Broadband Overview

Ramayya Krishnan
The Heinz School
Carnegie Mellon University

Broadband

FCC Definition – Speed of 200kbps in at least

one direction.

Why do (as policy makers and as managers)
we care about broadband penetration,
growth?

Read the Wi Fi Philadelphia Case for

background and context
http://www.nytimes.com/2008/03/22/us/22
wireless.html?_r=1&oref=slogin
Broadband and Development

Widespread deployment of broadband is estimated

to generate $500 billion in social welfare.

Can generate significant jobs and improve access to
information and resources more transparently.

Provides opportunities for new businesses and
services, reduces transaction costs and creates
surplus.
 For example, selling a movie online can cut distribution
costs very significantly.

Broadband and Development

Does more broadband penetration lead to
more development?

Recent work by Lehr, Osorio, Gillett and
Sirbu (2005)
 They collected broadband data at zip code level.
They also collected information on some
economic indicators –

Employment

Wages

Rental Rates

No of Establishments

IT-intensive share of establishments
 Lehr et al

Broadband and DVD sale

Recent work by Smith and Telang (2006)

DVD sale data from 2000 to 2003 at DMA
(Direct Marketing Area; typically a
metropolitan area)

collected data on broadband penetration in
this area.

controlled for various other factors like
income, proportion of young people etc.
src: Smith and Telang (2006)

Indep. Vars. Fixed Effect Fixed Effect with Fixed Effect with Time
(1) Time Dummies Dummies and
(2) Autoregressive Errors
(3)
Per Capita Broadband 0.63** (0.10) 0.39** (0.11) 0.23* (0.126)
Penetration
Log(Population) 0.11 (0.43) 0.07 (0.39) -0.65 (0.62)
Median Income 0.048** (0.006) 0.035** (0.006) 0.020** (0.009)
% Whites -0.121** (0.023) -0.102** (0.02) -0.075* (0.035)
% Males -0.145** (0.052) -0.168** (0.05) -0.214** (0.076)
Median Age 0.059** (0.017) 0.013 (0.02) 0.03 (0.028)
% 15-24 Year Olds 0.013** (2.675) 0.013** (2.56) 0.11** (3.78)
Wal-Mart Supercenters -0.005 (0.005) -0.005 (0.005) -0.008 (0.006)
Time Dummies No Yes Yes
Autoregressive Errors No No 0.338
(AR1)
Constant 9.4 (8.4) 11.88** (7.77) 23.08** (8.0)
No. of Obs. 294 294 196
R^2 (Within) 0.94 0.95 0.94

What does it mean?

Increase in broadband penetration seems to explain increased DVD
sale as well.

In particular, our results show that 9.3% of the DVD sale between
2000-03 occurred because of broadband which corresponds to
about $1.3 billion.

Why does broadband leads to such effects?

 Long tail story - people can find and search exactly what they want and
this increases their propensity to buy.
 Broadband makes it easy to advertise forthcoming DVDs with small
captions and trailers making it more likely that users (who increasingly
are spending more time on Internet) will notice and hence buy.
 But it could also lead to more “piracy”. We do not find much evidence in
our data but Internet is and will change the way digital content is
distributed and managers have to be mindful of that.

Recently, Wal-Mart and Target have expressed serious reservations about
studios selling movies online and studious have to find the right balance
between their physical retailers and online distribution.
Broadband and music piracy

Liebowitz (2006) shows that broadband

penetration leads to higher level of peer-to-
peer music file-sharing – causes fall in CD
sales.

He claims Internet (and broadband) is
responsible for 25% decline in CD sale over
1998-2003.

Key Broadband Statistics

OECD Broadband subscribers per 100 inhabitants, by technology, June 2006

30
DSL Cable Other
25

20
OECD average
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Business Case for Broadband Service

The Business Case for vendors

 Customer Premise Equipment Cost
 Cost per subscriber for Infrastructure
 ARPU (Average Revenue per user)
 Maturity of technology, Is it niche or ubiquitous ?

