Ftth Beats Hfc[1]

8/22/2019 Ftth Beats Hfc[1]

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ICON BROADBAND TECHNOLOGIES

A Full House (FTTH) Beats HFC Every Time

By Michael Bowers, P.E.Principal

Icon Broadband Technologies

www.IconBroadband.com

ICON BROADBANDTECHNOLOGIES

A Division of Icon Engineering, Inc.6745BELLS FERRY RD.

WOODSTOCK,GEORGIA 30189

TEL 770-592-9797

FAX 770-592-7363

This whitepaper has been prepared for theFiber to the Home (FTTH) Council and presented at the

FTTH Conference in Orlando, October 2004.


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TABLE OF CONTENTS

A FULL HOUSE (FTTH) BEATS HFC EVERY TIME. ................................ 2

INTRODUCTION ....................................................................................2

Basic ConceptsAnalog vs. Digital....................................................2

HISTORICAL........................................................................................4

HFC..............................................................................................4

FTTH ............................................................................................6

HOW THEY WORK .................................................................................7

FTTH ............................................................................................7

HFC............................................................................................11

WHERE EACH TECHNOLOGY IS HEADED .....................................................18

FTTH ..........................................................................................18

HFC............................................................................................21

WHAT THEY COST TO BUILD AND OPERATE .................................................22

SUMMARY ........................................................................................32

INDEX.............................................................................................33


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A Full House (FTTH) beats HFC every time.

Introduction

This paper is designed to provide an introduction to the concepts andtechnology associated with HFC and FTTH technologies. It is notintended to provide in-depth coverage of any single topic, but rather toprovide a brief overview, which will hopefully assist non-technicalmanagers and elected officials in making hard decisions aboutexpending monies and supporting their constituencies.

Basic ConceptsAnalog vs. Digital

Having stated that this paper will be non-technical in nature, we willstart with a brief technical discussion, which goes to the core of thedifferences between HFC and FTTH and the type of signals orinformation that is transmitted over each type of network. Thesignificance will be discussed in subsequent sections.

An analog signal can have any value. For technical reasons whenanalog signals are discussed, they are usually presented in the contextof sine waves. A sine wave (Figure 1) is a mathematical function

which varies between minus one and one. If you have ever watched atuning fork or a bass guitar string in motion, its movement follows apath back and forth that is sinusoidal.

time, sec

signal

Figure 1: Sinusoidal signalIf you were to look at the signal atany number of different locations along the time scale (x axis),

you would see that each has a different signal value (y axis)

corresponding to the value being transmitted.


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Electrical signals formed into combinations of sine waves can be usedto transfer sound, color or brightness information that could beconverted into, for example, the picture on a television set (moreabout this later under HFC video).

Electrical signals sent over distances lose strength and begin to changeslightly in form (Figure 2). In our example where the information wasused to construct a television picture, the changes would appear asrandom dots or snow on the television set. Equipmentamplifiers--can be used to boost the signal in strength back to its original level,but this amplification also boosts the strength of the snow. Since theanalog signal can have any value, there is no way to remove thesnow and return the signal to its original quality.

Digital signals differ from analog signals in that they can only havecertain values. Take the example of the television signal whichchanges slightly causing snow to appear in the picture. The digitalsignal starts to change in appearance just as the analog one did, but itdoes not create the same problem. Why is that? Because the digitalsignal can only have certain values, we can correct it back to itsoriginal form (Figure 3).Thus digital signals can be amplified and be just as good as theoriginal signal. More about all of this later.

Figure 2: The original signal degrades (gets small and irregular in shape) as

it is transmitted from the location where it was generated to the locationwhere it will be used.


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0

1

0

1

0

1

0

1

Decision Threshold

Decision Threshold

Possible Data Error

0 value crossed decision threshold

and could be read as 1

Regenerated Data looks

as good as original

Figure 3: A digital signal degrades as it travels farther from the source, but

can be recreated to be just as good as when it was generated until the signalcrosses a decision threshold. At that point the signal is lost.

There are limits on how far the digital signal can be corrected. If thedigital signal can have only the values 0 and 1, a zero can reach up toone-half and still be read as a zero. One-half is the point, or decisionthreshold where it impossible to tell whether the original value was azero or one. If the signal degrades to the point that a zero is read as0.51, it will be read as a one and the original data will have been lost.This is why digital video signals look excellent even when the signalsare very weak. It is also why when this decision threshold is reached,a digital video transforms from excellent to unusable.

Historical

HFC

HFC (hybrid fiber coax) was originally designed to transport televisionchannels to many homes without home mounted antennas. It startedas a method of providing cable television to rural areas and placeswhere reflections from many tall buildings created problems withtelevision reception. Large antennas where used to capture strongsignals from local stations which were then sent over coaxial cable toas many homes as could be served. The signal degraded in strengthand quality as the distance from the antennas increased (resulting inincreasing amounts of snow and other viewing troubles). Because thesignal was reamplified many times, it gradually became so distortedthat the picture produced was not marketable.


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Fiber optic cable was introduced in the early 1990s because technologyhad advanced to the point that the same signals carried over coaxialcable could be generated economically with lasers. These signalscould now be transported within fiber optic cable in which the signal

degraded at a much slower rate than it does in coaxial cable. Thecombination of the television signal carried over light to anintermediate location (node) where the signal is returned to anelectrical signal and carried over coaxial cable (copper) to the home isthe basis for the name hybrid fiber coax (Figure 4).

Figure 4: While coaxial cable consists of an outer protective jacket and

various shielding and insulating materials, the signal transmitting portion atthe heart of coax is the copper wire at the center (10 times magnification).

Because the technology was developed to send television signals tohomes with only a limited amount of information sent back from the

home to the antenna end (now called the headend), the signalcarrying capacity or bandwidth in the downstream direction (headendto home) was designed to be much greater than the upstream carryingcapacity. This attribute has carried forward to the current state ofHFC.


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The primary method by which HFC systems have increased theircapacity has been through increasing the amount of bandwidth overwhich signals were carried. Over the past twenty years, the bandwidthhas increased in steps from 216 Megahertz (MHz) to the current 870

MHz with a corresponding increase in the amount of content that maybe transmitted. In the last few years, digital techniques have alloweddigital signals to be superimposed on a primarily analog transmissionmethod that allows more content to be transmitted within the sameamount of bandwidth.

FTTH

HFC technologies have more similarities than differences. On theother hand, FTTH (Fiber to the Home, also called FTTUser or

FTTPremises), technologies share the fiber and laser basis of the HFCsystem, but utilize different protocols and technologies for transferringdata. The various FTTH vendors have as many differences assimilarities between their various products. The major variants arebuilt on protocols for transferring data from the simplest, Ethernet, tothe more complicated but traditionally more robust, asynchronoustransfer mode (ATM). The basis of all FTTH architectures is digital.

