An optimal investment strategy model for fiber to the home

Planning for the deployment of fiber to the home is made particularly difficult by rapidly changing network component costs and a multitude of system architecture alternatives. A modeling approach using dynamic programming to select an optimal investment strategy for rehabilitating existing copper plant with fiber to the home is described. The optimal time to invest is determined by a simple tradeoff: early deployment allows the carrier to receive additional revenues from video services more quickly; later deployment can be accomplished with less costly technology. Given the assumptions of the model about component cost trends and demand forecasts, and in the absence of competition, the model predicts that discounted profits to a local exchange carrier (LEC) are maximized by deferring investment in fiber to the home until well into the 21st century. The results are particularly sensitive to a few system parameters: the assumed rate of subscriber growth in broadband services, the cost of optical components, and the cost of network maintenance. Some policy implications of the study are examined.>