INDUSTRY ANALYSIS Best Year For FTTH Since 2008

INDUSTRY ANALYSISBest Year for FTTH Since 2008Fiber-to-the-home vendors and providers enjoyed a great year in 2012,according to new research by RVA LLC. RVA forecasts a stable market overthe next few years, followed by a new upturn in 2016.By Steven S. Ross Broadband CommunitiesNorth American fiber-to-thehome deployers forged ahead in2012, passing 2.7 million homeswith fiber between September 2011 andSeptember 2012, marketing fiber servicesto 3 million more homes and connecting1.5 million new FTTH customers.This growth – the industry’s bestshowing since 2008 – occurred as stimulus projects advanced in the UnitedStates and as the leading Canadian telcosramped up their FTTH construction.Revenue kept pace as well, withFTTH customers paying, on average,more than 57 a month for data – by farthe most profitable offering a networkprovider can sell. Customer satisfactionsoared, and average take rates continuedan unbroken, decade-long rise.The good news about 2012 comesfrom market researcher Michael Renderof RVA LLC. To gather the information, he conducted interviews with 350service providers and multiple vendorsand industry experts. In June, his firmsurveyed 2,000 broadband users. Mexican deployer data came from IDATE,the international market research firm.Render also noted that three of fivecurrent FTTH deployers say they arelikely to continue building FTTH. Ofthe remainder, many have built out theirentire footprints already, and others, especially in rural areas, are worried aboutchanges to Universal Service Funddisbursements.Financing ChallengesFinancing FTTH builds in today’s financial environment is challenging.The ability of deployers to sell stock tofinance FTTH is zero. The bond marketis uncertain. Stimulus funds have been30RVA LLC’s Michael Render will report on hisnext survey about MDU residents and FTTHat the Broadband Communities Summitin Dallas, April 16 –18.exhausted. To move forward, deployers and prospective deployers of FTTHneed either free cash flow or somethingto mortgage. In fact, they have an incentive to do so: Money in the bank earnsno interest, and carrying charges are lowif they borrow.Among the entities that have accessto financing in this environment aremunicipalities that can mortgage theirwater or electrical plant and multipledwelling-unit (MDU) communities.Owners and sometimes operators oflarge brownfield MDUs and multi tenantcommercial buildings can often securebank financing for fiber networks, asthese systems are generally consideredliquid (easily sold by a mortgagor thathas to take over from a failed operator).Greenfield FTTH projects can typically be financed by developers as part ofconstruction mortgages. (See the Bandwidth Hawk column from the May-June2012 issue of this magazine, bbcmag.epubxp.com/i/71834/12.)Render notes that in 2013 and 2014,Verizon is committed to building outFiOS within its existing footprint tomeet its franchise obligations, whichwill help keep the FTTH market on aneven keel for the next two years. In addition, greenfield projects – both MDUand single-family – are finally growing.According to Render, “The huge inventory of old copper-fed lots [is] finally being worked down, new developments arestarting again (fiber-fed this time) andhousing starts appear to finally be onan upward trend.” In addition, he says,FTTH growth in Canada and Mexicoshould help carry the North Americanmarket.Thus, from a low in 2011, Renderforecasts a slow continued increase inFTTH homes marketed in 2013 and2014, followed by a slight dip in 2015and then by more rapid growth in 2016and 2017, assuming that greenfield developments continue to grow. He estimates that direct investment in NorthAmerican FTTH deployment will total 18 billion during the next five years andgrow to 4.7 billion annually by 2017.The revenue potential is there: Render predicts that annual revenues derived by FTTH providers from ultrahigh-bandwidth applications and services beyond the triple play will reach 4 billion by 2017, or 9 billion cumulatively over the next five years.About the AuthorCorporate editor Steve Ross can be reached at steve@bbcmag.com. BROADBAND COMMUNITIES www.broadbandcommunities.com January/February 2013

INDUSTRY ANALYSISECONOMIC IMPACTSFTTH adds value to homes. Ownersof fiber-connected homes say fiber increases home value by 2.1 percent, andnon-FTTH users in Render’s 2,000person sample estimated 1.7 percent.These figures were derived by askingrespondents how low a price they’d require for a non-fiber-connected home.Non-FTTH users believe that a homethat doesn’t already have a very highspeed Internet connection from a direct fiber optic line and advanced insidewiring would have to be discounted anaverage of 5,337 to be considered forpurchase. Those already using FTTHbelieve an average discount of 6,451would be required.Availability of a fiber connection isamong the most important amenities tobuyers shopping for new homes. Amongcurrent FTTH users, it is the most important amenity.FTTH also lowers community costs.FTTH users work an average of 1.2 additional days per month from homecompared with non-FTTH users. Assuming 50 percent FTTH take rates,FTTH drives a 3 percent communitywide increase in work from home andA fiber connection adds between 5,300 and 6,450 to the value of a home, according torespondents in RVA LLC’s most recent survey.thus a 1.8 percent reduction in total vehicle traffic and related public costs.Carriers, especially municipal network providers, notice a substantial economic impact from fiber to the home.FTTH users are more likely to participate in every online activity than usersof other broadband technologies; 67 percent of FTTH users who are employedsometimes work at home, and 11 percentof FTTH users have home-based businesses, which average 55,000 in annualrevenue ( 14,500 in additional income,after expenses).Again assuming 50 percent takerates, community revenue increases byan average 500,000 and 25 new traditional jobs per 1,000 homes passed withfiber. The secondary job impact couldmean as much as 1.1 million in new annual salaries to the community per 1,000FTTH passings.Although people often assure methat fiber to the home is unnecessarybecause “everyone” accesses the Internet through handheld devices, Render’sstudy does not bear out this theory. Hisresearch finds that users spend 88 percent of their online time on laptop ordesktop computers. Even the most avidmobile users – people under 35 – usecomputers 82 percent of the time. Usersof all ages spend 5 percent of their online time on tablets, and other handhelddevices, typically cellphones, accountfor 14 percent of online time amongthose 35 and under and 7 percent oftime among those older than 35.CANADA AND MEXICOOf the 9 million FTTH customers inNorth America, about 8.3 million are inthe United States. In the last few years,however, FTTH growth in Canada andPercentage of FTTH customers in each state. Due mainly to Verizon FiOS deployments, the Northeast has the highest FTTH penetration. Not shown:Hawaii, 1% and Alaska, 0.3%. Data from RVA LLC, September 2012.January/February 2013 www.broadbandcommunities.com BROADBAND COMMUNITIES 31

