Carrier Survey

Results of a telephone survey of 300 service providers * Service plans * Spending plans * Selection criteria

December 20, 2001

13 Min Read
Carrier  Survey

When the optical networking industry started going a little wobbly about a year ago, it was far from clear whether there was a fundamental reason for it. Things had gotten out of control in the previous year, but it looked as though the pendulum was now swinging too far in the opposite direction.

The pendulum, as we now know, kept on swinging – raising the need for some solid facts about what was really going on in the service provider market. So, to cut a long story short, Light Reading joined forces with magazine (now, alas, defunct) and commissioned a telephone survey of 300 selected carriers to get first-hand knowledge of what was happening.

The questionnaire examined the whole food chain – starting by looking at which services were likely to drive demand for high bandwidth networks and then going on to look at how this would influence investment in optical infrastructure in general. Then it mined down into specific equipment categories to get information on which types of product had the brightest prospects.

The results of the survey were presented in a Light Reading Webinar in October. In this hour-long online presentation, archived on our site, representatives from two service providers – EPIK Communications Inc. and Onvoy – commented on the results.

This report covers the same ground but aims to provide a quicker way of accessing the results. The hyperlinked summary below makes it possible to hop directly to whatever aspect of the survey most interests you:

Page 2: Survey Methology

  • Telephone survey of 300 service providers

  • 16 percent from big carriers

  • 46 percent have metro networks

  • 82 percent specify or recommend optical networking products

Page 3: Service Plans

  • VPNs seen as the most promising moneymaker

  • Video-on-Demand back in vogue

  • Strong growth in OC192 circuits

Page 4: Spending Plans

  • Plenty of carriers aren't cutting capex

  • Being able to guarantee performance is a big investment driver

  • Reducing opex is more important than reducing capex

  • High price of equipment is holding back investment

  • Plenty of money is still being spent on laying fiber

Page 5: Capacity Glut?

  • The long-haul capacity glut is a bit of a myth

  • Not much difference between long haul and metro

Page 6: Equipment Plans

  • Access equipment sales will grow fastest

  • Optical switches also have a bright future

  • ATM and Sonet markets are alive and kicking

Page 7: Selection Criteria

  • Equipment size and power consumption aren't so important after all

  • Carriers love vendors that can supply spares quickly

  • Carriers are no longer turned on by vendor finance

Next Page: Survey Methology

The results of the survey are based on telephone interviews with 300 people, all of whom work for telecom operators and are personally involved in selecting and deploying optical networking equipment. They were picked from a list of subscribers to, a magazine that's since gone out of business.

The telephone survey was conducted by CIC Research Inc. in April 2001.

Respondents were asked a series of questions to determine what sorts of telecom operators they worked for and what their responsibilities entailed.About one in six respondents worked for a large carrier, one with an annual budget of more than $1 billion. At the other end of the scale, more than 40 percent of respondents worked for small operators, ones spending less than $10 million a year.All of the respondents were based in North America, and more than half of them worked for carriers with regional and local networks. Nearly one third of them had networks that crossed national frontiers.

Here are the proportions of respondents handling different aspects of the purchasing process:

  • Specify or recommend products: 82%

  • Evaluate products: 78%

  • Specify or recommend brands: 76%

  • Determine the need: 72%

  • Establish technical spec: 64%

  • Oversee installation and maintenance: 61%

  • Approve purchase: 40%

  • Perform installation and maintenance: 38%

Next Page: Service Plans

Respondents were given a list of services and asked to indicate the ones they already offered and the ones they expected to offer within a year.

Here are the responses regarding old fashioned TDM (time-division multiplexing) circuits and dark fiber:The highest growth forecast, 43 percent, is in OC192 (10 Gbit/s) connections. The next highest growth, 31 percent, is in dark fiber.

A large proportion of respondents, 83 percent, already offer T1 (1.5 Mbit/s) or E1 (2 Mbit/s) leased lines.

An issue that wasn’t captured by the survey but is worth mentioning is the large market opportunity for circuits that fall between T1 and T3 (45 Mbit/s). Some service providers cater to this by bonding together multiple T1s. Other service providers offer scaleable Ethernet connections, covered below.

The above slide shows next-generation services and indicates that video on demand is likely to grow the fastest – by 75 percent in a year – from a relatively small base.

A surprising number of service providers – 62 percent – say they already offer scaleable Ethernet connections like those offered by Cogent Communications Inc., Telseon Inc., and Yipes Communications Inc.