The Customer
 CPE Cost
 Ubiquity of the standard

Ack: Ashok Juneja

 Brief Description of
Technology

Internet Access Technologies

ISDN

xDSL

CABLE

Wireless - WiMax

Power Lines

Fiber

Satellite

In USA, essentially we have domination of DSL and

Cable.
Raising the Speed Limit on the copper Loop (DSL)

Modem speeds limited by the 4 KHz design

bandwidth of the telephony network

Bandwidth limit imposed by the line card at the switch
or remote multiplexer

ISDN line cards support 128 kbps on the loop

Faster speeds on the copper are possible by putting
a modem at the CO end of the loop before the switch
 use frequencies on the copper up to 1 MHz
 e.g. T1 runs over copper pairs at 1.5 Mbps

Maximum speed depends on distance, wire gauge,
and condition of loop (e.g. bridge taps)

Simplex Bit Rate vs Distance for 24 Gauge Copper

Loops

DS1 (T1) 1.544 Mbps 18,000 feet

E1 2.048 Mbps 16,000 feet
DS2 6.312 Mbps 12,000 feet
E2 8.448 Mbps 9,000 feet
1/4 STS-1 12.960 Mbps 4,500 feet
1/2 STS-1 25.920 Mbps 3,000 feet
STS-1 51.840 Mbps 1,000 feet

Source: ADSL Forum

Simplex Bit Rate vs Distance

20,000
Distance (feet)

15,000
10,000
5,000
0
0 10 20 30 40 50 60
Mbps
Further one goes from the Central Office, lower is the speed.

What do you need for DSL to work?

A Modem at the customer end

A copper wire that is capable of carrying high
speed data

A DSLAM (DSL access multiplexer) at the
Central Office (CO)
 DSL (Digital Subscriber Line)

DSL from Central Office

A splitter at customer’s premises and in DSLAM (DSL Access

Multiplexer) separates 0-4KHz voice from DSL at higher
frequencies

Main distribution frame

NID (Network Interface Device)
POTS switch
S
p ADSL capable MDF
l
i copper loop
t
t
e
r DSLAM
with
splitter
ADSL modem

ATM Network
 Remote Terminals

DSL provision critically depends on the

distance between CO and user homes.

To reach more remote users, Telcos use
something knows as Remote terminals.

These Remote terminal have switching
equipments as well as DSLAMs.

DSL with Digital Loop Carrier (DLC)

ILEC LDS
DSL-ready DLC
Remote Terminal (RT) voice
NID
S D
L Add
p S
l Copper G Drop ILEC ATM
i X
t
loop SONET X Mux 3 Network
t
e
r

DSL
modem DSLAM line
cards
Technology

The idea is use the unused copper bandwidth.

Two commonly used modulation techniques
 DMT (Discrete Multi Tone)
 CAP (Carrierless Amplitude/Phase Modulation)

The standard for ADSL has been DMT

ADSL Modulation
• DMT - Discrete Multi-Tone
– large number of equally-spaced sub-carriers
– related to Orthogonal FDM (frequency division multiplexing)- OFDM

4 kHz
– 256 sub-carriers, each occupies about 4 kHz

• Essentially creates 256 voice channels for sending and

receiving the data. Uses QAM (Quadrature amplitude
modulation) encoding per channel

26
ADSL
• each carrier carries 0 to 15 bits/sec/Hz
• channels #1 - #6 analog voice (wide guardbands)
• 32 upstream
• 218 downstream
• Thus in theory, a channel can offer the data rate of 60kbps =
4000 x 15bits. With 218 downstream channels, the data rate can
be quite high 218 x 60kbps.
• In practice, each channel undergoes different S/N ratio which
determines how many bits/Hz can be stuffed. Higher frequencies
face more attenuation and more noise and hence can carry far
fewer than 15 bits.
• Modem constantly monitors noise levels and shifts the data from
one sub-carrier to the other depending on the noise level.

xDSL

Many types of DSL
 Asymmetric DSL (ADSL)

384 up to 7 Mpbs downstream

90 kbps up to 1.5 Mbps upstream

 ADSL-lite

avoids need to install splitter at residence

 customer can install modem

limited to 1.5 Mbps downstream
 Symmetric DSL (SDSL)

variety of rates

primarily for businesses to support servers

competes with fractional T1

 DSL Provider Marketplace

DSL is service used to access an Internet access providers
 open access: telco must not discriminate among IAPs

If telcos provide fiber then they need not open their network
 Layer 2 switching (ATM) used to route user to IAP of choice
 Recent rule changes.

