Fiber Utilization Figures Challenged

The debate surrounding the bandwidth glut rages on. Earlier this week, TeleChoice Inc., a telecom consultancy, announced that it has compiled a model for gauging carrier capacity. Early results using this model show that many fiber routes in the country will soon need upgrading to cater to current traffic growth.

This finding contradicts popular sentiment in the press and among some analysts, who blame a lack of carrier spending on an over-abundance of capacity.

“The truth is there isn’t a glut on most of the major routes on the long-haul network,” says Russ McGuire, chief strategy officer for TeleChoice. “The lack of carrier spending seems to have little to do with how much capacity is in the network. It’s more about how they are managing their business.”

The model TeleChoice developed is based on information it collected from 25 different fiber providers in the U.S., including AT&T Corp. (NYSE: T), WorldCom Inc. (Nasdaq: WCOM), Qwest Communications International Corp. (NYSE: Q), Williams Communications Group (NYSE: WCG), Level 3 Communications Inc. (Nasdaq: LVLT), and newer players like Aerie Networks.

For the model, TeleChoice sampled 22 routes between 12 major U.S. cities that are most often used by all 25-fiber providers. Then the researchers figured out how many of the fibers on each of those routes is actually lit. What they found is that of the 22 routes, demand on 14 of them equals or exceeds 70 percent of total supply across all carriers, the threshold most often used by carriers to determine if they need to upgrade their networks, says McGuire.

These findings seem to contradict a report issued by Michael Ching, an analyst with Merrill Lynch & Co. Inc. His report states that carriers are only using about 2.7 percent of their total lit fiber capacity. When this figure appeared in a Wall Street Journal article last month, it set off a firestorm in the industry, prompting CEOs like Joseph Nacchio of Qwest and David Huber of Corvis Corp. (Nasdaq: CORV) to take pot shots at analysts and journalists alike (see Williams, Corvis Lash Back).

Mainly, these chief execs have criticized Ching for lumping unutilized dark fiber into his assessment along with fiber that is currently offering a service, or lit capacity. They say this is an absurd way to measure capacity, since at least two thirds of the cost of a network deployment is in turning the raw fiber into usable bandwidth (see Sour Grapes of Roth).

But Ching says his report was taken out of context. He says that his calculation only includes lit fibers, and that his model measures the average utilization on networks rather than utilization measured at peak times of day or with peak levels of traffic. He also says that 2.7 percent isn’t as bad as it looks, considering that in the 1980s, before the massive fiber builds began and networks were under a lot of strain, the average utilization was only 15 percent.

“We’re not measuring 3 percent versus 100 percent; its 3 percent versus 15 percent,” he says. “The fact is that our analysis looks at the macro U.S. network. We see that there are fiber spans at near exhaustion, but there are still many other routes that are under-utilized.” At first glance, the Merrill Lynch report and the TeleChoice findings seem to contradict each other, but in fact one does not negate the other, explains Ching. The Merrill Lynch report calculated the total capacity in one lump figure, whereas TeleChoice has looked at specific routes.

So how much lit capacity are carriers really using? That’s a tough question to answer; whether it’s calculated route by route or in aggregate, it can be misleading, according to David Smith, vice president of hardware engineering for Corvis Corp. (Nasdaq: CORV).

Smith offers this example. Consider two carriers that carry identical amounts of traffic over their networks using identical equipment. The only difference is that Carrier A is a startup that's laid brand new fiber that can support 24 DWDM channels and Carrier B is an incumbent with old fiber that can only support 8 DWDM channels.

Using the usage ratio adopted by most Wall Street analysts, Carrier B is using its infrastructure three times more efficiently than Carrier A, even though it's actually in a far worse position. As traffic increases, Carrier B will run out of capacity much faster than Carrier A and will be forced to spend a lot more money to upgrade its network.

Smith also points out that failing to take account of how fast traffic is growing on carrier networks also means that startups get an unfair battering by Wall Street. He says Broadwing Communications Inc. (NYSE: BRW) is a classic example of this. It's been criticized for only using 50 percent of the lit capacity in its network. This totally ignores the fact that Broadwing didn't have any traffic at all six months ago and is actually filling its infrastructure at an incredible rate. "It's a staggering performance," he says.

Smith accepts that there ought to be ways of measuring how efficiently carriers are using their infrastructure. But he thinks this could be done with two measurements. One would consider how fast traffic is growing and the other would show how quickly the busiest link on the network will run out of capacity.

- Marguerite Reardon, Senior Editor, and Peter Heywood, Founding Editor, Light Reading http://www.lightreading.com
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warbucks 12/4/2012 | 8:04:30 PM
re: Fiber Utilization Figures Challenged If memory serves, the Ching article was the one that quoted "39 million miles of fiber" without any distinction between fiber miles and route miles. Divide 39 million by 96 fibers to a cable, and multiple cables in certain rights of way, and his 39 milliion number really shrinks. Overlay the argument of lit versus unlit, and the number shrinks even more.

Ching's defense using average use rates illustrates how he just has not done his homework. A network built upon average use would have a service level approaching useless for data.

