C o m p e t i t i o n i n Fi b e r t o t h e H o m e : A T e c h n o l o g y a n d

Po l i c y A s s e s s m e nt
by

Emy Tseng

Sc.B., Mathematics/Physics (1987)

Brown University

Submitted to the Engineering Systems Division

In Partial Fulfillment of the Requirements for the Degree of
Master of Science in Technology and Policy

at the

Massachusetts Institute of Technology

September 2001

© 2001 Massachusetts Institute of Technology. All rights reserved.

Signature of Author…………………………………………………………………………
MIT Technology and Policy Program
August 16, 2001

Certified By…………………………………………………………………………………
Sharon Gillett
Research Associate, Center for Technology, Policy and Industrial Development
Thesis Supervisor

Accepted By………………………………………………………………………………...
Daniel Hastings
Professor of Aeronautics and Astronautics
Director, Technology and Policy Program
Engineering Systems Division
2
 3

C o m p e t i t i o n i n Fi b e r t o t h e H o m e : A T e c h n o l o g y a n d
Po l i c y A s s e s s m e nt
by

Emy Tseng

Submitted to the Engineering Systems Division on August 16, 2001

In Partial Fulfillment of the Requirements for the Degree of
Master of Science in Technology and Policy

Abstract

This thesis analyzes the effect of deployment of Fiber to the Home (FTTH)
networks on competition in residential communications services from a policy and
technology point of view. A Fiber to the Home network is a residential communications
infrastructure where fiber optic cables run all the way to the subscriber premises.

As fiber moves towards the home, it brings the promise of a flexible, future-proof,
full-service network platform with potentially unlimited capacity. Although Fiber to the
Home is just a technology, it has interesting implications for the dynamics of competition
in the local access market. This thesis examines the market, policy and technology
factors that will affect competition in the context of Fiber to the Home.

Policymakers should set consistent policy goals now regarding competition for
future local access networks. The development of FTTH technology is still in the early
stages, so fundamental technology choices are still being made. This situation presents
the opportunity to design future broadband networks that enable competition among
telecommunications service providers. Therefore, the political and technical decisions
made now can determine whether competition will exist over our future communications
systems.

Thesis Supervisor: Sharon Gillett

Title: Research Associate, Center for Technology, Policy and Industrial Development
4
Acknowledgements

This thesis was written with the support of many people. I would especially like

to thank my advisor and mentor Sharon Gillett for her guidance, advice and

encouragement.

I would also like to thank the entire team at MIT’s Internet & Telecoms

Convergence Consortium. I am particularly grateful for the contributions of Bill Lehr

and Dave Clark. I thank my fellow ITC research assistants, Emma Smith and Sohil

Parekh, for their camaraderie and support.

During the process of gathering information for this thesis, I corresponded with a

number of industry experts who generously contributed their time and knowledge, in

particular David Gingold of Nortel Networks, Manuel Topete of the City of Palo Alto

Utilities, Jon Moore and Bob Davisson of the Grant County Public Utility Commission,

Keith Cooley of HomeFiber, Michael Silverton of FiberHood, Will Biedron of Storigen

Systems, Whay C. Lee of Motorola, and Tim Dwight of Marconi.

Finally, I thank Bobby Gorczyca for his generosity of spirit during these years of

transition.
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Table of Contents
Abstract .......................................................................................................................... 3
Acknowledgements......................................................................................................... 4
Table of Contents............................................................................................................ 5
1. Introduction......................................................................................................... 7
1.1. Perspectives............................................................................................... 11
1.2. Thesis Overview ........................................................................................ 14
2. The Market........................................................................................................ 15
2.1. Overview of Local Access Networks ......................................................... 15
2.2. Why Fiber to the Home?............................................................................ 19
2.3. Status of Deployments ............................................................................... 23
2.4. Potential Providers..................................................................................... 24
2.4.1. Telephone companies: Incumbent Local Exchange Carriers (ILECs) and
Independent Telephone Providers...................................................................... 25
2.4.2. Cable TV Providers............................................................................ 27
2.4.3. Competitive Local Exchange Carriers (CLECs), Overbuilders and
Competitive Access Providers ........................................................................... 27
2.4.4. Utilities .............................................................................................. 29
2.4.5. Municipalities .................................................................................... 30
3. Policy and Regulation........................................................................................ 32
3.1. History....................................................................................................... 36
3.2. Telecommunications Act of 1996 .............................................................. 37
3.2.1. Provisions for Facilities Based Competition ....................................... 37
3.2.2. Provisions for Service Level Competition .......................................... 38
3.3. Current Broadband Access Policies ........................................................... 41
3.3.1. Status of DSL Regulation................................................................... 43
3.3.2. Status of Cable Modem Open Access................................................. 44
3.4. Competition Policies for Fiber to the Home ............................................... 46
3.4.1. Status Quo ......................................................................................... 48
3.4.2. Laissez-faire....................................................................................... 48
3.4.3. Unbundling ........................................................................................ 49
3.4.4. Raised Hammer Approach ................................................................. 50
3.4.5. Open Access ...................................................................................... 51
3.4.6. Public Investment in Infrastructure..................................................... 52
4. Technology ....................................................................................................... 53
4.1. Fiber Optic Technology ............................................................................. 54
4.2. Multiplexing .............................................................................................. 57
4.2.1. Space Division Multiplexing .............................................................. 58
4.2.2. Wave Division Multiplexing .............................................................. 59
4.2.3. Time Division Multiplexing ............................................................... 61
4.3. Architectures ............................................................................................. 62
4.3.1. Home Run.......................................................................................... 65
4.3.2. Active Star ......................................................................................... 65
4.3.3. Passive Star........................................................................................ 67
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4.3.4. WDM PON ........................................................................................ 69
4.4. Standards ................................................................................................... 71
4.4.1. Full Service Access Network ............................................................. 72
4.4.2. Ethernet in the First Mile.................................................................... 73
5. Case Studies ...................................................................................................... 75
5.1. Grant County ............................................................................................. 75
5.1.1. Project Status ..................................................................................... 78
5.1.2. Services ............................................................................................. 79
5.1.3. Network Architecture......................................................................... 80
5.2. Palo Alto ................................................................................................... 80
5.2.1. Project History ................................................................................... 81
5.2.2. Services ............................................................................................. 82
5.2.3. Network Architecture......................................................................... 82
5.3. Summary ................................................................................................... 83
6. Conclusions....................................................................................................... 85
6.1. Summary of Findings................................................................................. 85
6.1.1. Market ............................................................................................... 85
6.1.2. Technology ........................................................................................ 86
6.1.3. Policy................................................................................................. 87
6.1.4. Municipal Role .................................................................................. 89
6.2. Areas for Future Research.......................................................................... 90
6.3. Conclusion................................................................................................. 91
Glossary........................................................................................................................ 93
Bibliography ................................................................................................................. 95
Websites ..................................................................................................................... 100
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1. Introduction
This thesis analyzes the effect of deployment of Fiber to the Home (FTTH)

networks on competition in residential communications services from a policy and

technology point of view. A Fiber to the Home network is a residential communications

infrastructure where fiber optic cables run all the way to the subscriber premises. After

years of anticipation, various deployments of Fiber to the Home are finally emerging in

communities across the U.S.

Although Fiber to the Home is just a technology, it has interesting implications

for the dynamics of competition in the local access market. Fiber to the Home networks

can provide many times more bandwidth than currently available with existing broadband

technologies. In addition, the networks have the ability to provide all communication

services- voice, video and Internet - from one network platform. As fiber moves towards

the home, it brings the promise of a flexible, future-proof, full-service network platform

with potentially unlimited capacity.

In the current U.S. telecommunications policy regime, competition is seen as the

most effective way to lower costs, increase services to consumers, and encourage

innovation. However, competition in local access is not starting from a level playing

field. Historically, the two primary local access networks, the telephone network and

cable TV network, were regulated as natural monopolies. For the most part, these

networks continue to be owned and operated by monopolist providers – the incumbent

telephone companies and cable TV operators. The Telecommunications Act of 1996 was

enacted in order to open up the television and telephone markets to competition.

8
Policymakers have taken two approaches to implementing competition in the

local access market – facilities-based competition and service level competition. With

facilities-based competition, different companies deploy, own and operate their own

network infrastructure. Each company provides services such as phone, TV and Internet

access over its own facilities.

The U.S. government has sought to encourage facilities based competition by

removing regulatory barriers that kept companies from entering different

telecommunications market sectors. The 1996 Telecommunications Act allows cable

television and telephone providers to enter each other's markets. The intention is that the

existing providers will upgrade their existing infrastructure facilities to support a full set

of services. The government also seeks to encourage new entrants such as electric

utilities, municipalities, and competitive access providers to develop infrastructure. Since

these new entrants don’t have legacy networks, they can build new facilities based on

emerging technologies such as Fiber to the Curb, Fiber to the Home, fixed wireless and

satellite.

With service level competition, different companies provide competing services

and applications over the same network infrastructure. The government encourages

service level competition by requiring incumbent providers to share the use of their

existing networks with competitive service providers. The incumbents have significant

advantages over new entrants since they own and control the existing networks. Due to

the entrenched position of incumbents, the deregulatory process has actually involved

increased regulation in order to open these markets to competition. The intention is that
 9

these requirements would enable the entrance of new competitors into residential

communications service markets.

In the case of the telephone network, the 1996 Telecommunications Act imposed

network-sharing conditions of interconnection, unbundling and resale on the incumbent

telephone companies. These conditions enable new service providers to enter the local

telephone and DSL markets. However, the Act did not subject the cable operators to the

same requirements. However, proponents of “open access”, or service level competition,

are calling upon the government to impose network-sharing requirements on cable

companies to allow competitive Internet service providers to provide broadband Internet

access using these networks.

Legacy policy has become increasingly problematic in the face of changing

technology. Over the years, telecommunications policy has responded to changes in

communications technology. Technology changes market possibilities and affects the

state of competition. Technological innovation affects markets by lowering the costs of

providing services or by introducing possible substitutes.

Policy battles over competition have shifted from the long distance market to the

local telephone market to the current controversy over broadband Internet access.1 The

advent of microwave transmission allowed new companies to enter the long distance

market and led to the breakup of AT&T. In the local telephone market, the emergence of

digital switching technology lowered the economies of scale in providing local telephone

1
See Chapter 15 in (Viscusi et al 2000) for an economic and historic analysis of the deregulation of the
U.S. long distance and local telephone markets.
10
services by making it economically possible to connect the local network to multiple

carriers’ switching facilities. Currently, policymakers are grappling with issues of

technological convergence brought about by the Internet.

Analogous to these situations, Fiber to the Home technology will affect

competition in the residential communications market. But the likely impact of the

technology is different for the two types of competition. FTTH may lead to less

opportunity for facilities based competition due to the high costs of deployment.

According to previous cost analyses, the high costs and economies of scale of deploying

FTTH networks indicate limited competition amongst wireline network providers.2

Technological convergence and the flexibility of fiber technology enable companies to

build full service network platforms. If an incumbent provides all services (telephone,

video and data) over its own network, competitors have less incentive to build another

network.

On the other hand, the use of Fiber to the Home has the potential to lead to richer

service level competition. The flexibility and capacity of fiber enables the development

of new technologies that can compete with existing services. The high capacity of fiber

technology allows multiple providers of telephone, Internet and eventually video services

to share a single network.

It is not possible to predict if robust facilities based competition will emerge. The

viability depends on many factors including the state of competing technologies such as

fixed wireless and on the technical demands of future applications. Facilities based

2
Reed 1991
 11

competition also depends on geographical and demographic factors. The level of

competition varies across different communities. Certain communities have the

population density and economic conditions to support multiple competing facilities.

Other communities will only support the deployment of one broadband facility.

Since facilities based competition is uncertain, it is important to guide policy and

technology towards the support of service level competition over future networks and to

set a consistent policy framework now. Regulatory uncertainty in itself can inhibit

investment in new infrastructure. Also, there is an opportunity now to design technology

to support the goal of service level competition. Just as technology impacts policy,

policy impacts technology. The development of FTTH technology is still in the early

stages -- fundamental technology choices are still being made. These choices can

determine how easily these networks can be opened to competition. The political and

technical decisions made now can determine whether competition and free and open

exchange exist over our future communications systems.

1 . 1 . Perspectives
This thesis examines the market, policy and technical factors that will affect

competition in the context of Fiber to the Home. In analyzing these issues, this thesis

explores the following questions: What is the current status of FTTH deployments?

Who are possible network providers and what are the their motivations in deploying

FTTH? How might current competition policy be applied to the regulation of FTTH

networks? What should the role of municipalities be in the deployment of FTTH? What
12
is the current state of FTTH technology and how well do these technology options

support multiple service providers?

This thesis draws on literature from several areas including:

• Policy analyses of telecommunications deregulation and current state of

competition policy

A large body of literature exists examining the history and effects of

telecommunications deregulation. In (Graham 2001), telecommunications deregulation is

analyzed in the context of the worldwide trend to deregulate all infrastructure industries:

transportation and energy, as well as telecommunications. The deregulation of the

telecommunications industry in the U.S. is examined in (Horwitz 1989). The relationship

between the evolution of technology and policy that culminated in the passage of the

Telecommunications Act of 1996 is examined in (Olufs 1999). Other literature evaluates

the possible effects of the policies enacted by the 1996 telecommunications act (Shaw

1998, Haimowitz 1997).

Recent telecommunications policy has focused on the issue of competition in

broadband Internet access, especially over the cable TV network. This issue is

commonly known as “open access”. Supporters say that imposing network-sharing

requirements on the cable operators will enable innovation (Lemley and Lessig 2001, Bar

and Cohen 1999) and the open exchange of ideas (Benkler 2000). Opponents of open

access fear these requirements may inhibit investment in new infrastructure (Speta 2000).

• Technical literature and cost analyses of Fiber to the Home technology

To date the most comprehensive study on Fiber to the Home has been (Reed,

1990), which presents an engineering cost analysis of deploying Fiber to the Home. Reed
 13

found that economies of scale exist, but not economies of scope in providing advanced

video services along with telephone service. He concluded that FTTH would lead to

limited facilities-based competition but policy could be used to shape and encourage

competition at the service level. In the ten years since Reed’s work was published, the

choices in Fiber to the Home architectures and technology have not changed much,

although costs of fiber optic components have decreased.

