Chinese operators are moving quickly to the next phase of residential fiber deployments by extending fiber inside homes and into individual rooms through a unique combination of a centralized ONT (Optical Network Terminal) and subtended ONT access points designed to ensure advertised speeds with the option of wired and Wi-Fi connections in each room of a home. The net result of this surge in FTTR deployments has been a steady increase in FTTR-optimized ONT shipments.
Through the first half of 2023, more than 6M FTTR ONT units have been purchased by the three major operators. To provide some perspective, this total is less than 20% of the total ONT shipments in China in that same time frame. However, that growth has come in just a little over a year and a half, which signals the strategic importance of the application to the operators. Further, that growth comes from just a handful of major regional branches of China Mobile and China Unicom. China Telecom is just now getting underway with FTTR, having set forth its plan to purchase 500K FTTR ONTs earlier this year.
The three operators are expected to rapidly expand the availability of FTTR services and packages throughout the rest of this year and into 2024, as the application is viewed as a critical driver of four overarching business goals for their fixed broadband business units:
- Increasing ARPU (Average Revenue Per User)
- Reducing subscriber churn
- Reducing energy consumption in the home and throughout the network
- Reducing service and support costs by improving the quality of service
From Gigabit Cities to Gigabit Homes
Back in 2013, the Chinese Government set an ambitious goal of delivering gigabit speeds to 400M households in China’s largest cities by 2020. The project reach approximately 200M homes before the COVID-19 pandemic delayed further expansion. In 2021, the Government re-issued its objectives and set a goal of achieving the 400M home goal by the end of 2023. At this point, it is believed the total number of gigabit homes is nearing that 400M mark, as over 100 cities have now been designated as Gigabit Cities.
Historically, though, operators delivered fiber to the floor of a building and then connected each apartment via DSL or Ethernet or dropped fiber to a single ONT or ONT gateway inside the home. To expand Wi-Fi coverage in the home, subscribers could either purchase their own access points or could use those supplied by the operator. Nevertheless, in very densely-populated cities, subscribers often ran into channel contention issues, reducing the throughput of their Wi-Fi connections and reducing the overall quality of service, particularly during peak hours.
These challenges became more acute during the pandemic when cities and buildings were locked down and service provider technicians could not access residences to diagnose and troubleshoot Wi-Fi and other connectivity issues. So, even in China’s showcase Gigabit Cities, subscribers were getting far slower speeds than what was being touted by their service providers.
To solve these issues, the three major operators realized that the only way they could guarantee consistent throughput throughout the home was to extend fiber to each room. The most economical way to do this was to use the same architecture as their PON access networks, but just on a smaller scale, using a passive splitter in front of the primary ONT gateway. From there, the operators worked with domestic equipment manufacturers and cabling and component suppliers to develop solutions that would allow technicians to easily install flat fiber or fiber electric composite cables to each room, depending on whether the ONT access point required an external power supply.
Flat fiber installation tools were developed that allowed a technician to run fiber along baseboards, doors, and window frames, minimizing the obtrusiveness as much as possible. Additionally, software tools were developed to allow the technician to quickly determine the shortest route and quickest installation approach before commencing the work. The net result is that the average installation time is reported to be around 30 minutes or less.
Even before the technician arrives, the upfront work of determining demarcation between building owners and the service provider is completed, so that the FTTR service can be marketed throughout the building and installations can be scheduled and completed as quickly as possible.
Up-Front Costs, Long-Term Benefits
In a competitive environment like China, where broadband ARPU tends to be low and fairly static, FTTR has turned out to be a source of new revenue for the operators, as well as a way to get subscribers to commit to longer-term contracts. Subscribers can choose to pay 2000 RMB (US$277) up-front to cover the costs of the installation, as well as the additional ONTs, or they can commit to a multi-year contract, paying 30-40 RMB (US$4-$5) per month for a minimum of 2-3 years. Historically, broadband service contracts were limited to one year. Because of the additional labor and equipment costs associated with FTTR, operators were allowed to extend the contracts. With the additional costs of the ONTs bundled in, the operators have anecdotally said that the ARPU uplift for FTTR is around 30%. With mobile ARPUs getting squeezed, FTTR is seen as a way to recoup some of those lost margins while also ensuring improved QoS.
Speaking of QoS, the operators have reported that the combination of FTTR plus Wi-Fi 6 improves overall speeds by up to 80% over previous-generation Wi-Fi 5 access points. Much of the gain is in the improved rates and reach of Wi-Fi 6. But using fiber as a backhaul technology from the local access point to the primary ONT gateway also helps to improve speeds and reduce latency by up to 30%. More importantly, operators know that each home will have full Wi-Fi coverage, rather than assuming the subscriber has correctly placed the access points to eliminate dead zones. That helps to reduce support and troubleshooting calls.
Finally, from an environmental perspective, the use of passive splitters and components in the home offsets the increased number of powered ONT access points. But these units are also more power-efficient than previous generations of access points. When combined with the reduced power needs of PON access networks, in general, the FTTR architecture is a net reduction in carbon footprint.
Global Opportunities
Nearly all FTTR deployments have occurred in China, though there are already signs of international expansion in Hong Kong, UAE, and Brazil. Certainly, countries with high fiber penetration combined with a high percentage of MDU-based residences are the low-hanging fruit for FTTR. This is why we expect to see increased FTTR activity in markets such as Hong Kong, Singapore, the UAE, and Korea over the next two years.
In addition to high fiber penetration, regulations clearly defining the demarcation between building owners and service providers must be in place, as well as updates to building codes that clarify approved installation methods for flat fiber and best practices for fiber maintenance. In countries with low fiber penetration, these standards have yet been developed due to the need has not been there. Or in countries with FTTH deployments, standards, and demarcations have been defined for a single drop point to the customer’s residence—simply updating architectures that have been in place for decades with twisted pair and coaxial cable.
Time will tell whether an increase in fiber ISPs’ results in those ISPs differentiating their service with an FTTR offering. ISPS may offer FTTR as a premium service. At this point, however, all eyes are fixed on Wi-Fi 7 gateways and access points as the cure-all for spotty coverage and capacity issues.
