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DWDM

Long-Haul Lag Lingers

It may come as no surprise, but let’s make it official: the long-haul market lag is here to stay.

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
www.lightreading.com
lightmaster 12/4/2012 | 9:18:58 PM
re: Long-Haul Lag Lingers Yes, RBOCs will adopt new technology, but not disruptive technology (i.e. disruptive to their networks). A rule of thumb I like to follow is this:

An architectural change internal to the product, or at least confined to the part of the network being "improved" is OK. Don't make anything else in the network change.

Example: You want to give me a SONET ADM that is cheaper, faster, and easier to install? Do you use the latest and greatest switching technology inside? Great, but don't tell me to manage it with SNMP and provision it with MPLS because I'll have to change my whole network management system. And don't tell me that it has to run on a packet ring instead of SONET because that will mean replacing a lot of stuff around it, including test sets, etc.

achorale 12/4/2012 | 9:19:01 PM
re: Long-Haul Lag Lingers "Get real! If this were true, our POTS lines would still be handled by mechanical stepper switches and long distance calls sould still be carried over DS3's!"

Sigh ...
Prizm 12/4/2012 | 9:19:02 PM
re: Long-Haul Lag Lingers "Existing carriers have no choice but to continue building on what they have. Once a piece of equipment is integrated in the network and carrying traffic they will not, never, take it out to migrate to a new cool technology, no matter how big the operational savings. They will never touch traffic carrying equipment and they will never throw anything away"

Get real! If this were true, our POTS lines would still be handled by mechanical stepper switches and long distance calls sould still be carried over DS3's!
achorale 12/4/2012 | 9:19:06 PM
re: Long-Haul Lag Lingers achorale wrote:

> Existing carriers have no choice but
> to continue building on what they have.
> Once a piece of equipment is integrated
> in the network and carrying traffic they
> will not, never, take it out to migrate
> to a new cool technology, no matter how
> big the operational savings. They will
> never touch traffic carrying equipment
> and they will never throw anything away

of course, even my evil twin would agree that
carriers do End-Of-Life legacy gear ...
particularly that which is found to have
reliability issues. depending on the
severity of the issues presented by the
legacy equipment, the provider might either
outright replace the gear or take a more
incremental cap-and-grow approach.

> Unfortunately for us "high-tech innovative
> and operationally advanced equipment" vendors,
> solving the operational efficiencies can only
> be done by throwing the existing network away
> and putting our stuff in.

certainly greenfield buildouts are rare,
prompting carriers to typically require an
elegant migration strategy to be in place
before any new element will be given any
serious consideration for deployment. at
any rate, any startup that either breaks
the existing operational models (whether
field operations or OSS usage) or fails
to provide a NSA approach to device
migration is a smoking crater waiting
to happen.

achorale

- a schizophrenic is never alone ...

optigirl 12/4/2012 | 9:19:10 PM
re: Long-Haul Lag Lingers You are welcome....

However, now that the "right" controls the executive and legistlative branches,

ROLL OUT THE TAX CUTS!!!!!!

Which means

No subsidy for you!!!!!
rjmcmahon 12/4/2012 | 9:19:11 PM
re: Long-Haul Lag Lingers RJMcmahon is a bit too left wing for my tastes but at least he/she thinks about a future beyond the stuff we have to put up with today.
_____________

Well thanks optigirl. That's a nice compliment.

PS. The he/she thing didn't work out. A daughter needed a father and four sisters liked their brother as he is -- not to mention that insurance wouldn't cover the operation and the convenience of a single pair of shoes. ;-)
TheChief 12/4/2012 | 9:19:17 PM
re: Long-Haul Lag Lingers When you then ask them what interfaces they require, they will tell you TL-1. At that point you can throw away/cancel all your development of advanced interface because they'll stick to TL-1 ad vitam eternam!
==================================================

All too true! Worked on a box developed by data guys that reported alarms via SNMP traps. Guess what, we added a TL-1 interface.
achorale 12/4/2012 | 9:19:18 PM
re: Long-Haul Lag Lingers Firstmiler
Existing carriers have no choice but to continue building on what they have. Once a piece of equipment is integrated in the network and carrying traffic they will not, never, take it out to migrate to a new cool technology, no matter how big the operational savings. They will never touch traffic carrying equipment and they will never throw anything away

Unfortunately for us "high-tech innovative and operationally advanced equipment" vendors, solving the operational efficiencies can only be done by throwing the existing network away and putting our stuff in.

