ChannelVision Sept-Oct 2017

“Such ambitious infrastructure in- vestment could derive from a variety of sources,” said the research firm. The money certainly won’t be hand- ed over easily. As any carrier executive can attest, the economics of burying fiber, as well as ongoing carrier opera- tions, are challenging at best. Having suffered substantial market share loses within the consumer broadband (cable) and voice (wireless-only) seg- ments, compounded by the relatively high operating costs of still-running legacy networks, carriers simply lack the cash flow to invest in fiber in a way Deloitte deems necessary. “The current economic equation for fiber deployments is driving operators to invest in other areas, or not at all,” Deloitte analysts readily admit. Nonetheless, that doesn’t change the realities of an increasing need for deep fiber and the role it must play in future growth and innovation – both within the communications segment and beyond. But for starters, let’s look at where we stand with fiber strands. Currently, fiber passes about one- third of U.S. homes, show figures from the Federal Communications Com- mission, and about 40 percent of U.S. households have access to more than one broadband provider of 25 Mbps service. According to Vertical Systems Group, the percentage of U.S. com- mercial buildings connected to a fiber- optic network reached 49.6 percent in 2016 (multi-tenant and company-owned buildings with 20 or more employees). Those are significant gains from the 10.9 percent of buildings that were fiber-lit in 2004, and since Verizon initi- ated FTTH deployment in the U.S. in 2005. But it’s safe to assume much of the construction so far involved “lower hanging fruit” in terms of geography and density, so the row should only get tougher to hoe moving forward. At present, Deloitte identifies four select situations (or combination there- of) under which carriers typically de- ploy fiber and generate a positive busi- ness case. The first is places with a short investment payback period, such as where loop lengths and line make- up allow for relatively inexpensive deployment costs. That would include the more densely populated areas or aerial environments (versus buried pipes). The second is “new builds” in newly constructed neighborhoods where the labor costs to bury fiber and install electronics can be similar to de- ploying copper. Similarly, there are re- build areas, where a storm or natural disaster damaged wireline networks. If the required repairs are substantial, carriers often opt to just replace the copper with fiber. Lastly are geogra- phies subsidized via programs such as USF and CAF. Through these four scenarios alone, it’s not likely that the U.S. will see enough high-speed broadband coverage to meet regulatory goals, support nationwide innovation and growth surrounding immersive media, high-definition video and the like, and wireless densification. Keep in mind, after all, despite the fact that the majority of traffic ultimately termi- nates on a wireless device, wireline broadband access supports as much as 90 percent of all IP traffic (excluding managed IP), according to Cisco. And the dependence on wireline isn’t about to abate, even with 5G wireless and fixed 5G looming as a wildcard. Rather, it’s largely assumed that increased wireless speed and capac- ity will rely more heavily on the use of higher frequencies and network den- sification. High frequency signals can- not reach as far as low-frequency and have more difficulty penetrating walls or Global IP traffic, 2016–2021 IP Traffic, 2016–2021 2016 2017 2018 2019 2020 2021 CAGR 2016–2021 By Type (Petabytes [PB] per Month) Fixed Internet 65,942 83,371 102,960 127,008 155,121 187,386 23% Managed IP 22,911 27,140 31,304 35,226 38,908 42,452 13% Mobile data 7,201 11,183 16,646 24,220 34,382 48,270 46% By Segment (PB per Month) Consumer 78,250 99,777 124,689 154,935 190,474 232,655 24% Business 17,804 21,917 26,220 31,518 37,937 45,452 21% Source: Cisco Source: GSMA Average 2016 Wireline Financials (In thousands of dollars) Source: Deloitte analysis of publically available information Mostly a marketing activity 0% $(40) $(20) $0 $20 $40 $60 $80 $100 $120 $140 Revenue Opex Capex Tax Interest Dividend Cash flow By 2021, 63 Percent of Total Mobile Data Traffic Will Be Offloaded Source: Cisco 0 20 40 60 80 100 120 140 Cellular Traffic from Mobile Devices Offload Traffic from Mobile Device Exabytes per Month 2016 2017 2018 2019 20 2021 37% 63% Zettabytes Channel Vision | September - October, 2017 32