The optical network evolution
Affected by current economic slowdown?
STARTAP annual meeting
Stockholm, June 5th 2001
Yves Poppe
Dir, Liaison R&E Networks
Global Market
Agenda
• The difficulty of predictions
• Transoceanic (over)capacity
• Slowdown and rebound
• The optical future is no illusion
The difficulty of predictions and forecasts
• In october 1994 Teleglobe inaugurated
Cantat-3 with two fiber pairs, capacity of
5gigabit (2x2.5Gb) linking Canada to the
UK, Germany, Denmark, Iceland and the
Faroe Islands.
– Doubled the capacity under the atlantic
– 155mb was earmarked for data
– Engineering estimated 17years to fill the cable
What happened since
• The internet tsunami took everybody by surprise.
• Cantat-3 was full in less than 3 years.
• Five years later cables of 1000 times the capacity of Cantat-3
are being installed.
• Deregulation and ease of acces to capital created a multitude of
new carriers and a cornucopia of transmission capacity.
• This in turn now makes it relatively easier and less costly to
deploy worldwide networks such as Teleglobe’s GlobeSystem.
GlobeSystem
• 160 major global markets
• Advanced services for carriers,
ISPs, content providers and
corporations
• Over 400,000 route miles
• Next generation technology
• US$5B investment over 4 years
The battle of the Atlantic
• Capacity coming online
–
–
–
–
–
–
–
–
Gbps* RFS
Level 3/Global Crossing (Project Yellow)
TAT-14 (Club)
FLAG Atlantic-1 (FLAG/GTS)
Hibernia (360networks, Inc.)
Atlantic Crossing -2 (Global Crossing)
TyCom Global Network
Oxygen
Total
Does not include C&W Apollo cable (RFS 2003)
1,280
640
2,560**
1,920
2,560***
2,560
No Go!
8,960
3Q00
4Q00
2Q01
2Q01
1Q01
4Q01
-------
* = Design capacity
** = Teleglobe buying 2 fibers
*** = Cancelled, AC-2 joining Level 3
Transpacific cables up to June 2001
TPC-5
China-US
Japan-US
PC1
Transpacific Terabit capacity ?
•FLAG PACIFIC-1 project
•Dual cable system linking major Internet hub cities Los
Angeles, San Francisco, Seattle, Vancouver and Tokyo
•Southern branch through Hawaii, Northern via Aleutians
•Designed to provide 5.12 Tbps fully protected capacity.
•Alcatel awarded supply contract for submarine system
•Planned RFS date: mid 2002
•Expected to commence service at 160Gbps
•Cost: US$1.2 billion
•Overall lenghth of 22,000km
Could there be oversupply?
Atlantic supply exceeds conventional demand forecasts:
strong downward price pressure !
9000
8000
7000
Demand (Gbps) - Probe
6000
5000
Demand (Gbps) - Pioneer
4000
Transatlantic Supply
3000
Transatlantic Design
Capacity
2000
1000
0
1999
2000
2001
2002
2003
2004
This does not include C&W Apollo cable project: additional 8 terabit for planned for 2003
Oversupply in the US ?
Carriers spent much of the several years
tearing up streets and laying down fiber
routes as if demand knew no bounds. But
now the utilization rate of that vast
network is a staggeringly low 2.5%
according to Merrill Lynch& Co. Telecom
equipment analyst Tom Astle.
Business Week, April 9th 2001
Telecom meltdown?
• Telecom debt USA plus Europe :US$700 billion
• 100 billion could default or restructure
• US comm spending 2000: US$124 billion; 25%
year over tear increase from 1996 to 2000;
expectation for 2001: -15%, 2002: flat
• Teligent, Northpoint, Winstar, ICG, PSInet etc. file
for bankrupcy protection; Covad, 360Networks
have difficulties.
How did we get into this predicament?
• Deregulation combined with the internet and wireless
boom led to wild spending and « irrational exuberance »
by established telecom carriers and start-ups.
• The 1996 US Telecom act and European deregulation
promised access to a US$300 billion market growing at
10% p.a.
