PROVIDENCE, R.I. -- Following a 28 percent decline in the market for optical networking systems in 2001, the market will decline sharply again in 2002, according to KMI's new report, Optical Networking Equipment, 2001-2003: Market Update. KMI analysis indicates the market will hit bottom this year, and growth will resume in 2003, albeit at a sluggish pace. The KMI report, Optical Networking Equipment, 2001-2003: Market Update, covers the market value of terrestrial fiberoptic transmission systems, including SONET-SDH transport (including the "next-generation" segment), digital cross-connects (DXCs), dense wavelength-division multiplexing (DWDM), and optical cross-connects (OXCs). The data is segmented for major geographic regions and for both long-haul and short-distance (metro/access) applications. In addition to in-depth interviews with optical equipment manufacturers, the KMI forecast was based on a unique web-based survey that attracted 236 responses from carriers worldwide on their plans for procuring DWDM transport equipment and OXCs. Equipment vendors are facing a tough year, with revenues off by more 50 percent from the first six months of 2001 to the first six months of 2002. While bandwidth demand continues at a healthy pace, carrier revenues are not keeping pace, and their capital expenditures are constrained. Nevertheless, over the next year carriers will be experiencing historically high levels of capacity utilization on their networks that will require them to install new DWDM systems and to improve network utilization with OXCs. KMI's carrier survey showed that about two-thirds of service providers intend to award new DWDM and OXC contracts before the end of 2003, with most awarding new contracts in the first half of 2003. The recovery in 2003 will be modest. The consolidation of service providers will continue into 2003, while the shake-out among optical-equipment vendors has barely started. With too many vendors and too few customers, competition is fierce and prices are falling dramatically. KMI Corp.