Does High Tech Require High Fiber?

Sunday, Oct. 15, 2006 By MARK HALPER
Illustration for TIME by MARK MATCHO
Article Tools
Print
Reprints
Sphere
RSS

According to the prevailing wisdom, broadband customers don't want to know about the technology that lies underneath the cornucopia of phone, TV and Internet services they enjoy — they just want it to work well and be affordably priced. Don't tell that to Frédéric Roy, who's excited about ftth, an inelegant tech acronym that stands for "fiber to the home."

Roy, who lives in Paris, applauded when Free, the Paris-based broadband provider and subsidiary of French telecom firm Iliad, announced [an error occurred while processing this directive] last month that it will spend €1 billion to run high-speed fiber-optic lines to 4 million French homes by 2012. "This change is necessary because we've come to the end of the copper," says Roy, referring to the metal wire that has traditionally brought phone traffic and then digital data to the home. "With fiber optics, they'll get rid of the glitches that degrade the TV and telephone service," he says.

But if some consumers were thrilled by Free's announcement, investors were not: Iliad's stock dropped by 12% the day it declared fiber ambitions. Investors worry that fiber investments will not pay off, even though many big players are jumping in: NTT in Japan is in the midst of a $47 billion fiber deployment and Verizon in the U.S. is spending about $18 billion to do the same. In general, "Investors see a lot of capital expenditure going out without revenue — it's a bit like the dotcom boom," says Robert Grindle, a telecommunications analyst with investment bank Dresdner Kleinwort in London.

So are fiber-optic lines the savior of the telecom industry, or a financial millstone? The technology itself is nothing new. Fiber lines — strands of glass wrapped in a plastic sheath that carry signals in the form of light rather than as electrical impulses — have crisscrossed countries' backbone networks for decades.

In most telecom networks, fiber lines connect to slower, lower quality copper wires tens of meters or even kilometers away from the home. The reason: connecting each home to fiber is a costly endeavor that often requires digging a trench to every house. Free, for example, plans to route its fiber to homes through Parisian sewers. Joe Savage, head of a U.S. fiber-to-the-home advocacy group called the ftth Council in Lake Oswego, Oregon, says that completing a home fiber connection can cost a provider anywhere between $600 and $2,000 per subscriber, depending on the amount and difficulty of digging.

Many telecom companies believe such expenses are worthwhile because of their customers' insatiable appetite for more bandwidth. As users grow hungrier for services like high-definition television, video-on-demand, gaming, Internet-based phone calls and streaming music, fiber is a good way to feed them. Fiber typically delivers speeds of up to 100 megabits per second (Mbps), a rate 50 times quicker than average broadband, delivered by cable or digital subscriber line (dsl) technology, in some countries. (Telecom companies are, though, also ratcheting up dsl speeds as high as 50 Mbps by further tweaking copper wires.)

Fiber could therefore be a fantastic weapon as telecom companies fight against cable and satellite providers to offer high-speed Internet, phone, TV and video services. But there are risks. Iliad's chief executive Michaël Boukobza says, "Our biggest challenge is the technical part of getting fiber optics through sewers." But that's not the only one. What happens if users sign up for basic fiber access, but then decline to buy video-on-demand and "triple-play" service packages — including hundreds of channels of TV and Internet-based telephone plans as well as high-speed Net access — on which companies like Free and Verizon are banking for profits?