FTTH was developed independently by a number of differentcompanies as a means to transport all of the major data streams

voice or telephone, data and Internet, and cable televisionover asingle transport mechanism, fiber optic cable. A strong impetus wasthe Telecommunications Act of 1996, with its emphasis on increasedcompetition. Conversely, the incumbents opposition to majorinvestments in markets where they have monopoly or near monopolystatus, has led many municipalities to adopt this technology on theirown.

The first municipal-wide deployment of FTTH did not occur until 1999,but more and more cities, their utilities and other entities areemploying these networks as the prices of equipment drop and the

capabilities increase.

One irony of most FTTH deployments is the use of what is called aradio frequency (RF) overlay for the delivery of video. In essence thetechnique takes the same video used on comparable HFC systems andtransmits it over fiber all the way to the home. This was done becausethe technology for providing digital video to many homes


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simultaneously was not entirely ready. These problems have beenmostly worked out (more under IP video).

How They Work

FTTH

As the name implies, fiber to the home uses fiber optic cable (Figure5) to transmit signals from the source, usually the headend, to eachhome or business. Each single mode fiber is made of glass about 125microns in diameter (a micron is one-millionth of a meter), which isabout the thickness of a human hair. The properties of the glass varychemically so that light shined into the center of the fiber at one endstays within that fiber until it reaches its destination, either a box atthe end users home (sometimes called an ONT, Figure 6, or optical

network terminal) or at some other piece of electronics within theoutside plant (the fiber and electronics between the headend and theend user).

Figure 5: Fibers are grouped into color coded tubes containing twelve fibers each (left at 7times magnification). Individual fibers (30 times magnification to right) are also color coded

for identification.


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The signal loss through fiber optic cable (decrease in strength as thelight travels farther and farther from the headend) is typically aboutone percent of the loss in coaxial cable (used in HFC). While this rateis much lower than in coaxial cable, it still limits the maximumdistance from the headend to the end user. Any light source could beused to generate the signals used in FTTH, but to maximize thenumber of customers that can be served (or the maximum distancefrom the headend at which a user can receive a viable signal), lasers

are commonly used.

Lasers and other light sources can be designed to provide differentwavelengths of light. There is a direct relationship between frequencyand wavelengththe length of a single wave times the number ofwaves per second or the frequency, equals the speed of light. Thespeed of light varies depending on what it is passing through (fiberoptic cable in this case), but is approximately constant. Because the

Figure 6: ONT Mounted On Homethey often have the appearance of a

telephone company box serving the same function as a transfer pointbetween the utility operated network and the homeowner operated

appliances.


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absorption properties of fiber optic cable glass vary with wavelength,some wavelengths will travel farther than others. For this reasonseveral wavelengths, most notably 1550, 1310 and 1490 nms arecommonly used in FTTH networks.

Signal transmission of voice and data information is normally sent as aseries of 0s or 1s. If every hertz transmitted could be read as either azero or one, the potential data rate would be equal to the lightfrequency--over 100,000 gigabits per second of data throughput(Figure 7). This highlights a major difference between FTTH andHFCdata transport rates for FTTH are not limited by the physics ofdata over fiber, but rather by the electronics currently in use. In thisregard fiber optic technologies are often called future-proof.

Figure 7: Light travels at a constant speed through fiber. If the wavelength

being used is known, the frequency can be easily calculated.

The electronics at either end of the fiber differ in the type of networktechnology employed and in other details. The most common methodof differentiating between types of FTTH networks is the somewhatartificial differentiation of active and passive or PON (passiveoptical network). Active systems have powered, electronic devices

between the headend and end user; passive systems have none.

Passive optical networks are so named because they have noelectronics (active devices) between the headend and the end usershomes. In the most common variation, a single fiber optic cable andfiber signal or PON carries the network information for up to thirty-twohomes or businesses. At an aggregation point (Figure 8) in theneighborhood to be served, the fiber is split with one fiber entering the


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Figure 8: While PON systems do not have

active devices in the outside plant, they

often split the fiber from one in to thirty-two out.

splitter and thirty-two coming out, one connecting to each home.Again in the most common variation, 622 Mbps (million bits persecond) of information is split between a maximum of thirty-two users(with a reduced 155 Mbps upstream).

The maximum distancefrom the headend to theend user varies based onthe optics or laser used,but is usually in the rangeof five to seven miles. Ifthe network must serveusers farther from theheadend (more thanseven miles), electronics

must be placed in remotelocations in addition to thecentral office or headend.Several vendors offervariations on this type ofnetwork. The mostcommon type is calledBPON which is based onATM (asynchronoustransfer mode) protocols.

ATM was developed forthe telephone industryand is characterized bylow levels of jitter (data

arrives on a regular basis making it ideal for voice transmission).

Based on the total amount of data a PON system can handle, thelimitations for maximum bandwidth are the following:

The maximum bandwidth that can be delivered if every customeris provisioned identically is approximately 20 Mbps downstreamand 5 Mbps upstream

The maximum bandwidth available to a single customer will bewhen only one user is used on each PON (622 Mbps down/155Mbps up)

Most HFC and FTTH networks are oversubscribed. Oversubscriptiontakes advantage of the extreme unlikelihood that all customers will beusing the network at the same time allowing for every customer to


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have more bandwidth than would be predicted by dividing the totalavailable bandwidth by the total number of users. Usingoversubscription each user might easily be given several times theabove calculated bandwidth with little possibility that anyone would be

shortchanged.

Active systems are based on Ethernet protocols. Instead of usingsplitters in the outside plant, active systems use concentrators whichrequire power. These devices are analogous to Ethernet switches usedin conventional local area networks. Unlike PON networks, thenetworks are more modular. Additional switches can be added toexisting concentrator points to increase the capacity of individual areasof the network. Typically end users will have 10/100 Mbps data portsor even gigabit connections to the headend. The advantages of thistype of system are that the distance from the headend to the end user

can be much farther than in PON systems. Because the concentratorsare located near the end user, the return path optics (lasers) can beless expensive than those used in PON systems.

Both types of systems are designed to handle voice, data and video.After an ONT is connected to the home, all vendors products haveprovisioning software that enables new customers to be added orchanges in the services offered without additional trips to the home.Currently most new systems still use an RF overlay for video(discussed further under HFC), but IP video (individual video channels

sent to one or more homes) is serving an increasing number of homesin Grant County, Washington. Another major deployment utilizing IPvideo is scheduled to begin construction shortly in Provo, Utah.

Major improvements have been made in all of the vendors FTTHproducts, but kinks continue to be worked out in the area of IP video,backup powering for VoIP (Voice over IP), standards for third partyvendors, and provisioning of bandwidth. A deployer will do well tolook critically at his or her needs and carefully at each FTTH vendorbefore making a selection.

HFC

To understand how HFC works, it is helpful to understand howtraditional television works and how HFC was developed to allow fortransmission of analog cable television signals. The changes that have


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been made to incorporate digital cable TV, voice and data transmissioncan then be understood and why the technology developed as it has.It is also important to understand that in most fiber to the homedeployments, the cable signal is sent using the same techniques and

even some of the same equipment utilized in HFC systems.

