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Petaluma’s Calix on frontlines of broadband battle

WITH CABLE COMPETITION, COMPANY’S EQUIPMENT FOR TELCOS IN DEMAND

PETALUMA – Competition between cable companies and traditional telephone carriers for broadband subscribers has never been hotter, with one of Telecom Valley’s most prominent equipment makers in the middle of the fray.

Cable companies such as Comcast gained significant advantages with their early entry into the high-speed market. Now, the telecos are fighting back with their own equipment, according to Calix Vice President of Marketing Kevin Walsh.

Calix is a major supplier of arms to the telcos in the broadband war. Its gigabit Ethernet passive optical network with gigabit Ethernet subscriber-side interfaces will be one of the big guns that telcos deploy against the competition.

The company recently announced an interoperability agreement with Microsoft, whose multimedia package for carriers allows them to offer Internet Protocol TV and other entertainment services to subscribers. The availability of IPTV and video are vital to the carriers' winning subscribers away from cable.

"For 11 quarters now, net customer gains have been higher for telcos than cable companies," said Theresa Mastrangelo, principal analyst of Broadbandtrends. She added that outside the U.S., DSL and other broadband technologies outsell cable.

"The cable companies here were upgrading their networks in anticipation of digital TV, so it was easy for them to offer broadband while the telcos wrestled with DSL's distance limitations and the lack of standards," she said.

Another smart move on the part of cable companies was to put standards in place early, allowing service to become ubiquitous across different operations.

But cable companies are now facing a challenge eerily similar to the one that slowed the telcos five years ago.

Andrew Johnson, Comcast’s vice president of communications for California, disagrees.

"We're going to roll out DOCSIS 3.0 next year, and it'll enable uploads and downloads of 100 megabits, far more than anyone needs. And it'll use our existing network."

Comcast has spent $600 million in Northern California over the past few years driving its fiber network deep into neighborhoods, he said.

"We'll meet and exceed the needs of our customers and we'll keep our competitive edge."

Still, Calix is bullish on the future of telecom carriers when it comes to access.

The company, founded in 1999 and with approximately 400 employees at press time, has 425 to 450 customers among major independent local exchange carriers, competitive local exchange carriers and independent operating companies across the U.S., Canada and the Caribbean.

Last year's purchase of Minneapolis-based Optical Solutions put Calix in the leading position for supplying gigabit passive optical network equipment, which resides at the customer premises and requires no powered devices outside the plant.

But the technology, which could be deployed by both cable and telco companies, is expensive. Verizon, the first large carrier to build out a fiber-to-the-home network, isn't using GPON, although they might switch to it, said Mr. Walsh.

The Verizon buildout has not been trouble-free, and other large carriers like AT&T are limiting fiber installations to new developments.

Another barrier to fiber adaptation by the carriers is the existence of millions of miles of copper lines, laid down over 100 years and connecting to most homes and businesses.

DSL, the broadband-over-copper technology, has gone through several iterations dealing with distance issues, and it cannot match the performance of fiber, but the telcos can't afford to abandon it, said Ms. Mastrangelo.

"Fiber is the end game, but the transition will take time. The dynamics have changed since AT&T was the single provider. Now companies have to consider the competition. Interest level may be high, but is it high enough to justify the cost? Replacing a network is very labor-intensive, requiring trenching," she said.

Still, Calix is in a sweet spot going into the future.

"They understand the market better than the new vendors, and that allows them to be more innovative. They bring a wider breadth of knowledge to the market," said Ms. Mastrangelo.

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