GERMANY FOCUS: Germany looks beyond core communications — for now

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Consolidation in Germany's telecoms sector is pushing cash-starved operators to squeeze maximum value from the millions spent on existing equipment by tweaking systems and putting off blanket investments. "The outlook for most in the telecoms industry is quite gloomy," notes Judith de Forrest Wilson, CEO of distributor AMS Technologies, Munich (Fig.1, 2).

In contrast to this, demand from other sectors of industry, particularly from automotive and medical, is "quite healthy," she says. The chief focus is non-destructive testing. "Companies are increasingly using optical technology to test for quality and security. They can test everything from the evenness of an aeroplane wing to the cracks in a train wheel rim." Wilson is also surprised by the number of new sectors just beginning to harness optical technology to improve work processes. "Printing companies and firms involved in film and film processing are using light on a big scale, and we see this trend continuing."

AMS has seen some moderate growth in the telecoms market — but not in the sectors it anticipated. "The focus has shifted sharply from the core, where Germany has more than enough bandwidth, to the access points, where the bandwidth bottleneck persists."

Sensing an opportunity, city carriers are racing to deliver high-speed services to business and residential users and provide an alternative to Deutsche Telekom's dominant DSL offering, T-DSL. "The interest isn't in new point-to-point links. Metro operators want to increase the intelligence and efficiency in their networks," Wilson says. "They don't want devices that are passive — they want equipment that is configurable because this will help them deliver a high quality of service." Customers are increasingly demanding component functionality such as forward error correction, Wilson says. This means opportunities for major suppliers and the chip-set makers. It also means greater demand for test equipment that has been fine-tuned to monitor complex integrated components and systems. Optical chip makers are working on this, and this leads to a demand for the equipment to test it."

This chimes with the view of chip-maker Intel. "Our focus is on integrating more functionality into the optical components as well as the modules we make," says Gary Wiseman, a product market director in the company's optical platform division. "Manufacturers want to spend less on their own custom research and development. They want a commonality of platforms and more flexibility on the platforms that are left." To this end, Wiseman says, Intel will "soon be launching a couple of interesting, new products." These will focus on the two main opportunities Intel sees on the horizon: metro DWDM solutions and products targeting enterprise customers.

Intel recently acquired the network tunable laser business and technology of New Focus, to boost its DWDM focus. The acquisition will enable Intel to offer small-form-factor, low-cost tunable optical transceivers to accelerate the deployment of DWDM equipment. Tunable laser technology will help redefine the economics of providing optical bandwidth by enabling service providers to shift the available network capacity to add bandwidth in response to customer needs. Tunable transceivers enable OEMs to lower their costs by only qualifying and stocking a single tunable transceiver.

AMS Technologies' Wilson has also seen a marked demand for integrated components over the past 12 months. "There is a trend away from single transmitters and receivers to transponders. Operators see transponders as a means to get the most out of their network investments by putting transponders close to the customer — typically 10–80km from the customer premises."

One city carrier basing its business model on optical fibre is NetCologne. In July the company took the wraps off its Ether|Net|Cologne, a Gigabit Ethernet-based network that covers the Cologne/Bonn economic region, an area of some 1,250km2 (Fig.3). The new network offers a reliable service, with strong standard Service Level Agreements a part of every contract," says Uwe Rist, NetCologne's Product Manager Data Services (Fig.4). "Every connection is based on an optical fibre being installed at customer premises. Our target market is SMEs and large businesses with a demand for data communications between their sites located in our footprint." NetCologne is convinced that demand for new data services will boost bandwidth demand. "Experts are talking about a strong increase in data communications combined with an exponential growth of high bandwidth. At the same time, businesses are confronted by destructive competition on an almost global base. This is driving the need for lower operating costs," Rist says. "Giga|Net| offers bandwidth from 10Mbit/s up to 1Gbit/s and, with its flexible bandwidth, it can lower operating expenses. Combined with the wide range of bandwidth, Giga|Net| closes the gaps between the fixed SDH-bandwidth and fits in perfectly with our overall strategy."

"Spending in Germany is stabilising at a low level," says Stephan Scholz, head of Siemens' Information and Communication Networks (ICN) Carrier Convergence division in charge of the company's Surpass product family and IP technology. He predicts investments — and hence Siemens' revenues — will increase slightly in 2002 and continue with a slow, steady climb into 2003.

As result of deregulation the German market is characterised by the existence of a handful of major carriers and a consolidation among the country's CLECs. "In Germany we have an oligopoly and the CLECs are disappearing, which is why we decided to get out of that market," Scholz says. "There may be as few as three or four CLECs who survive at the end of the day."

