Verizon has stated its intention to rollout a broadband fibre-to-the-home solution - termed FTTP (Fibre-To-The-Premises) - throughout the regions that it covers, and is currently assessing responses to requests for proposal issued to prospective equipment vendors. The FTTP program is charged with deploying optical fibre connections to business and residential properties, targeting particularly home-office and small office situations.

Verizon reported revenues for the financial year 2002 of approximately $67 billion. The company has forecast total capital expenditure for financial year 2003 at between $12 billion and $12.5 billion. More than 220,000 staff are employed by Verizon across the U.S.

Verizon's footprint

Verizon's U.S. footprint covers twenty-nine states, stretching coast-to-coast from Florida to California, and encompassing the north-eastern seaboard and Washington D.C. Mr. White stated that the company has the right to offer last-mile service in all of these areas. Verizon also offers wireless service in forty-nine states.

The company has the regulatory right to provide service in states outside the twenty-nine in which it is the incumbent carrier, in which case it will be a competitive service provider competing against another RBOC. Verizon has extended operations into additional areas, including Los Angeles - where it competes against SBC offering services over optical fibre to business customers - and Seattle.

FTTP Solution

Slide presentation

According to Mr. White, Verizon's FTTP solution is based on a single optical fibre passing from an OLT (Optical Line Terminal) to a splitter where the fibre is divided into thirty-two individual connections. From a capital expenditure perspective, the solution differs in key respects to other available offerings. Essential to reducing deployment investment is the all-passive nature of the solution, with all electronic components being installed at the customer site following a request for service.

Mr. White explained that with existing systems, the DLC (Digital Loop Carrier) is deployed as a part of the main rollout program, giving a limited amount of cost-control through the use of plug-in units as customers are gained or lost. Verizon's FTTP solution delivers enhanced efficiency and improved economics for deployment, particularly in competitive environments displaying high levels of churn.

The architecture of the Verizon solution is "basically standard", the principle new development being a splitter-hub accepting four fibres that are split to serve 128 customers (four times thirty-two), thus allowing short fibre links to each customer premises. The system platform is common across all applications and service offerings, whether serving business or residential customers.

When a customer signs up to the service, the premises are connected to the splitter - thus Verizon's prime objective is to maintain high utilisation rates on the splitter and the OLT equipment. Currently the fibres to each splitter-hub will connect back to a circuit switch at the local central office exchange. Mr. White noted that in the future this link would be to packet switching equipment, which may or may not be located at the central office exchange - the architecture of Verizon's FTTP solution liberates deployment from being tied to the local central office.

The FTTP solution is designed to the FSAN standard, delivering 622 Mbit/s data rate with the option of adding 1550 nm wavelength capability for transmitting broadcast video traffic. It was noted that the OLT carries both upstream and downstream traffic on a single fibre. Mr. White added that the technical ability to carry video traffic does not imply that Verizon intends to deploy analogue or digital video capabilities in the near-term, this is simply a facet of the system specification.

Commenting on the implications of the FTTP solution, Mr. White said that it would, in effect, constitute a "new network" for Verizon, enabling the provision of innovative products and capabilities. The deployment of fibre into the access network, delivering 622 Mbit/s of bandwidth shared by thirty-two or, potentially, sixteen customers, would make feasible the delivery of a range of advanced services. He added that, with the implementation of voice over ATM technology, the network would resemble a data rather than a voice network - this aspect of the program will necessitate for Verizon as an organisation the development of new internal systems and processes.

Verizon developed the FTTP solution in association with BellSouth and SBC, finalising the system design in June 2003, at which time a Request for Proposal was issued to prospective equipment vendors. Verizon is currently concluding its selection of vendors in preparation for the planned commencement of rollout in 2004.

Regulatory uncertainty

The regulatory environment in the U.S. is a factor that could have a potentially significant impact on the deployment of fibre in the access network. Mr. White remarked that Verizon's FTTP solution complies with the country's anticipated regulatory framework. He said publication of a final ruling on the regulatory requirements with regards to unbundling in the access network is anticipated very shortly - the expectation is that unbundling will not be mandated in most circumstances.

At the time of this writing, the only thing that is clear regarding the FCC’s unbundling rule is that lit fibre to the premises of a single family detached home, in a market that was formerly served by a non-Bell company (such as GTE), has no unbundling requirements.

However, the future rules are unclear regarding fibre deployed in former Bell company market territory, which comprise virtually all of Verizon’s markets in the eastern U.S. As of this writing, that fibre would have to be unbundled. Fibre to apartment buildings also has to be unbundled under current rules. Also unclear is the definition of small business. Fibre to large enterprises has to be unbundled; fibre to small business does not. The regulators have not defined what comprises a small business.

Equipment sourcing

Details of the RFP that Verizon issued to equipment vendors in June 2003 have not been disclosed and as yet there has been no announcement regarding the contract. Mr. White did comment that suppliers for fibre, splitters, fibre hubs and terminal equipment are being sought, and added that Verizon is very satisfied with the way that this element of the project has progressed to date.