However, the Telecommunications Act of 1996 has implemented major policy

changes in the local access market. Telephone companies are now allowed to enter the

video market (a major recommendation of Reed's book). Also, Internet access has

emerged as a major force in residential communications.

Most of the technical literature on Fiber to the Home has focused on passive

optical networking (PON) technology (Feldman et al. 1998, Gillepsie 1997). FTTH is

evaluated in the context of residential broadband architectures in (Abe 2000) and in the

context of fiber optic technology in (Ramaswami and Sivarajan 1998). However, FTTH

architectures using Ethernet over an active star topology have emerged as a possible

alternative (St. Arnaud 2000, Cheriton and Bechtolsheim 2000).

• Reports about current deployments and business analyses.

This thesis brings together information from news of various deployments and

industry analyses of broadband access (Keough and Willer 2000, Sanford C. Bernstein &

Co. 2000, Jungjohann, Bezoza and Schafer 2001).

14
In addition to the written sources cited above, further information for this thesis

was gathered using interviews of fiber optic equipment vendors and current FTTH

network providers

1 . 2 . Thesis Overview
This thesis examines the future of competition in residential communications with

the advance of Fiber to the Home. The scope of this analysis is the U.S. This issue must

be understood in the context of the potential FTTH market, local access policy and FTTH

technology. Chapter 2 presents the current status of Fiber to the Home deployments and

examines the possible network providers and their incentives to invest in FTTH. Chapter

3 examines policy alternatives for fostering competition in the residential

communications market. It analyzes how these policies may be applied to Fiber to the

Home. Chapter 4 discusses the various FTTH architectures and technologies being

proposed from the perspective of how they might support open access. Chapter 5

investigates the possible municipal role in deploying new infrastructure and presents two

case studies of municipal FTTH deployments in Palo Alto, CA and Grant County, WA.

Chapter 6 presents the findings and conclusions of the thesis.

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2. The Market
In order to reduce maintenance costs, increase capacity and support new services

such as broadband Internet access, cable TV and telephone providers have been

deploying fiber optic networks closer to the subscriber. Fiber advocates conclude that the

logical result of this evolution is to install fiber all the way to the customer

premises—right to businesses and homes.3 Fiber to the Home can be considered the

“Holy Grail” of residential access networks.4

This chapter examines the market context for Fiber to the Home. It explores the

likelihood of widespread deployment of Fiber to the Home networks and how that might

take place. In order to assess the possible migration path to FTTH, this chapter considers

the current status of the local access networks. It analyzes the factors that are driving the

deployment of FTTH, presents the current status of FTTH deployments and discusses the

viability of further deployment. And finally, it assesses possible network providers and

the incentives they might have to invest in FTTH.

2 . 1 . Overview of Local Access Networks

The local access network refers to the part of the network connecting the

subscriber premises to the carrier premise. The carrier premise is the point at which

service providers interconnect with the local access network. In this thesis, the term

“meet point” is used to refer to this point in the network. The meet point is also known as

3
St. Arnaud 2000
4
Abe 2000, Residential Broadband
16
the local switch, the central office, and the head end, depending on the type of network.

The local access network is also often known as “the last mile” and “the local loop.”

Currently, the local access infrastructure consists mainly of the cable TV and

telephone networks. For the most part, these networks are owned and operated by the

incumbent telephone and cable television providers. However, in some areas,

competitors have emerged offering services using their own infrastructure. Digital

broadcast satellite (DBS) has emerged as a competitor to cable television. And in some

urban areas, companies known as overbuilders are deploying cable TV networks to

existing homes providing a third wire to the home.

In the past, the cable TV and telephone networks supported specific applications –

broadcast television and plain old telephone service (POTS). In both residential and

commercial areas, companies have been upgrading their infrastructure to provide

broadband access to the Internet. The following table shows the bandwidth capabilities

of different broadband technologies:

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Broadband Typical Typical Maximum Maximum

Technology Downstream Upstream Downstream Upstream
Bandwidth Bandwidth Bandwidth Bandwidth
Cable Modem - .5-1 Mbps 256-500 Kbps 27 Mbps 10 Mbps
Hybrid Fiber
Coax (HFC)
Asymmetric 256-500 Kbps 256-500 Kbps 8 Mbps 640 Kbps
Digital
Subscriber Line
(ADSL)
Fiber to the Curb 2-10 Mbps 2-10 Mbps 27 Mbps 10 Mbps
Fiber to the 1-7 Mbps, 1-5 Mbps, 155, 622 Mbps 155 Mbps
Home 10, 100 Mbps 10, 100 Mbps 100 Mbps 100 Mbps
Fixed Wireless 2 Mbps .5-2 Mbps 5-10 Mbps 2 Mbps
Satellite 400 Kbps 30-40 Kbps 1 Mbps 150 Kbps
Table 2.1 Bandwidth Capabilities of Broadband Technologies 5

The most commonly deployed broadband Internet technologies are cable modem

and Digital Subscriber Line (DSL) technologies. Cable companies have deployed Hybrid

Fiber Coax (HFC) networks to provide high-speed Internet access. An HFC network is a

cable TV network that has been upgraded with fiber optic cable installed from the

provider premises to a neighborhood fiber node. In this system, coaxial cable extends

from the node to individual businesses and homes, and each node typically serves about

500 to 1,000 homes.

Telephone companies use Digital Subscriber Line (DSL) technology to provide

high-speed Internet access over existing phone lines. Asynchronous DSL(ADSL) is a

type of DSL technology that provides more downstream than upstream bandwidth.

Also, both incumbent and competitive companies have been deploying newer

wire-line technologies such as Fiber to the Curb and Fiber to the Home. The deployment

5
Sources include: Bernstein and McKinsey & Company, Inc; Hoak , Breedlove and Wesnecki, Inc.; CIBC
World Markets and the Full Service Access Network Standard.
18
of fiber deeper into the network reduces maintenance costs and improves data

transmission.6 Fiber to the Curb (FTTC) refers to a telecommunications network where

fiber extends to a fiber node deployed close to homes and businesses. Coaxial or twisted-

pair copper cable is used to carry data from the fiber node into the buildings. Telephone

companies are deploying fiber to digital loop carriers (DLC) located in the

neighborhoods. Cable companies are also deploying FTTC, where each fiber node

typically serves 25 to 200 homes. The capacity of the network is increased because the

network serves fewer users. This architecture is sometimes referred to as “mini-node”

architecture.

With FTTH networks, fiber extends all the way to homes. As fiber gets deployed

deeper into the network, FTTC architectures can be used as an evolutionary step towards

FTTH.

Fixed wireless technology is emerging as a possible competitive broadband

facility. Fixed wireless uses microwave technologies to transmit data from points close

to homes and businesses. It is attractive because companies can avoid the large expense

of laying wires to every home. There are concerns about technical issues, such as line of

sight, and regulatory issues, such as building roof rights and spectrum availability.

Although fixed wireless can offer comparable bandwidth to broadband wireline

alternatives, the current lack of available spectrum may limit its capability. Despite these

concerns, fixed wireless is a promising alternative to FTTH technology.

Satellite systems transmit data to and from satellites orbiting the earth. However,

satellite systems offer limited upstream bandwidth. It is too early to predict whether

6
Tompkins et al. 2000
 19

these wireless technologies present true competition to wire-line technologies. This will

depend on advances in wireless technologies and the technical demands of future

applications.

2.2. Why Fiber to the Home?

The flexibility and capacity of Fiber to the Home enables providers to "future

proof” their infrastructure. With technology moving so fast, the future demands on the

network are uncertain. Yet Fiber to the Home networks can accommodate future

applications and bandwidth demand more easily than other network architectures. The

capital costs of deploying local access networks are very high. Therefore, incumbents

and new entrants wish to build networks that have the capability, or ready upgrade

capability, to meet the bandwidth and application demands for the next ten to even

twenty years.

The advantage of FTTH networks over other telecommunications networks is

their extensive capacity and flexibility. Fiber optic cable has a much higher potential

bandwidth capacity (especially upstream) than other transmission media. The rise of

Internet usage is already driving an increase in demand for bandwidth in the residential

market. Although current broadband access technologies such as DSL and cable modem

are sufficient for applications such as Web surfing and email, one can foresee increasing

demand for bandwidth outstripping the supply. The Internet enables bandwidth-intensive

applications such as streaming media, video on demand, video telephony and peer-to-

peer applications. In turn, these applications drive up demand, especially for upstream

bandwidth.
20
Another promising aspect of fiber is that it can provide almost unlimited capacity

through the use of Wave Division Multiplexing (WDM) technology. WDM technology

enables operators to increase the bandwidth of a fiber network by allocating multiple

wavelengths. Currently this technology is used only in long haul backbone networks.

However, this technology may eventually be used in local access networks as optical and

electronic equipment evolves and becomes less costly. Providers can increase network

capacity by replacing equipment, an easier option than replacing the transmission lines.

Over the past ten years, backbone and metropolitan area networks have been

upgraded in order to increase capacity. As the rest of the network capacity has increased,

the local loop has become the bottleneck in providing bandwidth to users.

There is a glut of capacity of high-speed, long-haul information

pipelines, but a shortage of the high-speed, local-access connections
that consumers and businesses need to gain access to the Web. It is as
if superhighways stand nearly empty while traffic backs up at the
Holland and Lincoln tunnels.7

An all fiber network would provide the greatest bandwidth and relieve this bottleneck.

The use of fiber encourages the deployment of a flexible, general communications

platform. The network can be designed to be general-purpose: to support voice, video,

and data services as well as new services as they are developed. “Transmission

innovations such as fiber optics encourage the development of integrated networks

capable of carrying a diverse set of voice, data, and video services.”8

The existing cable TV and telephone networks were designed to support specific

applications: plain old telephone service (POTS) and broadcast television. The

7
Romero 2001
8
Reed 1991, p. 1
 21

implementation of new digital technologies such as broadband Internet access is

constrained by the existing network architectures. In contrast, the flexibility of fiber

means the network can accommodate but not be limited by older applications and

technologies.

In conjunction with the Internet, FTTH networks provide a flexible

communications infrastructure. Fiber optic technology enables convergence at the

physical layer of the infrastructure in a way that is analogous to how the Internet

Protocols enable convergence at the logical layer of the communications infrastructure.

Past applications, such as analog cable TV and phone, can be supported on the same

network as enhanced digital services, such as video over IP, voice over IP, digital TV,

and “ultra” high-speed data (> 2 Mbps).

Once a transmission is digitized, there is in principle no difference,

aside from volume of information, between a telephone call and a
televised baseball game. If the conduit for the information is big
enough and the machines at both ends are capable of sending and
receiving the information, the distinction ends between cable,
broadcast, and telephone companies disappear.9

While convergence has been promised for a long time, FTTH networks provide the

conduits that are finally large enough for this development to occur.

Fiber to the Home has been proposed for years.10 FTTH technology has been

around for a decade or longer but has not been deployed sooner because of the significant

expense involved in rebuilding the entire last mile of the network. So far there has not

been enough economic justification for using it to replace the existing infrastructure.

9
Olufs 1999, p. 102
10
Tompkins et al. 2000; Eiger et al. 1989; Sirbu and Reed 1988
22
Although optical equipment prices have dropped considerably in the past five years, the

equipment is still relatively expensive compared to cable modem and DSL. Only

recently have applications emerged that demand broadband access, and it is unclear how

much consumers would be willing to pay for services that would take advantage of the

further capabilities of Fiber to the Home. Therefore, the viability of FTTH has always

been primarily a question of economics rather than technology.

The speed with which the current wires, switches, and computers that
make up the information infrastructure will be replaced by newer
technology is severely constrained by costs. Carriers are not sure what
application will be popular with the majority of the nation’s households,
and so the technology needed to deliver it is uncertain. This means the
movement to new technologies is going to be fairly slow and incremental,
moving forward as carriers believe they are in a position to make money
from particular applications.11

It is not yet possible to predict exactly when widespread deployment of Fiber the

Home will happen. And there is no one right answer for the method of Fiber the Home

deployment. It will depend upon the incentives of different providers and the

circumstances and regions where the networks will be deployed. However, telephone

companies, utilities and municipalities are presently considering FTTH because of its

promise to enable a high-bandwidth, and future-proof infrastructure for delivery of

integrated services.

11
Olufs 1999, p. 110
 23

2.3. Status of Deployments

Only a handful of FTTH networks have actually been deployed in the United

States 12, and most of these deployments are in the trial stage. Examples are shown in

table 2.2.

Table 2.2 Examples of FTTH Deployments in the U.S.

Industry reports show total equipment costs ranging from $1,100 to $5,000 per

home for the consumer premise equipment as well as the equipment installed in the meet

point.13 Note that total costs vary depending on how many subscribers share the provider

equipment—the fewer the homes, the greater the cost per home.

Even as the costs of optical equipment decline, the cost of deployment remain a

barrier to FTTH. The majority of these costs come from the actual physical deployment

of the network – the installation costs. Deployment costs vary greatly according to

12
Bernhard 2000; Tompkins et al. 2000
13
Keough and Willer 2000; Lopez et al. 2000
24
whether the fiber is being installed on existing aerial poles, buried in existing conduits, or

deployed in new conduits that require the digging of trenches, which is particularly

expensive. Cost estimates of fiber installation range from around $25,000 to $125,00014

per mile to as much as $350,000 to 750,000.15 One analysis estimates that labor costs

make up about 70% of the deployment costs.16

Fiber the Home will be deployed in new developments far sooner then in existing

neighborhoods. In fact, the costs of deployment are so high that Fiber to the Home is

being used in limited circumstances. For the most part, Fiber to the Home will be

deployed where the provider can avoid trenching—for example, in new builds, where

trenches are already being dug for other utilities, and in areas where access to aerial plant

is available. Telephone companies are also incrementally deploying Fiber to the Home to

replace aging copper infrastructure.

