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CABLE OPERATORS

In 2007 Alloptic introduced the Mi-croNode RFOG ONU product line, a portfolio of optical transceivers en-

abling the evolution of HFC networks into FTTH topologies. A network oper-ator – which we refer to here as Commu-nications Service Provider Corporation, or CSP (its corporate policy precludes the use of its actual name) – recently used MicroNode products to upgrade its HFC system. Because economics played a key role in its decision to use the Alloptic solution, CSP agreed to as-sist Alloptic in performing an in-depth analysis of the measured and anticipated returns from this deployment.

In this article we detail that analy-sis and, where possible, quantify the economic benefits for this customer’s project. We’ve also included projections for other deployment scales to give read-ers an indication of how the economics might apply to their networks.

We found that, by deploying Mi-croNode FTTH instead of replacing its obsolete HFC plant, CSP realized cost savings in both installation and opera-tions and also enhanced revenues.

CSP’S DeCISIon to UPgraDe CSP is a network operator and services provider of voice, data, and video to a region encompassing 400,000 house-holds. Like most network operators, CSP does not have a homogenous net-work that supports all services to all subscribers in all locations. Some sec-

tors had coax plant that had been in place for 25 to 30 years, with limited channel capacity (22 channels in some areas), no interactive video capabilities and high maintenance. CSP was faced with rebuilding portions of the network to control costs and fend off competitors with more complete service offerings. In early 2007, CSP began researching ways it could upgrade the most seriously lack-ing regions of its HFC network.

CSP decided to migrate to a fiber-to-the-home (FTTH) topology rather than rehabilitating the HFC plant. The decision was largely based on econom-ics, although the virtually unlimited bandwidth capabilities of an all-fiber

distribution plant were key. After ex-tensive research and modeling, Allop-tic’s MicroNode RFOG ONU products were chosen as the technology for that migration. CSP considered many eco-nomic factors, including installation/de-ployment costs, operational and mainte-nance costs and revenue enhancement.

CSP’s migration plan is to restruc-ture the headend-to-node architecture, deploy fiber from the new node (now termed V-node by CSP) to the resi-dence, and terminate the fiber at the home using the Alloptic MicroNode RFOG ONU. Additionally, they would add CMTS equipment in the headend to implement a DOCSIS 2.0 network.

A Network Provider Calculates the Economic Benefits of RFOG

By Tom Anderson ■ Alloptic

A real-world analysis shows that installing RFOG can yield cost savings and revenue enhancements.

“CSP” decided to upgrade the most seriously deficient portions of its HFC network. It chose to use fiber to the home rather than HFC both

because of fiber’s unlimited capacity and because the economics of fiber were better.

about the authorsTom Anderson is director of product marketing and Julian Thomas is product mar-keting manager for Alloptic, a market leader in RFOG solutions and deployments. You can reach Tom at 925-245-7606 or tom.anderson@alloptic.com, and Julian at 925-245-7667 or julian.thomas@alloptic.com. To learn more about Alloptic’s RF-PON solutions, visit www.alloptic.com.

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CABLE OPERATORSFigure 1 illustrates the “before and af-ter” network topologies.

Deployments began in a pilot proj-ect of 1,500 homes passed with 780 subscribers, replacing 14 miles of HFC plant. The project started in mid-2007, with completion in 2008. The metrics in this paper were measured and derived from the available pilot project results. In some cases actual data were either proprietary or simply not available. To give the reader a sense of scale and po-tential, industry averages and accepted norms were used and noted as such.

ComParIng InStallatIon CoStS: materIalSIn modeling the project, CSP found it was less expensive to build a fiber-to-the-home plant than to build an HFC plant.

First, CSP compared the material cost for fiber with that of coaxial cable plant. CSP found it could install fiber as large as 200-count for the same cost as two coaxial cables over the same path. CSP chose to deploy 12-, 24- and 36-count fibers, giving it adequate in-frastructure capacity along with spare fibers for less than the cost of coax.

