Deutsche Telekom opts for VDSL2

By Ken Twist, Vice President, Ovum-RHK

As IPTV deployments become more of a reality, operators are beginning to focus on the amount of bandwidth that will be needed to deliver dynamic content and high-definition (HD) programming, which is re-opening the debate as to whether DSL can support HD programming. Recently, BT, Deutsche Telekom, France Telecom, and SBC threw their support behind VDSL2 by announcing various VDSL2 initiatives. DT and FT believe that 40-50 Mbps VDSL2 service will provide the necessary bandwidth for them to offer HD IPTV services as well as higher-speed Internet access and downloads. While FT has not formally launched a major VDSL2-based build-out, DT is committing €3 billion for an FTTN build in fifty of the largest cities in Germany, which requires DT to shorten loops and deploy remote DSLAMs closer to the end user. Ovum-RHK believes that DT's plan reflects what will be a growing trend in demand for VDSL2 solutions among operators looking to offer HD IPTV and multimedia services.

The key business driver for DT to use VDSL2 to increase customer bandwidth is that the company needs additional capacity to offer the following new services:

• Family Whiteboard-online interactive electronic bulletin board
• Gamesload-online gaming
• IP telephony
• Media Receiver T-Online S 100-a multimedia entertainment service where content is streamed via IP to a TV or PC.

In the near future, DT will provide HDTV IPTV streams while supporting the above services.

The timetable for this initiative is aggressive. DT believes that it will connect approximately 2.9 million households to the new network by mid-2006 with the rest of the fifty cities connected and running 50 Mbps VDSL2 services in 2007. Given the immaturity of the VDSL2 standard and equipment support for this new standard, we believe that DT will be challenged to meet its stated timetable for 50 Mbps service. However, we believe that DT will probably try to mitigate such risks by leveraging the Siemens/Infineon solution.

Figure 1 DT to offer 50 Mbps by 2007

Source: Deutsche Telekom

Bottom line

Ovum-RHK believes that large incumbent operators like FT and DT are likely to select FTTN/VDSL2 when deploying high-definition multimedia content because they want to leverage existing copper assets. However, in many cases, this will have a significant financial impact as operators will have to add more remotes and shorten loops to roughly 375 meters to achieve 50 Mbps speeds (670 meters for 40 Mbps).

Other implications are that VDSL deployments are beginning to see the light of day outside of the Asia-Pacific region, which is good for VDSL components vendors like Ikanos, Infineon, TI, and others. Operators are also aware that the more they buy, the lower the price they typically pay for the equipment. As such, many operators we interviewed about VDSL2 expect that pricing will "quickly come in line with where we think it ought to" and given the price sensitivity of DSL and the purchasing power of incumbents, we agree. Naturally, this will impact the length of time gross margins for VDSL products remain respectable for system and component vendors.

Ovum-RHK believes that DT's plan reflects what will be a growing trend in demand for VDSL2 solutions among those operators looking to offer HD IPTV and multimedia services. In North America and Europe, eight large operators have either announced an FTTN/VDSL2 initiative or are planning to announce such an initiative soon.

Given the types of announcements and RFP activity we have seen among the operators and the advances in video compression and DSL technologies (VDSL2 and soon VDSL3), we believe the large operators are going to continue to leverage copper for the next five to ten years (in some cases alongside FTTH deployments). At the end of 2Q05, there were 115 million DSL subscribers globally, which gives the operators a large and growing installed base from which to leverage.

Ken Twist has more than 15 years experience in the data and telecommunication industries with operators and equipment manufacturers. Ken has significant experience in developing and marketing new telecom products globally.