The Big Idea

Optical networking will change the lives of corporate IT managers * Catch the wave! * Hot new carriers * Bandwidth bargains

September 21, 2000

12 Min Read
The Big Idea

Optical networking has gained an incredible following among investors over the past year, as one startup vendor after another in this field gets acquired for billions of dollars or stages an initial public offering that catapults its market value to breathtaking heights.

The big idea driving this speculative buzz is that optical networking won’t simply revolutionize telecom services but will turn the world economy on its head. It’ll blow away bandwidth bottlenecks, virtually eliminate Internet delays, and, consequently, usher in huge changes in how companies are run in general and how they conduct their IT functions in particular.

Big companies will end up outsourcing almost everything from manufacturing to marketing, so goes the buzz. As a result, they’ll “hollow out” — revenues will be big, but employee numbers small. A myriad of specialized service providers will emerge, offering applications that target business processes such as inventory control, accounting, payroll, and human resources. The telecom networks over which they run will be taken for granted (see Automate or Suffocate ).

Simultaneously, the software industry is expected to undergo a dramatic shakeup, as users stop buying applications and start renting their use on remote servers. That, in turn, could deal a big blow to the PC market because many users will employ inexpensive information appliances to access these applications.

It’s a fantastic vision. If realized, corporate IT managers could be in for a turbulent time. More and more of them may find themselves working for one of these new-style service providers rather than in a traditional enterprise environment.

In the short term, however, lies the tricky task of figuring out the best way of exploiting current developments in optical networking. That means getting a realistic view of when these technologies will start delivering the goods — namely, drastic reductions in bandwidth prices, much faster installation times, and serious performance guarantees.

As usual, the situation is complicated. Best hopes hinge on a new breed of startup carrier that is rolling out services based on optical networking technologies. In some instances, they're using cost-cutting dense wavelength-division multiplexing (DWDM) and gigabit Ethernet in their networks. In other instances, they're deploying new types of equipment so they can offer a complete range of services within buildings, at the drop of a hat.

In either case, coverage is spotty and is likely to be limited to major metropolitan areas for the next couple of years. Even so, it’s more than you’ll get from an incumbent carrier, says Deb Mielke, principal analyst at Treillage Network Strategies Inc., a market research firm. "The regional Bell operating companies will wait until they see that people are eating their lunch before they finally make a move [in optical networking]," she says.

So, how to cash in on the opportunities that optical networking is beginning to deliver?

Light Reading has prepared the following report to help readers get a grasp on the underlying technologies and identify service providers leading the charge:

Bandwidth Bottleneck
The MAN Plan
The Last Mile
Not so Fast The buzz on optical networking began about a year ago when it became clear that developments within carrier networks could be extended to reach users. These developments promised to blow away the bandwidth bottlenecks that have often dictated the way information systems have been organized.

DWDM, which makes it possible for a single strand of fiber to carry multiple wavelengths of light, had already been widely deployed in carriers’ long-distance backbones to cope with enormous increases in the amount of Internet traffic. DWDM equipment supporting 40 wavelengths is commonplace now, and systems capable of carrying hundreds of wavelengths are under development.

There’s a big snag, however. That is, a 40-wavelength DWDM system creates the equivalent of 40 parallel networks, each of which needs its own equipment for sending, boosting, and receiving light signals, and for switching those signals from one fiber to another at intersection points. As a result, carriers supplementing existing fiber backbones with DWDM face enormous equipment costs.

So far, the benefits of installing DWDM have outweighed the downside of having to buy extra equipment on long-distance networks. But, until recently, carriers operating metropolitan networks haven’t been able to afford the high pricetag, so a big bottleneck between users and their carriers’ high-capacity, long-haul backbones remained (see DWDM Market to Triple ).

The installed base of Sonet equipment used to create virtual connections across carrier backbones has compounded the problem. Designed for telephone traffic, the Sonet gear supports bandwidth increments — T1 (1.5 Mbit/s), T3 (45 Mbit/s), OC3 (155 Mbit/s), OC12 (622 Mbit/s), and OC48 (2.5 Gbit/s) — that are out of step with the datacentric Internet world. In this modern domain, Ethernet’s 10-Mbit/s, 100-Mbit/s, and 1-Gbit/s speeds prevail.

