Lucent: US Carrier to Test 40-Gbit/s

HOLMDEL, N.J. -- Anyone out there ready to deploy a 40-Gbit/s ultra-long-haul DWDM? According to Lucent Technologies Inc. (NYSE: LU), a large U.S. service provider will start testing the 40-Gbit/s version of its LambdaXtreme by the end of next week. The revelation follows Lucent’s announcement last month that Deutsche Telekom AG (NYSE: DT) is already testing the equipment (see Lucent Lays on More Lambdas ).

Lucent's aggressive push into 40-Gbit/s territory has two sides: The technology progress is impressive, but the business case is still weak, at best. Thus, LambdaXtreme is being greeted with equal parts curiosity and skepticism.

During a Light Reading outing to Lucent's Holmdel campus this week [ed. note: Yes, believe it or not, we were invited!], Lucent demonstrated the technology over a live network. Lucent’s vice president of optical long-haul solutions, Frank R. Galuppo, claimed there is a lot of interest in 40-Gbit/s capacity: “We see a lot of interest. Almost too much interest.” He wouldn’t, however, reveal the name of the carrier under contract. Analysts say the most likely candidates are AT&T Corp. (NYSE: T), WorldCom Inc. (Nasdaq: WCOM), or possibly Qwest Communications International Inc. (NYSE: Q).

“This is an important development,” says CIBC World Markets analyst Steve Kamman. “If you’re looking really far ahead, this is meaningful.”

The Yankee Group is among observers that see the testing of Lucent's equipment -- and Nortel Networks Corp.'s (NYSE/Toronto: NT), as well -- as a signal that the hibernation of the long-haul market is nearing an end (see Long-Haul Optical Systems Get a Face-Lift). But others -- mostly those concerned with Lucent's lower stock price -- just shrug their shoulders and say, “Who cares?”

"Wall Street is only interested in actual deployments," says David Segelov, a general partner with Ballarat Capital. Salomon Smith Barney analyst Alexander Henderson agrees: “This is so far out there... On a scale of relevance from 1 to 10, this is probably about a 1.”

Skepticism is warranted. For starters, there is a whole host of technical problems connected with sending optical signals at such high speed, including Chromatic Dispersion and Polarization Mode Dispersion (PMD) effects (see Bell Labs Busts 40G Barrier and 40 Gbit/s: Ready for Prime Time?).

Galuppo, however, says that PMD effects really aren’t a problem at 40-Gbit/s rates when running over newer, more modern fiber, insisting that fiber deployed since 1997 should be high enough quality to carry the signals without problem. Many analysts don’t agree, claiming that even ultra-advanced forms of leaf-fiber still experience some form of PMD.

"The very, very advanced fiber, like the last grade Corning brought out, allows you to go farther without polarization, but not far enough,” says Hasan Imam, an analyst with Thomas Weisel Partners. "I don’t think there’s any way around that."

As to when carriers might deploy 40-Gig technology, it will all come down to price. Lucent’s vice president of marketing for the optical networking group, Kathy Szelag, admitted Tuesday that the 40-Gbit/s LambdaXtreme is still priced much higher than the 10-Gbit/s version. She believes, however, that the price of the product isn’t as important as some might claim. “The bulk of the savings comes from operations,” she said, “not from the cost of the gear.”

Although the 40-Gbit/s LambdaXtreme still costs more than 2.5 times the price of the 10-Gbit/s version (the rule of thumb in the industry is that when quadrupling capacity, multiply the price by no more than 2.5) Galuppo was quick to point out that when the market adopted 10-Gbit/s it was 5.5 times the price of 2.5 Gbit/s.

But there is a difference. As CIBC's Kamman puts it: “When we went to 10 Gbit/s, we were in the midst of a tremendous buildout in the industry. The attitude has changed dramatically since then.”

The general consensus right now seems to be that the 40-Gbit/s market has no chance of taking off for at least another year and a half.

In the meantime, the mood at Lucent's Holmdel campus appears to be one of monastic austerity, as they husband their resources and fight to put together a leading technology platform for the next phase of growth.

