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Optical/IP

The World Record That Wasn't

Whenever transmission equipment vendors claim distance records, there always seem to be catches – and those catches appear to multiply in the subsea cable business, judging by the latest claims of one of the big players, TyCom Ltd. (NYSE: TCM; BSX: TCM).

Last week, Tycom claimed “the world’s first 10 Gigabit, 32 wavelength undersea system” (see TyCom Claims Subsea First). And guess what? It wasn’t.

TyCom’s customer, Global Crossing Ltd. (Nasdaq: GBLX), says that another supplier -- Alcatel SA (NYSE: ALA: Paris: CGEP:PA) -- has installed a similar 32-wavelength, 10-gigabit system on another part of its network of subsea cables. The TyCom system is part of the Pan American Crossing, which links North, Central and South America; Alcatel's is part of the South American Crossing, which encircles most of South America.

Alcatel also says it's installed a 32 wavelength, 10 Gigabit system in the first phase of the Atlantica project, operated by 360networks Inc. (Nasdaq: TSIX; Toronto: TSX.TO)(see 360networks Touts Global Mesh ).

Now for another catch. Although all of these systems have the potential to support 32 wavelengths, they're probably only operating as a one- or two-wavelength system, right now. In fact, they may not be carrying any traffic at all, according to Leigh Frame, marketing director for Alcatel’s submarine division.

Operators like Global Crossing won't disclose this sort of information because it would weaken their negotiating position with customers, Frame says. They light wavelengths as they sell capacity to customers -- not before. “I can guarantee that [TyCom's system] won’t be equipped for 32 wavelengths,” says Alcatel's Frame. TyCom was unable to find anybody willing to respond to Light Reading's questions.

Although 32 wavelengths is state of the art, it's just another milestone in the development of subsea systems, according to Frame. Alcatel is already building a 40-wavelength, 10-gigabit transatlantic cable for Flag Telecom (Nasdaq: FTHL; LSE: FTL). It’s scheduled for completion early next year, he adds. Alcatel is selling 100-wavelength systems for installation in 2002, and has trialed 150-wavelength systems in labs, Frame adds. “The consensus is that it will go to a lot more lambdas before it goes to 40 gigabits."

Frame acknowledges that Tycom is on a similar development path. "We're neck and neck," he says. "Nobody can afford to drop behind."

These developments will lead to a big breakthrough, according to Michael Ruddy, an independent consultant specializing in subsea telecom systems. “These next-generation undersea systems truly mark the elimination of the capacity bottlenecks and extremely high prices that had previously characterized the undersea capacity market,” he says. He predicts a cycle of lower bandwidth prices encouraging the development of new applications, which will in turn result in big increases in traffic volumes.

Unfortunately, there are a couple of clouds on the horizon that might slow down this development. One of them is a potential shortage of subsea cable manufacturing and laying capacity, which is already completely booked until 2002, according to Frank Denniston, Flag Telecom’s CTO.

The lack of competition among subsea cable system vendors represents another potential problem, Denniston adds. He maintains that TyCom has lost interest in its equipment business now that it’s aiming to build its own global network and compete with its customers (see http://www.tycomltd.com/press_011700.html). “When you ask them to bid, they give you a very high price,” he told delegates at the Telecoms Transmission Networking 2000 conference organized by IIR Ltd. in Barcelona last week.

Some industry observers say this has left Alcatel in a dominant position because its only other serious competition -- from Japan’s Fujitsu Ltd. (KLS: FUJI.KL), KDD Corp., and NEC Corp. (Nasdaq: NIPNY) -- isn’t particularly strong outside Asia. As a result, Alcatel has been able to focus on the low-hanging fruit in the subsea systems market -- the larger, lucrative contracts.

”That’s the first time I’ve heard that specific feedback,” says Alcatel’s Frame, who says he’d be delighted if it were true. “It’s emphatically not true,” he adds. TyCom is “still very active,” even though “it’s barely pursuing a strategy as a supplier." The Japanese vendors, he notes, represent “vigorous competition.”

-- Peter Heywood, international editor, Light Reading http://www.lightreading.com

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