Fear and economics fuel CenturyLink’s Omaha FTTH test

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The case for fiber converges on Omaha.

After getting stung by Google in Provo, Utah, CenturyLink will roll out fiber-to-the-home service in Omaha, Nebraska. Two key factors that will drive future FTTH deployments make this announcement more than a marketing stunt.

First, CenturyLink is targeting a particular area served by pre-DOCSIS hybrid fiber and coaxial cable system, according to a story on the Telecompetitor news site. Instead of upgrading it with better coax or trying to refurbish it in place, CenturyLink is replacing it with gigabit passive optical network (GPON) technology. Either way, most of the cost is for work and materials needed regardless of the kind of cables. And with raw copper prices bouncing around historical highs, glass starts looking like the cheaper alternative anyway.

Second, incumbent service providers are scared witless of credible competition. Putting a third, full service wired competitor into a market ignites a competitive storm, and raises the danger that billions of dollars of capital investment will turn to dust. Google’s assault on carrier complacency has only landed in three cities, but it’s already goaded AT&T into the fiber business in Austin and scorched CenturyLink’s tail in Provo.

CenturyLink can simply convert all 48,000 re-passed homes to fiber, a strategy well suited for a GPON architecture. It doesn’t have to wage a costly marketing battle or try to follow Google’s strategy of cherry-picking the most promising “fiberhoods”.

It’s an experiment. The press release said CenturyLink will evaluate market acceptance, competitive positioning and return on investment before committing to additional fiber builds. But over the next few years, the business case for FTTH upgrades could be irresistible.

As copper prices rise, fiber technology costs fall and consumer demand for bandwidth slowly grows, competitive pressure will force incumbents to invest in outside plant upgrades. The CenturyLink project in Omaha may prove that switching to fiber maximises shareholder value. At that point, the rate of FTTH deployment by incumbent service providers will rocket.

Comments (7)
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  • Fred Pilot

    “As copper prices rise, fiber technology costs fall and consumer demand
    for bandwidth slowly grows, competitive pressure will force incumbents
    to invest in outside plant upgrades”

    I respectfully disagree. Copper prices have been trending upward for some time and have not provided incumbents incentive to replace aging copper to the prem with fiber, even when copper thieves motivated by higher prices take it out. They have put that plant into runoff mode and are instead concentrating CAPex on the more profitable mobile wireless segment. Also, plant and equipment technology cost isn’t the major CAPex and OPex expense but rather labor costs for which I’ve seen estimates of 70 percent.

    In sum, the analysis that Google will somehow pressure incumbents to make wholesale investments in fiber to the prem CAPex is flawed. Google doesn’t change their business models which place high priority on investor dividends over CAPex.

  • http://twitter.com/communitynets Christopher Mitchell

    Disagree with any notion that we will see CenturyLink sudden embark on a fiber frenzy. They are going to milk copper plant as long as they can. And they have been candid in telling investors this: http://muninetworks.org/content/even-after-omaha-communities-cannot-count-centurylink-connectivity

  • http://www.tellusventure.com/ Steve Blum

    Current telco capital spending strategy is based on an assumption that revenue and profits will be relatively constant in wired service areas because of a lack of competition. They intend to milk ageing plant for as long as possible.

    Fred, you’re right in saying that telcos put a high priority on dividends, but they can only meet their targets if they maintain their monopoly/duopoly positions in those markets. Once they perceive a credible threat, they’ll adjust their capital spending priorities. Google has the potential to be a credible threat.

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