While Deutsche Telekom's successful DSL push has so far negated the need for fibre-to-the-home, it has nonetheless whetted the appetite of users for high-speed data services. Scholz says, "Installed copper quality in Germany is high and the distance to the home is short so we don't see major need for a larger roll-out of fibre to the home for residential users." Germany has the second highest DSL penetration after Korea, a development that allows it to occupy a key position in the market for converged technologies. "There is a mismatch between the in-coming revenues carriers have and the costs they face," Scholz says. "Whereas carriers used to invest in new equipment when they had reached 70% usage, they are now waiting until they reach 95% before making an investment."

Siemens also sees its growth opportunity in offering a solid upgrade business case for metro network operators with SDH and converged products for voice and data traffic to substantially reduce operating expenses in the overall network. The company believes it has a total upgrade potential of 15,000 installed add/drop multiplexers.

The past six months have brought significant changes to the next generation networks (NGN) market, says Scholz.

"The driver behind next-generation networks is not going to be primarily the features they offer, but the cost reduction they can bring carriers." Analysis by Siemens and the Gartner Group shows that .carriers using NGN solutions can cut their opex by two-thirds and increase revenues by some 20%.

In Europe, for example, if the carriers want to raise money, they already have to pay around 8% for their bonds. So it is natural that they make sure they can use the equipment longer. Carriers no longer operate as they operated in the past, when there was a tendency to install new technology just because it was new and had greater capacity.

Of its annual budget for R&D of more than EUR1bn, Siemens ICN allocated 80% to its key focus areas: convergence solutions for voice and data (HiPath for enterprises and Surpass for carriers), as well as its range of broadband access and optical transport network solutions. Siemens' target for 2003 is to raise this to 90% of R&D spending. "Our focus is fully on IP, which is why we made the decision two years ago to stop making ATM switches. Everything is going to be IP," says Scholz. "We are moving this transition forward by presenting carriers with a business case that shows IP brings down both capex and the opex." Siemens has also joined with several universities in a three-year research project to establish a carrier-class IP platform for NGN.

Adva Optical Networking, which provides networking solutions for provisioning of high-speed metro networks, sees "the continuation of consolidation" among Germany's city carriers. Ralph Humberg, Adva's director of Asia-Pacific (Fig.5), adds that the need of the remaining carriers to differentiate themselves will mean a strong demand for "flexible optimisation technology for existing platforms". For this reason, Adva's future focus is on "bringing SDH and DWDM together". "Given the consolidation, this is not the right time for announcing new products, but rather for optimising our existing products and platforms," he says.

Humberg also sees a positive future for 10 Gigabit Ethernet. "Now that the technology is an industry standard, it will be deployed on a large scale in Germany." On the outlook for CWDM, he is less positive. "We're not addicted to any technology and we aren't ignoring CWDM, but we're also not convinced there will be a mass deployment of it. With cost reduction set at 20% compared with DWDM, the total cost of ownership still won't be low enough to get the attention of metro carriers," Humberg argues.

But Cube Optics, which develops and produces miniaturised fibre-optic components for use in data and telecoms systems, disagrees. "There is a bottleneck in access networks in Germany and elsewhere because the costs to operators are too high," notes Thomas Paatzsch, Cube's CEO. "Customer feedback from commercial companies and telecoms carriers alike indicates a growing interest in CWDM."

Cube presented the prototype of its CWDM modules at ECOC 2001. "Since then we have improved the component, and evaluated it with some pilot customers. We've had good feedback on the devices, and now volume production is up and running and output will be increased."

In August, Cube started series production of CWDM and DWDM Color-Cubes, miniaturised coarse and wideband wavelength division multiplexers, at its factory in Mainz. Following a brief start-up phase, production capacity is set to be expanded continuously, to achieve yet greater production volumes by the end of 2002.

Cube says its Color-Cube Wavelength Division Multiplexers .(Fig. 6) are distinguished from the competition because they are up to 100 times smaller yet still offer systems integrators the market's usual optical specifications. This means that, on 4-channel CWDMs, insertion losses of less the 2.5dB can be achieved with standard centre wavelengths and a bandwidth of over 13nm. In the medium term, Cube plans to target metro core, metro access and cable TV networks within cities or between network nodes.