To simplify the discussion, we will begin by examining how a black andwhite picture is developed. Traditional television picture tubes have afluorescent coating. When a beam of electrons is focused on a pointon the coating, that area will glow and then quickly fade to black asthe beam is moved. If the beam is moved rapidly across the screen,dropped slightly and the process repeated many times, light and darkareas can be created based on how intensely the beam is focused.The standard television signal creates 480 visible horizontal linesacross the television screen, which are repeated thirty times per

second. Each time the 480 lines are created (called a frame) aphotographic image composed of the light and dark areas is created.Changes in the signal modify each frame so that changes in theimages are made. At this rate of change, the human eye perceivesthe action as continuous. The total of 480 lines times 30 frames persecond equals the approximately 16,000 waves formed each second.

Given even this simplified background on analog video, it is still easyto understand conceptually how an electronic signal varying instrength could be used to adjust the strength of the electron beam and

create the light and dark areas on the screen (Figure 9). For standardvideo transmitted in the United States and for various technicalreasons, the actual frequency utilized is 15,734 Hertz (Hz). Thismeans that every second, 15,734 waves formed into a continuoussignal are transmitted, each one corresponding to how bright thepicture is on one of the lines on the video screen. For our purposeswe will simply accept that sound and color can be added to the signalin a similar manner.


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The beauty of analog cable television is the way in which manychannels can be transmitted at once. While it is easy to understandhow one movie or channel can be transmitted in 15.73 kHz (thefrequency actually used), it is conceptually more difficult to understandhow many signals or channels can be transmitted at once, calledbroadcasting. Our discussion will be qualitative, designed to provideonly a conceptual appreciation of the process.

The first concept to understand is that it would not be possible tosimply add together or combine 80 or more analog channels, eachtransmitting similar information at the same 15.73 kHz rate. Thestrong signal information at one channel would simply add to thestrong signal information on another. With enough channels combinedthe total signal would create an all white or all black screen. To send

Figure 9: Analog video creates a varying signal of the intensity of light

which corresponds to a line drawn on the television screen. The lines arerepeated approximately 480 times each one corresponding to a portionhigher or lower than the one shown.


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all channels at once (to broadcast), various changes to the originalsignal must be incorporated and when received, that information videosignal must be returned to its original form.

The first step in this process is to convert a single signal into adifferent format. The method uses fundamental mathematicalformulations applied to radio frequency (RF) signals to generate anentirely new signal. The principal relates to the mathematic propertiesof sines and cosines and is applied in the following way:

A carrier frequency, for example, a continuous sine waverepeating approximately 259 millions times per second (259MHz is the frequency of channel 30 on a standard cabletransmission) is multiplied by a second signal

The second signal is the one we are interested in viewing, (ourvideo picture at 15.73 kHz)

The resulting signal has been shown mathematically and practically toconsist of many narrow bands of frequencies surrounding the carrierfrequency. Each band is a multiple of 15.73 kHz with spaces betweeneach band. The process is called amplitude modulation.

While theoretically these bands will surround the carrier frequency toinclude all possible frequencies (0 to infinite cycles per second),practically the information required to produce a high quality image on

the users television can be held within a 6 MHz bandwidth (forchannel 30, all of the information required to produce the picture isincluded between 258 MHz and 264 MHz).

Since all of the information required to send a single channel isincorporated within a 6 MHz band, other channels can be produced inthe same way using different carrier frequencies. The entire broadcastsignal is produced by adding together all of the individual bands,producing a combined signal encompassing the information for allchannels.

The final step in the process occurs at the residential home. While wehave created a composite signal which somehow includes all of theoriginal channel information, it would be of little use if we could notrecover the original information. This is done in the following manner:When a user tunes to a particular channel, filters are used to removethe entire signal except for the 6Mhz band incorporating the channelwe are interested in viewing.


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The same mathematical relationships between sines that created ourcombined signal can be used to recreate the original signal. It can beshown that by multiplying the filtered signal by the carrier frequency,

two sets of signals are produced, one of which is the original 15.73kHz signal that represents our television channel information.

HFC was originally designed as a means of providing video signals toresidences. For this reason, the transmitters which send the signals tothe headend had limited upstream capacity, encompassing thetransmission band up to 40 MHz. The rest of the capacity--fromslightly greater than 50 MHz up to the maximum frequency broadcast--is used for downstream (headend to resident) communications. Thismethod of organization of the transmission spectrum has not changed.

There are several important implications relating to all HFCtransmissions and FTTH cable (RF video) which result from thismethod of transmission. HFC transmission, whether for analog ordigital signals, is divided into 6 MHz channels. The most moderndeployed HFC systems have a spectrum of 870 MHz, of whichapproximately 800 MHz is devoted to downstream signals. Dividedinto 6 MHz slices, this means that the maximum number ofdownstream analog channels which can be transmitted over a currentHFC system is about 135. On the upstream transmission path some ofthe bandwidth is associated with operating the system. Taking that

limitation into account, only about 20 Mhz is available for any type ofupstream communication or data.

FTTH systems delivering RF video are limited in the same way. Whileupstream communications is usually handled digitally over othercommunication wavelengths and is not limited like HFC, the maximumdownstream capacity for analog channels is limited to the sameapproximately 135.

To this point we have discussed only analog signals for video. Inrecent years the total number of channels which can be broadcast has

been increased by encoding the video information into a digital format,which is then combined or modulated onto the carrier signal fortransmission. These techniques continue to evolve. Currently ten ormore digital channels can be placed within each 6Mhz analog channelbandwidth. There are two issues relating to how many digital channelscan be placed into a single analog channel spacing. The first dealswith digital compression techniques. These include:


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limiting the information sent to that which is most perceptible tothe eye;

sending only the information that changes from frame to frame (aframe is one entire picture), and

maintaining previous frame information which is helpful ingenerating future frames when there is foreground movement ona static background.

The second issue deals with how the final digital video information istransmitted within the 6 MHz channel spacing. The latter topic is alsoimportant in data transmission and will be considered in more detail.The issue of digital video compression will not be discussed further.

Digital data transmission is an important part of current HFCtechnology. It has only developed within the last ten years and is

continuing to evolve. An understanding of the methods used,however, allows one to understand the limitations of HFC systems.

Digital data transmission conforms to the same basic principles thatcontrol the HFC video process. In the video case a series of zeros andones representing a television picture are combined into an irregularsine wave signal. Since the mathematical value of a sine varies from 1 to +1, the maximum value (+1) might be the symbol one and theminimum value (-1), the symbol zero. This data is then multiplied ormodulated onto a carrier signal which confines all of the necessary

information into a 6 MHz channel. When the information reaches theend user, it is reconverted to the original video signal. The entireprocess is conceptually the same as with analog video with oneexception. In the analog video case, a continuously variable signalrepresents how light or dark the screen will be. In the digital case,ones and zeros representing a compressed image are strung togetherinto a sine wave-like signal which is modulated onto a carrier signal.

