OFS: What Fiber Glut?

So you’ve heard there's a fiber glut going on? Well you’ve heard wrong -- at least according to Optical Fiber Solutions (OFS), a designer, manufacturer, and supplier of fiber optic products, which hosted a breakfast at the Optical Fiber Communication Conference and Exhibit (OFC) yesterday to address the topic.

The company, which Lucent Technologies Inc. (NYSE: LU) sold to Furukawa Electric Co. Ltd. in a much-publicized deal last year (see Lucent Cuts Deal on Fiber Unit), announced an array of new products yesterday (see OFS Unleashes Fiber Flood). And, in its presentation, OFS not only tried to dispel what it called “rumors of a fiber glut,” it claimed there is far too little fiber out there to serve the enormous demand looming on the horizon.

The debate around whether or not there’s an overabundance of capacity available in carrier networks burst into flame last summer, when the results of a report by Merrill Lynch & Co. Inc. analyst Michael Ching were published in the Wall Street Journal. The report indicated that carriers use only about 2.7 percent of their total lit fiber capacity (see Fiber Utilization Figures Challenged).

But OFS said this report and others, along with a long line of articles, miss the point. “Telecom networks, like highways, must be sized to handle demands at peak periods,” said Janice Haber, OFS VP of systems engineering and market development. She pointed out that the "peak-to-average" rate of data networks is much higher than it is in voice-centric ones -- typically ten times higher, in order to accommodate high-traffic bursts.

Using the 10:1 peak-to-average rate that Haber said data-driven networks require, Merrill Lynch's estimate that 6.4 percent of capacity was being used at the end of 2001 translates into 64 percent peak usage. This, she said, is dangerously close to the 70 percent threshold beyond which customer service can no longer be guaranteed.

In addition, Haber pointed to a number of studies that show the growth in demand for bandwidth has remained steep and fairly stable for decades. One of the reports, issued by IDC last December, estimates Internet bandwidth growth at 147 percent.

OFS isn’t the only company calling for more, not less, fiber on the market. On an earnings call last month, Wendell P. Weeks, president of optical communications at Corning Inc. (NYSE: GLW), said that Corning believes the optical downturn is bottoming out and that carriers are at more than 55 percent of their wavelength utilization. Corning, he said, is planning new fiber builds to meet an inevitable demand (see Corning: 'We've Hit Bottom').

So why all the gloomy fiber forecasts? One problem, according to Haber, is that there are several different ways of measuring how much capacity is used, rendering the concept of “average capacity utilization” meaningless.

Some studies, for instance, measure the active capacity demand, which is the total bandwidth demand divided by the sum of capacity of active channels. Others measure channel slot utilization by dividing the number of active channel cards in data networking systems by the total number of slots installed. Yet other surveys divide the number of lit fibers by the total number of installed fibers to measure so-called fiber utilization.

A problem with measuring fiber utilization, according to Haber, is that stranded fiber, which will probably never be lit, is brought into the equation. “Not every fiber gets lit to terabit capacity,” she said. “That’s just not the way it works.”

The drop in fiber sales has nothing to do with network planners responding to a drop in demand, Haber asserted. Rather, it is a response to Wall Street's fears following the false "fiber glut" rumors.

“This thing has really frozen decision-making with service providers,” she said. “But it’s coming from fear more than from knowledge.”

Whether or not the fiber glut is just a figment of analysts’ and journalists’ imaginations, the fact remains that last quarter was the worst ever for fiber sales, and that after just one-and-a-half months of contributing to Furukawa's financials, OFS has posted a loss of about $77 million (see Did Furukawa Buy a Lucent Lemon?).

Having had her say, Haber remains optimistic. “My experience,” she said, “is that when this business goes down sharply, it comes back with a vengeance.”

— Eugénie Larson, Reporter, Light Reading
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gea 12/4/2012 | 10:44:28 PM
re: OFS: What Fiber Glut? The recent posts are good examples of the big time misconceptions data-only guys have about how things work. I remember at a startup I was at when we were discussing "packet over SONET" a router guy actually said: "SONET? No. We don't want to do SONET. The future is data." I asked him how he thought data got from one part of the country to another, and he pretty much just thought there was a continuous string of routers and switches cross country joined by 10/100BaseT and GbE links.

And for anybody who thinks that by printing that statement I'm trying to say "The future is data and not SONET"...you really need to do some homework, and fast.