It was noted that a key concern in the design of components for the FTTP solution is size - compactness was identified as of utmost importance. Mr. White said that targets relating to terminal equipment cost were also issued as a part of the RFP, with an incentive that if the price offered by the vendor was conducive, Verizon would install terminals as a part of the initial network rollout rather than solely in response to customer demand. This scenario holds advantages for both parties - improved efficiency for Verizon and larger equipment orders for the supplier.

Regarding the influence of partners BellSouth and SBC on the final pricing of equipment for the FTTP solution, Mr. White said that Verizon is confident that, if necessary, it alone can generate sufficient production volumes to make deployment viable - ultimately the company is not dependent upon the actions of its partners. Even so, he remarked that working closely with major carrier partners is seen as a very positive move, due to the resulting deployment of similar network equipment designed and built to a common specification. This factor will ultimately benefit both the equipment suppliers and the carriers.

Mr. White commented that the core difference for each of the three service provider partners is the proportion of network overlay, as opposed to new build, that will be possible, adding:

"Verizon has a different outlook on this aspect of the project due to the extent of aerial cabling within its network. This factor has a significant effect on the economics of fibre deployment in the last mile - the bottom line is, the more aerial plant in the network the better the case for overlay build."

Deployment practicalities

Deploying the FTTP solution in network overlay situations, Mr. White said, would result in Verizon bearing between 25% and 30% of the fixed cost at the outset. Expenditure relating to OLTs, ONTs (Optical Network Terminals) and rewiring at the customer premises only arises following a request for service from a customer. This factor gives a close correlation between deployment costs and the return on capital employed, tying a substantial portion of investment to customer demand.

As noted previously, a large part of Verizon's network is aerial - carried via poles - even where feeder cables are in the ground. Mr. White noted that this enables deployment of fibre at relatively low cost - "very simply, the FTTP solution is viable for Verizon". Where infrastructure is underground, he said, there would often be fibre installed close to a customer site, which may be extended - this constitutes 'new-build'.

In addition to utilising the same equipment for serving home and business users, Mr. White said the FTTP platform is flexible in that a mix of residential and business customers may be supported from the same splitter; the 622 Mbit/s pipe delivered by the solution may be utilised in a variety of ways. He noted that, whether to the home or business, the ONT equipment will be sited at the customer's premises, connecting back to a line card on the OLT at the central office exchange.

In terms of the deployment strategy, Mr. White said that rollout on a network maintenance basis - as and when faults or failures occur on existing infrastructure - was not seen to be a practical method. To make deployment economic an entire area must be upgraded, an eventuality that rarely arises as a result of essential maintenance work.

It was noted that Verizon had found this to be the case when installing Fibre-To-The-Kerb (FTTK) during the early 1990s. A carrier could opt to deploy fibre based upon gradually replacing the oldest infrastructure, or in areas where the highest revenue is generated. When deploying FTTK at that time, Verizon found that trouble-rates typically dropped in the order of 80%, and this rate has remained constant over the ten years since its installation.

Mr. White stated that the rollout schedule for the FTTP solution has not been announced publicly, and has not been revealed to partners or equipment vendors. He emphasised that equipment suppliers do not need details of deployment plans as the components will be identical wherever the solution is installed - whether it is a major city or into small towns across a state.

From the end-user's perspective, Mr. White said the rollout of fibre would not be totally invisible to the customer. The availability of new services apart, installation of equipment would be necessary at the customer premises, as would also be the tapping of an electricity supply.

In conclusion, Mr. White commented that Verizon's deployment of the FTTP solution is viewed as both a measure to retain existing customers and one designed to win back customers lost to the cable companies - "the aim is to get customers moving in only one direction - back to Verizon!"

Investment in FTTP

Mr. White was not able to give a figure pertaining to capital expenditure on the FTTP solution and its deployment specifically, stating that expenditure is not broken down in a way that makes this possible.

Verizon's total capital expenditure for 2003 stands at between $12.5 and $13.5 billion, of which approximately $5 billion is allocated to the wireless division. Figures for 2004 have not yet been released, but are expected to be in line with those of 2003.

Mr. White commented that the distribution of investment would likely change for 2004 as a result of the changing market place - for example, demand for residential second lines has declined through a combination of DSL service take up and the loss of subscribers to cable companies. DSL service rollout, although set to decline in the near future, was noted to be a major and continuing program, Verizon's aim being to extend coverage to at least 80% of its subscriber base.

Fibre in the access network

Commenting briefly on the current position of fibre in the access network in the U.S., an estimate of 35,000 homes served was acknowledged by Mr. White as a realistic figure. He remarked that although many customers are served by fibre feeder links - the DLC - very few of these have fibre running all the way to the home.

He added that Verizon has provisioned approximately 200 subscribers with fibre-to-the-premises service in Brambleton, Virginia, noting that this can present a migration path to full fibre-to-the-home service.