The method just described when used to generate a data signal iscalled BPSK (or biphase shift keying). It is the simplest method ofdata transmission used widely in HFC systems providing a maximum

one bit of information transferred for every hertz of bandwidth in thechannel (6 Mbps per channel). The technique works well but uses theavailable bandwidth poorly (the efficiency of transmission is only onebit/hertz).

More complicated transmission methods utilize different levels of thesignal to allow more than one bit per hertz. Examples of this are QPSK


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(2 bits per hertz), QAM-16 (4 bits per hertz) and QAM-256 (8 bits perhertz). This increase in throughput is accompanied by morecomplicated equipment and the requirement for a better signal (higherratio of signal strength to noise) for the system to work properly.

Various protocols (DOCSIS) have been developed for HFC that specifythe method of dividing the bandwidth into data channels and themethods of compression to be used. Common parameters for version1.1 (most common) and the deploying 2.0 are shown (Table 1).

Table 1: HFC Data Bandwidth Availability

Direction Channel Size,

MHz

Modulation

Method

Data

TransmissionRate, Mbps/sec

DOCSIS 1.1

Upstream 3.2 16-QAM 10.24

Downstream 6.0 16-QAM/256-QAM 30.3/42.9

DOCSIS 2.0

Upstream 3.2 64-QAM 12.8

Downstream 6.0 16-QAM/256-QAM 30.3/42.9

DOCSIS 2.0 added a number of improvements other than data rates.The overall data throughputs are spread over all users on eachindividual node (the node is the location where the signal is convertedfrom being transmitted over fiber optic cable to coaxial cable). The

number of customers served by each node varies widely with the ageand bandwidth of the system, but approximately 250 homes servedper node is typical. While there is considerable spectrum available onthe downstream direction for data transmission, the availablebandwidth upstream is very limited. Since that bandwidth is splitamong all users, the dedicated bandwidth available to each user isonly a fraction of that available overall (Table 2).

Table 2: Dedicated Bandwidth Available per User

Customers/Node Maximum BandwidthAvailable

(Approximate)

Maximum datarate/Customer

Mbps

Downstream

100 20 MHz 0.8

250 0.32

500 0.16

Bandwidth Available using Dialup Modem (for comparison)-- 0.056 Mbps


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As bandwidth requirements requiring high speed (upstream anddownstream) symmetric bandwidth are rapidly developing, HFCsystems will face increasing problems meeting the demand.

Where Each Technology is Headed

FTTH

Fiber-to-the-Home is a new technology compared to HFC. While HFCdeveloped as a television delivery mechanism, FTTH implementationsarrived via the telephone, data and cable industries. Differentvendors products draw on techniques used in the particular industryfrom which their developers were trained. Each one continues to

make changes to improve on their delivery mechanisms in other areasand to meet the demands of new technologies.

The one area where historically HFC has had an edge over FTTH hasbeen in first cost. While neither product has a significant advantage inheadend equipment costs, HFC has been significantly cheaper for theoutside plant construction. This historical advantage has nowdisappeared. Four years ago, fiber optic cable manufacturing capacitywas inadequate and prices were very high. Today prices for two fiberdrop cable are under $0.20 per foot and significant count backbone

fiber can be bought for under a dollar per foot.

Another area where costs have dropped significantly is in fiber splicing.For a single fiber system (one fiber per home), on average more thantwo splices are required between the headend and the residence.Fusion splicing, where the ends of the glass are melted and fusedtogether, is the method of choice because the resulting splice losesvery little of the signal. Four years ago splicing costs averaged over$50 per splice but have dropped approximately forty percent since thattime.

Probably the biggest drop of all in cost has been in the ONT, theOptical Network Termination. In HFC systems, the entire signalstream is brought into the home over a single coaxial cable. If thecustomer receives only analog video, there is no other hardware. Settop boxes for digital cable and cable modems for data reception areonly added if the customer purchases additional services.


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FTTH on the other hand has the ONT or box on the house which formost vendors has been designed to receive all services. It must haveconnectors for voice, data and video and often the computer capacityto transform the transmitted signal either to or from the native

networking protocol used by the FTTH vendor. Back-up poweringmust be provided if traditional voice service is to be offered. If theONT is attached to the outside of the home, the box must beenvironmentally hardened (resistant to weather) and the electronicsmust be capable of enduring extremes of temperature and humidity.If the ONT is mounted indoors in the home, the operator will be unableto service the equipment unless the homeowner is available.

Given the requirements for the ONT, it is no wonder that the priceshave been high, starting at well over $1,000 per home passed (year2000). The news, however, is not all bad. The municipality or other

entity providing service would normally install the outside plant gearduring build-out. The service drop and ONT would only be added whenthe resident wished to purchase service. Even so, it might well beseveral years before the cost of the equipment was recouped. Thehigh cost of ONTs has been a major impediment to wholesaledeployments of FTTH networks.

Better news is that the prices of ONTs are beginning to tumble asdeployments increase and as some RBOCs start to purchase anddeploy FTTH as well. Prices for hardened ONTs are or will soon be

below $700; prices for some non-hardened units may soon be below$400. The result is that in a typical deployment, the initial costs ofHFC versus FTTH will be equal when approximately twenty percent ofhomes passed are actually served (ONT and drop completed, customerreceiving services). For lower percentages of homes served, FTTHhome deployments will be less expensive; for higher percentages ofhomes passed, HFC will be less expensive. Additionally, over thelifetime of the project, required equipment and outside plant upgradeswill erode the remaining first cost advantage that HFC holds (moreabout this later under What They Cost to Build and Operate.

The changes to FTTH will not be simply in the costs to build. Changesare also being made to the standards that vendors use to design theirnetworks. The current BPON standard defines the downstream (622Mbps) and upstream (155 Mbps) capacities of many PON networks. Anewer variation called GPON has been deployed by one vendor and willundoubtedly be deployed by others in the future. It incorporates anumber of new features and standardizes higher speeds (622 Mbps


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and 1.25 Gbps (1250 Mbps) in both upstream and downstreamdirections).

Also on the horizon for FTTH is the increasing use of IP video. While

one might say this is an integral part of all FTTH applications, there areonly limited deployments currently. The largest of these is the GrantCounty deployment where the number of homes served is reaching3,000. There have been several reasons why IP-video has had limiteddeployments. First because all of the channels are digital, thestandard television tuner will not work and hence all televisions musthave set top boxes. This alone adds at least $250 to serve anexpanded basic only customer. Another problem is that the data willmost probably be routed through the home via Cat5 cable rather thancoaxial cable. For locations already wired with coax, additional cost isrequired to rewire the home. Finally there is the technical complexity

associated with multicasting digital to many subscribers at once.

