BUSINESS CONTRASTS BETWEEN HFC AND xDSL

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BUSINESS CONTRASTS BETWEEN HFC AND xDSL Naval
Ravikant Manager, Strategic Planning _at_Home
Network June, 1998
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BROADBAND ACCESS LINES RACE TO THE
FUTUREMajority of Deployments will be
Hybrid-Fiber Coax and Digital Subscriber Lines

• Cable deployments are leading the way
• 15,000-20,000 ADSL lines are installed in North
  America, whereas over 200,000 cable modem lines
  are installed

Source Americas Network Magazine, IDC, Merrill
Lynch
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TECHNOLOGY REVIEW xDSLDSL Bypasses LEC Switch
and Uses Full 1MHz of Bandwidth

• Physical layer protocol for data-over copper
• Extends from subscriber premises to DSL Access
  Multiplexer (DSLAM) located in Central Office.
  Bypasses LEC Switch, unlike ISDN
• Filters in switch allow only 3-4kHz for voice,
  limiting analog modems
• DSLAMs needed in every CO, whereas one analog
  modem bank can serve entire LATA
• Uses full 1MHz of bandwidth
• Unlike T1, doesnt need repeaters every 3-6000
  feet and causes less bundle interference
• Discrete Multi-Tone line code breaks signal into
  256 adaptive 4k chunks, trading complexity and
  expense for reliability and rate-adaptivity vs.
  Carrier-less Amplitude Modulations single 1MHz
  signal
• Asymmetric solutions send more aggregate data,
  taking advantage of lower loop clustering and
  crosstalk at edge of network
• Type Range Up Down Pairs Application
• HDSL 12,000 1.5Mb 1.5Mb 2 T-1 replacement
• SDSL 12,000 768kbps 768kbps 1 SOHO T-1
• A / RADSL 18,000 16-640kbps 1.5-6Mbps 1 Residentia
  l, passband
• VDSL 1-4000 1-2Mbps 13-52Mbps 1 FTTC

Source _at_Home study, Americas Network Magazine
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TECHNOLOGY REVIEW DATA-OVER-HFCModems Leverage
Fat Coax Pipe to Set-Up Always-On Ethernet LAN

• Downstream programming begins at 50MHz, with
  5MHz-42MHz reserved for upstream communication.
  Each channel occupies 6MHz
• For data-over-cable, one channel in 50-750MHz
  range carries signals downstream, and one in
  5-42MHz carries signals upstream
• Downstream capacity is 36Mbps using 256 QAM and
  upstream is 10Mbps using 16QAM or QPSK (more
  robust scheme is needed since signals combine
  higher in the network, increasing vulnerability
  to interference)
• Bandwidth is shared, but since it does not need
  to be reserved (a la dialup modems), overbooking
  ratios are very good - from 10-201
• Bursty nature of data traffic means that
  high-speed shared connections are often
  preferable to mid-speed dedicated ones
• CableLabs tests show that performance degradation
  does not begin until 200-400 users per node are
  simultaneously accessing the network

Source _at_Home study, Americas Network Magazine
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BOTH TECHNOLOGIES ARE READY FOR PRIME
TIMECarrier Willingness to Invest in Deployment
is the Real Constraint

• All major Cable MSOs have begun deployment of
  cable modem services, most as part of _at_Home or
  Roadrunner, at prices ranging from 35/month to
  60/month
• 5 RBOCs and 19 CLECs have plans to begin
  deployment of xDSL this year, at prices ranging
  from 60-150 for residences and 100-1000 for
  businesses
• Cable modem technology, provisioning, deployment
  and scaling work!
• Over 200,000 full service paying customers
• Security is a non-issue for residential subs.
  Encryption at layer 2-7 plus insecurity of
  Internet limit issue
• Shared bandwidth is not a problem with 1000 homes
  / node. (1000 homes x 10 penetration x 30
  simultaneous online x 15 transferring data -
  tests indicated 200-400 supported users / node)
• Can add more channels or split node further as
  needed
• DSL technology has been tested in labs, trials,
  and HDSL deployments
• HDSL already composes 60 of T-1 deployments
• G.lite and UAWG addressing standards issues - DMT
  wins over CAP
• Modems offered by 30 vendors
• Provisioning, loop testing and scaling issues
  still need to be addressed

