In many ways the most radical core networking technology of the last 20 years – dense wavelength-division multiplexing – has come full circle. It boomed, and then it busted, becoming a victim of its own success. But now it’s back.

The invention of DWDM was a real revolution because it enabled telecom providers to pack fiber more densely with multiple channels by putting a 1-Gbit/s channel on each wavelength. This drastically improved the economics of fiber optic transmission. Bandwidth blossomed, supplying the demand boom of the roaring 90s (see Broadband Access Boom Ahead and Subsea Bandwidth Booms). And, as always, new investment was drawn to the hot market (see The Bull Market: Bull Exhaust?). It’s a scene we’ve seen over and over again in the annals of capitalism: Demand attracts investment, which brings on more supply, which eventually overwhelms demand.

Then came the hangover. But heck, every good party has its cleanup. (See Grim Reaping: A Downturn Tally.)

DWDM and fiber networks didn't fail – they succeeded. That's why the economic shockwaves have been so drastic. But now we appear to have reached a period of equilibrium, where prices have become so low that they are starting to generate new demand. Even better, the new round of DWDM technology includes more flexible technology enabled by ROADMs.

So what's next? Here’s the shocker: Optical technologies have become so cheap that enterprises are seeing big appeal, and they are increasingly building their own networks. In addition to being drawn to the affordability of the techology, the enterprises are being pushed toward new capacity with the expansion of VOIP and other IP applications in their own networks. (See Enterprises: More Fiber in the Diet? .)

There's lot's of evidence the new thirst for bandwidth, coming from that same enterprise customer, is being driven by VOIP. (See VOIP Testing Goes Live and Enterprise VOIP Is on Fire). The bandwidth demand has become so large that one multinational company (not a service provider) has even been thinking about buying {dirlink 2|19} CRS-1s, the largest router on the planet, according to a Light Reading source familiar with the situation.

Why is this happening? Well, just like your grandma, everybody wants cheaper phone bills. Once you’ve got VOIP to the desktop – often over a simple, cheap Ethernet connection – the phone call has become nearly free. But you still need to pay for leased lines. If you run your own fiber and connect branch offices worldwide, more savings follow, to the point where the phone starts to pay for itself. The bean counters will start to tell you that you can pay for the network through savings on the phone bill.

Which brings us to fiber: It’s now substantially cheaper than it was in 1999. In the shadow of the bubble, huge global networks like {dirlink 5|71} (Nasdaq: GLBC) and {dirlink 5|76} went bankrupt. Through the process of reorganization, they were able to shed billions of dollars of debt and clean up their balance sheets. With that debt wiped clear, we were left with global fiber networks that now were available for pennies on the dollar.

Combine cheap DWDM, inexpensive fiber, simple and pervasive Ethernet technology, and an explosion in VOIP and other IP-based applications, and what you have are standard, plentiful parts for corporate networks.

Make no mistake about it: Telecom technologies are rapidly being commoditized, standardized, and packaged up neatly for enterprises. Pretty soon, every Fortune 500 company is going to be running its own VOIP and DWDM network – on a global scale. If you're a service provider, what do you do? Do you lease them the fiber? Do you try to integrate the network for them? Do you sell them applications?

Yes, it’s a nightmare if you are an incumbent carrier. Imagine your largest customers having no need for you anymore.

Service providers are trying to adjust. Right now, the largest incumbents here in the United States are focused on protecting their access networks. It’s their cash cow business, after all. This business may take years to erode, but make no mistake about it – it’s eroding.

In the meantime, it's time to come up with some new business plans. Yeah, figuring out how to deliver IPTV to Ma & Pa is cute, but is it really the answer? I think this might be a big mistake. Incumbent telcos really have no expertise in consumer content. For proof, click here.

There really are only two routes: Service providers could become hyper-specialized. For example, they can develop the best video network in the world, the best regional WiMax network, or they could become the best integrator of messaging applications.

The other route to go, which is being pursued by the largest incumbents through merger mania, is massive scale and integration. If you can span the world with a converged fixed/mobile network that works in multiple modes and delivers secure broadband access across the globe, you have something of enormous value that's hard to replicate. But it's got to be highly integrated, and it's got to work.

So, those are the options. Let's hope everyone's picked one and is moving on quickly to implement the plan. Sitting on your capex budget isn't going to cut it anymore. The big changes are already here. Recognizing the change is the first step to surviving it.

— R. Scott Raynovich, US Editor, Light Reading