The market for certain high-end telecom gear is in a state of flux, creating opportunities for optical start-ups, according to research just released from the firm RHK Inc. http://www.rhk.com. The market for digital cross-connects (DACS)--a market dominated by the likes of Alcatel http://www.alcatel.com (NYSE: ALA), Lucent Technologies Inc. http://www.lucent.com (NYSE: LU), and Tellabs http://www.tellabs.com (Nasdaq: TLAB)--is slowing as telecom carriers incorporate a rising demand to interoperate with data networks.

Digital cross-connects (DACS) are large matrix switches used to aggregate, groom, and redirect traffic on telecom networks. They usually handle Sonet voice traffic, as well as time-division multiplexed (TDM) leased lines. Data-networking technologies such as Asynchronous Transfer Mode (ATM) and Internet Protocol (IP) are gradually being added to some products.

But the DACS market is an old one, and its growth has slowed to "low double digits," according to RHK. Carriers seem to be losing interest in this type of equipment, replacing them with broadband switches and optical networking gear. According to RHK, DACS represent a $2.7 billion market in North America, and a $5 billion one in Europe.

A higher-end market for cross-connects is likely to bridge the gap to next-generation networking gear, says Dana Cooperson, optical networks director at RHK.

"What we call 'superband crossconnects' accounted for less than $50 million last year, but we think that market will be close to $250 million this year, and double that next year," she says.

Examples of new superband DACS, she says, include the 1680 OGM from Alcatel, Wavestar Bandwidth Manager from Lucent, and the Titan 6500 Multiservice Transport Switch from Tellabs.

These products represent the leaders of the present DACS market, according to RHK's latest as-yet-unpublished figures. In North America, Tellabs is the market leader in digital cross-connects, with about one-half the overall market. Alcatel is second, with approximately one-third market share. And Lucent is third, with most of the rest of the market.

In Europe, Alcatel ranks first, with about 37 percent of the market; Tellabs is second, with 31 percent; Marconi Corp. plc http://www.marconi.com (LONDON: MNI) is third with 12 percent; and Lucent has roughly 10 percent. A smattering of other players owns the rest of the North American and European markets, but none stands out.

But the new $500 million superband DACS market may be meteoric and short-lived. Switches with electrical fabrics and optical interfaces from vendors like Ciena Corp. http://www.ciena.com (Nasdaq: CIEN), Sycamore Networks Inc. http://www.sycamorenet.com (Nasdaq: SCMR), and Tellium Inc. http://www.tellium.com could encroach on the market. These new products promise the capability to automatically configure themselves in a network--something most DACS can't do today, according to Cooperson.

What's more, by the first half of next year, emerging optical cross-connects with higher capacities and more automatic switching capabilities could threaten the status quo.

Among the vendors who will put a damper on the high-end cross-connect market with new optical switches, according to Cooperson: Nortel Networks Corp. http://www.Nortel.com (NYSE/TSE: NT), whose acquisition of Xros earlier this year has put it in the optical cross-connect space; Brightlink Networks Inc. http://www.brightlink.com, Corvis Corp. http://www.corvis.com, and Calient Networks http://www.calient.net.

-- by Mary Jander, senior editor, Light Reading http://www.lightreading.com