Setting up Sonet circuits is also laborious. It can take a whole year for carriers to install OC48 connections in cities, according to Peter Tierney, founder and chief operating officer of Sphera Optical Networks Inc., a startup carrier using new optical technology to offer much faster installation times (20 days) in New York.

The speed comes from using software-controllable optical switches from Sycamore Networks Inc. (Nasdaq: SCMR). Sphera (which was previously called Millenium Optical Networks) can set up connections from a remote console rather than having to send out engineers to manually configure Sonet equipment (see Sycamore Comes To Town.

One bunch of startup metropolitan-area carriers is ditching Sonet entirely. They’re building fiber networks and rolling out IP services over gigabit Ethernet. This group includes Telseon and Yipes Communications Inc., both of which are up and running in several cities (see Yipes Bets Big on Gig andTelseon Closes $80M Round) Another is Cogent Communications Inc., which will begin offering service this October in New York.

In general, these outfits are using gigabit Ethernet switches from Cisco Systems Inc. (Nasdaq: CSCO), Extreme Networks Inc. (Nasdaq: EXTR), and Foundry Networks Inc. (Nasdaq: FDRY). The connections between the switches are set up using a new generation of DWDM equipment designed for metro environments. (It’s less costly and more flexible than long-distance DWDM equipment.)

Gigabit Ethernet beats Sonet hands-down on costs when handling Internet traffic. For one thing, Ethernet gear is far less expensive. For another, service providers and users aren’t forced to buy extra equipment — typically, expensive ATM switches — to carry IP traffic over an Ethernet infrastructure, as they are with Sonet. From an IT standpoint, that means accruing many of the advantages of optical networking without the big bills.

Fenwick & West LLP, a San Francisco law firm with 600 employees, finds that to be the case. It’s paying Yipes “less than $6,000 a month” for 10-Mbit/s Internet access. The Sonet alternative, T3 connections, would have cost between $18,000 and $35,000 a month, says Matt Kesner, the firm’s CIO. Plus, the Sonet gear would have taken up two whole racks, rather than the two shelves in a single rack that the Ethernet switches occupy.

With Yipes, Kesner was able to specify the exact bandwidth he wanted. And he only needs to give the carrier 24-hour notice if he wants to make changes. He can also scale in increments of 1 Mbit/s right up to 1 Gbit/s.

“It’s not often you get lawyers exclaiming,‘Wow!” Kesner says. “But our end users are thrilled by the speed.”

The service has run without a hiccup since it went live in April, he adds. “We wouldn’t normally trust our network — which is carrying the lifeblood of our company — to a startup. But we were satisfied that [Yipes] had an extremely smart engineering team,” he says.

Yipes could face some tough competition when Cogent goes live. The latter carrier plans an incredible deal — 100-Mbit/s Internet access at a mere $1,000 a month, or 30 percent less than a typical T1 connection. Moreover, Cogent is engineering its network so users really get what they pay for. There’s no sharing the 100 Mbit/s with others, as is commonplace with most Internet services(see The Fat Pipe Formula). Cogent plans to roll out its service in 12 more metropolitan areas. Yipes is already operational in 15.

One of the other problems holding back wider deployment of optical technologies has been the high cost of installing fiber access lines connecting customer sites and carrier points of presence. Digging up streets in cities is an expensive business, costing as much as $300,000 per building, according to carriers.

In the past, this has encouraged carriers to focus their efforts on big customers from which they could quickly recoup their investments. Smaller business users have often found themselves with no choice other than dealing with incumbent carriers, which take a couldn’t-care-less attitude to customer service.

That’s beginning to change, thanks to the emergence of so-called multitenant broadband service providers. These outfits — typically startups — work with landlords to wire buildings and offer tenants an alternative to services from the incumbent telephone company.

The economics work out because multiple tenants share an access line, and because operators aim to address all of the tenants’ voice and data requirements. This has been made feasible by the development of so-called multiservice provisioning platforms, which sometimes sit in the basements of buildings, funneling traditional telecom services such as Internet traffic and telephone calls on and off optical backbones. These platforms, which are typically Sonet-based and incorporate DWDM technology, enable carriers to provision services rapidly from a remote console and keep a log of the traffic they handle, so that they can generate bills for multiple clients (see Sonet Goes POP).