From a strategic perspective, CSP con-sidered that prices for the raw copper and aluminum materials used in coaxial ca-bling and metallic enclosures are spiraling upward, driving coax plant costs higher. In fact, aluminum prices have doubled in the last four to five years while the price of copper has more than tripled.

By contrast, the price of fiber cabling has been trending downward and is now stabilizing. According to KMI Research, the “average price for fiber optic cable is not expected to decrease significantly in the next five years.”i

Costs for active electronics were compared as well. MicroNode network material costs were 30 percent to 40

percent less than HFC network costs up to take rates of about 50 percent, and marginally more at higher rates. Even at higher take rates, when summed with other material costs as shown below, the Alloptic MicroNode RFOG ONU solu-tion delivered the lowest total cost.

ComParIng CoStS: labor anD DePloyment StrategyLabor was the second major contributor to the cost of building the new network, and again, installing fiber cost less than installing the HFC network. CSP is somewhat unusual in using permanent employees rather than contracted work-ers on its construction crews. That low-ers the overall labor rate, and it does so whether the crews are installing HFC, fiber or any other technology. CSP con-cluded that installing fiber actually took 50 percent less time than installing an HFC network.

The layout and deployment of the fiber network also contribute to lower costs. CSP normally builds HFC plant

to within 250 feet of every home passed to accommodate drop wiring if and when a subscriber starts service. If a home is 500 feet from the coax right-of-way, a lateral is built to reach that location whether or not the homeowner subscribes to services.

With fiber, the network is built to within only 1,000 feet (and sometimes more) of homes passed. Lateral builds are no longer necessary for nonsubscrib-ing locations. That means less network is built for nonsubscribers and construc-tion expenses are applied more toward revenue-generating locations.

Another not-so-apparent cost savings is in pole attachments. CSP’s plant is largely aerial. The company pays attach-ment fees of $5 to $15 per pole, depend-ing on the utility and attachment type. Strand and drop attachments are priced differently and require different appli-cation paperwork to the pole owner. A CSP manager explained attachment ad-vantages this way:

“…[With HFC] in a location where [CSP] had to build a lateral to feed a house that sits 500 feet off the road, I may have replaced two poles because there wasn’t enough room to attach strand and drop coax. With a fiber drop, I drive a J-lag in and I can attach it within 4 or 6 inches of the other utilities on the pole. I don’t run that drop until that guy wants to be a customer and then I send

Figure 1. CSP Network with HFC and with MicroNode FTTH.

From a strategic perspective, CSP considered the fact that copper and aluminum prices are spiraling upward while fiber optic prices have been trending downward and are stabilizing.

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CABLE OPERATORSin a drop attachment application to the utility, which is less stringent than a strand attachment agreement. Then I’ve got revenue coming in to pay for that lease or that space on that pole.”

overall InStallatIon CoSt ComParISon Data from the pilot project is not suf-ficient to quantify each of the above in-stallation costs independently. However, by using the available CSP data together with information from industry studies, we can arrive at a macro view of deploy-ment costs.

CSP estimates that its costs for in-stalling this pilot project of 780 sub-scribers are:

Materials $157,861 Labor $150,318 Total $308,179

The average cost is $205 per home passed, or $395 per subscriber.

This price is much lower than the $1,000+ per subscriber often cited for FTTP/FTTH deployments. That’s be-cause MicroNode FTTH technology is a significant departure from those sys-tems, with large cost differentials. For instance, the MicroNode topology re-quires no optical line terminal, and the HFC headend equipment remains in-tact, dramatically reducing deployment costs compared with traditional PON.

A study of HFC costs by John Browse, presented at an ITU-T work-shopii, estimates the costs of HFC de-ployments as:

Materials $13,110 per mile Labor $16,518 per mile Total $29,628 per mile

With approximately 14 miles of net-work in the project, had HFC been used the installation costs would have been:

Materials $183,540 Labor $231,252 Total $414,792

HFC installation costs would have amounted to $277 per home passed, or $532 per subscriber.

