The Optical Communications Market
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Transcript of The Optical Communications Market
MIT Presentation
Aberdeen Group
Boston Palo Alto Amsterdam
www.aberdeen.com
The Optical Communications Market
Presented by:Andrew McCormick
Senior Analyst, Optical CommunicationsNovember 21, 2000
2Optical CommunicationsSource: Aberdeen Group © 2000
Optical Networking: Big Picture
Components
ServiceProviders
JDSU, Corning, Lucent
Nortel, Alcatel, Ciena
Global Crossing, Level 3, Qwest
Materials
Functional Network Segment
Systems
3Optical CommunicationsSource: Aberdeen Group © 2000
Presentation Agenda
1 Today’s Optical Network
2 Market Drivers
3 Market Trends
4 Applications
5 Market Size
6 Industry Players
7 Summary
4Optical CommunicationsSource: Aberdeen Group © 2000
Functional Segmentation
• Transport– Gets information from Point A to Point B– Creates pathways in the network
• Switching– Makes decisions about flows of information
based on destination– Occurs at junction points of transport
pathways
5Optical CommunicationsSource: Aberdeen Group © 2000
Network Segmentation
• Backbone– Long-Haul Transport– Core Switching & Routing
• Metro Core– Transport between network hubs such as
Central Offices or Private colocation – Metro Level Switching & Routing
• Local Access– “Last Mile” to customer premises.
6Optical CommunicationsSource: Aberdeen Group © 2000
Optical Timeline
• Currently on 3rd generation of networking equipment– First generation is SONET
• Designed for reliability in the voice network• <50 ms restoration time
– 2nd generation is DWDM• Multi-channel fiber relief solution• Primarily backbone application
– 3rd generation is “intelligent optical networking”• Software platforms that takes advantage of optics
7Optical CommunicationsSource: Aberdeen Group © 2000
Market Drivers
8Optical CommunicationsSource: Aberdeen Group © 2000
Data Exceeds Voice Traffic
• Data traffic doubling approximately every 100 days
• Frame relay and T1 access growing 40% per year
• 2 million DSL lines and over 3 million cable modems will be in use– 700% CAGR from 1998 to 2000
• Most voice calls are local while most data connections are long distance
9Optical CommunicationsSource: Aberdeen Group © 2000
Carrier Market Segmentation
• Niche players require increasing levels of connectivity– Dark fiber providers own the physical assets– Bandwidth wholesalers build/buy dark fiber
and light it to offer wave services– Tier 1 ISPs or IXCs buy wavelengths to
expand networks– Tier 2/3 ISPs and CLECs buy channels on
waves to connect customers to the backbone
10Optical CommunicationsSource: Aberdeen Group © 2000
Carrier Segmentation
Colo Fiber Wave Channel Circuit/ Service
Dark Fiber Provider
BW Wholesale
r
Tier 1 ISP/IXC
Tier 2/3 ISP/CLEC
11Optical CommunicationsSource: Aberdeen Group © 2000
Cost Containment
• Rate of CapEx growth exceeds rate of revenue growth– Most spending continues to be on legacy TDM
equipment• Falling bandwidth prices and lower margin
data services cut deeper into profit margins– DS3 from NY to LA went from $29k in Dec.
1999 to $15k in Sept. 2000– STM-1 from London to Paris dropped from
$10k to $8k from March to September
12Optical CommunicationsSource: Aberdeen Group © 2000
Service Differentiation & Velocity
• Competition and cost pressures means revenue must come from services– First mover advantage means 50% market
share• Need to reduce service deployment times
from months to minutes
13Optical CommunicationsSource: Aberdeen Group © 2000
Dark Fiber Availability
• Multiple companies are building fiber networks– Carriers
• Qwest • Level 3– Pure-play fiber
• MFN • NEON– Utilities
• Willams • Enron• Montana P&L/Touch America• BecoCom
14Optical CommunicationsSource: Aberdeen Group © 2000
Market Trends• Transition from Sonet ring architectures to
optical mesh networks• Coupling of service and transport layers
– ODSI and OIF initiatives allow routers to talk to optical switches
– Moving to “IP over photons”– Distributed intelligence
• O-E-O vs. “all-optical”
15Optical CommunicationsSource: Aberdeen Group © 2000
Applications
• Wavelength services– Point-to-point connections providing
unprotected transport– Allows carriers to quickly expand network to a
new service territory• Portable bandwidth
– Carrier pays for capacity or service (OC-48, GbE) that they can move from place to place
• Bandwidth trading
16Optical CommunicationsSource: Aberdeen Group © 2000
Optical Equipment Market Growth
0.0
5.0
10.0
15.0
20.0
1999 2000 2001 2002 2003
($B)
OSX
Access
MAN
Long Haul
17Optical CommunicationsSource: Aberdeen Group © 2000
Industry Players
18Optical CommunicationsSource: Aberdeen Group © 2000
Summary
• Data services require new network architecture• Expense of growing the current network outstrips
the additional revenue• Carriers looking primarily at TCO and scalability• Optical networks will allow creation of new
services and allow carriers a competitive advantage
• Growth in optical markets will accelerate beyond 2003