ADSL being offered by ILECs

 oriented towards residences

 line sharing with voice

 marketed with ILEC IAP service

SDSL primarily offered by data CLECs

 ILECs afraid of cannibalizing fractional T1

 marketed by IAPs who wholesale service from CLEC

Internet over CATV Systems

Another significant technology to offer broadband access over
last mile.

Cable has about 54% of the market share for Internet access.

Customers need a Cable Modem at customer premises

Cable Modem Termination System (CMTS) at distribution node

Downstream programming begins at 50MHz, with 5MHz-42MHz
reserved for upstream communication. Each channel occupies
6MHz

For data-over-cable, one or more channels in 50-750MHz range
carries signals downstream, and one in 5-42MHz carries signals
upstream
 Hybrid Fiber/Coax (HFC) CATV
Plant Architecture

Source: Dutta-Roy, “Cable: It’s Not Just for TV,” IEEE Spectrum, May, 1999

Cable Modems

Cable plant must be upgraded with fiber trunks and 2-way amplifiers
 early systems used cable downstream, POTS upstream
 approximately 70% of 90 million homes passed are served by

upgraded systems

CableLabs has developed standards
 DOCSIS (Data Over Cable system Interface) 1.1 provides for

multiple channels and QoS

 Newer standard is DOCSIS 2.0 with 3.0 in development.

Ethernet interface to PC or home network

 Cable Modem functions as a layer 2 bridge

 newer modems with USB interface avoids need to install

Ethernet NIC in PC

goal is subscriber self-install
 Typical Cable Modem
Configuration

Ethernet
Connection
(Thin or Twisted Pair)
to PC with Ethernet Card
Conventional Co-
axial Cable (the
same cable you
plug into your TV

Typical Cable Modem Configuration in

the Home

Television Set(s)

Coax …to Cable

TV Cable System’s
PC with Head End
Cable
Ethernet
Modem
Card Ethernet
(Thin or
Twisted Pair)
 Typical Cable System with Internet Access

High-speed
Internet Fiber
Backbone
Optic
Link Conventional
Links
Copper
to
Co-ax Cable
Neighbor-
to Homes
hoods
Cable
System
Head End

Possible Cable Modem Configuration:

Multiple Computers in the Home

PC with
Ethernet
Card

Cable
Modem
CABLE MODEMS
CMTS

O/E T
Video O/E set top

fiber node
PC
Head End T

IAP Spectral Use 10 BaseT

Cable Modem
T T T T D
U V V V V O
P W
N
0 50M 750M 900M
Internet
Frequency
Backbone
O/E opto-electronics 2-way amplifier T Tap

Source: Stagg Newman

Cable Modem Downstream

One or more 6 MHz channels in 50-750 MHz range is used for
downstream.

64 QAM (6 bits/symbol) ==> ~29 Mbps/6 Mhz channel for
downstream

newer equipment: 256 QAM ==> 40Mbps/6 MHz

Downstream

For upstream a channel in 5-42MHz is used. Using 16 QAM to

get upto 2Mbps upstream

The download stream is shared by all users.

Typically, the newer version of DOCSIS uses Time Division
Multiplexing. Thus each user gets a time slot to send and receive
its data.

Thus, QoS (Quality of service) critically depends on busy hour

traffic.

As the number of customers increases, QoS suffers and Cable
companies need to provision more bandwidth.

Traffic Engineering comes into play.
Cable Modem Service Providers

Contract with cable operators to install and manage cable
modem service. Multiple systems operators (MSO) like Comcast,
Time Warner, Cox etc provide the conduit. Service operators
provide the content access. In many cases, both could be same.
 revenue shared with cable operator

RoadRunner
 Jointly owned by MediaOne and TimesWarner. It is Timewarner’s
arm for providing internet access over Cable.

Comcast

Adelphia

Even though Cable operators are not needed to open their
network to other ISPs, when AOL and Time Warner merged, they
allowed other ISPs to use their conduit to avoid anti-trust
lawsuits.

Economics and Policy of Broadband

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OECD Broadband subscribers per 100 inhabitants, by technology, June 2006

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OECD average
ub
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Current State of Broadband Deployment

re
ec
e
Other countries seem to have done
better...

Korea, Japan, Canada, Taiwan seem to have better in
terms of expanding the scope of broadband deployment
and making it as universal as possible.