2.4. Potential Providers

Potential Fiber to the Home network providers include the incumbent cable and

telephone operators as well as new entrants such as competitive local exchange carriers,

over builders, utilities and municipalities. Motivations and strategies vary greatly among

the different possible providers. The incumbent providers will probably develop very

different strategies for upgrading versus new builds—choosing to deploy fiber

infrastructure in new builds, while incrementally upgrading their existing infrastructure

as demand or plant conditions warrants.

14
St. Arnaud 2001, p. 14
15
Jungjohann, Bezoza and Schafer 2001, p.33
16
Jungjohann et al. 2001, p.32
 25

In contrast, the new entrants do not have legacy infrastructure to contend with,

since they are building the network from scratch. Their network installation costs do not

differ significantly whether they are deploying copper or coaxial cables or fiber.

However, the private competitive providers are limited by time and capital constraints

such as Return on Investment, cost of obtaining the first customer, etc. They also cannot

expect to have the same penetration rates as the incumbents. Consequently, their network

costs are shared amongst fewer subscribers and a lower revenue stream.

Utilities and municipalities do not have the same constraints as private

competitive companies. They can often amortize their capital investments over a longer

period of time, say ten or even twenty years. However, they usually do not have

experience in providing telecommunications services. Further municipalities may also

face political opposition that would prevent them from offering telecommunications

services.

2.4.1. Telephone companies: Incumbent Local Exchange Carriers

(ILECs) and Independent Telephone Providers
Telephone companies have several motivations to replace the existing telephone

infrastructure with Fiber to the Home. Fiber requires less maintenance than twisted pair

copper, thereby lowering the network’s lifetime operational costs. In greenfield sites, it

can be cheaper to install fiber than copper networks.17 Additionally, FTTH gives

telephone companies the ability to provide services that are not well supported by the

current network. Twisted pair copper has less capacity than coaxial cable and fiber.

17
Hardy 2001
26
Distance limitations between the central office and the subscriber have also limited the

provision of broadband Internet services through DSL.

Also, the current phone networks do not support video transmission. Deploying

FTTH would allow phone companies to compete with cable television using their own

infrastructure. For years telephone companies have been interested in entering the video

market. The companies’ interest in providing full services over fiber networks has

motivated some ILECs and equipment providers to form the Full Service Access

Network (FSAN) standards body. However, it is unclear when phone companies may

deliver advanced services such as video even where fiber is deployed, since there are

questions about the economic feasibility of offering these services.

For now, the telephone companies are targeting new developments because of the

high cost of network deployment in existing neighborhoods. A couple of ILECs have

deployed FTTH trial networks. Bell South has a trial serving 400 homes in a suburb of

Atlanta, and Verizon is running a FTTH trial in an undisclosed location on the East

Coast. Also, as the old infrastructure needs repair, telephone companies are

incrementally replacing the copper wiring with fiber.

Independent telephone companies (often in rural areas) have been more inclined

to adopt Fiber to the Home technology than the ILECs. For example, Rye Telephone

Company in Colorado and Huntel Engineering offer cable TV, telephone and Internet

access to their customers in new housing developments.18 Rural telecommunications

companies are allowed to provide both cable TV and telephone in the same

18
Huntel Engineering http://www.huntelengineering.com and Rye Telephone Company http://
www.fone.net/soco/guide/colocity/rtc/home.html
 27

communities.19 Such companies also have the advantage of being unencumbered by the

organizational issues of large companies.

2.4.2. Cable TV Providers

Cable television providers have less incentive to deploy fiber all the way to the

home. Coaxial cable has enough potential capacity for most applications, and HFC

networks are capable of supporting full services: video, telephone and data. Capacity

constraints come from the way in which the HFC network is shared among users. Cable

television companies are taking a gradual approach to deploying fiber closer to the

subscriber. Cable companies such as AT&T are migrating their HFC systems to Fiber to

the Curb to allow fewer subscribers to share the network. In fact, some systems have as

few as 25 users per fiber node. Fiber to the Curb allows them to utilize the current head

end and customer premise equipment.

Eventually, cable companies may migrate to all fiber networks if application

demand warrants it (especially for upstream bandwidth), if incrementally upgrading the

network becomes more expensive than deploying fiber all the way, or if FTTH offers

significant enough savings in operational costs compared with HFC networks.

2.4.3. Competitive Local Exchange Carriers (CLECs),

Overbuilders and Competitive Access Providers
The varying strategies and business models make it is hard to generalize the

incentives of competitive providers to deploy Fiber to the Home. Some competitive

providers just deploy the network and provide maintenance. A company called

19
Telecommunications Act of 1996, Section 652(d)(1).
28
FiberHood in Palo Alto plans to build FTTH networks and offer basic data transmission

to service providers. The network providers may partner with other companies because

of regulatory issues, such as securing rights-of-way, cable licensing and CLEC status.

Other companies provide a full set of services over the network. These services

include telephone and cable TV, as well as advanced services such as high-speed

Internet, neighborhood Intranet and video on demand. These providers often target

greenfield sites. For example, companies such as ClearWorks.net and ViaLight offer

these types of services to new developments, teaming up with a real estate developer to

provide the network to homes in a private development. Usually the developer gives

them some kind of guarantee for the number of homes that will hook up to the network.

In some cases, they may get exclusive rights for a period of time. In this way they gain

first mover advantage.

Companies known as overbuilders deploy networks in existing neighborhoods

providing a third wire into the home. Most of these companies are deploying HFC

systems even though network installation costs do not differ significantly whether they

are deploying coaxial cables or fiber. However, the total cost of Fiber to the Home is still

too expensive for most of these providers. One exception is Western Integrated

Networks (WINFirst), which has obtained cable licenses in various cities in Texas and

California. Their plan is to build a combined HFC and FTTH network where coaxial

cable carries the television signals and fiber carries data and voice into the home.

The incumbents have an advantage in economies of scale. Overbuilders can

expect to have a low penetration rate relative to the incumbent telephone and cable
 29

companies. RCN is the most successful, with up to 25% penetration rate.20 FTTH will

become more viable for overbuilders as equipment costs come down.

2.4.4. Utilities
Because of deregulation of the power industry, utilities (especially electric) are

looking to broaden their business strategy into telecommunications, especially since they

often have much of the infrastructure already in place. In fact, many of these

organizations have already deployed fiber networks connecting their own facilities.

Some lease dark fiber to other organizations and businesses. Some utilities want to build

out their networks to individual homes and businesses to support applications such as

automated metering. Since these applications do not take much bandwidth, they can use

these networks to offer telecommunications services.

Utilities are more likely to deploy Fiber to the Home networks than other

competitive providers. For one thing, they already have staff with the expertise in the

deployment and maintenance of fiber networks. They have access to the poles and

rights-of-way. They have relationships with existing customers and also have billing

support systems in place. However, utilities lack experience in telecommunications, so

they may partner with another company to offer telecommunications services. For

example, overbuilders may partner with electrical utilities in order to obtain rights-of-

way. RCN’s partnership with Boston Edison is an example of this type of partnership.

20
Source: Hoak, Breedlove and Wesnecki, Inc.
30
2.4.5. Municipalities
Various municipalities—such as Grant County, Washington; Palo Alto,

California; and Chicago, Illinois—are building Fiber to the Home networks in their

communities. Municipalities build telecommunications infrastructure for reasons beyond

pure profit. They do so with the hope of attracting residents and businesses to their

communities by offering access to advanced telecommunications services. Some

municipalities, especially in rural communities, lack advanced services and feel they

cannot rely on the private sector to provide them. These communities have a vested

interest providing choice for their citizens, and therefore are interested in promoting

service level competition over their networks.

Communities with existing publicly owned and operated utilities are more likely

to deploy FTTH. They have the organizational advantages of utilities, including

expertise in fiber deployment, rights-of-way and existing relationships with customers.

Plus, municipalities can have longer return on investment expectations than private

companies. They can raise money through municipal bonds or other public funding, and

do not need to rely solely on revenue from the network to pay for the infrastructure.

Many municipalities have deployed municipal fiber networks that connect public

buildings such as schools, hospitals and government buildings. They can support the

deployment of local access infrastructure by seeking public-private partnerships.

Municipalities may deploy Fiber to the Home networks, thus extending the networks into

the local loop themselves and partner with private companies to provide the services.

Alternatively, they may lease capacity on their municipal networks to private

companies, which then would build out the network to individual homes and businesses.
 31

For example, Palo Alto leases capacity on the companies city utilities municipal fiber

ring.21 Some companies such as Yipes and HomeFiber used this capacity to build all

fiber networks that serve businesses as well as new homes.

21
Examples include Yipes, HomeFiber, Fiberhood
32
3. Policy and Regulation
This chapter examines policy alternatives for fostering competition in the

residential communications market with the advent of Fiber to the Home technology.

This chapter provides background on the deregulation of telecommunications markets in

the U.S. including an analysis of competition policies enacted by the

Telecommunications Act of 1996. It provides an overview of the policies pertaining to

current broadband architectures – DSL and cable modem -- and analyzes how these

regulations may or may not pertain to the development of Fiber to the Home networks.

In the U.S, the fate of competition in residential telecommunications services has

been and continues to be the subject of great debate among policymakers, academics,

consumers and telecommunications network and service providers. Much of this

controversy stems from differing opinions as to which model of competition, facilities-

based or service level, is more effective at sustaining a robust level of competition in

residential communications services. With facilities-based competition, different

companies deploy, own and operate their own network infrastructure. With service level

competition, different companies provide competing services and applications over the

same network infrastructure.

In a speech to the Forrester Research Telecom Forum, FCC Chairman Michael

Powell summarized the debate as follows:

One view is this: that real competition and choice are going to come to
consumers solely by virtue of major technology-differentiated offerings
[facilities-based competition]… And if you are relatively comfortable that
broadband data centered services are the future, bar none; that the residual
place of analog infrastructure to copper wire infrastructure, etc., are
 33

minimal or nonexistent, then you are relatively comfortable with

concentration within those stove pipes.
And from the perspective of the consumer, there may be choice and
differentiation, but that choice and differentiation may be among
monopolies or oligopolies. But, at least if you see them as a single
converged marketplace, you have competition and choice…
And then I think there are others, who think that, no,--intra stove pipe
competition [service level competition] is very important. It provides a
very important competitive alternative. It puts the heat on the incumbent.
And if you believe in that strongly, then you are a much bigger proponent
of open access and open systems, because you can't achieve intra kind of
technology communications without having some degree of
interconnection with the monopolies or the existing incumbent
architecture.22

Although Chairman Powell was referring to the current debate about competition

in the broadband Internet Access markets, specifically the issue of “open access”, similar

debates occurred throughout the process of deregulating the long distance and local

telephone markets. Note that the term open access is often used specifically in the

context of the broadband Internet Access over the cable TV network, however, here the

term is used more generally to refer to competitors’ right of access to incumbent network

infrastructure.

The following issues lie at the heart of these debates: Should the network

providers, that is the owners of physical infrastructure, be required to offer access to their

networks to unaffiliated and competitive service providers and under what conditions?

How much control should the network providers have over the content and services that

22
From FCC Chairman Michael Powell’s address to the Forrester Research Telecom Forum in Washington
DC, May 21, 2001.
34
run over the network? To what extent should the government step in and limit this

control?

Proponents of facilities-based competition believe the best way for the

government to foster competition in residential services is to encourage the deployment

of more networks and to let the market play itself out. They fear that regulation may

become so burdensome as to discourage future investment in the new broadband

infrastructure, especially in upcoming technologies like FTTC, FTTH and broadband

wireless. Deployment of infrastructure is expensive and companies need to see a return

on their substantial capital investments. Therefore, proponents of facilities-based

competition discourage any imposition of requirements that may lessen the incentive to

invest.

However, the emergence of robust facilities based competition depends on

multiple companies (or other organizations) deploying their own facilities and competing

for subscribers. However, the incumbent monopolists already largely control the local

network facilities. Although companies known as “over-builders” now offer services

over their networks in some communities, this scenario may be economically unfeasible

except in some privileged, densely populated areas.

Therefore, proponents of service level competition maintain that government

intervention is required to ensure robust competition in the residential communications

services. The incumbent network providers should be required to share their networks

with competitors. They argue that allowing infrastructure owners to extend this control
 35

to the service and ultimately content markets threatens consumer welfare, innovation and

diversity of content.

There is concern that network providers may use their control over the

infrastructure to engage in anticompetitive practices. Proponents of open access claim

network sharing requirements will preserve the benefits of competition for consumers.

They point to the high level of competition in dialup Internet services that provided

consumers with choices in service, content and price. This competition resulted from the

regulations that enabled ISPs access to the telephone companies’ networks.

They fear network providers may use their control over the infrastructure to stifle

potentially competitive services and applications.23 They claim that imposing network-

sharing requirements on the cable operators will enable continued innovation. They point

to the tremendous innovation that occurred due to the open architecture of the Internet.

At worst, the network providers could design the network infrastructure in such a way

that favors their own current business interests, thereby inhibiting future innovation in

broadband services and applications.24

The third concern is that vertically integrated providers will be able to restrict and

control the content that goes across the network in favor of their own media content. An

advantage of the Internet was that residential communications could move from a

broadcast model where few entities control and generate information to a “many to

23
For example, Excite@Home imposed time limits on video streaming.
24
Lemley and Lessig 2001; Bar and Cohen 1999
36
many” model encouraging the open exchange of ideas and diversity of viewpoints.25 If

facilities owners were allowed to control content, there would be the potential for the

broadcast model to be replicated on the Internet platform.

3 . 1 . History
Over the past thirty years, the U.S. government has been deregulating the

telecommunications markets in an attempt to introduce competition for

telecommunications services. This process is part of a worldwide trend to deregulate

infrastructure markets such as telecommunications, energy, and transportation.26

Historically, these markets have been regulated as natural monopolies. In the U.S.,

regulated private companies owned and operated the telecommunications networks.

Overseas, government owned entities typically provided telecommunications services.

However, in response to changes in mainstream economic theory, the political

environment, and new technological developments, governments have shifted their policy

from regulated monopoly to regulated competition. The goals of telecommunications

competition include lower costs, greater consumer choice and availability of services, and

increased technological innovation.

