The challenges of bringing fiber to the home

Analysts said best way for carriers to recoup fiber investments is to focus more on upping fiber adoption

Carriers worried about the cost of deploying fiber should concentrate primarily on lowering their installation costs and driving up their adoption rates, according to Boston-based research firm the Yankee Group.

During a web seminar today on deploying fiber-to-the-home (FTTH ) connections, Yankee Group analysts said that the best way for carriers to quickly recoup their fiber investments would be to focus more on upping fiber adoption and less on generating more average revenue per user (ARPU). While the analysts said that increasing ARPU was indeed important, it did not provide as much of a return on investment as getting more users to subscribe to the technology and reducing the cost of connection per user.

"If you have a choice between ARPU and penetration, choose penetration," said Yankee Group senior vice president Wally Swain. "To this end, carriers should also reconsider offering wholesale services as a way to get people onto the same platform. If you can get more people selling your service that's got to be better than having to do it yourself."

Yankee Group principal analyst Benoit Felten echoed Swain's view that carriers should be more open to wholesaling access to their networks, although he acknowledged that many carriers have in the past been enthusiastic about opening up network access to their competitors.

He noted, however, that Dutch telco KPN and Swiss telco Swisscom had both created successful business models where they offered wholesale fiber services.

"We think economically it makes sense," he said. "Opening up your network is a way to deliver more value to shareholders... carriers should explore ways to generate wholesale revenues from lines that are not subscribing to a commercial service."

Wholesale access to fiber and copper services in generally more common in countries that have retain common carrier rules where an incumbent telecom company are required to allow smaller ISPs to buy space on their broadband networks at discount prices. The idea is to have incumbents wholesale access to their networks to other ISPs to compete with each other to sell Internet services to consumers and businesses. The practice has become less common in the United States after the Federal Communications Commission discarded bandwidth-sharing rules in 2005.

In terms of cutting costs to connect new subscribers, the Yankee Group analysts recommended that carriers carefully decide which areas will connect the most users for the least investment. This inevitably means building out fiber in areas that have a high density of buildings or areas that already have extensive underground duct systems that will lower the costs of putting fiber into the ground.

The analysts also said that carriers could lower their costs per connection by charging users connection fees when they sign up. Thus, a connection that would cost $US1,000 for the carrier would be lopped down to $US800 after users paid a $US200 connection charge.

While only building in areas with high population density generally implies that FTTH networks will be built out in large cities, some carriers have said that FTTH connections could be feasible for certain rural areas that have relatively high population densities.

For instance, Patrick Knorr, the COO of Kansas-based cable and broadband provider Sunflower Broadband, has said that there are some suburban communities in his vicinity that have been sprouting up in rural areas that would have enough population density to justify building out FTTH infrastructure.

Looking at the big picture, the Yankee Group analysts said that it's only a matter of time before all major telcos start offering Web access over fiber to the home. The only dilemma for carriers isn't whether to build out more fiber, they said, but how to deploy it without seeing their profits take a nosedive.

"The copper networks that all broadband services rely on its more than 50 years old and it's dying," said Felten. "Soon or later it will need to be replaced with fiber. Fiber is the endgame and the telcos know it."

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