"So far, we've met our financial projections, and we plan to grow revenues by 50 percent this year," says Darryl E. Ponder, CEO of Optical Solutions Inc., widely considered the PON market leader.
But last week, Optical Solutions laid off 35 employees, 25 percent of its workforce. The company now has 106 on staff.
Another supplier, Terawave Communications, says it has more than 10 paying customers and has realized revenues of $5 million so far this quarter -- some of that from unannounced products. But the company is down to about 100 employees after laying off what some claim was a third of its staff last Thursday.
What gives? Is the PON market in good shape or bad? And when, if ever, will this sector's perpetual takeoff act start to accelerate into something substantial?
Analysts say PON, an access technique that reduces the cost of laying new fiber by using passive splitters to divvy up existing bandwidth across multiple endpoints, is bound to make headway as the last mile gains importance (see Optical Access Startups: Roll Call and Optical Oracle: Access is Gold ).
"As soon as telecom operators start spending again, the first thing they'll spend on is access," says Alan Bezoza of CIBC World Markets. But he admits he can't say when that spending will happen, or how big a role PON will play in the telcos' future access purchases.
Suppliers like Terawave and Optical Solutions are willing to hold on and find out. Both view their layoffs as necessary to live through the present downturn. Ponder says he's hoping cuts will help Optical Solutions avoid spending precious funding -- and having to return to a well that's virtually run dry. And Terawave execs say they're intent on a better future.
"The PON market looks as attractive as ever," says Terawave VP of marketing Robbie Forkish. "Timing is the question."
Forkish's thoughts aren't unusual. Despite poor market conditions, PON vendors such as Quantum Bridge Communications Inc. persist in thinking the ship's on its way in. They're being joined by newcomers like Alloptic Inc., OnePath Networks, and Salira Optical Network Systems Inc., which claim their Ethernet-based PONs are the wave of the future. And other newbies like FlexLight Networks are emerging with gear they say will accelerate deployment of the technique by supporting TDM connectivity (see PON at a Crossroads, Salira Prompts PON Questions, FlexLight Intros Access Platform, and Atrica Teams With FlexLight).
Of course, a rosy outlook has characterized PON pushers for years. Still, the recent layoffs, repositionings, and introductions in the PON market indicate that PON can neither be dismissed nor declared a success just yet. Instead, all the news reflects a series of trends that may help revise the outlook and set expectations a bit more realistically:
- PONs are a "cottage industry." Suppliers like Optical Solutions say they're doing well in the fiber to the home (FTTH) access market, selling PONs to municipalities and small service providers that are interested in serving new housing developments and small businesses. For now, it looks as though this trend will continue for the next couple of years, when large-scale deployments to business customers are expected to pick up.
For instance, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), a recent market entrant, says it's already signed contracts with an ILEC as well as a municipal utility (names to be disclosed within a couple of weeks) and expects to see sizeable North American revenue in the residential sector over the next 24 months.
"There are 10,000 or so homes linked to PONs now, and we expect to see 50,000 to 100,000 minimum over the next year," says Mark Klimek, senior director of marketing for Alcatel's "fiber to the user" program.
- RBOCs aren't biting. While analysts say all telecom providers are testing the technique, RBOCs, long seen as the customers to aim for with PON, aren't buying it. BellSouth Corp. (NYSE: BLS) and SBC Communications Inc., for instance, acknowledge trialing the technology for years now, but they seem no closer to offering PON services than ever. At press time, they hadn't returned calls requesting updates on their support of PON, and reports in various journals have cited RBOC spokespeople as claiming PON's economics haven't been sorted out.
- Video is a key driver. PON proponents say the introduction of broadband video services to home users will be key to the spread of PONs. Suppliers like Alcatel, for instance, are focused on the Broadband PON (B-PON) additions to the ATM-based FSAN specifications for PON finalized by the International Telecommunication Union, Standardization Sector (ITU-T) last year. B-PON proposes the addition of bandwidth to ATM PONs to support video, and Alcatel says it's likely to take off like a shot, once the ITU-T firms up the technique by year's end. New specs, the vendor says, will speed the adoption of PON as an extension of DSL to handle video for residential customers.
The growth of broadband video is likely to bring more cable TV providers and MSOs (multiple system operators) into the PON fold, sources say. Already, two large players, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Inc. (NYSE: TWX), have signed with PON supplier Quantum Bridge (see PONs Hit the Big Time), and the trend is expected to continue.
- Business PONs are branching out. The market for big businesses has yet to materialize for PONs, and sources say it's not likely to take off as a standalone solution. Instead, vendors like Quantum Bridge and Terawave are repositioning themselves as access vendors with a range of products, not just PON. They're being joined by startups like Iamba Networks Inc. and Valo Inc., which claim to have do-all approaches to access (see Valo Vows Infinite Access).
— Mary Jander, Senior Editor, Light Reading