The shift in policy started in 1972, when the U. S. Department of Justice filed an

antitrust suit against AT&T that resulted in the 1984 breakup of AT&T. Prior to the

breakup, AT&T owned and operated the telephone network and had a monopoly over the

local and long distance telephone service markets. This breakup brought competition into

the long distance market. However, the local telephone and cable TV markets continued

25
Benkler 2000
26
See (Graham 2001) for a discussion of the worldwide deregulation and privatization of infrastructure
markets.
 37

to be monopolies. The Regional Bell Operating Companies (RBOCs), the local phone

companies that were formed from the breakup of AT&T, still had a monopoly over the

provision of local telephone services. Cable television operators had a monopoly over

the provision of cable television services within a local municipality. Municipalities

granted these companies exclusive franchises to own and operate the cable TV network

in their communities.

3.2. Telecommunications Act of 1996

In the 1990s, policymakers shifted their approach to these local markets and

focused on opening them to competition. The policy shift culminated in the passage of

the Telecommunications Act of 1996, ratified by Congress in September of 1996. The

1996 Act represents the most significant piece of legislation concerning the

telecommunications industry since the Telecommunications Act of 1934. The 1996 Act

attempts to create competition in local telecommunications markets by including

provisions that encourage facilities-based competition in the telephone and cable TV

markets and service level competition in the local telephone market.

3.2.1. Provisions for Facilities Based Competition

The 1996 Telecommunications Act encourages the establishment of competitive

local access infrastructures for cable TV, local telephone and advanced data services.

The Act allows telephone and cable TV companies to enter each other's markets. The

Act removed the cross-ownership restrictions between telephone and cable television
38
companies that had been established in 197027 and continued in the Cable

Communications Policy of 1986.28 Section 302 of the Act allows telephone companies to

provide video services29 with the restriction that the company doesn't have greater than a

10% interest in a cable television system in the same market.30

The Act permits cable companies to offer telephone service over their cable

networks. Section 303 restricts the power of local authorities to regulate a cable

company providing telephone service. The local franchising regulators cannot restrict or

condition the provision of telephone service by cable TV providers, for example, by

requiring them to obtain a franchise to offer telephone service. 31

The Act also enables public utility companies to enter the local telephone and

cable TV markets. Section 103 permits public utilities to provide telecommunications

services over their own infrastructure.

In general, the Act attempts to remove barriers to entry that state and local

governments may try to enforce.

No state or local statute or regulation, or other state or local legal

requirement, may prohibit or having a fact of prohibiting the ability of any
entity to provide interstate or intrastate telecommunications services.32

3.2.2. Provisions for Service Level Competition

The 1996 Telecommunications Act attempts to establish service level competition

in the local telephone market by allowing competitive providers to offer services over the

existing local telephone networks. These networks are usually owned and operated by

27
21 FCC 2d 307, 325 (1970)
28
Cable Communications Policy Act of 1984
29
Telecommunications Act of 1996 Section 302
30
Telecommunications Act of 1996 Section 652(a)
31
Telecommunications Act of 1996, Section 303
32
Telecommunications Act of 1996, Section 253(a)
 39

the incumbent telephone providers, the Incumbent Local Exchange Carriers (ILECs).

These services can include local telephone as well as advanced services such as DSL.

The incentive for the incumbent providers to open their markets is that once the local

telephone market is deemed competitive, they are allowed to enter the long distance

market.

Section 251 of the Act establishes the rules of “interconnection, unbundling and

resale” that mandate the conditions under which companies share the telephone network.

Section 251(c) of the Telecommunications Act mandates how incumbent telephone

providers must open up their networks to competitors. The Act gives competitors two

options to offer services over the incumbent’s network. A competitor can partially build

out their network and then use parts of the incumbent network in order to provide

services or a competitor can resell services offered by the incumbent provider.

With unbundling of network elements and collocation33 rights, Competitive Local

Exchange Carriers (CLECs) can access and lease parts of the telephone networks in order

to provide services. The FCC determines the points at which (CLECs) have network

access -- known as Unbundled Network Elements (UNEs). UNEs include:34

(1) loops, including loops used to provide high-capacity and advanced

telecommunications services;

(2) network interface devices;

(3) local circuit switching (except for larger customers in major urban markets);

33
Telecommunications Act of 1996, Section 251(c)(3)
34
The network elements are specified in the “The First Report & Order In the Matter of Implementation of
the Local Competition Provisions in the Telecommunications Act of 1996.” First Report & Order (FCC
96-325)
40
(4) dedicated and shared transport;

(5) signaling and call-related databases; and,

(6) operations support systems.

The prices at which the CLECs can lease the UNEs are regulated. Each state’s

Public Utility Commission (PUC) determines prices based on costs in their state.35

Competitors can also lease wholesale services from the incumbent networks and

then resell these services to subscribers. Specifically, section 251(c)(4) requires an

incumbent LEC: “to offer for resale at wholesale rates any telecommunications service

that the carrier provides at retail to subscribers who are not telecommunications carriers.”

The wholesale rates are also regulated and determined by the state PUCs.

The 1996 Act continues the regulatory separation between telephone and cable

television systems. Historically, this distinction arose because of the difference between

the types of services offered over the two networks: “cable service” vs.

“telecommunications service”. Telephone service is deemed to be a telecommunications

service. Telecommunications service is defined to be one to one interactive

correspondence between private parties: "the transmission, between or among points

specified by the user, of information of the user's choosing, without change in the form or

content of the information as sent and received."36 Therefore, telephone systems are

subject to the rules of common carriage and cannot discriminate among content carried

over its network. In contrast, cable service is defined to be a type of broadcasting – “the

35
The federal government dictates that these prices be based on a cost model known as Total Element
Long-Run Incremental Cost
36
47 U.S.C. S 153(43).
 41

one-way transmission of video programming”.37 Cable TV providers are not subject to

the rules of common carriage and are under no legal obligation to open their networks to

other content providers.

3.3. Current Broadband Access Policies

Currently, the regulatory distinction continues to apply to broadband Internet

access over the phone network (DSL) vs. the cable TV network (cable modem service).

Telephone network providers must open their networks so that competitors can provide

DSL services. DSL service is subject to the rules of interconnection, unbundling and

collocation that apply to the telephone system. On the other hand, cable modem service

is regulated under cable TV rules, so cable providers are not under any regulatory

obligation to open their networks to competing Internet Service Providers (ISPs). The

advent of broadband Internet access services has raised questions about the viability of

the regulatory distinction between the telephone and cable TV networks.

Broadband Internet access offered by DSL is functionally equivalent to cable

modem service. Also, broadband Internet access does not fit neatly into the category of

telecommunications or cable services.38 Broadband functionally can act like a telephone

service in that it supports two-way communication between individuals. But, in other

ways, it resembles a broadcasting service with one way, one-to-many communications

between a content distributor and the customer.

37
See (Pool 1983) for the historical distinctions between the rules of common carriage and broadcasting.
38
Berresford 1999, p. 115
42
In recent years, the fate of competition in the broadband Internet access

market has been subject to intense debate.

In the coming decades, as cable evolves from a novelty to a major

communications utility, a great policy battle will be fought about the
organization of the industry, specifically about competition and monopoly
within it, and about common carriage vs. content control.39
Is the current asymmetry in the regulation of DSL and cable modem service

sustainable? Does it make sense? If not, should policymakers loosen the regulations for

DSL or impose open access conditions for cable modem service?

At this point, most open access opponents have come to accept open access in

principle. They agree with the open access advocates that consumers should have a

choice of Internet service providers over both types of broadband Internet infrastructure.40

However, they argue that competition from other broadband technologies such as DSL

and wireless will drive cable providers to open their networks to independent ISPs

without need for regulation.

In recent years, the FCC, the main arbiter of these matters, has continued to take

very different regulatory approaches towards DSL – where they’ve enforced more

restrictions on the ILECs -- versus cable modem service -- where they have held off from

imposing any general open access requirements.

39
Pool 1983 p.166
40
Even H.R. 1542 which is considered anti open access regulation states that “Internet users should have
choice among competing Internet service providers… Internet service providers should have the right to
interconnect with high speed data networks in order to provide service to Internet users.”
 43

3.3.1. Status of DSL Regulation

DSL service is subject to the interconnection, unbundling, collocation and resale

regulations set forth in section 251 of the 1996 Telecommunications Act.41 In September

of 1999, the FCC refined further the interconnection and unbundling rules as they apply

to DSL. The FCC required incumbents to provide unbundled access to “sub-loops, or

portions of loops, and dark fiber optic loops and transport.”42 However, they declined to

require the unbundling of packet switches and digital subscriber line access multiplexers

(DSLAMs). In the same month, the FCC also issued an order requiring ILECs to

implement “line-sharing” which allows competitors to share the high frequency portion

of the telephone line.43 This allows consumers to get DSL service from a company other

than the ILEC without having to obtain a second phone line.

In the meantime, various pieces of legislation have been introduced in Congress

that would exempt DSL and other advanced high-speed services from unbundling

regulations. The most recent is a bill called the “Internet Freedom and Broadband

Deployment Act of 2001” H.R. 1542 sponsored by Rep. Billy Tauzin (R-LA) and Rep.

John Dingell (D-MI) that would repeal the rules of unbundling and resale for high speed

data services such as DSL. Under this bill, the FCC would not be able to require ILECs

to “provide unbundled access to any network elements used in the provision of any high

41
The FCC specified the implementation of these rules in the “The First Report & Order In the Matter of
Implementation of the Local Competition Provisions in the Telecommunications Act of 1996”, CC Docket
No. 96-98
42
FCC. “The First Report & Order In the Matter of Implementation of the Local Competition Provisions in
the Telecommunications Act of 1996”
43
FCC. “Deployment Of Wireline Services Offering Advanced Telecommunications Capability And
Implementation Of The Local Competition Provisions Of The Telecommunications Act Of 1996.” FCC-
99-355 Third Report And Order In CC Docket No. 98-147 Fourth Report And Order In CC Docket No. 96-
98
44
speed data service … or offer for resale at wholesale rates any high speed data service.”

However it is unlikely this bill will pass given the unfavorable opinion from the House

Judiciary Committee and opposition from key senators.44

3.3.2. Status of Cable Modem Open Access

The FCC has for the most part taken a “wait-and-see” attitude towards the regulation

of cable modem service. The FCC has refrained from enacting any type of general

regulation enforcing open access. The FCC has come out in favor of competition of ISPs

over the cable TV infrastructure.45 However, they prefer a market-based solution to the

open access issue. In December of 1999, FCC Chairman William Kennard stated that

open access is what consumers want, and that he "wants to be able to point to lots of

activity in the marketplace driving toward a marketplace solution."46 He pointed to "open

protocols, open boundaries, and open pricing" as the best way to create this market-based

solution.47

However, the FCC has shown a willingness to seek regulatory action if they feel

competition in cable broadband service is threatened. In the merger between Time

Warner and AOL, the FCC and FTC imposed open access as a condition of the merger.

This condition states that the customer must be able to select services from unaffiliated

ISPs over the Time Warner/AOL cable networks.

44
Reuters News Service 2001
45
At least under former FCC chairman William Kennard
46
From address of Chairman of FCC William Kennard at the WESTERN SHOW, California Cable
Television Association, December 16, 1999.
47
Kennard 1999
 45

One of the most significant events in the open access policy debate was the ruling

of the Ninth District Court of Appeals in the matter of the AT&T vs. City of Portland.48

The court sided with AT&T and ruled that local governments do not have the authority to

impose conditions on providers of broadband cable Internet access. However, the Court

found that broadband Internet access was a “telecommunications service” rather than a

“cable service” as defined by the 1996 Telecommunications Act.

The ruling distinguishes between two elements used for the provision of Internet

access: “a "pipeline" (raw data transport over cable network or telephone lines) and the

Internet service transmitted through that pipeline.”49 It was the “pipeline” that was

determined to be a telecommunications service. Therefore, providers of cable modem

service are subject to rules of common carriage that govern telecommunications carriers.

This ruling expanded considerably the FCC’s regulatory powers over broadband Internet

access.

In September of 2000, partially in response to the result of the Ninth Circuit Court

decision, the FCC issued a Notice of Inquiry50 on the regulatory issues surrounding cable

modem service. However, the FCC has not acted further on this issue. Current FCC

Chairman Michael Powell has not publicly issued an opinion as to how the FCC will

proceed on this matter.

48
AT&T, et al. v. City of Portland, U.S. Court of Appeals, 9th Circuit, Appeal No. 99-35609.
49
AT&T, et al. v. City of Portland.
50
FCC. “Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities." Notice
of Inquiry. FCC 00-355, GN Docket No. 00-185.
46
3.4. Competition Policies for Fiber to the Home
This section analyzes some of the alternatives for encouraging competition in

Fiber to the Home in the context of the regulatory issues described previously. This

section looks at the likely impact FTTH technology will have on competition: both

facilities based and service level. Given these possible effects, this section then considers

several possible policy models that the government can apply to enable competition in

the residential communications market.

Fiber to the Home technology will affect competition in the residential

communications market in different ways. The high capital costs and economies of scale

make it unlikely that the adoption of Fiber to the Home will further facilities-based

competition in most local access markets. Earlier cost analyses on the deployment of

FTTH indicate limited competition among network providers, at least for wire-line

facilities51– either a monopoly or a duopoly probably between the incumbent cable TV

and telephone providers.52

...the cost structure for subscriber loop services indicates it is

unlikely that multiple firms will compete in the transport segment
of the market for any of the subscriber loop services considered.
The characteristics of subscriber loop services suggest that
competition among multiple network operators is not a realistic
expectation.53

A monopoly or duopoly situation could arise in the following situations: In a

green field scenario, one company could provide the network and services to new homes

in a development. In a migration scenario, the incumbent telephone and cable television

operators would gradually migrate their networks to all fiber as demand outgrows the

51
Reed 1991
52
McAdams 2000
53
Reed 1991 p. 202-203
 47

capabilities of the current infrastructure and network providers capitalize on the ability to

provide all services over one network.

Since technological convergence and the flexibility of fiber technology enable

companies to build full service network platforms, the initial deployer of Fiber to the

Home in a neighborhood has a considerable first-mover advantage, especially if the

company is the incumbent telephone or cable TV provider. 54 If an incumbent provides

all services (telephone, video and data) over its own network, there is less incentive for a

competitor to incur the costs of building another network.