Multicasting differs from broadcasting in that the program is only sentwhen there is a demand for it. If no one is watching a program, thenunlike in broadcasting, it is not being sent over the network at all. Onthe other hand if all thirty-two users on a PON system were viewingdifferent programs, thirty-two different programs would have to besent simultaneously. The programming must be received with lowlatency and the packets or cells must be received in the correct orderor there will be problems with the picture. In Ethernet systems, the

problem is even more complex because the concentrators (actuallyswitches) may have to further distribute the programming betweendifferent users. The good news is that many of the problems havebeen worked out and a second major deployment in Provo, Utah ispreparing for construction. A third in Crawfordsville, Indiana isexpected to begin in late 2004.

Other technical changes in both materials and electronics affectingFTTH have begun and will impact costs and system performance farinto the future. The change on the materials side has to do with theabsorption properties of fiber optic cable. Various properties of the

glass (fiber optic cable) cause light to be attenuated or degraded asthe distance from the headend increases. Very good transmissionoccurs between about 1300 and 1350 nm and between about 1450and 1550 nm. This good transmission area sets the commonly usedwavelengths in FTTH applications. The problem between 1350 and1450 nm has been greatly reduced in new fiber optic cables (calledzero water peak fiber). Most fiber manufacturers have incorporated


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these changes in their fiber at no increase in price. It opens the doorfor additional bandwidth utilization for network transmission.

Combined with the increase in good transmission areas is the move

by at least one FTTH vendor to add coarse wave division multiplexing(CWDM) to their product line. Using CWDM, wavelengths spaced 20nm apart can be used to transfer more data without increasing thecomplexity of the electronics used. Currently the costs areconsiderably higher to add the additional wavelengths making iteconomical only when the cost of adding additional fiber are very high(e.g. where there is some existing fiber in an urban environment, butthe cost to trench and repair to add more fiber make alternativesattractive). This cost will come down over time.

HFC

HFC has an entirely different problem than FTTH technologies. WhereFTTH vendors are continuing to make major improvements to a newindustry, HFC is old by electronics standards with all of the easyimprovements already made. Nevertheless there will continue to beevolutionary changes and improvements to electronics that will enablethe HFC providers to continue to dominate markets withoutcompetition.

One of the changes will be an increase in the bandwidth from 870 MHz

to 1000 MHz, with the equipment commercially available in 2005.While this might seem to be an inexpensive way to increasebandwidth, it still has two major problems. First the availablebandwidth for upstream communications has not been changed. Forvarious technical reasons and the original decisions which made HFC avideo broadcast technology, the upstream capacity is limited to therange of approximately 5-40 MHz.

A second problem with increasing broadcast bandwidth has to do withdesign issues associated with HFC. HFC outside plant designs evolvedover time and standardized on equally spaced amplifiers each of which

boosted the signal by the same amount. Noise generated betweenamplifiers sets the maximum number of times the signal can beamplified, but within this limitation, the same general design criteriafor laying out the spacing between amplifiers in the coax cable portionof the outside plant is followed from amplifier to amplifier. The signalcoming into a particular amplifier is boosted by a given amount. Thesignal degrades (becomes weaker) as the distance increases from the


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amplifier, and at approximately the same distance from the secondamplifier it must be boosted again. Unfortunately for an HFC cableprovider, there is a problem with simply removing old amplifiers andreplacing them with higher bandwidth oneshigher frequency

bandwidths attenuate more rapidly then do lower ones. The spacingbetween amplifiers that was acceptable with an 870 MHz system maywell be unacceptable should the operator increase the bandwidth to1000 MHz. Other changes to the design can be made, but it is notunusual to have to replace twenty percent of the existing coaxial cablewhen an upgrade in bandwidth is made.

Other changes, which can and are being made, are to decrease thenumber of customers per node. The effects of this on the availabledownstream bandwidth were previously shown (Table 2). Since thenumber of users per node changes, the entire outside plant layout has

to be examined to minimize the overall cost. The changes will providesome benefits to upstream available data bandwidth per customer andmay be helpful in providing Video on demand (VOD) services wheredownstream bandwidth is in short supply.

Another way to increase upstream bandwidth is to aggregate the 5-40MHz signals from one group of homes to those from another group ofhomes by upconverting one group of signals into a higher frequencyarea (e.g. 45-85 MHz). The technology requires additional equipment,probably the use of additional fibers for the return path, and possibly

more expensive lasers. It does provide a method to increase theupstream bandwidth without wholesale redesign of the outside plant.

One final area of change in HFC systems will be an attempt to providemore business services particularly to medium and large businesseswith major bandwidth and voice needs. One way cable operators willdo this will be to utilize fiber installed between the headend and nodein conjunction with non-HFC equipment to provide voice and dataservices. They will in effect develop a second network possibly usingequipment from the same vendors who currently dominate the FTTHmarket.

What They Cost to Build and Operate

Following this brief discussion are two models, one HFC and one FTTHwhich show costs and revenues from each type of network. Table 3shows the differences in payback between two basically identicalnetworks. Each one assumes the same market share for all residential


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services and offers the same products. The HFC case does not offerbroadband services to large businesses but is otherwise identical.

Areas where the two differ are in the sinking fund requirements

necessary to make future upgrades. Over the last twenty years HFCcable systems have had to make considerable upgrades every fewyears. Coaxial cable is often considered to have a ten year lifetimewhile fiber optic cable has a twenty year lifetime. In practice both areunderstated. HFC systems will require considerable outside plantchanges in addition to electronics as a system is periodically upgraded.FTTH systems will not require such expenditures. When a sinking fundis developed to replace twenty percent of the outside plant over tenyears in the HFC case and with significant but lower electronicscontributions for the FTTH case, Fiber to the Home performs muchbetter over ten years. Because of this advantage, we believe that

there is no case to be made for the construction of new HFC systems.

Table 3: Major Results FTTH vs HFC

FTTH HFC

Homes and Businesses Past 12,038 12,038

Capital Equipment Cost (Firstthree years)

$20,904,299 $17,473,581

Customers Served 6,014 5,988

Miles Streets 215 215

Sinking Fund Upgrades, Year 10 $3,195,126 $4,826,193

Bond rate, % 5 5

Net Present Value (NPV)-10 years ($1,299,137) ($3,553,311)

Internal Rate of Return 3.6 % 0.6 %

Payback, Years 11.49 15.26

Note: Payback is defined as the time when sufficient monieshave been accumulated by the operation of the network to payback bond monies borrowed over twenty years


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Now for the models: Both models use the same assumptions fornumbers of homes passed (10,800); all offerings are the same in bothcases. Percentages taking expanded basic and premium channels aretypical of national percentages.

Since the service offerings and pricing are the same in both cases,revenue will be identical as well.