CSP saved $72 per home passed with the MicroNode solution, or 26 percent

of what it would have spent for an HFC network of the same size.

ComParIng oPeratIonS anD maIntenanCe CoStSIn addition to lower installation costs, CSP is also realizing operations and maintenance cost savings. Savings have been identified in four major areas: re-duced routine Cumulative Leak Index (CLI) and sweep maintenance tests; reduced need for emergency powering equipment and dispatch; lower power consumption; and reduced plant main-tenance costs.

CLI and sweep test reduction. By installing a passive optical fiber-to-the-home network, CSP has removed almost all of two sources of routine mainte-nance – CLI tests and amplifier sweeps. Those maintenance activities required two days per quarter of dedicated engi-neering time to test the 14 miles of HFC plant in the pilot project area. After the upgrade with MicroNode FTTH, 98 percent of the CLI and sweep testing is eliminated. All that is left is V-node testing. The result is a savings of $2,249 per year in labor costs. Not quantified are the savings in CLI and sweep test equipment, truck/travel expenses, and the opportunity costs of technical per-sonnel performing routine maintenance instead of value-added activities.

While $2,249 per year may not seem significant, the savings is much greater when applied across CSP’s entire service area. Using the project area as a basis, density is 107 homes passed per plant mile. CSP is spending $161 per mile per year for CLI and sweep tests. Thus for 400,000 homes passed, the annual tab for CLI and sweep testing is $594,000 –

most of which can be eliminated with a MicroNode-based fiber network.

Note that average density in the US is closer to 50 homes per mile of plant, driving potential savings per home passed even higher in lower-density ap-plications.

Emergency power savings. CSP maintains emergency generators for dis-patch to any node undergoing a power outage. Experience has shown that between three and five generators are needed per 100 nodes. By implementing an all-fiber, all-passive plant, CSP has eliminated the need for the emergency generators used with its HFC network except for V-nodes. For the project area, two generators were kept available; only one is required for V-nodes with the MicroNode FTTH architecture. Across CSP’s entire network, between 30 and 50 generators would no longer be needed. At an average cost of $2,000 per gen-erator, between $60,000 and $100,000 in capital can be recovered in generators alone. More is available from the trucks and other equipment dedicated to power outage dispatches.

Emergency generator dispatches are also virtually eliminated by CSP’s change to a PON architecture. Because CSP had standby battery backup of two to four hours at each node and it takes 60 to 90 minutes to deploy a generator, the company would immediately dis-patch an emergency generator any time there was a power outage alarm from a node, so power generation could begin before the batteries were depleted. In most cases AC power was restored to the node before the generator was put on line, creating expense for the needless dispatch and frustration for CSP.

Opex savings include reductions in routine Cumulative Leak Index and sweep

maintenance testing, in dispatching emergency powering equipment, in power

consumption generally, and in plant maintenance costs.

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CABLE OPERATORSAfter deploying MicroNode FTTH,

CSP had much less need for generators because of node elimination. Also, CSP re-engineered standby battery power to support 6 to 8 hours of service from the V-node, eliminating emergency gen-erator dispatches except during outages lasting for sustained periods. The addi-tional battery time became feasible be-cause there were so many fewer nodes to power and because the V-node’s power requirements are so low.

The savings from fewer generator dispatches may appear to be modest – $11,560 – because of the small size of the pilot project. However, if it were applied across CSP’s entire network it would certainly be significant. CSP esti-mates that it has three active emergency generator dispatches at any time. Using an hourly rate of $31.75 per technician and $712 per month per truck, CSP was spending $620,000 per year to support emergency generator deployments. Im-plementing the Alloptic MicroNode so-lution and longer battery capacity across the network will save at least 95 percent of that cost.

