Carriers bet billions on fiber

10 Apr 2006

After years of planning and billions of dollars in investment, telecom carriers around the world have made a massive bet that the digital revolution has finally arrived

In the US, Verizon Communications, AT&T and BellSouth have all begun deploying fiber-optic technology to homes and businesses and are rolling out triple- and quadruple-play services to build revenue and compete more effectively with wireless and cable companies. In the UK, BT is constructing a multibillion dollar 21st Century fiber network to deliver new services, including IPTV. In Asia, Japan's NTT and Korea's KT are moving forward to offer 30 million and 10 million (respectively) FTTH subs by 2010.

The massive global investment in fiber technology is destined to alter much of the existing telecom landscape worldwide, creating new opportunities for traditional carriers to transform into full-serviced monoliths by delivering not just voice, but high-speed broadband, interactive video and even mobile voice over a converged network. Some envision more exotic applications like video conferencing and telecommuting in the future.

However, uncertainty still remains about the best approach to the fiber rollouts, whether the technology will actually work as planned and whether customers are really interested in paying for the new services that are promised. So it remains unclear how or if the carriers' huge bet on the digital revolution will ultimately pay off. One thing that is certain, though, is that stepped-up competition from cable and satellite companies has pushed traditional telcos into a timely embrace of the digital revolution

Feverish competition

Nowhere is this issue more heated than in the US, where the three major service providers - AT&T, BellSouth and Verizon - are moving aggressively toward delivering fiber technology to their customer bases this year. The reason is obvious: US carriers have lost more than five million telephone customers to cable rivals Time Warner Cable, Comcast and Cox Communications over the last year. The cable firms have moved aggressively into the VoIP marketplace, bundling inexpensive service with existing cable television and cable modem services to offer a cost-efficient bundling model.

The US carriers simply can no longer afford to sit still. But they are already being stung by the cost of their futuristic investments as they seek to dramatically re-invent themselves.

From a technology standpoint, Verizon is the most aggressive player, rolling out fiber directly to the premises, rather than just the curb. That's an expensive approach, but one officials feel will serve it better in the long run because it will provide greater bandwidth for customers and eliminate copper network maintenance costs. The company passed three million homes with fiber last year, and aims to add another three million by the end of 2006. It rolled out video service in a trial market in Texas last September and claimed a 20% market share by year's end.

Still, this approach has its detriments. Verizon, which lost nearly 3.5 million lines last year to cable, wireless and VoIP competitors, has seen its stock fall 10% during the last year and its debt downgraded by Standard & Poors and Moody's Investors Service because of the costs associated with its FTTP network called Fios. Verizon, which bought MCI in January, plans to spend an estimated $22 billion on its rollout.

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