What do a Boeing 747 and Hewlett-Packard Co.’s (NYSE: HPQ) HP 12C calculator have to do with optical networking gear? More than you might think. Let me explain.

A few years ago I had the chance to cash in some of my frequent flyer miles and take the family to Australia (where we saw some interesting fauna, much of it pouched). On that trip, as we were flying over the Pacific on a United 747 I pulled out my trusty HP-12C calculator to show the kids how many miles we’d be traveling as we toured Australia. I had this sudden sense of déjà vu. Hadn’t I been sitting in more or less the same seat on more or less the same plane at more or less the same time of day when I pulled out that same HP-12C on my first trip to Australia back in 1988?

I had, in fact. But what had changed? The airplane’s engines were certainly quieter than I remembered. The video consoles were a new wrinkle. But, in general, the transit wasn’t any smoother or shorter than the 747 I took 15 years before. Despite frequent use, I hadn’t seen any need to get a new calculator, either. I wonder if the guts in the HP-12C calculators they sell today are the same as the guts in my old workhorse?

When I landed, I looked it up. The Boeing 747has been flying for 35 years now. Boeing’s still makin’em. I bought my HP-12C back in 1985. They started making these things over 20 years ago.

It’s a law of technological progress – if you know the name of it, write and tell me – that, at a certain economic eigentime, radical innovation stops and steady refinement begins. Costs plummet and use increases dramatically. Somehow, you hit just the right balance. A standard is set that lasts for a long, long time. It’s true for airplanes and calculators – and, I think, especially after viewing the offerings at OFC and subsequent meetings, it’s coming true for optical networking, as well.

Indeed, after years of false visions and uncertainty, the fog is finally lifting. The components on display at OFC were not the one-off, glued-together kludges of the past few years. Instead, they are clearly designed, for the most part, for high volume, high-yield manufacturing. Many are actually integrated – like filters, switches, and attenuators all on one substrate. Even if no potential customer has any money to actually buy these babies, they are there ready to be used. And the emerging, stable standard – our equivalent of the 747 – also looks more certain than ever (drum roll, please...): It’s 10 Gig.

The 10-Gbit/s long-haul transmission standard with which Nortel Networks Corp. (NYSE/Toronto: NT) outflanked Lucent Technologies Inc. (NYSE: LU) in the glory days of telecom expansion is about to settle in as the dull, apple-pie standard for almost everything else. We’ll use it in the enterprise and at every point in the metro. We’ll use it for networks and for storage systems. Heck, I wouldn’t be surprised to see it getting pushed into the urban access network in a few year’s time. It’ll probably never make it to the desktop or the home, but it’ll get used everywhere else.

Now, I know this is not a new idea. People were talking about the convergence of 10-Gig Sonet and Ethernet four years ago. But what struck me at OFC was that 10 Gig is here now and it’s real and it’s stunning! XFP transceivers at 10 Gig are cheap to manufacture and getting cheaper. They’re the size of your thumb and they work! The next generation of protocol conversion will come via a 0.13 micron CMOS chip that interfaces directly with that transceiver and breaks out individual packets. Today’s 10-Gig line card is about to become radically simpler. In the very near future it will consist only of a transceiver in a socket, a handful of chips, discrete components, and a monolithic backplane interface.

In other words, the 10-Gig line card will be every bit as easy to assemble and handle as, well, an optical Gigabit Ethernet card. The big news, though – and the reason 10 Gig will become the default standard for years to come – is that the 10-Gig line card will be relatively cheap. That’s because, in a rare alignment of the telecom planets, companies have designed components that will work equally well for both Ethernet (10-Gig E) and Sonet (OC192) applications.

Increased production volumes will significantly alter the standard Sonet formula for bandwidth increases: The current rule of thumb is that, for every 4x increase in bandwidth, you increase the cost of parts by 2 to 2.5, yielding a net cost reduction of roughly 50 percent per bit. And production growth will have equal impact on the Ethernet formula whereby part costs double per 10x of bandwidth increase, which yields a net 80 percent decrease in cost per bit. Together, the resulting economies of scale should make the cost per part at OC192 only a very little bit higher than at OC48 and not a heck of a lot more than Gigabit Ethernet. Can that really be true? If so, it’s a big, big deal for this industry.