On the other hand, the flexibility and capacity of Fiber to the Home can lead to

increased competition in services. Fiber technology enables the development of new

technologies that can compete with existing services. For example, the development of

switched digital video55 and video telephony offer alternatives to current cable TV and

telephone offerings. Also, the high capacity of fiber gives multiple providers of

telephone, Internet and eventually video services more room to share a single network.

Furthermore, Fiber to the Home can lead to more diversity of content because of

the increase in upstream bandwidth. This capacity can remove the justification for the

“spectrum scarcity” constraints that have dictated regulation for the broadcast industry.

With the use of the Internet as the platform, this upstream capacity gives individuals and

small organizations the opportunity to be content producers as well as content consumers.

54
It is unclear whether there are economies of scope in the provision of phone, video and Internet services
over FTTH. David Reed's analysis in 1990 concluded that economies of scope did not exist for the
switched video and voice services. A current cost and economic analysis would have to be performed
before one could conclude that economies of scope exist between voice, video, and data services.
However, the ability to bundle services is at least a significant marketing advantage.
55
Also known as Video over IP. See (Abe 2000) pp.334-336 for a description of Switched Digital Video.
48
Therefore, residential communications could move from a broadcast model where few

entities control and generate information to a many-to-many model encouraging diversity

of speech and viewpoints.56

Given these possible effects of FTTH on competition, which policy models best

enable competition in the local access market? The policy models considered hereare:

the status quo; “laissez-faire”, which would involve removing any current network

sharing requirements; the "raised hammer" approach, which uses the threat of regulation

to try to open up markets; unbudling, ; “open access” regulation, and public investment

in infrastructure.

3.4.1. Status Quo

Currently, the government imposes separate regulatory regimes on the

telephone and cable TV networks. However, this regulatory asymmetry is

increasingly untenable, due to convergence of services brought about by Internet

and fiber-optic technology. As fiber gets deployed deeper into the network, the

networks are becoming more similar, both in the transmission media and the

services they support. Any potential differences in local access regulation should

reflect differences based on market position (incumbent vs. competitor) rather

than increasingly irrelevant technological distinctions.57

3.4.2. Laissez-faire
With the “laissez-faire” approach, the government would remove the network

sharing requirements from the incumbent providers for the deployment of Fiber to the

56
Benkler 2000
57
See (Perucci and Cimatoribus 1997) for a discussion of when asymmetric regulation should be applied.
 49

Home, thus encouraging facilities-based competition. The advantage of this approach is

that it is straightforward to implement and the government would have minimal

involvement in the market. Some proponents of this approach believe that as full

facilities-based competition emerges, network owners would eventually have enough

market incentives to open their infrastructure to new and competing services.

However, due to the entrenched position of the incumbent monopolists, laissez

faire is unlikely to increase competition in the local access market. There is a strong

possibility of limited facilities-based competition since the market exhibits some

characteristics of a natural monopoly or at least a “natural duopoly”. The concern is that

these companies will extend their market power into the services and content markets. A

few vertically integrated companies could gain control over all communications services

entering the home. The consumer would be left with little choice for their services:

voice, video, and Internet access provisions. Also, these companies would be able to

control the market for new services as they emerge, or design the networks in a way that

benefits their own service offerings, thereby posing a threat to future innovation.

3.4.3. Unbundling
The unbundling requirements that currently apply to the telephone network are

difficult to implement effectively in the context of rapidly changing technologies such as

FTTH. Unbundling FTTH networks will require definition of new unbundled network

elements (UNEs). As is shown in chapter 4, many different FTTH technology options

exist, and no dominant technology has emerged, making it difficult to define the network

elements much less deciding which should be unbundled. It will also be difficult to set
50
costs, since the network costs will vary with changing technology. It is also possible that

the incumbents would architect their networks so as to circumvent these policy

restrictions.

The problem with unbundling is that this process focuses too much on the

implementation of network sharing. As access technologies continue to change and

evolve, enforcement of this policy will become even more complex and require continued

“maintenance” and monitoring by the FCC.

3.4.4. Raised Hammer Approach

The FCC has taken what this thesis calls the "raised hammer" approach towards

cable access broadband. Policymakers are using the threat of regulation to try to open up

markets. The policymakers tell companies that they should open up their networks to

service level competitors, but that it is up to them to work out the arrangements. If

market competition does not develop, the regulators will impose regulation to open the

network. There are several issues with this approach. For one thing, this approach leads

to significant policy uncertainty, which in itself often inhibits investment.

Secondly, if competition does not develop, any policy would have to be enforced

within the confines of an anti-competitive market structure and network

infrastructure, likely restricting the scope, feasibility, or enforceability of the

policy. As history has shown, it is very difficult to dislodge an entrenched

monopoly. Also, technical protocols and industry standards can determine the

ease with which multiple service providers can share a common network. In the

cable open access debate, a criticism of requiring open access was that the current
 51

standard (DOCSIS) and design of the cable network did not readily support

sharing by multiple service providers.58 If open access had been required, the

cable broadband access could have been initially designed to support multiple

service providers

3.4.5. Open Access

The goal of an open access policy would be to enable service level competition

over a FTTH network. Defining these requirements early on would encourage

companies to create standards and design an open FTTH network architecture that

encourages rather inhibits service-level competition.

There has been much discussion about what open access is. As Lemley and

Lessig put it, “open access is simply shorthand for a set of competitive objectives.”59 In

the context of the cable open access debate, these objectives are summarized as:

… an ISP's right to secure unencumbered interconnection with

cable companies in order to level the playing field among rival
services and permit consumers to have a choice of providers.60

However, how do these stated objectives translate into actual policy? In the

ruling61 mentioned earlier, the Ninth Circuit Court took an important step towards

defining an open access policy. The ruling made an important distinction between the

data pipeline and the services transmitted through that pipeline. In an open access policy

regime, competitive providers would be given nondiscriminatory access to the pipeline.

58
Laubach 2000
59
Lemley and Lessig 2001, p. 969
60
Fusco 2000
61
AT&T et al. v. City of Portland
52
The implementation of “open access” requires the owners of the physical infrastructure to

provide a logical “pipeline” for service providers.

The issues at the heart of the open access debate are access and control. How

much control should the network provider have over the services and content that is

transmitted across its network? How much access should service providers have to the

network? Chapter 4 explores the technical implications of these issues in the context of

the current state of FTTH technology.

3.4.6. Public Investment in Infrastructure

In order to stimulate competition, some local governments are directly investing

in telecommunications infrastructure, including local access networks. These

municipalities form public/private partnerships to offer services over these facilities.

These local governments are building competitive alternatives to the incumbent telephone

and cable TV infrastructure. Motivations include the slow development of private

competitive facilities and the ongoing regulatory difficulties in opening up legacy

infrastructure.

Chapter 5 explores the possible municipal role in developing advanced broadband

infrastructure and looks at municipal deployments of Fiber to the Home networks in

Grant County, Washington and Palo Alto, California.

 53

4. Technology
The aim of this chapter is to present a framework of different Fiber to the Home

technologies from the perspective of “open access”, that is how the network may be

shared among multiple service providers. The framework includes the network

architecture, the multiplexing methods and the data protocols used.

The ability to share the network can be designed into the technology protocols

and standards. When evaluating these different technology options, there exist trade-offs

between the support of open access and factors such as cost, total capacity, ability to

support certain services, ease of migration from existing networks and maturity of the

technology. However, this thesis is not meant to be an exhaustive comparison of

different Fiber to the Home architectures, nor does it attempt to present the optimal open

access solution for each design. Rather, it highlights the technical issues raised when

designing a system for open access.

In the past, local access networks were optimized for a particular type of

application with the assumption of one provider. The telephone network was designed to

support direct point-to-point connections in order to handle voice traffic. The cable TV

network was designed as a shared network in order to broadcast television signals. When

new services such as DSL or cable modem were developed, the technological

implementations were determined largely by limitations of the pre-existing architecture

they were built upon.

In contrast, Fiber to the Home can be designed from the start as a general-purpose

and flexible network platform. These networks are expected to handle voice, video and
54
data services as well as new and evolving applications. Different choices and

compromises can be made so that services and service providers can effectively share the

network. The use of fiber optics through the whole network enables a vast array of

technical options. The number of options complicates the task of describing, comparing

and evaluating different FTTH technologies.

FTTH technology is still being refined and developed -- optimal architectures and

technologies are still being debated. A dominant technology for Fiber to the Home has

not yet emerged. The current technical and market literature about Fiber to the Home has

focused on the network architecture and data protocols. The current debate is largely

focused on Ethernet over Active Star, Asynchronous Transfer Mode (ATM) over Passive

Optical Network (PON) and Ethernet over PON architectures. The use of Dense

Wavelength Division Multiplexing (DWDM) over PON is being considered for future

local access networks.

However, the architecture and protocols do not capture the full extent of

differences between implementations of FTTH networks. A discussion of multiplexing

methods needs to be included. Multiplexing determines network sharing -- the choice in

how and where to multiplex the data determines how upstream and downstream traffic

and traffic from different subscribers, providers and different services share the network.

Therefore, the issue of open access should be considered in the context of how traffic is

multiplexed on the network.

4 . 1 . Fiber Optic Technology

A fiber optic link consists of the following basic components: a transmitter,

optical fiber and a receiver. The transmitter and receiver contain both electrical and
 55

optical components. The optical transmitter takes information such as voice, video or

data in electrical form, modulates it and uses a light source, such as a light emitting diode

(LED) or laser to convert electrical signals into optical form (light). The optical signal is

then transmitted over the optical fiber to the receiver.

The information is delivered through the optical fiber over one or more

wavelengths, also referred to as carriers. One light source is used per wavelength. Lasers

typically operate at wavelengths of 1310 nanometers (nm) or 1550 nm, depending on the

number of wavelengths driven over the fiber. There are two types of fiber: multimode

and single mode. Single mode fiber has a longer range and higher capacity then

multimode fiber because it is less subject to attenuation and dispersion of the optical

signal. However it is more expensive than multimode fiber.62

The receiver contains a photo-detector that recognizes the signal. The receiver

then demodulates and converts the optical signal back into an electrical form. Depending

on the type of data, the signal may be converted further into the original format (often

analog). A transceiver is equipment that combines the functions of a transmitter and

receiver.

A Fiber to the Home network is terminated at either end by an optical line

terminator (OLT) and an optical networking unit (ONU). The OLT resides in the carrier

aggregation point, referred to in this thesis as the meet point. “Meet point” is meant as a

general term to describe the carrier premise or hub located in each community. The meet

point is where service providers interconnect with the local access network. In telephone

62
See (Mynbaev and Scheiner 2001) Chapter 3, p.42-82 for a discussion of optical fiber and the
differences between single mode and multimode fiber.
56
systems, the meet point is the central office. In cable television networks, the meet point

is known as the head end. The meet point may also be a carrier neutral collocation point.

The Optical Line Terminator (OLT) resides in the meet point and connects the

service providers’ transport network(s) with the local access network. The OLT

multiplexes and converts the service providers’ traffic and transmits optical signals on the

local network. The OLT receives and de-multiplexes the upstream subscriber traffic

from the local access network. It implements MAC protocols for media access

arbitration in coordination with the ONUs. The OLT is equivalent to the Cable Modem

Terminal Server (CMTS) in an HFC network and the DSL Access Multiplexer (DSLAM)

in a DSL network.63

The Optical Networking Unit (ONU) resides in the subscriber premise. It may be

attached to the outside of the house or reside inside the house (typically in the garage or

basement). The ONU provides the connection between the access network and the home

network. Home networks usually consist of twisted copper pair and/or coax wiring. The

ONU receives and de-multiplexes the providers’ downstream traffic. The ONU converts

the subscriber’s upstream traffic and transmits it on the local access network. The ONU

may multiplex data from multiple sources in the home (voice, Internet traffic) onto the

fiber link. Sometimes the ONU performs only the optical functions and the higher-level

protocol functions are performed by a residential gateway. The residential gateway is

similar to a cable modem used in HFC networks or a DSL modem. Other times, both

types of functionality are handled by the same piece of equipment.

63
Abe 2000, Residential Broadband, p.217
 57

4.2. Multiplexing
Multiplexing is a technique in which information from different sources is

combined for transmission onto one communications line or in the case of fiber, onto a

single wavelength. A multiplexer combines data signals at the transmitting end of the

communications link. A demultiplexer separates out the individual signals at the

receiving end.

Table 4.1 shows examples of how multiplexing is used to share different types of

data traffic in Fiber to the Home systems. This list is not meant to be exhaustive, but

show how current designs of FTTH use different multiplexing techniques. The

multiplexing techniques include: Space Division Multiplexing (SDM), Wave Division

Multiplexing (WDM) and Time Division Multiplexing (TDM).64 These multiplexing

techniques are complementary; fiber networks typically use a combination of these

techniques

64
This terminology is defined in (Ramaswami and Sivarajan 1998).
58
Sources of Data Traffic
Two Way Subscribers Services: Providers
Multiplexing Options Transmission Voice, Video
and Data
Space Division Wire per Home Run Coax for Video & Home Run
Multiplexing upstream and architecture Fiber for Data & architecture,
downstream Voice Providers’
Own
Facilities
Wave Coarse _ per upstream _ for Video and _
Division WDM and downstream for Data & Voice
Multiplexing Dense WDM PON: _ _ per service _ per
(WDM) WDM per subscriber provider:
“Spectrum
Unbundling”
Fixed Time Fixed TDMA channel TDMA
Division per upstream and channel per
downstream subscriber
Multiplexing (upstream)
(TDM) Statistical ATM, Voice over IP, QoS: ATM or
IP Switched Digital MPLS,
Video, Source-Based
Voice over ATM, Routing,
Video over ATM Tunneling,
Ethernet
VLAN
Table 4.1 Multiplexing Methods Used in FTTH

4.2.1. Space Division Multiplexing

Space Division Multiplexing transmits data across separate physical network links

-- each data signal is sent over a separate wire or fiber. For example, some Fiber to the

Home systems deploy two fibers to each subscriber premise as shown in figure 4.1. One

fiber is used to transmit downstream traffic and one to transmit upstream traffic. Some

systems deploy both coaxial cable and fiber using the coaxial cable to transmit analog

cable TV and the fiber to transmit data and telephone traffic. See figure 4.2.
 59

Figure 4. 1 Space Division Multiplexing: Wire per Upstream/Downstream Path

Figure 4. 2 Space Division Multiplexing: Wire per Type of Service

4.2.2. Wave Division Multiplexing

Wave Division Multiplexing (WDM) transmits data across separate wavelengths

on a single physical link. The data signals are combined onto an optical fiber, with a

separate light wavelength carrying its own signal. This is also known as frequency

division multiplexing (FDM).

