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Optical/IP

The New Reality of FSO

Market forecasting is not an exact science. And in some cases it doesn’t seem scientific at all.

Take predictions for the free-space optics (FSO) market as an example. From September of 2001 to March 2002, five-year projections for FSO from four leading market research firms differed by billions of dollars, with some predicting the market would hit multiple billions and others pegging it at only hundreds of millions. Why such a drastic difference in predictions?

One explanation is that the entire telecommunications sector has changed. Analysts were counting on heavy sales in the carrier market to drive growth in free-space optics. But now, as many competitive carriers -- the earliest adopters of this technology -- go out of business, and even some incumbents like WorldCom Inc. (Nasdaq: WCOME), Sprint Corp. (NYSE: FON), and Qwest Communications International Inc. (NYSE: Q) hit financial troubles, the prospect of selling $2 billion to $3 billion worth of gear in a single year is increasingly unlikely.

“This kind of over-hyping has been going on for years,” says Tony Carmona, senior analyst with IGI Group Inc. His firm had one of the highest forecasts for FSO. “As an analyst, I take some of the blame for this. But sometimes we all get caught up in what looks like really cool technology. But I’ve come to realize that a lot of this stuff is baloney. Carriers just aren’t buying it.”

Free-space optics is a wireless technology that uses lasers to connect buildings to fiber at high data rates. In 2001, 65 percent of its sales were in the enterprise market. But analysts and vendors say the real market is with carriers, which today only make up about 34 percent of sales, according to research from Frost & Sullivan.

The big drivers in the carrier market are likely to be things like backhaul for cellular traffic and fiber back-up for last-mile connections. While the technology has many positive attributes, like a low entry cost and easy installation, it also has several negatives, like distance limitations and a vulnerability to weather conditions, especially fog and low cloud coverage, which can interrupt transmission.

Despite these issues, many analysts have been bullish on the technology. The driving force behind their high market forecasts was that carriers were going to adopt the technology in droves. Many were publishing reports advocating these high figures even as the entire carrier market was on the brink of collapse.

In a report on broadband access technologies published by Merrill Lynch & Co. Inc. in May 2001, analysts predicted sales would grow from $100 million in 2000 to $2 billion in 2005. In September 2001, The Strategis Group predicted sales would reach $2 billion in 2006, also using a base of $100 million in 2000 as a starting point. In an August 2001 report, the IGI Group had one of the most bullish predictions. Its analysts predicted sales would reach $3.2 billion by 2005 and $3.8 billion in 2006. This firm also said sales were increasing at this level from a $100 million base in 2000.

Frost & Sullivan reported much more conservative figures in 2001. Its analysts predicted sales would grow from $100 million in 2000 to $395 million in 2005. In March 2002, it revised its forecast, predicting revenues would grow from a base of $71 million in 2001 to $215 million by 2005.

Two things stick out from the Frost & Sullivan reports. One is the fact that revenues dropped $29 million from 2000 to 2001. The other is that this firm has consistently been more conservative than other research outfits.

First, the 2000-2001 discrepancy. According to Frost & Sullivan analyst Wai Sing Lee, one FSO company reported a $20 million decline in revenue from 2000 to 2001. He speculates that the company included sales of other products in figures it presented to research houses for 2000. In 2001, the company did not include those sales. Lee would not say which vendor misstated its revenues.

As for being more conservative, Lee says he can’t see how it would be possible for a market starting at such a low base to increase that dramatically within four or five years.

“There is no way that that the market could grow that quickly,” says Lee. “We’d have to see some major, major deployments from carriers to reach those forecasts.”

According to Lee’s calculations, for the market to grow at this rate, carriers and enterprises would have to deploy about 86,000 new FSO links in 2005, which means equipment companies would be selling nearly 180,000 units, since the point-to-point products include both laser transmitters and receivers. Compare this figure to the 2,500 links or 5,000 transmitters and receivers installed and sold in 2001. What’s more, prices in wireless are falling drastically, which means that volumes would have to increase even more to be able to hit a $2 billion or $3 billion target in 2005.

“I just don’t see the demand for numbers like this, even with carriers becoming a larger percentage of the market,” says Lee. “Besides, most of these companies are small. I also don’t see how they could manufacture that much product.”

Carmona has his own explanation: "Market projections are based on fact, but they are also based on some feeling and hype. Our idea at the time was that 3G wireless and the buildout of metro networks would provide significant opportunity. But that isn’t happening. The grim reality is our projections were high.” The IGI Group hasn’t done a follow-up study to the one published in August 2001, and Carmona says that none is planned. But he admits that predictions for the future would likely be reduced greatly.

Tal Liani, the analyst from Merrill Lynch who conducted the research in 2001, did not return calls by press time. Peter Jarich, the analyst from the Strategis Group, was unable to be reached for comment.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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srgudd 12/5/2012 | 12:47:28 AM
re: The New Reality of FSO I certainly concur when you say FSO is good with the enterpirse which is happy with 3 9's uptime.

