FTTx household penetration in Israel stands at less than 1%, despite the country being home to leading international vendors in passive optical network (PON) technologies, including ECI Telecom, Broadlight, and Passave (acquired by PMC-Sierra).
The situation could change rapidly as a result of government action following a simple question posed by Israel’s Minister of Communications Moshe Kahlon: with all of Israel’s capabilities, why is the country not widely deploying FTTx? Kahlon’s immediate solution was to approve a pilot FTTx project built by Israel Electric Corporation (IEC) and grant the utility a country-wide license (with financial partnership stipulations) to expand its network.
Bezeq, Israel’s incumbent telco operator, will respond vigorously to this competitive threat. In our view, a partnership between IEC, Bezeq, and financial institutions would be the most efficient and sustainable way to bring FTTx to Israel, finally giving the developers of PON technologies a chance to taste the fruits of their labor on their home turf.
With more than 90% of its 7.7 million people living in urban areas, Israel’s population density fits well with PON’s point-to-multipoint architecture. Israel’s GDP is more than $25,000 (€17,644) per capita, suggesting an adequate level of household income. Also, Israelis are familiar with fixed broadband services, with combined 80% household penetration of DSL and cable.
In addition to the population and economic fit, world-class products from domestic companies and Israeli-based multinational subsidiaries can be used to expand FTTx networks in Israel. ECI can build the PON systems with PON MAC SoCs from Broadlight or PMC-Sierra.
Even with these positives, FTTx networks are expensive to build. But Israel has an advantage here too, as the majority of existing electricity and communications cabling infrastructure in the country is aerial, meaning there is no need for costly and disruptive trenching. And IEC does it one better with its existing fiber infrastructure, which exists today for internal use but could be deployed tomorrow for Israel’s consumers.
IEC’s approach was pursued by Japan’s electric power companies ten years ago when Tokyo Electric (TEPCO), Chubu Electric, and Kansai Electric, among others, began to deploy FTTx networks. Over time, several sold their respective fiber networks to telco operators.
What attracts electricity companies to FTTx? These companies own the poles and rights-of-ways. Fiber-optic cable can reside alongside electricity cables without causing interference. Many electricity companies built fiber networks across their own electricity networks for internal use. With aerial-based infrastructure, the costs of pulling the fiber are not prohibitive. Customer relationships, call centers, and billing systems are in place already, although engineering and support staff must learn the ins and outs of communications services.
IEC received a license to build a fiber-based communications network throughout Israel. However, IEC is restricted to 49% ownership of this venture. The remaining 51% is to be owned by a financial institution or consortium thereof. The Israeli government will be issuing a tender in early August. According to the Ministry of Communications, more than 15 banks will participate in the financial tender.
Critics claim that the need for financial investors shows the lack a business case for nationwide FTTH. The Ministry of Communications counters that the size of the project, one of the largest ever in Israel, warrants the financial support of the country’s largest banks.
Bezeq, the incumbent telco, claims to invest over $1 billion annually in network infrastructure and plans to deploy FTTH/FTTB to homes and buildings. We expect Bezeq to speed up its FTTx deployments as IEC expands its network from the initial pilot project in Northern Israel to the rest of the country. Wireless service providers have also expressed concerns about IEC’s license.
Others suggest that a partnership should be formed where IEC provides the fiber infrastructure, Bezeq provides the services, and banks provide the funds. While multiple-party partnerships are often difficult to structure and manage, it is hard to believe that a country with fewer than eight million people can support two separate fiber networks.
Eventually though, the founders of Passave (now PMC-Sierra) and Broadlight may enjoy the wireline broadband speeds that their technology has enabled for millions of others around the globe.
Original article: FTTx to expand in Israel, home of PON developers