Europe becomes a common market for wavelength-division multiplexing
Wavelength-division multiplexing (WDM) has become so synonymous with fiber-optic communications that it may seem hard to believe that the technology has enjoyed widespread commercial availability for only a few years. It may also be difficult to remember that--until the past year, anyway--the popularity of WDM has been largely a U.S. phenomenon, the result of a combination of market factors that hindsight reveals to have been rather unique.
For example, European research centers--including those of the postal, telephone, and telegraph (PTT) organizations with monopolistic national communications franchises in countries across the continent--have conducted their own research into WDM. But the technology has seen a slower rate of acceptance among European carriers in comparison to their U.S. counterparts. Again, this lack of enthusiasm comes down to a set of market factors that were unique as well.
But a new set of regulatory and service realities recently has reshaped the European market--in some ways, much in the image of the United States. Thus, the factors that drove early acceptance of WDM in the United States have now appeared in Europe. The continent is the new WDM frontier--and speculators in the user, supplier, and analyst camps point to several trends that should ensure that WDM has now found a European home.
Before and after
European indifference to WDM is easy to understand, given the parameters of the market prior to 1998. The continent`s communications infrastructure comprised a set of interlocking national networks--independent pan-European networks were few and far between. The individual PTTs ruled these national networks in their own monopolistic fiefdoms, protected by governmental imprimatur. For the most part, these networks also contained relatively short runs (50 to 150 km, according to Barry Flanigan, senior analyst at London-based research and analysis firm Ovum Ltd.) in meshed architectures. Several sources likened the European architectural landscape to a set of connected metropolitan area networks having more in common with the regional networks operated by the regional Bell operating companies than the national networks of U.S. interexchange carriers.
The PTTs also made sure that when they laid fiber, they did so with the long term in mind. A combination of their position as nationalized industries and a study of the impending fiber-exhaust problems of their U.S. counterparts led the PTTs to ensure their networks would be fiber-rich. "European operators--and European companies in general--were a little bit more [willing to] invest up front. They didn`t have this harsh, quarter-to-quarter reporting [to shareholders]," explains Ralph Humberg, marketing director at ADVA Optical Networking, a WDM equipment manufacturer based in Germany. "It looks like, at least in some areas, there`s more fiber available here."
Such "futureproofing" against fiber exhaust undoubtedly appeared more than adequate to the occasion, given the relatively slow growth in traffic demand across Europe. For example, research and analysis firm RHK Inc. (South San Francisco) estimates that European traffic demand, still driven primarily by voice requirements, increased 9% from 1995 to 1996, or less than half of the 22% growth experienced in the United States in the same period.
Of course, such prodigious traffic growth, keyed by the explosion in the Internet`s effect on bandwidth demands, represents one of the U.S. market characteristics that led to WDM`s success on the western side of the Atlantic--characteristics not found in the European scenario just described. Many of the fiber-optic networks in the United States are comparatively older and were not designed with Internet-driven bandwidth demands in mind. This limitation is particularly true for the pan-continental backbones where traffic aggregation and transmission over hundreds (if not thousands) of kilometers have pushed capacity demands to the point of fiber exhaustion.
While these factors led incumbent interexchange carriers to embrace WDM as a cure for fiber exhaust, the Telecommunications Act of 1996 opened their markets to a new generation of national and regional carriers. These new carriers had two primary requirements: a quick ramp-up of capacity and a need to differentiate themselves from their incumbent competitors. WDM technology supported both requirements, giving the new carriers a flexible way of scaling capacity, even with relatively few fibers. WDM also served as the keystone of new network architectures designed to accommodate data first, in contrast to the voice-centric networks of the incumbents.
Thus, WDM flourished in the United States at the same time it languished in Europe--North America had high-bandwidth demands, long-distance networks, fiber exhaust, and a wealth of hungry new players, and Europe did not. But circumstances in Europe began to change radically last year. January 1, 1998 marked the start of communications liberalization across the continent. At the same time, the tidal wave of Internet traffic that swamped U.S. long-distance networks has begun to reach European shores. Together, these factors foretell a shifting of the European competitive landscape to a topology similar to that of the United States.
Liberalization should prove the biggest factor in improving WDM`s outlook in Europe by creating a market more like that of the United States. While the pace of liberalization varies widely across the continent, the past year has seen scores of new carriers open for business.
"Liberalization in Germany is quite advanced, I would say, in respect to the whole of Europe," says Humberg. "It has really led to a lot of what we call `city carriers.` I guess in the United States they would be referred to as `CLECs` [competitive local-exchange carriers]." Such carriers range from COLT Telecom, which has pursued metropolitan area networks in cities across the continent, to smaller carriers with more parochial ambitions.
