Conference highlights European telecom trends

by Dave Dunphy

The IIR WDM & Next Generation Optical Networking Conference held in Cannes this past June underscored fundamental changes going on within the European telecommunications industry.

For example, service operator projections of bandwidth requirements to the home have increased dramatically over the past two years in Europe from 20-25 Mbit/s to 50-60 Mbit/s or more. Fixed operators have rapidly evolved from ADSL to ADSL2/2+ and VDSL in pursuit of greater access bandwidth. Mobile operators boosted their backhaul bandwidth requirements as they rapidly rolled out high-speed data packet access (HSDPA) over the past year, and prepare for high-speed uplink packet access (HSUPA) as Sprint and a number of alternative operators plan to deploy WiMAX.

Interest in FTTX has increased significantly over the past year in EMEA as well: France Telecom has moved from trials to initial commercial FTTH GPON deployments, Deutsche Telekom unveiled its FTTX plans in the past year, and BT is reportedly reconsidering whether to pursue fibre-based access as part of 21CN. The incumbent carriers are being pushed by FTTX deployments and plans within alternative providers such as FastWeb, Neuf Cegetel, and Free, as well as by their own increasingly optimistic projections of bandwidth requirements.

Opex is finally receiving due public attention from service operators and vendors alike. Operators pretended opex did not strongly affect the business case for new hardware selection in the past, which allowed them to deny vendors negotiation leverage based on opex advantages.

Reducing opex has become increasingly important for service operators, both as a means to increase profitability and offer competitive pricing to spur demand for new services. The new focus on opex has led to sharing of radio access network infrastructure costs by Vodafone and Orange, affording 20% savings in opex and capex. In the U.S., Sprint and Clearwire are similarly sharing the costs of building out their Wi-Fi networks.

Service operators are more frequently discussing opex openly now, encouraging vendors to help model the operations benefits of their infrastructure. Although the negotiating relationship between vendor and operator remains adversarial, service operators need help streamlining their operations models, and need to reward those vendors that are successfully innovating to help them do so.

Increasing data traffic and video services offered at competitive prices have resulted in declining revenues per bit, while costs scale proportionately. This has fuelled service operator interest in migrating from TDM to more cost-effective Gigabit Ethernet (GbE) transport, with 10GbE frequently providing aggregation in the short term. Migration by fixed operators to IP DSLAMs with GbE interfaces, VoIP, growth in Ethernet E-Line and more recently E-LAN services, and interest by mobile operators in transitioning to an IP RAN are factors creating greater demand for GbE.

Converged transport solutions from major vendors offer migration paths from TDM to more IP-centric networks, and both T-MPLS and PBB-TE have won roles in helping provide more efficient metro packet transport.

Ethernet operations, administration, and maintenance now offers a more viable alternative to SDH/SONET than it did in the past, but does not have equal market recognition yet.

Many service operators still like having a separate transport layer, and the Optical Transport Network (OTN) hierarchy seems well positioned to replace SONET and SDH, while providing greater scalability and transparency. Metro WDM is growing in importance thanks to its scalability and added support for multicast, particularly as video traffic increases. Ethernet switching is being integrated with metro WDM by vendors that want to reduce capex and support efficient grooming of GbE traffic.

Vendors look to both T-MPLS and PBB-TE to accommodate packet transport more efficiently than is required by a full MPLS implementation. T-MPLS and PBB-TE no longer are part of an “either/or” question, thanks to BT’s selection of Nortel for its PBB-TE implementation and its leverage in getting PBB-TE accepted for standardisation efforts.

Mobile operators continue to drive optical systems demand, with their initial move to upgrade core networks transitioning to plans to increase efficiency for mobile backhaul by migrating to an IR RAN. Optical multiservice provisioning platforms are facing potential competition from pseudowire aggregation devices for mobile backhaul, though synchronisation issues have prevented rapid transition to an all-IP RAN. In the short term, this has led to adoption of “HSDPA offload” of mobile data traffic over DSL, with TDM retained for voice services and synchronisation.

PWE3 continues to generate strong interest as a means of enabling encapsulation of multiple legacy services as well as Ethernet traffic, particularly for mobile operators faced with trying to backhaul traffic from multiple generations of 2G/3G and future 4G technologies supporting TDM, ATM, and IP.

Capacity requirements, the desire to reduce the number of interfaces to manage, and the inefficiencies of routers mapping 40 Gbit/s streams onto 4×10 Gbit/s are now driving the need for native 40 Gbit/s transmission. However, service operators’ price expectations of 2.5× the cost of 10 Gbit/s and fibre plant limitations with respect to polarisation-mode dispersion (PMD) have delayed its adoption. Vendors have pursued electronic dispersion compensation to mitigate PMD and implemented new transmission formats like DQPSK with some success. But development has been delayed at many vendors as they try to gauge the window of opportunity for 40 Gbit/s following all the delays and with talk of 100 Gbit/s on the horizon.

Transport at 40 Gbit/s will be deployed in a mix with 10 Gbit/s on systems, rather than as a replacement, and as much in the metro as the core thanks to video. Threats by some operators to skip directly to 100 Gbit/s if 40 Gbit/s costs do not fall to 2.5× the cost of 10 Gbit/s are nothing more than positioning in an attempt to influence vendor pricing. Standardisation of 100 Gbit/s is currently focused on parallel transmission for the data centre, and far from mature. Commercially available, standardised 100 Gbit/s for the transport network remains far enough in the future to give 40G real growth opportunity, but the volume of 40G deployment will ramp more slowly than did that of 10G when it began to supplant 2.5G.