And you know what's really funny, even the new "innovative" CLECs are using the same opex-inefficient equipment and procedures. Why? Because it works and because it's the only thing they know (remember almost all of the employees of the CLECs come from the incumbents)

I always love it when a carrier customer, incumbent or not, asks you to explain management interfaces, automated provisioing features and the likes. When you then ask them what interfaces they require, they will tell you TL-1. At that point you can throw away/cancel all your development of advanced interface because they'll stick to TL-1 ad vitam eternam!

Guess is the high-tech networking anachronism
lightmaster 12/4/2012 | 9:19:30 PM
re: Long-Haul Lag Lingers Firstmiler,

A lot of what you say is true. The RBOCs still suffer from a legacy inefficiencies driven by cost-plus pricing, and now all IXCs and RBOCs seem to be driven by a somewhat mindless cost cutting strategy, sometimes at the expense of service quality.

However, I cut the incumbent carriers a certain amount of slack. It's easy to be innovative when you are a CLEC building a network from scratch, or only have a few hundred or thousand customers to work around. Try introducing new "improved" technology to a network that is already supporting millions of users and requires constant availability. How would you feel about loosing your phone service for few days because your RBOC was making their network more efficient with new technology? This requires a pretty restrictive process and control to ensure that the existing network is not broken.

It's easy to talk about making exceptions to the process "just this once" (hey, I've asked the question too) to get a big improvement. But once becomes twice, and three times, etc. Pretty soon the network is a conglomeration of exceptions and is unmanageable.

Now, I'm an equipment guy for decades, and people who get get excited about management software scare me. However, I have to say that the key to getting new hardware technology into the system quickly is to fix the management/provisioning software issues, and to do it in a way that doesn't impact the existing network. That's the holy grail, but an extremely hard task to accomplish.

Meanwhile, equipment vendors can't just expect the RBOCs to ignore their own issues so we can sell equipment.
whyiswhy 12/4/2012 | 9:19:37 PM
re: Long-Haul Lag Lingers So the beauty of 802 (wireless) is it does not depend on a service provider. The truth is it can work peer to peer quite happily. It can be made to be self provisioning and self organized: like AppleTalk was or FireWire is. It is broadband, very broadband. It will start in the home or the office, peer to peer, and eventually out into the neighborhoods.

I am not holding my breath for RBOCs to upgrade to broadband 802 wireless. Even if they go broadband, they will just choke it down like they do VDSL, and try to charge big money for it. Screw 'em. Broadband peer to peer relayed networks will go a long ways at high speed at near zero cost.

All we need is an occasional fiber node for the long haul stuff. Long haul access is dirt cheap.

JMHO

-Why
firstmiler 12/4/2012 | 9:19:37 PM
re: Long-Haul Lag Lingers Amen Whysiwhy,

All carriers and customers of transport equipment are continuing to apply band-aids, throwing good money after bad, instead of looking at viable projects that will drive justified ROI. More money is going into legacy SONET, ATM, TDM gear, continuing to expand muli vendor networks which inevitably pushes up OPEX.

Very short term thinking. How about new means to differentiate one's telecom services in a given market, or expand into other/new markets, or generate more revenue from existing physical plant?

Carriers are now being run by imports from other industries which will focus first on cost-cutting because its in vogue and its all they know how to do.

The real future won't start for at least another 18 months.

FM
lightmaster 12/4/2012 | 9:19:38 PM
re: Long-Haul Lag Lingers Optigirl,

Keep preaching. You can also add:

New technology involves expensive investement in qualification, retraining, etc., and most likely will involve furthur investments in OSS modifications (let's migrate TIRKS and NMA to an MPLS based provisioning system...right). And your new product is missing a few operational features that I depend on in my "old" product? All of these factors can easily overwhelm the opex savings claimed by the vendor. Oh, and if I take the risk and it doesn't work out, I get fired. If I propose it and it gets shot down, my name goes own the top of the list next time there are layoffs.

