The Utility-Telco Promise – Capturing New Revenue Streams with GPON
In nature, the opportunity for real change happens in the transition from one generation to the next. This is where new combinations of parental genes are created. If a new gene – or combination of genes – lends its host body a survival advantage, then that gene also prospers and comes to dominate in the gene pool: it is “naturally selected.”
There is no doubt that the “good” utility genes which have survived through the generations are those related to:
- Generating powerful customer relationships.
- Creating essential customer services.
- Building comprehensive, robust network and services infrastructures.
The ability to generate cash successfully from an infrastructure that is not only capital-intensive but also often generates low investment returns confers on utilities a special niche in the commercial ecosystem. As a result, natural selection has ensured that utilities are one of the longest-surviving commercial entities in the world.
Rapid change in the commercial environment, however, is about to present this industry with another huge evolutionary opportunity. That change is the upgrade of today’s copper-based broadband services to a new generation of fiber infrastructure that offers consumers orders-of-magnitude improvements in broadband performance and capacity. Europe’s utilities have both the opportunity and the genetic heritage to prosper by building and operating these networks in partnership with Europe’s telcos and alternative operators.
Around the world, but particularly in Northeast Asia and the United States, major investments have been made to replace the aging copper wires that currently connect homes and businesses to the telcos’ networks with optical fiber (fiber-to-the-home; FTTH) to deliver advanced broadband services. These services include telephony and Internet access as well as broadcast and on-demand television – so-called Triple Play. Passive optical networks (PON), especially Gigabit-PON (GPON), are the dominant network technologies being deployed (see Figure 1).
Verizon, for instance, is creating a next-generation fiber network that will pass nine million homes during 2007 and 18 million by 2010. In Northeast Asia, there are around 12 million FTTH-derived broadband subscribers, enjoying speeds from 25 to 100 mbit/s. In Europe today, there are no more than three million FTTH broadband subscribers. While this may look like a poor comparison, it is also a rich opportunity.
Already, there is every sign that Europe’s telcos are awakening. France Telecom has announced a significant FTTH investment. Telefonica and Telecom Italia are following suit. Reasons for this acceleration revolve around an increased end-user expectation of a better broadband experience and genuine competitive pressure from alternative network operators. Another driver is the erosion of margin from voice services, which is prompting service providers to find new ways to raise incremental revenues from the households they serve. There are many examples of early FTTH services achieving just that.
Passive Optical Networking (PON) is a family of broadband access technologies that offer high performance and a cost-effective means of connecting homes and businesses to broadband services via optical fiber. PON networks avoid the cost of a dedicated fiber from the central office to each home or business, by employing a point-to-multipoint architecture. Additionally, there are no active components deployed between the central office (CO) and the customer premises. This further reduces both capital and operational expenditures with no impact on performance.
The first broadly deployed PON technology was Broadband (B) PON, based on asynchronous transfer mode (ATM) technologies. Robust and standardized, BPON was nevertheless challenged by EPON, which offered double the throughput (a symmetrical 1.2 Gbit/s per PON) and a more natural fit with Ethernet end-user services.
However the emergence of Gigabit (G) PON has taken performance and investment returns to another level altogether. It is IP-based, with a downstream throughout of 2.5 Gbit/s and a bandwidth efficiency of more than 90% (versus 60%). GPON gives service providers three times the ‘revenue bandwidth’ per home or business compared to EPON. GPON is also a worldwide standard, ensuring a choice of customer premises equipment. It also includes native support for legacy services such as TDM and RF broadcast television – further protecting investments.
Fitness and Opportunity
There are new commercial opportunities emerging where Europe’s utilities have the genetic heritage to colonize and flourish.
The first opportunity is for utilities to be a part of telco efforts to take fiber to homes and businesses. Why are utilities in such a position? An analysis of Telcos investment models reveals that 70-80% of the planned investment was not in networking hardware and software, or even in fiber cabling systems, but in civil engineering works. To get fiber into millions of homes requires a vast civil engineering effort to dig trenches, install ductwork, build masts, upgrade street cabinets and so on. Telcos now realize that much of this cost can be offset, deferred or avoided altogether if they partner with an organization that already has this infrastructure in place. Potential partners include water, power and gas utilities.