Data doesn't care if it's in a format a router guy is familiar with or not. Packet-over-OC-192c is just as much a "data" format as GbE or 10GbE (uh, which has SONET framing in two out of three of its formats). Even that article about special opps building out their infrastructure shows how absolutely blind LAN guys to how their data travels across town or cross country (hint: it doesn't remain in what you would call a native data format). All data CLECs (Yipes, Cogent, and others) already exist, but suprise! They map their data links over SONET, and use Cisco 15454s (no, that's not a router). Why? Do your homework and find out.

Now if you want to make the argument that circuit switching is holding us all back, well sorry. We all know that already. We also know that the RBOCs make the lion's share of their income off of voice (even though it's less than %50 of their networks). They don't have a lot of motivation to eliminate circuit switching or voice. So of course it's slow.

At the same time, however, nobody yet knows just HOW to get away from a circuit switched world. And oh yeah, I'm sorry but throwing giant pipes at the problem won't make the QoS issues go away. What will be needed is something like an MPLS-based network that allows for protection switching, priority-based billing, and subscription management. And then, even with the technology in place the real problem is in operations.

Oh yeah, and don't forget: that switch, router, and transport infrastructure's going to have to stay up for more than 30 days at a stretch, otherwise operations costs will eat your lunch. And it'll have to survive in 0C to 45 or 50C (sorry...a CO is not just one giant computer room). And what about lifeline services? Will this data network that's so cheap and easy have to support that? (Answer: Yes.)

So my point is, these religious statements about data get quite tiresome. I'll make a flippant statement that probably has more truth to it than any of us want to believe: if true MAN data networking were so obviously cost effective and easy to manage AND profitable, there'd be big comapnies making money at it already.

We all want it to happen, and we all know there are barriers. Oh yeah, we all know there are vested interests. But the best minds in the industry don't know how to get from here to there, and no simple set of easy answers is going to do it.
DoTheMath 12/4/2012 | 10:44:31 PM
re: OFS: What Fiber Glut? LightBeating: I just want to point out that with all the technology that we have now, it is really, really hard to understand why the customer cannot get those bits for cheap, as opposed to the Mips of my computer, or the Gigabytes of my DVDs. Hell, we can't get those bits at all in most places.

Couldn't agree more LB. I think one solution as to how to get innovation moving, and get more and more bandwidth every year for a given fee is to move to a user-owned-infrastructure model. In computing, end users own the PC, the ethernet cards and the switches. This effectively means that there is an "incremental adoption model" where affluent users in effect subsidize the R&D so the later adopters reap the benefits.

Here are some elements of a solution for the new network:
a) Municipally installed fiber to the home, with open colo facilities, open to any service provider paying a set (smallish) fee to the city. In California at least, cities have to call referendums before they raise the bond money to pay for fiber-to-the-home, and my guess is that most cities *can* get support from the public. This solves the right-of-way issue neatly, and may not cost more than about $2K per home, so with tax-free muni-bonds used to finance them, the property taxes may go up by $20/month (if that). In San Jose, I pay property taxes about 20 times that amount right now. We just passed bonds in San Jose to fund school renovation that are several times any fiber-to-the-home project would cost. In fact, schools may be given free colo space for beaming educational programs; politically this plays well with suburban constituents.

b) Open network regulation: if the FCC mandates that all network services offered on this municipal fiber have to be based on openly published interfaces (so that anyone could build end user equipment or software), this will stimulate competition and innovation on the end user box business, not to mention the infrastructure box business.

c) Competition can now be unleashed between the Bellhead service models vs the Nethead service models. I am partial and predict that Bellheads will be trounced before the game even starts, which is why RBOCs will lobby violently against this model.

In fact, enterprises may be beginning to bypass traditional service providers and leasing dark fiber or lambdas to run their own network services. This is happening for campus or intra-city networks first, and looks like it will spread.

I strongly believe that a "enterprise like" network model is possible in this industry. All we need is the courage to think out-of-the-RBOC-box. I have served the RBOC types for several years, and do not relish continuing this career, if they are the only game in town.
rjmcmahon 12/4/2012 | 10:44:32 PM
re: OFS: What Fiber Glut? This unthought-out mess is the kind of thing that data folks spew when they know absolutely nothing about the telecom systems over which their data passes, nor anything about the real-time services that are carried by their data.
Probably the biggest barrier is operations: how to turn up, provision, and bill for QoS-based services?

hmmm, data networks were invented to deal with nuclear war and are reliable enough to handle critical military communications, including those supporting the efforts in Afghanistan.


Routing protocols do a pretty good job of reducing "turn up" costs. Excessive QoS costs are an unnecessary legacy coming from telco personnel that don't understand the market directions and the demands being placed on the networks.