Tell me you can sell me the exact same widget that I get today, but smaller and cheaper, then I will listen. I can quantify dollars, space, and power savings and look like a hero, not a goat.
optigirl 12/4/2012 | 9:19:38 PM
re: Long-Haul Lag Lingers You speak wisdom, unfortunately...... sad that people get canned for being innovative, isn't it? Vendors have no choice but to try and differntiate themselves, visionaries have to tell a story to be heard and it gets boring to keep writing about legacy technologies. RJMcmahon is a bit too left wing for my tastes but at least he/she thinks about a future beyond the stuff we have to put up with today.
optigirl 12/4/2012 | 9:19:40 PM
re: Long-Haul Lag Lingers This is an interesting point. Good luck selling technology solutions to people who buy the stuff when cutting Opex means they could be out of a job. When you get a budget cut and are told you still have to meet increasing traffic demands you make do with what you have. Squeeze an extra lambda out of that DWDM system, beat up your vendor for a deal on yet another SONET ADM or card and you start to see that new technology is frowned upon regardless of the bill to be paid later.
whyiswhy 12/4/2012 | 9:19:40 PM
re: Long-Haul Lag Lingers You got it...I could tell from your posts you were pretty sharp. Major opex cuts will come from entirely new ways of doing things, like wireless. Wireless is self provisioning by design: it is an intelligent broadcast network. So looking for lower opex costs means going wireless, since most of the opex costs are provisioning and maintenance.

Look at China and India: the average city person can afford cellphone service because of its low initial and operational costs.

Same goes for data, although the 802/GGG infrastructure is not quite there yet. Fiber will continue to serve the cell sites, but provisioning of that stuff will not need to be instant....just more of it.

-Why
optigirl 12/4/2012 | 9:19:40 PM
re: Long-Haul Lag Lingers I agree stongly with what you are saying but going wireless means going against the status quo. We are becoming increasingly mobile as a society but we have years to go before we make it to the next level. We face some strong resistance from the entrenched carriers who have a lot to lose from moving beyond the hard wired paradigm of networking. We have to overcome security issues, we need to find financial backing to build it and we have to have a means of paying for it. It is easy to become cynical about the state of the world but the nice thing about being in America is the power of dreams and innovation, not to mention ego.
whyiswhy 12/4/2012 | 9:19:42 PM
re: Long-Haul Lag Lingers "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."

Opex savings might sell to the investor community, but it is not selling to the people that buy equipment. What we see is simple cash conservation: the cheapest near term approach wins, on a point by point basis. Exactly the approach that got them in the Opex problem in the first place. A collection of high maintenance, high design, high install costs: multiple vendors, multiple protocols, multiple products, multiple customers, multiple fibers, multiple locations...

The future is a collection of near term decisions.

-Why
lightmaster 12/4/2012 | 9:19:44 PM
re: Long-Haul Lag Lingers It's hard to compare these firms as they specialize in different things. Note that these comments are directed mostly towards the telecom practices of each firm.

RHK: Publishes research and forecasts. Forecasts are always wrong. Add up all of their forecasts and they exceed the US GNP (ok, so I exagerate, but no more than they do). Research is sometimes OK, depending on the analysts that covers the area. Sometimes you get lucky and find a pragmatic analyst.

Yankee: Ditto RHK. Forecasts always wrong. Some research is OK. Always seems to be reorganizing the practice so nobody gets to cover anything long enough to learn it. Do cross connects belong under SONET or Optics? Lots of turnover in the last 2 years.

CIR: Both forecasting and reports. They are my favorite. Their forecasts are the most pragmatic, and they sometimes bite the mouth that feeds them. Not perfect (Mark L got a little ethernet happy when he came on board, but came back to earth quickly). Head sales guy is sharp and could be mistaken for an analyst at many firms.

CA: Different because they specialize in giving customers a quick analysis of events within a day or two after they happen. As a result, they don't get very deep. Doesn't mean they aren't deep, but the the medium doesn't allow them to show it.

Pioneer: IMO, regardless of your opinion of Scott C, they didn't make the radar screen before Scott and don't register any more.

Dell'Oro= Research numbers telling us what already happened. Very usefull to many, but not if you are looking for what will change in the future. Gives RHK and Yankee a baseline to which they can append their hocky sticks.

Telechoice: Used to be OK, lots of people are gone. Chris Heckart was a big loss. Their "strategy lab" was pretty decent, but it seemed to become a religion for them in that they couldn't think outside of their own model.

Someone asked who's taking care of Tellabs? On their website, they list Zepetella of Probe, Michael Howard of Infonetics, and Cooperson of RHK as references. However, it doesn't seem to have bought them much in terms of exposure. That's because Notebart filled the marketing communications department with ex-Ameritech people and they remain after he left.
optigirl 12/4/2012 | 9:19:44 PM
re: Long-Haul Lag Lingers No Brit....always thought it funny though.

