Williams, Corvis Lash Back

BALTIMORE – NFOEC – Top executives from Williams Communications Group (NYSE: WCG) and Corvis Corp. (Nasdaq: CORV) banded together at this morning’s opening session at the NFOEC conference in Baltimore to deny the notion of a bandwidth glut.

The position is unconventional, to say the least. The telecommunications industry is scaling back on expansion plans as the financial markets have largely voted against the need for carriers to expand their fiber optic networks while their losses and debt levels mount.

Matthew Bross, senior vice president and chief technology officer for Williams, and David Huber, chief executive officer of Corvis, presented separately at this morning’s session. But both officials blasted the media and analysts for perpetuating what they say is a false claim that too much capacity exists in carrier networks.

In his remarks, Huber went right for the jugular: “The media and analyst community have done a disservice to the public with talk of excess bandwidth,” he said. “It’s true there is a lot of dark fiber, but the fiber cost is only about 5 percent of the total network cost.”

Both Huber and Bross emphasized the difference between dark fiber, raw cabling with hundreds of fiber installed in the ground, and lit capacity, usable bandwidth.

“It’s like saying there are too many microprocessors in the world because there’s a lot of sand on the beach,” said Bross. “Yeah, there’s a lot of fiber in the ground, but you still have to light it and turn it into usable bandwidth. That’s not a long-term oversupply.”

Huber blames the media’s mischaracterization of the issue for exacerbating the lack of capital in the sector. But venture capitalists contend the pervasive notion that there is already too much capacity hasn’t really affected VC investments in new startups looking to create more bandwidth. Instead, they say, the long-haul network was simply over-funded.

“Some areas have definitely been over-invested in,” says Sandy Roskes, investment manager for PentaPort Venture Advisors. “How many more all-optical switching companies do there need to be? Or how many MEMS companies are necessary?”

Bross and Huber aren’t the first executives to lash out at the press over the bandwidth glut. Joseph Nacchio, CEO of Qwest Communications International Corp. (NYSE: Q) ranted on a conference call with analysts and investors last month over the exact same issue. He said that simply calling dark fiber “bandwidth” was misleading, because for every $1 used to dig up a street and install fiber it costs another $2 to actually make that fiber usable (see Sour Grapes of Roth).

“If you want to measure utilization, and you want to measure capacity in this industry, you have to look at the three dollars you have to spend in order to build a network, not the one dollar,” he said.

While these executives say there is plenty of fiber installed in the ground, one lingering question remains: Is there already enough dark fiber lit to satisfy the current bandwidth demand? Williams’s Bross says that demand for bandwidth on his network is growing.

But some industry watchers disagree with Bross’s assessment. “At the moment there is plenty of fiber,” said Peter Tierney, vice chairman of Sphera Optical Networks Inc.. “And these carriers have already lit a lot of capacity. They have enough bandwidth for sale in certain routes; they’re constricted in others. But for the most part they are fine right now.”

These differences of opinion are reflected in the results of Light Research's poll this month, The bandwidth glut. So far, 41 percent of respondents say there's too much capacity, 23 percent say there's too little and 36 percent say it's about right.

- Marguerite Reardon, Senior Editor, Light Reading

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lagreuse 12/4/2012 | 8:07:07 PM
re: Williams, Corvis Lash Back I think there is some validity to what these service providers are saying re the fiber glut. In fact, I would take Nacchio's example of $1 to dig the ditch one step further. To measure the incremental cost of this dark fiber, should we not look at the cost of laying down the additional 8 fibers that are not lit, as opposed to the 2 fibers that are lit (because the ditch had to be dug for the 2 lit fibers regardless). If this argument holds, is it not reasonable to state that the incremental cost associated with dark fiber is perhaps closer $0.10, instead of the $1 that Nacchio refers to?

