Market regeneration: Is it really for real?

By TAMI FREEMAN, Fibre Systems Europe in Association with Lightwave Europe -- From broadband access to next-generation services, network convergence to carrier opportunities in the Middle East, delegates at KMI's 8th annual European Conference on Optical Networking witnessed a marked shift in focus from this time last year.

From broadband access to next-generation services, network convergence to carrier opportunities in the Middle East, delegates at KMI's 8th annual European Conference on Optical Networking witnessed a marked shift in focus from this time last year. The headline themes of the two-day event--how to flourish in the regenerating market conditions while identifying the killer services driving demand--set the tone for a wide-ranging series of presentations drawn from all levels of the telecoms food chain, reports Tami Freeman, deputy editor of Fibre Systems Europe in Association with Lightwave Europe.

Systems vendors, research centers and analysts all had their say, while a host of incumbent and alternative network operators were on hand to discuss the latest networking projects and fiber deployments in the Europe, Middle East and Africa (EMEA) region. "Last year the conference theme was 'strategies for survival', but since then we've seen some major developments in the industry," said conference chair Kurt Ruderman. "After a decade of false starts, firms are deploying the triple-play strategies that will drive bandwidth demand."

Going the last mile

The broadband access networks that can deliver these triple-play services provided one of the big talking points of the conference. Giorgio Grasso, chief executive officer of Pirelli Labs in Italy, kicked off proceedings by examining the pros and cons of fiber-to-the-premises (FTTP) versus Digital Subscriber Line (DSL) technologies.
Grasso explained that while the past few years have seen significant increase in residential broadband users across Europe, this is mainly due to the uptake of asymmetric DSL (ADSL). "Fiber is still a niche market," he said. "Many operators are still cautious and are pushing back FTTP deployment."

That said, there are significant advantages for pioneering service providers willing to hedge their bets on FTTP. Scalable bandwidth and lower operational costs are two of the most important benefits, claims Grasso. Fiber's low attenuation is also significant, as it enables operators to concentrate network equipment in fewer local exchanges, which in turn cuts down on real-estate costs.

For many network operators, however, the economics of FTTP installation are still not compelling enough. Specifically, the cost and availability of optoelectronic interfaces and fiber management at the customer premises are big stumbling blocks. Pirelli is tackling these problems by "focusing technology development on cost reduction." For starters, Grasso and his team are cutting the price of optical interfaces by developing highly integrated optical chips for volume applications.

The triplexer, for example, is a fundamental component in fibre-to-the-home (FTTH) networks, separating the wavelengths arriving at the home and converting them to electrical signals. "The cost targets imposed are compelling and cannot be reached with current technologies such as micro-optics or standard PLCs [planar lightwave circuits]," said Grasso. "We think the solution is highly integrated PLCs."

He estimates the cost per million pieces in 2006 at $70-100 ( € 56-80) for micro-optics-based triplexers, around $60 for standard PLC-based devices, and $30 for triplexers that exploit Pirelli's new-look PLCs.

"By using very-high-resolution lithography and photonic crystals, Pirelli can design and manufacture highly integrated devices on silicon," he claimed. "The result is a 2 x 1 mm chip that contains all the passive and active optics and the analogue electronics." The product is expected to be ready by the start of next year, and the firm is already working on a second release with the addition of integrated photodiodes.

Pirelli has also come up with a way to cut the cost of fiber termination at the customer premises. "Termination has been a big issue for fibre management," Grasso said. "The connector is a nightmare--any dust or scratches can ruin transmission." To get round this problem, Pirelli's smart-fiber termination system comprises wall sockets with integral power supplies, into which a user simply inserts the fiber. These products are also slated for release in early 2005.

It is products such as these, says Grasso, that will help fast-track the adoption of FTTP technology. "We think the market drivers for FTTP are already there in many countries," he said. "New technologies are now available to make FTTP economical and deployment is finally starting."

When fiber meets DSL

An alternative take came from David Greggains, vice-president of operations for the DSL Forum. According to his data, there are now more than 73.4 m DSL lines worldwide, while in Europe, 75% of all broadband is DSL-based. He also says the DSL growth rate in Europe was nearly 20% in the last three months--faster than any other region.

And Greggains is clear about the benefits: "DSL is becoming widely available and prices are steadily coming down. It's a reliable technology that's steadily improving. [What's more], it's cheap to provision and you don't need engineers to install it."

He reckons that the fastest-growing driver is peer-to-peer networking, such as the exchange of MP3 music files. "This really is a killer application. It jams the network and kills other subscribers' use of it. Peer-to-peer applications have severe implications for the service provider."

The twist is that while DSL competes with fiber in the last mile, it also places big requirements on backhaul capacity--and the backhaul is fiber. "All future services will be faster and more continuous, with more streaming capability, so they will need more backhaul capacity," Greggains explained. "ADSL2+ [20 Mbit/s downstream, 1 Mbit/s upstream], which rolls out at the end of 2004, needs massively increased backhaul. This drags fiber much nearer to the customer; it's the last step before FTTH. Fiber is going to be the ultimate technology, but in the interim, DSL has a lot to offer."

