INDEPENDENT TELCOS 46 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OCTOBER 2011 B roadband Communities’ list of independent telcos deploying or planning fiber to the premises has now grown to 585 – more than 12 times the size of the list the magazine compiled in 2005. at means about half the independent telcos in the United States now have at least some ex- perience deploying fiber to the premises. However, there were only nine net additions to the list since it was last pub- lished in April 2011. (Twelve companies were added and three were removed, including CenturyLink, which can no longer be considered an independent.) is is the first time the magazine has added so few companies to the list. Have independent telcos stopped de- ploying fiber? e answer is no, no, no – and maybe. THE STIMULUS EFFECT e stimulus program alone will gen- erate a substantial amount of FTTH deployment by independent telcos over the next two or perhaps even three years. However, stimulus recipients were added to the list when the Rural Utilities Service announced awards to rural telephone companies. Usually, this magazine learns about telcos’ fiber builds when they select vendors or an- nounce that they are ready to start dig- ging up streets and backyards. Because of the stimulus program, many new companies were added to the list earlier in their project life cycles. In the last few months, dozens of these companies have announced ven- dor selections and held groundbreak- ing ceremonies – but because they were already on the list, they weren’t added when they normally would have been. EXISTING NETWORKS EXPAND Even if the number of deployers is not growing as rapidly as in years past, many telcos continue to expand their exist- ing FTTH networks throughout their service areas and beyond. Some are us- ing stimulus funds – for example, such FTTH pioneers as Rural Telephone in Kansas and Xfone in Texas won very large awards – but, more significantly, others are building fiber networks with private funds, based on their earlier successes. Companies such as GVTC in Texas and Smithville in Indiana are proceeding with ambitious, multiyear buildout plans; dozens or even hundreds of smaller companies are doing the same on a smaller scale. SureWest, which has the largest fiber deployment of the independent telco group (154,000 marketable homes), added 5,400 new fiber homes in greater Kansas City during 2Q11 alone. Steve Oldham, SureWest’s president and CEO, said in a statement that accom- panied the company’s second-quarter earnings report, “We continued the expansion of our superior fiber-to-the- home network in the areas that provide the greatest opportunity for revenue growth. ... We are already reaching sales penetration rates of up to 30 percent in some new fiber build areas. Our early success positions us well for continued revenue growth in the coming quarters and beyond and demonstrates customer demand for more bandwidth delivered by a high-performing network. We are seeing outstanding business services rev- enue growth, driven by our advanced Telcos and the Fiber Future By Masha Zager ■ Broadband Communities Close to 600 independent telcos in the U.S. have now deployed fiber to the home. Will the rest of them be able to follow suit? ABOUT THE LIST Since 2005, Broadband Communities has maintained a list of independent telephone companies that are deploying fiber to the premises. The list is published at least twice each year and is also maintained in an interactive database at www.fiberville.com, where this information can be searched, sorted and downloaded. The online list includes other types of deployers in addition to independent telcos. Although information is gathered from as many sources as possible, the list is certainly not complete. To add to the list, fill in missing information or correct any errors, please contact [email protected]. About the Author Masha Zager is the editor of BROADBAND COMMUNITIES. You can reach her at masha @bbcmag.com.
23
Embed
INDEPENDENT TELCOS Telcos and the Fiber Future a substantial amount of FTTH deployment by independent telcos over ... tic cable have been tight ever since the ... even if their fiber-to-the-home
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INDEPENDENT TELCOS
46 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OctOber 2011
Broadband Communities’ list of independent telcos deploying or planning fiber to the premises
has now grown to 585 – more than 12 times the size of the list the magazine compiled in 2005. That means about half the independent telcos in the United States now have at least some ex-perience deploying fiber to the premises.
However, there were only nine net additions to the list since it was last pub-lished in April 2011. (Twelve companies were added and three were removed, including CenturyLink, which can no longer be considered an independent.) This is the first time the magazine has added so few companies to the list.
Have independent telcos stopped de-ploying fiber? The answer is no, no, no – and maybe.