I'm not sure I entirely agree with you about FSO future in the carrier market. Sure, to ever be deployed in the carrier backbone requires 5 9's at least. However, it is common knowledge that most customers are happy with 3 - 4 9's uptime to the net.

FSO has been trialled by carriers with 3 - 4 9's uptime with link lengths of 1+ km. Don't you think FSO is a viable last mile solution i.e. for carriers to extend their networks to the 80% of their customer base who lie within 1 km of their fiber rings.



pschoon 12/4/2012 | 11:43:45 PM
re: The New Reality of FSO I wonder how many of you have put in a FSO link, and/or provided on-going support for any. I have installed about 40 links in the last three years (MRV, fSona, etc.) and have news for you:

FSO is a viable choice if the distance is under a couple kilometers (a little farther for GigE) if you can't get fiber quickly/cheaply.

With Fast Ethernet short links as low as $4k (MRV P.A.L. "passive" links), there is nothing cheaper. And availability of hybrid installations are regularly exceeding the carrier's 5-9's mantra (lesser throughput / low cost RF is used to provide dual-path diverse-media redundancy to the primary high-speed FSO link).

Looking to the future, as GigE proliferation accelerates, FSO's most significant attribute (very high speed @ very low cost) assures the technology a place in our broadband toolbags.

-FSO Integrator

Perceptor 12/4/2012 | 10:04:35 PM
re: The New Reality of FSO >>>>>>
GǣThis kind of over-hyping has been going on for years,Gǥ says Tony Carmono, an analyst with IGI Group Inc. His firm had one of the highest forecasts for FSO. GǣAs an analyst, I take some of the blame for this. But sometimes we all get caught up in what looks like really cool technology. But IGve come to realize that a lot of this stuff is baloney. Carriers just arenGt buying it.Gǥ
>>>>>>

Please. More deception and alterior motives and conflicts of interest...I wonder how many VC firms interested in FSO "encouraged" Mr. Carmono to "think positive" on his latest report.This whole article is really nauseating.

We really need some sort of Consumer Reports for the optical field -- a truly non-commercial entity that can give some unbiased opinions and evaluations.

optigirl 12/4/2012 | 10:04:34 PM
re: The New Reality of FSO Would great if you could run a story that compares notes on the following:

FSO
Ethernet (GigE)
Wavelength Service
DWDM
Optical Switching
Optical Components
Metro Anything

from all of the following companies:

RHK
Yankee
CIR
KMI
Electronicast
Pioneer
Scott Clavenna
Dell Oro


and anyone else you can think of.....

Would make for an interesting/amusing read.

:-)
arch_dude 12/4/2012 | 10:04:34 PM
re: The New Reality of FSO The true constraint for these systems is the requirement for line-of-sight. How many potential customers have an unobstructed line of sight to a provider location? If you do not have this, then your provider will need to run fiber (or something) to a spo that you can see before you are a potential customer, and in many cases it is just as easy to run the fiber all the way to you.

Try this: if kyou are sitting in a building that is not served by fiber, can you see a building that is lit by fiber from your roof-top? If not, then you are not a candidate for FSO or for most fixed wireless.
brightflash 12/4/2012 | 10:04:33 PM
re: The New Reality of FSO What is the purpose of this article?

FSO has a strong future in the Access Market..

We could go back in time, and question every research firm's projections on all the varoius Access technologies out there.

Bottom line-the whole telco market has collapsed in this bad economy. And Carriers are not buying.

The proposed "drop off" in FSO link heads is because of economy, not the technology..


Ken Dull H 12/4/2012 | 10:04:32 PM
re: The New Reality of FSO ...my children can sleep better at night because LR uncovered this scandal.

My God - what if people were misled into thinking that FSO is to grow to $5bn by 2005?!!!

Thanks for diverting that disaster!

Kids - don't worry - LR is at the forefront of uncovering faulty analyst estimates in tiny parts of the telec-communications industry made duyring the Bubble Era!
lowbandwit 12/4/2012 | 10:04:32 PM
re: The New Reality of FSO Try this: if kyou are sitting in a building that is not served by fiber, can you see a building that is lit by fiber from your roof-top? If not, then you are not a candidate for FSO or for most fixed wireless.

________________________

You are correct about LOS, but remember, FSO can be mounted inside a building too. While the unobstructed view from the roof may be the best, it may also cost.

I disagree that it would be just as easy to run fiber the entire way. Think of it this way: If I contracted for space on an antennae located in an average residential area I could drop a mux on the ground and festoon the antennae with as many link heads as I needed. I would then have access to a large customer base, without digging a trench. The coverage area would be whatever I could see from the tower for up to 4Km. That's a hell of a lot easier then digging a trench to that many potential customers. (That's based on p2p. I understand they're working on p2mp.)
photonsu 12/4/2012 | 10:04:31 PM
re: The New Reality of FSO The true constraint for FSO is as it has always been on this planet. The weather!!!

For copper and RF the constraint is bandwidth.

Think about the future and the solution will become as clear as glass.

What looks like glass is glass!
Scott Raynovich 12/4/2012 | 10:04:31 PM
re: The New Reality of FSO Ken you are Dull.
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