Tom, how about a critique of this ....... a couple of points where they hit home and also
where you think they are Lost in Space or at least are off the mark.?
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Figuring Out Fiber June, 26 8:06 AM EST by Dale Baker back
streetsideinvestor.com
The recent "glut" of news stories about too much fiber optic cable in the
ground and hence the death of the fiber optics industry reminds me of a
famous conversation between a US military officer and his North Vietnamese
counterpart at the Paris peace talks in the early 1970’s.
The American officer declared to his adversary, "You know, we never lost a
battle in Vietnam!"
The Vietnamese officer quietly replied, "True, but that is irrelevant. You
lost the war."
Let’s take a look at the basic arguments about fiber:
1) Too much fiber optic cable on long-haul routes compared to the actual
voice and data traffic they carry today - TRUE.
2) Putting fiber in the ground (or undersea) is the main focus of the fiber
optics industry - FALSE.
3) The "glut" of long-haul fiber installed means very little near-term
growth in the fiber optics industry because telecommunications companies
will simply use what they already have - FALSE.
Let’s put the fiber optics industry into perspective - something that the
reporters at the NY Times and Wall Street Journal could not be bothered to
do in their limited column inches.
The fiber optics industry breaks down into four main sections: the fiber
itself Corning (NYSE:GLW), Furukawa, Lucent (NYSE:LU), the equipment to
"light" the fiber and make it useful to someone Nortel (NYSE:NT), Alcatel
(NYSE:ALA), and Ciena (Nasdaq:CIEN) lead in systems, JDS Uniphase
(Nasdaq:JDSU) and many others in components, semiconductor makers, test
equipment makers, etc.), the companies that offer services over fiber
networks Global Crossing (NYSE:GX), Worldcom (Nasdaq:WCOM), regional Bells
and utility companies, large international telcos, small startup CLECs,
etc.) and finally the end user in a home or office.
Take a look at each dimension of the fiber optics business and you see where
there are "gluts" and where there are painful shortages (believe it or not).
FIBER IN THE GROUND - The companies who built today’s fiber optics networks
in the 1990’s knew that it doesn’t cost much more to put 50 or 500 strands
of fiber in an underground pipe compared to just the handful they would need
the next few years. The fixed cost is getting the cable conduit into the
ground or under the ocean.
Think about a mass-mail advertising campaign that expects a 2-3% response.
Who cares if 97% of the catalogs are thrown away if you generate the
business you want from a tiny fraction? Installed fiber is the exactly the
same.
The main weakness in recent news stories is not analyzing where the
installed fiber base is compared to where people need it. Millions of miles
of fiber still need to be laid in metropolitan areas to get fiber optics
service to the end user. And emerging markets like China haven’t built their
long-haul networks at all. The road may be bumpy but the fiber optics cable
industry still has a lot of work to do.
I won’t even go into various grades of fiber and the service they can
deliver. Much of the fiber now in the ground will have to be replaced to
carry tomorrow’s 40Gbps traffic. The old stuff isn’t clear enough.
EQUIPMENT - Fiber optic cable in the ground is useless unless you can send a
pulse of light through the system carrying information and route it to a
user somewhere. So if only a few % of the installed fiber base is currently
in use, that means the fiber optics equipment suppliers (from systems units
down to the component and testing equipment companies) have only sold a
small fraction of the equipment we will need for tomorrow’s network.
There is a huge difference between the "capacity" that all the fiber optic
cable in the world can carry in theory, and the amount of "lit" fiber that
communications companies can put into service when a customer orders a
high-speed circuit today. As demand grows, more equipment will be ordered to
light more fiber to meet it. Bandwidth prices will drop, just like all new
technology products. And cheaper bandwidth will drive demand higher.
SERVICE PROVIDERS - Now we start to see the culprits in the recent fiber
optics meltdown. The big service providers like AT&T (NYSE:T), WorldCom
(Nasdaq:WCOM), Global Crossing (NYSE:GX), British Telecom (NYSE:BTY), etc.
made two crucial mistakes in the past five years. First, they gorged on debt
to buy up cable TV networks and 3G wireless licenses and billions of dollars
of other assets that are not making any money to service that debt. Second,
competition spurred by telecoms deregulation in the US and Europe drove all
the providers into a frenzy, from the old guard operators to dozens of new
startups, all competing for the same pool of customers. That led to more
frenzied network build out financed by debt.
The telco blunders were compounded by the economic slowdown that hit the US
economy hard in the first quarter of 2001 and is now spreading to Europe.
Near-term network capacity was already overbuilt in anticipation of
astronomical growth rates in usage. When new bandwidth orders slowed from
corporate users eager to cut their own expenses, the telcos slammed on the
brakes and stopped adding any new network projects (though additions that
began before the crash are continuing, I am told). The inventory backup in
the fiber optics equipment food chain turned into a major train wreck.
END USERS - Here is the biggest paradox in the whole fiber optics universe.
People and companies want more bandwidth. They crave it. Make it accessible
and affordable and they will snap it up, just like people buy 1Ghz PC’s now
when a 66Mhz machine was fast enough five years ago. Ask anyone who has
moved from a dial-up ISP to broadband. Ask corporate users what it’s like to
leave that T3 at the office and go home to 56K.
They hate it. And once they move up to broadband, baby, they aren’t going
back. They will spend more time online, shop more online and start using
multimedia applications that eat up HUGE amounts of bandwidth.
But most Internet users in the US don’t have and often can’t get any
broadband service (DSL, cable, satellite, etc). Nobody with a wireless
Internet device gets decent access speed. Tens of millions of potential
broadband users simply aren’t connected.
Of course the big telcos don’t use all the potential fiber capacity yet.
They haven’t made broadband access available to their customers in
sufficient numbers.
Key point - critics say the demand isn’t there to drive a broadband
revolution, but industry advocates can show you that the current
infrastructure won’t allow that demand to form due to endless bandwidth
bottlenecks in "the last mile" between the fiber optics system backbone and
the actual user.
James K. Glassman from TechCentralStation.com put it well in a recent WSJ
commentary:
"The agonizingly slow deployment of broadband has stopped the Internet in
its tracks. The technology for fast connections is well established, but 19
out of 20 U.S. families are stuck with poky dial-up modems, so it takes them
an hour to download a video file that broadband could handle in two
minutes."
"By now, if broadband were widespread, Web companies would be offering
online sports and movies, zippy online banking, video telephone calls,
useful education services and health care. With widespread broadband,
Americans would be buying faster, better computers, and telecom firms would
be making huge investments in infrastructure. Instead, orders for capital
equipment have fallen 13% since last year."
FUTURE SHOCK - All sector cycles come around eventually (except gold, it
seems). Fiber optics is no different. Once economic confidence returns, the
big telcos master their debt mountains and effective last mile technology
(fixed and wireless) reaches a critical mass of users, fiber optics will
take off again. It has to.
Humankind has never ignored a useful technology we invented. PC’s became
faster and more powerful, now communications will become faster and more
powerful.
It’s just going to take a few years longer than many observers expected. To
use another famous quote, this time from the US civil rights movement, "Keep
your eyes on the prize."
The Next Generation Network is coming. |