PS. Many data networking personnel do understand telco systems. What many don't understand is the self deception that many telco personnel seem to have and how this deception can help anybody.
LightBeating 12/4/2012 | 10:44:32 PM
re: OFS: What Fiber Glut? Gea,

Guess what, you're right, I know nothing about the telecom systems over which my data passes.

I also know nothing about microprocessors for that matter.

I just want to point out that with all the technology that we have now, it is really, really hard to understand why the customer cannot get those bits for cheap, as opposed to the Mips of my computer, or the Gigabytes of my DVDs. Hell, we can't get those bits at all in most places.

Sure, you can tell me all sorts of technical reasons of why the system needs this or that, blah blah blah, we need the killer app, etc etc we've heard it all before.

I guess what I'm saying is that this industry has lived an easy life for so long, it doesn't have a clue how to exploit technology for the benefit of the customers. It just knows how to suck big dollars out of them. I'm just talking general terms here, don't ask me the technical solution, I don't have it. But maybe YOU should have it, if you work in this industry.

And if you're talking HUGE sums of $$$, by the way, the industry had them not so long ago. Wall Street gave them all that money. Billions and billions and billions of it. And what have we got for it now ??? You all lived a nice life for a couple of years, a whole bunch of you are millionaires if you cashed out your options soon enough, or else your CEO is, and he's now retired and living a happy life.

But those cheap bits are still a dream...

gea 12/4/2012 | 10:44:33 PM
re: OFS: What Fiber Glut? Uhhh, what?

"Why can't we get rid of this antiquated regulated voice service. Voice can be carried as data. Nobody needs the 99.999% uptime on voice, and the so-called "quality of service". If you really need it, THEN you should be ready to pay for it."

In other words, if a protection switching event occurs, you only want to pay for protected services during the switch event? This unthought-out mess is the kind of thing that data folks spew when they know absolutely nothing about the telecom systems over which their data passes, nor anything about the real-time services that are carried by their data. Is this author aware of the cost to firms when real-time trading systems go offline?

And it is easy to make the case that Wall Street was able to come back online so shortly after 9/11 PRECISELY because of the level of reliability built into the telecom infrastructure. If you imagine replacing SONET and telecom-grade WDM network elements with batches of $100 Ethernet switches, then this authors' ideas are really laughable.

Of course, it's easy to paint a picture of ILEC tyrany, but the real fact of the matter is that it is going to take HUGE sums of $$$ for the multiservice broadband platforms of the future to arrive (and how does one make them profitable?). But the biggest barrier is probably not even $$$, ILEC conspiracies, or even technology. Probably the biggest barrier is operations: how to turn up, provision, and bill for QoS-based services? And if this is so difficult with "simple" circuit switched networks, what will a comapny like Verizon need in order to offer QoS-based packet services?

Sorry. There are no easy answers here, no magic bullet. And this is no time for Guilder-like solliloquies and religion. Getting there is going to be very tough going, and anyone who claims to know all the answers should be ushered out the door faster than a homeless guy in Tiffany's.

LightBeating 12/4/2012 | 10:44:39 PM
re: OFS: What Fiber Glut? This is taken from another board, from an S4 filing:

"While the construction cost per kilometer of undersea optical systems has increased modestly, from $50,000 in 1988 to $80,000 in 2001, the cost per bit, an industry measure of an undersea system's cost relative to its capacity, has plummeted from $650,000 on TAT-8 to just $400 on the FA-1"

So there we are, and my guess is that the same drop in cost per bit obviously applies to terrestrial systems as well.

Let me ask you this question then: if the cost per bit has dropped by more than a factor of 1000, my international calls should be virtually free by now, shouldn't they?

I think it is well known that any long haul fiber cable pays for itself after a few months.

So what is it all about, all those carriers whining that they're not making any money, complaining about the huge cost of infrastructure, etc etc. ???

In fact, more than 90% of the cost is in the access network, and I believe a substantial amount of the cost in also in network management due to the inherent structure of SONET.

And you know what? All that access and SONET infrastructure has been put in place to support that 100 year old Plain Old Telephone Service. In other words, voice. In my still relatively short lifetime, I have seen the emergence of colour TV, microwave ovens, pocket calculators, personal computers, the compact disc and the DVD, and the list goes on and on...

But guess what, the effective bandwidth that I get from my telephone line is just the same as it was 40 years ago. Isn't that amazing? Of course, the network has switched to digital, then to fiber optics, then to DWDM, but none of that actually has had any impact on the kind of service I get at my own home. I can trick the system by having a clever modem that extracts some more bits/s out of my line, but that's about it.

Another question: who then has benefited from this drop in infrastructure cost? I'll let you guess.