Like a lot of analysts, Ching seems to be stuck in the low Hz world of voice telephony. But I do give him some credit, he is light years ahead of the crap I have been reading from other journalists with a pedestrian knowledge of optics and telcom.
CogswellCogs 12/4/2012 | 8:04:30 PM
re: Fiber Utilization Figures Challenged This demonstrates why David Smith is a VP at Corvis and not an industry analyst - he has a grasp of logic. It is not surprising that he is actually involved with producing something of value, vs. the contribution of analysts.
PhotonGolf 12/4/2012 | 8:04:29 PM
re: Fiber Utilization Figures Challenged
If the utilization is higher then generally thought (in the press anyway) ...

And the Corvis guy's assessment that the carrier with more capacity is in better position (from an inventory perspective) ...

Why would there not be more pull for 40G outside of Qwest (Nortel)? Is it because the right-of-way-non-believers don't understand the network business, but only commodities?

Assuming the economics come (and they will), this article (and Smith's assertion) seem to be supporting that a manageable 40G solution would get traction.

Am I stretching too far?

flanker 12/4/2012 | 8:04:26 PM
re: Fiber Utilization Figures Challenged "Assuming the economics come (and they will), this article (and Smith's assertion) seem to be supporting that a manageable 40G solution would get traction."

Sure, in five years. 40G has to overcome not only the capex drought in the carrier's carrier sector; but also the readiness of tier One IP backbone operators to route at 40G throughput.

Can someone point me to the Ching analysis?
realguy 12/4/2012 | 8:04:26 PM
re: Fiber Utilization Figures Challenged "Assuming the economics come (and they will), this article (and Smith's assertion) seem to be supporting that a manageable 40G solution would
get traction.

A 40G system is not more data efficient than a 10G system. It all comes to spectral efficiency. Both system can currently achieve 0.4 bits/Hz. In fact due to dispersion and nonlinearity a 10G system will outperform a 40G any day.

The rational for 40G still is not very clear.
cyber_techy 12/4/2012 | 8:04:25 PM
re: Fiber Utilization Figures Challenged I heard they laid off 50+ people. Is is true?
ownstock 12/4/2012 | 8:04:24 PM
re: Fiber Utilization Figures Challenged The most telling part of the message is: the carriers are now in a strong buyers market from the equipment vendors perspective, and they are moving to a sellers market on service side as the CLECs die.

To be blunt: they will get the cash they need to be profitable off of rate / monthly increases already in the news, and bargain hard for low prices in equipment, just like the Chinese and Corning.

This will slow data traffic growth a bit, but not dramatically.

The IT paradigm is no longer how fast your Pentium runs, nor is it Windows XP and whether it has AOL on it, etc...but it is how fast your DSL line is...and pretty soon the press will figure that one out too.

So the optical equipment and component market will improve in terms of dollars, but expect margins of the incumbents to be challenged: price pressure.

The Comet has hit, the high altitude dust clouds are blocking the Sunlight, and small furry intelligent mammals are emerging...

Look for real returns in smart start-ups...

pluckon 12/4/2012 | 8:04:22 PM
re: Fiber Utilization Figures Challenged There is in fact a fiber glut. We know this from the following signals:

1. Transport pricing quoted on bandwidth exchanges has crashed.

2. Lack of interest from paying customers in new 40 gig per color technology. In fact, even the 10 gig stuff isn't selling because the 2.5 gig is so cheap.

3. Every article about the vibrant metro fiber space quotes only equipment vendors, venture capitalists and those "research" firms that are paid to be bullish.

4. It's true that you can't count dark fiber along with lit fiber, but you also have to remember that the cost of lighting a fiber is falling through the floorboards, which means we've got this huge overhead supply.

Underlying problem is a lack of applications beyond voice, bulletin boards (oops, web surfing) and e-mail. The bandwidth hog stuff like turning your computer into a TV ("streaming video") and video conferencing have not arrived. Same goes for video on demand.

TeleChoice's report had the ring of desperation.
metroex 12/4/2012 | 8:04:18 PM
re: Fiber Utilization Figures Challenged Well said. And also I agree with your comment:

"Underlying problem is a lack of applications beyond voice, bulletin boards (oops, web surfing) and e-mail. The bandwidth hog stuff like turning your computer into a TV ("streaming video") and video conferencing have not arrived. Same goes for video on demand."

I believe that business purpose high quality video conferencing application might become one of the major drivers (Internet, SAN, etc.) for the near to mid term growth of metro and LH traffic. Today's video conferencing gears can only do low speed with bearable quality and very difficult to use. This could be an area Mr. VCs need to look into.

ownstock 12/4/2012 | 8:04:18 PM
re: Fiber Utilization Figures Challenged True...but I think the comparison to the railroads, or to the airline industry is reasonable. Some routes get premium pricing and all the traffic (cash), and others are give-away, turn-around-get-the-plane-back-home routes.

And there's lots of rusting rail in this area of SilliValley...I'll bet the average utilization of railroad track in the US (or worldwide) is very low, just like average bandwidth utilization.

SouthWest took all the business away from American and United, at least in the Western US....attacked the logistics, ops, maintenance problems with better ideas....and surplus 727's that would just not stop running...

Humm, sounds like the phone system to me...needs better logistics, ops, maintenance...there is still money to be made...just got to be smarter.

But that assumes free market competition...

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