Br0kenTeleph0n3

Following the broadband money

Local access – the final frontier?

with 12 comments

Some readers may have noted that Ericsson sold its fibre access product division to Calix, a loss-making North American manufacturer that provides “last mile” active components that connect communications services providers (CSPs) and their customers.

The move will cost Ericsson SEK400m ($61m) and 60 staff. It didn’t say how much it got for the division, but as Calix has not made a profit in five years, it couldn’t have afforded much. That might tell us just how badly Ericsson (and its competitors) want to get out of the fixed line access market. ITU figures show that it’s a market in decline, and besides, there are six times more mobile subscribers than fixed line subs.

Calix, in its most recent SEC annual filing, spells out the problems and risks fixed line CSPs face in graphic detail. I reproduce it below in its entirety, subject only to anglicising the spellings. It should be required reading for anyone about to spend taxpayers’ money upgrading their local broadband network.

Calix says:

CSPs compete in a rapidly changing market to deliver a range of voice, data and video services to their residential and business subscribers. CSPs include wireline and wireless service providers, cable multiple system operators, or MSOs, electrical cooperatives, and municipalities. The rise in internet-enabled communications has created an environment in which CSPs are competing to deliver voice, data and video offerings to their subscribers across fixed and mobile networks. Residential and business subscribers now have the opportunity to purchase an array of services such as basic voice and data as well as advanced broadband services such as high-speed internet, IPTV, mobile broadband, high-definition video and online gaming from a variety of CSPs.

The rapid growth in new services is generating increased network traffic. For example, Cisco Systems estimates that global IP traffic will grow at a compound annual growth rate of 32% per year from 2010 to reach approximately 80.5 exabytes per month in 2015. We believe that increased network traffic will be largely driven by video, which is expected to account for over 90% of global consumer traffic by 2015.

CSPs are also broadening their offerings of bandwidth-intensive advanced broadband services, while maintaining support for their widely utilised basic voice and data services. CSPs are being driven to evolve their access networks to enable cost-effective delivery of a broad range of services demanded by their subscribers. With strong subscriber demand for low latency and bandwidth-intensive applications, CSPs are seeking to offer new services, realise new revenue streams, build out new infrastructure and differentiate themselves from their competitors.

CSPs typically compete on their cost to acquire and retain subscribers, the quality of their service offerings and the cost to deploy and operate their networks. In the past, CSPs offered different solutions delivered over distinct networks designed for specific services and were generally not in direct competition. For example, traditional wireline service providers provided voice services whereas cable MSOs delivered cable television services. Currently, CSPs are increasingly offering services that leverage internet protocol, or IP, thereby enabling CSPs of all types to offer a comprehensive bundle of IP-based voice, data and video services to their subscribers. This has increased the level of competition among CSPs as wireline and wireless service providers, cable MSOs and other CSPs can all compete for the same residential and business subscribers using similar types of IP-based services.

Access networks are critical and strategic to CSPs and policymakers

Access networks, also known as the local loop or last mile, directly and physically connect the residential or business subscriber to the CSP’s central office or similar facilities. The access network is critical for service delivery as it governs the bandwidth capacity, service quality available to subscribers and ultimately the services CSPs can provide to subscribers. Providing differentiated, high-speed, high quality connectivity has become increasingly critical for CSPs to retain and expand their subscriber base and to launch new services.

Typically, subscribers consider service breadth, price, ease of use and technical support as key factors in the decision to purchase services from a CSP. As CSPs face increasing pressure to retain their basic voice and data customers in response to cable MSOs offering voice, data and video services, it is critical for CSPs to continue to invest in and upgrade their access networks in order to maintain a compelling service offering, drive new revenue opportunities and maintain and grow their subscriber base.

Access networks can meaningfully affect the ongoing success of CSPs. Governments around the world recognise the importance of expanding broadband networks and delivering advanced broadband services to more people and businesses. For example, in February 2009, the US government passed the American Recovery and Reinvestment Act, or ARRA, which set aside approximately $7.2bn as Broadband Stimulus funds for widening the reach of broadband access across the United States, a portion of which includes broadband access equipment. These funds, distributed in the form of grants, loans and loan guarantees, primarily target wireline and wireless service providers operating in rural, unserved and underserved areas in the United States.

Many CSPs have actively pursued stimulus funds and have submitted various proposals to receive assistance for their broadband access infrastructure projects. Awards for these projects have been issued between December 2009 and September 2010.

The timetable for completion of funded projects varies between the two agencies administering the awards. Projects funded under the Broadband Technology Opportunities Program (BTOP), which is administered by the National Telecommunications and Information Administration (NTIA), must be completed by September 30, 2013. Projects funded under the Broadband Initiatives Program (BIP), which is administered by the Rural Utilities Service, must be completed by June 30, 2015.

