To buy or not to buy

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Hiring rather than buying optical test equipment is a likely way for fibre communications-related companies to minimise their capital expenditure. Over a four-year operational lifetime, a piece of equipment with a price tag of EUR15,000 can cost the same again to maintain and service. If you are going to need the equipment, say a PMD or CD analyser, for a shorter period of time, or for a special project that won't fully occupy the device, hiring can mean substantial savings.

Fiona Hodgetts, director and general manager, test and measurement, at equipment hire company Livingston, says, "If you need the equipment for seven years then the argument to purchase is valid. But in the optical test sector there's rapid change in the type of equipment available so it's possible that a client might only want a piece for one year or less."

The optimal test equipment solution might be a combination of purchase and rental. For an R&D application you might require a test system only for 15% of the project time.

The types of client that hire test equipment from Livingston are split thus: 40% are infrastructure-building, system developers such as Marconi and Nortel; 40% are contractors or subcontractors who are actually putting the fibre into the ground; and 20% from R&D laboratories.

"What customers like about rental is that they can plan and manage project costs. Looking at a typical two to three-year hire period you could expect a 10% saving against buying but with support, service, and regular calibration."

As optical installation and systems management businesses are increasingly coming under the scrutiny of accountants there is another attraction to hiring test equipment: the cost can be regarded as opex rather than capex. The reality is often a hybrid between renting and buying.

Livingston provides managed and outsourced service of "hi-tech tools" for two main sectors: high-end communications; and high-end IT. The range covers power meters, SDH test equipment, and STM-64 high-end service equipment.

"On the test side we do a lot of business with telcos, such with Nortel, Nokia, Ericsson, Alcatel, and Corning; on the computers side we deal with the likes of Sun, Dell, Compaq, Fujitsu, and Siemens," Hodgetts says.

Over the past two years, Livingston has spent a lot of time evolving from its core business of rental to offer new types of services. "We now position ourselves as an outsourcing management company of which rental is only one service. Other services include calibration management, sales, contract rental, disposal of assets and consultancy.

"We benchmark against industry standards the cost of owning test equipment today. In the managed services area is where we have seen a lot of activity."

The downturn in the communications business has had an effect on the rental business — but not just negatively. True, one of the first expenses that companies have tried to reduce is the variable cost, which is essentially what rental is. But on the other hand, Hodgetts says, "our managed service business has grown disproportionately because there are benefits for the user. In some areas, the market is actually growing such as gigabit Ethernet mainly because of Internet-based services, and broadband."

Hodgetts' Teddington, UK-based operation (coincidentally, Livingston is located next door to the UK's National Physical Laboratory) is dedicated to customers in Britain, but Livingston group services more than 100 countries. It has offices in Scotland, Ireland, France, Germany, Belgium, Netherlands, Czech Republic, Spain, Italy, and Switzerland, and several in the Far East. But not the US, where competition is high and technical standards are different.

Livingston leases a range of optical test kit from different suppliers including PMD and CD analysers, OSAs, power meters and sources, SDH equipment with optical interfaces up to STM 64. Clients can also request that the company buys pieces of their own choosing.

"We calibrate to national and UCAS standards in the UK, or to the equivalent standards in other countries," says Hodgetts. "We calibrate to the manufacturer's specifications and aim to have a 'stand-off' ratio of 10:1 — the test instrument is ten times more accurate than that under test, but as we push the boundaries of technology, it becomes more difficult to achieve these stand-offs."

From her relatively independent perspective, Hodgetts has noticed that some of the latest test equipment from different suppliers seems very similar. "There was a time when you would need four or five different pieces to cover a job, but now there are lots of multipurpose testers.

As testing has become an unavoidable feature of optical systems, parallel with almost every transmission, the hire companies are becoming more trusted by the suppliers, who used to consider them as direct competition. Now companies such as Livingston are an important channel between the system developer and the customer.

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