Likewise, no fewer than 72 percent of service providers claim to be offering IP VPNs (virtual private networks) already, and that's set to rise to 83 percent next year. Now for what service providers foresee as the big moneymaking services:

In the telephone interview, respondents were asked to rate the revenue generating prospects of these high-bandwidth services on a scale of 1 to 5, with 1 being “no promise” and 5 being “extremely promising.”

This chart gives the percentage of respondents giving a rating of 4 or 5.

IP VPNs are streets ahead of anything else, with 62 percent of respondents giving them a rating of 4 or 5.

Providing infrastructure for application service providers (ASPs) comes next with 46 percent, closely followed by video on demand at 42 percent.

Remote storage services don’t do particularly well.

Next Page: Spending Plans

The charts on this page cover capital expenditure (capex) plans. First up, respondents were asked to give their spending on optical infrastructure for last year, this year, and next.

Here’s the result:

It appears to fly in the face of all the talk about big cuts in capex. Maybe the cuts are occurring in fields outside optical networking? Maybe the survey, in April, predates many cuts?

Whatever the reason, big carriers say they’re holding steady this year and expect to increase capex a little next year. Medium-sized carriers appear to be tightening their belts.

The next two charts identify the main issues driving investments. As previously, they show the proportion of vendors giving issues an importance rating of 4 or 5.

Here are the top 6 issues:

Not surprisingly, making money is uppermost in most carriers’ minds. That’s what’s behind performance guarantees getting top billing. Carriers see this as key to being able to charge more for premium-grade services.

Perhaps even more importantly, carriers want to be able to offer bundles of services to customers, with each service having its own price and performance characteristics. This equates to generating more revenues per customer. It also helps keep the competition at bay.

Rolling out new services and targeting new customers are viewed as important – more ways of ramping up revenues.

On the other side of the equation, cutting operating costs also comes high on carriers’ agendas – higher than reducing capex, which appears on the next slide.

Being able to reconfigure networks quickly is also seen as very important, although reducing provisioning delays gets a lower rating of 63%.

Last year, expanding geographic coverage and boosting bandwidth were probably top of the agenda for a lot of service providers. Now, ramping up revenues and cutting costs are considered more important.

Here’s the opposite side of the coin – the top six reasons why service providers may be holding back on investing in optical infrastructure, using the same rating scheme.

The high price of equipment comes out as the number one obstacle, by a significant margin.

The next most important couple of obstacles are shortage of skilled staff and difficulty in raising finance. No surprises there.

Unproven equipment and uncertainty about general economic prospects get fairly high ratings.

Here are the next six issues.

The biggest surprise here is that a shortage of resources for laying fiber is considered important by quite a few service providers (more on this whole issue a little later on).

As might be expected, plenty of carriers are worried about the stability and relevant business experience of their equipment suppliers.

Some good news: Poor support from equipment vendors doesn’t seem to be much of a problem. Obviously, established suppliers represent less of a risk on this score than newcomers.

So, what’s the capex being spent on?

This chart shows the proportion of respondents spending 20 percent or more on the items shown – laying fiber, installing transport equipment, deploying boxes to offer services, and all of the hardware and software needed to manage everything.

The biggest surprise is that a significant amount of money is still being plowed into laying fiber – in spite of all the talk of a glut of fiber in some parts of carrier networks.

Conversely, surprisingly little money is being spent on managing networks, in view of the importance of operational support systems in helping carriers cut their running costs and helping them gain application returns from OSS applications such as billing, service planning, performance reporting, and so on.

Next Page: Capacity Glut?

We asked respondents to say how much of their long haul and metro fiber was lit – and got another surprise.

Contrary to popular belief, there isn't a massive glut of fiber in long-haul backbones.

And there isn’t a huge difference between long haul (shown in blue) and metro (purple).

Only 6 percent of respondents said their infrastructure was less than 10 percent utilized.

71 percent of respondents said that more 40 percent of their long-haul fiber was lit.

64 percent of respondents said that more than 40 percent of their metro fiber was lit.

Of course, there’s lit and there’s lit. Consider, for example, a service provider that installs a 40-channel DWDM system and starts out only using, say, two channels. In this case, the fiber is lit, although it’s really only using 5 percent of its potential capacity.

