FTTH: the Keys to Successful Deployment

ALL THINGS CONSIDERED [ Number 1 - February 2015 ]

FTTH: the keys to successful deployment

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Edito

Telecom operators must constantly look to the future, reinventing their business unceasingly to enchant and simplify the lives of their customers, day after day.

Network transformation is a cornerstone of this quest for the supreme customer experience, since it enables operators to differentiate themselves from competitors.

The first step is to choose next-generation technologies that are reliable and able to spur innovations while always maintaining impeccable service quality.

Optical fiber has already replaced copper in the long distance networks of many operators, but it is not systematically used in last mile networks. When it is, the technology chosen depends on the market, the regulatory and socio-economic context and the operator’s investment capabilities.

Orange has decided to deploy fiber to the home (FTTH) in view of its intrinsic performance, transmission capacity and infrastructure durability. Between 2014 and 2020, FTTH connectivity will expand globally by 13% per year, which means that 60% of French homes will be fiber-enabled, and 30% worldwide.

FTTH rollout requires billion-euro investments since networks have to be recreated from A to Z. Planning and deployment errors are unthinkable, so operators must take a methodic, rigorous approach. They need the support of a partner with proven specialized know-how to optimize their investment plan, choose a fiber architecture, and then design and implement the network.

This is the approach we present in this document. It explains how the men and women of Sofrecom’s Know-How Network can help you invent and build your network of tomorrow.

Enjoy your reading!

The Know-How Network

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Executive summary

This position paper addresses telecoms players involved in a transition to Very High- Speed Broadband (VHSB). The last two decades have been marked by exponential growth in the production and consumption of digital content by increasingly connected citizens. The result is a data deluge now at zettabyte1 level - and a severe technological headache for network operators. Why is FTTH the VHSB technology able to meet this challenge? What is the current status of optical fiber deployment? How can we roll out reliable networks capable not only of carrying today’s traffic but, importantly, of adapting to future evolutions such as the gigantic bandwidth needs of billions of communicating objects?

A contrasted but fast-growing market

In June 2013, FTTH was the predominant VHSB architecture worldwide, but with disparities reflecting different market contexts. Asia is incontestably the most mature market thanks to voluntaristic government policies, the dynamism of local players and clear consumer demand. The market is more heterogeneous in Europe and North America due to greater technological fragmentation (VDSL, cable, etc.) and to pervading financial uncertainty. In emerging countries the situation is very contrasted. The United Arab Emirates and Qatar are both exceptions in the Middle East with FTTH penetration of 63% and 43% respectively, despite the fact that the penetration of wireline high-speed broadband technologies across this market is barely 5% (a low rate that belies potentially strong consumer appetency, as evidenced by new network rollouts notably in Kenya and South Africa in 2013).

1 | A zettabyte is 1021 bytes (or 1,000 exabytes or 1 million petabytes). The 4.1 exabytes transiting IP networks monthly in 2006 are likely to become 91 exabytes in 2016, or more than one zettabyte per year. Source: Cisco, The Zettabytes Era, June 2014.

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Only FTTH architecture can meet this challenge Successful deployment requires a methodic, rigorous approach FTTH architectures are technically superior to other wireline VHSB solutions in many respects: higher At a technical level FTTH infrastructure design and capacity, enhanced service quality and reliability, lower deployment requires important choices in terms of the latency, symmetrical downlink/uplink data speeds, lower zones to be covered and hardware and software solutions. maintenance costs, and durability. These attributes are How is the zoning done, how are dwellings targeted? What indispensable for the development of simultaneous, engineering rules should be applied to successfully build out multi-screen services, new conversational services and the local loop? What traps are to be avoided? Faced with so the new remote usages such as teleworking, telemedecine, many issues, to design and build this type of infrastructure tele-education, e-administration, etc. optimally it is vital to be methodic and rigorous.

A complex investment for the future A far-reaching transformation

Deploying FTTH is however a complex process. Regarding Once the modeling is done, the operator must decide how financing, several investment models are available involving best to subcontract the infrastructure work. How much local and/or national players, private and public, to match autonomy should subcontractors be allowed? How will their the specificities of each market. Co-investment can be a work be supervised? Also the new network will require an judicious choice both to spread the financial risk and to upgrade of the physical, logical and geographic information accelerate the implementation, particularly in countries of system with powerful applications and interfaces between modest profitability. them.

This analysis draws on Sofrecom’s FTTH expertise and long experience of network transformations. It provides a snapshot of FTTH evolution and describes its benefits in terms of usages and services. It also spotlights a number of key factors to facilitate FTTH deployment and to engineer a network capable of anticipating the future.

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Fiber: heterogeneous deployments

Among the range of high speed fixed broadband (VHSB) technologies, FTTH is now predominant worldwide in terms of both subscriber lines and investment budgets. Asia is the trailblazer leading the way, as illustrated by its numerous national development programs, the dynamism of local players and affirmed consumer demand. The situation is more contrasted in Europe and North America due to greater technological fragmentation (VDSL, cable, etc.) and a high level of financial uncertainty.

With almost 200 million homes connected worldwide at the WIRELINE VHSB TECHNOLOGIES end of 20132, VHSB now represents 25 to 30%3 of wireline broadband Internet access subscribers. Among the three Wireline very high-speed broadband is defined principal architectures (see the box), FTTH is now used in in terms of a minimum data rate, which today is almost six homes in ten with VHSB connectivity, ahead generally accepted to be 80 Mbps. VHSB embraces of cable (29%) and VDSL (11%). However there are large several technologies providing different speeds, disparities between regions and countries due to the local FTTH being the fastest. competitive and regulatory frameworks, the existence or not of national programs, and of course the maturity of FTTH/B: Fiber To The Home/Building means fiber consumer usages. deployed up to the base of the building after which the copper subscriber line is used. Asia still driving FTTH