The STimuluS effecTThe stimulus program alone will gen-erate a substantial amount of FTTH deployment by independent telcos over the next two or perhaps even three years. However, stimulus recipients were added to the list when the Rural Utilities Service announced awards to rural telephone companies. Usually, this magazine learns about telcos’ fiber builds when they select vendors or an-
nounce that they are ready to start dig-ging up streets and backyards. Because of the stimulus program, many new companies were added to the list earlier in their project life cycles.
In the last few months, dozens of these companies have announced ven-dor selections and held groundbreak-ing ceremonies – but because they were already on the list, they weren’t added when they normally would have been.
exiSTing neTworkS expandEven if the number of deployers is not growing as rapidly as in years past, many telcos continue to expand their exist-ing FTTH networks throughout their service areas and beyond. Some are us-ing stimulus funds – for example, such FTTH pioneers as Rural Telephone in Kansas and Xfone in Texas won very large awards – but, more significantly, others are building fiber networks with private funds, based on their earlier successes. Companies such as GVTC in Texas and Smithville in Indiana are
proceeding with ambitious, multiyear buildout plans; dozens or even hundreds of smaller companies are doing the same on a smaller scale.
SureWest, which has the largest fiber deployment of the independent telco group (154,000 marketable homes), added 5,400 new fiber homes in greater Kansas City during 2Q11 alone. Steve Oldham, SureWest’s president and CEO, said in a statement that accom-panied the company’s second-quarter earnings report, “We continued the expansion of our superior fiber-to-the-home network in the areas that provide the greatest opportunity for revenue growth. ... We are already reaching sales penetration rates of up to 30 percent in some new fiber build areas. Our early success positions us well for continued revenue growth in the coming quarters and beyond and demonstrates customer demand for more bandwidth delivered by a high-performing network. We are seeing outstanding business services rev-enue growth, driven by our advanced
Telcos and the Fiber Future
By Masha Zager ■ Broadband Communities
Close to 600 independent telcos in the U.S. have now deployed fiber to the home. Will the rest of them be able to follow suit?
About the List Since 2005, Broadband Communities has maintained a list of independent telephone companies that are deploying fiber to the premises. The list is published at least twice each year and is also maintained in an interactive database at www.fiberville.com, where this information can be searched, sorted and downloaded. The online list includes other types of deployers in addition to independent telcos.
Although information is gathered from as many sources as possible, the list is certainly not complete. To add to the list, fill in missing information or correct any errors, please contact [email protected].
about the authorMasha Zager is the editor of BroadBand Communities. You can reach her at [email protected].
INDEPENDENT TELCOS
OctOber 2011 | www.broadbandcommunities.com | BROADBAND COMMUNITIES | 47
product offerings and revenue from new wireless carrier backhaul connections.”
In the many discussions that Broad-band Communities has had with in-dependent telco managers over the last six years, none has ever expressed regret about deploying fiber to the home. More typical is the response of Jeff Leslie, CEO of Indiantown Telephone System in Florida, who told us earlier this year that, based on his experience, “I believe that a [telephone] company’s conversion to fiber is greatest opportunity for growth they ever had or ever will have, if they couple it with an extensive marketing plan so customers can understand it.”
Supply-chain diSrupTionS A third reason to believe the slower growth of the list does not presage an end to FTTH deployments is that some of that slow growth may be related to temporary supply-chain disruptions.
Worldwide supplies of fiber op-tic cable have been tight ever since the Japanese earthquake and tsunami dam-aged the manufacturing facilities of sev-eral large fiber suppliers. Geoff Burke, senior director of corporate marketing for equipment vendor Calix, wrote in a blog post in September that “average de-livery times for cable orders are running
between 16 and 24 weeks, although we have heard a range of anywhere between 12 and 52 weeks.”
New deployers have especial diffi-culty obtaining fiber because vendors re-serve supplies for their loyal customers. Thus, some telcos that planned to deploy fiber to the home for the first time may have postponed their projects because they could not secure delivery of fiber. The good news, Burke says, is that fiber shortages are expected to ease this fall.
an uncerTain fuTureWhy, then, is there any “maybe”? The answer lies in the uncertain regulatory environment. The National Broadband Plan that the Federal Communications Commission issued in 2010 called for ending the existing system of financial support for rural telcos and replacing it with one that more directly supports the
buildout of broadband – the so-called Connect America Fund.