Year Year Year Year Year

Year 1 2 3 7 10

Residential Population

Residences Passed 10800 10837 10874 11022 11134

Single Family Residences Servd-Video 8160 8239 8318 8640 8728

Condominium Units Served-Video 480 484 489 508 513

Single Family Video 1428 3707 4574 5184 5236

MTU Units Video 84 217 268 304 307

Basic (single and MTU) 226 588 726 823 831

Exp Bas 1214 3151 3888 4406 4451

Multiple Family Exp Basic 72 185 228 259 261

Single and Multiple Family Digital 480 1303 1680 2177 2198

Prem 2 375 973 1200 1360 1374

Prem 3 180 467 576 653 659

Wir Serv 285 741 914 1036 1047

Pay Per Views (per Month) 480 1303 1680 2177 2198

On Demand Pay Per Views (per Month) 720 1954 2520 3265 3297

Internet 256 kbps 432 1733 2501 2535 2560

2.25 Mbps 108 433 761 771 779

Voice Primary Line 1080 2709 3262 3306 3340

Voice Secondary Line 75 379 456 462 467

IntraLata Long Distance 1231 3088 3718 3768 3807

InterLata Long Distance 1231 3088 3718 3768 3807

CLASS features (No of lines) 577 1544 1859 1884 1903

Late Fees/Month 30 77 96 108 109

Reconnects/Month 150 389 480 544 549

Market Share Assumptions

Total population starting at 10800 and growing at 0.343 percent per year.

Total market penetration for video services by all providers is 80 percent.

Video market share starts at 35 percent in the first year and grows to 60 percent after four years.

Market Share for Internet starts at 10 percent of the homes passed and grows to 30 percent after four years

Market Share for telephone service starts at 20 percent of the homes passed growing to 30 percent in year 5

Residential Market for Both FTTH and HFC


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In the following model total numbers of businesses are the same, but

since high bandwidth Internet and voice service such as PRI lines(PBXs) is NOT available in the HFC case, there is no service tomedium or large businesses. This reduces the business revenue byabout one-third over the FTTH case.


Year 1 2 3 7 10

Residential

Recurring Revenue Dollars

Basic $20,133 $53,878 $68,469 $87,285 $96,361

Exp Bas $524,016 $1,401,624 $1,781,446 $2,272,750 $2,508,296

MTU Exp Bas $24,192 $32,185 $40,942 $52,271 $57,681

Digital $63,648 $177,961 $236,335 $344,687 $380,282

Prem 2 $58,500 $156,342 $198,600 $253,330 $279,670

Prem 3 $58,320 $155,847 $197,989 $252,628 $278,590

VCR Rental $0 $0 $0 $0 $0

Wir Serv $10,260 $26,676 $32,904 $37,296 $37,692

P per V $22,752 $63,615 $84,482 $123,214 $135,938

ODP per V $30,240 $84,530 $112,286 $163,740 $180,677

Internet Level 1 $124,157 $513,006 $762,562 $869,938 $959,979

Level 2 $42,768 $176,612 $319,709 $364,563 $402,502

Telecommunications Prim Line $155,520 $390,096 $469,728 $476,064 $480,960

Telecommunications Sec Line $10,260 $51,847 $62,381 $63,202 $63,886

IntraLata Long Distance $10,045 $25,198 $30,339 $30,747 $31,065

InterLata Long Distance $12,408 $31,127 $37,477 $37,981 $38,375

Class Features $93,412 $249,961 $300,957 $305,005 $308,080

Advertising $27,000 $70,056 $86,436 $97,974 $98,946

Total Recurring Revenue $1,287,631 $3,660,562 $4,823,042 $5,832,675 $6,338,981

Non-recurring Revenue Dollars

Late Fees & Reconnects $39,600 $102,600 $126,720 $143,520 $144,840

Telecommunications Line Install $40,425 $67,655 $22,050 $420 $490Internet Connect $0 $0 $0 $0 $0

Video Basic Connect $4,520 $7,240 $2,760 $160 $60

Extended Basic Connect $24,280 $38,740 $14,740 $820 $320

Total Non-recurring Revenue $108,825 $216,235 $166,270 $144,920 $145,710

Residential Revenue for Both FTTH and HFC Case


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Year 1 2 3 7 10

Business Population FTTH Case

Total Small Business 1125 1141 1157 1223 1275

Total Medium Businesses 76 77 78 83 86Total Large Businesses 37 38 38 40 42

Small Business Served 157 216 277 415 433

POTs lines (DS0) 472 649 832 1246 1299

Fractional T1 (DIA) 135 182 231 342 356

T1 Dedicated Internet Access 22 34 46 73 76

Medium Bus. Served 9 20 31 41 43

Voice (DS1) 9 20 31 41 43

Fractional T1 (DIA) 7 15 23 24 25

DIA 2 Mbps 2 5 7 16 17

Large Bus. Served 7 14 15 16 16

Voice (PRI) 7 14 15 16 16

Dedicated Internet Access 2 Mbps 3 7 7 8 8DIA 6 Mbps 3 7 7 8 8

Business Revenue

Recurring Revenue Dollars

Small Business Voice (DS0) $266,208 $375,187 $493,004 $814,968 $914,962

Small Business DIA (256k) $121,500 $167,895 $218,425 $356,954 $400,136

Small Business DIA-(1.5 Mb) $105,600 $167,280 $231,978 $406,357 $455,585

Med Bus Voice (DS1) $45,360 $103,320 $164,150 $239,639 $270,654

Med Bus DIA (512k) $12,180 $26,753 $42,046 $48,429 $54,326

Med Bus DIA (2 Mb) $11,400 $29,213 $41,920 $105,764 $121,015

Large Bus Voice (PRI) $56,700 $116,235 $127,651 $150,296 $161,853

Large Business DIA (2 Mb) $17,100 $40,898 $41,920 $52,882 $56,948Large Business DIA (6 Mb) $28,800 $68,880 $70,602 $89,064 $95,913

IntraLata Long Distance $22,968 $39,576 $49,128 $63,864 $65,856

InterLata Long Distance $22,968 $39,576 $49,128 $63,864 $65,856

Total Rec. Revenue Business $710,784 $1,174,811 $1,529,951 $2,392,080 $2,663,102

Non-recurring Revenue Dollars

Small Business Installation $15,700 $5,900 $6,100 $600 $600

Medium Business Installation $5,400 $6,600 $6,400 $400 $600

Large Business Installation $6,450 $6,850 $750 $1,150 $0

Total Non-recur Rev. Business $27,550 $19,350 $13,250 $2,150 $1,200

Total Business Revenue FTTH $738,334 $1,194,161 $1,543,201 $2,394,230 $2,664,302

Total Business Revenue HFC $531,664 $747,414 $989,443 $1,638,686 $1,833,635

no medium or large business revenue; small business revenue the same

Business Customers and Revenue FTTH Case/ Revenue HFC Case


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Since the video offerings are the same, the video costs will be thesame also.


