Thread ---Good Article ---Lucent Technologies Inc.
The Wall Street Journal -- October 18, 1999
Optimism Rules at Communications Convention
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By Richard L. Hudson
Staff Reporter of The Wall Street Journal
GENEVA -- Inside a plexiglass display case here, Lucent Technologies Inc. is exhibiting one small drop in a global ocean of investment dollars.
It is a new product dubbed OptiStar, and it looks like any other green printed circuit board, or "card," that plugs into the innards of a computer. But on its circuitry are some high-tech optical fibers that can zap data in and out of the machine at blinding speeds -- 50 times faster than the hottest kind of connection available heretofore.
What good is that? Well, suggests a Lucent sales person, if you happen to be a hospital administrator with $7,995 to spare, you could use the card to shuttle massive cardiac-imaging files to eminent cardiologists around the world, for an instant group consultation on a difficult patient, in "a matter of seconds."
"It sounds crazy -- broadband overkill," acknowledges a Lucent spokesman. "But it's not, since in the future anyone is going to want an optical link."
Faster and more -- those are the catchwords of the global telecommunications industry these days as it plows unprecedented sums into a massive project that amounts to rebuilding much of the world's copper communications network with glass fibers.
In all, 124,000 miles a year of new optical cable is going underground or undersea -- up from a pace of 31,000 miles a year in 1996, according to telecommunications-equipment company Alcatel SA of France. The hottest end of the market, for so-called dense wave-division multiplexing equipment, is $8 billion a year and growing faster than 40% annually, it says.
And the pace is picking up. Telecom 99, the industry's biggest trade show here last week, saw a blizzard of breathlessly worded announcements of yet more optical investments. FLAG Telecom, an undersea cable operator, invited the world's technical news media to hear of its plans to double the size of its next trans-Atlantic cable, to a mind-numbing capacity of 4.8 trillion bits a second, 40 times the message-carrying capacity of the previous eight operating trans-Atlantic cables put together.
The contract to lay the cable, with Alcatel, is worth more than $700 million, according to a person familiar with the project. At the same time, Alcatel announced it is building two more cable-laying ships for $80 million, and a doubling of its Paris opto-electronics equipment factory for $100 million.
It is an old saw in financial markets, that the moment everybody stampedes into an investment is the moment to get out of it -- and there are some Cassandras who have been warning of overbuilding, a global "broad-band glut."
But finding an "optical" naysayer at a trade show like this is like spotting a parson in a red-light district. "There will be some temporary gluts in various sectors, but overall we're in total growth mode," says David Isenberg, a U.S.-based telecommunications-industry consultant visiting the trade show.
How does the industry justify such massive investment?
Like many telecommunications-equipment executives, Anil Khatod, president of the optical Internet business at Canadian equipment-maker Nortel Networks Ltd., has commissioned several macroeconomic studies. They show an apparently limitless demand for more and more communications around the world -- and more optical pipes to carry it all.
First, the speed of computer connections is soaring. The number of high-speed -- greater than one megabit a second -- residential connections is climbing at 45% a year; and the growth rate among businesses is 55%. Second, the number of people online is jumping: 118 million people online last year, a projected 180 million by the end of this year, and perhaps 300 million by 2002. Third, he says, all those extra people are sitting online longer: Add 20% a year extra in connection time. Fourth, as the whole world gets wired, messages are traveling 15% farther a year.
It all adds up, he says, to a forecast that the demand for communications will climb 100-fold to 200-fold by around 2003 or 2004. And at currently announced investment rates, the telecommunications industry is only going to expand the global network by about 70-fold. His conclusion: bandwidth drought, not glut.
But the industry acknowledges there are risks. Data-compression technology -- squeezing more information down smaller pipes -- will cut down on the number of fiber cables needed. And the low-tech economic cycle, of boom and recession, will take a toll, says Arjen Maarleveld, director of analysis and strategy at Alcatel's marketing and business development division. Early last year, when Japan was at the nadir of its economic slump, about 20% of the regional market disappeared for a while, as companies cut back their capital spending.
But for most in the industry, such considerations aren't given much time. "Today," says Mr. Maarleveld, "people are drinking [their bits] out of very small straws. In the future, people will be drinking out of the fire hose."
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