Camp, Jeffrey; Gomezjurado, Jaime; Grogan, Sean. "Next-Gen Networks- Part 1: The Economics of Networks." Morgan Stanley: Telcom-Internet Infrastructure Services; 2001 Sep 28.

Keywords: next-generation network, Quest, Level 3, fiber optics, blowing fiber, pulling fiber, SMF, NZDSF, metro, longhaul

Abstract:

This report is the first in a series that looks at the issues surrounding the costs and hassles that accompany the building of a nationwide Next-Generation-Network (approx 20,000 miles). Such a process is projected to take three to four years and have a $4-5 billion price tag to build and $400-$600 million/year to manage, operate, and maintain.

Positioning

Because some carriers, such as Level3, Qwest and Williams, have designed their networks to include multiple unused conduits, they are in a position of advantage in the market putting them several years ahead of any carries that have to build a new network. Unused conduit allows for quick deployment of new fiber saving possibly several years of build time if new conduit had to be laid.

Rights of Way

Rights of Way (ROW) give the network builder access to routes by which they can construct their network. Access to easy to develop routes provides a significant advantage in time and money to the network builder. ROWs are typically negotiated individually from state and local governments, utilities, highways departments and railway companies. All this negotiating takes time. There is strategic advantage in acquiring ROW easements. It is estimated that previously negotiated access to ROWs can save 6-12 months when building a network. The reports draws some generalizations on the advantages and disadvantages ROWs held by the major network operators. There are pros and cons to each and there is no right ROW.

Investments

Costs of network deployment is broken down into three segments; construction, equipment and operations and management. Initial construction costs weigh heaviest in the early years but over time become a small portion of the total costs. The ongoing costs of operation and maintenance represent 10-15% of total investment.

Fiber deployment methods impact cost as well. Fiber can be laid aerially or underground with various cost models associated with each method. Generally it is believed that construction cost along ROW easements range from $20-50K per km the reports offers installation and maintenance costs by method as a percent of total costs.

Conduit

If deployment is underground, once the trench is dug, one or more conduits are laid which will house the fiber optic cabling. Conduit is made of various materials, dimensions and configurations. The cost of the conduit is about $3000-$5000 per km. Many of the larger networking companies such as Level 3, Quest, Williams are laying extra conduit capacity when trenching, leaving the unused conduit available for future needs. Extra conduit allows carriers to increase network capacity or introduce new technology at will. Morgan Stanley believes the extra conduit strategy gives carriers the largest scale in which to leverage the fixed network investment.

Fiber the economic implications

The three main types of fiber used commercially today are; MultiMode Fiber (MMF), Single Mode Fiber (SMF) and Non-Zero Dispersion Shifted Fiber (NZDSF). Choice of fiber category is usually based on multiple factors such as network type (metro, longhaul), capital available, and length of the links and bandwidth capacity required. Fiber characteristics comparisons and the associated costs are presented.

There are two primary methods of installing fiber; pulling and blowing. Pulling fiber involves literally pulling the cable through the conduit on a threadline and costs approximately $3500-$6500 per km. Blowing fiber uses a high pressure device to push the cable through the conduit and cost about 35%-45% less then than pushing. Longer links of fiber can be blown than pulled so blowing fiber also reduces the amount of splicing necessary.

Morgan Stanley research estimates the costs, excluding equipment, to build a next-generation network to be about 31,450-96,500 per km.

Lighting the Fiber

Lighting the network consists of installing optical amplifiers, regenerators.

Fiber type determines the distance signals can travel, typically 60-100km. After this distance, signal amplification is required and amplification huts are place at these spacing intervals. Amplification can amplify all the wavelengths in a fiber strand. Each facility houses network equipment used for optical amplification and costs approximately $1.4 million to light 12 strands.

Signal regeneration and re-transmission is also required every 600km. Regeneration equipment operates on a per wavelength basis. Avoiding regeneration is more important than avoiding amplification. The estimated cost for a regeneration facility to regenerate 12 strands running 32 windows at 10 Gbps (OC-192); $38 million!

Terminal nodes originate and terminate most of the traffic in a network. These facilities house transmitter, receiver, amplification and other electronic equipment. Morgan Stanley estimates the lighting costs for a terminal facility running 32 wavelengths at OC-192 speeds: $3.2 million per fiber strand lit.

This report ends with cost breakdowns for a New York to Chicago network and an estimate of costs for the 20,000 mile network.