• Get rich quick model by 1996 purchase of MFS by
Worldcom for US$14billion or 6 times the value of assets
put in the ground was emulated by lots of start-ups and
facilitated by the abundance of equity capital.
End of the never ending high-revenue growth
• The perfect storm of sky high investments combined with
the proliferation of competitors and spectacular advances
in fiber transmission and processor capacity led to too
much of a good thing.
• Economics similar to railroads: once the money is sunk
into the ground, incremental cost to provide the service is
almost nil.
• While capital spending grew by 25%, revenue growth
remained stuck around 10%. Long-distance per minute
revenue collapsed; the price of a NY-London STM1 went
from US$ 12million to less than US$2 million between
1999 and 2001.
For when the upturn? The BW 2 year theory
• Postulate: after 18% growth in 99 and 23% in 00,
growth in 01 and 02 will be 3 to 5%
• Reasoning:
– Slowdown would bring the industry 5 y growth back to
its long-term average of 12%
– 3 to 5% growth-rate not unprecedented: for the 86-87
and 90-91 tech slowdowns the 2 y growth rate was 4%
and 2.5% respectively
• Return of 30 to 50% growth rate unlikely in
foreseeable future; more likely 20% range.
Who will be the beneficiaries?
• With more consolidation and less capital for start-ups
competition on the local access risks disappearing. Even
the promise of local access competition from cable TV
companies seems to be receding
• Local phone companies such as Verizon, SBC, Bellsouth,
Bell Canada continue to produce steady financial results
with relatively little competition in core local access and
capitalize on BB internet and wireless.
• New generation carriers: Qwest, Level3, GC, Tycom,
Williams, Broadwing et all: Darwinian process in
progress.
Dare to extrapolate for the next 5 years?
• Will Moore’s law and related laws for growth of fiber
transmission capacity and internet growth continue to
apply? Probably
• The laws of gravity still apply, even in the New Economy.
Progress alternates between periods of exponential growth
and plateaus were the progress is absorbed.
• Progress continues unabated:
– Alcatel tested 10Tb over single fiber with 256 channels at 40Gb
and demonstrated 3TB over 7300km using wide band EDFA
– Intel announced chipsets for OC192 and 10GbE
– Ciena announces 160 channels at 25GHz spacing
– Although traditionally spacing in GHz=2.5x channel capacity in Gb
Ciena claims to have 10Gbps using 12.5GHz spacing in lab
The optical future is no illusion
• Most major carriers are committed to an optical backbone as a cost
effective way to meet the increasing bandwidth demands.
• R&E, community and condominium fiber projects help accelerate the
extension of capilarity all the way to schools, businesses and homes
• Optochips will do for telecom what microprocessors have done done for
computers. They will usher in vast increases in power along with huge
savings in cost. (Otis Port in BW May 14th)
• Commitment of heavyweights such as Intel and progress in optical
switches, tunable lasers, use of indium-phosfide chips.
• Most important: US$6.4 billion in VC for photonics (71 deals since 96)
• June 4th FT quoting Merrill Lynch: Spending on optical will grow by
more than 30% p.a. over the next 5 years despite the bust in other parts
of the equipment market.
The need for next gen applications .
• Once the carriers will saturate their DSL and cable access
markets for « high speed » internet access what then?
• What happened to HDTV? Where is HD Video-conf?
Desktop video-conf? Interactive cubicle?
• Are the next gen killer apps in interactive entertainment?
Sony deal with AOL and Realplayer is a first step.
• Hot products these days are local HD (DVD players, home
theaters, high res digital camera’s). Cable TV down load of
movies was supposed to make the local video store
obsolete years ago.
• Hot telecom products are not high-speed but relate more to
mobility and universal (wireless) accessibility
Satellite will continue to play a crucial role to connect many
countries, even in an increasingly optical world.
WESTERN EUROPE
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Teleglobe Internet Network Connections Continue to Grow
More than 110 Countries Connected
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GlobeSystem Internet - We Connect the World !