Don’t go there

Those who remember the optical bubble of the early part of this century likely would tell you that our current times ...

by Stepehn Hardy

Those who remember the optical bubble of the early part of this century likely would tell you that our current times are nothing like those heady years. No one in the optical communications business is swimming in cash, venture capitalists are not tripping over themselves to supply even more money, and more companies are being consolidated than created.

But on one point they would be wrong. Just as in the early 2000s, there’s a ton of fiber-optic cable being installed.

National broadband plans have driven fiber to homes, businesses, and anchor institutions. The opportunities in low latency and route diversity have led to new links between financial centers. The undersea-system market has exploded, with market research firm Telegeography noting that the past two years have seen the launch of 19 submarine-cable systems. Telegeography reports that 33 additional systems are on the books for 2012 and 2013, despite what the company says is “tremendous untapped potential capacity on many existing submarine cables.”

Such projects have led to the installation of about 19 million miles of fiber in the U.S. alone last year, according to CRU Group. That’s the most fiber deployed in any one year since 2000. And we all know what happened after that, right?

Two words: “fiber glut”

Not surprisingly, the current fiber boom has some in the financial sector nervous. There’s still too much capacity out there, many fear.

Are these concerns warranted? Not yet, I don’t think.

The principal difference between what occurred in 2000 and the current fiber builds is location. At the apex of the previous boom, most carriers built capacity between the same cities and along the same routes. They seemed to believe that infinitely growing Internet traffic would require infinite amounts of fiber.

That belief proved wrong, of course. Fortunately for the industry (and those paying for today’s fiber installations), the current catalyst in most instances is a desire to put fiber where it presently doesn’t exist. The broadband build-outs represent the most salient example of this trend. However, the same could be said for a variety of middle-mile and alternative backbone installations. Fiber to the tower initiatives fall into this category as well.

The riskiest projects are aimed at offering low-latency routes, either terrestrial or undersea. There’s no guarantee there will be enough demand to pay the build costs – particularly if operators of existing routes can find ways to lower the latency figures on their plant. The same could be said for builds whose business cases rest upon route diversity.

The trick to avoiding over-capacity rests in how much fiber to install in these new projects. There seems little reason, particularly in backbone and middle-mile projects, not to add a little fiber-count cushion. The question then for fiber suppliers is, what happens to demand once the current round of builds concludes?

For now, I’m betting most would rather not go there just yet. They’re too happy with where they are right now.

stephenh@pennwell.com

More in Market Research