WHITE PAPER Shridhar Kulkarni, Product Manger, Access Network Solutions Luis Yu, Senior Product Manager, Access Network Solutions Aurora Networks, Inc. October 2009 (First presented at the 2009 FTTH Conference & Expo, Houston, Texas)
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INTRODUCTION Cable operators worldwide are aggressively evaluating fiber to the home (FTTH) technologies as enablers for providing next generation video and broadband services. Cable plant modernization via an FTTH implementation is considered to be a very effective strategy in countering competitive threats from telcos and alternative service providers. RF over Glass (RFoG) is a promising new technology that offers cable operators an evolutionary approach to implement an FTTH architecture. RFoG preserves traditional HFC (Hybrid Fiber Coax) plant investments in headend equipment, customer premises equipment (QAM set-top boxes, DOCSIS cable modems, emtas) and in addition does not require any change in the cable operator s back-office provisioning and OSS infrastructure. In spite of these advantages there is a widespread belief that RFoG, because it is an FTTH architecture, is much more expensive to implement than traditional HFC. So it naturally beggars the question for cable operators whether or not this additional investment in RFoG is truly justified? The answer to this question is an unequivocal yes for one particular target market segment: low density rural areas where a clear business case for RFoG exists. Our findings reveal that RFoG carries the potential to be more cost effective than HFC in low density serving areas and that it makes more sense to deploy fiber all the way to the premises in the rural market segment where it could provide new revenue streams more costeffectively. While there is no formal definition of RFoG ROI in Rural Environments rural, it does seem to converge on areas where the households passed per mile (HHP/mile) is less than 30. Practically for a cable operator, this will be the outlying regions of their cable franchise where, historically, it has never been commercially viable to build cable plant. However, a big challenge is that the majority of RFoG implementations as envisioned today have serious limitations in fulfilling the requirements of this low density target market segment. A next generation RFoG architecture is required to reap the technological benefits of fiber based implementation and to be more cost effective than traditional HFC at the same time. In the following sections of this paper we describe RFoG basic building blocks, limitations of the traditional RFoG architecture and an enhanced architecture for next generation RFoG. Last but not least, the paper lays out the business case for this enhanced RFoG implementation over traditional HFC in the low density rural target market segment. RFoG BUILDING BLOCKS The reference architecture for an RFoG system is shown in Figure 1. The reference architecture comprises a downstream optical transmitter operating nominally at 1550 nm, optical amplification as required by the topology being served, and a wave division multiplexer (WDM) used to combine downstream and upstream optical signals onto a single fiber. It also comprises an upstream optical receiver which receives the upstream optical signals on either 1610 nm or 1310 nm and converts them to RF. In the field, located near 3
Figure 1. RFoG Reference Architecture, Highlighting Distance Limitations the end customers, there is an optical splitter whose outputs connect directly to the customer premises each fiber from the headend/hub supporting up to 32 customers. For RFoG implementations, it is assumed that only one fiber is needed to the premises. At the customer site, there needs to be an RFoG CPE, designed for either indoor or outdoor installation, which comprises an optical demux to separate the downstream optical signal (at 1550 nm) from the selected upstream wavelength. The receiver then recovers the RF signals from the downstream optical carrier, and the RF signal is fed via coax into the premises. In the upstream, the RF signal is supplied to an upstream optical transmitter (with an output at 1310 nm or 1610 nm) for onward transmission to the headend. The associated RFoG reference diagram of a frequency/wavelength spectrum for a typical North America system is shown in Figure 2. Figure 2. RFoG Spectrum 4
The choice of an upstream wavelength is not arbitrary; the 1310 nm solution today is more cost-effective given the wide availability of components (both active and passive) at this wavelength. However, 1610 nm is more futureproof; it permits an optional overlay with either an IEEE 802.3ah (EPON) or an ITU G.984 (GPON) system given that both these systems prescribe the use of 1310 nm for upstream data communications. The same suite of consumer services can be offered to any subscriber on any area of the cable plant, not just the areas which are fed via fiber. This results in a completely unified headend, significantly simplifying operation for the cable operator. TRADITIONAL RFoG LIMITATIONS While the system does meet many of the objectives of the cable operator to deploy an HFC-compatible FTTH network, technically, this solution has limitations, namely: Limited downstream reach Limited upstream reach Fiber-intensive in the form of large fiber bundles Lack of route redundancy