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BROADBAND TECHNOLOGIES FAVOR DIFFERENT
MARKETSDSL Naturally Favors Business Whereas HFC
Naturally Favors Residential

• DSL Attributes Favors
• Secure Loop Business
• Dedicated loop bandwidth Business
• Symmetric service (H, S) Business
• Uses existing ISDN equipment (I) Business
• Baseband (H, S, V) Business
• Asymmetric Service (A, V) Residential
• Passband (A) Residential
• HFC Attributes Favors
• Can integrate video / data signals Residential
• Costs decline with high penetration Residential
• Asymmetric Service (Telco return) Residential
• Symmetric Service (2-way) Business
• Close to 60 of current T-1 lines are HDSL based
• Only 17 of carriers will deploy ADSL to
  residential users soon, and only 4 will deploy
  HDSL to residences
• Fear of T-1 cannibalization and high frequency
  crosstalk will lead RBOCs to choose a high price,
  low penetration service model

Source IDC
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COSTS BROADBAND MODEMSSilicon Follows Moores
Law and Will be a Small Factor Over Time

• Cable MCNS standards initiative will keep modems
  cheap and interoperable
• Similar efforts underway on xDSL side (MSDSL)
• DMT v. CAP debate settled - DMT will lead
  deployments
• Fast DSPs means DSL and 56k modem can be
  implemented in software on the same box
• Cable modems have 1-2 year head start on price /
  performance curve
• Some DSL deployments (20-30 HDSL, 10 ADSL)
  will require midspan units to bridge distance
  limitations

Source _at_Home Estimates
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COSTS xDSL LOOP TESTING AND PROVISIONINGReaching
the Last 40 of Households Becomes Very Expensive

• About 40 of Homes are further than 18k feet, run
  through bridge taps or loading coils, are served
  by DLCs, or are served out of a bundle carrying a
  T1 signal
• Installs are expensive - provisioning one circuit
  doesnt tell you much about adjacent circuits
• Crosstalk between adjacent T-1 lines or other DSL
  lines causes interference
• Line splices and loading coils that trap the
  signal above 4khz prevent DSL
• Range limits of 12-18 kilofeet from Central
  Office. 25 of homes are outside of this range in
  urban / suburban areas, up to 50 in rural areas
• Current loop testing and provisioning systems
  only test the voice frequency spectrum
• 25 of homes are served by DLCs, which have less
  space and power to hold DSL equipment
• 100-150 per average install, 500 for
  difficult installs
• Example - US West charges 395 for average loop
  install

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COSTS DATA-OVER-CABLE PLANT UPGRADESRebuild
Costs Vary by Market and Application

• Cable MSOs must upgrade plant to 2-way, with
  small node sizes
• Entire neighborhood must be upgraded
  simultaneously
• Opportunity cost of invested capital
• Rural System upgrades are more expensive
• Upgrade needed for digital TV telephony
• Marginal cost of adding a subscriber is low
• Rebuild costs / home passed (avg. suburban
  system)
• Homes passed / optical node 300 600 1200 2000
• Fiber overlay on coax trunk 150 80 40 22
• Optical / return-path amplifiers 5 4 3 2
• Assumes no coax plant rebuild required to
  overcome channel lock

Source _at_Home Estimates
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BARRIERS TO MASS DATA-OVER-HFC DEPLOYMENTS