In most of these countries, government is active

promoter and partner in broadband deployment. In US,
FCC is relying entirely on competitive forces to achieve
the goal of universal services in broadband market and
many critics have complained. In particular, FCC has
resigned to the idea of duopoly in broadband market
(wireless is expected to be third player). [Recall all the
recent rule changes with regard to DSL services]

Broadband working group

Set up by FCC to evaluate the economic and

technical feasibility of various alternatives for
providing broadband access.
 DSL,
 Cable
 VDSL (Very high speed DSL)
 Fiber to the Premise
 Power line Communication
 Wifi, 3G etc.
Methodology
(1) For each platform, identify the services customer purchase
today:
 Voice

Primary and secondary lines. Primary line for very high quality and
secondary line for ok quality.
 Multi-programming video service

Cable and satellite TV programming with 2 dozes basic and over the
air broadcast
 High speed Internet Access

High speed (at least several hundred kilobytes) and low latency.
(2) Identify key economic factors the determine the suitability of a
technology platform to these services
(3) Technical capability of each platform to offer these services.

Economic factor in Viability of Broadband

Access platform

Revenue generating services supported
 Having multiple services is a big advantage so that fixed costs
can be amortized over large customer base. Low churn when
offering multiple services.

Cost of customer acquisition, equipment and installation
 Many times a visit to the customer premise is warranted which is
very expensive.

Operations, billing and customer care
 Should be scalable. Many CLECs ignored this cost and paid the
price.

Network access and transport.
 Physical construction costs such an trenching, right of ways, cost
of resolving network issues etc.
Cost Structure

Surprisingly, “technology” related costs are

only a small portion. A significant cost is in
acquisition and marketing.

A new entrant, in spite of having a better (or
low cost) technology may not fare well.
Tough to beat a well entrenched incumbent
with large market share.
What this suggests ..

Cable is very suitable for Secondary phone

line, high speed Internet and multi-channel
video. DSL is very suitable for voice and
Internet but not for multi-channel video.

Two key technologies are VDSL (Very high
speed DSL) and Fiber. How do they stack
up?
Suitability

VDSL
 Promising but very costly. Customer can not be more than
3000 feet from telco for VDSL to be possible (only 20% of
the homes fall in this category). It would cost $2000-$3000
per customer to serve VDSL to the rest of the market.
 Typically combined with Fiber to the neighborhood (SBC
strategy)

Fiber to the Premise (FTTP)
 Very attractive but very costly. Fiber to the neighborhood is
about $600 per household and another $800 for Fiber to
the home (premise). Even with 100% penetration, it is
about $1400 per customer.
 Can work in new neighborhoods (Verizon strategy), very
dense residential area (downtowns)

Where are we going? …

Many technologists discuss the possibility of “the triple
play” : a single fiber based network that will deliver voice,
data and video. The vision is “10/100 x 100” -> 10-100
mbps for 100 million households.

Clearly any firm that produces such a network will
dominate. It can earn at least $170 billion in revenues.

But, with Cable and telephony duopoly neither has
incentives to produce such a network.
 Too risky to build such a network for incumbents and new entrant
can not compete with incumbents.

In the absence of solid phone and cable network, a new
entrant will build fiber network.
 Most of the wireless broadband developments will probably
succeed in developing countries.
 http://www.nytimes.com/2008/10/28/techno
logy/28verizon.html?_r=1&scp=2&sq=veriz
on&st=cse&oref=slogin

Role for policy maker?

Should government promote a universal high speed

network? If yes then how.
 Should we tax broadband to promote universal service?

Would it be natural monopoly? Recall that many

municipalities are building such network. The key is how
to allocate this to service providers?

How would local providers will react to this?

FCC has focused essentially on 50% of the households

who can afford broadband at $30. What happens to the
rest of America?
Broadband Penetration and Digital Divide

Broadband Penetration
Prices Worldwide

Gap decreases

Gap between broadband haves and have-

nots has decreased but at least 25% of the
Americans will not have broadband access.

Should government provide access to them
via some mechanism?
Summary

Broadband access technologies.

Tradeoffs

Digital divide and worldwide penetration

Questions to Ponder?

What kind of business models ISPs are trying

to put together in place to make broadband a
money making proposition?

What are some of the “killer Apps” for
broadband?
 Interactivity is a key application touted.

With Fiber to the home strategy followed by
ILECs be successful and work? How would
Cable respond?