Communications Industry Researchers, Inc. (CIR), an industry analyst firm, states that the market opportunity for networking vendors supplying SONET, DWDM and Optical Ethernet transport systems in the U.S. metro core will top $2.5 billion in 2005, driven by the increasing diversity of ports within the space. While CIR sees continued pressure on capital spending for metro carriers, the firm sees some silver linings for the market moving forward in the area of wholesale wavelength services. The forecasts are from CIR's upcoming report on the metro optical core space.
CIR predicts that the metro wholesale wavelength services market could reach almost $900 million in five years time growing from a mere $30 million in 2001 because of the increasingly attractive value of wavelength services over that of dark fiber as well as the gradual penetration of metro DWDM systems into carrier networks. CIR states that thirty-fold growth might be realistic, but cautions against the market rhetoric that some analysts have absurdly engaged in by quoting future estimates of $4 billion metro wholesale service markets.
Are We There Yet?
For close to five years, the metro DWDM market has failed to fulfill the vaunted promises of significant growth opportunities. CIR's research prognosticates that 2003 will be the first big year for substantial metro DWDM deployment to occur in the U.S., with the market reaching $500 million in 2005. CIR predicts Verizon will be the biggest buyer of metro DWDM ring equipment among the RBOCs, with the regulated portion of Qwest being the next largest user, followed by more staunch SONET multi-protocol gear supporters, SBC and BellSouth.
"Simply put, metro optical networking market development will remain stuck in neutral until we see more widespread acceptance of DWDM ring technology by the RBOCs and other metro carriers," according to Mark Lutkowitz, CIR's Vice President of Optical Networking Research. "It has been the classic chicken and the egg scenario since early 1997, in which the industry has been waiting for a critical mass of wavelengths in the metro space to enable both the Optical Add/Drop multiplexer and optical switching markets to develop. But, until the vendors can provide a combination of lower cost and engineering-friendly DWDM products with true ring capability, the all-optical vision in the metro segment will not begin to be realized."
The Road Ahead
CIR believes that the truth about the metro space reflects the economic realities of today, and not the market hype indicating that there are quick-fix elixirs. Most carriers will continue to consolidate spending and look for operational and cost efficiencies. The mergers between the different RBOCs and GTE over the past five years have left large amounts of room for carriers to reduce head counts as well as to consolidate networks and organizations. Many of the emerging carriers that burst onto the scene with great fanfare promoting better, faster, and cheaper services are now on shaky financial footing. The overall economy's slowdown will translate into slowing demand for services, which means that incumbent carriers will strive to get by with as much of their legacy gear as they can as they work through the correction.
CIR believes that companies such as Lucent, Nortel, Fujitsu and Cisco will most likely dominate the space based on their installed base and sheer size. Riverstone will lead Ethernet vendors, but by balancing Ethernet start-up providers with international accounts and OEM arrangements. Cisco Capital is ensuring that Cisco remains on top with CLECs by continuing to finance start-ups like Cogent and Sigma. ONI could possibly be a primary U.S. metro core player at some point, pending a successful completion of the OSMINE process from Telcordia, but Tellabs and Ciena are likely to struggle in this space for the foreseeable future.
The RBOCs will probably continue to dominate the market for metro core optical services, instead of cash-strapped and debt-laden service providers, such as XO, MFN, Level 3, Williams and others. Therefore, CIR predicts a much more moderate growth rate of optical gear purchases in the space, based on the historical rate of service introduction by companies like Verizon, SBC, and BellSouth.
The report from CIR, Metro Optical Networking Market Opportunities, will be available in early November 2001. The forecasts included in the report look at technologies such as SONET, DWDM and metro Optical Ethernet broken out by ports, speeds and market segment as well as by shipments and revenues. Also included are forecasts of wholesale metro wavelength service opportunities and MPLS.
CIR is an industry analyst firm specializing in the areas of fiber optic networking systems, software and components. Through its reports, market advisory services and custom client engagements, CIR provides research, analysis and consulting services for the optical market. For more information, visit www.cir-inc.com.