Coarse Wavelength Division Multiplexing (CWDM) transmits signals across two

to four wavelengths over a single fiber. Some systems use two separate wavelengths for

transmitting traffic in different directions (see figure 4.3) or for transmitting different

types of data (see figure 4.4).

60

Figure 4. 3 Coarse Wave Division Multiplexing (CWDM): Wavelength per Downstream/Upstream

Signal

Figure 4. 4 Coarse Wave Division Multiplexing (CWDM): Wavelength per Type of Service

Dense Wavelength Division Multiplexing (DWDM) combines many (at least four

or more) individual wavelengths of light over a single fiber link. In a Fiber to the Home

system, a wavelength may carry traffic belonging to a particular subscriber (see figure

4.5) or service provider (see figure 4.6). Currently DWDM technology multiplexes up to

80 separate wavelengths on a single fiber and this capability continues to grow.

Therefore potentially up to 200 Gbps (billion bits per second) can be delivered a second

by the optical fiber with each wavelength carrying 2.5 Gbps. DWDM is used

predominantly in long haul backbone networks, although it is starting to be used in

metropolitan area networks. For the foreseeable future (5 years or more), DWDM will

probably not be used within local access networks because of its costs.65 Currently there

is not enough traffic to justify DWDM within the local access network. The cost of the

DWDM equipment is shared over only a few subscribers (up to 64 currently) rather than

over millions in a backbone network.

65
Feldman et al.. 1998
 61

Figure 4. 5 Dense WDM (DWDM): Wavelength per Subscriber

Figure 4. 6 Dense WDM (DWDM): Wavelength per Provider a.k.a. “Spectrum Unbundling”

4.2.3. Time Division Multiplexing

Time Division Multiplexing transmits data on a single wavelength using separate

timeslots for the different signals. The signal is broken up into many timeslots, each

having a very short duration. See figure 4.7. Fixed TDM pre-assigns the timeslots so

bandwidth is allocated to each channel regardless of whether the station has data to

transmit. Statistical TDM dynamically assigns timeslots so that bandwidth is allocated

only to active input channels, a more efficient use of available bandwidth. The ATM

protocol is an example of statistical multiplexing.

62

Figure 4. 7 Time Division Multiplexing: Statistical TDM for Downstream and Fixed TDMA for
Upstream
4.3. Architectures
The different styles of multiplexing combined with the network components to

create fiber network architectures. The architectures being used for Fiber to the Home

networks can be divided into two main categories: Home Run and Star architectures.

As shown in figure 4.8, the Home Run architecture has a separate fiber that is

deployed all the way from the meet point to each subscriber premise. This architecture is

also known as a Point-to-Point or Single Star.

Figure 4. 8 Home Run Architecture

With a star architecture, a Remote Node (RN) is deployed between the meet point

and the subscriber premises as shown in figure 4.9. The Star architecture is also known
 63

as a Double Star. The feeder link connects the meet point and the remote node while the

distribution links connects the remote node with the subscriber premises. Network traffic

is aggregated on the feeder link. A Star architecture is generally considered to be more

cost-effective than the Home Run architecture since there is more sharing of network

components.

Figure 4. 9 Star Architecture

If the remote node contains active devices such as a switch and optical

transceiver, the architecture is referred to as an Active Star. If the remote node contains

only passive devices, such as a power splitter/coupler or an optical router, the architecture

is known as Passive Star.

The FTTH architectures differ to the degree that network resources are shared

among the subscribers. Depending on the architecture, network resources may be

dedicated per subscriber, per provider or may be shared among all the subscribers. The

more the network is shared, the more responsibility and control the network provider has

over the management and allocation of network resources. Likewise, this implies that the
64
more the network is dedicated, the more responsibility and control the service providers

and ultimately, the subscribers have over their network traffic. Therefore, the network

architecture affects how service level competition, i.e. open access, could be supported by

a Fiber to the Home network.

In an open access FTTH network, various service providers would interconnect to

the local access network at the meet point. Depending on the network architecture, the

providers could install their own equipment to connect to the fiber network, or would

access the network through some shared switch or router.66 This switch or router directs

subscriber traffic to and from their designated service provider(s). Some method is

needed to associate subscriber’s traffic with a particular provider. Downstream traffic

must be routed from the service provider’s network through the local access network to

the service provider’s subscribers. Likewise, upstream traffic must be routed from the

subscriber through the local access network to the subscriber’s chosen service

provider(s).

However, open access involves more than data transport. When sharing the

network amongst different providers, issues of control, network management and quality

of service (QoS) arise.67 These issues include: How do the different providers arbitrate

usage of network resources among their subscribers? “Whose customers get how much

access to the network resources and when? Who sets the policies under which the traffic

shares capacity?”68

An open access network requires mechanisms that ensure fair allocation of

66
In open access cable and DSL systems, this router is called an access concentrator.
67
See (Tseng and Gillett 2000) for a discussion about the network sharing issues in the context of cable
networks.
68
O’Donnell 2000, p. 4
 65

network resources among the different service providers and their subscribers. Ideally,

the activities of one provider’s subscribers should not unduly affect the subscribers of

other providers. The more a network is shared the greater the need to arbitrate access.

The following sections describe the possible Fiber to the Home network

architectures in the context of the support of open access. The architectures currently

being considered include the Home Run, Active Star, Passive Star, and eventually, Wave

Division Multiplexing Passive Optical Network (WDM PON) architectures.

4.3.1. Home Run

With the Home Run architecture, a dedicated fiber is deployed for each

subscriber. Since each subscriber has a dedicated link, there is no issue with contention

for resources in the network. The Home Run architecture has the least degree of network

sharing among the different FTTH architectures.

It is straightforward to implement open access in a Home Run network. In the

meet point, the service providers can deploy their own OLT’s that would serve only their

subscribers. Alternatively, they could share one OLT and the switch that directs

subscribers’ traffic to and from their designated providers. In the first case, each

subscriber’s fiber cable would cross connect directly with the provider’s equipment,

probably through an optical patch panel. 69 In the second case, the providers’ network

would connect to the switch at the meet point.

4.3.2. Active Star

In an Active Star network (see figure 4.10), the subscribers’ traffic is aggregated

69
This scenario is described in greater detail in (St. Arnaud 2001).
66
on the feeder link, but a dedicated signal is transmitted on the distribution link to each

subscriber. Therefore, the feeder link is shared, but the distribution links are not. The

Active Star is considered to be a switched network architecture70 where a signal

designated for a given subscriber goes only to that subscriber. Sharing of the network

extends only through the feeder link to the remote node.

The meet point transmits the data signal in optical form to the remote node. The

remote node contains active optical and electronic components. They include optical

transmitters/receivers and electronic equipment such as a router or an Ethernet switch. In

the remote node, the signal is received and converted from optical to electronic form.

The switch directs the signal to the appropriate subscriber. The signal is converted back

to optical form and transmitted on the distribution link to the subscriber ONU. The

upstream signal is sent from the subscriber to the remote node where it is multiplexed by

the switch on the feeder link.

Figure 4. 10 Active Star

70
Frigo 1996
 67

To implement open access, the providers could allocate logical point-to-point

connections to their subscribers, like an Ethernet or ATM connection. In the meet point,

the shared switch would use Ethernet or ATM switching to direct subscriber traffic to a

designated service provider. A connection may have bandwidth allocated for it, say a

10Mbps Ethernet connection. The service provider would control how the bandwidth is

used. However, the network provider would control the allocation of resources over the

feeder link. Contention for bandwidth can occur since subscriber traffic is aggregated

over this part of the network. The network providers can address this by over-

provisioning the feeder link or by implementing Quality of Service (QoS) over this

section.

4.3.3. Passive Star

In contrast to the Active Star, the Passive Star is a broadcast network where all

subscribers receive a common signal. The downstream and upstream data channels are

shared among the subscribers through the whole network-- all subscribers receive the

same downstream signal, and all subscribers must contend for access to the same

upstream data channel. Sharing of resources extends throughout the entire network. The

logical architecture is similar to an HFC cable network – a logical bus. This architecture

gives the network provider the most amount of control – their control over the allocation

of resources extends throughout the whole network.

In a Passive Star network, the remote node contains a power splitter and coupler

as shown in figure 4.11. The power splitter is a passive device that replicates the

wavelength across the distribution links. Therefore, the data signal remains in optical
68
form all the way from the meet me point to the subscriber premise. No optical-to-

electronic conversion takes place between the ends of the network.

Currently the number of subscriber ONUs supported per power splitter/coupler

ranges from 4-64. This number is known as the splitting ratio. The architecture is also

referred to as a Passive Optical Network (PON) or Power Splitting PON (PSPON)71 to

distinguish it from a WDM PON described later.

Figure 4. 11 Passive Star: Passive Optical Network (PON)

The OLT transmits the downstream traffic across the distribution link using one

or more wavelengths. At the remote node, the power splitter broadcasts, or replicates and

sends the wavelength(s) across the distribution links, to the subscriber ONUs. Each ONU

selects out the data specific to the subscriber based on time slots or some other MAC

layer protocol.

The ONUs multiplex the upstream traffic onto a wavelength using fixed time

division multiplexing or some other media access protocol. The upstream traffic may be
71
Feldman et al. 1998
 69

multiplexed onto the same wavelength as the downstream traffic or may be allocated a

separate wavelength. The traffic from the different ONUs is combined in the remote

node using a passive coupler. Depending on the access method, a fixed amount of

bandwidth per subscriber may be allocated, or bandwidth may be allocated dynamically

among the subscribers.

Open access would be implemented very similarly to the cable network.72 Open

access could be implemented using ATM switching, tunneling (which establishes a

logical link between the service provider and the subscriber) or specialized routing

methods where packets are routed based on information other than the destination

address.

This architecture requires Quality of Service (QoS) mechanisms be put into place

to ensure efficient resource management among the various providers and their

subscribers. Ideally, QoS mechanisms would allow allocation of bandwidth to particular

providers as well as services. The network provider would ultimately have control over

the policies for traffic management through the whole network.

4.3.4. WDM PON

In the future, Dense Wave Division Multiplexing technology (DWDM) may be

used in local access networks to transmit data across many different wavelengths.

Although the physical fiber in the feeder is shared in a DWM PON, traffic is isolated on

separate wavelengths. Therefore, it resembles the Home Run architecture in that traffic is

kept separate throughout the network. However, it also resembles the Passive Star
72
See (O’Donnell 2000; Tseng, Latham et al. 2000) for more information about technical implementations
of open access for the cable network.
70
architecture since the physical fiber in the feeder link is shared and there are no active

components in the field. WDM PON is considered to be the “end game” of Fiber to the

Home architectures.

In a WDM PON network, the OLT contains a multi-wavelength source used to

send signals across different wavelengths. In the remote node, an optical switch selects

out one or more associated wavelengths and transmits them to the subscriber ONU73 74 as

shown in figure 4.12. This architecture is a switched architecture, however, switching is

handled optically rather then electronically.

Figure 4. 12 Wave Division Multiplexing PON (WDM PON)

To implement open access, wavelengths can be allocated to particular subscribers

or service providers. When wavelengths are allocated to subscribers, arbitration of

bandwidth among the subscribers is not an issue. When wavelengths are allocated to

73
This device is also known as a waveguide grating router, an arrayed waveguide grating multiplexer, or an
optical phased array. See (Feldman et al. 1998) and (Ramaswami and Sivarajan 1998).
74
Feldman et al. 1998
 71

particular providers, a scenario sometimes referred to as “spectrum unbundling”75, all of

the provider’s subscribers could share that provider’s designated wavelength(s). In this

case, the service provider has control over the arbitration of bandwidth and network

resources among its own subscribers.

If a subscriber subscribes to services from multiple providers, open access

becomes more complicated. With the wavelength per subscriber model, signals from the

different providers would need to be multiplexed onto that subscriber’s wavelength.

With wavelengths per provider, the receiver at the subscriber premises would need to be

capable of receiving multiple wavelengths and be dynamically tunable to different

wavelengths.

It is hard to determine when this technology will be commercially viable in local

access networks. The required optical switch/routers are still in the developmental

stages. DWDM transceivers are still used almost exclusively in long haul backbone

networks and wave division multiplexing is just beginning to be used in metropolitan

networks.

4.4. Standards
Standards committees such as the IEEE and industry consortiums such as the Full

Service Access Network (FSAN) group have been developing standards and protocols for

FTTH.

Telephone companies and equipment manufacturers have concentrated on

developing Passive Optical Networking (PON) technologies. This technical research

75
Spectrum unbundling was discussed as a way to provide open access over the cable network; however,
the cable network does not have enough spectrum to make this feasible.
72
culminated in a standard for ATM over PON, known as the Full Service Access Network

(FSAN). Companies are interested in PON because of its perceived lower maintenance

costs due to the use of passive components in the field.76 However, the ATM protocol is

not widely accepted nor used outside the telephone industry.

Concurrently, in the computer networking community, there has been rising

interest in the deployment of FTTH using the Fast and Gigabit Ethernet standards.77 78

Ethernet is a standard widely used in businesses for corporate local area networks.

Advocates point to the wide availability and lower costs of Ethernet components.

4.4.1. Full Service Access Network

In 1996, a group of thirty-two telephone service providers79 and equipment

vendors formed an industry consortium called the Full-Service Access Network (FSAN).