While the downstream reach is important, the distance limitation is predominantly driven by the upstream. The major equipment cost element in any FTTH system is the RFoG CPE with its associated laser diode for return transmission; hence, minimizing the cost of this component is important. For this purpose the most suitable type of laser transmitter for CPE devices is the Fabry- Perot (FP) laser. While these minimize cost, they do restrict the reach of the units. Depending upon actual model and network configuration, a reach of just 10 20 km is typical. Unfortunately, this limits the area which can be served directly from the cable systems' headends/hubs. In a typical RFoG deployment, each fiber would serve up to 32 subscribers. For example, in a 256 home service area, a cable operator would need to dedicate eight fibers from the headend/ hub to that area to ensure service to each subscriber. Similarly, with these direct fiber runs from the headend, there is no practical method to provide any route redundancy in the system; hence, the greatest cause of fiber network failures cut fiber cannot be mitigated by use of alternate fiber routes. With the growing importance of highdemand, high-revenue services, this is not an ideal solution. Particularly for low density serving areas with less than 30 HHP per mile that are typically on the edge of existing serving areas, the above limitations make it extremely challenging to successfully deploy an RFoG architecture. NEXT-GENERATION RFoG This pioneering solution efficiently overcomes all the limitations of an RFoG system, using distributed or virtual hub technology. A virtual hub is a fully operational hub but hosted in a standard node housing. In this application it is designed to serve up to 256 subscribers. Effectively, it moves the functionality of an indoor hub to an environmentally hardened node enclosure that can be deployed closer to subscribers in the network. The key virtual hub features for this application are: Support for multiple modules (EDFAs, analog return path receivers, integrated WDM/analog 5
return path receiver functionality, digital transceivers and transponders, optical switches, monitoring transceivers, and optical multiplexers) Monitoring and control via standards-based EMS (Element Management Software) Redundancy and route diversity. The next-generation RFoG architecture is shown in Figure 3. In addition to its flexibility in placement (it can be located very deep into the network); it overcomes the limitations of the RFoG reference design noted: Downstream reach limitation: With EDFAs packaged for installation in this housing, the downstream reach is no longer limited. Upstream reach limitation: At the virtual hub, the return signals are received and then digitized for onward transmission. With the virtual hub configured with upstream analog return path receivers, the subscriber CPEs only need to transport back to the virtual hub a very short distance of typically much less than 10 km. With up to four analog receivers in the virtual hub, effectively 64 or 128 subscribers share the upstream bandwidth. Use of the CWDM or DWDM digital return overcomes the distance limitation (with the reach now becoming >60 km) as well as maintaining a very fiber-efficient solution. Fiber-intensive: With the traditional RFoG approach, one dedicated transport fiber from the headend is needed for 32 subscribers. With the virtual hub, this is reduced to one transport fiber for 256 subscribers because it also utilizes return path combining, whereas the traditional approach needs eight times more fiber. No route-redundancy option: A hardened optical switch provides route diversity with switching times less than 10 milliseconds (typically <5 milliseconds). With the virtual hub approach, a cable operator has an optimal solution to deploy FTTH today, a solution which cost-effectively overcomes the limitations associated with other approaches. Figure 3. Overcoming the Limitations of RFoG 6
The virtual hub-based RFoG solution is operationally superior to traditional HFC and leads to a very robust and reliable cable plant. Eliminating the RF actives (amplifiers and line extenders) from the network has significant operating advantages. Reducing the number of actives in the outside plant also results in significantly fewer units which can fail and hence a reduction in associated costs and time to repair those failures. Moreover, in a traditional HFC network, the cable operator has to sweep and balance the RF plant on an annual basis. Again, with no RF units, this requirement has been eliminated. With no RF actives and only the occasional virtual hub, the powering requirements for the network are significantly lower. Compared to a traditional HFC network, the powering need could be reduced by 75% or more. Similarly, with the serving area size now effectively one, with only the CPE at the consumer s home, it is much easier to target exactly where a network problem might exist. Typically, troubleshooting and correcting these network issues will take less time given that the field technician can be sent to a much smaller network area. Ultimately, the mean time to repair will be reduced. Taking everything into consideration, there is a substantial reduction of on-going maintenance costs when compared to a traditional HFC plant. This not only lowers the ongoing plant operating