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Broadband in the U.S., complete penetration still a distant dream

  • The need for high-speed network
  • 'Fibre-optic', a solution for present and the future demand
  • Issues in deployment of fibre optics

 

Faster browsing, video streaming and multi-user access at a time are few of the advantages of a high-speed network. In the present era, where most people like to stay connected socially or for business purposes, a high-speed network copes to increase the bandwidth for downloading-uploading of data, video streaming and uninterrupted access. Globally, fixed broadband penetration has increased in the past decade and more than half of the households use fixed broadband to fulfil their needs for high-speed connectivity. But the path of complete adoption is still a distant dream due to an intense requirement of capital.

Broadband rules and regulations in the U.S.

The universal affordable broadband is prioritized by several nations as a policy objective and also by the United States. According to the OECD (Organization for Economic Co-operation and Development) Digital Economy Outlook 2017, the United States is ranked 27th (OECD countries) in terms of fixed and mobile broadband data subscription. The Federal Communications Commission’s ([FCC], [2010]) National Broadband Plan identified broadband as a basic infrastructure need for improving economic growth, job creation, civic engagement, global competitiveness and a better quality of life. The body regularly set a minimum threshold speed for broadband services both downloading and uploading in the United States. Hence, FCC raised minimum broadband speed to 25/3 Mbps (2015) from 4/1 Mbps (2010) and served as a benchmark for fixed broadband use. Moreover, as per the Section 706 of the Telecommunication Act, 1996, FCC should ‘regularly inquire and determine to deploy broadband in a reasonable and timely fashion’.   

According to the FCC Broadband Progress Report 2018, the U.S. made significant progress in broadband deployment, but has still to meet the nationwide fixed and mobile broadband benchmark speed of 25/3 Mbps and 5/1 Mbps. Few vital facts that were mentioned in the report are:

  • Although fixed broadband subscription increased to approx. 73% in 2016 across all demographic groups, but roughly 13% of the citizens are still completely dependent on smart-phones for internet access at home.
  • The average mobile data use grew from less than 1 GB per month in 2012 to 4 GB per month in 2016.
  • FCC’s short-term goal of delivering at least 100 Mbps/1,000 users was met by 59% of schools (this is still far from its long-term goal of 1 Gbps/1,000 users).
  • As per the current use pattern, only 18% of the population has access to 1 Gbps speed and this is used by a mere 11% of Americans.

 

U.S speed test by Ookla

In addition, the U.S. Market Report by the Ookla (2017) on speed-test intelligence captured data for the first half of the year and showed that in past 12 months, the average mobile download speed jumped approx. 19% and the fixed broadband speed also became fast. The reasons were an improvement in technology and optimal use of available network range.

The below figure represents the result of mobile speed for H1, 2017. The carriers such as T-mobiles (mobile speed score was 23.17), Verizon (mobile speed score was 21.13 and fixed speed score was 66.74), etc. boosted the broadband speed, but other carriers and areas did not saw similar results (Sprint's mobile speed score was 15.39 and CenturyLink fixed speed was 14.91).

Bridging the rural-urban digital divide

The Broadband Development Report issued by FCC (2018) suggested removal of digital divide and deployment of advanced telecommunications capabilities on a priority basis and stated that there is still much work which needs to be done. It also suggested initiatives through the launch of innovative Connect America Fund Phase II auction, which will provide approximately $2 billion for the expansion of fixed broadband with high-speed internet service in untapped rural areas. In addition to the efforts by FCC, increasing fibre broadband is the need of the hour to enhance broadband speed in a timed manner.

Further, as with other networks, the fibre-optic network uses certain basic features, for example,  information is shared, sent, bypassed from one station or server to other with similar basic elements. Presently, cable modem service covers 59% of the total fixed broadband service subscriptions in the U.S. and makes it the most common category but considering the growing demand there is a compelling need to shift the focus to fibre broadband. This comprises basic requisites of today’s complex network system like copper (DSL) or cable. Fibre broadband also has advantages like durability, speed, ease of installation, immunity to electromagnetic interference (EMI)/radio-frequency interference (RFI) and long-term economies. There are several types of fixed broadband services that share typical features and utilise a physical transmission path to connect a user to the internet such as the coaxial cable, DSL or fibre-optic cable. But the difference lies in the core of the network lines, for instance, fibre-optics use light pulses to transmit data at speeds far exceeding the current DSL or cable modem electronic pulses, normally by tens or even hundred Mbps. This can be up to one Gigabit (Source: www.broadband.gov; types of broadband connections). Numerous countries have started deploying fibre and as per the report issued by the Broadbandtrends, FTTH (fibre to the home) subscribers will account for nearly half of all fixed broadband users by 2022 due to deployments both in Asia-Pacific and North America. 

Furthermore, in order to realise the full advantage of fifth generation mobile networks (5G), the United States should be well prepared with the fibre infrastructure in the close proximity of end users (Source: Deloitte Report on Communication infrastructure upgrade, the need for deep fibre, published in July 2017). Carriers stand to gain tremendous efficiency by the deployment of new IP networking architectures like Software Defined Networks (SDN) and Network Function Virtualization (NFV). This technology is also a significant element which provides scale, high frequency and elasticity to support high speed and capacity of 5G networks in the near future.

The fibre-optic network would not only act as a blessing for the broadband speed but also for fibre-optic network components, fibre cable, transmitter, receiver, amplifier manufacturers and users. Hence, by meeting the demand these manufacturers would have a great role to play and in return, these would achieve economies of scale and optimal capacity utilization.

One of the major benefits for companies would be the security. IBM in its 12th Cost of Data Breach Study conducted by Ponemon Institute reported that the world’s average cost of a data breach decreased by 10% or $3.62 million. This could further be cut down with the help of fibre-optic in comparison to cable, which is easy to tap by using simple methodologies. This will act as a medium to prevent cyber-crime and help companies protect information which can lead to penalties or client defection.

