The year of making money

Jan 1st, 2007

by Stephen M. Hardy

Well, the shift of manufacturing resources to Asia is more or less complete for most companies, the market has stabilised at worst and is growing in several niches, and the interest among carriers appears to have shifted from a total focus on cutting capex to a desire to deploy new technologies to increase broadband service provision and enhance opex savings. The time has come for companies in the optical communications space to take advantage of the favourable market conditions and finally make some money.

I’m talking about doing something a lot of companies haven’t even considered since the bubble burst: turning a profit. And with all the momentum the market currently is generating, if the management of Company A still can’t see a path to black ink, it’s probably time to look for a graceful way to exit, stage left.

Startups can be excused somewhat from this exhortation, of course. It takes a while for a new company to get on its feet. But companies that have been around awhile-that were here during the good times and have been making the best of it since then in particular-the time has come, as we say in America, to “put up or shut up.”

And I’m talking in particular to large optical component and subsystem companies. We’ve already seen that several publicly traded mid-sized players have done a fine job of creating a profitable niche for themselves (hello, Optical Communications Products and Oplink Communications, as examples). Other companies, such as Opnext and NeoPhotonics, appear to be positioning themselves for an IPO this year, which is a fine way to make money indeed.

But what about the other mid-sized players? And what’s the story with the big “one-stop shopping” companies? Finisar caused a stir in the financial markets last year by reporting two consecutive profitable quarters and continues to pay down its debts. JDSU drew attention to itself last month as well with a positive pre-announcement of earnings. (Much of the good news derived from its test and measurement operations, but you have to start somewhere.)

This turns the spotlight on other large companies in the space, particularly Avanex and Bookham, as well as a host of other companies who have probably come close to wearing out the patience of their investors.

As a result, “The Year of Making Money” is also going to be “The Year of Consolidation” for those companies who can’t follow the major theme. And it’s about time.

Stephen M. Hardy
Editorial Director & Associate Publisher
stephenh@pennwell.com

by Kurt Ruderman

“Fibre for all! When? Why?” is the rallying cry for this year’s FTTH Council Europe conference to be held in Barcelona. During 2006, FTTH project development increased across Europe, spurred in many countries by government support. ARCEP, France’s telecom regulator, began actively promoting fibre and calling for the sharing of infrastructure to accelerate FTTX deployments.

Today, the big questions facing the fibre-optics industry are when will FTTH take off, what flavour will it be (PON or point-to-point Ethernet) and who will own the networks. Hopefully council members will present their own views and their company views, even at the risk of causing schisms in the council, at this year’s conference. It will make it a more enriching and lively event.

When and at what speed FTTH takes off will depend on the regulatory situation in Europe. The European Commission, which has been calling for the sharing of new infrastructure, is working on a new framework. Incumbents have been resisting the idea of unbundling FTTH networks even if they are fairly compensated.

Germany has revolted against the commission by proposing a law that would allow Deutsche Telekom to exclude competitors from using its new FTTC/VDSL network. EU Commissioner for Information Society and Media Viviane Reding has threatened to take Germany to court if the bill is not removed. The situation has changed in France. France Telecom, which faces FTTH competition, has agreed to share its FTTH infrastructure.

In France and other leading European broadband countries with dynamic and competitive DSL markets, the move to fibre is natural. Triple-play and other high-bandwidth services have pushed DSL technology to the limit.

While the unbundling debate will be lively in some sessions at the Barcelona conference, it could fizzle out in others. In northern Europe, the question of unbundling is becoming non-debate in some places. More and more northern European municipalities favour the ‘open access model’, which they say helps guarantee citywide FTTH coverage and reduces the amount of civil work and civil engineering costs. These governments view broadband access as a necessary utility service. The model, which exists in many forms, has become very popular in northern Europe (see “Cabling Market Awaits FTTX Boost” on page 11). The growing tendency is for the cities and their partners to control the passive and active network layers and to sell capacity to service providers. Amsterdam, which has adopted this model, uses point-to-point Ethernet; the subject is fodder for a lively discussion (see “European FTTH debates GPON vs. Ethernet” on front page).

Kurt Ruderman
European Editor
kurtruderman@wanadoo.fr

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