On the surface, this sounds like a good thing – and it may turn out to be. Even telcos that benefit from the exist-ing regulatory scheme often describe it as an economically inefficient system that can result in perverse incentives.
However, the devil, as always, is in the details, and in this case, there are a number of conflicting ideas about what the details ought to consist of. Large tel-cos, small telcos, cable companies and the FCC staff all have different concep-tions of the new scheme and the transi-tion to it (though large and small telcos joined forces to develop a consensus framework).
Certain proposals threaten to leave some high-cost rural areas without any phone service, let alone broadband ser-vice – surely not what the FCC intends. Others would protect basic service but choke off investment in broadband up-grades by reducing the revenue streams that are the basis for rural telcos’ repay-ment of broadband loans (whether those loans are from the RUS or from private banks).
In a survey conducted in January 2011 by the National Telecommunica-tions Cooperative Association, an in-dustry group that represents rural telcos, an overwhelming majority of members said the uncertainty about the National Broadband Plan’s potential changes to the regulatory framework affected their decision-making processes and was al-ready impeding their ability to obtain funding for broadband deployment.
The FCC may have resolved this is-sue by the time you read this article. As of press time, however, a possibility ex-ists that the new regulatory regime will curtail independent telcos’ future in-vestments in fiber to the home.
WhAt is An independent teLco?The companies that appear on this list are licensed providers of wireline voice services other than Verizon, AT&T and CenturyLink/Qwest. They are regulated in the United States as ILECs (incumbent providers), CLECs (com-petitive providers) or both. The majority are rural providers, many of them cooperatives or small family-owned businesses, set up 50 or more years ago to offer telephone service in regions not covered by the Bell system. A smaller number came into existence after the Telecommunications Act of 1996, some specifically to build fiber-to-the-home networks in new hous-ing developments and others to serve businesses or to offer alternatives in underserved areas. Some cable operators also have CLEC certificates and are included on the list.
Today, many companies other than telephone companies deliver voice services and are functionally equivalent to CLECs. Although the telco cat-egory has become less meaningful, telcos still exist as a historical and legal category, and the definition used here is consistent with industry usage.
To the extent possible, the list excludes telcos whose only involvement with FTTH is to deliver services over fiber access networks that they do not own and were not involved in building – for example, networks owned by municipalities or by housing developers.
New deployers have difficulty obtaining fiber when supplies are tight because vendors reserve
supplies for loyal customers. Thus, some first-time deployers may have postponed projects.
INDEPENDENT TELCOS
48 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OctOber 2011
whaT The numBerS Show1. Larger telcos are more likely to de-
ploy FTTH in new builds only; smaller telcos are more likely to re-place their aging copper plant with fiber or to overbuild nearby areas.
Most of the Tier 2 telcos on the list, including Fairpoint, Frontier, TDS Telecom and Windstream, deploy fi-ber mainly in greenfield developments. (Frontier’s large FTTH network came with its purchase of Verizon’s assets; in addition, TDS Telecom has built FTTH in several towns where it faces stiff competition.) The large telcos that are overbuilding their own or others’ territories with fiber, such as SureWest and Cincinnati Bell, tend to be metro-politan rather than rural.
In other words, most of the fiber-to-the-home upgrades outside metropolitan areas are being done by smaller, or Tier 3, telcos. Though some of these are pure
FTTH Network Builders by Type
Pure CLECs14%
ILECs and their CLEC subsidiaries
86%
Figure 1: Six of seven independent telcos that deploy FTTH are incumbents – though many are overbuilding nearby towns with fiber.
Data, Voice Plus Additional Services
1%
Other2%
Unknown17%
Triple Play Plus Additional Services
4%
Data, Voice18%
Triple Play58%
Services Delivered or Planned on FTTH Networks
Figure 2: In residential areas, the triple play of voice, video and data continues to be the standard offering.