Additionally, as per the Deloitte Deep Fibre report, a survey conducted by Nemertes Research found that deployment of fibre-optic would:

  • Reduce average time of repair from 21 to 5 hours for a single, end-to-end IP network.
  • Reduce manpower as Iliad, a French wireless and wire-line provider operate an all IP network with approximately 3 to 4 employees per 10,000 customers as compared to 12 to 15 employees per 10,000 customers for the U.S. providers.

 

Hurdles in implementation of fibre optics

But despite all the favourable aspects, there are certain barriers that hinder the deployment of fibre optics owing to lack of funds and policies which might make connectivity an issue in the upcoming years. FCC has consistently stated that increasing broadband infrastructure will require a high cost of installation or laying of cables, which is a ‘substantial barrier’. According to an analysis by Deloitte Consulting LLP, there was an estimate that an investment of $130-150 billion would be required by the U.S. in the next 5 to 7 years to efficiently and effectively support broadband and cover its rural areas. This mainly includes funding for heavy fibre network for wireless connectivity, a building of consumer base and creation of competitive pricing among companies and fibre to serve rural/underserved regions. The differences in construction cost would depend upon the population density. Broadpoint AmTech’s Internet analysts projected that Google will incur a cost of $3,000-8,000 per home or roughly $60-1.6 billion depending on the final size and footprint of the network (Source: How Much Will Google's Fibre Network Cost; gigaom.com).

It was also mentioned in the report that among rural communities only 61% of the population has access to 25/3 Mbps fixed broadband speed for which they pay nearly three times over the suburban consumers. Though heavy wireless network does not require deep fibre, it is needed for rural areas in order to cater to the nation's benchmark broadband speed and to create competitive pricing by providing a choice of operators. But in the absence of market players and inefficient network, broadband continues to be expensive in rural areas as compared to urban or suburban regions. For example, in a sample Kansas wire centre, the CLEC (Competitive Local Exchange Carrier) charge was $45 for 15 Mbps, $135-160 for 100 Mbps and $28 for voice service. Whereas in suburban areas, there were two providers, which offered 25-60 Mbps for just $45 and 100 Mbps for $55 (Source: Deloitte Report: Communications infrastructure upgrade, the need for deep fibre, published in July 2017). Hence, this will ultimately burden the end customers with cost, especially in case of rural areas and will be a big hurdle for the U.S. 

Lack of investment in fibre optics and measures for improvement

Thus, despite potential benefits carriers are reluctant to invest in optical fibre, particularly for the consumer segment. The primary reason is a huge investment as wire-line CAPEX and wire-line OPEX can be anywhere between 14 to 18% and up to 80% of the revenue respectively. Hence, the below options can attract carriers to consider deployment of fibre.

  • More densely populated areas that have short investment payback period.
  • Total re-build activity, which may occur due to a natural calamity, etc. and extensive repair will be required to fix damaged wireline networks. Hence, carriers may opt to totally build the network and replace the existing copper with fibre.
  • If the areas are under subsidized geographies, for example, Federal Universal Service Fund supports fibre deployment in certain geographies. (Through August 2015, ten carriers accepted a total of $1.5 billion per year from The Connect America Fund [CAF] to serve approximately 7.7 million Americans).
  • For newly built areas, carriers opt for fibre-optic as the cost of deploying fibre is almost equal to copper.

 

In order to have investments, a different thought process is required, which can build novel models and result in better cost efficiency. Fibre almost passes 1/3rd of the U.S. households. In 2016, it covered 113,000 miles to power the internet (Source: Business Insider), but to reach the last mile and support the IoT (Internet of things) and massive traffic growth in the future, a robust solution is required. In 2017, AT&T Inc. incurred a capital expenditure of around $22 billion. Verizon Communications Inc. signed a deal with Corning Inc. and committed for a minimum purchase of $1.05 billion towards 12.4 million miles of fibre-optic material each year from 2018 to 2020 (Source: Corning Lands $1B Deal with Verizon; published 4/18/2017). Though these initiatives were of an insignificant amount, but is definitely a right step for the future. Likewise, few areas that can be worked upon are:

  • Policymakers should be more flexible towards innovations, especially in the creation of new revenue methods for carriers. These should enhance service support more efficiently in order to encourage deep fibre programs. All these efforts would empower market forces to help serve the limited and rural areas at reasonable rates and help resolve affordability.
  • Collaboration between fibre-optic cable providers and the service providers can lead to new source of revenue like traffic management and data security. This would make ROI (Return on investment) slightly higher as traditional use may not generate the requisite revenue.
  • Carriers can join hands with OTT (Over the top) players or manufacturers as they might be interested in funding fibre deployment to enhance their businesses.
  • Multiple wireless carriers can gain efficiency by sharing fibre backhaul rather than investing singly.

 

The way forward

How the United States would march toward the fibre-optic deployment and leave other nations behind will define the upcoming network infrastructure investment in the nation, in spite of all the major challenges.

Televisory is of the view that it will not be a surprise if the U.S. makes it to the top 5 in the OECD fixed and mobile broadband subscription data list in the near future and continue to be a forerunner for innovation and fast network at affordable prices. A proper commitment and a timely action by regulators and market players would be the key factor. The way all the carriers, FCC are focused and are moving in the direction of fibre deployment, these would soon overcome the main drawback in terms of investment. Copper cables are in existence for long. Hence, these are at a cost advantage as cables are easily available and offer bundled services at low rates. This can be the case with fibre-optic networks as well and once deployed on a large scale these would reduce the cost of ownership or will further decrease both the fibre-optic and relative component cost in the long run.

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