costs but also dovetails perfectly into a cable operator s green strategy. The next section attempts to quantify some of these RFoG advantages and lays out a business case for deployment of FTTH for the low density rural target segment. NEXT-GENERATION RFoG BUSINESS CASE As noted in previous sections, next-generation RFoG has several advantages over HFC and traditional RFoG architectures, particularly in a low density rural environments. However, a technical case alone is not sufficient for broadband providers to make an informed decision. A business case also needs to exist as a prerequisite for deploying new FTTH technologies. Our analysis concludes that the cable operator s ROI (Return on Investment) in a typical low density rural serving area for RFoG deployment is approximately 10 percentage points higher than that for HFC. The goal of this section is to present a detailed quantitative analysis to support this conclusion. For any ROI analysis it is very important to understand the cost structure both from the standpoint of CAPEX (capital expenditures) and OPEX (operational expenditures) for the architectures involved. CAPEX Comparative Analysis We conducted a comprehensive CAPEX analysis for all the deployment costs associated with implementing both the HFC and next-generation RFoG architectures. The modeling exercise involved cost analyses for both architectures for identical node serving areas (in terms of homes passed and mileage statistics) that fit the typical rural landscape. The capital costs were split into the following different categories: 1 Headend / Hub / Field Optoelectronic Equipment 7
2 Coax/Fiber Cables in Serving Area (Construction, Material, Splicing, Labor) 3 Power Supplies / Active Elements (Amplifiers, Line Extenders) 4 Passive Elements 5 Aerial Strand Hardware 6 Drop and Installation (CPE included) 7 Project Management / Design Engineering / Turn Up and Test Note that with regard to construction and cable layout costs, the focus of this analysis was the node serving area itself and not the entire network, the reason being that the cost associated for laying fiber from headend to the node serving area is the same for both HFC and virtual hub-based RFoG. The real cost differences lie in the implementation at the node serving area (Fiber Node to Home) which is typically coax dominated for HFC vis-àvis fiber dominated for RFoG. Finding I: Our analysis revealed that for a low density rural node serving area with a 50% penetration rate, the CAPEX cost per home for RFoG was lower than that for HFC with a savings of $26 per HHP (Figure 4). The major cost drivers for RFOG were markedly different from that of HFC. The top three cost differentials between the two architectures were: 1 Cable layout and construction costs comprised 41% of the total cost in HFC as compared to 23% in next-generation RFoG. This was due to the fact that HFC last mile, which is coaxintensive, does not scale as well (costs disproportionately escalate with mileage) as RFoG which is fiber-intensive. 2 The proportion of power supplies and active elements (amplifiers, line extenders) were a high 11% in HFC as compared to 1% in nextgeneration RFoG. Particularly for the rural target market segment with greater distances, Figure 4. HFC versus RFoG Cost per HHP Comparison for Rural Deployment 8
the HFC solution needed a higher number of bridger amplifiers and line extenders. 3 HFC did better in terms of the proportional costs for drop and installation, 2% as opposed to 19% in the case of RFoG. The major driving factor for cost here is the inclusion of RFoG CPE that resides at every home with an active subscriber. However, an important point to note is that this CPE cost for RFoG is only incurred for an active subscriber and not for all the homes passed. Finding II: Further analysis of the above cost drivers reveals that the HFC cost structure has a higher fixed cost component, forcing the operator to incur higher upfront costs. The RFoG cost structure, on the contrary, has a lower fixed (~30% lower) cost component (Figure 5) thus facilitating reallocation of variable costs at the time of subscriber acquisition. The plot in Figure 6 illustrates the downward sloping curves for average cost per subscriber with increasing penetration rates for both architectures. As subscriber take rate improves, the average cost per subscriber goes down due to the sharing of fixed costs across a wider subscriber base. It is evident from cost curves that the average costs per subscriber for nextgeneration RFoG are lower because of its much smaller fixed cost component as compared to Figure 5. HFC vs RFoG CAPEX (Fixed + Variable Cost) Comparison for Rural Deployment (Node Serving Area of ~ 400 Homes) 9