Perhaps Carr from Tellium had a point when he stated that dark fiber is prudent planning rather than overcapacity. In otherwords, why dig another ditch in 3 years if you can just lay down some additional strands today?
Dredgie 12/4/2012 | 8:07:07 PM
re: Williams, Corvis Lash Back If there is a ton of bandwidth, out there, IGÇÖd like to see how of SpheraGÇÖs business model is holding-up. I hope whoever is buying their services are getting them cheap. Supply & demand right? The big-guys must be able to undercut them, if they want that sort of business, that is.
fatchance 12/4/2012 | 8:07:06 PM
re: Williams, Corvis Lash Back Traditionally copper cable was installed with lots of excess inventory to be available for demand growth. As customers requested service the unused copper could be connected to new central office equipment. The same is true with fiber, it is in-place inventory for future use, not exactly excess capacity, until the electronics are added to provide services to end users. It's a way to reduce construction costs associated with running cable.
photon schmoton 12/4/2012 | 8:07:05 PM
re: Williams, Corvis Lash Back LR - Or some qualified guest writer, how about printing an article on the real breakdown of bandwidth costs? That is if anyone can be found who knows the answers. I mean really guys, we have a bunch of very smart people disagreeing on fundamental issues of what it costs to deliver bandwidth. This is more than cost accounting. This is a go/no go for many of the companies in this industry. At any rate, it would be excellent for discussion.
captain kennedy 12/4/2012 | 8:07:05 PM
re: Williams, Corvis Lash Back This may not be the only answer, but DWDM certainly divides the cost of optical amplifiers and dispersion compensation.
rs50terra 12/4/2012 | 8:07:05 PM
re: Williams, Corvis Lash Back That is true. Copper plant was engineered taking into account demand forecast, depreciation and the cost of upgrading the plant. Thus, the access part was designed with a 25 year horizon and operators have usually deployed 1.25 pairs per living unit (that was in the days when every house had one phone and very rarely two). The feeder part, which was easier to upgrade, was deployed with a 10 year horizon only.
So what about fiber?
When the cost of laying fiber is many times more the cost of the fiber strands itself, it makes sense to put more strands than actually needed.
My only question would be though: If there is so much unlit fiber, why do we need DWDM?
whose 12/4/2012 | 8:07:04 PM
re: Williams, Corvis Lash Back mpl - u must be a Republican - your figures are so conservative. But I applaude your calculations. This tells me that there's no glut, but a shortage! What's holding back the demand is MONOPOLY. Can anyone spell BELL, can anyone spell ILEC. Perhaps we should start demanding from the ILEC's and the politicians whom they are financially supporting, that if they are to remain a MONOPOLY then they better start providing BANDWIDTH ON DEMAND. I'm tired of them hiding behind finacial models that they claim won't justify the economics - Bul...t. Come on engineers, figure it out, what's the opportunity value of Broadband (and I mean Broadband 50Mps, not 400-600Kps) to each urban and suburban home. Did you not notice that the optical market tanked just after the ILECs drove the CLECs and BLECs out of business? And the politicians let them do it. You can't expose an nascent industry like that, one that takes $B of CAPEX to get off the ground, to a bunch of vicious MONOPOLISTS that stealthfully undermined the whole industry.
whose 12/4/2012 | 8:07:04 PM
re: Williams, Corvis Lash Back There's another "cost" that we can't forget to figure in - TIME TO MARKET. If your customer wants service, and you don't have the fiber - you're screwed. But if you've got some spare dark fiber - a couple of terminals and such and you're lit! Lead times for fiber - long. Lead times for gear - short. Makes sense to me to have all this dark fiber available. But then, Wall Stree analysis are clueless when it comes to time to market -
mpl 12/4/2012 | 8:07:04 PM
re: Williams, Corvis Lash Back Recent US monthly Internet traffic estimates range from 50 to 200 petabytes depending on the source.

FYI: mega (6 zeros), giga (9 zeros), tera (12), peta (15), exa (18), hepta (21)

A single gigabit per second connection can generate 324 terabytes of IP traffic a month if it is running at 100% capacity 24/7. This roughly equals 1/3 of a petabyte or 0.16% (1/600th) of all US Internet traffic (assuming 200 petabytes a month).

High definition video on demand is a 1.2 gbps stream that is efficiently compressed to 20 mbps. 50 high definition video streams would account for 1 gbps of traffic. Do the math, and you realize what type of bandwidth we're going to need in the metro/access space to deliver this type of programming.

There are 100 million US households.

1)10% of households eventually get high definition video on demand services.

2)Each of those households views ten 2-hour videos on demand each month.

What Internet traffic would that amount to?

Try 1,800 Petabytes of data traffic a month just from video on demand services. This is 9 times greater than the highest estimates of current US Internet traffic each month.

Enterprise LAN traffic is estimated to be 100,000 to 1 million times greater than Internet traffic at the present time. What happens when gigabit ethernet over optics allows the LAN simple and affordable access to the MAN?

Do the math.

Photonics and Optics will have their day.

Eventually people will say posts like this were "masters of the obvious". Let's hope they can back those claims with their portfolios.
whose 12/4/2012 | 8:07:03 PM
re: Williams, Corvis Lash Back Okay, so what's the problem here...

There's no glut of bandwidth (supply) - mpl proved that.

There no shortage of demand - who wouldn't want the services that broadband provides?

Is the technology available? - it is and it will be economical in mass production quanities.

So the laws of supply and demand show that demand should be driving more supply...

The issue is the MONOPOLISTS (aka ILEC's) are distorting the market through their manipulative control of the loops! FREE THE LOOPS!
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