Follow the Money Trail

Should you harbor any doubts about fiber’s increasingly central role in the cable industry’s future, then just follow the money trail.

That’s what Dell’Oro Group is doing. In its latest quarterly report on the global broadband-access equipment market this past summer, the research and consulting firm revealed that cable operators are rapidly ramping up their capital spending on passive optical networking (PON) gear for new fiber-to-the-premises (FTTP) deployments.

For instance, Dell’Oro now expects cable operators to spend “well over $500 million on PON equipment between now and 2025,” according to Jeff Heynen, vice president of broadband access and home networking for the firm. That sum represents a sharp uptick from his earlier broadband-equipment market forecasts.

Heynen cites growing sales of remote optical line terminals (OLTs), which are relatively new devices that can be snapped into cable’s fiber-optic nodes to support PON services, as a prime example of this trend. “To provide a quick data point, we see [cable] revenue for remote OLT platforms easily growing to over $50 million this year alone,” he wrote in an email response to questions. “Just this past quarter, total spending on remote OLTs jumped significantly, far more than we anticipated.”

Heynen said this surge in spending on OLTs and other PON gear reflects the cable industry’s acknowledgement that it needs to rely more heavily on FTTP and fiber-deep networks going forward to match the aggressive competitive moves by rival all-fiber and fixed-wireless access (FWA) providers. He expects this spending surge to continue over the next few years as broadband market competition keeps heating up.

“We always knew that a good percentage of greenfield buildouts were going to use fiber,” he wrote. “But now we're seeing some cable operators respond to increased competition from fiber overbuilders by moving to fiber themselves. That has resulted in the jump in cable spending on fiber equipment.”

Indeed, cable spending on fiber-friendly PON technology is rising in the context of surging spending on PON by the telecom industry overall. Heynen’s latest forecast projects that broadband providers of all stripes will lavish a total of $13.6 billion annually on PON equipment by 2026, up from $9.3 billion last year. That amounts to a whopping 46% increase over the course of just five years.

To be sure, Heynen sees cable spending on Distributed Access Architecture (DAA) equipment steadily increasing as well, reaching nearly $1.3 billion annually by 2026, up from about $1 billion last year, due to many operators upgrading their hybrid fiber coax (HFC) networks and preparing for future DOCSIS 4.0 deployments. However, he believes that many other cable providers, particularly the more nimble small-to-midsized operators, will pursue FTTP builds rather than continued HFC network upgrades.

“I still feel it’s full steam ahead with DOCSIS 4.0,” Heynen stated in a recent interview with Light Reading. Even so, he noted, larger operators that are committed to DOSIS 4.0 upgrades are also “sprinkling in more and more fiber-to-the-home outside of greenfield areas.”

Another voice

Heynen is not the only market expert who views things this way. In her latest report on the broadband-access equipment space, Jaimie Lenderman, a principal analyst and research manager at Omdia, predicted that overall spending on PON access gear over fiber networks will increase at a healthy compound annual growth rate (CAGR) of 12.3% over the next five years, with a significant portion of that spending coming from the cable industry.

“We’ve seen several cable operators making strides towards using PON,” Lenderman said during a presentation at Light Reading’s Cable Next-Gen Technologies and Strategies digital conference in March. “It [PON] really has opened up new opportunities for all kinds of operators.”

Although Lenderman, like Heynen, still sees plenty of promise in DOCSIS 4.0 and DAA technologies, she also believes that fiber and PON will increasingly carry the day for cable. In particular, she noted that she has seen “a number of smaller operators migrate to PON and use fixed wireless to fill gaps where fiber can’t be pulled all the way.”

Other research studies further reveal this growing cable industry embrace of fiber lines and PON technology. For example, in the most recent annual survey of cable operators and other fixed-line providers conducted jointly by Light Reading and SCTE last fall, more than three-fifths of respondents (62%) said their companies intend to build FTTP networks in at least some of their regions over the next five years, up markedly from the 44% who said the same thing just the year before. Plus, nearly two-fifths of survey respondents (38%) said they expect their companies to cover more than 30% of their homes passed with all-fiber lines by fall 2024.

“They [cable operators] know they have to continue to push fiber deeper or, in some cases, all the way,” said Julie Kunstler, senior principal analyst at Omdia, during a Light Reading video interview at our association’s Fiber Connect 2022 show in Nashville in June. “Some are facing competition either from telcos offering fiber now or from fiber overbuilders, municipalities, or utilities that are doing fiber.”

