Economic Analysis of TWDM PONs: A Sustainability and Policy-Making Perspective

Abstract

The time- and wavelength-division-multiplexed (TWDM) passive optical network (PON) is a popular choice for future access technology. However, a comprehensive understanding of its economics is still beyond the reach of the current literature. For example, it is not clearly understood which techno-economic factors make this technology sustainable. Similarly, the role of the government in influencing the users' welfare has also remained opaque. In this paper, we uncover these important issues. Portraying the operator as a profit maximizer, we develop a mathematical model that encapsulates both economic and technical aspects of the network. Within this framework, the profit maximization problem of an operator turns out to be a mixed-integer nonlinear program that, in general, is exponentially complex. Fortunately, using a widely accepted assumption on user demand, we reduce this to a discrete optimization. Moreover, for a large class of demands, a polynomially complex algorithm is developed to solve this problem. For homogeneous linear demands, we analytically characterize the system parameters that ensure the sustainability of the network in the long run. In addition, the influence of different system parameters on the economic outcomes is studied. Our investigation reveals several policy-making insights. For example, it unveils a fundamental trade-off between the number of users and the aggregated welfare. Also, it suggests that the leasing of fibers isa better deployment policy for the government as compared to the other alternatives. Finally, we show that the architectural details of the network play a key role in deciding the economics. In particular, one variant of the PON is shown to be more viable than another.