks largely to Asia, although the US has also been a boon thanks to Verizon's decision to ramp up fiber rollouts.

'As service providers use up excess inventory global FTTx shipments rebounded after 3Q07's decline,' says Ovum RHK VP Lynn Hutcheson. 'The market finished the year with a record gain of 23% over 2006.'

But while business is picking up on the FTTx front, no single technology is emerging as a de facto standard.

 

GPON (Gigabit passive optical network), the IEEE's 802.3 GEPON (Gigabit Ethernet PON), and active or point-to-point (P2P) Ethernet are the top three technologies vying for the FTTx championship. At the moment, GPON (G.984) is the standard favored by the ITU's Full Service Access Network (FSAN) group, citing benefits like low opex, carrier-class features and fast downlinks. Ovum RHK's VP Hutcheson says GPON will get build up some good momentum in 2008 from Verizon's rollouts, but adds that GPON shipments have been otherwise lackluster despite the industry hype.

In Asia, GEPON is the main technology of choice, as it's the more mature technology of the bunch - and it's cheaper. Both factors have been driven by NTT's decision to deploy GEPON years ago. Indeed, NTT worked with closely with the IEEE to define additional specs for GEPON, such as network management, bandwidth-on-demand bursting, and optical gain improvement.
That said, GEPON is only used to connect single homes in Japan - for multiple-dwelling units (MDUs), active Ethernet is the dominant technology. Korea also uses a mix of technologies - EPON for single units and GW-PON (a.k.a. Gigabit WDM-PON, developed and commercialized by KT) for new MDUs.

Telcos in China, where most FTTx deployments aren't using PON architectures yet, are trialing both GPON and GEPON. A Heavy Reading report in February speculates that China may go with GPON if the telcos put off a decision long enough - which could also help push GPON's costs down thanks to the amount of gear that would be deployed in China alone.

But ABI's Serene Fong reckons that GEPON has the upper hand - not just for its cost-effectiveness, but also because it offers greater flexibility.

'Vendors are able to make modifications and optional additions to tailor their products to the needs of the carriers while, at the same time, still meeting the specifications,' she says.

As such, Heavy Reading predicts that GEPON, GPON and active Ethernet are likely to co-exist on more or less equal terms over the next few years - after which next-gen technologies like WDM PON, 10G PON and higher-speed P2P Ethernet will be ready for commercial deployment.

Government push

Whichever way the technology side plays out, the good news is that the business case for FTTx is getting stronger as NGNs drive broadband growth and facilitate the increasingly popular triple-play business model. That said, the one constant in the FTTx narrative continues to be this: the markets that see significant FTTx action will be the ones where regulators actively encourage it.
That's been the case in big-time FTTx markets like Japan and Korea for several years. As mentioned earlier, Singapore and Australia are also primed for a fiber push via government intervention. Hong Kong seems to be the exception that proves the rule, being one of the few FTTx markets where market competition rather than hands-on regulatory meddling has driven deployments.

In most other markets, however, it will take government action - even if it's in the form of tax incentives, grants, low interest loans, etc - to kick-start fiber. FTTx is nothing short of a complete overhaul of the local loop that incumbent telcos have been putting off for decades, and most telcos need more than straight market incentive to get started, says Fong of ABI.

'While the benefits of rolling out fiber-based services are obvious, the fact is that any significant rollout of FTTx will quite often require regulatory intervention,' she says. 'Government-sponsored initiatives for deployment of fiber and network infrastructure upgrades can act as sweeteners for operators who are repelled by the high investment costs.'

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