The optical-networking industry has spent the past two years in a state of unprecedented volatility, with many providers getting caught up in the prevailing "irrational exuberance."
Now the inevitable reaction has set in, with many Wall Street analysts predicting that overcapacity--in bandwidth and hardware--will stifle the growth of optical network vendors.
See news story:
Qwest expands amid concerns of fiber glut
Today's optical-fiber networks resemble a highway system made up entirely of freeways, with few on-ramps and virtually no secondary highways or local roads. The problem is obvious: It is extremely difficult to get on and off the freeway, and all but impossible to travel the last mile to one's destination. Optical networks have the same fundamental "last mile" barrier--with fewer than 7 percent of U.S. businesses having direct optical connectivity to public networks--and no solution is in sight.
Governments and regulatory authorities have tried to address the problem. The Telecommunications Act of 1996, for example, requires incumbent local-exchange carriers to share with their competitors any new optical fiber installed for business or residential customers. Their spiteful response has been to install none--even though it would save them money and provide better service.
Competitive local-exchange carriers, too, are unable to continue their last-mile buildouts, because Wall Street--which confuses them with the troubled providers of DSL (digital subscriber line) service over leased copper lines--refuses to give them the necessary funding. The confusion is difficult to understand: Optical fiber offers about 1 million times the capacity of copper, has unparalleled security, and offers diverse routing, which means that a stray backhoe cannot knock out an entire neighborhood's service. For this reason, it is only a matter of time before even financial analysts see the light.
Evidence suggests that excessive equipment buying occurred in 2000, when component shortages led to equipment shortages and, in turn, to overbuying by carriers. This year, in a typical correction, the industry is shifting to "just-in-time" buying and is waiting for the newer, faster, lower-cost equipment that will be available when carriers return to the equipment market en masse.
The bottom line: Internet traffic continues to grow at a healthy rate, and it remains the main engine of optical network growth. The long-term limiting factor for optical networks remains the last-mile bottleneck--not the ballyhooed excessive bandwidth.
(For related commentary on fiber-optic links, see TechRepublic.com--free registration required.)
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