Smaller telcos are far more likely than larger ones to overbuild existing copper plant – whether their
own or another company’s – with fiber.
CLECs, many are cooperatives and small family businesses with no history of com-petition or even of proactive marketing. In conversations with these companies, they consistently express surprise at the failure of their larger competitors to com-pete – and at how easy it is to cherry-pick profitable customers that larger compa-nies have overlooked.
2. The great majority of independent telcos that build fiber networks are incumbent providers or subsidiaries of incumbents.
Six of seven companies on the list are incumbent local exchange carriers (ILECs) that are replacing old copper plant with fiber, building fiber to new developments in their service areas or overbuilding nearby towns where they have name recognition – or some com-bination of the three. In most states, they must form CLEC subsidiaries to
move outside their traditional service ar-eas, but they are classified here as ILECs even if their fiber-to-the-home networks are only in their CLEC areas.
The remaining companies are pure CLECs (competitive carriers), many of
which have no traditional geographic base. These companies seek out prom-ising territories to overbuild with fiber. A few build hybrid fiber-coax networks in some areas and FTTH networks in others.
The proportion of ILECs to CLECs has remained surprisingly consistent
over the six years Broadband Commu-nities has tracked telco fiber builds, even as the number of companies on the list increased by a factor of 12.
Many of the pure CLECs originally partnered with housing developers to build networks in greenfield develop-ments and master-planned communities, but after the housing market peaked, some turned to overbuilding. A few, such as ComSpan USA and Hiawatha Broadband, adopted an overbuilding model from the start. Others focus on serving small and midsized businesses.
The typical independent telco serves a few thousand customers in one or two rural counties; however, the companies on this list range from corporate giants to tiny cooperatives that serve a few hundred customers. Likewise, their fi-ber deployments range from more than 150,000 homes passed to pilot projects with fewer than 100 homes passed.
INDEPENDENT TELCOS
OctOber 2011 | www.broadbandcommunities.com | BROADBAND COMMUNITIES | 49
3. Though the triple play of voice, data and video services is still standard, additional services are becoming more common.
Many independent telcos man-age cable TV networks alongside their telephone networks. Deploying fiber to the home allows them to merge the two networks, reducing operating costs while adding high-definition TV, DVR, video on demand and a wider selection of channels. Telcos that don’t own cable TV plant are losing landlines to cable providers and must usually offer video to compete with cable. (Even though video is at best a low-margin business for small telcos, it helps protect the higher-margin telephone and broadband businesses.) Though many resell satellite TV, others prefer to operate their own video services, and they consider FTTH when they can-not reach all their customers with DSL.
Beyond the triple play, the most common residential services are secu-rity monitoring, gaming and home au-tomation; business applications such as Ethernet LANs are also offered by telcos that have significant numbers of busi-ness customers.
Two important new services for fiber networks are mobile backhaul and meter reading. In the last few years, as demand for mobile bandwidth has grown, so has the demand for backhaul capacity. A market forecast report by Dell’Oro Group projects that mobile backhaul
market revenues will grow to nearly $9 billion by 2015. In high-demand areas, fiber is needed to carry data between cell towers and the Internet.
SureWest has said its fiber network provides wireless backhaul service to 360 cellular towers; Calix says hun-dreds of its small telco customers now use FTTH technologies to serve wireless operators – or their own wireless opera-tions. Because deployments to cell tow-
ers rarely generate publicity, the great majority do not appear on this list.
Several telcos have begun using FTTH technologies for wireless back-haul before actually extending fiber to any homes. Deploying fiber to cell tow-ers could prove to be an excellent strat-egy for financing buildouts of fiber to the home. Because many cell towers are in residential areas, serving cell towers entails placing a great deal of fiber very close to residences – which radically changes the business case for extending fiber to the home.
Automated meter reading and other smart-grid applications are not yet wide-spread, but they, too, could prove very important to the business case for fiber. Electric utilities are now planning for a variety of smart-grid applications, of which the simplest and most straight-forward is meter reading. Rather than build their own high-capacity networks for smart grids, some utilities are dis-cussing collaboration with telcos that have suitable networks.
