It has been more than three years since Google announced that it would test a one-gigabit- per-second (Gbps) broadband system, and more than a year since the company unveiled plans to first deploy the fiber-optic broadband network Google Fiber in Kansas City.
The project has helped fuel interest in many fiber-to-the-home (FTTH) deployments around the country and has made very high-speed broadband connections one of the hottest topics in the multichannel world. Yet there remains a great deal of confusion and many unanswered questions about these superhigh- speed connections. Do they make economic sense? What are some of the emerging business models? And do consumers even need them?
Based on interviews B&C conducted with people involved in 1-gig rollouts in Kansas City; Chicago; Seattle; Lafayette, La.; Lawrence, Kan.; Vermont and other markets, here are some preliminary answers.
What are the realistic prospects for a nationwide rollout of 1-gig services in the next few years?
While Google recently announced the expansion of its Kansas City offering into Austin, Texas, and other locations, a nationwide service seems unlikely, given the potential costs, according to analysts and experts.
Mark Ansboury, president and CEO of Gigabit Squared (which is involved in 1-gig fiber projects in specific neighborhoods in Chicago and Seattle) is a staunch advocate of these smaller-scale projects. But Ansboury cautions that building a nationwide fiber-to-the-home network might cost $300 billion to $400 billion.
Even with the recent announcements to expand Google Fiber into Austin and other markets, that would put this service in roughly 600,000 households or only 0.4% of all the U.S., says Dexter Thillien, senior analyst for multiplay at IHS. Thillien believes high costs will continue to limit 1-gig deployments by Google and others to relatively small areas.
Do many people really need a 1-gigabit connection for video?
Fiber deployments have already found many innovative uses in health care, education, post-production and other fields. But if you look at these rollouts purely from the perspective of the TV industry and the delivery of video into the home, it becomes harder to justify the need for a continuous 1-Gbps connection.
Currently, a 50 megabits-per-second (Mbps) connection is more than enough to handle 8 Mbps streams of HD movies to five different TVs or devices, says John Chapman, Cisco Fellow and CTO of Cisco's Cable Access Business unit. Even UltraHD, which would probably eat up 30 Mbps a stream, wouldn't fill a 1-gig pipe. "People really don't need more than 50 Mbps for video," Chapman says.
Despite the rapid proliferation of mobile devices, Internet-connected TVs, over-the-top video services and greatly increased video traffic, this is unlikely to change in the next few years. A recent report from Cisco predicts that the number of Internet-connected devices in North American homes and the amount of video traffic will soar. Yet as average broadband speeds increase from 13 Mbps in 2012 to a projected 38 in 2017, only 2% of all connections will have a 100 Mbps connection or faster in 2017, Cisco predicts.
The ability to provide 1 Gbps in short bursts-as opposed to a sustained connection-could, however, have very appealing consumer applications by dramatically reducing download times and improving video streams, says Tom Cloonan, Arris chief technology officer. "The next wave of performance is about latency and the ability to provide bursts of speed," Cloonan says.
What do these deployments mean for the cable industry?
Much of the discussion around Google Fiber seems to assume that cable companies would have to make massive investments to compete with fiber deployments. In fact, the MSOs have operated hybrid fiber coax (HFC) networks since the 1990s, and in recent years they have developed technologies that offer blazingly fast broadband speeds.
During the 2011 Cable Show, Comcast chairman and CEO Brian Roberts demonstrated a 1 Gbps connection using DOCSIS 3.0 that downloaded an entire season of 30 Rock in 1 minute 39 seconds. The industry is well-advanced on developing a DOCSIS 3.1 specification that will handle 10 Gbps.
Cable also has a number of relatively lower-cost ways of boosting speeds. These include moving the fiber in cable HFC networks closer to the home and bonding more QAM-the format that encodes digital cable channels for cable transmission-channels together. "This gives cable the ability to increase speeds in a way that is less costly than building a new fiber network," Cloonan says.
Are these deployments economically viable?
The ability of cable to respond to offer higher-speed services and the costs of achieving a large footprint would seem to indicate these projects have an uncertain economic future.