FTTP economics

Describing his background in the optical field, Mr. White said that he first encountered optical fibre technology when working with Bell Labs in the early 1970s, he continued:

"By the early 1980s there was a desire to deploy the technology and rollout fibre-to-the-home, but this was thwarted by the economics - primarily the cost of the electronics. During the late 1980s fibre-to-the-kerb was trialled, with the advantage that costs could be shared between perhaps twelve subscribers. However, this approach raised a new obstacle - the deployment of fibre close to the subscribers necessitated the installation of a power grid to supply electricity to the electronic components. In certain situations this was not an insurmountable barrier, for example in Brooklyn approximately 140,000 customers were provisioned with fibre-to-the-kerb. Here the high-density customer base - where each pole may serve a dozen subscribers - made the solution practical."

Today the cost of the electronic components, in general, has fallen dramatically. The cost of ONTs for example has fallen in the same way that modem prices have plummeted. This eventuality makes the siting of ONT equipment at the customer premises economical and thus allows ready access to a power supply at the property.

Referring to NTT's aggressive rollout of PON (Passive Optical Networking) equipment to subscribers in Japan, Mr. White remarked that this program had served to bolster Verizon's case for deploying FTTH in the U.S.

The DSL alternative

The case against Verizon's 'build it and they will come' approach to fibre deployment is the experience of numerous carriers over the past few years who invested in networks in anticipation of demand for bandwidth that has yet to arrive. Putting this risk into perspective, Mr. White said Verizon presently believes it has a choice: stay with DSL, with the requirement to deploy new DLC infrastructure, which in-turn needs further investment to make it DSL-capable; or deploy a 'future proof' solution - FTTP - at a lower overall capital expenditure. Although the FTTP solution must be deployed on a large scale to make it viable, it is the choice that allows Verizon to closely match revenue to capital expenditure - and is seen to be an elegant solution.

If the DSL alternative was to be followed, Mr. White said, the first goal would be total coverage, before the development and rollout of a higher bandwidth version such as VDSL. The overriding disadvantage with any DSL solution is seen to be the short useful lifespan - DSL is regarded as an intermediate technology on the road to optical fibre.

Mr. White remarked that, in addition to the inherent technical limitations of DSL technology, in practice the bandwidth available to any one user is dependent upon their distance from the nearest central office exchange.

Demand for broadband

Mr. White acknowledged that residential subscribers, in particular, are uninterested in the technology delivering services to the home, and are certainly not demanding fibre connections. A user's interest typically starts and ends with the services that are available and the price. He stated that Verizon intends to develop innovative services facilitated by the effectively unlimited bandwidth on tap with a fibre connection: "Fibre-to-the-home will enable the delivery of a wide range of new services via a connection on a par to that available at the office."

The U.S. market into which the FTTP solution is being launched is regarded by Verizon as highly competitive, with around 97% of homes having the option of cable service and all subscribers having access to wireless. Mr. White noted that the Web has been driving demand for broadband service over the past six years:

"Subscribers discovered the Web, signed up to dial-up service at home and quickly found it to be very slow. These customers then began to demand broadband service - today there are approximately seventeen million broadband subscribers in the U.S. This customer base now presents carriers with the opportunity to offer services over and above straightforward high-speed access, for example Voice-over-IP, which is not feasible over a dial-up connection."

Referring back to the 'build it and they will come' approach, as opposed to waiting for demand to become evident, Mr. White believes the average subscriber will not know what services he or she will want in five years time, even if they are aware of what will be possible technologically. He noted that once a stage is reached where bandwidth is effectively unlimited, with fibre, many services become possible, including, as an example, television distributed via fibre rather than broadcast. Verizon is of the opinion that service providers cannot standby waiting for customer demand to reach a crescendo before acting to address it.

It was stated that Verizon is currently losing subscribers to the cable companies across its markets. Mr. White commented that these companies now offer bundled video plus data and voice service, which has increased customer churn in the residential market. This aspect of the market environment means for Verizon today that implementation of the FTTP solution is as much a competitive measure as a technological one.

Future goals

Regarding the impact of deploying fibre on other sections of the network - particularly the long-haul network - Mr. White said this is not of concern, and not a motivating factor. The boosting of traffic carried over the company's network as a whole is not an element of the FTTP strategy. He stated that this factor only enters the equation in that the FTTP solution enables the bypassing of local exchanges and also allows subscribers to be connected to a central office exchange that is not necessarily the closest to them.

Verizon will market the FTTP solution initially as a pure 'data play', with the aim of offering a competitively priced, high-speed, high quality service. Mr. White remarked that, long-term, the goal is to transfer the majority of Verizon subscribers to the FTTP solution, although this transition is expected to take in the order of ten to fifteen years to complete. He added that personally he is not looking beyond a five-year timeframe:

"In theory fibre - for Verizon the FTTP solution - is the future for broadband access. However, in the short-term, issues including the long awaited regulations on unbundling in the access network, could have a profound impact on the situation for the carriers."