One other cost associated with emer-gency power bears examination – the cost of battery backup. CSP uses four or eight batteries in each string at an aver-age cost of $100 per battery. The batter-ies are changed every three years, with annual maintenance and testing. CSP spends four hours to maintain and re-place the string over the three-year bat-tery life. Using those parameters, the annual expense for battery maintenance in the project area is $702; for CSP’s full network, the expense is $162,000. As noted above, at least 95 percent of that expense can be eliminated with Allop-tic’s MicroNode solution.

Other costs associated with emer-gency power have not been included. For example, the costs of dealing with batteries as hazardous materials are not considered, although expenses for stor-age, regulatory compliance, and legal risks are very real and significant.

Lower power consumption. By de-ploying the MicroNode RFOG FTTH solution, CSP is enjoying an overall re-duction in AC power expenses. It has eliminated the outside plant powering

needs except for V-nodes, while the Mi-croNode transceivers are powered from homeowners’ AC mains. (The reduction in overall power consumption is shown in the digital bonus pages.)

Prior to the MicroNode FTTH deployment, each of CSP’s nodes con-sumes 1.35 kilowatt hours per year. At the average U.S. commercial rateiii of $0.0867 per kilowatt hour, its annual expense to power nodes in the proj-ect area was $4,101. After deployment CSP has reduced power consumption by 96 percent to only $171, as a result of fewer nodes and less power used per node. (This translates to a monthly cost of $14.25, which is below minimum monthly billing for some utility compa-nies. As a result, higher charges may ap-ply.) The potential savings for the entire network is $904,000 per year.

Reduced plant maintenance costs. Clearly, fiber plant is less expensive to maintain than copper/coax plant. In the Browse study cited above, HFC main-tenance costs were found to be $1,103 per mile. Fiber maintenance is generally accepted to be on the order of 10 per-cent that of copper/coax. Other studies note plant maintenance rates dropping by over 80 percent with PON. CSP is experiencing similar improvements, al-though its fiber deployments have not been operational long enough for a con-clusive quantification.

Using the more conservative 80 per-

cent estimate, which is a higher cost than CSP has experienced so far, maintenance costs for the FTTH network total $221 per mile. For the pilot project area, that is an annual expense of $3,094 compared with HFC maintenance of $15,442 – a savings of over $12,000 per year. For CSP’s entire network, the annual savings would be $3.3 million ($4.1 million for HFC versus $800,000 for FTTH).

revenUe enhanCementCSP’s ability to offer more extensive services is another significant economic benefit of the MicroNode RFOG net-work. The HFC system, which was more than 25 years old, supported only 22 video channels with no return path for VoD (video on demand) or other in-teractive video services, no data services and no voice services.

The suite of services enabled after installing the Alloptic MicroNode RF PON and upgrading headend equip-ment is rapidly driving increases in revenue per household. RF bandwidth has been extended to 1.1 GHz, which makes available CSP’s entire lineup of 245 channels, including 21 HD chan-nels. VoD is also enabled, with free, pay-per-view, and subscription options.

Residential data services are now available to subscribers in the pilot proj-ect area. CSP currently offers a single tier of Internet access up to 4.4 Mbps via DOCSIS 2.0 technology. With a future

Figure 2: Average revenue per user before and after the upgrade.

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CABLE OPERATORS

upgrade to DOCSIS 3.0, multiple levels of access are planned.

Voice services are now available to subscribers in the pilot project area. For a single monthly fee, subscribers have unlimited local and long distance call-ing via VoIP (voice-over-IP) technology.

It is still very early in the deployment cycle to estimate steady-state take rates for the new services. For the purposes of this analysis, take rates are assumed constant at 52 percent, which was the rate for basic service that existed be-fore the upgrade. The national average

is 58.8 percentiv, so using 52 percent is conservative with a reasonable expecta-tion of marginal increases.