But at the moment the German cable market is "a shambles", according to industry reports. For example, cable operations company Callahan is believed to be losing a record rate of customers in the heavily populated region of North Rhine Westphalia following a recent increase in subscriber prices. Callahan has also put its cable build-out plans in the state of Baden-Württemberg on ice.

For this reason, the focus of positive development is primarily on Germany's metro carriers, Paatzsch says. "Cube is taking market soundings in the area of access, where new production techniques are set to make it economically feasible to use optical components right down to the end customer."

For Pandatel, a Hamburg-based provider of optical network access and data transmission components, the German market could see more operator spending in the medium term. "Recovery will probably begin toward the end of this year, and things might pick up for 2003. What we see as well is that the product cycle will become longer. Those companies will use the products longer and it will be difficult for new vendors in the future to get into those carriers because, after consolidation, the remaining carriers will only pick a few vendors," says Pandatel's CEO Henrik Förderer (note the capacity figures in Fig.7, above).

Consolidation will continue, especially in the European landscape because operators have spent a lot of money on UMTS licenses. ."The main driving force on the carrier market will be total cost of ownership. They will need equipment that helps them to build cheaper and more efficient networks. The closer you go to ultra-long-haul DWDM systems, the more difficult it is because there is a lot of capacity there. But the closer you go to metro access, the more room there is to grow."

For this reason, Pandatel is using its resources to develop new products on the access side, such as small DWDM systems and optical multiplexers. "We do that because we don't have to go to the market to raise money and we see demand there," Förderer says.

Earlier this year, the company expanded its product line in the area of time division multiplexing (TDM). Pandatel's multiplexer card, the CMX-IG2, provides simultaneous transmission of Gigabit Ethernet and/or Fibre Channel protocols via one optical fibre. The use of the multiplexer CMX-IG2 in the company's FOMUX 3000 DWDM system allows TDM and DWDM technology to be combined. This combination could be of great interest to network operators, particularly because of the optimum use of networks, according to Förderer.

There is also growth in a new business model: outsourcing. "We're increasingly benefiting from the trend among larger players to outsource the production of niche products to companies such as ours," says Matthias Kayser, Pandatel's Director Business Development. "We don't want to compete with the likes of Cisco.— we want to partner with them. Large manufacturers and carriers cannot viably develop and produce all the technology they need by themselves and that's where we come in." Adopting this new business approach, Pandatel reports that sales in the first three months of this fiscal year totalled EUR7m, up 3.1% on the same period last year. At EUR3.57m, EMEA was the company's most important market.

U2T Photonics, a Berlin-based company providing innovative optoelectronic components for fibre-optic systems and networks worldwide, sees increasing interest among its systems provider customers in 40GHz. U2T specialises in the development of ultra-fast optoelectronic components for applications such as communication super-highways and microwave photonic systems, which require operation frequencies of 40GHz and above.

Andreas Umbach, founder and CEO, has recently chosen to focus on three main customer segments: test and measurement facilities and universities; major systems houses; and Germany's newest crop of transponder start-ups. "In the near future this emerging market will be a very important one for us." He believes the start-up companies are benefiting from the view among carriers that "40G is not only a viable technology, but also an economically favourable solution for long-haul and metro carriers alike. Transponder companies have been claiming that 40G is a cheaper technology and, now that 40G is ready, they can deliver on this promise."

In 2003, U2T plans to have a "variety of receiver designs available that meet specific customer requirements," Umbach says. U2T will also take advantage of its direct access to the indium phosphide semiconductor fabrication facilities of Berlin's Heinrich-Hertz-Institut for epitaxy and wafer processing. U2T's product line is based on a versatile fabrication technology. The company is also planning to build an indium phosphide wafer fab on the premises.

U2T's photodetector technology provides fast and efficient optoelectronic conversion at speeds of 50GHz and above — enabling 40Gbit/s optical communications and milli-metre-wave photonics. Tektronix is integrating U2T's photodetector technology in its new 40Gbit/s optical modules. The 40GHz 80C05 and the 50GHz 80C06 modules are integrated in Tektronix's CSA8000 communications signal analyser, designed to enable research and development of optical components and network elements for emerging OC-768 and STM-256 standards.

U2T is currently looking for partners and investments and plans to finance its business "not only from its own turnover". The company's interest in investment and expansion is due to the opportunities that U2T perceives in networks upgrading from 10Gbit/s to 40Gbit/s.