Overcoming challenges

But, Kunstler cautioned that “it’s not an easy path” for cable companies because of their huge legacy investments in coaxial networks, DOCSIS technology, and fiber optical node splits, as well as their relative lack of experience building all-fiber networks and managing PON technology. “How do you continue to upgrade your cable plan but plan for fiber all the way and add PON to digital nodes in the future?” she asked. “That’s a lot.”

Heynen agreed with that assessment. He also pointed to various other hurdles that cable operators must overcome to make the tricky transition to all-fiber networks.

“Also important to bear in mind is that even if cable operators wanted to move to fiber in larger numbers, that currently isn't feasible given ongoing labor and component restraints,” he wrote. “Fiber buildouts are facing longer lead times due to shortages of conduit and labor, as well as skilled workers who are trained to do the buildouts, as well as splicing and connecting homes that want fiber services.”

Worth the effort

Yet, even despite such major challenges, it’s clear that cable operators are increasingly looking to fiber and PON for salvation. And it’s increasingly clear why. For one thing, as noted earlier, cablecos are feeling the effects of competition from fiber providers and related rivals far more than ever before.

In an ominous sign of that heightened competition, U.S. cable providers actually lost broadband subscribers for the first time in the industry’s history during the second quarter of 2022. Specifically, Leichtman Research Group Inc. (LRG) reported that the nation’s three largest MSOs – Comcast, Charter Communications, and Altice USA – shed a combined total of 60,000 data customers in the spring quarter. That contrasts sharply with a strong gain of 840,000 broadband subs by the group in the exact same period the year prior.

Meanwhile, the top seven wireline telcos collectively added about 490,000 FTTP subscribers in the second quarter, according to LRG’s count. In addition, the two biggest fixed-wireless providers –T-Mobile and Verizon—leveraged their own growing fiber plant to add an impressive 815,000 subs in the quarter.

“I think what we're seeing is the competitive landscape is changing,” said Bruce Leichtman, president and principal analyst of LRG. While cable operators still dominate the U.S. broadband market with about a 68% share of the nation’s 110 million data subscribers, he noted, they are now increasingly losing ground to newer fiber and fixed-wireless players.    

Leichtman explained that this trend is happening not because existing cable subscribers are cutting the cable cord in droves to go elsewhere, as might be speculated. Rather, he said, it’s happening because fiber and fixed-wireless providers are signing up the new customers that cable used to capture—namely, people forming new households, moving to new addresses, or upgrading from slower DSL connections.

“It’s not the disconnects that are an issue [for cable],” said Leichtman, noting that broadband subscriber churn levels remain low for the industry. “It’s the connects that are down.”

Besides the fiercer competition in the already hotly contested broadband market, cable providers are also ploughing more dollars into fiber builds because they realize that they can no longer meet their customers’ needs without it. With FTTP providers increasingly rolling out 1-gig, 2-gig, 5-gig, and even faster broadband services throughout the U.S. to meet consumer demand, operators increasingly recognize that they also need fiber to do the same economically.

And who could blame them? While innovative technologies and techniques such as DOCSIS 4.0, DAA, spectrum mid-splits and high-splits, and network virtualization all offer plenty of promise for cable, they simply cannot match the multi-gigabit speeds, high reliability, low latency levels, lower operational expenses, and other benefits that only all-fiber networks can deliver.

Moreover, unlike coaxial cable, fiber is easily scalable and upgradable at minimal capital expense, enabling it to support a vast array of new, bandwidth-intensive services, products, and applications. The roster of new offerings includes work-from-home, online learning, remote health care, home security, 5G mobile, 4K and 8K video, home automation, edge computing, fixed wireless access service, autonomous vehicles, and virtual reality/augmented reality, among others.

“The move to fiber isn’t just a competitive response,” Heynen argued. “It’s also a way to solve the challenges they often face of higher operational costs due to all the active electronics used to deliver DOCSIS services. Instead of investing in another round of amplifiers, taps, passives, RF connectors, etc., the switch to fiber and IP video, while costly upfront, will serve them in the future.”

In other words, cable operators are increasingly recognizing that fiber represents their future, that it’s the only sure way for them to survive and thrive in the long term. But you don’t have to take our word for it. Just follow the money trail.

Gary Bolton is president and CEO of the Fiber Broadband Association (FBA). This is part of a series of articles about fiber in cable MSO networks from the FBA.