This level of the network, which ends even before the open systems interconnection (OSI) seven-layer model begins, is often referred to as the passive networking layer, or more commonly the passive infrastructure. Utilities have the opportunity to establish themselves as the critical passive infrastructure provider, supplying service providers with everything from ducts to – potentially – dark fiber. Much of the civil work associated with working on these broadband telecom projects is necessary anyway, as utilities constantly need to upgrade their own core infrastructure to, for instance, support more efficient metering or more complex telemetry.
There are also interesting ways to extend this opportunity. Power utilities do not need to limit their role to simply helping service providers reach the home; they can help deliver services all the way to the PC, TV and telephone within the home. This is because distributing broadband signals inside the home is a tricky and costly area for the service provider. It often involves running extra wiring, installing wireless gateways and fixing the inevitable faults. The power utility has the advantage of already connecting to an approved and regulated set of wiring within the home – the ring main – and mature technology exists for the transmission of high-speed data over this wiring infrastructure.
The second commercial opportunity is for utilities to become a broadband service provider in their own right – as a “utility-telco.” If this appears to conflict with the previous commercial model – shifting from telco collaborator to telco competitor – then rest assured: the utility-telco model starts where the traditional telcos’ outreach typically ends (or at least moves very slowly).
Since telcos are driven by a need to generate relatively fast and high returns on most of their FTTH investments, they will typically start by cabling the centers of big cities. Here, they will expect to find both housing and high-income households packed densely together. From there they will move to the suburban areas of those same cities, from there to the centers of smaller cities, and so on.
Six reasons to deploy fiber in citynets:
- Economic Development: Open-access broadband increases the attractiveness of the community to businesses, professionals and residents.
- Enhanced Public Service: Community portals for city services, traffic management and emergency/safety services benefit from high-speed communications that ensure the well-being of all residents. Broadband access at public pavilions or libraries helps bridge the digital divide between income levels, neighborhoods and urban centers.
- New Revenue: For utilities or municipalities, the resale or lease of dark fiber service to outside service providers means a new, regular revenue stream to help offset costs.
- Leveraged Investment: The city or utility already has right-of-way at most locations. This represents an immediate cost saving over carrier-provided services and reduces congestion from multiple providers digging in the same street or installing redundant facilities. For city governments, this is key because tax-paying local businesses are not faced with repeated digging and upgrades to their streets.
- Lower Cost of Capital: For municipalities, capital from inexpensive loans, government bonds, grants or third-party financing can be used to fund initial fiber network investment.
- Easy Upgrades: Fiber is future-proof, with bandwidth limited to the capability of the equipment at the start and end of the fiber run. This equipment alone needs upgrading as technology advances, protecting the initial investment in fiber cable deployment.
Meanwhile, towns with fewer than 20,000 homes can expect to wait a long time for upgrades to their telecom infrastructure. Municipal networks are therefore an opportunity that the utility-telco can fully exploit. Not only can the utility-telco expect to find households clamoring for next-generation broadband services, but also a municipal or regional government that is anxious to boost economic prosperity and social well-being by promoting the provision of broadband services through public/private partnerships. As a result, the still considerable risk of large-scale investments in FTTH by the utility-telco can be offset by public investment so long as certain legal and regulatory principles are respected.
The legal/financial models for building municipal networks vary, but common architectural approaches are emerging in Europe. An open, passive infrastructure is the usual foundation and one of the conditions that regulators are likely to stipulate. This ensures that any service provider – not just the municipal one – can, in theory, benefit from the investment of public monies.
The active infrastructure can be provided by one operator, or divided into wholesale and retail operations, depending on the model adopted. The move from a passive telecom player (providing a supporting role in the delivery of broadband services) to an active role as a utility-telco can be a natural one. It simply requires investments of time and resources to:
- Develop additional infrastructure.
