New Life for FSO?

New deployments, new products, and more funding for startups has brought free-space optics back into the spotlight

July 16, 2003

4 Min Read
New Life for FSO?

Free-space optics, technology that uses lasers to connect buildings to fiber at high data rates, is once again getting some publicity. Earlier this week, Terabeam Corp., one of the most hyped startups in this market, announced its largest deployment of FSO gear to date. And over the past couple of months several other FSO startups have announced new products, funding, and partnerships.

On Monday, Terabeam announced that Great Wall Broadband Network Service Co. Ltd. (GWBN), an Internet service provider in China, will deploy 250 of its FSO products in 15 cities throughout China over the next two years (see Terabeam Climbs the Great Wall). Details of the deal weren’t released, but Dan Hesse, Terabeam’s CEO, says that this is the biggest contract the company has won to date. Depending on which products actually get deployed in the rollout, Hesse estimates the contract to be worth a minimum of $5 million, small by most carrier standards, but a significant start for a niche technology.

Although, Terabeam maintains it is still focused on the U.S. carrier market, it says that Asia is its biggest opportunity internationally. In March it announced a deal with China Railcom Co. Ltd. to outfit its network with about 50 FSO links (see China Railcom Deploys Terabeam FSO). It has also won a few unnamed deals in Japan, says Hesse.

Terabeam isn’t the only FSO startup making noise lately. There's been a flurry of announcements from FSO vendors over the past six months.

On July 2, Laserbit Communications Corp. announced it had raised an additional $7 million in its third round of funding.

  • LaserBit Scores $7M

Dominion Lasercom Inc., LightPointe Communications Inc., and Sunflower Technologies Ltd. have all announced reseller partnerships.

  • Dominion Finds FSO Partner

  • LightPointe, Siemens Team on FSO

  • MiTech to Sell Sunflower FSO

And Dominion, LightPointe, Cablefree Solutions Ltd., and fSona Communications Corp. have also announced enhanced or brand new products.

  • Cablefree Solutions Offers FSO

  • Dominion Releases Next-Gen FSO

  • fSona Intros New FSO Line

  • LightPointe Intros Gig-E FSO Product

Even incumbents like Alcatel SA (NYSE: ALA; Paris: CGEP:PA) are getting into the free-space optics game.

  • Alcatel Debuts FSO Line

During the bubble, companies like Terabeam and AirFiber received millions in funding from Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT), respectively. Analysts’ expectations for the technology were also going mad. In 2001, Merrill Lynch & Co. Inc. published a report on access technologies predicting sales would grow from $100 million in 2000 to $2 billion in 2005 (see The New Reality of FSO).

So far, those predictions have not come to fruition. And with the bursting of the bubble, many analysts have sobered up and significantly reduced their predictions. Along the way, the industry has lost a few startups, including market notable AirFiber, which officially shut its doors in February.

But could these new contracts, new products, and new funding mean that FSO is finally turning the corner?

David Gross, an analyst with Communications Industry Researchers Inc. says there’s no reason for folks to get their knickers in a knot.

“It sounds like a good win for Terabeam,” he says. “But I wouldn’t call it a shift in the market.”

In fact, his outlook on the technology is still pretty dismal. He says the total optical access market in North America is expected to grow from $2.1 billion in 2003 to just over $3 billion in 2007 (see CIR: Access Worth $3B in '07). FSO is only expected to account for about 5 percent of those revenues. And he adds that of that 5 percent, the majority will still come from sales to enterprise customers, and not carriers.

He says the biggest problem for FSO is pricing. Although FSO vendors claim to offer a more affordable alternative to fiber, optical transceivers still cost between $30,000 and $50,000. Newer radio frequency switches based on standards such as 802.11 and 802.16 offer less expensive or comparably priced gear with a lot less potential hassle. One of FSO’s biggest limitations is weather, especially fog.

But there is a small light at the end of the FSO tunnel. Wireless backhaul could be the answer to FSO vendors’ prayers.

“We’ve already started to see companies like fSona coming out with products designed specifically for wireless backhaul,” says Gross. “It requires much higher bandwidth than RF can provide, and it can travel longer distances, making it an ideal technology for cell phone operators and other wireless carriers.”

All the same, there are lots of vendors targeting a relatively small market for FSO equipment. No fewer than 29 manufacturers are listed in the FSO section of Light Reading's "Who Makes What" report, the first stage in a branding survey of telecom equipment vendors and products.

— Marguerite Reardon, Senior Editor, Light Reading

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