Top 5 Carriers
- AT&T
- China Telecom Group
- Verizon Communications
- Nippon Telegraph and Telephone
- MCI
As wireless substitution threatens local and long-distance fixed-line services worldwide and cable operators and enterprises test the readiness of voice over IP, carriers in 2003 took to bundling local, long-distance, and broadband services to fend off competition from all sides. Financial analysts continued to make public companies toe the line, scrutinizing their balance sheets and questioning their business models—and not surprisingly total capital spending on optical communications equipment continued to decline.
Key carriers in critical markets surprised us, however, in a good way, announcing plans to evolve their networks, which reaffirmed some of the research and toil of the optical equipment community. Carriers' goals haven't changed; they want to increase their ability to support advanced services, while lowering network operating costs. In 2004, we'll be watching the carriers that took that next step, testing or applying promising technologies that can help them meet these business goals.
AT&T caught many people by surprise in 2003 when it became the first carrier to publicly commit to collapsing its telecommunications and data communications networks into a single IP/MPLS-based optical backbone network worldwide that will support automated service provisioning. This "Concept of One" architecture is a promising development for optical-switching vendors. According to AT&T, it already has intelligent optical switches installed in 105 locations in the United States and deployed in 10 locations in other countries. The carrier also has deployed 700 multiservice platforms. Another step toward its vision of the AT&T "Photonic Network" was realized in November, when AT&T announced it had an agreement with Siemens to begin testing its Surpass hiT 7500 long-haul DWDM platform, which supports reconfigurable optical add/drop multiplexing. The new architecture is expected to promote services such as voice over IP and interactive gaming.
China Telecom Group, like AT&T, is no stranger to government-ordered restructuring to stimulate competition. After a major restructuring in 2002, the former Beijing-based monopoly remains China's largest public network and the country's biggest Internet access provider, claiming 80% of the market. China Telecom is also the only domestic carrier that has an operating license in the U.S. market, allowing it to transmit voice and Internet traffic between the U.S. and China.
In November 2002, China Telecom created a public company of the same name, listing the assets of four provincial networks (Shanghai, Guangdong, Jiangsu, and Zhejiang) on public stock exchanges in Hong Kong and New York, raising $1.5 billion from 7.56 billion shares, or about 10% of its total assets. Last October, the public company announced that it planned to acquire six more provincial networks (Anhui, Jiangxi, Fujian, Guangxi, Sichuan, and Chongquing) from its parent company.
As the dust settles from the most recent restructuring, China Telecom is expected to make greater capital investments to develop its provincial (metro) networks using SDH and multiservice platforms and build-out its network in Northern China. Much of China Telecom's equipment business is likely to go to Chinese vendors, according to analysts. Multinational companies can also win business with China Telecom, however. In November, Cisco Systems announced a contract to upgrade its 12000 series routers with 10-Gbit/sec line cards on China Telecom's ChinaNet Internet infrastructure, providing a 10-Gbit/sec link on the southern network backbone, which connects 21 provinces. The announcement marks Cisco's fifth collaboration with China Telecom.
Verizon Communications, the largest provider of wireline and wireless services in the U.S., ignited the hopes of the optical access industry last year when it began spearheading the common technical standards and joint requests for proposal from BellSouth, SBC, and Verizon for fiber to the premises (FTTP) systems. While some analysts and vendors believe the RBOCs' proposals are smoke and mirrors to sway Federal Communications Commission regulators, Verizon is moving forward. In November, the company announced it was negotiating contracts with fiber and cable equipment vendors Sumitomo Electric Lightwave, Pirelli Communications Cables and Systems North America, and Fiber Optic Network Solutions as well as with Advanced Fibre Communications to provide the optical electronics for the central office and premises for the initial phase of its FTTP deployment (one million homes) scheduled to begin this year. Other vendor contract announcements are expected. The investment in FTTP will not increase the company's historical capital spending levels, according to Verizon, but it indicates a capital investment shift away from copper infrastructure.
Nippon Telegraph and Telephone, Japan's dominant carrier and the leader in fiber to the home (FTTH) deployments worldwide, got Gigabit Ethernet (GbE) passive-optical-network (PON) vendors excited last August, when it issued a request for proposal for GbE PON technology compliant with the IEEE 802.3ah Ethernet in the First Mile (EFM) standard. That is the first RFP based on the emerging EFM standard, which is expected to become final this year. Vendors and analysts believe that NTT is considering GbE PON as a potential next-generation access technology for both NTT East and NTT West, if the technology measures up and it significantly lowers network costs. Despite some competition from regional utilities, NTT remains the largest installer of FTTH in Japan. The "drive for fiber to the home comes from the top down at NTT," remarks one analyst. NTT's broadband deployments are closely watched by other countries and could serve as technology roadmaps, particularly in Asia.
MCI and its emergence from bankruptcy this year will be watched for what some fear could be a domino effect of drastic price-cutting and industry consolidation. As bundling of services—local, long-distance, broadband, and wireless—gains popularity with customers, industry consolidation between an RBOC and a long-distance provider may follow, say analysts. The former WorldCom's low debt and low valuation could make it a prime takeover target, according to a November report by Probe Financial Associates. Analysts at Merrill Lynch believe that when MCI reemerges, it will need to spend money on equipment, partly to integrate networks acquired before the bankruptcy. Merrill Lynch estimates MCI's 2004 capital-expenditure budget is $1.8 billion, of which $500–$700 million may be spent on optical systems, specifically next-generation SONET, metro WDM, and bandwidth management. Despite its troubles, MCI is still the number two long-distance company and has a major role in IP backbones and metro networks.