Limitations of traditional access networks

CSPs rely on the capabilities and quality of their access networks to sustain their business and relationships with their subscribers. In the past, subscribers had little influence over the types of services provided by CSPs. Today, subscribers can be more selective among CSPs and they are increasingly demanding advanced broadband services in addition to basic voice and data services.

In general, access networks are highly capital intensive and CSPs have historically upgraded capacity as technology and subscriber demands on their networks changed. CSPs will increasingly integrate fibre-and Ethernet-based access networks to enable the delivery of more advanced broadband services at a lower cost while at the same time enabling the continued delivery of basic voice and data services.

Thus far CSPs have taken an incremental approach to capacity upgrades in their access networks. As a result CSPs face multiple challenges concerning their access networks, business models and service delivery capabilities, including:

A complex patchwork of networks and technologies—In order to upgrade their access networks CSPs have typically added networks for new residential or business services that they deliver, such as digital subscriber line, or DSL, data over cable service interface specification, or DOCSIS, GPON or Gigabit Ethernet on top of existing networks. This led to an overbuild of access technologies and an unnecessarily complex patchwork of physical connections between the central office and the subscriber.

In addition, CSPs have generally begun to expand the penetration of fibre into their access networks, thereby shortening the length of the subscriber connection through other lower bandwidth media types (such as copper-based or coaxial cable-based networks). CSPs have also attempted to evolve their access networks to enable more efficient packet-based services by adding Ethernet protocols on top of existing asynchronous transfer mode, or ATM, and DSL protocols.

In addition, CSPs have often deployed separate equipment to facilitate the delivery of Synchronous Optical Networking, or SONET, Gigabit Ethernet and 10 Gigabit Ethernet transport which connects CSP central offices with their access networks, further increasing the complexity and the cost of their networks. This approach has left most CSPs with disparate architectures, features, functions and capabilities in different parts of their networks.

This increasingly complex, patchwork approach to deploying access networks and delivering new services to their subscribers has created potential complications for CSPs within their access networks. These potential complications limit data transmission capability, increase the cost of operation and maintenance and can negatively impact the subscriber experience.

Limited capacity from legacy access architectures—Legacy access network architectures were designed to address earlier generation communication demands of wireline telephone, cable television and cellular services. Such access networks have physical limitations in their ability to scale bandwidth, avoid latency issues and deliver advanced broadband services, which subscribers demand today and are expected to increasingly demand in the future.

In addition, CSPs understand the need to add fibre to their networks to provide the bandwidth required to scale advanced broadband services. However, it is costly and complex to integrate fibre-based technologies into legacy access networks.

Inflexible technologies increase network switching costs—Legacy access networks were built around a narrow set of technologies. For example, traditional voice calls use circuit switching technology to allocate a fixed amount of network capacity to each call, regardless of whether such capacity is fully utilised.

The emergence of packet-based technologies, primarily IP and Ethernet, has significantly improved the ability to transmit data efficiently across networks as bandwidth is only consumed when signals are actually being transmitted. Most legacy access networks do not allow circuit- and packet-based technologies to co-exist or to evolve from one technology to another.

Inefficient service roll-out constrains subscriber offerings—Legacy access networks were designed to support a narrow range of services and as a result, they limit the ability of CSPs to provision the advanced broadband services increasingly demanded by their subscribers.

Packet-based networks are more flexible and efficient than traditional circuit-switched networks. For example, to provision additional business services in a legacy access network, a CSP would typically deploy additional physical connections and equipment, whereas packet-based infrastructure allows a CSP to change or add services virtually, without the presence of a service technician or the installation of new equipment.

In order to deploy these services quickly and efficiently, CSPs must be able to utilise their existing infrastructure while upgrading the legacy access network to packet-based technologies.

Highly reliable access products are difficult to engineer and manage—Given the critical nature of access networks and their typical deployment in remote and distant locations, access infrastructure products must be highly reliable. Unlike most other communications equipment which is deployed in environmentally controlled central offices or similar facilities, most access equipment is deployed in outdoor environments and must be specifically engineered to operate in variable and often extremely harsh conditions, as well as fit into smaller spaces, such as on a street corner, near office buildings or on the side of a house or cellular tower.

Since the access portion of the network is broadly distributed, it is expensive as well as difficult to manage and maintain. CSPs require access network equipment that can perform reliably in these uncontrolled environments and be deployed in a variety of form factors, thereby adding significant engineering and product development challenges as compared to most other forms of communications infrastructure equipment. In addition, some portion of the access market is supported by government initiatives and products sold into this segment require additional government certifications and approvals in order to qualify for deployment.