In the mean time, I can get a 100 Mb/s ethernet card for less than $20. I could build a computer network that fast in my home for next to nothing.

Infrastructure cost? Let me laugh!

Just like electronic and computer companies have had to come to grips with the fact that if the cost of a transistor drops by a factor of 1000, then they can sell you the computing power for 1/1000th of the price, the telcos have to realize that they cannot keep selling you something that is essentially free for $50 per month. BUT, what they can do is sell you 1000 more of it, just like the computer I have today cost me the same than the one I bought ten years ago, but is 1000 times more powerful.

Two more questions:

Why can't we get rid of this antiquated regulated voice service. Voice can be carried as data. Nobody needs the 99.999% uptime on voice, and the so-called "quality of service". If you really need it, THEN you should be ready to pay for it.

Why can't we have a real deregulation, not one where you have to share the network you built with your competitors, not one where you can charge a fortune for rights of ways, not one where you can't charge competitively for the services you offer, not one where you can't transmit anything you like on your pipes.

So the way I see it, we are in this crazy and absurd situation of companies not making money by trying to sell you something that costs them nothing, really just because they're forced to charge you for something you don't even want!

We will eventually get out of it, but it will take political will, and commercial courage, which both our governments and the big telcos desperately lack of.

60grit 12/4/2012 | 10:44:51 PM
re: OFS: What Fiber Glut? The telco revenues are down for several reasons.
A lot due to no-cost-internet, or nearly no-cost,
but also due to the increased competition among
the carriers over the past several years. A monthly lease rate for a T1 from NYC to LA as $10k - $20k per year. Now it is down to around a
$1k bucks. So over the past several years, they overbuilt for the internet, didn't get any money for it, and had increased competition that drove prices way down.

The internet growth is less than 30% / year (my guess is that it's a lot lower than that), voice
usage is flat, and private line is growing, but rates have plummetted. Not a good environment.

lighten up!! 12/4/2012 | 10:44:56 PM
re: OFS: What Fiber Glut? keelmoose

Most of the $50 that you and I pay for in DSL/Cable Modem charges is currently paying for the infrastructure charges and connectivity into the Internet. Not sure if any of that revenue ever flows into the hands of Amazon, since Amazon like you and I, is just another customer on the Net and it too pays some ISP. Hence Amazon is saving on operational expenses by selling products on the net. The bottom line is that revenue/bit on the internet is substantially less than the investment required to support it. Telcos make better margins with voice services than they do with high speed internet. Also, there are no killer applications out there otherwise we wouldn't be in this mess. Sad to say, but other than illegal music downloads and obviously porn, what other apps are generating huge amounts of bandwidth need with huge revenue potential. People talk about video downloads. Yeah right!!! Telcos are going to deploy huge amounts of bandwidth at great expense to sustain a market where everything is considered to be free. It all comes down to willingness to pay and most users don't want to pay more than $20/month for High Speed Internet Access. So you see, for this industry to really take off, you'll need a powerful force like Microsoft/Intel to create applications that make it necessary to integrate the PC into the network. Dope smoking days of adding unlimited amounts of bandwidth to keep up with Internet growth are over and until Carriers see a positive business case they are not going to do squat...
optera 12/4/2012 | 10:44:58 PM
re: OFS: What Fiber Glut? keelmoose,

You are absolutely correct. Now that we have supply more than demand, the technology cost needs to go down to the user and at affordable prices. The majority of the Users are still reluctant to pay 50$ for high speed internet connection, the same is true for Wireless, if the cost is lower for the user (<20$), more people will subscribe.

After all, isn't that what all the Telco's are suffering from, lack of revenues !

If something positive is coming out of this downturn it will be to remember that competition is healthy. End result is more affordability of goods and services.

The bottom line is the consumer and sheer volume, which will eventually fuel the killer applications that are bandwidth hungry.
keelmoose 12/4/2012 | 10:44:59 PM
re: OFS: What Fiber Glut? Suppose I have a DSL connection to the internet for which I pay $50 per month. Is that not paying for usage? Granted I'm not being charged per bit but I am paying.
If I then go to (e.g.) Amazon and buy {books, cd's, etc} is that not paying for usage?

Is it not conceivable that the payments I make - direct or indirect, as above - are sufficient to fuel growth in the internet for time to come?

Lastly, that DSL connection described above is hypothetical: I can't get this service at my house and AT&T shows no sign of providing cable internet service either -- just want to sell me pay per view movies!
I'm not the only one in this fix and can only smile and shake my head when people talk about a bandwidth glut: bring some to me!
What am I missing? Are the business models [for internet service] so badly wrong that no one will invest in providing these services?
BTW: I live in San Jose!!
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