FTTN: Fiber To The Neighborhood. Asia is the FTTH pathfinder, thanks to ambitious national projects and the support of voluntaristic industrial policies FTTC: Fiber To The Curb. as in Japan (u-Japan, 1999), South Korea (u-Korea, 2003), Singapore (Intelligent Nation 2015, 2005) and Australia FTTLA: Fiber To The Last Amplifier. (NBN, 2009). The lead in network deployment built by these countries is also explained by other factors such as VDSL: Very-high-bit-rate Digital Subscriber Line high population density, high-rise dwellings and less costly (DSL) is based on the same technology as xDSL. VDSL aerial (above-ground) optical drop cable. The expansion signals are carried on a copper pair, simultaneously of their user bases is essentially due to the rapid arrival of and without interference with voice telephone. new entrants forcing down prices and driving bandwidth demand through their triple-play packages. Online gaming and used-generated content services (South Korea) are also

NUMBER AND DISTRIBUTION OF FTTH SUBSCRIBERS - WORLD (Dec. 2013)

Zoom on Asia-Pacific subscriber base in 2012/2013 (M)

2.2% 1.5% 87 + 28% Total 6% 5% 7 + 23% Other ■ 12 + 9% South Korea 15% 8% Asia-Paciﬁc ■ ■ FTTH Eastern/Central Europe 25 + 6% Japan 10% 120 million 383 million ■ FTTx/Docsis 3.0 ■ North America VHSB subs FTTH subs ■ VDSL ■ Western Europe 42 + 55% China ■ Middle East, Africa 79% 73% ■ Latin America 0 Dec. 2013 Sources: FTTH Concil, Idate, Sofrecom (Dec. 2013) (Dec. Sofrecom Idate, FTTH Concil, Sources:

2 | Source: IDATE, World FTTx Markets (June 2014), vs. 118 million for Ovum (June 2014). 3 | On the basis of 685 million fixed broadband customers for IDATE (June 2014), 679 million for Point Topic (April 2014) and 699 million for Ovum (June 2014).

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popular. All these parameters have enabled most developed As the race to gigabit bandwidth proceeds at full pace, the Asian countries to reach an effective fiber penetration4 of concentration of cablecos has accelerated and Google has around 50% (or even greater: 70% in South Korea). made its fiber debut with a 1 Gbps offer in two cities which may be extended to thirty-four others later. All these factors Some emerging Asian countries have emulated this model have spurred Verizon and AT&T to react rapidly. AT&T, which underpinned by public incentives with the hope of driving had formerly opted for FTTN+VDSL, launched a symmetrical broadband development and, by extension, the entire 1Gbps offer over FTTH in three Texan cities in August 2014. national economy. For example, massive infrastructure The offer, dubbed "U-verse with GigaPower", will later be investments in China have made this country the world’s extended to more than a hundred cities. Verizon, who has biggest FTTH market in just four years, with 170 million already tested 1Gbps offers, does not appear to want to "homes passed" (i.e. connectable) and 42 million "homes commercialize one for the moment, doubting that it would connected" at the end of 20135. The Malaysian government have sufficient appeal. Nevertheless it relaunched its fiber launched a VHSB project in 2008 in the form of a public- offering with FiOS Quantum, introducing downlink data private partnership with the incumbent operator Telekom speeds of 300 Mbps in July 2012 then 500 Mbps in July 2013, Malaysia. Its budget of 11.3 billion ringgits (€2.7 Bn), and extending the offer rapidly to all fiber-enabled homes. The 20% financed by the State, enabled fiber connectivity in offer has been very well received with 55% of the 6.3 million 1.3 million homes in four years. The results are impressive: FiOS customers subscribing by the end of June 2014 (up from in June 2014 the operator’s UniFi triple-play offer over 33% a year earlier). This rapid takeoff is largely explained by fiber already had 673,000 subs6, or an effective penetration consumer demand for very high downlink bandwidth to rate of over 50%, confirming the appeal of this type of offer7. improve the viewing comfort of Netflix shows. Bernard Lee, president of FTTH Council Asia, reported in June 2014 that $60 Bn have been allocated for FTTH rollout Europe waking up at last, but fiber still has minor in the Asia-Pacific region via big national projects. impact

The latest striking example of Asian dynamism, excluding In Western Europe, FTTH is only just starting to take off. Its national programs this time, is Indonesia’s legacy operator share of the fixed very broadband market is 25-30%, slightly Telkom. As part of its Indonesia Digital Network 2015 ahead of VDSL but far behind cable (50-60%). The main project, it plans to invest $600 M in 2014 to extend the cover obstacles faced by FTTH are financial and strong regulations of its FTTH/FTTC network in about thirty cities, with an in key areas such as total unbundling and sharing of telecom ultimate objective of 20 million homes passed by 2015. ducts. This explains why some operators have migrated to solutions better adapted to the local context, for example American cableco–telco war revived by the race to FTTC in the United Kingdom. Others position on solutions very broadband that exploit the copper network to the limits of its capacity; notably VDSL deployed by Belgacom, Swisscom, TDC and In the USA, wireline VHSB is historically promoted by cable Deutsche Telekom over the last decade. Some Scandinavian operators who have unmatched coverage of close to 100 countries have nevertheless gone for FTTH, Sweden for million homes and can propose offers at more than 30 Mbps example where fiber has been driven by local municipalities (20 million homes effectively connected at the end of 2013)8. and energy companies. Despite their successes, these The two largest national telcos, AT&T and Verizon, have northern countries have a subscriber base far too small to apparently never sought to challenge these rivals, preferring stimulate a general take-off across Europe. to focus on the most dense and profitable zones. Also, we might mention that Goldman Sachs estimated in 2012 (basing The European Commission, aware of the sluggish progress of its analysis on the example of the 1Gbps Google Fiber offer) VHSB and the long-term impact on the economy, unveiled that a nationwide program to challenge cablecos would costs the objectives of its Digital Agenda for Europe (DAE) in telcos at least $140 Bn! Yet this did not prevent Verizon from May 2010. These include 30 Mbps access for all European investing almost $15 Bn between 2003 and 2013 to bring fiber households and 100 Mbps or more for at least the half of to 18.5 million homes9 to which it now proposes its generic them by 2020. fiber-based offer FiOS since 2004 and above all its FiOS TV offer since 2005.

