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Gigabit Networks: Giga-Real or Giga-Hype? Whitepaper

You can’t get through a day in our world without mention about the Gigabit network. Is the Gigabit network a future reality? Or is it all hype? Actually, it’s a little of both.

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Travel Back in Time
The modern form of the World Wide Web turned 25 in 2014. In addition, ARPANET and the protocols that are the basis of the function of the early Internet date back almost 40 years.

The underpinnings of the modern Internet arrived on January 1, 1983, with the formal adoption of Transmission Control Protocol/Internet Protocol (TCP/ IP) as the recognized standard networking protocol. The predecessor network protocol was Network Control Program (NCP), which had driven ARPANET up until that point.

Several years later, in 1989, Tim Berners Lee made the first HTTP request for information from a server, and thus was born the World Wide Web. Soon after, platforms such as Mosaic and Netscape emerged to allow for ease of use in searching the Web.

Since that time, the basis of the Internet has not changed drastically. While there have not been evolutionary changes in the structure of the Internet, we have seen the introduction of IPv6, as we begin to see IPv4 address exhaustion. What is consistent are the complexity and capacity achieved by browsers, servers, applications and sites.

Capacity demand is increasing. For example, prior to 2007, Netflix was a physical media company, delivering physical DVDs. Roll forward to 2014 and, according to the “Sandvine Global Internet Phenomenon Report” for the second half of 2014, Netflix accounts for 34.89% of all downstream Internet traffic, and 32.39% of all aggregate Internet traffic. While Netflix has not given up the physical media business, online content dominates their business.

The same Sandvine report also noted that some form of Real Time Media accounts for 67% of all downstream bytes of information. Median usage for fixed networks rose from 17.6 Gb to 22.5Gb, which was in line with the 30 to 40 percent increase expected by network operators that utilize Sandvine’s network application devices.

So where do we go from here? What will shape demand? And what are the realities of deploying the Gigabit network?

Legislation
To help answer these questions, let’s look back at some of the legislation and regulation that have brought us to the current state of broadband in the U.S.

The Telecommunications Act of 1996 was a wide-ranging rewrite of the Communications Act of 1934. It opened up competition, and also introduced the Universal Service Program. The legislation also gave much discretion to the FCC related to implementation and interpretation. With the transition of payments for covering the extraordinary costs of building the telephone network in rural America from “implicit” to “explicit” payments, the payments required to deploy and maintain telephone networks in rural America became associated with carrier costs contained in certain FCC capital and expense accounts, rather than being tied to an above-cost toll charge. Access charges (i.e., intercarrier compensation) had been the “implicit” method of cross charges between carriers and paid by users of the toll network and local exchange networks. Then, instead of higher toll charges, the Federal Universal Service Charge was a line item statement on the end-user’s bill.

Roll forward ten years. Between 2004 and 2006, rural Rate of Return (RoR) carriers and competitive carriers began widely deploying some of the first robust Gigabit-capable Passive Optical Networks (GPON) FTTH Networks. FTTH networks had been deployed in rural America since the late 1990s, primarily based on proprietary implementations of ATM PON (APON) and broadband PON (BPON) technology. With these new GPON deployments, the foundation of the network changed, at least in some rural RoR carriers’ service areas and competitive providers’ service areas where FTTH was being deployed. The telecom systems being built by these rural RoR carriers, because of the availability of funds and the rules in place which paid for network expansion, were ultimately broadband networks capable of offering voice services.

Since rural RoR-eligible telecommunications carriers that are eligible for Universal Service Fund (USF) funds report their costs and are benchmarked against the National Average Cost Per Loop (NACPL), they were in turn paid for their costs of operation above the NACPL, but in line with the total return allowed by the National Exchange Carrier Association (NECA).

NECA was created in 1984 as the entity to manage the access charge regime. It also manages the tariff filings with a majority of the independent telephone companies concurring in this federal tariff. With the passage of the Telecommunications Act of 1996, they were tasked with reviewing cost studies for setting tariff rates for items such as toll access charges, T1 rates, DSL services, and ultimately RoR and cost recovery associated with the Universal Service Program.

Late in 2014, NECA introduced a tariff allowing for Gigabit services. Up until late 2014, the ability for a NECA-participating carrier to charge for a Gigabit of service would have been cost-prohibitive due to tariff restrictions, although many of the networks deployed by NECA members were Gigabit-capable.

