Operators should overinvest in 100G says LightCounting

In its latest market update, LightCounting LLC says its analysis of port shipments indicates that network bandwidth is growing faster than Internet traffic in 2012 – 2013, driven by deployments of 100G ports. The market research firm doesn’t believe the good times will last indefinitely, and suggests that carriers would be wise to keep up the investment pace before the next economic downturn.

Deployments of 100G optical transport equipment in long-haul networks has been a real success story. According to LightCounting’s quarterly sales database, shipments of 100G DWDM ports reached 15,000 in the first half of 2013 and are projected to climb to 40,000 for the full year. While these numbers remain modest compared to shipments of 10G and even 40G DWDM ports, the contribution of 100G ports to overall network bandwidth is already significant.

In an ideal world, the bandwidth growth rate of global DWDM networks should be well correlated with the growth rate of Internet traffic, but the reality has been strikingly different. The growth in network bandwidth was off the charts during the telecom bubble of 1999 – 2001, but then investment into telecom infrastructure remained depressed between 2002 and 2005. Correlation between Internet traffic and network bandwidth growth rates improved in 2007 – 2008, but the financial crisis of 2008 – 2009 led to a decline in network upgrades.

“[Our data] suggests that network operators were under-investing during the economic crisis of 2009 and the slow recovery of 2010 – 2011. An increased level of investments in 2012 – 2013 seems to be well justified,” explained LightCounting, in a statement. “In fact, in order to catch up on underinvestment in 2009 – 2011, network operators will have to keep the rate of network bandwidth growth above the traffic growth until 2018.”

LightCounting says that, in light of the past market volatility, it wouldn’t be surprised to see another downturn, although where the crisis will come from and how it will look like is “anybody’s guess.” The firm suggests that, given the increasing influence of China on the world economy, one scenario leading to a slowdown in 2016, is related to the completion of the current five-year economic plan in that country. Many projects in China may be accelerated in 2014-2015 to meet the plan’s targets and 2016 may be a perfect time to take a pause.

LightCounting urges network operators to overinvest while the global economy is still growing. Regardless of where it comes from, the ability of network operators to finance infrastructure investment is going to become limited by the next economic crisis.

LightCounting also expressed concern about short-term prospects. It’s "Market Forecast Report" and updates are based on the correlation of bandwidth growth and Internet traffic, but with refinements to the model. One of the key assumptions is that network bandwidth grows more slowly than Internet traffic as network operators use the available bandwidth more efficiently, which will limit the long-term outlook for 100G deployments in core networks.

Another short-term concern is the very large number of 100G trials and early installations reported in 2013, which may not lead to a sustainable demand for 100G ports in 2014-2015. For example, some operators may install a few 100G ports now just to make sure that their network is compatible with 100G technology and they can count on it for future upgrades.

Finally, LightCounting questions how realistic are the expectations that lower-cost 100G optics will start selling into the higher volume metro and much higher volume datacom markets. Its expectations for 100G in data centers for the next few years are modest. While financial companies and Internet exchanges are deploying 100G in metro now, how many other metro networks really need – and are ready to pay for – massive installations of 100G ports today? Emerging islands of 100G in the metro may not raise volumes high enough for the cost of the 100G components to come down, LightCounting suggests.

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