4 | Effective penetration rate = homes connected / homes passed. 5 | IDATE, World FTTx Markets (June 2014). The goal of the "Broadband China Strategy Scheme" presented in August 2013 is to provide at least 50 Mbps bandwidth in all urban zones and 12 Mbps in rural zones by 2020. 6 | 559,000 residential homes + 114,000 enterprises. Source: Telekom Malaysia, http://bitly.com/1Brsuo6 7 | In a recent note (September 2014), the Analysys Mason firm revealed however that most customers opt for the entry level offer of 5 Mbps. 8 | IDATE, DiGiWorld Yearbook 2014 (May 2014). 9 | Verizon has gone for FTTP ("P" for Premises, the equivalent of FTTH).

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Importantly, this policy is backed by financial tools Emerging countries: initiatives are more local, but (development funds) and harmonization of regulations. This multiplying initiative spurred several national programs in the same year in Denmark, the United Kingdom ("Superfast Broadband"), The penetration of fixed VHSB technologies is globally Luxembourg ("Ultra-Broadband") and in France ("Plan below 5% in emerging countries, although some have already France Très Haut Débit"). achieved much higher uptake, as in the Gulf region. In the United Arab Emirates the effective penetration is now 60% The latest figures released by the FTTH Council10 show thanks to major deployments and the commercial impetus almost 20 million FTTH/B subscribers at the end of 2013 in of Du and Etisalat. In Saudi Arabia, STC’s FTTH base was up Europe (39 countries), a figure that has doubled in under two by almost 44% year-over-year in Q2 2014 after doubling in years. This reflects the scale of national rollout programs 201314. and also the pressing need for telcos to deploy their fiber in anticipation of new video services and increasingly Broadband penetration in Africa is very low due to poor aggressive competition from cablecos. In 2013, growth national infrastructures, dispersed populations and the was driven essentially by big players in Sweden, France11, high cost of investments and access offerings. Even so, by Portugal, Spain and the Netherlands. FTTx networks and late 2013 five countries had started FTTH deployments user bases have also been expanding rapidly in Russia and and consumer appetency is potentially strong. In Kenya, Ukraine where both a regulatory framework for fiber and despite wireline Internet penetration of under 3%, almost cooperation between players are absent. 30% of existing customers opt for new FTTH offers. Recent months have seen numerous projects, although limited Spain’s incumbent operator Telefonica has accelerated its geographically, for example Telkom and Vumatel in South fiber rollout (between December 2012 and June 2014 the Africa, Liquid Telecom in Kenya and Zambia, and Wananchi number of homes passed rose from 2.2 to 4.2 million) and (Zuku) in Kenya. commercially promoted its 4P Movistar Fusión offers. Over this same period its FTTH base almost tripled from 312,000 Conclusion to 861,000 lines. Wireline VHSB deployment policies are heavily influenced France’s operators have revived their FTTH efforts in by the structure of existing networks, the competitive reaction to a clarified regulatory framework12 and aggressive environment, the availability of infrastructure investment cablecos. Both Orange and SFR propose triple-play offers at capital, and the geographic population distribution. about €20/month to spur their ADSL customers to migrate Voluntaristic government policies expressed through to fiber (connection in the home is included13). VHSB has national fiber programs are also important, as we have seen progressed from 155,000 subs in Q1 2014 to more than 2.2 in Europe and Asia. In all cases, a first choice must be made million (+30% year-on-year), of which 640,000 are on FTTH between alternative VHSB technologies, or more precisely (+69%). The VHSB subscription rate via an FTTH offer has between fixed and mobile VHSB. reached 20% for the first time. However, whenever the market is favorable for FTTH the FTTH progression has slowed in three big markets - choice of this technology appears evident - despite its higher Germany, Italy and the UK - where the incumbent operators cost - in view of its ability to challenge FTTN and VDSL and have opted for FTTN+VDSL, running the risk of creating a its proven benefits and performance over the long term. "two-speed Europe". This choice is explained by technical constraints (access to ducts, civil works, etc.) and regulatory This is the conviction that Sofrecom has forged during its ones, and the fact that technical enhancements (G.Fast, numerous FTTH network projects in France and the Middle vectoring) can yield useful bandwidth increases on existing East. The reader will no doubt share this opinion after technologies at a lower cost than fiber. reading our FTTH market analysis in this document along with our list of key factors for successful deployment.

10 | FTTx World Markets (June 2014). FTTH Council Europe press release on 19th February 2014, http://bit.ly/1ASXdIG 11 | 558,000 FTTH lines at the end of 2013 (+73% year-on-year), or 29% of all VHSB lines. Source: ARCEP, http://bit.ly/1o5kSQc 12 | February 2013: announcement of the "Plan France Très Haut Débit" with an objective of 100% VHSB population coverage by 2022, notably using FTTH. January 2014: completion of the regulatory framework for optical fiber networks. 13 | Orange Livebox Zen Fiber Offer at €24.99/month for 12 months then €33.99/month (100 Mbps Internet access, TV, landline telephone, 10 GB Orange cloud) + additional €5/month discount for new customers, installation included (valid from 21/08/14 to 01/10/14). SFR proposes to some of its 3P ADSL subs a migration to fiber at €17.99/month for 12 month, then €35.99/month (June 2014). 14 | 250,000 customers at the end of 2013 out of 830,000 homes passed (30% effective penetration).

