Want to know which optical technology will dominate metro networks for the foreseeable future?

One word: Sonet.

That’s the conclusion of a report due out next month from Pioneer Consulting. Called “Optical Edge Networks: Market Opportunities for Integrated Optical Network Solutions in Metro Networks,” it’s the first to divide the players in the labyrinthine metro market into easily understood categories and then assign a dollar value to each. By doing so, it sheds some light on which of the optical networking solutions now being pitched for the metro market, and which of the vendors backing them, are likely to succeed -- and which will stumble.

The report’s key conclusion: For all the hype over next-generation optical metro technology, it's products that are based on Sonet -– a 20-year-old veteran of carrier nets –- that will continue to dominate the metro scene for the foreseeable future.

“Sonet is not going away, particularly for major carriers. Conceding the traditional Sonet market to the incumbents such as Fujitsu, Lucent, and Nortel simply concedes them the wealth,” says Scott Clavenna, principal analyst at Pioneer.

Pioneer forecasts that service providers will spend $6.09 billion this year on “traditional” Sonet and DWDM metro solutions. Of that total, more than 98 percent of the money will be spent on Sonet gear, not DWDM, according to the report. “The metro DWDM market is nothing right now,” says Clavenna.

In contrast, carriers will spend less than half that total -- $2.59 billion -- on “emerging” metro technologies.

Pioneer divides the new metro technologies into three classes:

· Next-generation Sonet equipment -- from vendors such as Cisco Systems Inc. (via its Cerent acquisition), Redback Networks Inc. (via its Siara acquisition), and Cyras Systems Inc. –- that comprises small, low-cost Sonet ADMs with built-in data capabilities.
· Integrated metro DWDM equipment -- from vendors such as Luxn Inc., Sorrento Networks Inc., and ONI Systems Inc. –- that add TDM and data features to traditional DWDM lambda services.
· Optical IP platforms -- from vendors such as Extreme Networks Inc., Force 10 Networks Inc., Lantern Communications, World Wide Packets, and Zuma Networks –- that run IP over Ethernet over fiber.

Of the three new technologies it is, again, the Sonet-based solutions that will dominate, Pioneer says. Sales of next-gen Sonet kit will account for $930 million in sales this year. That’s compared to $220 million for integrated DWDM and optical IP platforms, combined. By 2004, Pioneer forecasts, sales of next-generation Sonet hardware will increase to $6.3 billion.

Pioneer’s report looks like good news for incumbent players like Alcatel SA, Fujitsu, Lucent, and Nortel, who dominate the market for traditional Sonet gear.

Conversely, even though Pioneer is bullish on next-generation Sonet, the success of the vendors playing in this area is by no means assured. Many believe that there are still far too many startups for the size of the market and that a shakeout is imminent.

And, while Pioneer is bearish on the DWDM market overall, Clavenna points out that the prospects for companies working on this equipment may actually be better than those of the new Sonet outfits, simply because there are a lot fewer of them. “The good news for a company like ONI is that they don’t have a lot of competition right now,” he says.

“The optical access space is over-crowded,” agrees Jeff McCarthy, general partner at North Bridge Venture Partners. He says Northbridge is refocusing its investments away from the metro market. “Access is behind us. Long haul [products] and components -- they’re what’s happening.”

One of the biggest surprises in the report is the size of the market for IP-over-Ethernet technology. Pioneer predicts that vendors will see slim pickings from this segment for at least the next four years, partly because the technology has limited appeal to traditional carriers. However, it covers its bet by saying that beyond that point, things could change. “It has extraordinary long-term potential because of its ability to perform IP switching at a low cost, at line rates,” says Clavenna. “This could be the sleeping giant of the metro market.”

Pioneer’s report is available August 1st. It costs $4,500.

—Stephen Saunders, US Editor, Light Reading, (http://www.lightreading.com)