• Significant plant upgrades required
• Short-term amplifier-only strategy can only
  support low take rates
• Older systems need the most work
• Telco-return implementations do not have a quick
  enough payback
• Debt-load can make it difficult to raise cash -
  ROI expectations high
• Plant is also being upgraded for other services
• Interactive TV revisited
• Video channel capacity
• Conventional, lifeline telephony
• Selling applications vs. pipes
• Long term, people want IP dial-tone, but carriers
  are used to selling applications and services,
  not connections
• Provisioning / Install needs to be easier
• MCNS compatible, USB plugnplay
• Lack of ubiquity
• Constrains retail modem sales
• Prevents mass deployment of packet telephony,
  tele-commuting, etc.
• Security and shared bandwidth problems are red
  herrings
• Security available at higher layers
• All bandwidth is shared at some point

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BARRIERS TO MASS xDSL DEPLOYMENTS

• Complex provisioning and line certification
  issues
• Bridge taps, loading coils, DLCs, range
  limitations, etc...
• No testing systems in place
• Dinosaur distractions
• Long distance telephony
• Video aspirations
• T-1, leased-line business
• Unrealistic expectations
• Serving all customers
• End-to-end ATM
• End result Quarter speed ahead!
• ISPs and CLECs will drive xDSL deployment (Covad,
  Northpoint, AIX, UUNET, etc.)
• Subloop must be unbundled - RBOCs will drag their
  heels

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RBOCs WILL PREVENT MASS DSL DEPLOYMENT BY CLECs
ISPs

• RBOCs need to keep prices high to protect leased
  line and T-1 revenues
• Bury exorbitant markups in ATM circuit from CO to
  ISP facility
• Force distance insensitive pricing even for short
  circuits
• Forces cache to be in ISP facility rather than
  next to DSLAM
• ISP has to pass cost through to customer
• CLECs and ISPs are relying on dry copper loops
  (used for alarm circuits, etc.)
• RBOCs are making these loops harder to obtain -
  raising prices, adding loading coils, etc.
• Dry loop now costs 30 per month instead of the
  9-15 it would cost for an alarm circuit. C.O.s
  to put the equipment in are strapped for space.
• 1996 Telecom Act lays foundation for unbundling,
  but is insufficient
• Requires incumbent LECs to provide
  interconnection and mutually compensatory rates
  for exchange service.
• Unclear whether it is required for data services
• Arbitration has focused on unbundling of entire
  loops, when it should focus on subloop elements
• Network Interface Device
• Distribution plant (2-4 wire copper loops running
  from customer to concentration equipment)
• Concentration equipment (Aggregates dist plant
  circuits)
• Feeder plant (Fiber / high capacity copper
  running from conc. Equipment to CO)

Source IDC
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BASIC ECONOMIC COMPARISONDSLs Subscriber-Based
Economics Win at Low Penetration Rates, but HFC
Triumphs When Plant Upgrade Cost is Spread over
Large User Base

• DSL modems _at_ 740, declining 30 annually cable
  _at_ 250, decl. 20
• Cable upgrade is 55/HHP with 5 maintenance 1/2
  charged to data
• DSL carriers dont fix unreachable loops - 30
  cost 400 to provision
• Cost of capital 15 No differences in
  backhaul, CS, mkting costs

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THE FUTURE OF CABLE AND DSL COMPETITION

• In areas where cable has already been rolled out
• Cable wins in residences (low marginal cost of
  adding subscribers)
• In areas where both services are deployed
• Battle of marketing, services, and performance.
  The consumer wins
• Cable has long term economic advantage for
  residences
• Areas where neither service will be rolled out or
  win
• Rural areas (wireless, satellite), FTTC
  (unlimited bandwidth)
• DSLs chances improve if
• RBOCs do not try and serve all customers, and are
  willing to say no to those served by poor loops
• Subloop elements are un-bundled for ISPs and
  CLECs
• Unrealistic requirements about network uptime and
  ATM are dropped
• Long term, the race will actually be for access
  capacity
• Cable has 4.5 Gbps pipe, whereas xDSL is pushing
  limits of copper at 6Mbps
• MSOs will push fiber out gradually as customers
  need capacity
• RBOCs will replace aging copper with fiber
  wholesale, oversupplying some areas and
  undersupplying others
• RBOCs have more fiber in the ground, but MSOs are
  laying new fiber faster