INDUSTRY ANALYSISFTTH Homes Passed, September 2012(Cumulative, North 10Mar-11Sep-11Mar-12Sep-12Source: RVA LLCBetween March and September 2012, an additional 1.7 million North American homes were passed with fiber as stimulus projects advanced in theUnited States and Canadian FTTH construction ramped up. That’s well above the previous six months and the fastest growth since 2008.Mexico occurred faster than some areaware of. Canada, with more than 1million homes marketed and close to 2million homes passed by fiber, is catching up to the United States in percentage of homes passed – about 20 percent(the United States has about 22 percent).Providers in Mexico include Telmex,Axtel and TotalPlay. In Canada, BellAliant leads the way. There are 700,000homes passed by fiber in the Caribbean,more than 10 percent of all homes outside Cuba.Mexico’s low 17 percent take rate(FTTH is just getting started there despite almost 1.5 million homes passedand marketed) depressed the NorthAmerican average, however. For theUnited States only, take rate was 44.2percent, but when the 2.5 million homesbeing marketed in Canada and Mexicoare added in, the combined North American take rate (homes connected dividedby homes marketed) is 42.2 percent.THE BANDWIDTH IMPERATIVEAlthough gigabit networks have received widespread news coverage andabout two dozen providers offer 1 Gbpsservice, the number of gigabit customers is still quite low. The real action is in32the 50 Mbps to 100 Mbps range. There,growth in the past four years has beenstartling. Render’s surveys show that injust four years, the number of 100 Mbpsusers in the United States grew from7,200 to well over 500,000.100 Mbps 0050 Mbps ,461U.S. broadband users are movingfrom slower technologies such as DSLand fixed wireless to FTTH and cable.FTTH has increased its market shareto about 8 percent of all U.S. households, up from almost zero in 2006.Cable service increased from 40 to 50percent market share in that same period. The growth of FTTH and cablecame primarily at the expense of DSL(which dropped from about 40 percentto 32 percent despite widespread deployment of U-verse by AT&T) and of fixedwireless, which dropped slightly to 10percent.As demand for faster service increases, FTTH looks better and better. Median tested download speeds forFTTH connections now top 20 Mbps,up from 5 Mbps in 2007. Cable uploadspeeds increased more slowly, from 7Mbps in 2009 (FTTH was at 12 Mbpsthat year) to 14 Mbps.Fiber’s advantage for upload speedsis, of course, even better. Median testedU.S. broadband households are migrating fromDSL and wireless service to fiber and cableservice, which offer higher speeds. BROADBAND COMMUNITIES www.broadbandcommunities.com January/February 2013

INDUSTRY ANALYSISFTTH Homes Marketed, September 2012(Cumulative, North ar-10Sep-10Mar-11Sep-11Mar-12Sep-12Source: RVA LLCThe increase in homes marketed for FTTH rose by a healthy 2.1 million for the March-September period, the largest increase since 2008.upload speeds are now about 10 Mbps,compared with 1 Mbps in 2007. Cable upload speeds went from less than1 Mbps in 2009 (at which point FTTHspeeds were above 2 Mbps) to a medianof 3 Mbps in 2012. In addition, FTTHcarriers have bandwidth to spare; few ofthem set limits on the volume of customer uploads and downloads.Gigabit speeds are the next plateau. Incumbent local exchange carriers (ILECs)that deploy fiber tend to be rural andhave lower demand for speed, lesscompetition and higher costs for connections to the national telecommunications grid. However, middle-mile networks funded by the stimulus programput them into the gigabit game.More than three-quarters of allFTTH connections are by RBOCs –mainly Verizon. Small ILECs and theircompetitive (CLEC) subsidiaries ac-count for more than half the remainder.CLECs and municipal providers arebest at taking advantage of fiber’s abilityto provide symmetrical or near-symmetrical bandwidth.Then there is Google.Render reports that Google had morethan 30,000 registrants in Kansas Cityin September and had approved fiberconstruction in 180 of the 202 “fiberhoods” it had identified there. RumorsFTTH Homes Connected, September 2012(Cumulative, North p-11Mar-12Sep-12Source: RVA LLCFTTH connections rose at a record pace – 1 million in the six months ending last September. That’s double the previous six months and a record for anysix-month period.January/February 2013 www.broadbandcommunities.com BROADBAND COMMUNITIES 33