Neil G. Dunay
The market for DWDM equipment has evolved rapidly. For example, AT&T (New York, NY) deployed its first service application of DWDM technology, an eight-channel system, in March 1996. By the end of 1998, AT&T had deployed more than 1,200 systems across its network and was testing an 80-channel system from Lucent Technologies (Murray Hill, NJ).
From 1996 through 1998, the predominant driver in DWDM deployment was long-distance transport applications. The goal was to send as many channels across a single fiber as far as possible. The predominant network architecture was point-to-point DWDM systems deployed on protected SONET rings.
Growing at 100% or more per year, Internet and data traffic is driving the expansion of network capacity. By the end of 1997, most major long-distance carriers had deployed DWDM and by the end of 1998, AT&T, MCI WorldCom (Jackson, MS), and Sprint (Kansas City, MO) had deployed the technology across more than 90% of their US networks.
The application for DWDM is now moving closer to the end user, shifting from long-haul transmission to metropolitan and premises networks. This year, most DWDM long-haul vendors have announced versions of their products for metro applications, and vendors such as Optical Networks (San Jose, CA) and Osicom (San Diego, CA) have focused on this market.
Competitive local-exchange carriers have begun to deploy DWDM on intercity routes, but the incumbent local-exchange carriers have been more hesitant in deploying the technology. Corporate data-transmission requirements are also spurring demand for premises equipment.
The big picture
In 1998, the global market for DWDM systems grew 32% to $2.2 billion from $1.7 billion in 1997. The number of new systems deployed grew 98% to approximately 4,000 systems. Through 2004, the market for new DWDM systems will grow at a 23% compound annual growth rate (CAGR) to $7.4 billion in 2004.
Feeding into the systems market are several major component groups. A DWDM system includes those elements needed to transmit multiple optical channels between two points in two directions: the optoelectronics equipment (transmit-receive devices), wavelength- filtration devices (multiplexers and demultiplexers), and amplifiers.
In 1998, transmit-receive devices accounted for 14% of the average DWDM system price, multiplexing and demultiplexing accounted for 11%, and amplification accounted for 15%. The remaining 60% included other hardware such as attenuators, connectors, couplers, and dispersion-control devices; software; and other network management, installation, and vendor`s margin costs (see Fig. 1).
Transmit-receive
In 1998, 48,000 laser modules were sold for new DWDM systems, with an additional 9,600 sold as spares. New systems were lighting six channels on average. In 1998, carriers deployed a mix of 2.5-Gbit/s and 10-Gbit/s transmit-receive devices at 72% and 28%, respectively. Pricing at $4,500 for a 2.5-Gbit/s laser module and $11,000 for a 10-Gbit/s laser module yielded an average laser price of $6,400 in the 1998 market. Prices for 2.5-Gbit/s lasers fell as much as 30% from 1997 to 1998, but 10-Gbit/s prices were fairly firm.
At these prices, the 1998 market for WDM lasers was $375 million. Top DWDM laser vendors include Nortel`s optoelectronics group (Paignton, England), Lucent`s microelectronics group (Breinigsville, PA), and Alcatel Optronics (Nozay, France), which together capture more than 90% of the WDM laser market.
With system capacities growing to 256 channels and beyond in the forecast period, it is tempting to project as much as a doubling each year in lit-channel counts. Carriers, however, will continue their "pay-as-you-grow" strategy of starting with a minimum configuration and lighting channels as demand warrants. Thus, the most dynamic part of the market will be for lasers retrofitted onto previously installed systems.
From 1998 through 2004, combined new-system, spare, and retrofit lasers will grow from 59,000 units in 1998 to 1.7 million units in 2004, a CAGR of 75%. The forecast assumes decelerating price erosion in the laser market from 20% in 1998 to 10% in 2004 ($2,700). Price erosion will occur because of market competition, manufacturing efficiencies, and the increasing prevalence of less costly, directly modulated products for shorter distances (metro and premises). Under this price scenario, the laser market will grow from $375 million in 1998 to $4.6 billion in 2004, a CAGR of 52% (see Fig. 2).
Muxes and demuxes
A DWDM system employs four multiplexing devices: one multiplexer and one demultiplexer for each direction of traffic. (This is simplified for analysis: in reality, depending on the technology, several devices may be cascaded to multiplex the desired number of channels.) Vendors in 1998 were using three chief multiplexing technologies: thin-film filters (TFFs), arrayed waveguides (AWGs), and fiber Bragg gratings (FBGs).
TFFs use layers of dielectric thin films coated on a glass substrate to combine or separate specific wavelengths in a DWDM system. Multiplexers using TFF-based technology were eight-channel-capable systems on average in 1998, but many TFF-based systems are scalable to 16 or 32 channels by cascading the devices. In 1998, TFF-based devices were deployed on 43% (7,000 units) of new DWDM systems at a value of $63 million or a 26% share of the DWDM multiplexing market.
Systems vendors with TFF products include Alcatel, Ciena (Linthicum, MD), Fujitsu (Tokyo, Japan), Lucent, Nortel (Brampton, Ontario, Canada), and Siemens (Munich, Germany), among others. Major TFF vendors include AMP (Harrisburg, PA), Corning OCA (Marlborough, MA), DiCon Fiberoptics (Berkeley, CA), E-Tek Dynamics (San Jose, CA), JDS Uniphase (San Jose, CA, and Nepean, Ont., Canada), and Kaifa, now part of E-Tek Dynamics (Sunnyvale, CA), and competition has tightened.
