LAS VEGAS--Though optics make passive optical network (PON) gear--the most widely deployed fiber-to-the-premises (FTTP) technology in the U.S.--significantly more expensive than DSL, PON costs will follow the path of DSL equipment costs downward, according to Dan Parsons, marketing director for chip maker Broadlight, who addressed a crowd at the Fiber-to-the-Home Conference in Las Vegas on Wednesday.

“DSL is quite complicated--to me anyway,” Parsons said. “But they’re some of the cheapest chips in the world.”

Vendors are working to cut the cost of PON equipment where their customers need it most: in the optical network terminals (ONTs) that reside at the customer premises. While the cost of central-office based optical line terminals (OLT) is spread among multiple users in a PON and becomes more cost effective as more subscribers sign up, the cost of ONTs is more static, making them a particularly important cost point in the network.

The most expensive part of an ONT is the optics. Transceivers represent 30% of the cost of an ONT, Parsons said. That cost will go down as bulk optics are replaced with planar lightwave circuits, which are starting to be used in some transceivers today.

“You can reduce the cost of optics because you’re taking out the profit margin of the transceiver vendor, which could be 20% to 25%,” Parsons said. “The overall effect is a 15% cost reduction right off the bat.”

In general, ONTs are following a typical equipment industry trend of increasing integration, which also slims down costs. Starting last year, vendors began integrating once-separate processors and media access controllers. Ethernet and gigabit PON vendors are further integrating clock and data recovery and possibly even subscriber interfaces. Starting this year, all this integration is coming together to produce ONT systems on a chip.

In 2008, vendors will combine the system-on-a-chip with a PON PHY (or integrated circuit), just as DSL vendors embedded analog front ends into chips, Parsons said. “You’ll see something like an ONT on a chip.”

That product will cost just 75% of what the equivalent costs today, he said.

Though Ethernet PON (EPON), with its common, inexpensive technology, helped initiate some of the cost reductions in optics through high-volume deployment, Parsons said, “We predict GPON costs will come down quite a bit faster than EPON because of standards, interoperability and the type of customers invested in it.”