Meanwhile, several carriers have announced their intentions to develop pan-European networks whose scale would approach those of the U.S. long-distance networks. Hermes Europe Railtel, Cable & Wireless, and Esprit represent three completely homegrown pan-European carriers. With little experience in long-distance applications, these carriers are likely to lean heavily on their WDM vendors for support, according to Ovum`s Flanigan.
"Certainly in Europe, what we see with a lot of the emerging carriers is that the challenge for them is that they`re new. It`s an obvious statement, but many of them don`t have the large financial resources of the incumbents, and they don`t have the large research and development capabilities. So a much closer involvement with the vendor is necessary there," Flanigan said during a conversation last year (see Lightwave, December 1998, page 1). "A good example is Cable & Wireless Communications in the U.K., which has a partnership with Nortel to upgrade the whole of their U.K. network. And it`s a much tighter partnership than the traditional customer-supplier relationship, where they`re actually jointly designing and planning the network and evaluating different solutions. And I think we`re going to see a lot more of that sort of relationship between the vendor and the operator as these carriers start to evolve toward optical networking."
But U.S. companies such as MCI WorldCom and Qwest, which are already comfortable with WDM, won`t need additional instruction on how to use the technology in the pan-European networks that they plan to build. "I think the impact of the U.S. companies, with their knowledge and experience with WDM, is really going to help drive the whole market," Flanigan predicted.
Like their U.S. counterparts, these carriers can be expected to use WDM technology as a gateway to extremely high-speed, high-capacity, data-centric networks. Naturally, the former PTTs will be forced to adapt to the new competitive environment. Several have already entered new markets in hopes of expanding their customer base. For example, France Telecom has joined with Deutsche Telekom to create the European Backbone Network, a carrier`s carrier network that will span the continent. British Telecom has also announced a pan-European effort in conjunction with its carrier partners across Europe.
But while these new transcontinental initiatives will undoubtedly call for WDM, the fiber-rich nature of many incumbent national service providers may preclude widespread deployment of the technology in their home networks in the near future. "You have to really draw a distinction between trial activity and widespread commercial deployment," said Flanigan in discussing the ex-PTTs` WDM interests. "The majority of the incumbents have been involved in trialing WDM and field tests, etc., to gain experience with the technology. But they`re hanging back a little bit, because many of them are sitting on fiber-rich networks. They`re not facing the same pressing problem of fiber exhaust that the long-haul carriers are in the United States." Yet, as Internet access becomes more readily available in Europe, analysts agree that fiber exhaust will become more of a problem in the next few years for the incumbents.
However, until the Internet overcomes the incumbents` installed capacity, the emerging carriers are likely to lead the WDM charge in Europe. As Table 1 shows, several of these carriers have already announced contracts with WDM vendors for their networks. Such announcements cut across the spectrum of carrier types, from pan-European firms to alternative national carriers. Incumbent carriers also have been active, as the representative list in Table 1 illustrates. Table 2, meanwhile, shows the WDM vendors that have enjoyed the most success in Europe so far. Not surprisingly, North American companies--which have had the most success in the United States--lead the way. But European firms have established footholds on the continent, particularly in field trials with the incumbent carriers.
Analysts agree that the factors mentioned above bode well for European WDM deployment (see Fig. 1). While the pan-European carriers represent a significant portion of the market in the short term, intranational networks within Western European countries represent the most expansive market. Meanwhile, slow deregulation and economic hurdles, as well as poor infrastructure, will hamper Central Europe`s quest to join the general trend.
Of course, what`s good for systems is good for components and subsystems as well. Figure 2 shows one European sales forecast for three component areas; each is expected to at least triple by 2003.
While liberalization and the Internet represent the most salient drivers for European WDM, other trends may also buoy the market. For example, vendors are finally rolling out the new generation of metropolitan-area WDM systems (see related story on front page). If it is believed that European national networks are composed mainly of linked metropolitan area networks, then these new systems could be tailor-made for the continent--particularly if they deliver on the promise of significant cost reductions. Representatives from both Ovum and RHK also point out that terrestrial networks will not be the only beneficiaries of WDM. The growth in transatlantic and European undersea-cable networks also will feed the market, both in terms of the submarine links themselves and the land-based back-haul networks necessary to support them. Finally, the three-cornered symbiosis of capacity, services, and demand--new capacity spurs new services, which spur increased bandwidth demands from users, which in turn lead to a requirement for even more capacity--would appear just as valid in Europe as anywhere else in the world.
While no one predicts that European demand for WDM will catch up with U.S. levels anytime soon--the prevailing theory is that the continent is two years behind its former colonies to the west--most observers agree that the time for WDM in Europe has finally arrived. New carriers, new networks, and a new competitive environment buttressed by Internet-driven bandwidth demand appear to ensure that WDM will be a fixture in European optical networks for a long time to come. u