We’re already seeing signs in the marketplace that the 10-Gig cost revolution has begun. That’s how I interpret Cisco Systems Inc.’s (Nasdaq: CSCO) recent price cuts on their 10-Gig line cards (see Cisco Takes On 10 GigE Competition and Riverstone Fuels 10GigE Price War). Before, the cost of a 10-Gig line card was more than $50,000. It’s rapidly heading in the direction of $10,000. The costs of continuous future innovation, always built tacitly into the price of optical networking, grow increasingly irrelevant in an era of more innovation stability. The era of 747-style optical networking is upon us.

As an industry venture capitalist, of course, I’ve bet quite a few millions of dollars of limited partner money on 10-Gig componentry (and maybe I just had a few too many beers at OFC). But I find it hard to believe that, having made 10 Gig as monolithic and standard as 1 Gig, we won’t just start using it everywhere we can in the network.

What about the next step up to 40 Gig? Three years ago, lots of VC money and engineering testosterone said that step was inevitable. In today’s telecom depression, both of those drivers have withered. But there’s another reason 40 Gig looks unlikely, and it’s similar to the one that killed supersonic transport and made the Concorde little more than a niche player. The reasons such planes never leapfrogged the 747 came down to environment and cost: Too many sonic booms, too much danger to the ozone layer, too much fuel consumption to make mass ticketing affordable. So it is that the Concorde is getting retired while Boeing is still building 747s.

Like the sound barrier for airplanes, the barrier confronting proponents of 40 Gig is daunting: Dispersion introduces signal interference that grows at the rate of the square of the increase in bandwidth. Also, the cheaper CMOS manufacturing technology, which seems to be quite agile at 10 GHz, becomes woefully inadequate at 40. That’s not to say that 40 Gig won’t happen – just that it will be significantly more expensive per bit than 10 Gig for metro and enterprise applications and therefore find only niche applications. Have we, with 10 Gig, reached the apex of that curve? Has the virtuous cycle been broken? Has the industry changed forever? Can Rocky save Bullwinkle?

Finally, there’s the argument about how much capacity we really need. My recollection is that the human brain can absorb no more than about 50 Mbit/s, most of that through our eyeballs. So, if you pack 16 colors of 10-Gbit/s traffic per fiber into a 144-fiber cable, you get enough bandwidth for a half a million people’s eyeballs. A couple of dozen cables running around the city and you’re serving HDTV to all the eyeballs in Tokyo! The reason we don’t need 40 Gig is the same reason we don’t need airplanes the size of football fields to take us to Australia. Only so many of us want to go to Australia for $1,000 at any given time, mate.

Now I know this idea is rather simplistic. Networks are big, hairy, complicated things. But my point was that wandering around the OFC floor I saw real, working 10-Gig parts. If 10 Gig is the standard for decades ahead, who cares about the other stuff? Radically lower optical networking costs will certainly help get the industry going again. Much more significantly, the new standard will offer certainty. One year ago at OFC 2002, buyers were presented with a veritable cornucopia of different approaches to optical problems – so much that they had to step back from the table to think about what they wanted to eat. Now they’ve got a main course to concentrate on. After establishment of the 747 standard, airlines never felt forced to hold back to wait for the next generation of technology. They ordered ’em in droves. Will the same apply to our industry?

We’re a long way from being healthy. But to paraphrase Churchill, we are now past the “end of the beginning” which was a period of technological and economic chaos. I think we’re now entering a new phase, “the beginning of the end,” which will lead to more stability and even growth.

— Drew Lanza is a general partner at Morgenthaler, based in Menlo Park, Calif.

For extensive and up-to-date coverage of next week's Supercomm tradeshow, where the latest in 10-Gig kit will be on disply, visit Light Reading's Supercomm Preview Site.