Light fantastic
Boston and points north and west have emerged as the bright center of a rapidly expanding optical networking universe as people demand increased bandwidth to transport data over the Internet
By Peter J. Howe, Globe Staff, 5/22/2000
nother week, another $50 million pouring into a Massachusetts optical networking start-up. In a sign of the unabating enthusiasm for the passel of area start-ups pursuing one of the hottest realms in telecommunications today, eight-month old Equipe Communications Inc. of Acton, which makes optical communications switches, is announcing today a $51 million round of venture capital.
In a world that seemingly cannot get enough bandwidth to meet its Internet-surfing and data-transmitting appetite, Equipe is squarely in the middle of an explosively growing technology that has Wall Street delirious and the Interstate 495 belt buzzing with entrepreneurial activity.
The technology can be arcane. But what is driving money to these companies is simple: The world is clamoring for more and more telecommunications access. Shooting pulses of light over threads of glass is the cheapest, fastest, highest-capacity way to meet demand. And it's a market worth tens of billions of dollars.
The star of the class, Sycamore Networks Inc. of Chelmsford, became a Wall Street sensation after its initial public offering last fall, surpassing $40 billion in market value in early March before the tech-stock blues set in, driving its value down to a mere $19.7 billion as of Friday.
In late March, Coretek of Wilmington was snapped up for $1.4 billion by Nortel Networks - before Coretek had ever sold its marquee product, a so-called tunable laser. Coretek followed the path of NetOptix of Natick and Omnia Communications of Marlborough, now units of Corning Inc. and Ciena Corp., respectively.
And the region from southern New Hampshire to Marlborough has filled with optical start-ups such as Astral Point and Crescent Networks in Chelmsford, Quantum Bridge Communications in North Andover, and Tenor Networks in Acton. Tenor, like Equipe, is developing a box phone companies would use to connect optic lines from businesses with super-fat network optical pipes.
The catch-all term ''optical networking'' encompasses many technologies: Devices to boost the carrying capacity of long-distance fiber-optic lines and local fiber ''rings.'' New ways to connect businesses, and someday homes, directly to that fiber. Tiny filters and mirrors to make data move accurately. And network management systems to harness the bounty of bandwidth.
The overall market for such optical gear is expected to grow from $8.9 billion last year to $41 billion by 2003, estimates RHK, a San Francisco market research firm. And 48 percent of voice and data carriers are considering optical networking because of customer demand for bandwidth, according to a new survey by Maribel Lopez of Forrester Research in Cambridge.
''We're talking about building out the infrastructure of the world,'' said Bruce Sachs, a telecom industry veteran. Sachs recently became a general partner in Charles River Ventures of Waltham, which profited handsomely when Omnia was bought by Maryland-based Ciena for $500 million last year.
Frank Ingari, founder of Wheelhouse, a Burlington service provider consulting firm, who chairs the Massachusetts Telecommunications Council, said: ''Until everyone has a [45-megabit] T3 line to their wristwatch, it's unlikely that the demand for bandwidth is going to slow down.''
Technology called wave division multiplexing has already helped giants such as AT&T and MCI WorldCom cope with the explosion in Net traffic without having to lay new fiber. It does this by increasing the capacity of existing lines by 10 or 20 times. Multiplexing transmits streams of data in different frequencies - literally, different colors of light - on a thread that once carried just one data stream.
Systems are coming to market that can add up to 160 channels to fiber lines, creating major demand for network management systems to harness that bandwidth.
Just last week, Ellacoya Networks Inc. of Merrimack, N.H., was launched by former Cabletron executives with $34 million in venture money to attack the voice and data carrier management field. ''The market ultimately needs to deliver service, not bandwidth,'' said Michael Welch of Ellacoya.
Another emerging player is Crescent Networks of Chelmsford, which remains in ''stealth mode'' about the specifics of its business, said spokesman Kevin M. Anderson. It is aiming to help carriers make optical networks function as smoothly as the phone network, with all the same service offerings.
''The current network's a lemon, and all these companies are squeezing it to make lemon juice,'' Anderson said. ''What Crescent is going to do is provide the sugar so you can sell lemonade.''
Another huge growth area for optics is in connecting businesses that may have 100-megabit-per-second internal networks to gigabit- and terabit-speed long-haul networks, the so called ''backbone'' that carries traffic from Boston to New York or Seattle or London.
''There's a gap in the network infrastructure,'' said Jeanne M. Schaaf, a Forrester analyst. ''Between corporate headquarters and the carriers' backbones, US infrastructure slows to a crawl.''
Today, in places like Boston and Cambridge, most big buildings are served through what are called SONET rings, analogous to 1,000-lane highways for information and voice calls.
However, because SONET was designed for voice traffic, those highways may be split up into 1,000 reserved lanes for mulitple subscribers. As the subscriber, you pay dearly for a T-1 line because you are reserving precious capacity all day long.
Sycamore, Astral Point, and some other local players are developing systems that boost the capacity of metro rings through multiplexing while providing ''bandwidth on demand.''
For example, during the 20 minutes of the day that your company needs 100 lanes for its traffic, you get it. Much of the rest of the time, other customers are using your once-reserved lane. So over the course of a day, far more traffic can move at much lower cost.
