Canadian firm TeraXion acquired the assets of California-based Phaethon Communications yesterday, a small move towards the consolidation likely to hit the dispersion compensation business (see TeraXion Acquires Phaethon).

For an undisclosed amount, TeraXion garners Phaethon's products and intellectual property, but no Phaethon employees other than chief scientist Josh Rothenberg.

"Phaethon is winding down and sold its equipment through public auction. Essentially, Phaethon is not operating any more," says TeraXion CEO Alain Chandonnet.

Phaethon executives and board members did not immediately return requests for comment.

TeraXion and Phaethon were both tackling the problem of chromatic dispersion, in which different wavelengths of light travel through fiber at slightly different speeds (see Chromatic Dispersion and Polarization Mode Dispersion (PMD)). Both had developed a means of tunable dispersion compensation using Fiber Bragg Gratings (FBGs), but based on different mechanisms. TeraXion's tunability exploits thermal effects, while Phaethon used a more novel fiber-stretching technique (see TeraXion Trots Out FBGs and Phaethon Embarks on Tunability).

TeraXion will stick to its own tunable technology, because it's in trials already and is an easier sell. "There's some barrier to adaptation with the mechanical stretching of fiber. The customers seem to be more comfortable with the thermal approach," Chandonnet says.

The technology could live on, however, in products for non-telecom applications. "We will analyze it, because they do have an ingenious way of combining thermal performance with tunability, and we think we can leverage that."

So what part of Phaethon will TeraXion be using? First, TeraXion will adopt Phaethon's method for making holographic phase masks -- used in manufacturing the Bragg gratings -- as it's cheaper than the corresponding TeraXion step. Moreover, Chandonnet says Phaethon's non-tunable module is of "immanent interest" to TeraXion because it can handle up to 80 channels per fiber. TeraXion doesn't have a comparable multichannel device.

Phaethon also was producing products to correct polarization mode dispersion (PMD) (see Phaethon's Only Compensating), a different phenomenon that only becomes a problem as line speeds reach 40 Gbit/s.

The race for OC-768 technologies has cooled substantially, but the PMD-compensating technology could come in handy. Chandonnet claims he's got design wins in some European OC-768 trials slated to begin in the first quarter of 2003, and he's mulling the possibility of squeezing Phaethon's product into those trials as well. "We'll see if Phaethon's approach will work there," he says.

The problem of dispersion compensation has attracted a diverse field of competitors. Take a look at the field behind chromatic dispersion compensation: 3M Company (NYSE: MMM), Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA), Sabeus Photonics Inc., and Southampton Photonics Inc. are pursuing the FBG approach. Accumux Technologies Inc.and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) are addressing the problem with etalons (see Dispersion: New Version). And electrical dispersion compensators are being devised by companies including Big Bear Networks, Mitsubishi Electric & Electronics USA Inc., Phyworks Ltd., and Santel Networks Inc. (see Santel to Sample Chipset, Phyworks Ltd., and Mitsubishi Intros Compensator).

In a way, the diversity of approaches justifies the abundance of players in this space. "It's a different market from transceivers or filters, where the product is really well defined and the market is just too crowded," says Tom Hausken, analyst with Strategies Unlimited. "It's more [a matter of] which idea is going to work -- tunable electronic dispersion compensation or optical -- and if optical, which kind."

It should be noted that TeraXion does more than dispersion compensation; the company also provides filters (as did Phaethon) and pump-laser stabilizers.

— Craig Matsumoto, Senior Editor, Light Reading