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120 MILLION FTTH SUBSCRIBERS WORLDWIDE IN 2013

Western Europe 6.3 M Eastern Europe (22%) x 33% 12.4 M 9.7 M (28%) x North (43%) 18% America x 11%

Asia-Paciﬁc 87 M Latin America (35%) x 1.8 M 28% (18%) x 143% Middle East,

Africa Idate, Sofrecom Concil, FTTH - Sources: of the period end to the refer figures All 2.7 M (34%) x 67% Caption: FTTH subscribers (December 2013) (FTTH effective penetration = total subscribers / fiber-connected homes) Evolution Q2 2013 vs. Q2 2012

FTTH CUSTOMER BASES BY REGIONS - WORLD (M), AND AVERAGE ANNUAL GROWTH RATES

300

251 250 + 13.7 % ■ Middle East, Africa 231 + 28.1 % ■ Latin America + 7.6 % ■ North America 198 + 25.5 % 200 ■ Western Europe 170 + 17.2 % ■ Eastern/Central Europe

145 ■ Asia-Paciﬁc 150 120 2013) (Dec. Sofrecom Idate, FTTH Concil, Sources:

94 100 + 13.4 %

0 2012 2013 2014 2015 2016 2017 2018

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Understanding the benefits of FTTH

For an operator the decision to build out FTTH infrastructure is by no means simple. Although its global advantages in terms of bandwidth and quality of service are evident, it is important to assess its impact on future business. Financial investment, heavy but of very durable utility, is necessary to create a base network able to carry innovative services that will engender new usages, new customer experience and new revenues.

FTTH, an enabler of innovative The FTTH architecture is also ideal for new "remote" services that benefit everyone usages such as teleworking, telemedecine, e-learning and e-administration, and for new cloud-based applications made possible by the symmetrical data streams. It responds The indispensable base for new bandwidth-hungry to consumer appetency for IPTV services in multi-equipped services homes that require simultaneous usages (TV everywhere, "multi-room") and will encourage the emergence of new DSL (Digital Subscriber Line) technology has given a bandwidth-greedy video formats (3D, ultra HD) and services new lease of life to the traditional copper-pair local loop not yet invented such as cloud gaming and residential by enabling operators to offer data rates ranging from videoconference. a few tens of Kbps to several tens of Mbps (the rates are asymmetrical: the downlink bandwidth is much higher Ease of use means enhanced user experience than uplink). These new usages, whether professional or private, are Today this technology is mature and reaching the limits of its highly interactive and therefore more sensitive to network intrinsic capabilities. It can no longer keep up with current parameters such as latency which is always an issue in and future digital usage trends. information exchange.

The Next New Thing is very high speed broadband, a Latency corresponds to a transit delay or packet loss in the concept that encompasses technologies offering speeds network, which impacts the quality of a 3D online game above 80 Mbps. for example, or the image or sound of an HD or 3D movie. Optical architectures significantly reduce latency compared VHSB networks use a local loop of optical fiber instead of to copper or cable. the traditional copper pair to be able to transport data at more than 100 Mbps. The ability of fiber to use light waves to transport vast quantities of data instantly over thousands of kilometers is just what we need to enrich simultaneous multiplay offers and improve the user experience and quality of service.

This immense transport capacity provides fertile ground for new services requiring superfast transmission, for example full-size videoconference (telepresence wall) and distributed computing.

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USAGES THAT WILL BENEFIT FROM VERY-HIGH-SPEED BROADBAND

Web browsing experience

Videoconference, telesurveillance

Standard-deﬁnition VoD, teleworking

File sharing, video sharing/streaming

Standard-deﬁnition TV

Multi-player games, e-learning

Content storage

APPLICATIONS Telemedecine

Sharing of large ﬁles

High-deﬁnition VoD

Network-hosted applications and data storage

3D TV

FTTH symmetrical

Docsis 3.1 asymmetrical

VDSL2 asymmetrical : Capgemini TME Lab Analysis, (2009). Arthur D. Little, Exane BNP Paribas estimates. Paribas BNP Exane D. Little, (2009). Arthur TME Lab Analysis, : Capgemini Source TECHNOS ADSL asymmetrical

LTE asymmetrical

optimal data speeds 1 GB 100 25 20 15 10 0 10 15 20 25 100 1 GB

Uplink speed (Mbps) Downlink speed (Mbps)

NEGATIVE EFFECTS OF LATENCY

81% 60% of people stop watching of people exit a website a video when there is a when the pages take more memory buffering problem than 6 seconds to load

20% 1% of Google searches are of turnover is lost abandoned when the latency € if additional latency exceeds 500 milliseconds on the Amazon servers exceeds 10 milliseconds

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Investing for the future CONNECTION COST BREAKDOWN FOR AN FTTH CUSTOMER A heavy but essential financial investment

Deploying an FTTH-type high-speed broadband network means installing a completely new optical fiber infrastructure up to the subscriber’s premises, just like 33% copper telephone lines. Active equipment (access node in Orange Source: This work is costly and requires the services of specialists: the exchange, optical design engineers, roadworks, thousands of kilometers customer premises of cable laying, and connection of individual or collective equipment) dwellings. For a nationwide rollout we are talking about billions of euros, which can obviously make an operator think twice about choosing FTTH.

THE FRENCH CONTEXT 67% The installation cost per subscriber is about €400 Passive infrastructure (optical ﬁber cable, in high-density urban areas and €2,000 in rural ﬁber connection enclosure) zones. The total cost is not directly proportional to the population served: it depends heavily on the land occupation density and housing dispersion and on the existence of exploitable civil engineering infrastructures. A study by the French regulator Yet telcos who fail to invest rapidly in FTTH infrastructure ARCEP states that FTTH coverage of 80% of French are likely to give a further advantage to cable operators, their homes and enterprises will cost only half as much as main rivals, as in the United States and Germany. Cablecos covering the entire country. can propose VHSB simply by exploiting their existing infrastructure (after slight modernization). This threat to FTTH from cablecos is very serious inasmuch as their investments are very much lighter and they are able to be more reactivity and seize market share.

Long-term investment in durable infrastructure

The durability of optical fiber is one of its principal assets and an opportunity for the future, for it can evolve constantly, providing an access network of almost unlimited bandwidth without any change of infrastructure. Extra bandwidth can be obtained simply by upgrading a few transmission components. And by using different wavelengths it is even possible to boost bandwidth without modifying the optical infrastructure.