Arrayed waveguides consist of an AWG chip with a silica substrate and an inner and outer package. AWG-based multiplexers were predominantly 16-channel devices in 1998, a point at which they become price-competitive with TFFs. In strong demand, AWGs captured market share from TFFs in 1998, and one vendor said he would not be surprised if his AWG sales quadrupled in 1999. Major vendors of AWGs include Lucent, PIRI (Columbus, OH), Hitachi Cable (White Plains, NY), and NTT Electronics (Tokyo, Japan). Sales of AWG-based multiplexing devices into the DWDM market were 6,300 in 1998, 38% of the multiplexer market, with a value of $113 million, a 47% market share.
Fiber Bragg gratings are all-fiber components capable of selectively filtering wavelengths. All wavelengths pass through the device except the targeted wavelength that is reflected. In 1998, only one major DWDM systems vendor was using FBGs: Ciena in its Multiwave Sentry 1600 and 4000. Major FBG manufacturers include Ciena and 3M Specialty Optical Fibers (West Haven, CT).
Unit sales of FBG multiplexing-demultiplexing devices more than doubled from 1997 to 1998 to about 3,000 or 19% of the 1998 market. These devices are more expensive than either of the other technologies and were deployed in 16-channel and 40-channel products in 1998. KMI estimates the market value of FBG-based multiplexers at $64 million.
Adding sales of the three multiplexing technologies, 16,300 units were sold in the market in 1998 at an average cost of $15,000, yielding a $240 million market. Unit sales of multiplexers and demultiplexers will grow at a CAGR of 51% to 192,600 in 2004. The average unit price will experience a 12% average annual decline over the period. At this price trend, the market for multiplexing and demultiplexing devices will grow at a CAGR of 33%, from $240 million in 1998 to $1.3 billion in 2004.
KMI forecast sales of multiplexing units regardless of channel count or filter technology. From the unit forecast, component vendors can determine ports based on forecast increases in channel technology per device. If, as some vendors believe, channel counts double every year, new systems on average would be deployed with 768-channel capabilities in 2004.
Amplification
For the forecast period, long-distance systems are projected to deploy eight amplifiers per system, including two postamplifiers, two preamplifiers, and four in-line amplifiers. For short distances, KMI estimated an average of four amplifiers per system were deployed in the market in 1998, but this number will decrease as distance spans for short-distance systems in the market narrow. Most premises applications, for example, may not need amplifiers.
In 1998, 31,850 optical amplifiers (EDFAs) were sold in the DWDM systems market, nearly doubling unit sales in 1997. At an estimated $10,000 per optical amplifier, the market was worth $320 million in 1998. Unit sales of optical amplifiers will increase at a CAGR of 43% to 270,000 in 2004. Optical amplifier prices are forecast to decline at an average annual rate of 12% to $4,500 by 2004. Given this price trend, the market for optical amplifiers in DWDM systems will grow at a 25% CAGR to $1.2 billion in 2004 (see Fig. 3).
Crystal ball
Vendors are now developing products to accommodate all-optical transmission of data traffic (IP and ATM). This trend has several implications. First, eliminating the SONET layer requires an alternate method for protection and restoration of the optical layer. Most DWDM equipment vendors at SuperComm `99 in Atlanta in June demonstrated products to restore optical networks in less than 50 ms. Most of these will not be available commercially until 2000. Second, the focus on data transmission has spotlighted routing and switching devices and forged several notable alliances between DWDM and router- switch companies (notably, Ciena and Lightera, Lucent and Ascend, and Nortel and Bay Networks).
Several startups are taking advantage of this blend of DWDM and data transport. By combining DWDM and optical-switching technology, Corvis (Columbia, MD) has demonstrated a product that it claims can transport up to 160 channels on a single fiber over 3,200 km without electronic regeneration-more than five times the non-regenerated transmit spans of most DWDM products on the market. Monterey Networks (Richardson, TX) has demonstrated its 20000 Series Wavelength Router and Wavelength Routing Protocol (WaRP) to support wavelength switching of up to 256 channels.
End-to-end optical wavelength services, from the user to the backbone, will require sophisticated optical add/drop multiplexers (OADMs) and optical cross-connects (OXCs). Many vendors have fixed-wavelength OADMs on the market and are bringing to market dynamic reconfigurable devices. Tellium (Oceanport, NJ) is now shipping a 32 × 32 OXC, for which it received a $250 million, multiyear purchase agreement from Extant Communications (Aurora, CO) in June. Tellium will have a 512 × 512 product on the market in 2000, but OXCs are unlikely to be deployed in quantity until 2001 at the earliest.
Other new technologies will also affect the DWDM component market. Several vendors will ship tunable lasers next year. While the initial application will be as spares, tunable lasers will become the primary transmit device as manufacturing efficiencies develop and costs decline. Lasers, amplifiers, and multiplexers designed to take advantage of the L-band (1570-1600 nm), which will double channel counts, could be shipped before the end of 2000.
Neil G. Dunay is an analyst with KMI Corp., America`s Cup Avenue at 31 Bridge St., Newport, RI 02840. He can be reached at 401-849-6771 or [email protected]. His article is based on KMI`s 1999 report Worldwide Markets for Dense Wavelength-Division Multiplexing (DWDM).FIGURE 3. Amplifiers-the engine behind the growth of DWDM-will see unit sales increase at a CAGR of 43% over the next five years, raising the market value from $320 million in 1998 to $1.2 billion.