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This is part IV in a continuing series. Part III can be found here.

Enter the Dragon

China Telecom (NYSE:CHA) recently assembled a very quiet, closed door session of suppliers in order to orchestrate implementation of several extensions to the IEEE 803.3ah GE-PON standard. This event has gone totally unreported in the press. Obviously, knowing which companies attended would be valuable- this is what I have been able to gather.

Chip Vendors:

* Passave - Well known, recently acquired by PMC-Sierra (NASDAQ:PMCS)

* Teknovus - Another well known chipset vendor.

* Centillium (CTLM) - Invited, but no-showed. Has had poor success in Japan. Email from Nyquist to the company on this issue has gone unanswered.

* Conexant - Dark horse with significant complementary technology

* Immenstar - Startup. Recently profiled in Lightreading.

* GW Technologies - Chinese PON chip vendor. Interoperability agreement with Teknovus.

Equipment Vendors:

* Huawei


* UT Starcom (NASDAQ:UTSI)

* Fiberhome

* One Additional Chinese Vendor

Note the total absence of any Western or Japanese equipment suppliers. China Telecom is clearly motivated to source the supply of FTTH equipment domestically. UT Starcom, with all of it’s financial warts, is the most experienced of the group, as it was a GE-PON supplier in Japan as well as a supplier of IP DSLAM equipment.

Most notably absent among western vendors were Alcatel (ALA) and Siemens (SI). Alcatel has invested significant resources in its Shanghai Bell group to develop a low cost R&D center for global products as well as a means to better secure domestic business. Siemens recently acquired Photonic Bridges with the same intent, and has been outsourcing the development of their PON products to Korea. Both appear to have come up short not only because of geopolitics, but also because of their heavy focus on ITU standardization, and G-PON.

China Telecom initiated the meeting seeking to extend 802.3ah to include the following features:

* Remote Code Management - The ability to remotely download new code into an installed ONU. This is not spelled out in the IEEE spec and a standard interface among ONU vendors is desired to ensure transparent ONU interoperability.

* TDM Circuit Emulation - Contrary to the wishes of IP/Ethernet Zealots everywhere, the vaunted T1/E1 refuses to die. China wants to ensure there is a standard way to provide legacy circuit services over the new optical infrastructure. Several IEE standards exist and their implementation will be specified as a 802.3ah addendum. Circuit Emulation is one of the greatest strengths of the ITU G-PON solution, and it looks like that will disappear. This explains the recent announcements by Passave (Zarlink (ZL) partnership) and Teknovus (in house silicon).

* VOIP Management - Ability to remotely provision and control voice over IP services offered in the ONU, eliminating the need for an external broadband VoIP adapter.

* Encryption - It simply wouldn’t be China if they accepted a western encryption scheme. Rather than use the globally accepted AES-128 they want their own, unique encryption. Preferably something not developed by NIST and something they know the racks of computers at the NSA haven’t had a shot at cracking.

* Dynamic Bandwidth Allocation (NYSEARCA:DBA) - This is the ability allocate varying amounts of bandwidth to a single subscriber on the fly. NTT (NYSE:NTT) implemented these features by partnering directly with vendors and conducting limited interoperability testing. It appears that China Telecom wants to ensure a wider base of suppliers from the outset and is orchestrating a standard DBA implementation.

* Optics - The original 10-20 km reach specification is out of date. GE-PON optics suppliers can now easily beat this spec and China Telecom wants to take advantage of that.

China Telecom is clearly leading an effort to organize a supply chain around a modified version of the 802.3ah specification in an effort to prepare for a rollout of FTTH services.

The last remaining question, one we will address in the fifth and final installment of this series, is what role active ethernet will play in China and how this will impact the amount of components and equipment consumed?

CHA 1-yr chart:

CHA 1-yr

Source: The Future of Fiber To The Home in China, Part Four (CHA)