Since free-space optics (FSO) first caught the industry's eye in the late 1990s, vendors of FSO systems have built their business cases around the economics of the technology; deploying an FSO link from rooftop to rooftop is much cheaper than trenching city streets to install a fiber link. But in the current economic malaise, even that argument isn't as compelling as it used to be.
"Just being more cost-effective than fiber isn't good enough any more," contends Dan Hesse, chairman, president, and chief executive at Terabeam (Kirkland, WA). "What we're seeing is the bar has been raised substantially in terms of the ROI [return on investment] required by carriers. Some are looking for payback within the same calendar year, which is hard to achieve for any technology."
That said, the FSO market has seen more activity this year than have many telecom sectors, partly because the technology is cheaper and easier to deploy. FSO gained further acceptance for its role in restoring connectivity to business customers in lower Manhattan following last year's Sept. 11 terrorist attacks.
This year, the carrier community also began to take note. According to Lawrence Prior, chief marketing officer at Lightpointe Communications (San Diego), almost all of his company's contracts came from enterprise customers in 2001, but this year, about 30% of its sales are to carriers, including U.K. carrier Red Spectrum and Telekom South Africa. The company also landed a contract with Qwest Communications for a 12-city controlled start.
"What really won the day at Qwest was what we could do for them in terms of higher value-added services like VPNs [virtual private networks]," says Prior. "It's unbelievable how important those are to customers and how many are limited just because of a lack of transport or a lack of redundant networks."
Indeed, despite the capital constraints felt by most if not all of their carrier and enterprise customers, FSO vendors have one thing going for them: demand. According to market researcher RHK (San Francisco), 75% of commercial buildings are within 1 km of a major fiber trunk, but only 5% of these buildings are connected to that trunk.
Connecting these buildings via fiber can be prohibitively expensive, notes Michael Stevenson, author of the recently released "FSO Optics Report," published by Breault Research Organization (Tucson, AZ). "To lay a typical fiber link between two buildings, maybe a half-kilometer apart, would be $500,000 in a big city. The same FSO link with the same type of bandwidth would be $20,000 to $50,000. That's a major cost reduction."
But while FSO may be cheaper and faster to deploy, it suffers from its share of limitations. FSO is a line-of-sight technology; transmission can only occur when there is an unobstructed path between buildings or between transmitter and receiver—often difficult to achieve in urban environments. Building sway and scintillation can also cause signal interference, as can certain atmospheric effects. Fog, in particular, is the big nemesis of FSO.
Several FSO vendors have developed or are developing hybrid systems to mitigate atmospheric effects and ensure greater availability, though others argue that such systems are too expensive to see significant traction with cash-strapped customers.
In May, AirFiber (San Diego) announced the coupling of FSO technology with 60-GHz millimeter-wavelength radio in the same system, called hybrid free-space optic/radio (HFR). While FSO and millimeter-wave may seem like competing technologies, they are actually complementary, says AirFiber's senior marketing vice president, Michael Sabo. Though just as fast as FSO, millimeter-wave suffers from attenuation caused by heavy rain, which limits transmission distance.
Shortly after AirFiber's announcement, TeraBeam acquired Harmonix (North Andover, MA), a manufacturer of millimeter-wave radio products. Unlike AirFiber, however, TeraBeam will market the technologies separately. "There will be situations where you will want to put them together," reasons Hesse, "but the most cost-effective way to do that is to let the carriers do it themselves in their own networks."
The folks at Lightpointe, who use radio frequency as a backup solution for failed FSO links, believe that hybrid FSO systems are "nothing new," and while they can provide higher availability in some cases, they tend to be a lot more expensive. Selling to the carrier community has not been easy, since carriers are "crazed over predictability," observes Prior. That has led many FSO vendors to develop patented technologies and software systems to evaluate and analyze the terrain and atmospheric conditions in a given locale. Lightpointe's FlightNavigator toolset, for example, automatically computes link availability and optimal link distance.
Terabeam, meanwhile, has developed a "pointing and tracking" technology using fast steering mirrors, which move 300 times per second to counter any drifting of the light beam. "Now, I think the carriers are saying, 'Oh, wait a minute. They [FSO vendors] are all working on little things that make this thing called free-space optics better than it was the last time we looked at it,'" says Terabeam's Lou Gellos.
The competitive landscape in the FSO market is "pretty Darwinian," admits Prior, who says he has seen fewer and fewer competitors show up on rooftops during customer trials. In his "FSO Optics Report," Breault Research's Stevenson lists AirFiber, TeraBeam, and Lightpointe as the top three vendors in the space, because "each has something unique about its product line, its business model, or even its approach to customer service." Other vendors vying for market share include AOptix Technologies, Cablefree Solutions, Canon, Celerica, fSONA, Holoplex Technologies, Maxima, OrAccess, PAV Data Systems, Plaintree Systems, and newcomer Corning Cable Systems. Corning's entry into the FSO market this past summer was "pretty significant," says Prior. "It's like having the 'Good Housekeeping seal of approval.' The dominant player in fiber is now selling free-space."
In a recent report, Merrill Lynch claims that the FSO segment will grow from $100 million this year to more than $2 billion by 2005. And the technology has attracted some big money from several of the industry's key players. Lightpointe has received $51.5 million in venture financing, including a $33-million investment by Corning Inc. and Cisco Systems. AirFiber, meanwhile, has secured $92.5 million, thanks to a $50-million investment by Nortel Networks. And Terabeam has raised a whopping $586 million, led by a $450-million investment by Lucent Technologies.