this is dated in oct, but still relevant...
By the Short Fiber
By Bill Scanlon, Interactive Week
October 30, 2000
This year, enough optical fiber will be laid worldwide to make the round trip to the moon 117
times. It won't be nearly enough to keep up with demand.
With a 16-month lag between new orders and delivery, carriers that haven't secured ironclad
contracts with fiber manufacturers are in trouble, and slipping behind the carriers that have.
"Those who have been slow locking in their contracts are between a rock and a hard place,"
says Patrick Fay, an analyst at fiber-optic market research firm KMI. "There is a fiber shortage
worldwide, and it will continue next year and through 2002, as well."
Fiber optics —data, voice and video traveling on photons of light through glass fibers — is the
future. Most visions of converging networks see fiber optics playing the key role in the
long-haul, regional and metro markets.
Emerging telecom carriers boast of plans to build networks connecting major cities.
Competitive and incumbent carriers are anxious to switch from copper to glass, and are eager
to expand their networks. They have set completion dates that may be optimistic, given the
fiber shortage.
"Some of these new network providers making grandiose announcements about how much
fiber they want to put in — I question if they really are going to be able to get as much as they
want," Fay says.
The shortage stems from a classic imbalance between supply and demand. It means
manufacturers can pick and choose customers, shunning the more casual buyers in favor of
those with greater long-term strategic value.
"It doesn't take a rocket scientist to figure out that the infrastructure for producing fiber hasn't
increased dramatically over the past couple of years," says Charlotte Denenberg, vice
president of optical infrastruc ture at Metromedia Fiber Network (www.mmfn.com). "Anytime
there is a paradigm shift, you bump into a shortage of an infrastructure commodity."
Major fiber manufacturers Alcatel (www.alcatel.com), Corning (www.corning.com), Lucent
Technologies (www.lucent.com), Pirelli (www.pirelli.com) and the leading Japanese
companies have committed hundreds of millions of dollars to expanding their plants. But, for
now, they're in the ramping-up phase, not at maximum operating capacity.
When demand exploded, it wasn't just the manu facturers who were caught by surprise — so
were the analysts and everyone else, says Nancy Veres, director of marketing
communications at Alcatel.
Burgeoning use of the Internet and insatiable demand for bandwidth fueled the clamor for fiber,
Veres says. "We knew it would continue to grow, but, no, we didn't envision it would grow this
fast."
It's a crisis that few carriers want to talk about. Those that do tend to be the ones with
something to crow about — contracts that ensure completion of at least the current
generations of their networks.
"There is an acute scarcity of fiber right now," says Peter Geddis, chief executive at Aerie
Networks (www.aerienetworks.com), which last month closed a round of financing for the
20,000-mile, $5 billion American network it hopes to complete in 3.5 years. "There is just none
to be acquired unless you have a pre-existing order."
In July, Aerie placed the largest single order anyone has placed for fiber when it signed a deal
with Corning for 5 million optic miles, Geddis says.
In September, Level 3 Communications (www. level3. com) announced an order for Corning's
new-generation LEAF fiber, an indication of the solid relationship the company enjoys with the
world's largest fiber maker, Level 3 spokesman Paul Lonnegren says.
Others are having more difficulty. In April, Broadwing tried to place an order for fiber to connect
San Diego to Los Angeles, and was told it couldn't be delivered until November 2001, says Bill
Muckle, vice president for Network Construction at Broadwing.
"Everybody has been caught by surprise. I certainly was when I placed that order," says
Muckle. He was able to negotiate a quicker time with another vendor and doesn't expect delays
in the company's build-out plans.
"We're probably in better shape than some other people, because we try to be proactive,"
Muckle says. "But I haven't seen it this bad in 20 years."
Manufacturers want firm commitments and prefer cash up front.
Would a carrier requesting fiber from Corning today get a contract? That "would depend on
who they are," says Elizabeth Wright, marketing communications specialist for optic fiber at
Corning. "It would depend on what our previous relationship with them is. We're very selective."
Corning has vowed to fill all its orders, but is not anxious to make more deals. "We don't
promise any fiber we can't deliver," says Wright. "We're at maximum capacity right now."
Other companies are singing the same song. One would-be customer of Lucent, the
second-largest fiber manufacturer in the world, was quoted a 19-month wait. Lucent is
"expanding drastically to meet demand," explains Charles Reavis, vice president of sales and
marketing for optical fiber solutions at Lucent. "Everyone in the industry is sold out."
A carrier without a far-sighted business plan will flounder.
"Clearly, it's very critical that the new players plan ahead, so they understand what their
business is and what their network needs are going to be," Reavis says.
Manufacturers are asking customers for forecast plans. The planning ends in long-term
contracts. "We may tell them that we might not be able to give them what they want in 2001,
but we'll look at 2002 and beyond," Reavis says.
Alcatel can't keep up with demand either, says Veres. "We're sold out until 2001. Demand is
beyond the reach of about every supplier now," she says.
In June, Alcatel announced plans to triple fiber-making capacity by expanding plants in
Germany, North Carolina and Paris. The expansions will improve Alcatel's ability to deliver fiber
next year and cut down on waits.
But unless and until the shortage abates, how long a customer has to wait for fiber depends
"on the strategic value of the relationship with Alcatel," Veres says. "Customers in the strategic
best interest of Alcatel will get a different set of lead times than someone who just wants to
come in on a spot-buy, short-term relationship."
KMI estimates that $2.6 billion will be invested in expanding fiber-optic manufacturing capacity
between now and the end of 2002. Another $3.7 billion will be required in 2003 and 2004.
Corning earlier this year announced it will spend $750 million to expand fiber manu facturing
plants in North Carolina and Australia; more recently Corning said it will put $50 million into
expanding its Wales plant. The expansion, which won't be complete until 2002, is intended to
boost manufacturing capacity by 50 percent.
Lucent is spending $1 billion to expand manu facturing at plants in Brazil, China, Denmark,
Georgia and North Carolina, Reavis says. Its Norcross, Ga., plant, Lucent's largest, already
has doubled its capacity.
Lucent is also devoting research and development to new manufacturing processes to boost
the capacity of its fiber. Company scientists keep tabs on university research and conduct
experiments of their own.
Chubbier Networks
But every breakthrough in fiber purity and capacity means manufacturers have to ramp up
again — and carriers have to get in line again.
A few years ago, the carriers installing big optical networks could be counted on a hand or two.
Now, more and more players are installing chubbier and chubbier networks.
Metromedia, for example, stuffs 432 or 864 fibers into a single conduit and has installed a
million fiber miles of its 3.6 million-mile network.
"We planned ahead," Denenberg says. "We're a large customer and we know what we want,
so we got our order in well in advance of when other folks realized they had a problem."
In 1998, according to KMI, 46 million fiber kilometers were installed around the world. Last year,
it was 63 million kilometers, and this year should end with 90 million new kilometers installed.
Analysts see growth, and therefore a likely shortage, through at least 2004.
Denenberg compares the fiber shortage to the recent spike in gasoline prices caused by a lag
in investments in domestic oil refineries. "It's an extraordinary time. Demand goes up, and
they're not able to keep up."
Currently, copper wire and Digital Service Lines dominate the "last mile" linkage from the
network to the business or home. But as the price falls and the technology is tweaked to use
optic fiber for that final connection, it could exacerbate the shortage.
Meantime, there is smiling or squirming in the board rooms of companies that did — or didn't
— arrange long-term contracts for landing the fiber they need to build out their big dreams. |
