The magic of fiber

Ever wonder why Comcast, one of the strongest defenders of classic coaxial-based cable technology, is suddenly getting on board the fiber-to-the-home bandwagon? New research suggests if they don’t, their market share could fall to 40% or less if a serious fiber competitor arrives.

“There’s some sort of magic associated with fiber,” John Caezza, president of Arris’s Access Technologies division, told Multichannel News. “Everyone thinks it’s better than [cable technology].”

The risks to the cable industry are clear: be prepared to upgrade or face customer losses.

Craig Moffett of Moffett Nathanson has never been a cheerleader for fiber to the home service. In 2008, Moffett vilified Verizon for its investment in a major fiber upgrade we know today as FiOS to replace its aging copper infrastructure, complaining it was too expensive and was overkill for most residential customers. He was more tolerant of AT&T’s less-costly fiber to the neighborhood approach, dubbed U-verse, that still used traditional telephone lines to deliver service into the home. Because U-verse did not need AT&T to replace wiring at each customer location, the cost savings were considerable. But the cost-capability compromise left AT&T with a less robust platform, with broadband speeds initially limited to a maximum of around 24Mbps.

While phone companies like AT&T and Verizon were saddled with the enormous cost of tearing out decades-old obsolete phone wiring to varying degrees, the cable industry seemed well positioned with a mature, yet still recent hybrid fiber-coaxial (HFC) platform that was upgraded in the 1990s in many cities. While still partly reliant on the same RG-6 and RG-11 coaxial cable used since the first days of cable television, cable companies also invested in fiber optics to bring services from distant headends to each town, removing some of the copper from their networks without the huge expense of bringing fiber all the way to customer homes.

For Moffett, it was the cable industry that had the network with room to grow without spending huge amounts of capital on upgrades. He has touted cable stocks ever since.

Moffett

What worries Moffett now isn’t Google, Frontier, CenturyLink, or even Verizon. He’s concerned about AT&T.

As part of its commitment to win approval of its merger with DirecTV, AT&T promised regulators in June it would expand AT&T U-verse with GigaPower — AT&T’s gigabit fiber to the home upgrade — to at least 11.7 million homes, nine million more than it has ever promised before. Comcast has a 32% overlap with AT&T U-verse, compared to Time Warner Cable (26%), Charter Communications (32%), Bright House Networks (25%) and Cox Communications (25%). Comcast had promised faster broadband with the advent of DOCSIS 3.1 beginning as early as next year. But the company isn’t willing to wait around to watch AT&T and others steal its speed-craving customers. This spring, it promised 2Gbps Gigabit Pro fiber to the home service to customers living within 1/3rd of a mile of the nearest Comcast fiber line.

Some in the cable industry complain Google’s huge marketing operation has saddled cable broadband with a bad rap — ‘it’s yesterday’s news, with Google Fiber representing the future.’ The marketing war has been largely won by Google, they say, leaving consumers convinced fiber is the better and more reliable technology, and they need it more than the cable company.

Cable’s defense is to consider some marketing changes of its own — including the idea of dropping the name “cable” from the business altogether, because it implies older technology. But despite any name change, most cable companies will continue to rely on HFC infrastructure for at least several more years, despite claims they are bringing their own middle mile fiber networks closer to customers than ever. Cable operators now serve an average of 400 homes from each cable node. Some cable companies like Comcast plan to cut the number of customers sharing a node to around 100-125 homes, which means fewer customers will share the same broadband connection. But in the end, that will make cable comparable at best to a fiber to the neighborhood network, still hampered to some degree by the presence of legacy coaxial copper cable. The industry believes most consumers will never see the limitations, and for those that do, a limited fiber buildout with a steep installation fee may keep costs (and demand) down to those who need the fastest possible speeds and are willing to pay to get them.

That philosophy may still cost cable companies customers if a fiber competitor doesn’t have to compromise speed and performance and can afford to charge less.

The top 10 U.S. cable companies currently account for 60% of the residential broadband market and 86% of all broadband net additions in the first quarter of 2015, says Leichtman Research Group.

Moffett predicts cable broadband will only capture 40% of share in markets where it faces a fiber to the home competitor (Google, EPB, Greenlight, Verizon FiOS), 55% in markets served by a fiber to the neighborhood competitor (U-verse, Prism), and 60% where the competition only sells DSL (most Frontier, Windstream service areas). Nationwide, AT&T’s newest gigabit fiber commitment could cost the cable industry 2.4% of the whole residential broadband market, Moffett said.

Phil McKinney, president and CEO of CableLabs, believes DOCSIS 3.1 — the next standard for cable broadband — can easily stand toe to toe with fiber to the home providers.

McKinney

“I think it [HFC] has tremendous life, and we are going to be riding it all day long,” Werner said. DOCSIS 3.1 “is definitely going to be our go-to animal. Due to ubiquity, we can go out and virtually serve all of our [customers] very quickly.”

Cable companies claim their speed increases reach all of their customers in a given area at the same time without playing games with “fiberhoods” or waiting for incremental service upgrades common with Google Fiber or AT&T’s U-verse. Customers, the industry says, also appreciate DOCSIS upgrades bring no service disruption and nobody has to come to the home to install or upgrade service.