Yes, he is smarter than the rest of us....how can you earn over a million in cash for the job that he has done?
porn starr 12/4/2012 | 9:19:44 PM
re: Long-Haul Lag Lingers Smith might be a wanker (you sound like a Brit OG), but he could be the smartest guy in this business. Every other CEO whose revenue dropped by more than half is gone -McGinn, Roth, etc. Ciena's revenue is down 90%, they have an unusually high burn rate, they've destroyed all kinds of customer goodwill created when Pat Nettles was CEO, and somehow Smith has kept his job and collected a nice bonus to boot. He must know something we all don't.
optigirl 12/4/2012 | 9:19:45 PM
re: Long-Haul Lag Lingers A friend of mine used to work at Ciena said his Highness Smith was pissed after reading comments in the local paper questioning the management decisions. Then again, he prefers employees not think beyond what he wants them to so it wouldn't shock me to see an analyst firm get fired.

Tellabs is looking pretty good lately. They are scoring business at Sprint, Qwest CEO was Tellabs recent CEO (gotta support those stock options, no?) and they look good at Verizon. Lucent is stinking up the joint there so Tellabs looks good again.
Elvis Doesn't Live 12/4/2012 | 9:19:46 PM
re: Long-Haul Lag Lingers This is a dynamic market???? How so, bro? I'm still waiting for Metro DWDM to happen, the next gen carriers all died, SONET still rules, ethernet is stuck in the enterprise and most people still access the web via dial up.

The hype is dynamic I'll grant you but the world looks a lot like it did back in 1996....just like my fuc_i_g portfolio!!!!!!
Elvis Doesn't Live 12/4/2012 | 9:19:46 PM
re: Long-Haul Lag Lingers OG:

Just heard a rumor that they were cutting back on staff again (like who isn't). Do you really need 10 components analysts or 12 optical transport people along with forecasters and consultants? They have already had 3-4 rounds of cutbacks and I can't see the market being able to carry their sorry ass much further. They will remain as a player on some level (thanks to PR flacks like AgentSmart) but they cannot command any prestige the way that they used to.
twistedcopper 12/4/2012 | 9:19:46 PM
re: Long-Haul Lag Lingers TELM to $10!!!!!!
(thanks for the reminder optigirl)

* You're right about RHK and Nortel.
* I don't recall CIR criticizing Ciena's CEO... I'd love to see that spread. Is that a new CIR report?
* Tellabs is a dinosaur. If you're right about CIR + wanker CEO, maybe CIR will support TLAB (after all, don't they both believe in patch panels forever?).

TELM to $10!!!!!!!

-twisted
optigirl 12/4/2012 | 9:19:47 PM
re: Long-Haul Lag Lingers Hey Twisted, you actually posted something beyond Tellium to the moon....

Analyst PR seems to rotate. RHK's sugar daddy was NT until alcatel came along. Yankee sold out to all of the CLECs until they went out of business and then ponied up to NT, CIR was big on Ciena until they criticized Ciena's wanker of a CEO earlier this year and got canned for their troubles. No word yet on who they like (not they like anyone really)

Question: Who shills for Tellabs? These folks are starting to look good again.
optigirl 12/4/2012 | 9:19:47 PM
re: Long-Haul Lag Lingers Greetings Benson, et al:

I think these are interesting comments and I happen to agree with some of what I see. I will forever remain a skeptic of RHK until the Good Dr. Ryan leaves. Agent "Not So" Smart must be buying some good PR from those folks to make that statment.

The UBS Conference got the top telco and financial execs.

The Sonet market is going to continue to buy legacy gear regardless of what you thought you heard.

Optical God Boxes just won't happen.

By the way, CIR's total optical US LH forecast was maybe $1.1 billion this year and no better next. Sounds like an explosion to me, not.

Yankee stinks but for you to give them a "C-" means you either were not subscribing or they didn't kiss up to you.

Scott kept himself well informed talking to vendors like yourself.

Scenario planning is for those who do not have the intelligence or the courage to make a call and stick by it. Guess that's why they are teaching it at RHK this week.

By the way, Elvis, how many people are they letting go of?







Elvis Doesn't Live 12/4/2012 | 9:19:48 PM
re: Long-Haul Lag Lingers AgentSmart has to work as a lower level flack in the PR dept. for a vendor who buys RHK's stuff. No other rational person could say that. Dollars to doughnuts he/she is happy to hear the crap that RHK feeds his/her senior management about how great they are doing in exchange for a nice check every year regardless of how poorly their sales suck or how poorly RHK forecast the market opportunity. My gut says it is either someone from Alcatel, Ciena or Corvis.