- Create and provision a new group of essential services.
- Extend existing, close customer relationships.
The utilities have the genetic blueprint and experience to support each step of this journey.
Leveraging Alcatel-Lucent for FTTH
To leverage the utility-telco opportunity, utility companies will need to choose both their networking technology and networking partner carefully. Alcatel-Lucent, providing complete end-to-end FTTH solutions, has worked with many utility-telco customers all over the world, many of whom have chosen GPON technology to create FTTH infrastructures and deliver next-generation broadband services (Figure 1).
PON has some very good genes itself, which have prospered through several generations of technology. They express themselves in terms of continuous high performance; compatibility; reliability; cost effectiveness in investment and operations; flexibility; and scaling for mass deployment.
Stimulating Municipal Growth through Fiber to the Most Economical Point
Fiber-based networks that operate from ‘citynets’ are common in Sweden and other Nordic nations. Citynets are the publicly owned infrastructures that typically operate above- or below-ground rights-of-way, to provide electricity, gas or water services to customers in primarily urban areas. In recent years, Swedish municipalities and utility companies have deployed fiber cable through their citynet systems. While initially deployed to provide basic broadband services for their own internal needs, these systems are now emerging as ideal channels for delivering more advanced broadband and Internet protocol (IP)-based services to consumers.
In Sweden, the use of citynets to provide telecom services began in the early 1990s. Typically, Swedish citynet operators (utilities or local government) added fiber to their conduit/right-of-way systems, with the initial intent of reducing the cost of buying these services from one of Sweden’s three incumbent telecom operators (government-owned or private). In a short time, many citynet operators expanded to offer services to the consumer market as a way to generate revenue.
The concept of an open-access fiber network can be compared to buses driving on a toll roadway. The utility or government owns the network (roadway) and charges bus companies (content providers) a toll for the privilege of driving on a high-speed (fiber) route. The content providers provide the broadband content to their customers and include in their charges a payment to the citynet operator. The citynet provides connectivity; the content providers deliver services to the end user. This approach eliminates the need for content providers to shoulder the upfront expense of running fiber as well as the related costs associated with digging, establishing rights-of-way agreements and other legal entanglements. (See Figure 2)
Figure 2– Citynet for open access fiber network
With the growth of new citynet-based fiber networks, opportunities exist for expanding service beyond high-speed Internet access and Triple Play, to such offerings as home security monitoring and healthcare/telemedicine screenings – including daily, in-home blood pressure reporting services offered in collaboration with distant hospitals or clinics.
In terms of returns on invested capital – a key measurement for the utility-telco – GPON is the star of the PON family. It offers at least three times the revenue potential per installed fiber of its first cousin, EPON, by offering twice the downstream bandwidth, and ensuring that over 90% of all transmitted bytes are available for chargeable services. In addition, GPON scales beautifully. It has twice the passive span of EPON, which means it can serve four times the area from a single optical line terminator.
Deployed in a full-IP configuration format, GPON can also support legacy services such as TDM as well as RF broadcast (analog or digital) television. This simplifies the rollout of Triple Play services and minimizes investments in new residential gateways. It also does this in a way that is completely defined by international standards, ensuring interoperability and choice.
In Europe it is important that the utility-telco – or any telco, for that matter – be able to share (or unbundle) its fiber infrastructure with other network operators including the national telco. GPON has already demonstrated its ability to share dark fiber and IP network-level resources in France and Sweden.
Alcatel-Lucent is the technology and market leader in GPON access networks, with more than 35 projects worldwide. Reference customers include Verizon, AT&T, France Telecom and SingTel and many utilities and municipalities in the Nordics. Alcatel-Lucent’s strength lies in the combination of its products, along with global professional services, systems integration and support capabilities, as well as decades of experience in building and maintaining service provider networks.
Jean-Pierre Lartigue is Vice President, Marketing and Communications, Access Division, Alcatel-Lucent, Antwerp, Belgium.