In fact, a close look at many of these projects indicates that new business models, reduced costs, government incentives and other factors can make these projects self-sustaining. They also provide very important, though less measurable, benefits in economic development.
A 2009 FTTH deployment offering 1-gig speeds in Lafayette, La., went cash-flow positive in February 2012 and is expected to be profitable in 2014, says Joey Durel, president of Lafayette City/Parish.
Heather Burnett Gold, president of the FTTH Council, adds that there are currently about 20 fiber-to-thehome deployments offering 1-gig speeds and that their approaches vary widely.
Some of these projects, such as the 1-gig rollouts by VTel, are bundled with an IPTV offering; other projects, such as the Wicked Broadband deployment in Lawrence, Kan., are based on the idea that consumers will cut cable services for over-the-top video providers.
"Everyone always asks what the killer app will be, and what we are seeing is that it will be all kinds of different applications," Gold says.
The diversity of those approaches can be seen in interviews regarding a number of different projects from around the country.
Gigabit Squared: Chicago and Seattle
As operators look for ways to create sustainable business models for these deployments, a notable example of some of the newer approaches can be found at Gigabit Squared's planned rollouts in Chicago and Seattle.
In both cases, the company is using new approaches to reduce costs while partnering with local institutions to improve its revenue prospects, explains Ansboury.
In Chicago, Gigabit Squared got a $2 million grant from the state of Illinois and is partnering with the University of Chicago and local communities to rollout gigabit fiber and wireless. Construction is about to begin on the project, which when completed will cover nine neighborhoods in Chicago's South Side, reaching around 100,000 households and 11,000 businesses, Ansboury says.
In Seattle, it has partnered with the city of Seattle and the University of Washington for a network that will eventually hit about 80,000 households in 14 neighborhoods.
"Through these partnerships with the universities and other institutions we are creating an affiliate system that aggregates demand and capacity" to bring in customers, Ansboury says.
He also believes that the architecture they are using for the network and the way they are deploying services will significantly reduce costs. "We can drive the cost of connectivity down until we connect someone and when we do connect them, we are connecting them at a lower cost," he says.
By constructing an "open-access network," they can sell excess capacity to outside companies. For video, that means outside companies could lease capacity on a wholesale or retail basis to supply over-the-top channels and video.
VTel: The $35 Gig Connection
While rural areas have generally been the last to get advanced telecommunications services, some very notable 1-gig deployments have been taking place in smaller communities.
These deployments have been fueled by both government subsidies and a push by rural telcos to revamp their operations.
Both trends are in play at VTel, a small-family owned rural telco serving about 17,500 homes in 21 Vermont communities that has rolled out 1-gig services for only $35 a month.
VTel chief executive Michel Guité says he first became intrigued with the idea after hearing a presentation about a fiber project in Singapore. After researching the idea, VTel applied for a federal grant for an FTTH deployment several years ago.
That was turned down, but after Google announced its fiber plans, the company reapplied and received one of the largest federal broadband stimulus grants on record, around $94 million. VTel put up about $40 million of its own capital, which when combined with other government grants, produced a $151 million investment for the FTTH and 4G/LTE wireless rollout.
Guité estimates that the FTTH portion cost around $75 million.
In moving to a fiber infrastructure, Guité notes that costs of fiber equipment have dropped significantly and that going to fiber will reduce long-term maintenance costs.
In terms of video, VTel is currently testing a state-of-the-art 500-channel package of programming, including 120 HD channels, which it hopes to offer to the public after July 4.
Currently, VTel has about 700-800 1-gig customers, Guité estimates, and is charging $35 for each connection.
Pricing hasn't been set for the video bundles, but he expects that quad-play packages of phone, 1-gig Internet, video and wireless will start at around $95, which is less than Comcast's triple-play offerings in the area.
The project is an important test case for rural telcos, which have been losing wireline phone customers in a period when federal rural phone subsidies are coming to an end. Guité estimates that those trends could push 500 of the 1,200 independent phone companies out of business in upcoming years.
"We are hoping this will be an example to other places," he says. "But we are building it with 70% federal subsidies, which makes it a lot easier for us to become self-supporting. It is not clear if the guy who doesn't have those can make it pay."
