Fred KemmererAccess Architecture & Strategy
Lucent [email protected]
June 1998
Residential Access Network Evolution
Current Environment
• Data is a primary driver for network upgrades
• There are a number of technology choices for broadband data access
• Access competition is focused around data
• Keys to the industry’s success:
– Building on existing networks (at least in the short term)
– Supporting technologies
– New business models to support data services, particularly addressing the customer interface challenges
Access ChessboardCompetition converging around data & mobile telephony
RBOCs/LECs- SBC- Bell Atlantic- GTE
IXCs- AT&T- MCI- Sprint
Cable MSOs- TCI- Time Warner- Comcast
Wireless- Air Touch- NexTel- PCS Winners
Satellite
ISPs- AOL- Mindspring
Market Size (1997)Growth Rate
Players
Fixed Telephony
Mobile Telephony Data Video
Services
2nd Lines;ADSL
VDSL/Video?
Cellular,PCS
IP Telephony?
• LeasedLoop?
• Resale?• IP Telephony?
CableModem
• Irridium• Direct PC• Teledesic• PanAm Sat
• Direct TV• Dish• Echo Star
$62B3%
$32B16%
$8 B26%
$27B8%
Cellular;PCS
Leased Loop?Cable Partnerships?
Fixed Wireless?
Household Data Demand
0
20
40
60
80
100
120
1993 1994 1995 1996 1997
FixedVoiceLines
Cable TV
PCs
Internet
Source: Veronis and Suhler, IDC, CTIA FCC
Subscribersmillions
Cellular/PCS
CPECost ($)
$20-60
$0-300 (DBS)
$1,000-3000
$0-200
Avg. ServiceExpenditure
($/mo.)
$100-250
$27 (local)$26 (LD)
$42
-
$56
$20-$40
Total US households = 102M
Wide Range of Projections for Success
0
5
10
15
1998 1999 2000 2001 2002
ADSLmillions
High
Medium
Low
• One winner or zones-of-advantage based winners?
• Wireless, satellite?
0
5
10
15
1998 1999 2000 2001 2002
Cable Modemmillions Hig
h
Medium
Low
Source: Cowles/Simba, Forrester Research, IDC, Yankee Group, Dataquest
DSL Business Model – Early Market View
A positive business model for DSL exists for business and is emerging in high-end residential/SOHO.
1
10
100
1,000
0.1 Mbps
Downstream Speed (log scale)
$ perMonth
(log scale)
T1Frac T1
ISDN
IDSL
HDSLADSL
Incremental Cost(vs. Analog Modem)
Small/MediumBusiness• Based on nearest
alternative currently in use
Emerging High-End Residential Opportunity
Existing Business
Market Opportunity
1 Mbps 10 Mbps
Top 25% of Residential Market• Based on range of
current market research
• Potentially higher if businesses subsidize (As in early cellular business model)
Willingness-to-pay
Source: Mercer management Consulting
• Loop Technologies– Leverage existing copper and coax loops
– Wideband base stations for wireless
• Dollars
• Supporting Technologies
– CPE
– Applications enablers
– Core Network Capacity
• Focus on Customer Interface
• Industry Cooperation
• Encouraging Regulation
What’s Required?
ADSL via MetallicDistribution
Cable Modems viaCoaxial Distribution
CircuitPacket
CircuitPacket
CableModemTerminatingSystem
DLC w/IntegratedDSLAM
Switch Line Unitw/ Integrated DSLAM
Integrated Voice/Data NetworksExisting Infrastructure
Fixed Wireless
Circuit
Packet
Circuit
Packet
Integrated Voice/Data NetworksNew Build
Fiber-to-the-Home
New Access Networks Are ExpensiveLeveraging existing infrastructures is a critical advantage
Cumulative Investment in Residential Access Plant
$92
$54
$32
0
10
20
30
40
50
60
70
80
90
100
PSTN Cable TV Wireless
$Billion
Source: FCC, CTIA, Kagan
High First-Costs favor:• Incremental Upgrades - ADSL, Cable Modems• Focused Builds - CAPs• Variable Cost Approaches - Satellite
Expected Cable MSO HFC Upgrade Path
0%
10%
20%
30%
40%
50%
60%
70%
80%
1996 1997 1998 1999 2000 2001 2002
2-way HFC Upgrade% of Homes Passed
Source: Average view of Forrester, Jupiter, Datapro, Company Announcements
0%
25%
50%
75%
100%
Bandwidth Likely to Bring Newand Increased Usage
% of Internet Users Who Would Start/Increase Use if the Net Were Much Faster and Had
Better Audio-visual Quality
Use More
Start Using
MakeVideoCalls
WatchVideos
PurchaseGoods orServices
PlayGames
BroadcastVideos
Surf/Browse
MakeVoiceCalls
Source: Mercer management Consulting Internet Lead user Study
Key Related Technologies toSupport Applications
• Always On/Permanent NetworkConnection
• IP Telephony
• Streaming Audio/Video Hardwareand Software
• Push
• New classes of Plug and Play Data-Enabled Devices/Modems in Consumer Devices
• Home LANs
Quick-use applications; real-time communications
Flat-rate long distance; E-mail & Voice Mailintegration
High quality gaming, Video clip newsfeeds, Sports replays, Video-on-demand, Video-mail
Personalized information, targeted advertising to help fund network costs
Internet access via TV, smart appliances, ease of use
Reduced cost for multiple broadband modems; Intra-home networking; Home Management
Technology Some Applications/Benefits
Business Model/Customer InterfaceCable Modem Example
• Focal point for industry cooperation issues
• Backbone and server architecture/capacityfor end-to-end high speed experience
• National branding and marketing platform
• Uniform nationwide standards- Technology- Standard Operating Procedures
• Customer Interface Development- Customer support- Operating systems
• National scale for content, advertising plays
• Centralize data networking expertise
• Raise funds from the capital markets tosupplement limited cash flows
Business Model
RegionalData
Center
ContentServers
MSOHead-EndCable
Modem
PC
CachingServers
NetworkManagement
& Admin.
CableMSOs
Cable ModemNational ISP
NationalBackbone
NAP
Broadband Access Lift-Off EnablersCable Modems on the inside track?
Cable Modem
StandardsCustomer Coverage
Trials-ProvenTechnology
Business Model/Customer InterfaceCost
ADSL
Wireless
Satellite
Full Service Network/FTTH
•HFC upgrades on track
•Spectrum available, but infrastructure build can be time consuming
•Need satellite launch
•Can ramp to 100% quickly
• Focused demand• High cost for new network builds• Current applications dominate
– PC
– Internet
• Sow the seeds for new broadband applications
• VF modems continue to dominate• Incremental upgrade technologies
– Cable Modems & ADSL
• Pull Fiber to the Neighborhood• Wireless as a Wild-Card
• Broad Demand• Cost curves decline• Data, Video and Voice
• Always-on, Many devices
• Fiber Close-to and Into the Home
What Will the Access Landscape Look Like?
Near Term Long Term
Rate of Access Plant Fiberization
0%
20%
40%
60%
80%
100%
1984 1986 1988 1990 1992 1994 1996 1998
Source: FCC Filings, Lucent Estimates
% of Plant
Long DistanceCarrier Network
Local Inter-officeTrunking
LocalDistributionFeeder