Figure 6. HFC versus RFoG Average Cost Reduction Comparison for Rural Deployment HFC. However, at very high penetration rates the RFoG advantage starts to disappear and HFC average cost per subscriber improves by comparison. The breakeven point is at about 60% penetration rate, and for all penetration rates below 60% the RFoG average cost per subscriber is favorable as compared to HFC. This statistics bodes well for next-generation RFoG as typical penetration rates for MSO are less than 60% and, according to Kagan Broadband, this number was estimated to be 48.1% in the US for 2008. OPEX Comparative Analysis As described in the previous sections, a nextgeneration RFoG network is expected to have significantly lower plant maintenance and operational savings as compared to traditional HFC. Specific reasons cited are: 1 Lower active elements in the network (RF amplifiers, line extenders, nodes, power supplies, etc.) leading to lesser plant maintenance. 2 Elimination of sweep and balance activities required for traditional HFC plant. 3 Savings in network power related costs due to lower number of actives. 4 Fiber cables inherently more robust than coaxial cables for environmental hazards (temperature, humidity) and animal attacks. RFoG, being a nascent technology, has a fairly recent and limited deployment base. As a result, although all the operational advantages for RFoG are real and expected, real world quantitative data with regard to operational performance is not available. A good performance benchmark is to look closely at the cost savings dynamics of a 10
typical Fiber Deep network. Fiber Deep is a high performance HFC variant ( N+0 architecture) that pushes fiber much deeper into the network, eliminating all actives in the process. From an OPEX performance standpoint, the RFoG deployment is expected to fare at least as well as Fiber Deep if not better. Following are the observed savings for a Fiber Deep network as compared to traditional HFC: Reduction of total active devices 70% Reduction of total power supplies 50% Savings in maintenance and $8.84 per power costs HHP Finding III: Based on an extrapolation of Fiber Deep statistics to the next-generation RFoG implementation, operational expenses in terms of plant maintenance and powering will be at least 50% lower than that for HFC architecture. NPV/IRR Comparative Analysis between HFC and RFoG Utilizing the above findings for capital and operational expenditures, a comparative return on investment model was built between HFC and next-generation RFoG. A similar rural service area in terms of number of homes passed and homes per mile was used for modeling both architectures. The goal of this exercise was to present a differential return on investment analysis for deployment of both architectures in a typical low density rural serving area. Based on typical plant depreciation schedules, a 12 year cost benefit model was constructed. Cash inflows for the cable operator were derived based on national ARPU (Average Revenue per Unit) numbers. CAPEX numbers for both architectures, next-generation RFoG and HFC, were used based on the quantitative model developed in previous sections. OPEX numbers were based on typical top down financials data reported to the SEC by public MSOs. Using both the CAPEX and OPEX number analysis, cash outflows were calculated for both deployments in the service area under consideration. Based on the projected net cash inflows and standard cost of capital (10%) Net Present Value (NPV) for both projects was determined. Following are the comparative NPV and IRR (Internal Rate of Return) numbers for the two architectures: HFC RFoG NPV (Per Home Passed) $2,108 $2,312 IRR (Internal Rate Of Return) 49% 58% Finding IV: Comparative analysis revealed that the NPV (Net Present Value) and IRR (Internal Rate of Return) numbers for nextgeneration RFoG were at the very least 10% higher than those for HFC architecture. NEXT-GENERATION RFoG STRATEGIC ADVANTAGE In the previous section we presented the business case for a next-generation RFoG solution, taking into account the revenue numbers for current generation services. An additional benefit that is not captured in this quantitative analysis, and one that is more strategic in nature, is that this next-generation RFoG architecture can provide a seamless evolutionary path for deploying ultra high bandwidth broadband access technologies such as GEPON and 11
GPON. Not just fiber but all the virtual hub-based RFoG infrastructure elements such as housing, electronics and the back-office provisioning systems can be leveraged to support such an evolution. In addition, these next-generation PON technologies lend themselves to capturing newer market segments in the commercial services arena such as cell tower backhaul and SMB/SME business connectivity. The benefit of this embedded strategic option is not captured in a typical NPV analysis, but is nevertheless real and renders the next-generation RFoG-based FTTH architecture far superior to traditional HFC. CONCLUSION This paper presented a superior business case for next generation RFoG RF over Glass technology vis-à-vis HFC for the low density rural market segment. The virtual hubbased RFoG architecture overcomes all the limitations of traditional RFoG, specifically in areas of downstream and upstream reach, fiber preservation and intensiveness, scalability, route redundancy and cable plant robustness and reliability. Contrary to popular belief, this nextgeneration RFoG architecture is more cost effective to deploy for rural serving areas, has better operational savings and presents superb return on investment credentials as compared to traditional HFC-based systems. Finally, there is a strategic advantage for choosing this nextgeneration RFoG solution as it provides the ability for seamless migration to ultra high speed PON technologies, enabling cable operators to offer next generation broadband access services and capture newer market segments. 12
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