The big get bigger, with consolidation by Ericsson (in acquiring Marconi) and mergers resulting in Alcatel-Lucent and Nokia-Siemens forming mega-competitors. These large vendors have key advantages in terms of being able to leverage professional services capabilities to act as lead integrators in an increasingly complex service environment where software plays an increasing role. Nonetheless, service operators still want best-of-breed equipment, and large vendors cannot afford to risk spending development funds on every new concept.

There is plenty of room for smaller vendors and start-ups, although less capital is available to fund them. Developing and managing OEMs with the right Tier 1 vendors will be increasingly important for smaller players, but as large vendors assert more of their solutions capabilities globally, smaller competitors will find maintaining multiple, non-competitive Tier 1 vendor partners in specific regions increasingly difficult.

The transition to higher-speed DSL technologies, the newfound interest in FTTX, higher-speed mobile data services, greater online content, growth in mobile backhaul requirements, and increasing uptake by the enterprise of Ethernet services have created new requirements for the metro network. Scalability needs for GbE transport, low-latency requirements for the growing component of video traffic, and support for efficient multicast and service-level agreements are leading to increased opportunities for metro WDM.

One of the most significant changes in Europe during 2007 has been the growing interest in not only deploying metro WDM for transport of GbE traffic, but in leveraging metro reconfigurable optical add/drop multiplexing (ROADM) technology as a means to lower opex by automating provisioning and relieving operators of the need for precise preplanning of wavelengths and where capacity will be needed.

ECI recently scored a key first win for a fully meshed, multidegree metro reconfigurable optical add/drop multiplexing (ROADM) implementation in Europe at CoreNet in Finland, and interest in metro ROADM by both fixed and mobile operators has grown considerably over the past year. Consensus on the benefits of wavelength-selective switch (WSS) ROADM technology for the metro as well as core seems finally to be taking off. A couple of mobile operators and many fixed operators indicated strong interest at the show that could potentially create opportunities for the second half of 2008 and beyond.

In addition to the growth in Ethernet services, mobile and fixed Internet access, and new video applications and content, “traditional” telecoms service operators like Austria Telekom are also pioneering new revenue streams-in this case, developing the expertise necessary to provide storage area network (SAN) extension services to offset declining voice services revenue. The carrier’s plan implies a huge effort to ramp the skill set to support such customers effectively, but things most worth having are seldom easy to pursue. On the vendor side, Matisse Networks’ presentation on optical packet burst switching should remind everyone that while less venture capital means fewer start-ups driving innovation, that does not mean innovation is dead.

The future for new telecom services-based on customer surveys, not hype-is bright, but only at the right price points. The bandwidth glut is over, bandwidth requirements to the home may well exceed the projections of past years, and Tier 1 as well as alternative operators are now actively considering FTTX as well as DSL technologies to build the next-generation broadband access network. Video traffic is driving future network requirements for scalability, latency, and efficient multicast, and making bandwidth planning in the network more difficult-creating interest in metro WDM and WSS ROADM technology. GbE is increasingly becoming the base unit of transport, and the ability to carry GbE traffic efficiently while supporting quality of service is critical…while the need and desire to also continue to support TDM traffic has created interest if not strong purchasing so far for PWE3.

Service operators have a newfound opex focus as they pursue greater profitability and recognise the price elasticity of subscriber demand, causing them to work more openly with vendors to model the operations advantages of systems. They are increasingly deploying Ethernet services but watching them closely as they try to understand emerging enterprise requirements and avoid unnecessary TDM service cannibalisation. Demand for 40 Gbit/s is here at last, driven by capacity requirements and the need to reduce management complexity and make efficient use of bandwidth. However, such demand will ramp more slowly than did 10 Gbit/s, at more than the expected 2.5× the cost of 10 Gbit/s.

Carriers are redesigning their networks strategically to handle new bandwidth and scalability requirements and to cost-effectively support emerging services.

Talk of FTTX and metro ROADM has increased significantly in Europe this year; the need for 40G is gaining interest everywhere, though most strongly in North America; and recognition of the operations benefits of OTN has started spreading from Europe to North America. HSPA, WiMAX, and EV-DO are giving mobile operators the ability to deliver significant mobile data bandwidth, and pseudowire aggregation platforms are giving them a means of converging multiple generations of 2, 2.5, and 3G technologies onto an IP RAN.

Interest has resurfaced in the use of GMPLS to provide dynamic restoration and differentiated services supported by service-level agreements, rather than just for features like auto-discovery. Vendors like Fujitsu, Alcatel-Lucent, and Tellabs are among those evolving a new class of converged transport platforms, targeting operators intent on making a cost-effective, gradual migration from TDM to IP. T-MPLS and PBB-TE have both found homes in standards bodies and networks, promising to support more cost-effective, carrier-class packet transport for the metro. Metro WDM takes an increasingly dominant role in the market thanks to its advantages in scalability and latency. Service operators evaluate (and vendors pursue) potential capex benefits of greater WDM and L2 switching integration. And the access bottleneck is increasingly widened by advances in VDSL, GPON, and EFM.

This is a year of recovery and rediscovery. The market has not only come out of the downturn, it has been irrevocably changed by it-resulting in a healthier business focus by operators and vendors alike, and a more solid basis upon which to build the future.

Dave Dunphy is principal analyst at Telecom Strategy Partners (http://www.telecom

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