Year 1 2 3 7 10

Video Costs of Cable Programming

Basic $12,852 $35,031 $45,386 $62,524 $73,105

Exp Bas $174,672 $476,280 $617,100 $850,242 $994,091

MTU Exp Bas $3,888 $10,490 $13,574 $18,743 $21,864

Digital $5,760 $16,418 $22,226 $35,009 $40,918

Prem 2 $38,025 $103,595 $134,152 $184,805 $216,137

Prem 3 $37,908 $103,268 $133,739 $184,292 $215,302

VCR Rental $0 $0 $0 $0 $0

Pay Per View (Reg and On Demand) $28,800 $82,076 $111,132 $175,027 $204,589

Total Programming Costs $301,905 $827,158 $1,077,310 $1,510,641 $1,766,006

Video Programming Expenses FTTH and HFC case


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There are some costs differences between HFC and FTTH. The HFC casewill have higher personnel costs because of increased monitoring andmaintenance requirements. FTTH will have higher Internet data costsbecause of the higher bandwidth being sold. Over all the two differ only

slightly (FTTH in black, HFC in blue).

Network Costs, FTTH case

FTTH Year Year Year Year Year

Year 1 2 3 7 10Total No. Employees 2 7 11 12 12

Customer Service Rep $22,602 $93,120 $127,884 $143,935 $157,281

Field Technician (lead) $27,616 $49,042 $50,513 $56,853 $62,125

Field Technicians $0 $64,544 $88,641 $99,766 $109,017

Field Technician 2 $0 $0 $41,242 $92,837 $101,446

Installers $0 $0 $76,291 $85,867 $93,829

Sales & Marketing $78,651 $81,011 $83,441 $93,913 $102,622

Network Personnel $128,869 $287,716 $468,013 $573,171 $626,319

Other Network Charges

Pole Charges $81,842 $81,842 $81,842 $81,842 $81,842

Vehicle Operation $15,000 $46,125 $55,158 $69,582 $74,932

Line Utilities $0 $0 $0 $0 $0

ISP Hosting $0 $0 $0 $0 $0

PRI Lines (wholesale) $18,144 $36,288 $38,880 $41,472 $41,472

Residential Internet Transport $65,279 $261,766 $434,309 $440,070 $444,574

Business Internet Transport $66,095 $114,047 $139,920 $203,730 $210,815

Misc.--supplies $2,500 $2,562 $2,627 $2,899 $3,122

Support ISP/Ethernet $0 $0 $0 $0 $0

SS7 Charges/Interconnect Trunks $0 $0 $0 $0 $0

Wholesale DS0 Business $50,976 $70,092 $89,856 $134,568 $140,292

Switch Maintenance $0 $0 $0 $0 $0

Total Other Network $515,418 $1,161,040 $1,532,472 $1,789,362 $1,867,740

Total Network $644,287 $1,448,757 $2,000,485 $2,362,533 $2,494,059

and on the following page the HFC model


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HFC Year Year Year Year Year

1 2 3 7 10

Total No. Employees 2 7 11 16 16

Customer Service Rep $22,602 $93,120 $127,884 $215,902 $235,922

Field Technician (lead) $27,616 $49,042 $50,513 $56,853 $62,125

Field Technicians $0 $64,544 $88,641 $149,649 $163,525

Field Technician 2 $0 $0 $41,242 $139,256 $152,168

Installers $0 $0 $76,291 $85,867 $93,829

Sales & Marketing $78,651 $81,011 $83,441 $93,913 $102,622

Netw ork Personnel $128,869 $287,716 $468,013 $741,440 $810,191

Other Netw ork Charges

Pole Charges $81,842 $81,842 $81,842 $81,842 $81,842

Vehicle Operation $22,500 $69,188 $78,797 $95,675 $103,031

Line Utilities $19,800 $20,295 $20,802 $22,962 $24,727

Head End Utilities $2,313 $2,370 $2,430 $2,682 $2,888

Res idential Internet Transport $65,279 $261,766 $434,309 $440,070 $444,574

Business Internet Transport $45,270 $65,467 $86,002 $132,331 $137,760

Misc.--supplies $2,500 $2,562 $2,627 $2,899 $3,122

Wholesale Residential Line $124,740 $341,842 $421,872 $471,930 $513,478

CPE repairs/replacements $15,850 $40,211 $50,966 $87,327 $93,474

Wholesale DS0 Business $50,976 $70,092 $89,856 $134,568 $140,292

Voice Transport Costs $54,925 $126,155 $153,600 $169,264 $172,370

Total Other Network $485,994 $1,081,789 $1,423,102 $1,641,550 $1,717,558

Total Ne tw ork $614,863 $1,369,506 $1,891,115 $2,382,990 $2,527,750

Network Costs, HFC Case


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Capital Equipment Costs are higher in the outside plant for HFC, but whenthe higher costs of ONTs in subsequent years are added, the first cost ofFTTH is still higher than for HFC. Again FTTH in black and HFC in blue.FTTH Year Year Year Year Year

1 2 3 7 10

Capital Expenditures FTTHOutside Plant Labor exc. Make-ready $4,864,389 $0 $0 $0 $0

Make Ready $698,784 $0 $0 $0 $0

Outside Plant Materials $2,741,732 $0 $0 $0 $0

CATV Headend with OSS $1,694,760 $0 $0 $0 $0

Central Office Gear $1,244,693 $0 $0 $0 $0

CATV towers $200,000 $0 $0 $0 $0

WDM Video Coupler $27,123 $37,429 $11,478 $0 $0

Configured Rack for P-OLT $10,726 $9,868 $9,079 $0 $0

OLT /w ATM interface & alarms $44,788 $41,205 $18,954 $0 $0

PON Cards for FTTH Solution $165,048 $240,748 $100,041 $7,362 $0

Miscellaneous Outside Plant Equipment $72,000 $173,225 $25,215 $0 $0

Fiber Splicing per new customer $144,090 $217,341 $88,883 $5,949 $2,810

Install Fiber Drops and FTTH units $553,240 $811,001 $338,259 $23,507 $11,664

2 Fiber All Dielectric Drop Fiber $80,050 $120,745 $49,379 $3,305 $1,561

FTTH Access Management Server (AMS) $39,483 $0 $0 $0 $0

Power Supply - Battery Backup $240,150 $362,235 $148,138 $9,915 $4,683

Digital Set-tops - ITV Ready $367,625 $579,071 $244,250 $9,793 $2,609

FTTH ONTs $1,439,978 $1,857,517 $685,548 $33,441 $11,275

FTTH-inside wiring $48,000 $23,575 $9,456 $928 $500

Substation Buildings (1 prefab) $25,000 $0 $0 $0 $0

Voice OSS/Hardware Upgrades $0 $0 $0 $0 $3,195,126

Total Capital Expenditures $14,701,659 $4,473,960 $1,728,680 $94,200 $3,230,228

Capital Associated/w Utility Ops $2,205,249 $671,094 $259,302 $14,130 $484,534

Net Capital Expenditures $12,496,410 $3,802,866 $1,469,378 $80,070 $2,745,693

Capital Expenditures HFCOutside Plant Labor exc. Make-ready $6,013,736 $0 $0 $0 $0

