I thought a lot about this and the ONTs were such a big part of the decision making around FiOS from both a Tellabs and AFC standpoint that they deserve a story arc of their own. I need to set a baseline for this and that is today's blog. There are some items that people need to understand about the technology and business involved here before we can discuss the outcomes easily.
To start with, "What is an ONT?" Well a Fiber To The Home system has two ends: an Optical Line Terminal (OLT) and a collection of Optical Home Terminals (ONTs). The ONT sits at or near the residence and converts the signals on the optical pipe to interfaces that the home needs. In the case of FiOS, this was Ethernet for Data (originally), 2 - 4 POTS lines and Coax for video. Verizon wanted these to sit in the same location as the Network Interface Device (NID) that they deploy in the copper network. For those who are not sure what a NID is, those are the grey boxes that sit on the side of your home where the copper phone network is connected.
As I posted earlier, we bid the original ONTs from AFC at a significant loss and expected to cost reduce them to profitability. However, the very first thing that happened is that Verizon "added" cost. I know this sounds odd, but Verizon had a model for deploying ONTs that was different than the very first ONT designs that AFC had. This made the ONTs a Verizon specific design, although they could theoretically be deployed by anyone. The changes were mostly electro-mechanical and had to do with: Fiber Termination, Powering, and Environmental Issues.
A fiber optic cable is a piece of glass that is encased in a plastic sheath. When most companies lay fiber cable, the cut the cable to the length required on site and connect it through a process called Fusion Splicing. This requires expensive equipment, lots of technician training and a long time to make happen. Verizon chose a different method which was to have a specialized fiber connector put into the ONT to provide a path for the light. This saved the process of Fusion Splicing but added significant cost to the ONT in connectors and other items.
Powering was always a challenge. The first problem that happened with Verizon was that they had a desire to have very low battery maintenance. The battery is there to provide power during local outages and like all batteries have a fixed life. To lower the need, Verizon needed a specific battery composition. This meant that we could not use an off the shelf battery and the vendor charged us more for the Verizon specific battery. Powering changed greatly over the years and was always a problem.
Finally, there was the need to seal the ONT environmentally. As it was we built this as a box in a box, but Verizon wanted to be able to dunk ONTs in water. This meant that we had to really seal that inner box. The box itself was not much of an issue but all those connectors were. Now we had to seal the connectors so that they didn't leak. This meant not only did we have to prevent leaks around them, but also leaks through them. If you look at a phone or an Ethernet connector, water can work its way through the connector itself. So we had to have "gel filled" connectors to seal things up.
Now that I have gotten through all of that, here is the business issue. All of these items were very hard to cost reduce. We had plans on how to cost reduce the electronics. We did that for years. I even had ideas on how to cost reduce the optics (and we had done that at AFC before). But how do you cost reduce battery chemistry? The other bit of that which was a challenge is that these electro-mechanical issues dominated the cost of the ONT. So not only did they cost more than we wanted, but the very expensive bits were hard to reduce.
A lot of this happened AFTER we won the ONT and some of these costs were shared with Verizon. But this is just the start of the story. Next up: Tellabs buys Vinci Systems.
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