Early users of these multitenant broadband service providers praise them for their fast installation times and excellent customer service.

OnSite Access Inc., a New York-based provider, “just blew my socks off,” says Deny Firebaugh, MIS director at Pace Communications Network, an investment bank in Encino, Calif.

The incumbent telco, Pacific Bell, kept promising to install DSL [digital subscriber line] service but kept moving the installation date back, month after month. “It was a total, total disaster,” Firebaugh says. Then OnSite turned up and said they could get him wired up within a week. And that’s exactly what they did. “It was faster than I could handle,” he adds.

Dan Lau, president and founder of Phat Noise, a Los Angeles company that makes equipment for downloading music from the Internet and playing it in cars, reports similar experiences with his service provider, Eureka Broadband Corp., also based in New York. Lau wanted scalability for his Internet connection in order to accommodate possible rapid growth of Web site traffic. “With Eureka, I can make a phone call and barely an hour later we can increase our bandwidth right up to T3,” Lau says. “A lot of service providers weren’t willing to scale with us.”

Lau didn’t even consider using Pacific Bell’s Internet service. He doesn’t mince words: “It’s by far the worst Internet service I’ve ever seen. There’s no way anyone could ever run a business over it.”

It’s a similar story outside Pac Bell’s territory. Allied Riser Communications Corp. (Nasdaq: ARCC) “is a hell of a lot faster than the telephone company. It’s been very, very responsive,” says Ron Dukes, founder and president of Ron Dukes & Associates, an executive search company in Chicago.

Still, finding a building that’s already wired isn’t that easy right now. Most multitenant broadband service providers are in the early stages of deployment. They cite plans for coverage in as many as 49 metropolitan areas, but it’s tough to figure out whether they’re referring to general agreements with real estate companies, agreements with building owners covering specific office blocks, the installation of wiring, or the actual delivery of live services. Some startups, such as BroadBand Office Inc., flatly refuse to give info, saying that rollouts are happening so fast that it’s impossible to give meaningful figures. (Of course, this could also mean that BroadBand Office isn’t as far advanced as it would like us to think.)

Here's a list of players and their planned presence by the end of the year:

Allied Riser Communications Corp. (Nasdaq: ARCC) - 49 metro areas
BroadBand Office Inc. (BBO)- 33 metro areas
Cogent Communications Inc. - 13 metro areas
Cypress Communications Inc. - 23 metro areas
eLink Communications Inc. - 9 metro areas
Eureka Broadband Corp. - 12 metro areas
Intermedia Communications Inc. (Nasdaq: ICIX) - 40 metro areas
Onsite Access Inc. - 25 metro areas
Urban Media Inc. - 12 metro areas

(Some players, like Cogent and Intermedia, also operate in other market segments.)

If your building is already wired by one of these operators, your landlord has probably told you all about it (it’s a money-making scheme for them). If not, then check whether your building owner already has an exclusive deal with a particular service provider. If this isn’t the case, then get on the Web. Identify operators in your area and see whether they’re willing to wire you up.

Right now, these startups offer a fairly run-of-the-mill package of telecom services, including Internet access, telephony, and Web hosting, sometimes with systems integration. However, many would ultimately like to offer a wide range of business applications, joining an already established host of application service providers (ASPs).

The operational ASPs are already hoping that optical networking developments will unleash huge demand for their services. Right now, they are limited in the types of applications they can offer by the availability and price of high-speed connections (see Automate or Suffocate ).

"There's no doubt that we need more bandwidth. The public network infrastructure poses a challenge, especially in the metro area, which is a huge choke point," says Amit Jasuja, senior director of system engineering at ASP Corio Inc. (Nasdaq: CRIO). "Businesses will feel happier when they click on an app and it launches in three or four seconds."

"ASPs have found that running the current generation of business applications over the wide-area network is problematic," agrees Daniel Sholler, a senior program director at the IT research firm Meta Group Inc. "Bigger companies demand quality of service. When they get it, they'll dive in."

Optical networking promises to deliver that quality of service, in terms of bigger bandwidth pipes and low, predictable delays, at affordable prices. It also promises to deliver phenomenal flexibility, providing the ability to set up and tear down connections almost instantaneously.

When and if this happens, it’ll become easy for freelancers and small companies to work together in “virtual” corporations — the model for the new world economy.

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