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Excellent ARPU potential with shrewd monetization WORLD: ARPU COMPARISON (FTTH VS. XDSL) 250 (2013) Although operators have made many announcements about fiber recently, few of them disclose their financial results, and in particular the impact on average revenue per line. 200 Some research firms’ reports compare FTTH and DSL ARPU: Ovum estimates that the difference in 2013 was a factor between 1 and 2 depending on the region, the pricing mode 150 (premium or not, IAP other than the network operator) and the level of competition. 100 Source: Ovum (June 2014) Ovum (June Source: In the Middle East, and some Gulf states in particular, FTTH has doubled the ARPU. This is hardly a surprise since some operators apply prices based on data rate. STC (Saudi Arabia) 50 has a triple-play offer Jood3 ("Talk, Surf & Watch") for all ADSL and fiber customers. For 10 Mbps it costs 224 riyals/ month (€47.7) but 474 riyals (€101) for 100 Mbps, or 2.1 times 0 more15. Du (U.A.E.) proposes a similar offer "Talk, Surf & Middle Asia Western North East/Cent. East Paciﬁc Europe America Europe Watch Premium" priced at 335 dirhams/month (€72.8) for 8 Mbps or 810 dirhams (€176) for 100 Mbps, or 2.4 times more.

In Asia, NTT is one of the rare operators to publish its fiber ARPU ("Flet’s Hikari" plan)16, moreover over relatively long periods. Fiber clearly has a very positive impact, since ARPU JAPAN: EVOLUTION OF FTTH ARPU AT NTT WEST18 rapidly doubled compared to that of traditional landlines. However, this higher revenue was initially due to the success ¥6.000 of its "Hikari Denwa" VoIP offer. Since 2011, NTT’s FTTH 5.500 revenue per line has shrunk due to an actual drop in access revenues (discounts for long-duration users) somewhat ¥5.000 compensated by income from additional services such as TV and remote assistance each charged at €3 to 4 per month. ¥4.000

In Europe, price competition from cablecos has obliged ¥3.000 telcos to reduce the fiber entry price to attract new 2.700 customers, notably in France. This effort is important ■ Additional services (TV, VoIP, etc.) since operators hope to profit later from upselling of their ¥2.000 vast VoD catalogs which will boost global fiber revenues ■ Basic service (note that such additional income is not always included in (subscription) ¥1.000 published ARPU data). Wireline ARPU

But not all operators take this approach. Spain’s incumbent 0 operator Telefonica, for example, proposes its "Movistar ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12’ ’13 ’14F Source: Ovum (June 2014) Ovum (June Source: Fusión" offer with 100 Mbps downlink (or 10 Mbps with a 20- 30% price discount)17. This offer has reduced fixed broadband churn by half, and fiber ARPU is 1.5 times higher than for ADSL.

15 | The Jood range is available via ADSL at 10/20 Mbps for 224/274 riyals per month, and via FTTH at 40/100/200 Mbps for 324/474/774 riyals (information from the website on 6th October 2014). 16 | In Japan, there are no triple-play offers like those in Europe: a customer subscribes to an access provider who deals with the network operator (NTT in general). The customer contacts his ISP to subscribe to VoIP then TV. 17 | "Fusión TV Contigo 100 Mbps" priced at €54/month vs. €42 for the 10 Mbps version, "Fusión TV 100 Mbps" at €72 vs. €60 for the 10 Mbps version (information from the website on 6th October 2014). 18 | For regulatory reasons, NTT maintains the distinction between NTT East & NTT West, but the ARPUs of the two subsidiaries are very similar.

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The co-investment strategy

While FTTH technology is clearly a powerful differentiation lever, the high entry cost is dissuasive for operators lacking large capex capability. They have much to gain by finding a co-investment solution, if the regulator allows (or imposes) this.

The importance of a regulatory Shared investment framework This model promoted by some operators aims to create a single network infrastructure jointly owned by a consortium FTTH deployment requires a clear, stable regulatory of operators which manages the deployment. The obvious framework to ensure that operators understand their advantage is that the financial burden is spread, but in imposed obligations such as network sharing with other practice its implementation is problematic since it requires operators, coverage objectives, wholesale prices, and so on. the partners’ agreement on technological choices and a strategic deployment plan and investment calendar. Defining such a framework takes time due to the need to consult and negotiate with stakeholders. Whilst this may Investment left to Local Authorities be perceived as a brake on the introduction of fiber, it does guarantee a competitive environment favorable for new This model is used by public authorities wishing to acquire innovative services and enterprise performance. an FTTH access network. Such programs are often rapid due to the ease of obtaining the necessary permits. However, The regulatory framework is a determinant criterion in the since the deployment is not national, just local and/or choice of an investment strategy. regional, this approach results in coverage fragmented into small, heterogeneous local networks. Moreover, this model is not an equitable solution for the national population as a whole since better-off communities will obviously tend to Investment strategies get the best service. This model is found in some Northern European countries, Canada and Argentina. Building out FTTH is more than just an industrial project, it is also a major financial challenge which may Investment based on market conditions involve public authorities as well as private companies. Different investment models exist some of which combine In this case, optical fiber build out is driven purely by market complementary public and private initiatives. Each model competition and potential. The subscriber acquisition and has its advantages and drawbacks. retention strategy is aligned with consumer purchasing power, and fiber is deployed only in very densely populated Public or government investment initiatives areas while less lucrative rural zones are ignored. This model is used in the USA, Mexico and Japan. With this model an optical local loop is installed and financed by public authorities then leased to operators who are therefore relieved of the heavy capex and finance only the active part of the network. On the downside, without control of the network’s passive infrastructure, an operator can differentiate himself neither technically by choosing a singular network architecture, nor economically thanks to his superior financial capacity. This model therefore tends to stifle innovation and competition. It is nevertheless used in Australia and Qatar, for example.

