Fiber Cheaper Than DSL?

Glen Campbell of Merrill Lynch believes “FTTP now appears to be cost-competitive with FTTN in an aerial overbuild.” Bell Aliant's cost in the towns of Fredericton and Saint JohCorning_Fiber_bluen will be C$850/US$725 per home passed. This is very similar to Verizon's current costs of about $670/home.

That compares to costs of “less than $300” for FTTN/DSL from remote terminals, which AT&T misleadingly calls “fiber to the node.” However, fiber maintenance costs are considerably lower, narrowing the cost difference over time. Chris Rice, then CTO of SBC/AT&T, famously said “I'm never going to put active electronics in the field again” because of the high cost of repairs. Verizon and British Telecom's estimates of the maintenance savings were originally 70-90%, but much of is due to replacing 20 and 50 year old equipment with new. Probably the better figure is about a 30% saving – when fiber is done right.

The fiber itself is cheaper than copper, and the fiber gear is getting cheaper very rapidly. A large carrier should be paying <$100/home for the central unit and another $100-200 for the home unit with battery and weather protection. Small carriers typically pay $100-200 more per home, especially in the U.S. The huge GPON orders from China Telecom and Unicom probably went for a price of $90-150/home total. Manufacturers were ready to do almost anything to get the orders, which will probably total 15-25M lines the next few years. They had to come close to the price of GEPON to persuade China Telecom to switch. CT is continuing GEPON as well, which will keep the suppliers competing hard.

The main difference in cost today is the labor climbing the poles and stringing fiber. Copper is already in place to most homes, and FTTN boxes are positioned to take maximum advantage. Verizon figures their cost per mile of fiber at $8,000 to $10,000, $400/home for 25 homes per mile. Small carriers usually assume a fiber cost of about $20,000/mile. So the cost per home to run fiber for most small carriers will be $1,000-$3,000.
Fortunately, most rural homes in the U.S. are alongside the same road, so in most areas the fiber/home required is at the lower end of that estimate.

Understanding fiber costs is crucial for RUS and NTIA to prevent over-subsidizing. The length of fiber required is the main difference between the $670/home Verizon pays and the cost of rural deployments. It's therefore absolutely essential to know how much new fiber is required in order to know whether the costs of a subsidized build are reasonable. I assume that will be collected by BIP and BTOP and made public as part of the President's promise of transparency. And of course it's a much more attractive offering in the long run. Written by Dave Burstein

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