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Friday, October 17, 2003

 

Low prices for Bells' FTTP gear and implications for municipal broadband

A Light Reading message board is carrying reports that the Bells might have received very low pricing from FTTP (fiber to the premises) equipment vendors. (See messages 21, 24, 27 and 30.)

It's not clear is how reliable these message board posts are; the prices appear to be substantially below current manufacturing costs.

Ever since 3 Bells first announced their RFP (request for proposals) for FTTP equipment, both the vendor and carrier communities have been comparing this RFP to the Bells' joint RFP for DSL gear in the 1990s. Alcatel submitted a below-cost bid to win much of the business, then shipped sufficient volume to get costs down and turn their Bell DSL orders into profitable business. Many have speculated the 3 Bells ("the Three Amigos") would try to get some eager vendor to do the same with their FTTP bid.

Notes for municipal broadband developers:
1. Don't expect to see the same prices offered the Bells, however the Bell bid will tend to drive down FTTP equipment prices in general.

2. The largest price cuts to other buyers will come when (and if) the Bells actually start buying in quantity. This will drive down the actual component costs (lasers, detectors, etc.)

3. The lowest Bell bidder may not be the lowest municipal bidder; if he's losing money on the Bell business, he may try to make it up on other vendors' business. Likewise, an unsuccessful Bell bidder may be more aggressive on municipal bids in order to stay in the game.

4. Look carefully at support issues for small customers -- is your potential vendor really committed to the municipal broadband market or just killing time until he can land a big Bell order?

5. Vendor financial stability will continue to be an important part of the overall selection.

6. Good outside plant design and planning will become even more important. Outside plant costs (fiber cable, construction) already dwarf the FTTP gear's cost. (Last year's estimates indicated they made up 80% to 90% of the total project cost. One poor decision on outside plant design may cost more than all the electronics combined.

7. Even at the most aggressive rate of projected Bell construction, don't hold your breath for the Bells to roll out fiber in your town in this decade. If the Bells move aggressively, they might deploy fiber to several million homes in this decade -- first to new upscale neighborhoods then to homes in high-income, high growth areas. If you live in a small town named Podunk, or even just an average city like Des Moines or Tulsa, don't hold your breath for Bell fiber in this decade. Based on the Bells' current level of whining, China may get a man to Mars before a Bell decides to bring fiber to your home.

8. Your primary competitor in most markets will continue to be your cable TV operator, not your Bell company. The Bells will work hard to lobby against you in the political arena, but won't aggressively compete for customers once your deployment begins.

#





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