Expensive to deploy and operate—As a result of deploying multiple networks with discrete functions, legacy access networks require a wide variety of equipment to be installed, maintained and ultimately replaced, thereby placing a significant and recurring capital and operating expense burden on the CSP. Once installed, this equipment occupies valuable space inside a central office, requires frequent labour-intensive maintenance and consumes meaningful amounts of power.

Moreover, the lack of integration across protocols and fibre- and copper-based network architectures negatively impacts network performance. Inferior network performance diminishes the subscriber experience and increases network operating costs by increasing service calls, the number of required support staff and the frequency of equipment upgrades and replacements.

As broadband network availability and quality are becoming more critical to subscribers, lack of network reliability can be materially disruptive, expensive and ultimately increase subscriber churn, thereby negatively impacting the CSP’s business.

Given these limitations of legacy access networks, CSPs will increasingly emphasise fibre- and Ethernet-based technologies in their access networks, thereby enabling the rapid, cost-effective deployment of advanced broadband services. Such technologies reduce overhead expenses, simplify network architectures and seamlessly integrate legacy and next-generation networks. We therefore believe that successful CSPs will be those that evolve from providing basic subscriber connectivity to providing the most relevant services and subscriber experience.

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Written by Br0kenTeleph0n3

2012/08/24 at 20:08

12 Responses

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  1. “Limited capacity from legacy access architectures—Legacy access network architectures were designed to address earlier generation communication demands of wireline telephone, cable television and cellular services. Such access networks have physical limitations in their ability to scale bandwidth, avoid latency issues and deliver advanced broadband services, which subscribers demand today and are expected to increasingly demand in the future.

    In addition, CSPs understand the need to add fibre to their networks to provide the bandwidth required to scale advanced broadband services. However, it is costly and complex to integrate fibre-based technologies into legacy access networks.”

    That says it all.

    chrisconder

    2012/08/24 at 20:54

    • Yes, but I thought there may be some who need the full background to appreciate fully why we are where we are.

      Ian Grant

      2012/08/24 at 21:31

      • aye, but who is listening? how can we make them see the writing on the wall. and blogs.

        chrisconder

        2012/08/24 at 21:40

      • Do BT, C&W, VM etc. not understand the future? Unlikely.

        Somerset

        2012/08/24 at 21:53

    • If only the UK had a telco who wanted to install fibre in the local network 30 years ago as well as the core network… Or a cable company that installed to every UK property.

      How is this relevant to the UK with 50% having VM access and soon 66% or more with FTTC and FOD access which may provide ‘the most relevant services and subscriber experience’.

      Surely UK telecomms companies are replacing multiple networks with fewer.

      Is the proposal to replace the BT, VM, C&W, Global Crossing etc. networks with a single integrated network for all of the UK?

      Somerset

      2012/08/24 at 21:50

  2. Interesting – http://www.techweekeurope.co.uk/interview/ftth-broadband-gibre-fttc-89959

    ehealth and smart metering are clearly not a reason for FTTH, but quoted by the ‘FTTH Council’, Why?

    Somerset

    2012/08/24 at 22:05

    • The FTTH Council have a problem with the UK as they don’t understand how cable and FTTC fits in with their sales pitch, as I discovered when speaking to one of their people recently.

      Somerset

      2012/09/01 at 21:44

    • For those interested in smart grids – http://conferences.theiet.org/smartgrid/index.cfm?origin=email4

      Somerset

      2012/09/04 at 21:36

      • If it’s OK with you, Peter, I’ll do the free advertising on this blog, especially since there’s a 4bn tag attached to the smart grid comms network. Heaven knows why. Perhaps you can elucidate.

        Ian Grant

        2012/09/04 at 21:42

      • If i had a spare £322.80 I’d go and let you know. My point was there is no connection between needing fibre for smart metering, but the connection could be with each property needing a visit to install a new meter and could be combined with a government funded FTTP install. But the smart metering system could use wireless/mobile network…

        Last I heard was they were trying to sort out standards and how to handle a serious amount of data every day.

        Somerset

        2012/09/04 at 22:32

      • I believe the Conservative Technology Forum/EURIM is looking at this issue. Installing meters is not quite as complicated as pulling/blowing fibre, I believe, but it’s a rare body that can do the fibre, the gas and the electricity meter all at once. Easier with new builds, hellish on (some) legacy sites.

        On the data volumes, meters only need report once every 30 minutes, and then only changes. Does anyone think all house data needs to be online realtime? There’s a huge amount of static data out there, so smart software can do a lot to crunch down to what is important (i.e. the changed data), so that data volume problem is manageable, even for slow (wireless) networks. Consolidating and storing it is a different problem, but solvable with proper engineering.

        Ian Grant

        2012/09/04 at 22:53

  3. […] Some readers may have noted that Ericsson sold its fibre access product division to Calix, a loss-making North American manufacturer that provides “last mile” active components that connect communications services providers (CSPs) and their…  […]


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