Is the fiber glut for real?
ebnonline.com
By Bruce Gain and Darrell Dunn
EBN
(12/10/01, 05:19:49 PM EST)
A small but growing number of analysts say the world's telecommunications diet needs more fiber
despite the massive layoffs, inventory write-downs, and lack of visibility that have plagued the
sector since last year.
While roughly 95% of all fiber optic networks remain unused-following more than $100 billion in
investments by companies like now-bankrupt Enron Corp.-bullish industry watchers say there
simply is not enough fiber capacity to meet worldwide demand through 2003.
Corning Inc., for example, has shut down its fiber optic cable production altogether until next year,
but analyst firm TeleChoice Inc. claims that some channels are running at more than 60% of
capacity in several metropolitan area networks.
This report and others like it, which contradict most of the prevailing forecasts for the fiber optics
market, are adding yet another element of confusion for an industry suffering from what Corning
president and chief executive John W. Loose calls “growing pains.”
“With all revolutions, the path has only begun,” said Loose at the recent UBS Warburg Global
Telecom Conference in New York. “Encouragingly, the demand for bandwidth continues to grow at
a robust [rate]. However, there is a supply overcapacity at present that will take between 12 and
18 months to work through, so in the short term this will hurt our revenue and profits.”
Yet Neil Dunay, an analyst at KMI Corp., Providence, R.I., doesn't necessarily see drastic
overcapacity in the installed fiber network base. “To say there's glut is to overstate it,” he said.
“Instead, I would say the [telcos] were future-proofing their networks. The original business plan
was not to light every fiber optic cable that was in the ground.”
Indeed, the notion of a fiber glut is a “myth,” said Harry Carr, chairman and chief executive of
Tellium Inc., Oceanport, N.J. “You have to separate dark fiber from lit fiber because dark fiber
doesn't [represent] network capacity,” he said. “Putting in as many fibers as possible is the only
smart thing to do because the cost of putting in the additional fiber is negligible.”
Unfairly punished?
The main point of contention surrounding these divergent opinions stems from the division of
capital costs involved in deploying fiber networks. Because excavation costs are high, many
telcos overbuilt intentionally to avoid having to tear up lines to meet future demand. Some
analysts say investors are unfairly punishing these companies for planning ahead, rather than
recognizing their efforts as a cost-saving measure.
“Yes, there's too much fiber out there, but how many holes do you want to dig?” asked Jay
Liebowitz, an analyst at RHK Inc., Waltham, Mass. “There was way too much spending by the
service providers, so now there will be too much fiber optic equipment out there until sometime
next year.”
Warner Andrews, vice president of marketing at Picolight Inc., a Boulder, Colo.-based provider of
optical subsystems, said confusion in the optical market can often be attributed to the expansive
nature of the technology base. “The market is not a monolithic entity,” he said. “Often, investment
or market analysts will make definitive statements about what is going on in fiber optics, and
really what they're doing is talking about one specific sector or another and not treating it as a
whole.
“If you look at long-haul core communication optics, 2001 has been an incredibly challenging
year, and there isn't a strong indicator that the end is in sight,” he said. “The enterprise, while not
the best year ever, has experienced a much better year than core telecom optics.”
But in the meantime, OEMs will continue to deplete high inventory buildups for most of their
equipment before looking to address an eventual upturn in demand.
Optical revenue in the DWDM and Sonet/SDH markets has suffered a prolonged slide, declining
11% in the third quarter, to $3.4 billion, according to Dell'Oro Group, Redwood City, Calif. The
DWDM-metro market, one of the few growth sectors driven by demand for 10Gbit/s Ethernet
networks, recorded its first sequential decline. Top fiber optics OEMs Lucent Technologies and
Nortel Networks saw third-quarter revenue declines of 18% and 17%, respectively.
Overall, the Dell'Oro Group projects the worldwide fiber optics market this year to contract by
23%, to $17.7 billion, and does not expect the industry to see growth again until 2003.
Still on hold
On the IC side, Steve Perna, vice president and general manager of PMC-Sierra Inc.'s Optical
Networking Division, said the build-out of new infrastructure remains on hold. Carriers are focusing
instead on reusing the Sonet/SDH infrastructure to add new service capabilities to existing WAN.
“We're not seeing 'forklift' upgrades of the network,” Perna said. “We're seeing incremental
line-card buildups. My customers are taking existing chassis-based equipment that may run at
2.5Gbits/s, and rather than upgrading it very quickly, they're looking at producing line cards that
have new service interface capabilities such as Gigabit Ethernet.” |