It’s also worth pointing out that this isn’t the main issue that’s had folk like Corvis Corp. (Nasdaq: CORV) and Qwest Communications International Inc. (NYSE: Q) taking issue with Wall Street analysts. The big argument in this case is whether the lit capacity is being used efficiently.

Unfortunately, we weren’t able to ask detailed enough questions to get to the bottom of these issues in this survey.

Next Page: Equipment Plans

The next series of slides shows service providers' plans for deploying different types of equipment.

They give the percentage of respondents that have already deployed the gear in question, together with the percentage of respondents who expect to have deployed it by 2003.

They’re arranged in order of growth – with the fastest growth equipment categories first.

Access equipment – passive optical networks and broadband wireless – showed the highest growth rate.

It’s sometimes said that for every $1 spent in the core of carrier networks, $10 will be spent on metro equipment and $100 will be spent on access equipment – simply because you need more of it the further you are from the center. By that reckoning, access is poised to become a mammoth market.

The flip side of this is that access equipment is tough to make. It often has to support multiple, simultaneous applications at the same time as giving service providers all sorts of options for automated provisioning, billing, and so on. At the same time, it’s got to be cheap. As a result, vendors with silicon-based packet processors probably have an edge.

Optical switches show the next highest adoption rate.

We asked about three types:

First, grooming switches, which pack circuits into wavelengths before switching them. The CoreDirector from Ciena Corp. (Nasdaq: CIEN) is a notable example of this.

Second, wavelength switches, which switch whole wavelengths. These come in OEO form (think Tellium Inc. [Nasdaq: TELM]) and OOO form (think Calient Networks Inc. and Corvis Corp. [Nasdaq: CORV]).

Third, fiber switches, which are really automated patch panels that switch all of the wavelengths from one fiber to the next, as a group. The early version of LambdaRouter from Lucent Technologies Inc. (NYSE: LU) is an example. In most instances, manufacturers start by making a fiber switch and then add some multiplexing functions to offer a wavelength switch.

All three types of switch appear to be heading for widespread deployment.

Interestingly, grooming switches don’t seem any more popular than wavelength or fiber switches – in spite of all of the market noise surrounding Ciena’s Core Director.

For further information on different types of optical switch, see All-Optical Switching Tutorial, Part 1.

Metro DWDM is the next highest growth equipment segment.

The results for Gigabit Ethernet deployment need to be treated with caution.

On the face of it, they show the technology being deployed by 89 percent of service providers by 2003, up from 64 percent now.

However, a big question mark hangs over how many of them are actually deploying services over Ethernet.

Another example of equipment at the edge of carrier networks, thus representing a big market, is the multiservice provisioning platform (MSPP).

It’s also worth remembering that quite a lot of equipment in telecom networks ends up being shifted towards the edge as speeds in the core increase. Yesterday’s core router, for instance, may be tomorrow’s MSPP.

Plenty of service providers that haven’t yet installed Sonet and ATM infrastructure plan to do so in the next couple of years.

So much for these technologies running out of gas!

The implication of these results is that service providers are offering VPNs using conventional routers rather than the specialized IP service switches from the likes of Celox Networks, Corona Networks Inc., and Quarry Technologies Inc., which are still under development.

It’s worth remembering that core routers often get redeployed at the access edge of service providers’ networks.

It’s also worth noting that the market for access routers is growing rapidly, even if the market for core routers is in a bit of a lull for the time being.

Next Page: Selection Criteria

The last 2 slides in this report identify the issues influencing service providers’ choice of products and suppliers.

This uses the same rating scheme that we’ve used before.

The top three criteria for selecting products are: being proven in practice, complying with standards, and simply being technically better – not much of a surprise.

Lifetime cost also ranks above price, which isn’t surprising. The initial capital outlay on some equipment is often just for starters.

The results also suggest that the fuss over getting equipment densities down is overblown. Size doesn’t seem to count that much, according to the survey results. The same is true of power consumption.

NEBS and Osmine compliance refer to standards that RBOCs often insist on, regarding equipment robustness and network management.

Here’s the score on supplier selection criteria.

The importance of being able to provide spares quickly is far and away the most important issue, according to survey respondents. This appears to favor big vendors that can afford to store spares locally.

Previous experience, financial stability, and the quality of support staff also weigh heavily.

The size of an equipment supplier doesn’t seem to count that much compared to previous experience.

Last year’s hot topics – vendor financing and carriers taking equity stakes in startup equipment suppliers – also appear to have lost their zing.

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