Back from the dead

Beyond the access arena, it was encouraging to hear about new signs of life in the long-haul market. While the long-haul segment in Europe and the US doesn't offer much to shout about at the moment, there are hotspots of activity elsewhere, according to Andy Evans, FLAG Telecom's chief technology officer (CTO). Evans told delegates that while transatlantic and transpacific routes remain very competitive (with only 16% and 13%, respectively, of capacity currently lit), there are still many underserved markets.

FLAG is focusing on regions in which demand outstrips supply, such as the Middle East, India and China. Earlier this year, the network operator announced plans for a new submarine cable system in the Middle East. FALCON, a high-capacity resilient-loop cable, will provide multiple landings in the Gulf region, with submarine links to Egypt and Hong Kong via India.

FALCON will offer direct, high-capacity connectivity between India and China - the world's fastest-growing economies. For some countries (initially Oman, Bahrain, Qatar, Kuwait, Iraq and Iran) it will represent the first direct connectivity to a global network. "This is of huge strategic importance," said Evans, adding that "almost all operators in the region want to join FALCON."

Another recently announced cable is SeeMeWe4, a submarine cable system linking South-East Asia to Europe via the Indian subcontinent and the Middle East. Evans added: "The announcement of these two cables shows that there's a huge market out there in the Middle East and India regions. The demand is real and it's there today."

One catalyst for growth is the erosion of state-owned monopolies. "I see the wave of deregulation that hit Europe six years ago now hitting the Gulf, which will spur investment and encourage growth," Evans explained. NASSCOM, India's trade body for the IT software and services industry, forecasts that bandwidth demand in India will grow from 7.3 to 92.6 Gbits/sec between 2003 and 2009. Elsewhere, bandwidth demand in the Gulf States is predicted to grow from 3 Gbits/sec in 2003 to 30 Gbits/sec in 2010, while in China demand will rise from 45 Gbits/sec in 2004 to hit 2000 Gbits/sec in 2010.

Increased offshoring will be another driver of telecoms demand, says Evans, quoting a forecast by US consultancy McKinsey that predicts 3.3 m US business-processing jobs moving offshore by 2015. "In the same way as we saw manufacturers move there, we'll see the same trends in service offshoring," he added.
Continuing the Middle East theme, Jean-Marie Garcia, CTO for Jordan Telecom, highlighted the strategic importance of the Jordanian network. Jordan, which is connected by the FLAG system, is an important hub, with links to Israel and Palestine and a planned link to Iraq. "It's a sensitive area, but we are at the crossroads between Europe, South-East Asia and the Middle East," he said.

Jordan has one of the highest levels of broadband coverage, with 87% of the population connected via ADSL, Symmetric DSL or integrated services digital network (ISDN). "In Jordan, citizens spend about 8% of GDP [gross domestic product] on telecoms, but the market is still growing," Garcia explained.

At the moment, 41.5% of shares in Jordan Telecom are owned by the government, but it is selling its stake later this year, at which point France Telecom will become the main shareholder. The carrier is currently working with France Telecom to manage voice-over-ADSL, as well as testing FTTH, with a show home already connected.

"Jordan Telecom has full connectivity north-to-south and east-to-west with optical fiber and we connect Jordan to neighboring countries," said Garcia. "It's easy to build a network, harder to operate it, and harder still to get revenue. But we have a fully implemented network, we have ambition, and we have partners to implement broadband."

Think convergence, think investment

Network convergence was another recurring theme at this year's conference. Opening the second day, Jean-Luc Beylat, Alcatel's vice-president of network solutions, took a look at "navigating in new market conditions."
He says that an array of new services--such as video-on-demand, gaming and peer-to-peer networking in residential markets; storage-area network services; virtual local-area networks; and high-speed data in the enterprise--are now driving the need for more capacity. A study by Alcatel, for example, predicts that bandwidth demand will grow fourfold between 2003 and 2007.
What's more, the capacity need increases at about twice the rate of the bandwidth demand, to account for added quality-of-service, protection, availability and coping with peak traffic flows. "Consider a network with a given capacity; then consider 40% traffic growth," Beylat said. "It's important to start investment now to add capacity in the network."

Capacity growth aside, Beylat cited network convergence as a key trigger for optical network investment. Convergence is all about network simplification, the common aggregation of all services and the reduced capital and operational expenditures that follow from such an approach. Right now, different services--fixed-line and mobile voice, wireless broadband, broadband access, storage, and so on--have their own networks.

What's needed, says Beylat, is a unified transport network that can deliver any service from any device, resulting in lower costs. "The optical market is still fragmented, but consolidation will be driven by the ability to address network convergence," Beylat concluded.

Johann Strauss, market development manager at Cisco Systems, EMEA, agrees that the route to profitability is to run all the services on a single next-generation network. He cited the Alberta SuperNet in Canada, a high-speed broadband network linking government offices, schools, hospitals and libraries, as an example of the way this saves money. "We built a high-bandwidth fiber-optic network to every town and city in Alberta--the network offers an Ethernet plug for everybody. Service providers need to build high-bandwidth voice and data services. There's a move in the market to packet-based services to give the right class and quality of service they need, with a single link running multiple applications."

• This article originally appeared in FibreSystems Europe in association with LIGHTWAVE Europe, August 2004, p11.

Tami Freeman is deputy editor, FibreSystems Europe in association with LIGHTWAVE Europe.

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