Make Ready $698,784 $0 $0 $0 $0

Outside Plant Materials $4,280,081 $0 $0 $0 $0

CATV Headend with OSS $1,804,760 $0 $0 $0 $0

Central Office Gear $686,493 $0 $0 $0 $0

CATV towers $200,000 $0 $0 $0 $0

Voice Switch $0 $0 $0 $0 $0

Equipment-Fusion Splicer $0 $30,750 $0 $0 $0

Cable Modem $124,430 $383,330 $264,842 $3,201 $3,160

Install Coax Drop to Home/Business $317,000 $479,290 $194,996 $12,757 $5,995

Install Settop Boxes $14,430 $25,307 $11,883 $731 $262

CATV Settop Boxes $306,000 $482,885 $203,242 $8,246 $2,007

Substation Buildings (1 prefab) $25,000 $0 $0 $0 $0

Voice OSS/Hardware Upgrades $0 $0 $0 $0 $4,811,023

Total Capital Expenditures $14,762,839 $1,888,693 $822,049 $32,907 $4,826,193

Capital Associated/w Utility Ops $2,214,426 $283,304 $123,307 $4,936 $723,929

Net Capital Expenditures $12,548,414 $1,605,389 $698,742 $27,971 $4,102,264


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From a cash standpoint, both the FTTH and HFC cases are cash flowpositive in year four. On a payback and NPV basis, FTTH is much betterthan HFC, with a payback of 11.49 years rather than 15.26 years showingthe increased long term advantages of FTTH.

FTTH Income Statement Top/HFC Bottom

FTTH Year Year Year Year Year

1 2 3 7 10

Income Statem ent FTTH

Total Revenue on Operations $2,134,790 $5,070,958 $6,532,513 $8,371,825 $9,148,993

Interest on Unallocated Cash $0 $177,198 $47,626 $131,414 $276,683

Video Costs ($301,905) ($827,158) ($1,077,310) ($1,510,641) ($1,766,006)

Total Other Netw ork Direct Costs ($644,287) ($1,448,757) ($2,000,485) ($2,362,533) ($2,494,059)

Bond Financing Expenses ($365,500) $0 $0 $0 $0

General & Administration ($505,992) ($773,716) ($887,146) ($995,720) ($1,060,110)

Operating Income $317,106 $2,198,525 $2,615,199 $3,634,345 $4,105,502

Operating Income Margin 14.9 43.4 40.0 43.4 44.9

Depreciation ($553,754) ($1,379,332) ($1,755,987) ($2,030,746) ($922,247)

Earnings Before Interest (EBIT) ($236,648) $819,193 $859,212 $1,603,599 $3,183,255

Interest Paid $868,275 $868,275 $868,275 $735,248 $616,981

Gross Earnings Before Taxes ($1,104,923) ($49,082) ($9,063) $868,351 $2,566,274

Loss Carryover $0 ($1,104,923) ($1,154,005) $0 $0

Net Earnings Before Taxes ($1,104,923) ($1,154,005) ($1,163,068) $868,351 $2,566,274

Provision for Taxes $0 $0 $0 $346,840 $1,026,010

Net Income FTTH ($1,104,923) ($49,082) ($9,063) $521,510 $1,540,264

Income Statement HFC

Total Revenue on Operations $1,928,120 $4,604,125 $5,916,628 $7,415,655 $8,000,073

Interest on Unallocated Cash $0 $164,632 $109,480 $118,282 $141,605

Video Costs ($301,905) ($827,158) ($1,077,310) ($1,510,641) ($1,766,006)

Total Other Netw ork Direct Costs ($614,863) ($1,369,506) ($1,891,115) ($2,382,990) ($2,527,750)

Bond Financing Expenses ($365,500) $0 $0 $0 $0

General & Administration ($504,624) ($762,067) ($873,043) ($985,966) ($1,056,838)

Operating Income $141,228 $1,810,027 $2,184,640 $2,654,340 $2,791,085

Operating Income Margin 7.3 39.3 36.9 35.8 34.9

Depreciation ($451,464) ($1,017,725) ($1,182,332) ($1,296,752) ($1,002,818)

Interest Paid $868,275 $868,275 $868,275 $735,248 $616,981

Gross Earnings Before Taxes ($1,178,511) ($75,973) $134,033 $622,340 $1,171,286

Loss Carryover $0 ($1,178,511) ($1,254,484) $0 $0

Net Earnings Before Taxes ($1,178,511) ($1,254,484) ($1,120,451) $622,340 $1,171,286

Provision for Taxes $0 $0 $0 $248,436 $468,014

Net Income HFC ($1,178,511) ($75,973) $134,033 $373,904 $703,272


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While more or less optimistic market penetrations can be selected indifferent situations, the relative positions of the two technologies will be

unchanged.

Summary

FTTH is a new technology while HFC is a mature one. While there willcontinue to be improvements to HFC as incumbents tweak additional yearsfrom aging infrastructure, by electronics standards, HFC is an oldtechnology. FTTH has a number of major advantages which will onlyimprove its position over time including:

The increase in deployments of FTTH is causing the prices of OpticalNetwork Terminals or ONTs to drop precipitously. The drop isbringing FTTH deployments much closer to HFC in first cost.

When the costs of future upgrades and maintenance are factored intothe costs of HFC and FTTH deployments, FTTH is already lessexpensive than HFC.

The tremendous capacity of digital transmission over fiber opticcable, potentially in the terabit per second range, makes FTTHtechnology far superior to HFC and futureproof from the standpointof the outside plant.

When it comes to planning a new municipal deployment to provide voice,data and video services, a Full FTTHousebeats HFC every time.


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Index

Broadcast A term in cable television parlance, which indicates that allchannel signals are sent simultaneously to all customers. It differs fromthe IP method of transmission wherein a single channel signal is multicast(retransmitted individually to single or small groups customers).

DOCSIS -- Data over cable service interface specification. A set ofprotocols used to determine how data transmission of HFC is organized.

Hertz -- Another term for the number of times (cycles per second) than asignal varies. Variations include kHz or thousands of cycles per second and

MHz or millions of cycles per second.

RBOC - The original Bell Operating Companies formed after the breakup ofBell Telephone. One of these, now named Verizen, is beginning to deployFTTH in selected markets.

single mode fiber - One of two generic types of fiber optic cable differingin dimensions and use. While single mode fiber has a diameter ofapproximately 125 microns (0.005 inches), only the very center or coreapproximately 8 microns is used for transmission of light. The rest of thefiber is manufactured (lower refractive index) so that light is reflected backinto the core. A colored coating layer is added to the outside. The othertype, multimode fiber, is generally used for premises equipment or inlocalized areas (e.g. campuses) because the maximum transmissiondistance is much lower.

VOD Video on demand requires a dedicated bandwidth per user becausethe user sets the time the movie starts. In the case of HFC systems, eachVOD sale will require utilization of the digital bandwidth required for thatmovie. In the case of systems with little available downstream bandwidth,if significant numbers of VOD signals are being transmitted at the same

time, a user desiring to purchase a particular movie may find that it isunavailable.

Documents

Ftth Beats Hfc[1]