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Fiber in the ‘Last Mile’: Technology, Economics, and Industry Structure. Anupam Banerjee & Marvin Sirbu Department of Engineering and Policy Carnegie Mellon University Prepared for IEEE-USA Workshop U.S. National Policy for Accelerating Broadband Deployment June 17-18, 2002 Washington DC.

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Fiber in the last mile technology economics and industry structure

Fiber in the ‘Last Mile’: Technology, Economics, and Industry Structure

Anupam Banerjee & Marvin Sirbu

Department of Engineering and Policy

Carnegie Mellon University

Prepared for IEEE-USA Workshop

U.S. National Policy for Accelerating Broadband DeploymentJune 17-18, 2002Washington DC


Ftth summary of the argument
FTTH: Summary of the Argument Industry Structure

  • Future services will require high bandwidth; this bandwidth is most-economically provided by fiber; fiber and electronics costs are falling, thus making FTTH increasingly viable

  • Competition should not be limited to those who own a fiber into the home

  • Competition could utilize:

    • A shared dark fiber network -- Physical layer unbundling or ‘UNE based competition’

    • A shared data transport network -- Logical layer unbundling or ‘Open Access based competition’

  • Fiber network layout affects:

    • The Costs and Flexibility of Service Roll-out

    • The Potential for Competition

  • Ownership of fiber plant affects the incentives for equitable provisioning to competitors


Models of competition in telecommunications
Models of Competition in Telecommunications Industry Structure

  • Facilities Based Competition

Central Offices

Home 1

Service

Network 1

Provider A

Separate Networks

Home 2

Service

Network 2

Provider B

Data Link Layer Equipment -- ATM, Gigabit Ethernet, SONET


Models of competition in telecommunications1
Models of Competition in Telecommunications Industry Structure

  • UNE Based Competition (made possible by Physical Plant Unbundling)


Models of competition in telecommunications2
Models of Competition in Telecommunications Industry Structure

  • Open Access Based Competition (made possible by Logical Layer Unbundling)


Models of competition in telecommunications3
Models of Competition in Telecommunications Industry Structure

  • UNE Based Competition AND Open Access


Why open access is not enough
Why Open Access is Not Enough Industry Structure

  • Physical plant monopoly extended to data-link layer monopoly

  • All services must run over a common, standardized, data-link layer

    • Even if some subscribers want ATM and some Gig-E

  • Limits data-link layer technology evolution

  • Service possibilities are limited by data-link layer capabilities

  • It is hard to police QoS provided to open access competitors


Engineering economics of ftth

Four Architectures Industry Structure

Home Run Fiber

PON

Active Star

WDM PON

Aerial Fiber

Five Deployment Scenarios

Urban

Suburban

Small Town

Rural

Remote Rural

Engineering Economics of FTTH


Ftth is a decreasing cost infrastructure
FTTH is a decreasing-cost infrastructure … Industry Structure

… Facilities based competition is unlikely in FTTH


Most likely scenario in ftth will be
Most Likely Scenario in FTTH will be … Industry Structure

  • An entire community served by one network

  • The only way to have competition is to have multiple competitors which share the network

  • The extent of competition depends on the architecture of the shared network


Non facilities based competition in home run fiber
Non-facilities based Competition in Home Run Fiber Industry Structure

  • Physical plant unbundling is possible

  • Individual Fibers can be rented out as a UNE

Home Run Fiber is compatible with Competition at the Data-Link layer and in Higher Layer services ( i.e., Open Access )


Non facilities based competition in pons
Non facilities based Competition in PONs Industry Structure

  • Physical Layer Unbundling is not possible in curb-sidePON or Active Star

Central Office

Data Link Layer Equipment

Home 1

Service

Provider A

Network

Service

Provider C

Service

Splitter

Provider B

(Remote Node)

Home 2

PON and Active Star do not support Competition at the Data-Link layer or in broadcast video delivery; but they can support Competition in voice, data and switched digital video services.


Rethinking pons
Rethinking PONs Industry Structure

  • A curb-side PON is not the only type of PON

  • What happens to costs when fiber layout groups multiple splitters at one location?

    • Splitters grouped at an Optimal Fiber Aggregation Point (OFAP)

      • Multiple feeders to the OFAP

      • Per home distribution fiber from the OFAP


Ofap optimal fiber aggregation point
OFAP -- Optimal Fiber Aggregation Point Industry Structure

Splitter & OLT tobe deployed as needed

  • Higher utilization of Splitter and OLT ports

  • Electronics can be deployed by competitive providers


Ofap limiting case the home run pon
OFAP Limiting Case -- the “Home Run PON” Industry Structure

Splitter & OLT to be deployed as needed

  • Preserves PON advantage of shared OLT ports

  • Deploy splitters & OLTs only as needed

  • Electronics can be deployed by competitive providers


Economics of ofap architectures urban deployment 100 penetration
Economics of OFAP Architectures Industry Structure (Urban deployment, 100% penetration)


What happens when deployment is phased in over time
What happens when Deployment is phased-in over time? Industry Structure

  • Economic benefits accrue from delaying equipment deployment until customers sign up

    • Discounting of future expenditures

    • Equipment costs decline over time

  • NPV of Capital Cost per Home Served depends on assumed rate of penetration

  • OFAP architectures provide greater opportunity for flexible service roll out

  • Assumptions

    • High, Medium and Low Rates of Market Penetration

    • Discount Rate of 12%


Economics of OFAP Architectures Industry Structure Low Market Penetration Rate (10% in 2004; 40% in 2008)Equipment Costs decline @ 10% per year


Competition in ftth depends on

FTTH Architecture Industry Structure

Ownership and Industry Structure

First Mile Costs

Community and Market Characteristics

Second Mile Costs

Competition in FTTH depends on …

Competition in FTTH


Industry structure
Industry Structure Industry Structure

  • Experience with the copper network has shown that when a firm provides both facilities and services, there is little incentive to make facilities available to competitors

    • Have led some to suggest breaking up the ILECs into a “Loop Co” and a services company

  • What are the alternatives?


Conclusions
Conclusions Industry Structure

  • Optimal Fiber Aggregation Points (OFAP) lead to:

    • Lower Costs and greater Flexibility of Service Roll-out

    • Physical Plant unbundling of a PON and UNE based competition, leading to …

    • Per-subscriber choice of Data-Link Layer Technology (which defines the services opportunity)


Ftth and regulatory policy
FTTH and Regulatory Policy Industry Structure

  • ILECs have been lobbying for legislative/regulatory changes that would relieve them of providing UNEs on new network deployments

    • … and are also lobbying to be relieved of Open Access requirements

  • Our work suggests it is unlikely that there will be facilities-based competition among fiber networks

    • … at best, a duopoly

  • UNE competition based on dark fiber provides a “cleaner” boundary than does Open Access while facilitating technological innovation at the data link layer


Thank you
Thank you Industry Structure

  • This document represents Research in Progress*. Please do not distribute or cite without the express approval of the authors.

Prof. Marvin Sirbu

Dept. of Engineering & Policy

Carnegie Mellon University

Pittsburgh, PA 15213

<[email protected]>

Anupam Banerjee

Dept. of Engineering & Policy

Carnegie Mellon University

Pittsburgh, PA 15213

<[email protected]>

* Research supported in part by the MIT Internet-Telecommunications Convergence Consortium.


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