One independent telco, Hancock Telecom in Indiana, went so far as to merge with a local electric utility, Cen-tral Indiana Power, in large part to use
FTTH Technology Used Note: Some telcos use multiple technologies.
2
8
14
36
41
61
157
404
WDM
RFoG
PON Unspecified
EPON
BPON
Unknown/Undecided
Active Ethernet
GPON
Number of independent telcos
Figure 3: Passive optical networks are far more common than active networks, but active networks continue to gain in popularity. Many telcos deploy PON to residential customers and active Ethernet to business customers.
The count of independent telco FTTH networks by state still shows Iowa in the lead – not surprising, as Iowa has close to 250 rural telcos, far more than any other state. But Minnesota and Texas are close behind, and there are current or pending builds by independent telcos in 47 states, the District of Columbia and Puerto Rico. Only Massachusetts, Delaware and Rhode Island are missing from the list – and they are at the epicenter of Verizon’s FiOS build.
INDEPENDENT TELCOS
50 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OctOber 2011
its FTTH network as the smart-grid network. (The merged entity is now called NineStar Connect.) Other tel-cos transmit meter data to utilities un-der contract or simply make meter data available to customers to help them monitor their own energy use.
4. Though most telcos use GPON technology, active Ethernet is also important.
The original list published in 2005 included mainly BPON systems, with a few EPON and one active Ethernet sys-
tem. Passive optical networks deployed today are all at the gigabit standard (with GPON deployments outnumber-ing Gigabit EPON by more than 10 to 1), and most of the older pre-gigabit net-works have been upgraded.
In addition, at least eight companies have deployed RFoG, a cable-friendly fiber-to-the-home technology that was designed to operate within a DOCSIS network. Not surprisingly, the telcos that selected RFoG technology are those that already operated hybrid fiber-coaxial plant. Some are CLEC arms of cable companies.
Although passive optical networking remains the most popular choice, at least 157 independent telcos now use active Ethernet. Nearly half of those have made a strategic commitment to active Eth-ernet, either to support an open-access model or, more frequently, because they believe active Ethernet has more band-width headroom. The rest use active Eth-ernet only in special cases – in sparsely populated areas where active Ethernet’s longer reach is an advantage, for business services or for other niche applications.
About a quarter of telcos use multiple FTTH technologies. This choice has be-come more practical now that electronics vendors typically support multiple tech-nologies, often from the same chassis.
Next-generation PON technologies, including 10G GPON, 10G EPON and WDM-PON, are now becoming avail-able in the market. These have made little or no headway among independent telcos that serve residences and small businesses, though those that serve larger businesses typically offer 10G services over Ether-net. Some of these (almost certainly more than the two companies identified on the list) use WDM to provide ultra-high-speed access to businesses.
5. Several FTTH electronics vendors compete successfully in the indepen-dent telco market.
Independent telcos differ substan-tially from RBOCs in their dealings with vendors. RBOCs typically deal with large, global equipment vendors that design and manufacture equipment to the RBOCs’ specifications. The result-ing equipment is not always well suited to smaller, more rural markets. The three FTTH electronics vendors from which Verizon has purchased most of its FTTH equipment – Alcatel-Lucent, Motorola and Tellabs – are relatively minor players in the Tier 2/Tier 3 telco market, even though all three have had significant cus-tomer wins (notably Cincinnati Bell and Optimum Lightpath, which serve metro-politan markets). Motorola’s FTTH divi-sion, spun off as part of Motorola Mobil-ity, is being acquired by Google.
The majority of independent telcos purchase FTTH electronics, and often fi-ber management equipment as well, from
FTTH Electronics Vendors UsedNote: Some telcos purchase equipment from multiple vendors.
1
1
1
2
3
3
4
7
11
11
15
15
16
45
47
61
417
0 50 100 150 200 250 300 350 400 450
SOLiD Technologies
Ciena
PacketFront
Telco Systems
Cisco
Ericsson
Hitachi
Tellabs
Allied Telesis
Alcatel-Lucent
Zhone
CTDI
Motorola
Unknown/Undecided
Enablence
ADTRAN
Calix
Number of independent telco customers
Figure 4: Calix remains the leading electronics vendor in this market; its market share increased after it acquired Occam Networks.