They developed standards for the delivery of voice, video and data services using various

types of local access networks including DSL, Fiber to the Curb and Fiber to the Home

systems. The FTTC and FTTH standards are described in the document ITU G.983

called the “High-speed Systems Based on PON Techniques."80

The technology consists of Asynchronous Transfer Mode (ATM) over a passive

optical network (PON). The standard currently supports 4-32 subscribers per node.

Bandwidth is shared amongst all the subscribers for a node. The downstream bandwidth

can be either 155 Mbps or 622 Mbps depending on the ATM switch. The downstream

76
Gillepsie 1997
77
Cheriton and Bechtolsheim 2000
78
St.Arnaud 2000
79
Companies included British Telecom, BellSouth, Verizon, SBC, NTT, etc.
80
See the FSAN website at http://www.fsanet.net/ for more information
 73

signal is broadcast to all the subscribers and the bandwidth is dynamically allocated

among the subscribers.

The upstream bandwidth is 155 Mbps. The subscriber ONU multiplexes the

upstream signal in coordination with the OLT using time division multiplexing. For

example, depending on network contention, each subscriber gets at least 1/32 of the

upstream bandwidth in a system with 32 subscribers per node.

Originally, the standard was designed with greater downstream bandwidth to

provide capacity for video over ATM services. However, because of concerns over the

efficiency of video over ATM, the latest standard allows video to be provided in analog

or ATM format over a separate wavelength from data and voice.

4.4.2. Ethernet in the First Mile

In November of 2000, an IEEE study group called Ethernet in the First Mile

(EFM)81 was formed to look at the use of the Ethernet protocol in local access networks.

Participants include various equipment vendors and network providers. The study group

is looking at the use of Ethernet in various systems including DSL, Fiber to the Curb and

Fiber to the Home systems. The FTTH architectures being considered include Ethernet

over Active Star and Ethernet over PON.

These systems would support transmission speeds of 10 Mbps, 100 Mbps (the

Fast Ethernet standard) and eventually 1000 megabits per second (Gigabit Ethernet). The

general Ethernet standard for transmission over fiber is commonly referred to as

10/100BaseF.

81
See the EFM working group website at http://www.ieee802.org/3/efm/index.html for more information.
74
Note that the use of Ethernet in FTTH includes Ethernet’s “packaging”, that is the

headers and frames, but not the media access method. Devices compete for transmission

access in Ethernet local area networks using the Carrier Sense Multiple Access with

Collision Detection (CSMA/CD) protocol. However, FTTH and other local access

systems span distances greater than the CSMA/CD protocol was designed for. Any

potential EFM standard needs to address the MAC protocol issue. The DOCSIS standard

addressed similar issues for HFC networks.

 75

5. Case Studies
Since the passage of the Telecommunications Act of 1996, a number of state and

local governments have deployed telecommunications infrastructure through private-

public partnerships and direct government investment.82 The publicly built infrastructure

ranges from statewide, fiber backbone networks to municipal fiber rings to local access

networks. These governments treat telecommunications infrastructure as they do

investment in roads or basic utilities such as water, gas and electricity.

Governments make these investments for a number of reasons: to promote

competition in telecommunications services, to encourage economic development in their

area and to ensure access to advanced telecommunications services for their citizens.

Governments in rural areas are especially concerned with the latter. They do not foresee

private investment in telecommunications services for their region, and therefore choose

to make the investment themselves, since they do not have the same return on investment

expectations that private companies do.

In the United States, a few communities such as Grant County, Washington; Palo

Alto, California; and Chicago, Illinois, are serving as early adopters for Fiber to the

Home technology and are pursuing plans to deploy Fiber to the Home networks. This

thesis looks at the experiences of Grant County and Palo Alto.

5 . 1 . Grant County
The Grant County Public Utility District has deployed a trial Fiber to the Home

network serving 100 homes and 30 businesses in the city of Ephrata, Washington. The

82
Strover and Berquist 1999
76
project is called ZIPP and includes deployment of a municipal fiber network as well as an

all-fiber local access network. The utility deploys and operates the ZIPP fiber network,

while independent service providers provide Internet access, voice and video over the

network. The municipally owned utility plans to roll out the network to the rest of the

homes and businesses in the county over the next three to five years. The network serves

existing homes as well as new developments.

Grant County is predominantly a rural county located in central Washington along

the Columbia River.83 The Grant County PUD is a municipally owned public electric

utility that was started in the 1950s. It is a major electricity generating utility with two

large hydroelectric dams on the Columbia River as well as two small generating plants.

Electricity is sold on a nonprofit, retail basis to Grant County residents and wholesale to

utilities serving customers in seven Western and Northwestern states.

The utility was motivated to build the fiber network for several reasons. They

wanted to diversify their business and upgrade their current communications

infrastructure. With the advent of energy deregulation, the GCPUD wanted to explore

the possibility of diversifying their business into telecommunications. In 1998, Jon

Moore joined the utility to provide expertise in the provision of telecommunications

services. Initially, the utility considered becoming a CLEC. However, Moore came to

the conclusion that their strength was in providing infrastructure, not services, and that

they should concentrate on providing communications infrastructure to their consumers.

83
As of 2000, the total population was 74,698 in a land area of 2,676.4 square miles. For 1999, the median
household income is estimated to be $30,289, while the median household income estimate for Washington
State is $50,152. Data from the U.S. Census Bureau: 2000 Population for Grant County, Washington
(http://www.census.gov visited April 25, 2001) and Office of Financial Management 2000 Population
Trends for Washington State September 2000 (http://www.ofm.wa.gov visited April 25, 2001).
 77

In 1998, the utility initiated plans to deploy a fiber network connecting the electric

generating plants, power substations and office buildings together. The network enables

the utility to monitor its power substations and electric plants. They saw it would take

little extra effort to extend this network into a fiber ring once these points were

connected. Once the fiber ring was built, excess capacity could be offered to other

businesses and organizations. The fiber ring was completed in 2000.

In 1999, the Washington state legislature passed a bill, Senate Bill 6675, that

allows electric utilities and rural organizations to build telecommunications infrastructure

beyond what is needed for specific utility purposes. The bill allows these organizations to

offer this infrastructure to customers on a wholesale basis.

In 1999, the GCPUD proposed extending the fiber network out to individual

homes and businesses. The utility could use the network to offer advanced services such

as automated metering and monitoring and then lease the excess capacity to

telecommunications service providers. According to Moore, consumers in Grant County

were frustrated with the lack of advanced telecommunications services offered by the

existing incumbent cable TV providers, Northland Cable and USA Media as well as

telephone company US West. Cable modem and DSL broadband Internet access was not

available, and even dial-up access was limited mostly to 28.8 kbps. In addition, cable

service was limited to 30 to 40 channels. Consumers wanted access to services available

to consumers in large cities, however, were skeptical what incumbent companies would

offer them. In fact, some residents in this area still do not have basic wireline telephone

service. With this in mind, the utility commission approved the project in late 1999. In
78
August of 2000, the utility started operating the network on a trial basis, serving 100

homes and 30 businesses.

The FTTH network connects to the ZIPP municipal fiber ring. This in turn

connects through the Northwest Open Access Network (NoaNET) to a major Internet

Point of Presence located in the Westin building in Seattle. NoaNET is a nonprofit

organization that licenses fiber optic cables from the Bonneville Power Administration

(BPA) to form a fiber backbone network for use by community-owned electric and water

utilities. The BPA is a federal utility that operates 29 federal dams located in the Pacific

Northwest, and it is part of the U.S. Department of Energy.

5.1.1. Project Status

Currently, the ZIPP FTTH network serves 100 homes and 30 businesses. The

utility started by deploying the network only to homes that ordered the services. It turned

out, though, that the splicing and resealing process was too expensive, so they decided to

gradually go ahead and deploy the network to all homes for a given stage of deployment.

The network is installed to the power meter located on the outside of the house. To

activate services, the utility installs the customer gateway equipment at the home.

Turnaround time for installation is about 24 hours for the current trial.

As of June 2000, the network passed 3,700 homes and businesses. The plan is to

deploy the network to 8,000 homes and businesses by the end of this year and complete

coverage to all sites (approximately 40,000) in the next three to five years.

Financing for the current project comes from the utility’s capital budget. The first

stage of the project has cost around $12 million. The total cost of the project is estimated

to be $130 million over the next three to five years. The utility estimates that $35 to 40
 79

million of the cost will be borne directly by the utility and that revenues will cover the

rest of the costs.

5.1.2. Services
Consumers pay the utility a one-time connection fee of $300 and an ongoing

monthly fee of $40 to use the network. The utility deploys and manages the network and

independent service providers provide the Internet access, voice and video services over

the network.

The subscribers choose their own service providers. In the current trial, the

choice of services includes symmetric broadband Internet access of 100MB and phone

service through Voice over IP. The customers have a choice of four Internet Service

Providers for symmetric broadband Internet access at 100MB, with monthly fees ranging

from $9 to $25 a month. The ISPs include:

• Benton REA’s PowerNET84 for $9 per month

• Gemnet85 $9 per month

• Quicksilver86 $9 per month

• Northwest Internet87 $25 per month for residential service and $50 for

commercial service

A CLEC named Northwest Telephone provides voice service for $15 per month88 using

Voice over IP technology. A video service provider named MyRio has agreed to provide

85
http://www.gemsi.com
86
http://www.qosi.net
87
http://www.nwi.net
88
http://www.nw-tel.com
80
digital TV service with 120 channels and video-on-demand on a trial basis starting this

summer.89

The service providers contract with the county to provide services over the

network. The companies have the option to lease “excess dark or lit fiber”90 and

bandwidth capacity. The utility provides service providers with Ethernet data “pipes” of

100 Mbps that are used to distribute different services.

5.1.3. Network Architecture

The network uses an Ethernet over Active Star architecture and runs the Gigabit

Ethernet protocol. The network equipment includes Cisco routers and CPE and

switching equipment provided by World Wide Packets91. Two strands of fiber connect

each customer site to a community hub—one fiber for each direction of traffic. Currently

each hub serves 48 customers. However, the planned limit is 198 with future versions of

the switching equipment.

The network is designed to support open access through Ethernet Virtual Local

Area Networks (VLANs). For each service, the provider sets up an Ethernet VLAN

between itself and its subscribers. The cost is approximately $1,000 per subscriber for

the equipment installed in the customer and provider premises.

5.2. Palo Alto

The City of Palo Alto Utilities (CPAU) is currently installing a trial Fiber to the

Home network to 70 homes in the Community Center section of Palo Alto. They started

deploying the network in March 2001. The network is expected to go into operation in

89
http://www.myrio.com
90
http://www.gcpud.org
91
http://www.worldwidepackets.com
 81

the fall of 2001. The CPAU is a publicly owned municipal utility that provides

electricity, gas and water services and already owns and operates a fiber backbone that

connects to the Palo Alto Internet Exchange (PAIX)92 one of the top Internet

interconnection points in the world. The municipal fiber ring was completed in 1998.

The CPAU leases dark fiber on the network to local businesses and telecommunications

providers.

5.2.1. Project History

The city of Palo Alto first proposed a Fiber to the Home network in 1998. A

group of citizens proposed the plan and designed the network architecture. In the spring

of 1999, the Palo Alto City Council approved the five-year trial. The trial network would

initially serve 100 homes and would be rolled out in stages to other homes in Palo Alto.

The initial technical design was an Ethernet over Active Star architecture very similar to

the architecture Grant County uses. Initially, the only service offered was to be Internet

access of 10 to 100 Mbps. Although companies would eventually be able to use the

network to offer other services. The city planned to fund most of the project from

consumer fees. These fees were $1,200 for installation and around $80 to $110 per

month for ongoing services. The estimated costs were $400,000 for initial deployment to

100 homes.

Over the next year, the city issued two requests for proposal (RFP) with the

requirement that the network deployment and service provision be provided by separate

companies. They also required that the network follow the technical specifications

92
http://www.paix.net
82
outlined in the RFP. One company would deploy and maintain the FTTH network and

then other companies would provide services on top of this network. However, the RFPs

did not attract enough bidders for either service or network providers. The companies

considering network provision estimated the true cost of deployment to be $1.4 million.

The sole ISP who bid has subsequently gone out of business.

At that point, the city officials decided to scale down the project to a limited one-

year trial of 70 homes to evaluate the economic feasibility. In December 2000, the city

council approved the new plans. The city decided to pay for the project itself and not

charge the trial participants. They scrapped the architectural requirements and opened the

proposal to other technology options. Then, the utility decided to deploy the trial network

using its own staff and evaluated different equipment providers. They eventually chose

equipment by Marconi,93 who is providing the equipment on a loan basis.

5.2.2. Services
In the current trial, the planned services include Internet access of 7 Mbps

downstream and 4.5 Mbps upstream, telephone and cable TV service. As of May 2001,

the city had not yet chosen the service providers.

5.2.3. Network Architecture

The network is Ethernet over PON architecture using Deep Fiber™ products from

Marconi. One fiber is used to carry both upstream and downstream traffic. According to

Manuel Topete, Project Coordinator for the FTTH project, a key factor in choosing this

technology was the support for video service. The technology can provide cable TV and

DBS service broadcast over the same network. The video services are provided on a
94
http://www.marconi.com
 83

separate wavelength from the telephone and data services. However, for the current trial,

they plan to offer only one ISP and telephone service provider. The network does not

currently support multiple ISPs. If the trial continues beyond this one year time period,

CPAU are considering adding the routing equipment that would be needed to support

open access.

5.3. Summary
From just two cases, it is hard to generalize the role of municipalities in deploying

FTTH networks. However, the experiences of the two communities point to the

importance of existing infrastructure – both physical and organizational.

Both projects are managed by existing municipal utilities who have certain advantages in

offering telecommunications services. These organizations have access to rights-of-way.

They have the technical expertise and experience in deploying and managing a fiber

network. Both the CPAU and GCPUD had already built municipal fiber rings for use by

government and businesses. The success of these “second mile” projects led to the

proposed development of the “first mile” infrastructure. They were also able to leverage

existing public telecommunications infrastructure. In both Palo Alto and Grant County,

the existing municipal fiber networks provided the “second mile” infrastructure. In both

cases, the local networks connected all the way through to the major Internet Points of

Presence through publicly built infrastructure.