“The cable industry has more fiber in the ground than each fiber provider in the world,” McKinney argues. “If you look at total fiber strand miles, there’s more fiber under management and under control of the [cable] operators than anybody else combined.”

That may be true, but Moffett thinks it is only natural shareholders may eventually punish the stocks of cable operators that will face competition from AT&T’s U-verse with GigaPower. There is precedent. Cablevision serves customers in New York, Connecticut, and New Jersey and faces fierce competition from Verizon FiOS in most of its service areas. That competition has been brutal, occasionally made worse in periodic price wars. What may be protecting cable stocks so far is the fact AT&T competition will only affect, at most, 32% of the impacted cable operators’ service areas.

AT&T’s gigabit network has also proved itself to be more press release than performance, with very limited availability in the cities where it claims to be available. Verizon FiOS, in contrast, is widely available in most of Cablevision’s service area.

Still, Comcast is hoping it can hang on to premium customers who demand the very fastest speeds and performance with targeted fiber.

“Gigabit Pro is really for those customers who have got extreme needs,” said Tony Werner, Comcast’s executive vice president and chief technology officer.

AT&T will soon have the highest activation fees in the wireless industry after an August price increase takes effect, boosting activation and upgrade charges for existing customers and adding a new $15 fee to activate a phone you already own and want to use on AT&T’s network.

AT&T confirmed that effective Aug. 1, the activation fee for new one or two-year contract plans will increase by $5 to $45.

The company also plans to add a $15 activation fee for new AT&T Next customers wishing to activate a “bring your own device” (BYOD) and sign up for a new line. For now, Next customers already committed to an installment plan before Aug. 1, 2015 will have the $15 activation fee waived for their next upgrade, but will pay the fee after that. AT&T warns it may drop that waiver at any time.

An AT&T spokesperson would only say, “We are making a few adjustments to our activation and upgrade fee structures,” in an e-mailed statement.

AT&T raised its activation fees from $35 to $40 last year and Verizon Wireless followed in January. It is very likely, based on earlier rate changes, Verizon will eventually match AT&T’s fee increases.

The first 2Gbps Gigabit Pro deployments from Comcast will rely on Metro Ethernet that now serves Comcast’s midsized business customers, later migrating to passive optical network [PON] technology Comcast intends to begin installing in new housing developments and apartment complexes.

Multichannel News reports Comcast is now offering a limited promotional price of $159/mo for the ultra-fast broadband service, but to receive the discount customers must sign a three-year service contract with early cancellation penalties and agree to pay up to $1,000 in installation and activation fees.

Comcast claims it will offer the service to about 18 million homes by the end of the year — those within 1/3rd of a mile of Comcast’s existing fiber network.

Tony Werner, Comcast’s executive vice president and chief technology officer would not say which version of PON — GPON or EPON Comcast will use long-term, but a decision had already been made within the company and would eventually be known to customers.

ZTE, a Chinese provider of telecommunications equipment and network solutions, says EPON is the dominant fiber to the home solution in Japan, Korea, China and other Asia-Pacific countries. In other countries, especially in America, GPON is the preferred choice, as it can coexist with earlier PON systems.

Werner added Comcast will quietly deploy fiber to the home service in certain new housing developments.

“Once the trench is open, the incremental economics are close enough that we will do fiber-to-the-home, unless it’s a very small stub off of existing plant,” Werner said.

But for everyone else, it will be coaxial cable as usual unless customers pay that $1,000 fiber fee and are willing to wait up to eight weeks for installation. Comcast will run fiber and install the necessary equipment, including the Optical Network Terminal, only to customers who sign up for Gigabit Pro.

Midcontinent Communications customers will be able to get gigabit broadband speeds… by the end of 2017.

Midco is waiting for DOCSIS 3.1 to support the fastest broadband speeds instead of dedicating more bandwidth to support 1,000Mbps service under the current DOCSIS 3.0 standard.

The company has started to deploy Cisco’s cBR-8, a new Converged Cable Access Platform that will fully support DOCSIS 3.1 – a more efficient cable broadband standard expected to be deployed by larger cable operators like Comcast beginning next year. The new standard will support speeds up to 10/1Gbps, but most cable systems are expected to offer only a fraction of those speeds.

Midco’s 300,000+ customers in Minnesota, North & South Dakota and Wisconsin already receive speeds up to 200Mbps, and the faster the service offered, the more data used.

“Cisco’s cBR-8 aligns with our strategy and vision to deliver Gigabit-speed Internet experiences that will change the quality of life and spur business innovation in the communities we serve,” said Midcontinent vice president of technology Jon Pederson. “With our customers’ bandwidth consumption doubling every 15 months, we need the right technology in place to support our network demands now and in the future. The unique DOCSIS and Remote PHY capabilities of the cBR-8 will help us meet our commitments for the Midcontinent Gigabit Initiative.”

Midcontinent publishes a promotional and retail price list fully disclosing their pricing, a rarity among cable operators. Midco’s broadband tiers have no usage caps.