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OFS: What Fiber Glut?OFS: What Fiber Glut?

OFS claims rumors of a fiber glut have been greatly exaggerated

March 21, 2002

4 Min Read
OFS: What Fiber Glut?

So you’ve heard there's a fiber glut going on? Well you’ve heard wrong -- at least according to Optical Fiber Solutions (OFS), a designer, manufacturer, and supplier of fiber optic products, which hosted a breakfast at the Optical Fiber Communication Conference and Exhibit (OFC) yesterday to address the topic.

The company, which Lucent Technologies Inc. (NYSE: LU) sold to Furukawa Electric Co. Ltd. in a much-publicized deal last year (see Lucent Cuts Deal on Fiber Unit), announced an array of new products yesterday (see OFS Unleashes Fiber Flood). And, in its presentation, OFS not only tried to dispel what it called “rumors of a fiber glut,” it claimed there is far too little fiber out there to serve the enormous demand looming on the horizon.

The debate around whether or not there’s an overabundance of capacity available in carrier networks burst into flame last summer, when the results of a report by Merrill Lynch & Co. Inc. analyst Michael Ching were published in the Wall Street Journal. The report indicated that carriers use only about 2.7 percent of their total lit fiber capacity (see Fiber Utilization Figures Challenged).

But OFS said this report and others, along with a long line of articles, miss the point. “Telecom networks, like highways, must be sized to handle demands at peak periods,” said Janice Haber, OFS VP of systems engineering and market development. She pointed out that the "peak-to-average" rate of data networks is much higher than it is in voice-centric ones -- typically ten times higher, in order to accommodate high-traffic bursts.

Using the 10:1 peak-to-average rate that Haber said data-driven networks require, Merrill Lynch's estimate that 6.4 percent of capacity was being used at the end of 2001 translates into 64 percent peak usage. This, she said, is dangerously close to the 70 percent threshold beyond which customer service can no longer be guaranteed.

In addition, Haber pointed to a number of studies that show the growth in demand for bandwidth has remained steep and fairly stable for decades. One of the reports, issued by IDC last December, estimates Internet bandwidth growth at 147 percent.

OFS isn’t the only company calling for more, not less, fiber on the market. On an earnings call last month, Wendell P. Weeks, president of optical communications at Corning Inc. (NYSE: GLW), said that Corning believes the optical downturn is bottoming out and that carriers are at more than 55 percent of their wavelength utilization. Corning, he said, is planning new fiber builds to meet an inevitable demand (see Corning: 'We've Hit Bottom').

So why all the gloomy fiber forecasts? One problem, according to Haber, is that there are several different ways of measuring how much capacity is used, rendering the concept of “average capacity utilization” meaningless.

Some studies, for instance, measure the active capacity demand, which is the total bandwidth demand divided by the sum of capacity of active channels. Others measure channel slot utilization by dividing the number of active channel cards in data networking systems by the total number of slots installed. Yet other surveys divide the number of lit fibers by the total number of installed fibers to measure so-called fiber utilization.

A problem with measuring fiber utilization, according to Haber, is that stranded fiber, which will probably never be lit, is brought into the equation. “Not every fiber gets lit to terabit capacity,” she said. “That’s just not the way it works.”

The drop in fiber sales has nothing to do with network planners responding to a drop in demand, Haber asserted. Rather, it is a response to Wall Street's fears following the false "fiber glut" rumors.

“This thing has really frozen decision-making with service providers,” she said. “But it’s coming from fear more than from knowledge.”

Whether or not the fiber glut is just a figment of analysts’ and journalists’ imaginations, the fact remains that last quarter was the worst ever for fiber sales, and that after just one-and-a-half months of contributing to Furukawa's financials, OFS has posted a loss of about $77 million (see Did Furukawa Buy a Lucent Lemon?).

Having had her say, Haber remains optimistic. “My experience,” she said, “is that when this business goes down sharply, it comes back with a vengeance.”

— Eugénie Larson, Reporter, Light Reading

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