Last Mile Considerations: Cable, Fiber and 5G

As 5G gets closer to reality and is expected to pay a major role in home broadband, it is interesting to compare it to the current home broadband options, particularly with respect to the user experience and cost of servicing the customer in the last mile.

While 5G promises low latency (10's of milli seconds) and high throughput (excess of 1Gbps), current cable and fiber offerings already offer the same benefits to the customer. 5G's improvements are really relative to the 4G mobility performance and provide similar capabilities as home broadband has had, but, in the context of mobile devices. For mobile devices, this is indeed a quantum improvement. But, for home broadband, it is not. So, 5G fixed wireless will have to innovate in cost and user experience to win over customers from their current alternatives. Hence, this comparison is topical and interesting.

Current Economics of Broadband Market

Comcast, the US broadband market leader, has close to 26M broadband subscribers while Charter has close to 23M subscribers. Both operate at EBITDA margins of roughly 40% each. The alternative service providers, AT&T and Verizon have close to 14M and 6M broadband subscribers respectively and operate at EBITDA margins of roughly 20% each.

Some of the difference in the EBITDA margin can be attributed to the scale advantage of the industry leaders. The overhead cost and higher negotiating power definitely provide an explanation. Another advantage the cable industry has over the rest of the competition is the fact that they routinely share development costs, either through Cable Labs standards or directly with each other. Since none of them compete with each other, there's little friction in this cooperative model. While Comcast and Charter together have almost 50M subscribers, their power (and cost advantage) is multiplied by the fact that the same infrastructural architecture and customer equipment is used by cable operators world wide.

I suspect that these advantages do not explain everything. Some of the difference is likely explained by the custom customer equipment that AT&T and Verizon launched, trying to keep up with the industry leaders. As a side effects, ease of installation and upgrade has been lost. What do I mean? Let me explain by first detailing the last mile in cable and then, comparing it to that of fiber, as an example. I will then explain the implications for 5G.

Cable Last Mile

Figure 1: Cable connection

In a typical broadband household, cable connection comes from a piece of neighborhood cable equipment, called the cable head-end unit. The bandwidth of the coax cable connection is shared by the customers in the neighborhood. For the broadband connection, once the coax gets into the house, a cable modem translates that coax (DOCSIS) connection to the Ethernet and WiFi devices connected to the router. The connection to the modem is via the standards-based coax connector.

Consider what happens when a customer needs a modem upgrade. When the DOCSIS standard that determines the speed of the connection is upgraded in the infrastructure along with the cable head-end, customers can simply be shipped a new modem. Unscrew the old modem, screw  the coax connector into the new modem and the customer is done upgrading to the latest technology.

Missed Opportunity in Fiber

Figure 2: Fiber connection

Contrasting this to the fiber connection, we will quickly see how the fiber upgrade experience results in much higher costs. A typical fiber broadband to the home starts with the optical splitter that splits the optical signal from the Optical Line Terminal (OLT). Optical Network Terminal (ONT) is the device at the customer's premises. ONT converts the optical signal into an electrical signal, either coax or Ethernet. A modem and/or a router takes in the electrical signal and connects the devices in the house using WiFi or Ethernet.

Unfortunately, the way ONT has been designed does not lend itself to an easy upgrade. Optical lines are directly inserted into the ONT during the installation. It is understandable that optical cables with a standard optical connector can not be shipped, given the uncertainty of the length of the cable required. But, if the cables were installed with the optical connector as a part of the installation, the ONT could potentially be user replaceable. Instead, a technician needs to visit the customer to replace it. Given the customer's disdain for the wait involved with an installation and the proprietary hardware, these design choices are difficult to fathom. Not only does this add cost, but, it also results in much worse customer experience.

Implications for 5G

Figure 3: 5G connection

Why does this matter for 5G? As you will see, 5G is, in some ways, similar to the fiber connection above. 5G fixed wireless connection will come to the customer's premises from a 5G base station mounted on a pole in the neighborhood. Fixed wireless 5G will use high band RF in the 20 and 30 GHz range. This signal needs line of sight to the 5G customer premises equipment (5G CPE) and hence, the installation will be critical. The 5G CPE needs to be mounted to account for the altitude, the location and the angle of its mount with respect to the 5G base station. Like other implementations, this 5G CPE, then, needs to communicate in some form to the router that connects to the customer's devices.

If an upgrade were to be painless, what needs to be true? It should be easy to unmount the 5G CPE which means that the mount has to be standardized and be foolproof. Also, the connection to the router needs to be standardized so that the customer could potentially replace the equipment themselves.

Given that the equipment is just a means of delivering the service, standardization will also enable lower costs by allowing others to build it. If standardization can be achieved, it will also erase the scale power of the cable giants and allow the 5G fixed wireless operators to compete on an even keel. The key question is how does one go about this!