Lucent's leading optical networking executives were eager to point out technological progress -- despite financial cuts. Lucent has cut about half of its workforce (see More Layoffs Loom for Struggling Sector). Many of the lights in its huge Holmdel building were turned off to save some bucks on electricity. The company has already sold off all the books in its library [ed. note: not Curious George?!] and is apparently making everyone, up to and including chairman Henry Schacht, take his or her own trash out at the end of the day, according to executives interviewed here.

So why is Lucent pushing so hard to develop something that will be of little or no help to its ailing financials? The answer lies in the painful experience of being beaten to the finish-line in the launch of 10-Gbit/s capacity. When Nortel beat Lucent and other competitors to 10-Gbit/s optical technology, it became market leader, and Lucent became market loser (see Lucent Supernova).

"They probably want to prove to people that they can be ahead of the production cycle," says Wachovia Securities Inc. analyst, Stephen Koffler. “Missing 10-Gbit/s nearly killed the company.”

— Eugénie Larson, Reporter, Light Reading
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let-there-be-light 12/4/2012 | 10:31:38 PM
re: Lucent: US Carrier to Test 40-Gbit/s Won't you ever have anything nice to say about Lucent? They even inited you into Holmdel, and yet you still seem to this negative twist about everything you say about them.

Gettin some limited success in 40G in this environment seems pretty miraculos to me.

Come on, tell us the truth, they offended you deeply in the past or something. What's the background to all this bad blood?
zweisel 12/4/2012 | 10:31:37 PM
re: Lucent: US Carrier to Test 40-Gbit/s If LightReading is not blasting Lucent, it is blasting Nortel Networks... hmmm...
Scott Raynovich 12/4/2012 | 10:31:37 PM
re: Lucent: US Carrier to Test 40-Gbit/s let-there: Work at Lucent, perhaps? This is a very balanced story here. Just the facts with some to-and-fro analysis really. And the reaction is what people think of 40G, y'know?
theinsider 12/4/2012 | 10:31:36 PM
re: Lucent: US Carrier to Test 40-Gbit/s The article is objective and not in bad-blood.
if you are expecting this to affect the stock price, it probably is in bad-blood ie not the best thing that could have been said under the circumstances.
A reliable 40G system coupled with increae in telecom expenditure is probably the best chance for lucent to come up in the near future.
ivehadit 12/4/2012 | 10:31:36 PM
re: Lucent: US Carrier to Test 40-Gbit/s lucent sells metro dwdm to verizon, LR shrugs
lucent trials 40G gear, lr shrugs
photonex talks about 40G gear, LR wakes up
QB sells 1M of PON, LR says the world is changing

scott, tell everyone the secret. startups are sexy, legacy telecom companies, even when leading edge, is not.
opticaldude 12/4/2012 | 10:31:34 PM
re: Lucent: US Carrier to Test 40-Gbit/s Trust me the gear works and like a charm. Don't ask why I know, but believe me, it does. Solid!
pavlovsdog 12/4/2012 | 10:31:34 PM
re: Lucent: US Carrier to Test 40-Gbit/s Interesting...the article only mentions pithy quotes by Lucent officials. Does not mention if LR actually saw 40G gear working. Any clues why?
Scott Raynovich 12/4/2012 | 10:31:33 PM
re: Lucent: US Carrier to Test 40-Gbit/s Yes, there was a demo and it was pretty clear it was real (though we didn't snip the fiber). I will adjust the story accordingly.
optical_pow 12/4/2012 | 10:31:32 PM
re: Lucent: US Carrier to Test 40-Gbit/s Lucent showed LR their old ATM switch.The label says 40 Gb/s long haul gear!. Remember their 20 Gb switch in a full Cabinet?. Soon SEC will investigate LR for their biased comments!..

johnjohn 12/4/2012 | 10:31:26 PM
re: Lucent: US Carrier to Test 40-Gbit/s LucentGÇÖs vice president of marketing for the optical networking group, Kathy Szelag, admitted Tuesday that the 40-Gbit/s LambdaXtreme is still priced much higher than the 10-Gbit/s version.

--Way to promote the product :(

Quick tip:
The 4 P's in marketing are:
Price, Promotion, Place, Product
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