Will The Falling Cost of FTTx Entice Telco's To Venture Into Video?
By Jason Marcheck, The Strategis Group

I think the joke something like this: A secretary walks into the Dept. of Agriculture one morning and finds a caseworker sitting at his desk, crying. What is wrong, she asks. Well, it looks like I'm out of a job, he says. I arrived this morning and got word that my farmer had died!

Thus, the bane of a DSL analyst's existence: What do you do when most of your companies go out of business?

With the summer of unemployment and heartache upon us, I have spent so much time talking to reporters and eulogizing the pack unfortunate CLECs and equipment vendors that I think I am going to make a break for Chicago to get in on the feel good vibe of the NCTA show. So, if you see me walking aimlessly around the show floor with a three-day-old scruff, hip flask in hand, and all my Speaker badges from past DSL shows around my neck, don't call security, I am simply struggling to cope with the loss of a glorious but, seemingly, bygone era.

Jaded as I may be, as an analyst/prognosticator/devil's advocate I feel compelled to seek out and uncover innovations, trends and pots o' gold at the end of the rainbow. So I would like to take this opportunity to can ponder one bit of radical thinking that may not only shift the paradigms by which we view telecom providers, but - and possibly even more unbelievably - may not end up in bankruptcy court.

Since DSL burst on the telecom scene in mid-1998, bundling has been a buzzword on the lips of all providers. However, with the slower than expected rollout of DSL and the lack of VoDSL emergence, service providers have re-trenched by reverting back to a la carte pricing strategies. Despite this apparent acknowledgement of failure, I believe service providers are still looking for ways to sell multiple services to customers, and I further believe that telephone companies will be positioning themselves for the delivery of video services.

I know what you are going to say.

"Um Jason, there is that little matter of, well, CLECs DROPPING LIKE FLYS! And, oh yeah, LACK OF MONEY! And hey, what about that little matter of a CLASS ACTION LAWSUIT AGAINST VERIZON! Good Lord man, join us back here in the world of reality. If they can't do DSL, what makes you believe that telephone companies (snicker, snicker) will be able to deliver video."

To that I say, fair enough. And I will also say that the feeling of confidence in their ability to quietly chip their way into the voice market, that I am sensing on the part of cable companies is not unwarranted. At this point, I can certainly see the argument that while cable companies can do both voice and video today, telephone companies have no clue about how to get into the business of offering video on demand, much less cable TV services.

That said, let me be a voice of warning to the cable companies who are feeling bulletproof. Just because many CLECs and small overbuilders are taking a bath right now that doesn't mean that the past few years of sublime innovation and euphoric optimism have been a complete sham. With DSL provisioning becoming more automated by the day, there is reason to believe that telephone companies - particularly the RBOCs and other ILECs- are close to the top of the learning curve with this technology and are ready to look down other avenues for increased revenue opportunities. I believe that video may be the next frontier that telco's will attempt to conquer.
Once again, I hear the naysayers bemoaning the viability of using an archaic copper network to deliver video services. And with due recognition to the soundness of this argument, I feel that the falling cost of passive optical networking (PON) equipment will enable telephone companies to overcome this hurdle. In fact, so high are telco's on PON systems, that they are once again using words such as converged and integrated when talking about the direction they expect their service offerings to take over the next few years.

Take, for example, the PON equipment of Optical Solutions, Inc. This equipment allows for the delivery of voice, video and data over a network consisting entirely of fiber for a cost that is roughly 0% to 15% higher than what it costs to deliver video over an HFC network. For the RBOC that will be overlaying FTTH/FTTB on a wide scale within the next few years, this represents a significant step toward being able to deliver video services.

In addition to Optical Solutions, Marconi, Lucent, Alcatel and OnePath Networks are all becoming very active in developing low cost PON products. These vendors are aware that copper provides more than enough bandwidth for voice and data applications. One of the main reasons they are producing PON equipment is because there is a demonstrated interest on the part of ILECs to begin offering services that will require fiber-type bandwidth. i.e. video services

Furthermore, and of potentially great consequence to the private cable operator, I feel that MDUs offer the perfect entry point for a telco wishing to deliver video services. Despite the failings of many in-building providers, the reasons that have made MDUs an attractive place to do business have not changed. Many small providers that have succumbed failed either due to the lack of money, the lack of ability to compete with the big phone/cable company, or both. However, the following factors that made MDUs attractive places to do business a few years ago still hold true today.

* MDUs offer short loop lengths for FTTB (thus VDSL) solutions
* MDUs generally offer an attractive and predictable demographic
* MDUs present the opportunity to create truly customized service offerings

When ILECs and large CLECs start laying fiber in the last mile, you can bet that they will also begin offering video services.
I am not saying this to cast a storm cloud over the summer vacation of the private cable operators reading this magazine. I simply wish to convey a friendly warning with respect to the purveyor of telecom services via phone lines: Phone companies (especially ILECs) doing video is not a joke, and it would be wise to prepare for competition from them in your buildings.

After all, you saw what they did to the CLEC industry, once they put their minds to it.