Since those subsidies are not being greatly reduced, future FTTH deployments will have to find ways to cut costs and improve their revenue.
LUS Fiber Eyes Profitability
The rollout of a fiber 1-gig infrastructure in Lafayette, La., at the parish's publicly owned utility is an example of the challenges these build-outs face, as well as some of the potential-payoffs.
The parish began exploring the idea after Durel became president of the Parish but faced several years of litigation from the incumbent telco and cable operator, BellSouth and Cox Communications, before eventually rolling out the service in 2009, which currently reaches about 43,000 homes and businesses.
The LUS Fiber Project was funded with a $140 million bond issue.
Only a handful of customers have taken the full 1-gig service, which is priced at $999.99 with offers for a variety of lower cost Internet, video and phone packages that have proved popular, including a $34.95 15 Mbps service.
Durel also says the operation, which is well on track to become profitable next year, has played an important role in attracting businesses. For example, the movie Secretariat was shot in the town and the visual effects house Pixel Magic has set up a studio in the area because of the fiber connectivity to Hollywood.
"We wanted to do something to give Lafayette a competitive edge and it has achieved that goal," Durel says.
Wicked Broadband Wires Lawrence
Wicked Broadband rolled out a service a few years back that offered 1-gig connections to larger complexes, such as apartment buildings, and fraternities and sororities in the college town of Lawrence, Kan. and the company is now beginning a pilot project to offer services to individual residences, reports Joshua Montgomery, the company's owner.
Montgomery plans to eventually deploy the services to about 36,000 homes totaling a population of around 90,000. Currently about 1,800 people use the network every day.
In the pilot program, Wicked Broadband is offering three broadband speeds of 20 Mbps for $49.98, 100 Mbps for $69.98 and 1 Gbps for $99.98.
While the company currently offers a bundle with Dish's video packages, Montgomery says he has no interest in developing an IPTV service because he believes traditional multichannel services have limited future.
"We encourage users to cut the cord and buy a couple of Roku boxes," he says, adding that Aereo is planning to roll out its service in the area. "Then users can access Netflix and other content on Roku and get the broadcast channels on Aereo."
Montgomery sees the video industry evolving to a model where consumers have a direct relationship with the content holders, who will sell their services directly to subscribers. "I don't have any interest in launching a Morris code telegraph system or a cable system," he quips.
The company is laying down extra fiber so that other companies could offer services over their network. That would allow Google to lease the excess capacity if Google Fiber expands from Kansas City into nearby Lawrence.
So far, Montgomery has financed the network with private capital but he has applied to the city of Lawrence for an additional grant to help build out the network. "Broadband access will be for the 21st century what roads were for the 20th and the railroads were for the 19th," he says. "Communities who get on board and install it will have a lead in that race."
Lessons From Google Fiber
Much of the attention on Google Fiber in Kansas City has revolved around whether or not Google plans a nationwide multichannel service. But the project is probably much more notable for Google's cost cutting efforts and its economic impact on the city.
One tactic that is now being emulated by other FTTH rollouts is Google's requirement that people preregister for the service. This enables an operator to gauge interest in certain neighborhoods and plan its revenue.
Another important development has been efforts to cut costs by reducing regulations and working closely with a local government.
Kansas City mayor pro tem Cindy Circo explains that they haven't provided Google with "major tax breaks" and that their overall financial help has been small.
The city has however, worked closely with Google to reduce construction costs by speeding up the permitting process, creating a single point of contact and offering some office and storage space in public facilities.
There are also six staffers who provide Google with help on a part-time basis and Google was also allowed to place some fiber huts on city-owned land.
Permitting fees were waved, but Circo's office estimates that those wavers have not amounted to more than $120,000 per year.
In exchange, the city got 200 free 1-gig hookups for schools, hospitals and other locales. It has also seen a pay-off in terms of developers and businesses moving to the area. Government agencies, educational institutions, local groups and corporations are also funding and setting up a "Digital Sandbox" to encourage developers and startups.
"We're even seeing an uptick in tourism with app developers and gamers wanting to come here," Circo says.
E-mail comments to firstname.lastname@example.org and follow him on Twitter: @GeorgeWinslow
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