As metropolitan fiber rings are upgraded to match the huge growth of backbones, companies such as Appian Communications in Boxborough and Quantum Bridge are developing the systems that businesses might soon buy to replace their garden-hose connection to the network with a Callahan Tunnel for data.
Nineteen-month-old Quantum Bridge, which last month got another $102 million in venture money to boost its total capital to $124 million, has five customers, including Comcast, testing its so-called passive optical networking products.
Quantum's concept is that a cluster of businesses is connected to one fat pipe at a phone company central office or other access point, through $100 fused fiber links leading to pizza box-size devices at the company premises.
Data headed to the cluster of businesses is blasted out to everyone on the neighborhood network. But a special coding scheme - still considered risky by some analysts - is designed to ensure that only Acme Corp. gets the traffic meant to go to its computers and phone lines. Sending data upstream, each subscriber is allocated a certain fraction of a second.
This network design, similar to how cable networks deliver TV shows and broadband Net access, is far cheaper than stringing a dedicated fiber to each business. It makes it possible to get 1 to 100 megabits per second of access at a tiny fraction of the equivalent cost in 1.5-megabit T1 lines from the phone company.
''There's just going to be a ruinous price war in the backbone,'' said Quantum Bridge vice president Jeff Gwynne, an AT&T veteran. ''There need to be systems like the ones we're building to create demand'' to mop up the new capacity.
Some 76 percent of midsize US businesses are estimated to be within one mile of a fiber-optic line, according to Vertical Systems Group of Dedham. Quantum Bridge says its technology can deliver fiber access to as many as 224 customers 12 miles from a central office, making virtually every US business that wants a fiber line part of its potential market.
Appian is developing another approach to creating optical on-ramps and expects to ship its first products within two months.
The company sells a $25,000 box that would typically be installed in the basement or telecom closet of a building connected to a fiber line. Through the box, tenants inside the building could be offered anywhere from 64 kilobits to 1 gigabit of access, changeable on demand, said chief executive Mick Scully.
The ''tuneable bandwidth'' approach could solve a major problem for businesses that ''now have to go from a motorcycle to a school bus, with nothing in between'' when they want more Net access, Scully said.
Joe Gansert, director of transport network architecture for Bell Atlantic, said his company has increased its fiber-optic mileage in Massachusetts from 325,000 miles in 1995 to more than 600,000 today. Of the last-mile optical connections, he said, ''I haven't yet seen any that we'd feel comfortable to put into a customer'' site.
''But I don't think we have any doubt it's coming in the next year,'' and the phone company will be testing systems soon, Gansert said. ''We're not talking five years out. One of the difficulties we are having is coping with how many options are emerging. It's pretty amazing.''
Some investors sniff that the mania for optical networking stocks has led many companies making electronic products that interconnect with optical networks - companies like Appian, IronBridge in Lexington, and Avici Systems in North Billerica - to try to portray themselves as optical players.
''Everyone says they're optical now because it's so hot,'' said Alex Benik of Yankee Group in Boston.
A $100 million telecom start-up that can plausibly claim to be optical can find itself valued at $400 million, said Sean Dalton of Highland Capital in Boston.
''It's the flavor of the day, so everyone is jumping on the bandwagon,'' said Todd Dagres, a general partner with Battery Ventures LP in Wellesley. ''That's fine - it's called marketing. But where you should draw the line is: Do they have intellectual property that is optical?''
Dagres added that the next hot wave of optical investing looks like it will be in companies that generate the basic building blocks for switches and routers, a high-margin, supply-constrained market now being served locally by Corning, Lucent, and smaller players such as Lightchip Optical Networking in Salem, N.H., and Precision Optics in Gardner.
And companies like Sycamore and CoreTek that are helping develop purely optical switches that use lasers, mirrors, and filters to direct traffic - instead of passing it through electrical routers - will be prized as well, industry officials say.
Scott Clavenna, analyst with Pioneer Consulting LLC in Cambridge said: ''To convert light to electricity takes a big, expensive box,'' but in purely optical networking, a tiny $300 component can replace a $50,000 transformer-size box. ''You can really simplify your network greatly, and you end up being much more reliable,'' Clavenna said.
Why has Massachusetts emerged as an optical hotbed? The presence of MIT and its Lincoln Labs, which supplied top players for Sycamore, is a big factor, as is Boston's historic role as a center for venture capital to back that nearby talent.
Lucent's 6,000-employee North Andover optical factory, which dates back to early Western Electric days, has also been a major supply of talent. So has the former BB&N in Cambridge, now part of GTE, a main developer of the Internet.
And the long-time stable of local data networking companies, such as the former Wellfleet Communications, Cascade Networks, and Bay Networks, have spawned a vast pool of talented engineers who in many cases left those companies after takeover by giants like Lucent and Nortel and followed the wave into optical systems.
''We have a long, demonstrable, fantastic history of networking in this region,'' said Nina Saberi of Castile Ventures in Waltham. ''It's a very fertile ground for talent.''
And while it may look from Boston that there is a glut of optical companies, Charles River Ventures' Sachs notes that ''It's not like every city in America is filled with a dozen start-ups like this.
''Optical is the way to build very high capacity backbones. It's not like there are alternatives,'' Sachs said. ''Given the opportunity that's out there across the world, we can afford to build out several companies here.''
This story ran on page C1 of the Boston Globe on 5/22/2000.
¸ Copyright 2000 Globe Newspaper Company. |
