When Will Cable Bite The Bullet and Upgrade to Fiber?

This week we've been looking at some of the disadvantages of the hybrid fiber coax (HFC) networks deployed by most cable operators, as compared to passive optical networks like the one behind Verizon's FiOS service.

We've made a pretty clear case that fiber optic networks are superior to HFC networks, in terms of capacity, reliability, and operating costs.  So why doesn't cable just make the switch?

The answer, of course, is that the up-front cost for a cable operator to replace their HFC network with a passive fiber optic network is massive, much higher than the cable operator or their shareholders can bear right now.  Also, the cost of upgrading to DOCSIS 3.0 is much more reasonable...Comcast estimates their cost at about $2B for the DOCSIS 3.0 upgrade, versus Verizon's estimated $18B cost for their FiOS deployment.  DOCSIS 3.0 allows the cable operators to buy time before a launching another large network investment.

However, it's not as binary a decision as you might think...vendors are coming out with hybrid technologies that replace the coax part of the cable distribution network, but convert back to coax once the network reaches your home, so that set top boxes and cable modems don't have to be replaced, but the cable company reaps some of the benefits of passive optical networks, such as lower operating costs and greater network capacity, plus the comfort of knowing that a future-proof fiber-optic cable has been deployed.  A lot of the tire-kicking that cable operators are doing with passive optical networks is with these hybrid optical approaches.

I think it makes the most sense for cable operators to test these new technologies in two arenas: 

• new housing developments (where there is no pre-existing investment in HFC plant), and
• business markets (most cable operators are making big new pushes into business services).

These trials will allow cable operators to get some operating experience with the new technologies before making bigger bets later on. 

I'm guessing that DOCSIS 3.0 and the new hybrid fiber optic technologies will buy cable operators at least six years before they are forced to consider more widespread deployments of passive optical networks.  Some analysts are betting that big cable PON deployments happen sooner, many are betting later, and the cable companies themselves are probably targeting later dates in their strategic planning exercises.  I just worry that in six years' time, cable will see some serious competitive pressure from fiber-based networks...pressure that can only be answered by a big fiber deployment by the cable operators.  One consolation for the cable operators in this is that by then, Verizon and AT&T will have driven the prices of optical components down far enough that cable operators should be able to make a smaller investment to reach parity with the first mover telcos.

Comments

[Ike Elliott]

REG, actually, no, not every system is a fiber coax combination, at least not in the way I meant "coax" in the post. Coax is the particular kind of shielded cable that is used in networks that originated as cable television networks.

You *could* say that every system is an optical/electrical combination, though, and I'll take that as the intent of your comment, since it is pretty useful to ask your follow-up question in that context: Is the real question "Where is the best place to make the optical to electrical transition?"

So far, we have at least three answers to that question:
- Verizon FiOS: as the optical fiber touches the home
- AT&T U-Verse: at the "node", where optical is converted to electrical and sent down a twisted pair cable (and vice versa)
- Comcast (and other HFC operators): at the "node" where optical is coverted to electrical and sent down a coaxial cable (and vice versa).

Thanks for bringing it up, I think I'll write a post on this topic in the near future.

[REG]

Isn't every system a fiber coax combination? In other words, dosen't FiOs bring fiber to the front of the home and then bring the signal into the home via coax? Is the real question; "Where is the best place make the fiber to coax transition"?