Clavenna did a whole lot of cheerleading for Ethernet, CLECS, (now) bankrupt carriers and his forecasts were full of it as well.

twistedcopper 12/4/2012 | 9:19:48 PM
re: Long-Haul Lag Lingers Come on guys, let's get real. All analyst firms are whores.

No grades necessary.

Elvis is on to something with analyst firms = PR departments... let's look at it that way.

Current Analysis = PR for Lucent
RHK = PR for Alcatel
CIR = PR for Ciena
Yankee = PR for Nortel
Telechoice = PR for Tellium (although I think they can stand on their own)

There must be others, but they're not coming to me.

-twisted
porn starr 12/4/2012 | 9:19:49 PM
re: Long-Haul Lag Lingers I would like to give this research house the benefit of the doubt here, but unless you specialize in colonoscopy, you shouldn't call your company Probe.

benson 12/4/2012 | 9:19:52 PM
re: Long-Haul Lag Lingers AgentSmart;

Anyone who would put RHK at the top of the list is clearly smoking something. I and others (optigirl, where are you?) have documented on some of these pages the fraud that has been perpetrated by this gang, but I don't have time to repeat it here. They are the Jack Grubmans of this market. Actually, that is why they have been successful: the financial Jack Grubman'.s needed market analysis Jack Graubman's

As I have written before, I am disappointed with Lightreading for not throwing some light on what occured in the market analysts community during the heyday of the boom.

Benson
AgentSmart 12/4/2012 | 9:19:52 PM
re: Long-Haul Lag Lingers This could make a great LightReading article--ranking the firms that rank service providers & vendors.

Some observations & what I've heard from others:

RHK: B-. For all of their failings & market hype in 2000-2001, they've made some decent progress in rethinking the market. Elvis Doesn't Live certainly is not attending StarTrax this week because if he/she did, this person would recognize this is the best-attended analyst/consulting event in the industry. And RHK had great service provider involvement at the event.

Yankee. C-. While I hear their vendor research generally has been weak and they often hover in the ozone with fluffy ideas, by experience I know they have some good contacts at service providers and generally understand what's going on in the carrier space.

CIR. C. This company forecast the longhaul SONET mux market to explode over the next few years when all the service providers are telling the market they don't want to spend money on that stuff.

I don't have a whole lot to share on other researchers except to say Clavenna always has done a good job of keeping himself informed.



Elvis Doesn't Live 12/4/2012 | 9:19:53 PM
re: Long-Haul Lag Lingers You grading along a curve?

My rankings:

RHK: F They have a long way to go to make up for their evil ways in terms of dishonest forecasting and marcom services for clients. Ryan should have followed Linda the Seal out the door into retirement and taken Dana Cooperson with him. Smart technical people though. Expecting yet another layoff after thie week's Star Trekk.

Yankee: C+ They do a lot of shilling for people Too much in bed with AT&T for my taste, they canned their optical people (no great loss) and have forecasts that are way too high. Good IT stuff from what I am told and Berge is flat out one of the smartest telecom people out there.

CIR: B+ They have gone out of their way to lay some lumber to companies which doesn't make them many friends. Their numbers always seemed low compared to other people but as it turns out they were a hell of a lot more accurate than everyione else. Lots of experienced people there with good telco contacts.

CA: B They make comments about stuff that is not always that significant. Nichols is a vendor mouth piece but Anna Reidy knows a good thing or two. They are not a research firm so they are different.

Pioneer: G (Lower than F) Makes Yankee and RHK look realistic if you can believe that one. Going bankrupt I hear.

Dell'Oro= Numbers house but have no knowledge of them otherwise.

Strategies Unlimited: B+ Heck of a lot of smart people over there with respect to components!!!!

Morgan Stanley: A- Good calls on stocks and they have a smart crew. Dave Jackson is very good!!
oc-3072 12/4/2012 | 9:19:53 PM
re: Long-Haul Lag Lingers elvis-

i think you're pretty right on with your review of probe... i give them a c+/b-. what do you think of these rankings:

rhk: b+
yankee: b/b+
cir: c+/b-
probe: c+
current analysis: a-
pioneer: d+ (now that scott is gone)
dell-oro: a-/a

any others?

best,
oc-3072
Elvis Doesn't Live 12/4/2012 | 9:19:54 PM
re: Long-Haul Lag Lingers I can't believe that an analyst spent time analyzing the decline of the LH market and LR gave them the time of day for doing it. This reads like a recap of stories that we have read over the past 15 months.

Tell us something we don't already know.

Stick with Voice/IP sweetie, your firm is too late for this market.
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