Price Cap Carriers operating in rural areas do have some areas which receive USF funds, but not nearly the same amount available to the smaller RoR carriers when compared to geography and households covered. With the election of Price Cap Carrier status, a carrier would elect to give up its RoR status and was allowed to increase prices on services in relation to a formulation driven by growth in expenses and a productivity growth factor. What has happened with Price Cap Carriers is that the required USF funds and minimal capital expenditure funds were spent in rural areas, with the bulk of the rest of the operating capital spent in competitive markets, which were obviously more profitable.

And, since 2010, the FCC has been strategically considering the investments being made in rural America with a capped source of funds comprising what was the USF, which was in place to fund telephone networks now being transitioned to the Connect America Fund (CAF) to be used for the deployment of voice and broadband networks.

For the Rural Rate of Return and Price Cap Carriers, the above brief discussion of legislation and regulation is not to justify any actions or inactions by incumbent carriers, rather it is a glimpse into the legacy of the network which has operated in rural America for some time and is a perspective which must be considered when discussing the success or failure of broadband in rural America.

Preparing for Gigabit
So, what are we going to put on the network that may take a Gigabit network to support? It seems a lot of streaming content that may become available in the near term will make a copper-based network in rural America insufficient to deliver that content. This point bears repeating: At some time, future content and demand will make a copper-based network in rural America inadequate for content delivery.

As we move through the Gigabit landscape, it starts to become clearer from a demand perspective why a Gigabit network might begin to make sense. However, outside of some very large applications that are currently in use, has there been a real widespread demand in the last five years for true Gigabit services? Maybe. Maybe not. There seems to be a lot of gray area in between.

In the past, present and near future, a true Gigabit network may not be fully required. However, based on the capital investment required to gain the scale of bandwidth required for many applications and content that already exist and reasonably appear to be on the horizon, the deployment of universally-capable Gigabit networks may be the most appropriate task to accomplish in regard to broadband, knowing that there are limited capital and operating funds. Admittedly, this will not happen overnight.

Currently there are a number of providers offering true Gigabit services, including traditional rural independent telephone companies, electric cooperatives, Price Cap Carriers, ISPs, and municipalities.

Per the FTTH Council’s “Fall 2014 FTTH Primer,” over 900 distinct entities are providing FTTH services. All of these networks, since they are fully FTTH, would, in my opinion, be considered Gigabit-capable networks. For a variety of reasons, they may not be offering Gigabit services, but again, they would be capable of doing so.

At the U.S. Conference of Mayors Winter Meeting in early 2013, then-FCC commissioner Julius Genachowski called for one Gigabit network in each state by 2015. This initiative is still underway.

With stimulus funds, beginning in 2010, some of the most rural areas of the country began seeing the construction of Gigabit networks through the Federal Broadband Stimulus program.

CAF and Rural Broadband Experiments
We are now entering a new system of funding under the Connect America Fund (CAF), the successor to the USF, whereby, through the offer of CAF Phase II support, potential auctions of funds not claimed by the Price Cap Carriers and Rural Broadband Experiments are being conducted to test how effectively new entrants to a market may utilize funds to build broadband networks.

In the last half of 2014 and the first half of 2015, Rural Broadband Experiments applicants have been selected and are working through the process of verification of adequate financial standing, network management, and the ability to be designated as an Eligible Telecommunications Carrier (ETC).

Due to the rules of the CAF funding as they have existed under the USF program and dictated by legislation, voice service is still a requirement for the receipt of CAF funding. In May 2015, the FCC announced the offer of $1.675 billion of annual CAF Phase II support for a six-year term to Price Cap Carriers. In the Public Notice, the FCC commented that $35 million of annual CAF Phase II support will be automatically placed in the competitive bidding process to those non-winning Rural Broadband Experiment Category One entities that filed the appropriate financial and network information in late 2014 and early 2015. (Category One standards were the offering of at least one broadband package capable of 100Mb/25Mb service to subscribers.)
With the requirement for Price Cap Carriers to select “receipt of model-based support” by August 27, 2015, it appears that the FCC is on track to meet the goal of a late 2015 and early 2016 competitive bidding process.

At this juncture, it appears that some form of a competitive bidding process or forward-looking cost model of support will also be applied to the RoR areas. This effort is still underway by the FCC, RoR carriers, and associated industry entities, and may be looming closer than the industry thought at one time.

Now let’s look at the FCC’s strategic National Broadband Plan and the current redefinition of Broadband at 25Mbps/3Mbps.