Nearly all deployers have migrated to gigabit technologies, but the 10G technologies coming
onto the market have not yet made any headway.
INDEPENDENT TELCOS
OctOber 2011 | www.broadbandcommunities.com | BROADBAND COMMUNITIES | 51
vendors that specialize in serving Tier 2 and Tier 3 telcos. These vendors are less likely to design equipment for particular customers; rather, they supply equipment for a variety of use cases and help custom-ers configure it to meet specific needs.
When independent telcos first began deploying fiber a decade ago, nearly all of them used FTTH electronics from Optical Solutions Inc. (OSI). Since Ca-lix acquired OSI in 2005, it has contin-ued to maintain OSI’s lead in this mar-ket. Calix’s recent acquisition of Occam Networks, its strongest rival in the Tier 3 market, increased its share of compa-nies served to 71 percent. (Some of these telcos use other vendors as well.)
Several companies that supplied FTTH electronics to independent telcos in the past have now withdrawn from the market. Shortly before we went to press, Enablence sold its Trident and MAGNM product lines, which it had acquired from Wave7 and Pannaway, to Aurora Networks and FX Support respectively and exited the FTTH ac-
cess equipment market. FX Support will apparently support existing equip-ment rather than sell new equipment. (Because we have not yet had the oppor-tunity to sort out which Enablence cus-tomers had purchased these two product lines, all are still identified on the list as Enablence customers.)
Nevertheless, several vendors con-tinue to compete actively in this space. ADTRAN, Zhone Technologies and Allied Telesis, in addition to Calix, have all recently announced customer wins in the U.S. independent telco market.
6. The Rural Utilities Service is playing a larger role in funding independent telco FTTH builds.
The RUS Broadband Loan pro-gram has been an important source of FTTH funding since its inception in 2004. However, many telcos saw RUS as a last resort, preferring to use internal funds or deal with local lenders if pos-sible. Until recently, around 15 percent of telcos building fiber to the home used RUS loan funding. In the last few years, however, private funding has been less available, and the RUS has had $3.6 bil-lion in broadband stimulus loans and grants to disburse in addition to its orig-inal loan programs. Currently, about 29 percent of independent telcos on the list have used RUS funding for at least some of their FTTH projects. v
Independent telcos tend to prefer dealing with vendors that specialize in serving the Tier 2
and Tier 3 telco markets.
INDEPENDENT TELCOS
52 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OctOber 2011
The following table shows independent telcos that have constructed FTTH networks or are actively planning them. A few companies identified as CLECs are non-telco amenity providers in some of the states where they operate or are divisions of cable companies. Many of the companies identified as ILECs are installing FTTH through their CLEC subsidiaries. Every effort has been made to update the names of vendors and deployers to reflect mergers and rebrandings. If your company is missing, or if the information is incomplete, send corrections to [email protected]. BroadBand Communities updates this list continually on www.fiberville.com.
Yadkin Valley Telecom NC Zhone Technologies 2007 GPON Triple Play ILEC
Yucca Telecom (Roosevelt County Rural Telephone Cooperative)
NM Calix 2005 Replace GPON Data, Voice ILEC
Zenda Telephone Company KS 2011 Data, Voice ILEC
Zial Networks ID, UT 2003 Greenfield, Overbuild
Active Ethernet Triple Play CLEC
Zito Media PA 2008 Overbuild Data, Voice CLEC
Zona Communications AZ Calix 2005 Greenfield GPON Data, Voice ILEC
SubScribe TODAY Free to those
who qualify.BRoaDBaND CoMMuNities continues to be the leading source of information on digital and broadband technologies for buildings and communities.• Original Research • Trusted Reports • Latest Trends • Industry News
www.bbcmag.com/subscribe • 877-588-1649
Are you prepared for an all-video world?
Calix is America’s fiber access leader. We can help.