Bandwidth Demands Create New Life for Optical Sector

“Build it and they will come” became a popular catchphrase in the late ’90s as service providers made massive network investments in expectation of demand from the onslaught of Internet newcomers. But when the WorldCom debacle and the dot.com bust caused the industry to implode, there was a lot of talk about a bandwidth glut in backbone and transport networks. However, if there was indeed an oversupply of fiber and/or bandwidth, it didn’t last long. Despite a less than upbeat economy (which now appears to be on a downward slide) in the years since telecom’s nuclear winter, carrier investment in optics is decidedly upbeat.

“Bandwidth consumption is just booming. It doubled in 2006 and then quadrupled again in 2007,” said Arthur Gruen of Wilkofsky Gruen Associates, which works with the Telecommunications Industry Association (TIA) to produce an annual review and forecast on the telecom industry. “For those of you who’ve been following this industry for a while, you may recall that early in the decade, even as recently as 2002 and 2003, the belief was that we had so much excess capacity that we wouldn’t need to invest in any more for the foreseeable future,” said Gruen. “Well, the foreseeable future has hardly lasted the decade. Now we are in a situation where if we don’t do some significant investment now, and companies are in fact doing it, we may be running into bandwidth shortages. So this is quite a dramatic turnaround.”

Service providers are on it, as are Internet content providers (ICPs). Infonetics Research reports that spending from ICPs, such as Google, YouTube and MySpace, on optical network hardware worldwide hit $204 million in 2007, and is expected to increase steadily over the next five years. Accordingly, Infonetics reports that sales of optical network hardware are up for the fourth consecutive year, having neared $13.9 billion worldwide in 2007, a 19 percent jump from 2006. In the fourth quarter of 2007, optical leaders Alcatel-Lucent, Huawei, Nokia Siemens Networks and Nortel Networks all posted growth in this category. And even an optical gear newcomer, Infinera Corp., was able to build a successful business in recent years, having grabbed 27 percent market share in North America's multireach DWDM segment between 2004 and 2007. (For more on Infinera, read "How Infinera Turned Thinking about Optics on Its Head.")

"2007 marks the highest revenue year for the optical network hardware market since 2001,” said Michael Howard, principal analyst at Infonetics. “Increases in all kinds of consumer and business voice, video, data and mobile traffic continue to drive service providers to launch IP transformation projects and invest in optical networking gear. The burgeoning packet optical transport systems market, driven by these IP transformation projects, is already close to a $1 billion annual market in 2007."

Despite an uncertain but increasingly negative U.S. economy, metro optical remains a fertile and seemingly insulated oasis of growth and investment, added Ron Martin, chief marketing and strategy officer at ADVA Optical Networking. “Unlike the market expansion in the late ’90s/early 2000s, this current boom is fueled by demand from both business and consumers,” he said.

While network builds during the late ’90s and early 2000s were made in anticipation of traffic growth, added Gruen, “now we’re in a situation where the investment is not in anticipation of demand, it’s following demand. And that’s why we think it’s a sustainable growth path.”

The growth in bandwidth demand that is driving carrier investment in such optical gear as ROADMs and WDM solutions shows no signs of waning, recession or not. That expansion, of course, largely is due to the proliferation of online video and growing multimedia in general, the rise of social networking, as well as demand for wireless access and the availability of a wealth of devices that support such enhanced communications applications. “From an anecdotal perspective, if you look at sites like YouTube alone, the users are consuming as much bandwidth today as the entire Internet did in 2000,” said Scott McFeely, vice president of metro Ethernet networks at Nortel. “We’ve got 70 percent of U.S.-based Internet users now using the Internet to stream or download Web-based video. You got a stat of something like a million iPhones sold in the first quarter of availability, and all capable of being video devices. If you do the math on the transition of video sources from standard-definition to high-definition formats, the increase in bandwidth can be staggering.”

All this, as well as a move by business customers to demand client-side access at rates up to 10gbps, has led service providers to migrate their optical transport networks to ever-higher bandwidth capacities. “The vast majority of [service providers] are all looking at deploying 40gig in the next two to three years in their networks,” added McFeely.

Verizon Business is among the carriers making the upgrade from 10gig to 40gig and beyond. Additionally, the carrier recently revealed 2008 plans for its U.S. network that involve adopting optical mesh technology, installing ROADMs and implementing control plane technology that will enable it automatically to provision the backbone in near real time. “One of the things that we want to do is grow capacity five or 10 times where we are today, but ultimately with about half the network elements that we do today,” said Fred Briggs, executive vice president of operations and technology at Verizon Business.

Additionally, Verizon Business has partnered with AT&T, China Netcom, China Telecom, China Unicom, Chunghwa Telecom (Taiwan), Korea Telecom and NTT to activate and operate the Trans-Pacific Express (TPE) submarine cable system, which initially will be a 1.5-terabit link operating at 10gig wavelengths, but will grow to 5 terabits.

TPE is the first next-generation undersea optical cable system directly linking the United States and mainland China (as well as other points in the area including Hong Kong, India, Thailand and Vietnam) and is the first major undersea system to land on the U.S. West Coast in more than seven years. “That’s actually the first new cable since the collapse of the bubble,” said Briggs.

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