14 Sofrecom, The Know-How Network FTTH: the keys to successful deployment [ All Things Considered ]

The French model This hybrid approach ensures nationwide access to optical fiber and high-speed digital services for all citizens even A fifth model is possible, a mix of the four models described rural populations, thereby helping to attenuate the "digital above and having the following characteristics: divide". This goal usually requires the implication of public - It is based on market potential in order to spur network authorities as well as private companies. development and innovative services, but it provides for sharing outside large conurbations. This fifth model is used in France where it is applied in - Financing is by co-investment to reduce costs while "geographic zones" defined principally on the basis of avoiding a monopolistic situation. It does not exclude population density. sharing with non-participants through unbundling agreements.

PERSONAL VIEWPOINT

For the period 2010-2015, we have According to the terms of an allocated a €2 Bn investment budget. agreement made in 2011, Orange will build 80% of this horizontal network Ten million French households are and SFR 20%. now fiber-enabled in more than 400 towns and fiber is already Other operators will be able to generating real commercial exploit the basic infrastructures dynamism with a customer base (cable ducts, telegraph poles, etc.) doubling annually. which they will rent from Orange and thereby avoid costly works. This Orange’s ambition is to bring fiber model preserves competition while to 3,600 communities across 220 alleviating the capex burden. conurbations (or 60% of all French homes) by 2020. For the remaining 40% of the homes for which public subsidies Yves Parfait This program financed entirely by are necessary to balance projects, Fiber Program Director, Orange will cover not only all dense Orange has developed a cooperative Orange France urban areas but much of the rest of approach with public authorities in the country as well. which it proposes solutions to raise data rates up to VHSB levels (fiber VHSB networks improve business The networks we are deploying are up to the FTTC cross-connection competitiveness and economic open to other service providers who points, satellite, etc.) and with growth in general. After the can help finance their development. "FTTH Public Initiative Networks" telephone and ADSL or cable, now This joint investment model is vital (PIN) when these networks are of we must run optical fiber into homes to the global economics of FTTH in complementary design. and business premises. Orange France. In very dense zones only is already fully committed to this the network inside buildings is important nationwide challenge. shared, while in less dense zones the Indeed fiber is one of the key network in the street is shared too. components of its "Conquests 2015" enterprise project.

Sofrecom, The Know-How Network 15 [ All Things Considered ] FTTH: the keys to successful deployment

Designing an agile, cost-effective architecture

There are various architectures for VHSB optical networks. Many combinations are possible depending on whether the copper network can be reutilized and whether fibers are allocated to one customer or shared between several.

Since infrastructure accounts for two thirds of FTTH investment costs, operators must find an optimal technico-economic solution to attain their marketing objectives.

The architecture and design are chosen taking into account potential savings, which is why the majority of FTTH operators choose a Gigabit Passive Optical Network (GPON) in view of its advantages.

FTTH ARCHITECTURE SOLUTIONS Source: Sofrecom Source:

Point-to-point

Copper

Fiber Fiber

Fibre

Fiber Coupler Coupler FTTH Fiber Exchange (optical connection node) Fiber

Fiber

PON

Copper

16 Sofrecom, The Know-How Network FTTH: the keys to successful deployment [ All Things Considered ]

GPON architecture: a favorite choice Faster return on investment

GPON technology, now standardized by the ITU-T, is the The amortization of an optical fiber network is profitable: least expensive to deploy yet offers the highest transmission the average break-even period is two to five years, while the capabilities for an optical access network, with data rates of useful life of the fiber is about fifty years. In short, fiber is a up to 2.5 Gbps downlink and 1.25 Gbps uplink. durable asset that can generate a return for a long time.

This choice is popular with FTTH operators as it is ideal GPON capex is 30% less than that of a point-to-point network for the residential market which is their prime target and (excluding civil works). therefore ensures rapid amortization of the infrastructure costs. Controllable deployment costs

Convergent multi-services network The possibility of connecting several customers on the same fiber considerably reduces the number of optical fibers to be In a GPON point-to-multipoint network, 64 or even 128 bought and laid; smaller ducts can be used and civil works subscribers can be grouped on a single optical fiber by are less expensive. These are obvious advantages over a multiplexing (optical coupler). This makes it possible for an copper or fiber point-to-point network with a separate line optical network to be shared between residential multiplay for every customer. services (Internet, telephone, TV), professional value-added services (VPN, iCloud, M2M, security, etc.) and even mobile base stations collecting their traffic and delivering it to the transport and aggregation network (mobile collection network).

Low passive network maintenance costs

An FTTH network has two parts: the passive part (the optical cable network between the exchange and subscriber) and the active part (electric transmission and reception equipment located in the exchange and on customer premises).

Unlike other types of cable networks, an optical passive network is not exposed to environmental aggressions such as corrosion, vandalism or electromagnetic perturbations, so operating and maintenance costs are lower.

Optical cross-connection (i.e. connecting one fiber to another), which requires the intervention of a technician, involves 64 to 128 times less work with GPON than with point-to-point, so the savings on labor are substantial.

Sofrecom, The Know-How Network 17 [ All Things Considered ] FTTH: the keys to successful deployment

Network design: the four essential steps

A landline network is by nature inflexible and relatively long to deploy. For this reason, regardless of the architecture chosen, it is vital to build and tailor the network using a four-step methodology. Errors in the choice of coverage zones and coverage rates are sure to result in over-investment and lost earnings that will take a long time to recover.

Dwelling census and zoning

The network project manager in charge of the studies conducts a dwelling count making it possible to achieve 100% service penetration rate in each zone. He thereby determines the 1 global potential of the buildings and customers to be connected. This census consists in identifying on a map the number of "equivalent Geomarketing study dwellings" in each building and then estimating the potential number of passive optical network In a preliminary network design phase, (PON) users at each address. marketing objectives determine the target The zoning task includes grouping buildings deployment zones: high-density residential into zones taking into account the maximum areas, industrial parks, ineligible zones, etc. capacities of the optical connection points. Socio-economic data are exploited: - population density in each zone, - zone type (residential, industrial, commercial, etc.), - average income per inhabitant (socio-professional category), - ARPU of existing telecoms subscribers (e.g. video on demand), - current or future existence of rival technologies (LTE, WiMAX, ADSL, etc.).

