Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Boplicity who wrote (32709)	10/2/2000 12:24:58 AM
From: mariner	Respond to of 54805

Thread Some perspective on the recent telecosm slowdown being felt in the markets. Nothing earthshaking, but of interest to those wondering if the growth days are over. Courtesy the National Post in Canada. Time out for the fibre optic revolution Industry must catch up with bandwidth boom before the next jump Paul Kedrosky National Post Anyone else feeling whipsawed by the optical networking market? Because Nortel and the rest of its networking ilk are doing the dog-star-dog three-step. One week Nortel is the hottest of the hot, buried in accolades. And within weeks, it's just plain being buried. So hey, which is it? The worry, apparently, is the pace of networking-gear purchasing by the major telecommunications companies. And the worry is misplaced. Here is why. First, you need to separate the business from the stocks themselves. And the business of building networks -- of creating high-speed communications links hither and yon -- is going gangbusters. It is growing in part because of technology, but also because of outsized demand. Look at the technology first. As you have likely heard, recent innovations in the world of fibre optics have taken the capacity of a fibre strand and multiplied it anywhere from 10 to 80 times. As they say on television, how do they do that? Think of fibre as a pipe, one that carries data instead of water. That data is disguised as pulses of light travelling in a fast-moving train. To transmit more data, you can imagine speeding up the train, or smashing the pulses closer together -- or both. But speeding up the train requires better fibre. It's sort of like upgrading train tracks for high-speed trains. So replacing fibre isn't something you do on a whim -- it's buried beneath streets and fields, and it's under oceans. Replacing fibre is a costly business. Is there a better trick for getting more out of fibre? Sure. The trick is to realize that a single fibre usually contains a single colour of light (one wavelength). So what would happen if you had data trains inside the fibre at various wavelengths (or colours)? You could multiply the capacity of the fibre by the number of wavelengths. That's what the trick (called dense wavelength division multiplexing, or DWDM) does, and it's a slick trick. With DWDM, you can crank up the capacity of a single fibre strand by a factor of as much as 140 -- the number of data trains chugging along inside the fibre. Instead of replacing a fibre strand, you change the content of fibre. That is much less complex and costly than replacing the fibre itself. Not surprisingly, DWDM has caught the eye of both telecommunications service companies (such as Qwest, Williams, Sprint and the like) and the people who sell them gear -- such as Nortel, Sycamore and Ciena. It is to the mania-ish point that fibre optic companies are going public at a torrid pace, and new fibre optic companies are being funded with the undiscerning eye of 1997-ish dot-coms. Got DWDM, will IPO! But like all good things, this too must eventually come to an end. After flooding the Internet with DWDM bandwidth, the telecom companies can be forgiven for standing back and taking a look at the lay of the land. After all, most people still access the Internet over creaky dial-up connections, and even those of us on high-speed connections are plugged into neighbourhood ghettoes where we fight for a piece of relatively slow feeder pipes that trundle traffic out of the region. It is a pig-in-a-python problem. The Internet backbone has swallowed something obscenely big. While the pig is being digested, the python can be forgiven for taking it easy. Meanwhile, the bandwidth is slowly working its way through the system. It is showing up first in the large cross-country links, as well as in overseas links. It is creeping along steadily, making its way into city and regional pipes. But it doesn't happen in Internet time. The process by which great gulps of bandwidth are digested is herky-jerky and peristaltic. It will move faster in some regions than others. It will take as long as it takes, but it will happen. So while the big buyers of networking gear are slowing the purchasing pace somewhat, that was to be expected. They sense that their global networks need time to absorb this bandwidth meal. But Say's Law still applies: Supply creates its own demand. This big new helping of bandwidth is going to drive the creation of new products and services that need immense bandwidth -- stuff that simply wasn't possible before, like interactive television, Web site broadcasters and next-generation person-to-person networks. While one day bits will become a commodity, that day is still a long way away. We need fat and expensive 100-metre-wide data pipes where we currently have garden hoses. So in the short term, the pace of telecom purchasing is going to rise and fall; it is to be expected. After all, the worldwide communications python (called the Internet) has reached adolescence and is sleepy after swallowing a very big pig. But it is still growing. And once it has digested that meal, watch out: You can't imagine this hungry teenager's appetite. Paul Kedrosky is a professor of business at the University of British Columbia.