CSP’s early service mix results are trending toward those reported else-where in the industryv. Following that course, CSP’s revenue per subscriber is expected to increase from $41 to $96 per subscriber as shown in Figure 2.

For the pilot project area with 1,500 homes passed, the increase in average revenue per user (ARPU) adds $514,800 in annual revenue.

Other revenue is enabled as well. First, CSP offers business services in other re-gions, and plans to extend those services to the pilot project area in the near fu-ture. CSP’s business services include:

• Internet access, tiered up to 10 Mbps • WiFi hotspot hosting with free and

billable access options • Web site hosting • Business telephony • Music and television services • Commercial security monitoring.

Figure 3: Project area economics.

TelcoTV09 for Broadband Properties.indd 1 7/22/09 3:08:38 PM

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CABLE OPERATORS

These services have been major rev-enue sources in other CSP regions, and are expected to contribute significantly in the pilot project area as well. Because of differences in business density it is not practical to project revenue based on other regions, and data is not yet avail-able to quantify business revenue poten-tial in the pilot project area.

IntangIble eConomIC benefItSCSP realized two additional intangible benefits with the Alloptic MicroNode RFOG FTTH solution. First is that it now has an all-fiber access network in place. Whatever future services are of-fered, and whatever their bandwidth re-quirements, CSP has the outside plant necessary to support those services. Per-haps the electronics on either end of the network will change, perhaps not. In either event the company has made the investment necessary for a fiber plant that will deliver services for the life of the fiber – 20, 30, 40 years or more.

The second benefit is closely related and more near-term. CSP can now adapt the MicroNode FTTH network with a PON overlay system such as Alloptic’s Gigabit PON. In this hybrid RF PON architecture, both RF FTTH and Eth-ernet FTTH operate concurrently on the same network without any changes

Figure 4: Economic benefits can be substantial across the entire service area.

The CSP pilot area is an ideal business case, with its aging plant and limited services.

Nevertheless, this case offers a view of the many real-world economic benefits the

company is experiencing, along with insights into the benefits other network

operators can achieve..

to outside plant architectures or topol-ogy. By implementing this overlay, CSP can offer enterprise-class rich Ethernet services at gigabit rates for business sub-

scribers, gain bandwidth for IPTV ex-pansion, deploy VoIP from the ONT (without in-home gateways), or back-haul TDM wireless traffic.

SUmmary anD ProjeCtIonSCSP is realizing significant cost savings and revenue enhancement by deploying the MicroNode FTTH solution as a re-placement for an outdated HFC system. Figure 3 summarizes the economics for the project area.

To illustrate how those benefits

might work in larger deployments and across all of CSP’s serving area, Figure 4 includes projections for 10,000, 50,000, and 400,000 homes passed. Costs are calculated per mile; the revenue increase basis is per user.

Of course, results vary for every ap-plication. For instance, installation costs are very different for aerial versus buried cable. Also, it is unlikely that the revenue gains in this pilot area would be equally realized across a larger network because most network operators already offer ser-vices beyond basic cable video. In many regards the CSP pilot area is an ideal busi-ness case, with its aging plant and limited services. Nevertheless, this case offers a view of the many real-world economic benefits CSP is experiencing along with insight into the benefits other network operators can achieve with the Alloptic MicroNode FTTH solution. bbP

enDnoteSi KMI Research, Worldwide Markets for Fi-

beroptics in Broadband Access Networks, 2006, p.57

ii John Browse, Fiber Access Network – A Cable Operator’s Perspective, presented at ITU-T All Star Network Access Workshop, Geneva 2–4 June 2004

iii US Energy Information Agency, http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html

iv National Cable & Telecommunications As-sociation, June 2007 http://www.ncta.com/ContentView.aspx?contentId=54

v Merrill Lynch, Media and Entertainment Conference, Sept. 17, 2007

How “green” is the RFOG technology? Find out in our digital bonus pages at www.bbpmag.com/bbponline.php