18 Sofrecom, The Know-How Network FTTH: the keys to successful deployment [ All Things Considered ]

Final network design

A first outline (high-level design) of the network is made on the basis of the zoning and the map of existing infrastructures (civil works, networks, 3 sewer lines, roads, etc.). This high-level design is much more than a simple logical cable path design and identification of network nodes, for it Local loop engineering enables the operator to: - qualify and quantify the necessary materiel Good local loop engineering is based on seven (cables, boxes, connections, etc.); rules: - evaluate the project cost and verify that it is - Make all zones connected: the network within budget; design must ensure that all customers can - prepare the documents for cable laying enjoy the same services regardless of their permit applications; geographic location. - anticipate deployment problems and find - Limit later network interventions as far as ways of preventing them even before they possible by preconnecting the couplers in arise. the chambers. - Minimize deployment costs and lead times Once the permits are obtained and the network by planning the network scaling near to scaling determined according to the chosen customers. engineering rules, the final network modeling - Use equipment compatible with future can be done. A map describing the FTTH XGPON standards by introducing a coupling network in fine detail is prepared for the level in the optical connection node (OCN). deployment teams. - Scale the network judiciously taking into account the connection objectives (buildings and customers). - Optimize the active equipment at the OCN according to the needs and optical link budget. - Verify that customer equipment respects signal power level limits.

Sofrecom, The Know-How Network 19 [ All Things Considered ] FTTH: the keys to successful deployment

PERSONAL VIEWPOINT

Sharing, homogeneity and modularity: the triumvirate of Orange FTTH architecture

and letting rival operators decide and controlled maintenance their technological performance overheads. It is important to through their own choice of active maintain the coherence of the network equipment. Competition network over time and before based solely on the "active" bricks each new deployment to consider allows operators to optimize their the ability of the engineering to bandwidth and innovate as they adapt to future market needs. wish and decide how they will propose new high-bandwidth Finally, equipment modularity is services in response to consumer essential to meet the challenges demand. that our networks will surely face over the next fifty years; in this Next, the choice of infrastructure respect lessons should be drawn affects the architecture. There from all earlier deployments. are two possibilities: point- For example, at Orange we have to-point and GPON, the latter discovered the advantages of chosen by Orange and many other pre-connectorized optical cables operators and becoming the de and also optical micromodule Hervé Touzeau facto standard. GPON allows fiber cables which are a major French Fiber Program sharing upstream of coupling innovation in terms of ease of Technical Manager, points, which translates into installation and operation and Orange France substantial cost savings notably are now widely used in Europe. in terms of optical cable sizes and They enable progressive rollout The choice of FTTH engineering civil engineering requirements. of the network, smoothing the and architecture is influenced deployment zone by zone as first and foremost by the The inherent quality of optical consumer demand develops. regulatory and competitive infrastructure equipment will The passive optical trees can context. Does the network have to also help make FTTH a success. be activated at the time of be shared or not? Competitively priced, robust actual customer connection equipment complying with and on-premises installation is In France, given the housing international norms is essential facilitated. density and the colossal for operators who have everything investments required to cover to gain by finding a standard, Orange cooperates closely a non-negligible part of the easy-to-install solution. The with equipment makers on territory, the regulator is pushing choice of equipment determines innovative solutions to make its for a joint effort on financing and how much money will be saved by infrastructure more agile and infrastructures. Depending on the its generalized use and how easy flexible, to simplify network population density, the obligation it will be to connect customers. management and to cope with to share passive network the many challenges of FTTH elements is seen as a determinant Homogeneous engineering deployment. factor for preserving competition and standardized equipment while making scale economies guarantee ease of operation

20 Sofrecom, The Know-How Network FTTH: the keys to successful deployment [ All Things Considered ]

Anticipating the impacts of FTTH on network construction and operation

For an operator, building out a new local loop in optical fiber is synonymous with a far- reaching and global transformation. FTTH is complementary to but very different from traditional wireline and radio technologies, and it cannot benefit from synergies with them.

Engendering new activities, new equipment and new maintenance processes, optical fiber obliges operators to rethink their models.

A subcontracting policy will need to be defined to ensure that equipment is installed according to the highest professional standards and to guarantee end-to-end quality of service across the network. And a new, dedicated information system must be created to provide the detailed description of the network essential for its maintenance.

Defining a subcontracting policy It is most important to define KPIs with the subcontractor and to schedule follow-up actions. Moreover, the contracting Operators rarely have sufficient human resources to build arrangements should incorporate a "bonus or penalty" their FTTH network. They must make "make or buy" mechanism, for example, to spur contractors to complete decisions, anticipate the use of subcontractors, and clearly their work even more rapidly. identify their core business, in other words the tasks and activities so strategic that they want to conduct them using Internalized studies, outsourced deployment their own resources. This is the model most often chosen by big operators who Graduations are possible in a subcontracting policy see network design as part of their core expertise. But they according to the level of autonomy and responsibility the subcontract all the physical build-out phase: civil works, operator wishes to grant to its service providers. cable pulling, fiber splicing, equipment installation, etc.

Turnkey deployment Intermediate model

In this case the subcontractor is given almost total autonomy With this model some studies are subcontracted, for within a defined perimeter. The operator delegates to him example the optical cabling of buildings. Service providers the optical fiber cabling of a town or district, for example. then bear clear responsibilities within a well-defined scope The advantage is that the objectives are clearly defined: of work. The operator may delegate other tasks, from the number of connected dwellings, cost per dwelling, lead obtaining of permits to the actual cabling work. times, etc.

