ECOC 2008: Optics to Support Unbridled Bandwidth Demand

• Posted: Saturday, October 04, 2008
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• Author: pradhana
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• Filed under: Miscellaneous

By Daryl Inniss and Dana Cooperson, Practice Directors at Ovum

Optics offers capacity and energy advantages over electronics

The mood at the 34th ECOC, notwithstanding the worsening crisis of the US financial markets, was calm and quiet, as captured succinctly by Dr. Rod Alferness, Chief Scientist of Alcatel-Lucent’s Bell Labs, in his plenary address: “optimism is appropriate, but caution is judicious.” The explosion of bandwidth, especially video, and how to address it through optics was a unifying theme throughout the conference.

Speaker after speaker pointed to an unprecedented video-based surge in bandwidth. One example is NHK’s ultra-high-definition ‘Super High Vision’ TV signal, which even compressed requires 160-600Mbps for video, plus 7-28Mbps for audio.

As showcased in the technical sessions, advanced multilevel modulation formats and other techniques that are under development will allow the network backbone to handle traffic growth to multiple terabits per span. Similarly, access sessions focused on better, cheaper ways to provide 100Mbps or more to residential broadband users and prepare for deployment of femtocells, which will put additional demands on upstream access bandwidth.

Meanwhile, multiple sessions detailed another area of intense network research, optical switch/routers, which have significantly lower power requirements than their electronic counterparts. As an underpinning for their research, several Japanese speakers cited their country’s Ministry of Internal Affairs and Communications’ data on IP routers’ voracious need for electricity, and noted that forecasted energy requirements would be untenable from a financial and carbon-footprint perspective.

Wanted: fair pay for increasing bandwidth capacity

However, although the technical sessions were bursting with the latest optics research and development, and how optics will help solve our looming capacity and power dilemma, we found ourselves wondering who will be crazy enough to invest in providing infrastructure solutions.

Carriers, equipment vendors, and component vendors have yet to find business models in this era of flat-rate service pricing that inspire investor confidence that they will be able to turn traffic growth into revenue and profitability growth. Suppliers are asked to invest in new technologies to support the emerging demand in a market with a poor track record of delivering acceptable returns.

Weak and unstable structure of the telecoms infrastructure market compounds general global financial challenges

As a case in point, the proposed sale of Nortel’s Metro Ethernet Networks infrastructure business unit, announced 17 September, reverberated through the halls of ECOC. It provides a good example of breakthrough technical success that may have resulted in financial overburden, or at least in unacceptable ROI.

Ovum has reported being favorably impressed by Nortel’s innovative 40G/100G approach, and with each round of discussions we remain so. While Nortel’s offering is not without performance limitations, we can identify no serious restrictions.

Regardless, being placed on the auction block by its parent company is a sign that even though Nortel has made enviable progress technically, current management is unwilling to swallow the incremental investment needed to continue to innovate given the uncertainty of a return.

Market consolidation discussions at ECOC extended to the optical component segment as well. Some pointed to the market’s low enterprise value of Avanex (about $17 million, compared with annual sales of $208 million) and the low operating margins of all these companies as evidence that further consolidation is needed.

Despite the gloom, some optimism is warranted

Yes, the link between bandwidth growth and telecoms companies prospering from it remains broken. Nevertheless, the breadth and depth of technical innovation showcased in the ECOC conference sessions and the majority of participants’ realistic yet positive attitudes leave us encouraged that with time and hard work the telecoms industry will sort out the alchemy of how to turn bandwidth growth into financial health. /PR

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