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


Presentation Agenda

1 Today’s Optical Network

2 Market Drivers

3 Market Trends

4 Applications

5 Market Size

6 Industry Players

7 Summary


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


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.


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


Market Drivers


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


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


Carrier Segmentation

Colo Fiber Wave Channel Circuit/ Service

Dark Fiber Provider

BW Wholesale

r

Tier 1 ISP/IXC

Tier 2/3 ISP/CLEC


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


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


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


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”


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


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


Industry Players


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

The Optical Communications Market

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