Very regular and close monitoring of the effective advancement of the work is essential to avoid any tunnel vision effect, in other words bad surprises after many months without visibility of the successive rollout stages.

Sofrecom, The Know-How Network 21 [ All Things Considered ] FTTH: the keys to successful deployment

Creating the new information system A "buildings repository" application in the broad sense, in other words covering both individual houses and buildings, An optical fiber network will have little value unless it is is often necessary as well. An inventory of dwelling well integrated in an information system. Indeed the IS is addresses is useful very early in the deployment process, determinant in the use of a network local loop, for service from the preliminary studies through to actual cable laying. activation and monitoring of fault-free operation require a very precise description of the FTTH network. Several This application is used to monitor the evolution of a applications are necessary to do this at physical, logical and building’s eligibility status during fiber deployment geographic levels. (obtaining the agreement of the building manager, validating technical studies, etc.). Once all the information about a It is vitally important to choose the best applications to building and its eligibility is confirmed, it is automatically describe the network. Data interchange channels are copied to the logical base describing the network and its required between these applications. address.

We start with a geo-referenced database describing a town Automated information streams between these applications in terms of roads and land occupancy, then enrich this with necessitate the creation of interfaces whose data models information about civil works and aerial infrastructures. must be precisely defined. This then provides the reference tool for designing the network: cable paths, flexibility points, buildings to be Finally, production workflows often prove useful when connected, and so on. Network designers exploit the tool to many players are involved in the myriad of tasks involved in build out the network over a given zone while in respecting the FTTH rollout process. the previously defined engineering rules.

A logical base is used in conjunction with the geographic base to describe the network, fiber by fiber, from the customer’s home to the exchange. This application should enable automatic allocation of fiber resources to customers on the optical local loop.

FTTH: THE STORY IS JUST BEGINNING

Optical access networks first appeared several years ago and FTTx is now starting to earn its place alongside the other broadband access solutions of wireline operators.

FTTx and GPON infrastructures also open opportunities for mobile and convergent operators who would like to build out their mobile collection infrastructures for 4G and LTE services at reasonable cost. The limits of GPON capacity can today be a constraint if it is required to increase the throughput of an eNode-B to assure LTE quality of service, but the arrival of XGPON should satisfy all bandwidth sharing needs.

Fiber represents a veritable technological quantum leap opening vast perspectives for customer enchantment, brand differentiation, business growth, technological innovation and optimized operational performance for convergent fixed-mobile infrastructure.

The symmetry and sheer speed of data exchanges between terminals brings easier access and usage and unprecedented sharing of services, all this responding to consumers’ aspirations and enriching their experience.

Given its almost unlimited performance, FTTH can be leveraged to develop services and usages that were formerly unthinkable due to the limitations of older technologies. FTTH is a solution looking for problems! We are already seeing some virtualized applications installed not on terminals but in the cloud, bringing users the promise of computing power vastly greater than that of their own machines and opening a whole new world of Big Data.

22 Sofrecom, The Know-How Network THE AUTHORS

Bertrand Rondeau Broadband Program Manager [email protected]

Fabrice Durand Senior Market Intelligence Consultant [email protected]

Vincent Bouy FTTH Network Design Project Manager [email protected]

"FTTH: the keys to Chief Editor and Graphic design: Legal Notes successful deployment" Coordinator: Muriel Bertrand, The content of this is publish by: Agnès Robin www.mbdesign.fr document is restricted Sofrecom S.A. exclusively to Sofrecom €18,340,000 equity capital, Contributors: Photo credits: customers and staff and Company reg. no. (Creteil) Olivier Mugnier, Transport Thinkstock shall be used only for 672 004 660 & Broadband Access the purpose for which it 24, Avenue du Petit Parc Department (Sofrecom), Printing: was provided. Sofrecom 94307 Vincennes Cedex Sylvie Lorrain, Senior Printed on Condat silk reserves the right to make France Market Intelligence paper by changes and improvements Consultant (Sofrecom), Impression Directe, to this document or to Publication Manager: Yves Parfait, Fiber Roubaix. withdraw it at any time Valerie Thévenin Program Director (Orange English version printed in without notice. France), Hervé Touzeau, 200 copies (February 2015) Fiber Program Technical Manager (Orange France). About Sofrecom

Sofrecom, an Orange subsidiary, has developed over 45 years unique know-how about operator businesses, making it a world leading specialist in telecommunications consultancy and engineering. Its experience of mature and emerging markets, combined with its deep understanding of the structuring changes affecting the telecoms market make it a valued partner for operators, governments and international investors. In recent years, over 200 major players in over 100 countries have entrusted strategic and operational projects to Sofrecom: transformation and optimization, technological modernization, innovation and development. Its privileged access to Orange Group’s vast resources and innovations enables Sofrecom to propose proven, avant-garde solutions. Sofrecom’s strength lies partly in its diversity, with more than 1,500 consultants and experts of 30 nationalities working in 11 agencies around the world. Sofrecom is a above all a network of men and women, a powerful network of know-how and expertises which ties its personnel to customers, to Orange experts, to industrial and local partners. Sofrecom’s Know-How Network is also the guarantee of a transfer of know-how, skills and expertise for sustainable transformation based on internationally certified methodologies.

Sofrecom, The Know-How Network

About the Networks and Services Department

This report was produced with the experts of Sofrecom Group’s Networks and Services Department. Networks are one of Sofrecom’s fields of outstanding expertise. Our consultants have acquired vast experience working around the world to create, transform or optimize networks. They assist operators migrating to next-generation networks (IP, 4G, LTE, FTTH, etc.) during the many phases of their projects: preliminary audit, design, deployment, integration, operation…

Our consultants are ideal partners for operators undertaking their "digital transformation". They can advise on issues such as infrastructure sharing, network optimization, virtualized network functions, data centers and security. They can propose solutions to drive business strategies and develop operational excellence along with a highly differentiating customer experience.

To find out more about our Networks and Services offers and Sofrecom’s fields of intervention, consult our website www.sofrecom.com

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