Table of Contents:

Definition and Overview

1. Evolution of Passive Optical Networks

2. Economic Case for Ethernet PONs

3. Passive Optical Network Architecture

4. Active Network Elements

5. How Ethernet PONs Work

6. Optical System Design

7. Quality of Service

8. Applications

9. Benefits of Ethernet PONs

10. Ethernet in the First Mile Initiative

11. The Future of Ethernet PONs

Self-Test

Glossary

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EPONs address a variety of applications for incumbent local-exchange carriers (ILEC), cable multiple-system operators (MSO), competitive local-exchange carriers (CLEC), building local-exchange carriers (BLEC), overbuilders (OVB), utilities, and emerging start-up service providers. These applications can be broadly classified into three categories:

1. Cost reduction: reducing the cost of installing, managing, and delivering existing services
2. New revenue opportunities: boosting revenue-earning opportunities through the creation of new services
3. Competitive advantage: increasing carrier competitiveness by enabling more rapid responsiveness to new business models or opportunities

Cost-Reduction Applications

EPONs offer service providers unparalleled opportunities to reduce the cost of installing, managing, and delivering existing service offerings. For example, EPONs do the following:

• Replace active electronic components with less expensive passive optical couplers that are simpler, easier to maintain, and longer lived
• Conserve fiber and port space in the CO
• Share the cost of expensive active electronic components and lasers over many subscribers
• Deliver more services per fiber and slash the cost per megabit
• Promise long-term cost-reduction opportunities based on the high volume and steep price/performance curve of Ethernet components
• Save the cost of truck rolls because bandwidth allocation can be done remotely
• Free network planners from trying to forecast the customer’s future bandwidth requirement because the system can scale up easily

For service providers the result is lower capital costs, reduced capital expenditures, and higher margins.

ILECs realize that T1 services are their “bread and butter” in the business market. However, T1 lines can be expensive to maintain and provision, particularly where distance limitations require the use of repeaters. Today, most T1s are delivered over copper wiring, but service providers have already recognized that fiber is more cost-effective when demand at a business location exceeds four T1 lines.

EPONs provide the perfect solution for service providers that want to consolidate multiple T1s on a single cost-effective fiber. By utilizing a PON, service providers eliminate the need for outside plant electronics, such as repeaters. As a result, the expense required to maintain T1 circuits can be reduced dramatically. In many cases, savings of up to 40 percent on maintenance can be achieved by replacing repeatered T1 circuits with fiber-based T1s.

New Revenue Opportunities

New revenue opportunities are a critical component of any service provider’s business plan. Infrastructure upgrades must yield a short-term return on investment and enable the network to be positioned for the future. EPON platforms do exactly that by delivering the highest bandwidth capacity available today, from a single fiber, with no active electronics in the outside plant. The immediate benefit to the service provider is a low initial investment per subscriber and an extremely low cost per megabit. In the longer term, by leveraging an EPON platform, carriers are positioned to meet the escalating demand for bandwidth as well as the widely anticipated migration from TDM to Ethernet solutions.

Increasing growth rates for Ethernet services have confirmed that the telecommunications industry is moving aggressively from a TDM orientation to a focus on Ethernet solutions. Fast Ethernet (10/100BT) is expected to grow at a rate of 25.2 percent compound annual growth rate (CAGR) 1999–2004 (IDC, June 2000). Gigabit Ethernet is experiencing an extremely rapid growth of 128.9 percent CAGR 1999–2004 (IDC, June 2000). It is imperative that incumbent carriers, MSOs, and new service providers embrace these revenue streams. The challenge for the ILEC is how to implement these new technologies aggressively without marginalizing existing products. For new carriers, it is critical to implement these technologies with a minimum of capital expenditure. MSOs are concerned about how best to leverage their existing infrastructure while introducing new services.

EPONs provide the most cost-effective means for ILECs, CLECs, and MSOs to roll out new, higher-margin fast Ethernet and gigabit Ethernet services to customers. Data rates are scalable from 1 Mbps to 1 Gbps, and new equipment can be installed incrementally as service needs grow, which conserves valuable capital resources. In an analysis of the MSO market, an FTTB application delivering 10/100BASE-T and T1 circuits yielded a one-month payback (assuming a ratio of 70 percent 10/100BASE-T to 30 percent T1, excluding fiber cost).

Competitive Advantage

Since the advent of the Telecommunications Act of 1996, competition has been on the increase. However, the current state of competition has been impacted by the capital crisis within the service-provider community. CLECs today are increasingly focused on market niches that provide fast growth and short-term return on investment.

Incumbent carriers must keep focused on core competencies while defending market-share, and, at the same time, they must look for high-growth new product opportunities. One of the most competitive niches being focused on is the Ethernet space. Long embraced as the de facto standard for LANs, Ethernet is used in more than 90 percent of today’s computers. From an end-user perspective, Ethernet is less complex and less costly to manage. Service providers, both incumbent and new entrants, are providing these services as both an entry and defensive strategy. From the incumbent perspective, new entrants that offer low-cost Ethernet connectivity will take market-share from legacy products. As a defensive strategy, incumbents must meet the market in a cost-effective, aggressive manner. EPON systems are an extremely cost-effective way to maintain a competitive edge.

New or next-generation service providers know that a key strategy in today’s competitive environment is to keep current cost at a minimum, with an access platform that provides a launch pad for the future. EPON solutions fit the bill. EPONs can be used for both legacy and next-generation service, and they can be provisioned on a pay-as-you-go-basis. This allows the most widespread deployment with the least up-front investment.

For example, a new competitive service provider could start by deploying a CO chassis with a single OLT card feeding one PON and five ONUs. This simple, inexpensive architecture enables the delivery of eight DS–1, three DS–3, 46 100/10BASE-T, one gigabit Ethernet (DWDM), and two OC–12 (DWDM) circuits, while leaving plenty of room in the system for expansion. For a new service provider, this provides the benefit of low initial start-up costs, a wide array of new revenue-generating services, and the ability to expand network capacity incrementally as demand warrants.