Jonathan Mees, European product line manager, communications, at Agilent Technologies, says the collapse of the telecoms industry has had a significant impact on all companies in the food chain. "However," he says, "the further you are away from the service provider, the more optimistic the outlook." Against this backdrop, .10 Gigabit Ethernet in the metro area is one of the hot areas at the moment." To this end Agilent has refocused its business away from the core to the metro market — a decision the company took some 12 months ago. "We're now developing new products," Mees says. These will be released at ECOC 2002. "Looking ahead, we see the greatest demand for 10 Gigabit Ethernet."

Agilent will also keep a careful eye on WLAN technologies that threaten to eclipse 3G in Europe. "The market can't be sure yet if it's going to be 802.11 A, b, G, H or x, for that matter. We're not about to support some strange, esoteric standard, but we do want to be ready with products when the market is ready to take them."

In July, Germany's RegTP regulatory authority cleared the way for service providers to offer services in the 5GHz frequency range. This decision.— the first such move by a major European country to push WLAN forward.— is expected to be followed by similar announcements by regulatory authorities in France and the UK this autumn. The Radio Communications Agency is in the process of ratifying the technical requirements for 5GHz WLAN to make the band licence-exempt by the end of 2002.

In Germany mobile operators had argued against WLAN saying it was unfair to open unlicensed spectrum for services after they had paid such huge amounts for 3G licenses. It may be hoped that a decision in favour of WLAN will result in a "truce" and convince doubters in the industry that "UMTS and WLAN are not enemies but rather partners," notes RegTP president Matthias Kurth. The RegTP also wants to encourage UMTS and WLAN providers to team-up in agreeing roaming agreements and other forms of cooperation to "present combi-offers" bundling voice and data, Kurth says.

But many, including Agilent's Mees, believe the stage is set for competition between technologies and operators. "WLAN is likely to take over as the point of entry," Mees says. In July, Finland's Sonera and Spain's Telefonica announced they are closing their mobile joint venture in Germany after just seven months in operation. The German venture called Quam launched GSM/GPRS services towards the end of last year and had attracted a mere 200,000 customers by the end of June, this year.

Test and management solutions developer Acterna is convinced that sophisticated applications such as streaming media may boost global Internet traffic from 3 Terabytes per month in 1999 to 15 Terabytes per month by 2003. Data traffic in Germany continues to grow exponentially as well, boosted by the increased interest among corporate users in e-business investments as a means to maintain company efficiency.

However, the economy has also stunted the growth and development of the NGN market, according to Bernhard Müller, General Manager Acterna Transport Division. "It will arrive later than planned. We see it as a mid-term technology but it will definitely come and will definitely have a significant impact on the market," Müller says. In the meantime, he observes, "big network operators are reluctant to spend money while many city carriers are still making investments, albeit spending on a lower scale."

Acterna believes it is positioned to take advantage of the growth opportunities in the metro market, with several new products including hand-held testing devices.

In June, Acterna announced the addition of 40Gbit/s capability to its portable Advanced Network Tester (ANT) for use in the laboratory or in the field. The Acterna ANT-40G is claimed to be the first tester that provides complete analysis of framed signals on SONET/SDH networks operating at OC-768c/STM-256c and will allow manufacturers and service providers to verify high-speed networks and network components. As 40Gbit/s systems and services begin to migrate from the laboratory into the optical core network backbone, manufacturers must speed the development of new products and service providers must work quickly to ensure proper integration of these products into existing networks, Müller says.

In the manufacturing environment, Acterna's ANT-40G should allow equipment vendors to cut product development timelines and decrease time to revenue by verifying that prototype optical network components are properly designed and meet industry standards.

"Network equipment manufacturers will use the ANT-40G in verification labs where the tester will ensure the overall performance of systems that carry concatenated or structured 40Gbit/s streams. As higher rates move from the laboratory environment into the network, the ANT-40G will help operators install and troubleshoot network elements running at 40Gbit/s," Müller says.

Despite the dismal mood on the marketplace, he sees a positive outlook for 40Gbit/s technology. "The growth will come as the installed base of carriers with 10G technology chooses to upgrade to 40G. The 10G world demands flexibility and, for the other carriers, 40G is interesting because it provides them with a way to get data into picture and into their legacy networks."

Müller is particularly bullish on 40Gbit/s technology because field trials outside the labs, as well as trials taking place across Europe, are indicating that this technology is perhaps just around the corner — and not out of sight.

Peggy Anne Salz
Contributing Editor
Email: psalz@compuserve.com

Peggy Salz is a new contributing editor to Lightwave Europe. Contact her at: PO.Box 1909 53709 Siegburg, Germany. Tel. +49 22 41 52441.

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