Sacramento Business Journal | June 20, 2003 print edition | Mark Larson
On May 29, three of the largest Baby Bells — SBC Communications Inc., BellSouth and Verizon — made a giant lockstep move toward a future world of fiber-optic connections to every home.
They agreed to back a certain type of technology, which is seen as the most cost-efficient, and put out a joint request for proposals. They’re asking builders of fiber systems to bid on building the lowest-priced home networks.
“It’s a very important first step,” says Sacramento-based telecommunications consultant Tom Reiman. “The question is, will it happen in our lifetime?”
Long term, high-bandwidth fiber-optic networks are seen as the ultimate replacement for both copper phone lines and cable, because of their capacity to handle vast amounts of data transmission in the form of video, high-speed Internet connections and phone service all on one line. And as fiber costs have come down in recent years, fiber networks have been deployed in a scattering of new-home developments around the country as a way to lure tech-hungry homebuyers.
However, connecting fiber optics to the home has been costly, roughly double the price of installing copper phone lines or co-axial cable.
Reiman cautions that before fiber to the home is commonplace, many hurdles besides cost must be cleared, including government requirements to sell lines to other telecom competitors, and phone companies’ inexperience in vending cable TV, to name just two.
Builders, SureWest see potential: Lincoln Crossing, a 3,000-home project under construction in south Placer County, is putting in its own fiber network for residents to get telephone, Internet and cable TV, along with a community Web site and e-mail. That service will be figured into the community’s monthly homeowners’ association dues.
Part of the city of Lincoln’s requirement in the deal is that all homes within its borders and beyond the massive new-home project be provided with fiber services. Two other new-home developments, one in North Natomas and the other in Rancho Cordova, are also planning fiber connections for residents, to get at least cable TV and high-speed Internet access.
And in one of the country’s only fiber “overbuild” projects, SureWest Broadband is installing fiber-to-the-home connections in Sacramento County, where Comcast Cable already has about 265,000 customers and satellite pay-TV vendors have an estimated 107,000 customers.
SureWest last year bought WINfirst, a Denver-based fiber venture that went bankrupt trying to overbuild the market. SureWest bought Winfirst for a bargain-basement price of $12 million, and is continuing to build out the system, but with seemingly much more attention to the bottom line than Winfirst.
As of March 31, its triple-tiered service of Internet, cable and phone service has totaled 15,042 customers, reflecting 4,663 phone subscribers, 5,248 video customers and 5,131 data service buyers. That’s up from 12,959 as of last year’s fourth quarter, and 11,923 for the third quarter of 2002 when SureWest first offered the service. The company continues to add to its coverage in Sacramento County, one neighborhood at a time.
Consultant Reiman says the SureWest overbuild “is a pure overbuild for the most part, but it’s not a model that has proven successful.” Still, because of its technological superiority to cable and copper, he gives it a “reasonable” chance of success.
Mission Bay offerings: SBC, meanwhile, has one fiber-to-the-home project with the Mission Bay development in San Francisco, 6,000 new condominiums being built by Catellus Development Corp. SBC spokesman Shawn Dainas says early units of the project, which sit across the street from Pacific Bell Park, offer Internet and phone service, but no video. However, a video service offering movies on demand is planned.
But beyond the regulatory hurdles in the fiber market, phone companies face technical issues in supplying the video portion of the triple play of phone, cable and video service. Getting into cable programming is a new venture for phone companies, and Reiman expects debates over program rights.
So far, Hollywood has been reluctant to release movies over the Internet, he says, fearing it isn’t secure enough to prevent pirating.
SBC expects to initially deploy fiber in new-home developments, says Dainas, and in the huge mass of homes that already have copper and cable.
“We’re not exactly sure on deployment plans,” says Dainas. “We’ll look at that when we know any regulatory issues.”
A recent Federal Communications Commission ruling made it clear that phone companies selling fiber services to the home won’t be required to sell that same access to telecommunications competitors as they have as owners of local phone networks.
That alone should spur fiber deployment in new-home developments.
But because federal regulations are still murky for homes already wired with phone and cable lines, the big phone companies in those areas will likely delay deployment of fiber until the law becomes more clear.
Lotsa hype: Fiber consultant Reiman estimates up to 50 new-home communities around the country have either planned or deployed fiber.
But he’s skeptical about how many of them will actually work. So far, he says, he’s seen “a mine field of failures” by developers trying to deploy fiber.
“There’s so much hype out there,” he says.
Lack of service choice, Reiman says, is a big problem.
“Developers that impose services without the consumer’s opportunity to choose are walking into a challenging situation,” Reiman says. “It’s still a very complex business with a lot of legacy (current phone system) regulation.”
Telephone company requirements are many, he says, which “most in the development business don’t have the time or inclination to learn.”
Fiber market waits: Still, developers building fiber connections to new homes collectively have yet to put much of a dent in the national landscape, Reiman says.
The mass market of homes, existing and planned, is still sitting out there, up for grabs.
And the three phone companies are moving toward it. The technology they’ve agreed upon, called a “passive optical network” is a good one, he says, because it works and is cost-effective. It is operated remotely, and has no active electronics in the field. A fiber line with service can be routed into a house with minimal cost and intrusion.
Meanwhile, wireless broadband is another technology poised for increased deployment, and Intel Corp., for one, sees it as a big future market for its microchips. It is less expensive to deploy than fiber.
But Mike Render, a Tulsa, Okla.-based fiber market analyst, expects both to develop shoulder to shoulder.
At the same time, he sees the alliance of SBC, Verizon and BellSouth see the fiber-to-the-home market as significant.
“We’re really at a crossover point,” he says. “The (fiber) revenue structure is longer, with more services, and that means higher revenue.”
And he notes a general, national push toward connecting homes to fiber.
“I think its almost inevitable that it will gain momentum,” Render says. He sees the fiber market — at home and otherwise — demanding data-heavy content, such as classes taken via streaming video, which can only be sent and received on ever-increasing bandwidth.
“It will create a consumer demand,” says Render, “that will pull it through.”
© 2003 American City Business Journals Inc.