PON at a Crossroads
And there's more: Late last month, Ethernet PON vendor Salira Optical Network Systems Inc. announced new funding (see Salira Secures $7 Million More and Salira Puts on Its EPON), while PON market leader Optical Solutions Inc. is reportedly struggling for new backing.
What gives? Has PON, a technique that deploys passive splitters to siphon optical bandwidth among multiple users, hit the wall as an optical access technique? Or is it entering a new phase?
A bit of both, sources say. On the one hand, changes in the market appear to have caused interest in first-generation ATM-based PON products to narrow. It looks like the original hope that RBOCs and incumbents would buy PON in a big way has fizzled.
Instead, the recent pattern of contract wins (see PON: The Dream Is Alive) shows PON is selling largely to independent service providers associated with municipal projects and to real estate developers looking for a fast way to put fiber into new housing developments.
"Capex and unbundling concerns will probably push RBOC plans out six to nine months," says Darryl PONder [Ed: caps ours], CEO of Optical Solutions, a PON market leader. In the meantime, he says, there is a steady flow of demand from small to medium-sized businesses. Ponder also sees a market among so-called multiple system operators (MSOs), who are thought to be seeking to one-up the RBOCs with hot new services that include packet voice, video on demand, and high-speed Internet access (see Cable MSOs Set to Win?).
Ponder says all this has helped Optical Solutions make $10 million in 2001, and he is confident of "more than doubling" that figure this year.
Ponder admits, however, that it hasn't been an easy year. Optical Solutions recently laid off 54 employees, bringing its total employee roster to 152. And the company is reaching the bottom of its $104 million initial funding. Ponder says it's taking longer than he'd hoped to raise money, but he is confident of having an insider round sometime within the next couple of months.
He also thinks the RBOC market will materialize. Bell Canada (NYSE/Toronto: BCE), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ) all have trials underway, he notes. Even if they don't act right away, he expects to see significant RBOC activity by 2004.
Some sources say that's not likely to happen. "PONs work, but you have to put the glass in the ground," says Barry Moon, senior analyst at RHK Inc.. Incumbent carriers, he says, aren't willing to spend a few billion dollars to upgrade a network with fiber in order to extend PON services -- until they can be sure it will make them money.
And that, says Moon, has yet to be proven: To offset the initial expenses, incumbent carriers would have to "convince everyone to spend more for services than they're already paying... You have to ask yourself how long a carrier will stay in business who's charging $800 a month for 300 Mbit/s of bandwidth."
Market figures bear out the thin adoption of PONs as they exist today. In 2001, for instance, PON accounted for a fraction of expenditures on access technologies, compared with Ethernet, DWDM, and Sonet/SDH (see Last Mile Reaches Out ).
But existing PON vendors say there's still a market out there ready to be mined. Quantum Bridge Communications Inc., for instance, sees no slowdown in PON demand among MSOs and regional municipalities, particularly when it comes to business services. "MSO business services are growing at 30 to 40 percent per year," says Jeff Gwynne, cofounder and VP of marketing.
Others say the PON market is still viable, but not as an ATM-based standalone product. Cheaper Ethernet-based PONs (EPONs), they claim, will nudge the incumbents to open their wallets. "Do I think EPON is priced cheaply enough to inspire carriers to invest in PON? Absolutely," says Tom Walsh, VP of sales and marketing at Salira Optical Network Systems Inc., an EPON startup.
ATM-based PON makers are realizing they're being nudged out, and it won't be easy for them to "shapeshift" their way into a new kind of technology, Walsh says. "If I were an ATM PON vendor, I'd be telling people now that there's a need to support both ATM and Ethernet," while in reality, he claims, the old ATM gear will fall by the wayside as more EPON products come to market. Salira's first product is set for release in the second half of this year.
"We're trying not to be smug, but there's a huge interest in optical Ethernet access out there, domestically and internationally," Walsh says.
Other companies, including Iamba Technologies Inc., see PON as just another element of a broad optical access spectrum that's increasingly in demand. Iamba, for instance, says it will offer point-to-point Ethernet, Sonet/SDH, and PON on its multiservice access platform, while supporting ATM and leased lines too. Products won't be ready until the first half of 2003, however.
In the meantime, it looks like the old guard is getting the message. Quantum Bridge recently added Ethernet to its boxes (see Quantum Bridge Casts a Wider (Ether) Net), and the company says its long-term goal is centered on optical access, not just PON. "Eventually, we plan to derive less than half our revenues from PON," says Gwynne. "The rest will come from our multiservice capabilities and WDM."
Gwynne says Quantum Bridge will be announcing a series of partnerships within the next few months geared to "enhancing distribution and driving additional revenues."
— Mary Jander, Senior Editor, Light Reading
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