Long-Haul Lag Lingers
A Probe Research Inc. report released late last week states that revenues for long-haul optical equipment in 2002 have dropped more than 50 percent compared to last year (see A Long Haul for Long Haul).
And Probe says the decline is here for the -- well, let's say it --the long haul. The sector won’t pick up at all until 2004, says Maria Zeppetella, the vice president of optical infrastructure at Probe and the author of the report. She sees revenues in the sector reaching $6.1 billion in that year. Sadly, she doesn’t expect revenues to surpass their 2001 level in the foreseeable future: even in 2007, revenues will total only about $9.2 billion.
Long-haul optical equipment, which allowed carriers to build high-capacity global fiber optic networks, was a focus of the telecom boom in 1999-2001. In 2001, the long-haul sector cashed in $10.3 billion, representing 51 percent of total revenues in the optical market, the report states. In comparison, revenues in the long-haul market will barely reach $5 billion in 2002, accounting for about 45 percent of all optical revenues, says the report.
The report, based on interviews with many service providers, points out several factors contributing to the freefall. Topping the list is the enormous glut of capacity already in the ground.
"The most important reason was over-capacity," Zeppetella says. "If you don’t need any more optical equipment in your network, you’re not going to buy any more. All the long-haul networks are already built."
Unrealistic traffic growth projections from the likes of UUNet receive much of the blame for setting the ball in motion in the first place. These aggressive projections led service providers to overbuild their networks, which in turn led equipment vendors to create large inventories (see Did WorldCom Puff Up the Internet Too?).
Service providers have been forced to come to terms with more realistic average growth rates of about 100 percent annually (compared to the 1,000 percent annual growth rate UUNet was claiming in the late 90s), Zeppetella writes in the report. In addition, she says, service providers have far less cash than they did during the boom years. [Ed. note: Don't we all!]
Other factors that have contributed to the lack of confidence in the sector include questionable accounting practices, investor skepticism, and an inability to offer profitable new data services, the report states. Offering some hope, Zeppetella says that some service providers have at least been indicating that they’re getting more of a handle on how to make data services more profitable.
Another tiny bright spot shining through in the report is that the WDM market outside the U.S. and Europe grew from 2001 to 2002, jumping from $332 million to $403 million. In North America, the WDM long-haul market was the hardest hit.
Looking to the future, Zeppetella observes that the new market reality has changed the focus of R&D, as well. Instead of focusing purely on creating the fastest and coolest technologies, labs are now concentrating on developing products that will cut operating expenses.
— Eugénie Larson, Reporter, Light Reading