Communications Infrastructure Upgrade the Need for Deep Fiber Published July 2017 Communications Infrastructure Upgrade | the Need for Deep Fiber
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Communications infrastructure upgrade The need for deep fiber Published July 2017 Communications infrastructure upgrade | The need for deep fiber Executive summary 03 Introduction 07 Fiber is the centerpiece of wireless advancement Section I 09 Deep fiber is at the center Section II 13 Major fiber investment is needed Section III 14 Incentives to deploy fiber are lacking Section IV 17 Carriers and policymakers can share the responsibility for motivating investment in fiber infrastructure Conclusion 22 Fiber investment requires new monetization mechanisms Sources 25 02 Communications infrastructure upgrade | The need for deep fiber Executive summary Fifth generation mobile networks (5G) are now poised for field testing and launch worldwide. The technology unlocks unprecedented potential to build seamless digital ecosystems, reshaping the way citizens live, work, and interact. Wireless networks were at a similar An equally transformative moment is inflection point as 4G services launched coming with 5G, but with two important early in the decade. The United States differences. First, the economic stakes are took action as government made new potentially much higher, where connected spectrum available and carriers responded devices, applications and business models to accommodate radical, twenty-fold could dramatically stimulate economic growth in global mobile data traffic. The productivity. Second, the United States is massive investment in wireless network not as well prepared to take full advantage infrastructure rewarded the US consumer of the potential, lacking needed fiber with more coverage at affordable prices, and infrastructure close to the end customers the US economy generated up to 700,000 (deep fiber). jobs as a result.1 Communications infrastructure upgrade The need for deep fiber 03 Communications infrastructure upgrade | The need for deep fiber Deep fiber is the To meet future The current next front in the broadband wireline industry battle to lead the needs, the United construct does world in Internet States needs an not incent enough speed and capacity estimated $130– fiber deployment Unlocking the full potential of 5G in the 150 billion of fiber Some wireline carriers are reluctant or United States rests on a key assumption: unable to invest in fiber for the consumer the extension of fiber deep into the infrastructure segment despite the potential benefits. network. Despite the demand and potential investment Expected wireline CAPEX ranges between economic benefits of fiber deployment, 14–18 percent of revenue. Wireline OPEX can 9 the United States lacks the fiber density in A Deloitte Consulting LLP analysis estimates be 80 percent of revenue. Fiber deployment access networks to make the bandwidth that the United States requires between in access networks is only justified today if advancements necessary to improve the $130 and $150 billion over the next 5–7 a short payback period can be guaranteed, pace of innovation and economic growth. years to adequately support broadband a new footprint is being built, repairs from Increased speed and capacity from 5G will competition, rural coverage and wireless rebuilding after a storm or other event rely on higher frequencies and network densification. Such ambitious infrastructure justifies replacement, or in subsidized 2, 3 densification. Carriers will deploy many investment could derive from a variety of geographies where Universal Service funds more small cells, homespots, and hotspots sources including communications service can be used. in higher bands, with a coverage radius providers, financial investors and public- measured in meters versus kilometers. private partnerships. The largest US wireline carriers spend, on Without more deep fiber, carriers will be average, five to six times more on operating 10 unable to support the projected four-fold Our estimates include funding for three expenses than capital expenditures. increase in mobile data traffic between broad categories of fiber deployment: Excessive operating expenditures caused, 4 2016 and 2021. fiber for wireless densification, fiber to in part, by legacy TDM network technology increase consumer and business broadband restrict carriers’ ability to leverage digital A second motivation for “deep fiber” competition and fiber to serve rural/ technology advancements. Worse, as deployment is to increase broadband underserved geographies. Moreover, our legacy TDM networks continue to descale, service choice for residential and models suggest massive synergies between the percentage of fixed costs overwhelms business customers. Deep fiber is a the build required for wireless densification the cost structure leading to even greater key tool for the national infrastructure and adding broadband competition in urban margin pressure. imperative to provide consumers areas. There are also additional benefits high-speed broadband connections no between densification and underserved In the last five years, wireline carriers matter where they live at prices they can communities. With more than 60 percent have lost seven points of market share afford, closing the “digital divide.” of total costs for construction, permits and in broadband access, mainly to cable design,8 fiber providers may need to share operators. Cable operators, who have the Wireline broadband access supports as last mile access routes and rights of way advantage of a more modern coax network, 5 much as 90 percent of all Internet traffic where possible to realize such synergies. do not have these legacy constraints and even though the majority of the traffic have aggressively deployed high-speed ultimately terminates on a wireless device. broadband access using DOCSIS 3.0 and 3.1 However, twelve years after the first fiber upgrades. Cable operators currently cover to the home (FTTH) deployments, only 38 more than 85 percent percent of US homes percent of homes have a choice of two with Internet speeds of 25 Mbps or greater.10 providers offering speeds of at least 25 Mbps.6 In rural communities, only 61 percent of the population have access to 25 Mbps wireline broadband, and when they do, they can pay as much as a three times the premium over suburban customers.7 04 Communications infrastructure upgrade | The need for deep fiber Generating sufficient cash flow to motivate Carriers should consider: fiber upgrades means building a business Carriers and • Establishing deep fiber as a top model based on simplicity and capital priority investment for the long term. productivity. This will not happen without policymakers completing the migration from TDM to an can share • Redesigning business models and all-IP network. The complexity imposed processes based on digital sales on IP services by legacy product iteration responsibility and care channels. and cumbersome IT systems increases • Providing a more limited set of operational costs, drives up failure rates, for motivating standard IP products to substitute and leaves customers unhappy. investment in fiber legacy TDM products. • Mobile operators, not required to support legacy services, require approximately The lack of funding and motivation to US policymakers should consider: one-eighth the care staff and receive deploy fiber leaves the future of wireless • Eliminating regulatory barriers that half as many inbound calls per customer and wireline connectivity uncertain. prevent carriers from operating a single compared to wireline network operators.11 Wireline telecommunications companies IP network, impede deployment of are choosing to invest in areas other than • A survey by Nemertes Research found a additional fiber assets, or restrict the fiber deployment including satellite TV, reduction in average time to repair from types of services that may be offered. advertising, content and advanced business 21 hours to 5 hours for a single, end-to- services. Similarly, infrastructure funds • Avoiding regulation that limits end IP network.12 and REITs have made few investments in carrier innovation in creating new • French wireless and wireline provider, telecommunications assets. Many wireline monetization mechanisms or voluntary Iliad, operates an all IP network with carriers depreciate 1.2x–1.3x as much sharing of deep fiber and associated approximately 3 to 4 employees per PPE as they add in a given year, leaving a communications infrastructure such 10,000 customers compared to 12 to 15 declining net asset base to service increased as trenches, conduit, rights of way and employees per 10,000 customers for US demand.15 cell sites. providers.13, 14 • Dispersing Universal Service support Many countries, including the United more efficiently to coordinate/ Carriers stand to gain tremendous States, prioritize ubiquitous affordable encourage deep fiber programs. efficiency from deploying new IP networking broadband as a policy objective. The United architectures like Software Defined States ranks tenth in the world for average Reforms to the Universal Services Networks (SDN) and Network Function broadband speed and percentage of users Administrative Company (USAC) to improve Virtualization (NFV). This technology is also with over 25 Mbps.16 This is remarkable, operational efficiency is a prerequisite important to provide the scale and elasticity as the United States has almost six times to implement a coordinated deep fiber required to support 5G networks in the the cumulative land area of the nine program. Recently, USAC has come under future. However, the requirement to operate countries ranked above