They could also take advantage of the existing organizational structure. Billing

and operations systems exist. They have relationships with residential consumers --

telecommunications is regarded as an extension of their existing services.

84
However, municipalities considering deployment need to overcome certain

barriers. The issue with building a Fiber to the Home or any local access network is that

it requires a large amount of capital. Palo Alto is a wealthy community, and even they

are requiring assistance from the equipment provider to fund their network. Grant

County has been in the enviable position of having revenue from the provision of

electricity to other Western states. But most communities do not have these types of

resources.

Also, municipalities need to overcome political opposition from private

companies - especially the incumbent phone and cable TV operators who see government

invading their turf.94

Despite these difficulties, one can foresee an important role for municipalities in

furthering the development of new telecommunications infrastructure. These networks

can help promote innovation in both infrastructure and services. The communities that

have the financial resources to build FTTH networks have the opportunity to become

centers for innovation. Their networks can serve as platforms for the next generation of

applications and services. Also, investment in municipal networks might further

experiment with different local access technologies, not only in Fiber to the Home, but

Fiber to the Curb and even wireless technologies.

95
Certain states, like Missouri and Texas, have prohibited local governments from providing
telecommunications services.
 85

6. Conclusions
This thesis examined the future of competition in the context of the potential

FTTH market, FTTH technology and policy for local access networks.

6 . 1 . Summary of Findings
The following sections summarizes the main findings of this thesis:

6.1.1. Market
The FTTH market is still uncertain. Although FTTH deployments are finally

emerging in communities across the U.S., it is unclear when widespread deployment of

FTTH will occur. The barriers to adoption are mainly economic due to uncertain demand

and the relative high costs of equipment and network installation.

The migration from the current telephone and cable TV networks to Fiber to the

Home will happen gradually. The deployment of hybrid fiber architectures (HFC, Fiber

to the Neighborhood, Fiber to the Curb) can be seen as evolutionary steps towards the

deployment Fiber to the Home. Early adopters of Fiber to the Home technology include

municipal utilities and independent providers providing telecommunications services to

new housing developments.

The widespread deployment of FTTH networks will probably be motivated by

one or two circumstances – when telephone companies decide it is economically feasible

to compete in the video market95 or when some disruptive application emerges that

requires the capacity of FTTH networks.

95
This scenario requires economies of scope among phone, video and data provision over FTTH.
86
The market is currently in a chicken and egg situation. Current broadband

networks (DSL and cable modem) support current applications such as web surfing and

email. However, one can foresee how emerging applications, including peer-to-peer

applications and streaming video, will require the higher capacity of future broadband

networks such as Fiber to the Home. These applications cannot become mass market

until there is widespread deployment of broadband networks that can support them.

However, the industry will not deploy these networks until the applications that require

them become widely used. This situation has happened before. In the past ten years, it

took the widespread acceptance of the Internet, in particular applications like the Web, to

motivate the deployment of cable modem and DSL technology.

6.1.2. Technology
Fiber to the Home technology is still in flux; no dominant architecture has yet

emerged. Technical options exist for implementing open access, network sharing by

multiple service providers, in each of the FTTH network architectures now being

considered. Thus, the ability to support service level competition can be designed into

the technology protocols and standards.

The architectures vary to the extent that network resources are divided among

different subscribers. Depending on the architecture, network resources may be

dedicated per subscriber, per provider or may be shared among all the subscribers. This

degree of sharing affects the ease of implementing and enforcing open access. The less

the network is shared, the easier it is to implement open access since the traffic from one

provider can be more easily isolated from the other. The more the network is shared, the
 87

more control the network provider has over the data traffic, which makes it harder to

enforce open access. Government should not dictate specific technologies, however, a

clear policy goal of open access can influence the design of FTTH networks. The design

of an open FTTH network platform can facilitate future service level competition.

6.1.3. Policy
The primary goal of the deregulation of the telecommunications markets has been

to further competition. This thesis analyzed various options for competition policy in the

context of Fiber to the Home. In chapter 3, this analysis considers the following policy

options: the status quo policy regime, “raised hammer” approach, unbundling, and laissez

faire. However, for various reasons, this thesis finds that these approaches are not

adequate to ensure competition as fiber moves to the home.

The current regulatory asymmetry between the cable and telephone networks is

increasingly untenable due to the convergence of services brought about by Internet and

fiber-optic technology. The unbundling rules that apply to the telephone network are

unworkable with rapidly changing technology such as FTTH. The “raised-hammer”

approach taken towards the cable broadband is reactive rather than proactive: the

government is waiting to see if competition develops before imposing regulation.

However, the problem is that if competition does not develop, any policy would have to

be enforced within the confines of an anti-competitive market structure and technology,

restricting the effectiveness of the policy. And due to the entrenched position of the

incumbent monopolists, laissez faire will not lead to increased competition.

88
Whereas the transport segment of the market could be a natural monopoly,
the prospects for competition among service providers of the network
could be improved by Fiber to the Home. Policies that promote open
markets to bring the benefits of competition to consumers are still
relevant, although they need to include regulatory safeguards that
recognize the monopolistic segment of the markets and the possibility that
competition will fail to materialize.96

Because of these concerns, this thesis advocates two further approaches to

competition policy: the development of a consistent open access policy and direct

government investment in infrastructure.

In order to enable service-level competition, this thesis advocates an open access

policy for Fiber to the Home based on the guidelines set by the Ninth Circuit Court

ruling.97 The goal of open access regulation would be to ensure that the provider of the

physical infrastructure doesn't use its control over the network to restrict choice and

competition of services and content.98 Thus, this policy would distinguish between data

pipeline (i.e. data transport) from the services that are transmitted through the pipeline.

Service providers would be given nondiscriminatory access to the pipeline to offer their

own services.

The policy goals regarding service level competition should be set while Fiber to

the Home technology is still being developed. Once these requirements are defined,

Fiber to the Home technology can be designed in such a way that increases the

opportunity for service level competition.

96
Reed 1991 p. 204
97
AT&T, et al. v. City of Portland.
98
See (Werbach 2000) for a discussion of open access in the context of a layered approach to
telecommunications policy.
 89

Policy should state the overall requirements and let the network and service

providers work out the implementation details among themselves (with government

intervention when necessary). The technical implementation of this pipeline varies

depending on the Fiber to the Home technology. It could be the actual fiber connection, a

wavelength, an Ethernet connection or a tunnel. A general approach to open access is

more flexible in the face of changing technology and avoids much of the complexities of

the current unbundling regulations.

6.1.4. Municipal Role

This thesis explored the possible municipal role in deploying telecommunications

infrastructure by examining cases of municipal FTTH deployments in Palo Alto, CA and

Grant County, WA. This analysis suggests two ways that municipalities can foster

competition in the local loop. Municipalities can build the local access networks

themselves. Since municipalities are more vested in providing consumer choice in

services than private companies, these networks can be used to try different technical

implementations and business models for open access. For example, the Grant County

network was designed specifically to support competition in voice, data and video

services by providing Ethernet pipelines to the service providers. The experience of Palo

Alto suggests that the choice of business models is as important as the choice of

technology in implementing open access.

Another possible role is the development of public “second mile” infrastructure

(the connection between the local access networks to the core backbone networks). In

both Palo Alto and Grant County, the FTTH projects leverage existing publicly built
90
networks to connect to the Internet backbone. If municipalities deploy “second mile”

infrastructure and make this infrastructure available to private network providers, they

may encourage the deployment of competitive local access networks. This represents a

promising alternative, since many municipalities will not be able to afford to implement

“first mile” networks on their own.

6.2. Areas for Future Research

This thesis has raised several issues that warrant further research and

investigation. Among them are the following:

• How does the government implement an effective competition policy regime for

residential communications services as technology continues to evolve?

This thesis advocates the development of an open access policy for competition.

However, given the vested interests of the incumbent network providers, implementation

of such a policy will not be straightforward. Effective policy will require the resolutions

of issues such as enforcement and dispute resolution between the network and service

providers. Another issue is the scope of these policy requirements: Should network-

sharing requirements pertain only to the incumbent providers? How might these policies

pertain to other technologies, such as wireless?

• What are the economics of Fiber to the Home? How do the costs, capabilities and

supported services compare among the various Fiber to the Home technologies?

This thesis highlighted the differences between the various Fiber to the Home

technologies in the context of open access. Other current analyses focus on the costs and

implementations of specific FTTH technologies. A comparative cost and technical

analysis of Fiber to the Home technologies would be of value to both potential FTTH
 91

network providers and policymakers. It would shed light about the future feasibility of

competition – both facilities and service-level. Also, it would be interesting to

investigate how the Internet affects the potential FTTH market -- by changing economies

of scope and/or enabling substitutes for services – since earlier detailed analyses were

done before the widespread use of the Internet.

• What should the municipal role be in developing telecommunications infrastructure?

This thesis looked specifically at two cases of the municipal deployment of all

fiber local access networks. A more general analysis is needed to assess the benefits of

public telecommunications infrastructure. Of particular interest is the potential role of

the municipalities in developing second mile infrastructure. Another issue is the potential

federal role in developing this infrastructure – either through federal investment or the

removal of state and local regulatory barriers.

6.3. Conclusion
The main conclusions of this thesis are:

• Policymakers should encourage municipal deployments of FTTH.

Municipalities have the opportunity to facilitate competition in residential

communications services. Municipalities are more vested in providing consumer choice
in services than private companies. Therefore, their networks can provide a testing
ground for different open access options and competitive services. Also, if municipalities
solve the “second mile” problem by deploying municipal backbone networks, they can
encourage the deployment of local access networks by competitive private network
providers.
• Policymakers should develop an open access policy to enable service level

competition on future local access networks.

92
Policymakers should set consistent policy goals regarding competition for future

local access networks now. The current inconsistencies in competition policy have lead

to great uncertainty in the local access market. The market wants certainty; uncertainty

itself inhibits investment. If the decision is to ensure service level competition, industry

can plan their business and design the technology accordingly. Therefore, competition

policy should come first, driving standards, architecture, and implementation.

With Fiber to the Home, there is currently the opportunity to design future

broadband networks in way that supports service level competition. Fiber to the Home

technology is still being developed -- fundamental technology choices are still being

made. Technical protocols and industry standards can determine the ease with which

multiple service providers can share a common network. If competition amongst service

providers is to be a policy goal, this goal can and should be codified in the standards and

protocols now being developed.

 93

Glossary

Bell Operating Company (BOC): a local telephone company formerly owned by AT&T.

Cable Service: transmission of video programming to subscribers.

Common Carrier: an entity that provides a public communications conduit without regard
to content.

Coarse wavelength division multiplexing (CWDM): a technique in which signals are

transmitted over a common fiber across two to four wavelengths (or carriers). See
WDM.

Customer premises equipment (CPE): equipment employed on the premises of a person

(other than a carrier) to originate, route, or terminate telecommunications.

Dense wavelength-division multiplexing (DWDM): The technique of running many (at

least four or more) individual wavelengths of light over a single fiber optic connection.

Fixed time division multiplexing (FTDM): Fixed time division multiplexing is a

technique in which multiple signals are sent over a single wire (or carrier) using pre-
assigned different time slots for the different signals. Bandwidth is allocated to each
channel regardless of whether the station has data to transmit.

Information service: the offering of a capability for generating, acquiring, storing,

transforming, processing, retrieving, utilizing, or making available information via
telecommunications, and includes electronic publishing, but does not include any use of
any such capability for the management, control, or operation of a telecommunications
system or the management of a telecommunications service.

Interconnection: equal access to networks between incumbent and competitive local

exchange carriers.

Internet: an international network of computer networks with common protocol

standards.

Local Exchange Carrier: any company that is engaged in the provision of telephone
services.

Network element: a facility or the equipment used in the provision of a

telecommunications service. The term includes subscriber numbers, databases, signaling
systems, and information sufficient for billing and collection or used in the transmission,
routing, or other provision of a telecommunications service.
94
Space-division multiplexing (SDM): where each signal is sent over a separate wire or
fiber.

Statistical Time Division Multiplexing (TDM): a technique in which multiple signals are
sent over a single wire (or carrier) using dynamically assigned time slots for the different
signals. Bandwidth is allocated only to active input channels, making better use of
available bandwidth and allowing more devices to be connected.

Switch: Network device that filters and forwards data contained in frames based on the
destination address of each frame. The switch operates at the data link layer of the OSI
model.

Telecommunications carrier: any provider of telecommunications services.

Telecommunications equipment: equipment, other than customer premises equipment,

used by a carrier to provide telecommunications services, and includes software integral
to such equipment (including upgrades).

Telecommunications service: the offering of telecommunications for a fee directly to the

public, or to such classes of users as to be effectively available directly to the public,
regardless of the facilities used.

Time-division multiplexing (TDM). Time division multiplexing is a technique in which

multiple signals are sent over a single wire (or carrier) by allocating different time slots
for the different signals. See Fixed TDM, Statistical TDM

Wavelength division multiplexing (WDM): a technique in which signals are transmitted

over a common fiber across multiple wavelengths or frequency bands. Also known as
frequency division multiplexing (FDM). See CWDM, DWDM.
 95

Bibliography
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Websites
Benton REA’s PowerNET
http://www.bentonrea.com

City of Palo Alto Utilities

http://www.cpau.org

Clearworks.net
http://www.clearworks.net

Ethernet in the First Mile

http://www.ieee802.org/3/efm/index.html

FiberHood
http://www.fiberhood.com

Full Service Access Network

http://www.fsanet.net/

Gemnet
http://www.gemsi.com

Grant County Public Utility Commission

http://www.gcpud.org

Huntel Engineering
http://www.huntelengineering.com

Marconi
http://www.marconi.com

Myrio
http://www.myrio.com

Northwest Internet
http://www.nwi.net

Northwest Telecom
http://www.nw-tel.com/

Optical Solutions
http://www.opticalsolutions.com

Palo Alto Internet Exchange

 101

http://www.paix.net

Quicksilver
http://www.qosi.net

Rye Telephone Company

http://www.fone.net/soco/guide/colocity/rtc/home.html

Vialight
Vialight http://www.vialight.com

Western Integrated Networks

http://www.winfirst.com