Gigabit Network Requirements
What is required for a Gigabit network? It requires fiber infrastructure, some equipment to light the fiber, backbone ISP connectivity (preferably two), a champion or champions with vision for the network to market services and run the network, and of course, finances to build and operate the network.

In terms of the backbone, the advance of wavelength-division multiplexing (WDM) technology has allowed for reasonable expansion of capacity at fair costs. Again, as time goes on, costs continue to come down for 10GigE wave capability. However, even physical access to a single backbone provider can be a severe hurdle without even discussing network capacity.

So, what is required to adequately physically deploy the Gigabit network? From a very high level, you will typically deploy dedicated fiber from a subscriber, back to an active FTTH equipment location, or you will deploy feeder fibers and passively split fibers out in the field to serve multiple end users.

“Copper last mile” facilities are very prevalent in rural America, especially in rural Price Cap Carrier areas. The latest copper technology, G.fast, is capable of 1 Gigabit speeds, but limited to a distance of less than 100m, while G.fast speeds of 150Mb may be possible up to 250m. Although this technology may have applications in urban settings, especially planned communities and existing multiple dwelling units (MDUs), those distances in rural America typically don’t get you out of the driveway to a house, so the practical application of G.fast in rural America isn’t a reality.

To realistically attain Gigabit capacity, providing fiber facilities to the end user is the end-game solution. However, fiber facility deployment is expensive. There are ways to minimize overall upfront capital costs or defer some costs to be incurred when subscribers take service. The fiber facility material and construction will be the single most costly, but most long-lived and valuable asset in the Gigabit network.

Past the edge of the network exists the “middle mile.” In areas where rural providers have access to competitive “middle mile” bandwidth, economically- viable 1GigE and 10GigE connections can be obtained.

Beginning in the early 2000s, rural telephone cooperatives and, in some states, electric transmission providers, began installing fiber backbone in the rural areas to their owner-members and some strategic locations. These early backbone networks began as small as OC-48 rings, but have quickly grown to be WDM networks with multiple 10GigE rings, with some networks beginning to consider 100GigE rings.

These networks have all edged out, interconnected and expanded beyond their original footprint, and are still expanding. The incumbent Price Cap Carriers, cable companies, and traditional transport carriers all have maintained “middle mile” networks as well.

In the last 18 months, we have seen several new entrants that are building new “middle mile” networks for Point to Point service between major Internet hubs. In these builds, they are also seeking opportunities where they can provide a “middle mile” on ramp to service providers. While these legacy “middle mile” networks satisfied a singular need for bandwidth, it is quickly becoming a requirement when offering Gigabit services to have not only one provider of 10GigE services, but access to multiple 10GigE networks, in order to allow for multi-homed ISP service redundancy.

This is recognized as a hurdle for broadband, and it is commonly viewed that the capacity in the “middle mile” will be an ever-looming and larger problem as the Gigabit network to the end user grows. In fact, some organizations have delayed end user implementation of GigE services until multiple 10GigE backbone connections become available.

When the Pew Research Center, in its “Digital Life in 2025: Killer Apps in the Gigabit Age” report, asked Mike Roberts, who is considered an Internet pioneer and a long-time leader of the Internet Corporation for Assigned Names and Numbers (ICANN), for his thoughts on the advancement of Gigabit networks in the year 2025, he responded, “I’ve been involved professionally with this issue for years. It suffers from the usual problems of hype and misunderstanding. At least three major forces are at work in what is called Gigabit networks. 1) The economic issue of fair and equitable access to the Internet. 2) The economic structure in which bandwidth and applications and content generally are provided with Internet technology. 3) The opportunities for new application development which are possible when Gigabit-style bandwidth is available to citizens. Generally, we are stuck in the situation with Internet technology where success is being measured by comparison to the way things used to be done. Yes, there eventually will be killer apps dependent on Gigabit-style bandwidth, but the path to them will be longer and more tortuous than advocates like to admit.”

So, yes, building infrastructure to support Gigabit services will take some time for a country the size of the United States. It will also take capital. If we are to believe Goldman Sachs, the price tag could be $140 billion. Is the job impossible? No. Is it daunting? Yes. Is Gigabit real or hype? At this time, it is probably a little of both, but there is no reason to be afraid to move forward.

Andy Heins, Operations Manager
Finley Engineering Company Inc
417-682-5531

a.heins@fecinc.com

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