Reshaping the telecommunications industry

Industry analyst Stephen L. Barreca predicted that consumer demand for high-speed access would be the driving force behind a paradigm shift that will reshape current telecommunications markets and technologies over the next five to 10 years. "Today, consumers purchase telephone service and expect their modems to work; tomorrow, consumers will purchase high-speed data access and expect their telephones to work."

Dec 1st, 1998

Companies must exploit changing technologies to meet demand for high-speed access.

Anita S. Becker

Industry analyst Stephen L. Barreca predicted that consumer demand for high-speed access would be the driving force behind a paradigm shift that will reshape current telecommunications markets and technologies over the next five to 10 years. "Today, consumers purchase telephone service and expect their modems to work; tomorrow, consumers will purchase high-speed data access and expect their telephones to work."

Speaking at the Structured Cabling Marketplace seminar last October during Cabling Installation Expo `98, Barreca said that fast-moving growth of the electronic commerce market would be the main reason for the increased demand for high-speed access. And this growth will increasingly burden the bandwidth capacity of current local-loop access technologies within the next decade. He stated fiber-to-the-curb and fiber-to-the-home (fttc/ftth) are the most viable long-term strategies for meeting this ever-increasing demand for bandwidth. Bandwidth demand in the high-end residential marketplace is nearing 1 megabit per second, according to Barreca`s research, and could reach 5 Mbits/sec in three to five years.

Following a 20-year career at BellSouth, Barreca founded and is president of Barreca Consulting & Research International (Birmingham, AL). He is also a senior consultant at Technology Futures Inc. (Austin, TX). Barreca credits his experience in strategic planning, technology forecasting, and determining depreciation and obsolescence for giving him insight into emerging telecommunications markets and technologies.

Meeting future market expectations

Barreca`s clients are concerned that their infrastructure must meet future market expectations. However, many are also wary of deploying emerging technologies for fear that they will invest in systems that will quickly become obsolete. Barreca cautions that because of the rapidly advancing paradigm shift, large telephone companies are at severe risk. New technology must be strategically exploited today to serve tomorrow`s markets. "Deploy the technology now and change it out later." Barreca explains that a wait-and-see or fast-second strategy will be too little, too late. Carriers must deploy new technologies now to establish a foothold in the emerging markets. He believes that as consumer expectations increase and the markets expand, they will have to replace these technologies with faster, cheaper, and more integrated technologies.

The telephone companies have been in transition from copper to optical fiber for more than 15 years. Barreca said continuation of past fiber-deployment patterns suggests all copper will be replaced within the next 15 to 20 years. "There will be no more copper entrance facilities," he says. Although the current demand for copper cable is the highest it has been in years, the analyst explained the market is now mature and at its peak. Within the next five years, Barreca added, the trend will reverse, and demand for copper will decrease significantly. "Five years from now, it would not be a good idea to build a copper-cable manufacturing facility."

Telephone companies are leaders in new-technology deployment, noted Barreca, especially Bell Atlantic and BellSouth. He said that these giants are aggressively upgrading their networks to fiber and that within two years there would be a large-scale increase in fttc and ftth by the phone companies. With the introduction of cable modems (CMs), Barreca added, cable-TV providers currently are ahead of the telephone companies in serving the high-speed data-access markets. Barreca explained the cable-TV companies can exploit hfc/cm (hybrid fiber/coaxial-cable network with cable modems) technology to provide an effective strategy for the emerging markets. hfc/cm technology enables cable-TV providers to leverage their existing networks and initiate an evolutionary strategy for the future.

During his presentation, Barreca divided the residential high-speed access markets into three segments: mass market, high-end market, and broadband market. According to his research, the broadband market will soon merge with the high-end market. For the high-end market, consisting of consumers willing to pay premium prices for high-speed service, Barreca predicts hfc/cm gives cable-TV companies a strategy to cope with near-term market demands. Similarly, xdsl (digital subscriber line) provides local exchange carriers with a near-term strategy.

Over the long-term, he stated, as demand for bandwidth continues to increase and the volume of subscribers broadens, the capability of both hfc/cm and xdsl to meet consumer demand diminishes. Cable-TV carriers can broaden their reach by splitting their fiber-fed node sizes (currently a typical node serves 2000 households) and upgrading current-generation CM systems to higher-speed systems. Telephone companies can deploy new-technology remote carrier systems to extend the reach of xdsl and upgrade to higher-speed systems. Neither CMs nor xdsl, however, provide an integrated long-term solution: Both are pushing the limits of copper technology, and both will be expensive to maintain and upgrade. But both do provide their industries an effective near-term strategy.

For the mass market, Barreca found that the cost of service limits the use of high-speed services; bandwidth capacity is a secondary issue. This market segment wants free access, which today, only obsolete analog modems can provide. High-speed services are too costly for these consumers. Over time, as the perceived value of electronic commerce increases, some mass-market consumers will migrate to the high-end market segment, but many will accept lower-speed, lower-cost access. Barreca believes that eventually integrated fiber technologies will likely provide low-cost, high-speed access for the mass market--perhaps subsidized by vendors who want access to these households.

Barreca predicted that demand for high-speed data access by the consumer market would continue to grow rapidly over the coming decade and beyond. This demand would place considerable stress on both the existing networks and the new networks that the telephone and cable-TV companies are just beginning to deploy. According to Barreca, xdsl is better-positioned to handle the stress in the near- to mid-term, but neither xdsl nor hfc/cm offers a long-term solution.

Anita S. Becker is associate editor of OSP Engineering & Construction, another PennWell publication.

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