DSL Prime: Faster, Verizon! Go! Go!

A big, big backbone upgrade at Verizon shows that the U.S. could follow the broadband path blazed by Korea and Japan.

by Dave Burstein of DSL Prime and Future of TV [April 12, 2005]

"Music was there before copyright and will be there after."
—A Swede

Verizon intends to quadruple the speed of their fiber, choosing GPON at 2.4/1.2 and asking vendors to have it ready as soon as next spring. This network is scaring the cable guys, bringing closer the day they may move to the 100 meg and gigabit service in turn. The customers are ready, and the equipment makers ecstatic. But it's still early—only the most lucky will get those speeds in 2006 or 2007. To understand how it will play in the U.S., watch Korea and Japan.

"The world is flat," just discovered Tom Friedman of the NY Times. In Bangalore, Friedman found, "The clocks were labeled U.S. West, U.S. East, G.M.T., India, Singapore, Hong Kong, Japan, and Australia." Most of us in technology think worldwide already by necessity.

So to understand what Verizon is doing in New York, I have to check with Didi Ivancovsky in Israel, the likely chipmaker. I note China Netcom's deployment of GPON proved the technology is ready; NTT of Japan and British Telecom are driving the standard. Verizon's alternate choice was G-EPON, leading in Japan, also with chips designed in Israel, by Passavé. UTStarcom, a Japanese funded company, managed by Chinese, located in California, is the key G-EPON manufacturer. UTStarcom's big new contract is in India.

The open world is a wonderful place, and I'm very flattered how many people around the world read this newsletter from New York. Keep your e-mails coming—notes from around the world are my best source of news.

Verizon's going GPON 2.4 gig
Wegleitner wants performance for IPTV
Verizon in about 12 months will begin the switch to an upgraded fiber system, GPON, which provides 2.4 Gbps downstream, 1.2 Gbps upstream, to each cluster of up to 32 homes. That's 4 times the speed of the current BPON, which yields only 19 Mbps per home (622 divided 32 ways), too little for IP TV with HD. BPON is painfully slow compared to what cable will upgrade to (or even some VDSL). Mark Wegleitner last June spoke of the importance of switched TV, which implied, as he confirmed, higher speeds than BPON.

Wegleitner had been considering both GPON and G-EPON. Most of the other large North American carriers have been leaning to GPON as well, so Verizon's choice will produce clear market dominance. Tal Liani and Vivek Arya of Merrill, who broke the story, noted that Flexlight and Optical Solutions are already on the market with GPON. For more than a year, Jim Sackman of AFC/Tellabs has been discussing GPON designs, and AFC, Verizon's key fiber supplier, will surely be ready on Verizon's schedule.

"Why delay 18 months?" I had asked, because first comments the switch would be late 2006 or early 2007. That's 3 or 4 million BPON ports from now, a long throw. The reply came from Verizon that they have checked with the supply chain and hope to begin the switch earlier, targeting April 2006. FlexLight is already shipping GPON systems at 2.4/1.2 gig for fiber to the business and basement, a related market with some similar requirements. China Netcom and Mediacom already deploy FlexLight.

An important part of the delay is surely doubts about when IP TV will be running completely smoothly, supported by low cost video switches and servers for the kind of offering Verizon intends. Some delay is due to a shift in carrier expectations. Until the recent FSAN meeting, the assumption was that the next step would emphasize 1.2 down, but the carriers requested 2.4 down, 1.2 up instead. Optimized chips have not yet sampled, and an ordinary schedule for fully tested gear would be mid-next year. When carriers buy in quantity, however, the cost should be moderate. FlexLight's Oren Marmur predicts to Ed Gubbins, "All the different speeds and bit rates at decent volumes would be pretty much the same cost. There's fierce competition going on with the optical vendors. [Price is] basically only a matter of volume." BroadLight's Didi Ivancovsky concurs and sees the cost points for GPON chips at a level that will make GPON ONTs price-comparable with G-EPON ONTs.

The demand is likely to quickly escalate. SBC's Randall Stephenson last year said they were already recommending fiber for all new builds, and BellSouth, Sprint, and Bell Canada have similar plans. BT is testing both FlexLight and ECI while working actively in FSAN alongside FT, DT, and Telecom Italia. When the housing or office developer is covering the fiber installation, the economics are now right.

Gary Lee of Flexlight adds "We have already gone through the internal development of high speed optical modules at a very low cost point and will be competitive in all GPON markets." Presumably, Alcatel, Motorola, Siemens, and Entrisphere intend to have units to offer in 2006 as well, either of their own design or with partners.

DSL Prime does not make investment recommendations, but notes BroadLight belongs on the radar screen of sophisticated private equity. They are a primary supplier of PON chips. I don't know their financing requirements, however, and maintaining their lead will require major research investments. Please be careful not to confuse BroadLight (PON chips) with BroadLogic (cable modem chips). Jennie's Future of TV will be calling attention to BroadLogic as well as the IP TV implications of Verizon's choice. Also, special thanks to the folks who are helping me understand this, including MM who got a crucial fact for me.

Copyright 2005 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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