(SEE BOLD...States that Bell Atl. says it will use CIENA)
Ciena, Lucent, Others Race to Fatten Networks: Technology Focus
New York, March 5 (Bloomberg) -- Tired of buying a computer
every few years because the old one isn't big or fast enough to
run new software?
Imagine having to buy a new phone network.
That's why Ciena Corp., Lucent Technologies Inc. and
Northern Telecom Ltd. are racing to stretch existing lines with
technology that saves phone companies from laying new fiber-optic
cable. The winner will command a market that's surging 60 percent
a year and will reach $10 billion by 2001, as customers clamor
for the Internet, video conferencing and other services.
''Everybody's making more phone calls and logging onto the
Internet. That's driving carriers to increase capacity as
efficiently as possible,'' said Timothy Savageaux, an analyst at
BancAmerica Robertson Stephens.
Lucent, which took a breather for awhile, is stepping up
development of products that increase the calls and data that can
travel across existing phone networks. That means smaller
companies like Ciena, which dominated the fast-growing field
during the past two years, must work harder to stay ahead.
''Ciena needs to continue to push the technology,'' said
Kevin Slocum, an analyst at SoundView Financial Group, who has
long- and short-term ''buy'' ratings on Ciena shares.
More Space
Today's popular interactive services, whether it's a stock
quote or watching a news clip online, require more space on
networks than traditional voice calls. Faster computers and
modems add to the pressure.
The technology Ciena, Lucent and others are perfecting acts
like a prism, splitting the beam of light in a fiber-optic cable
into many beams of different lengths. That lets the same glass
fiber carry more than one call or picture at a time.
The so-called wavelength division multiplexing, or WDM
systems, available from Ciena and Lucent let companies send 16
times the amount of data as a normal phone line.
Soon that will seem like a trickle. Lucent plans an 80-
channel product by the end of the year. Ciena will ship its new
technology first, in the second quarter, although it will have
just half as many channels.
''The edge Ciena had is going away as the market is getting
more competitive,'' said Savageaux, who has a ''long-term
attractive'' rating on Ciena.
The company's shares plunged 16 1/8, or 28 percent, to 42
on Feb. 20 after it said WorldCom Inc., one of its two biggest
customers, is delaying orders. The shares are little changed
since then.
Cultivating new customers and shipping products before
Lucent could help revive investor confidence.
Bell Atlantic Corp., the No. 1 U.S. local telephone company,
said it will begin using a Ciena system in the next few months.
The Baby Bell plans to spend $1.5 billion to upgrade its network
for more data services over the next two years, analysts said.
Opening the Market
Lucent developed the first WDM systems in 1995 for its
former parent, AT&T Corp. It made four- and eight-channel systems
and wasn't looking further, said Gerald Butters, president of
Lucent's Optical Networking Group.
It took startup Ciena, founded in 1992, to change the
picture.
''Ciena took the lid off,'' Butters said. With sales of WDM
systems at $1.5 billion last year, Lucent saw what it was
missing.
''No sooner was 16 out, then everybody said we need more,''
Butters said. ''Now we're driving to get to 160 as quick as we
can.''
Market researcher Gartner Group estimates that phone network
capacity, also called bandwidth, will expand fourfold to sixfold
every five years. Butters expects a 160-channel product by 2001.
So far, long-distance carriers have accounted for most WDM
sales. AT&T, for instance, said it will be the first to test and
deploy Lucent's new system. It's also testing Ciena's 16-channel
device.
The Baby Bells and other local phone companies are starting
to beef up their networks to handle the data explosion. Other
potential customers include the competitive local exchange
carriers, or CLECs, which compete with the Bells and GTE Corp.
Adding to the market are unexpected customers like natural
gas supplier Williams Cos. It's spending $2.7 billion to triple
the size of its nationwide fiber network, which runs along its
gas pipelines.
WDM equipment has evolved to where it's included even in new
phone networks, not just in older networks where capacity is
scarce.
''We viewed this technology as a way to build networks, not
just improve them,'' said Steve Chaddick, Ciena's vice president
for products and technology.
One of the hungriest carriers is Denver-based Qwest
Communications International Inc., which is building a 16,285-
mile nationwide network that will connect 125 cities. Even though
Qwest has more than enough fiber and has set up a system of pipes
making it easy to add more, it's using capacity-enhancing
products from Northern Telecom.
''You're going from a network that met the attributes of the
ear to one that meets the attributes of the eye,'' said Larry
Seese, Qwest executive vice president of network engineering and
operations. ''That's going to eat up bandwidth very quickly.''
To be sure, physical limits may constrain how many channels
a single strand of glass can handle.
And companies with older cables, such as AT&T, may not be
able to use some of the new equipment.
''The people who have older equipment in the ground are
going to have trouble keeping up'' even with WDM technology, said
Bob Hafner, a Gartner Group analyst. |
