According to the WSJ (Optical Delusion? Fiber Booms Again, Despite Bust), the telecom industry has embarked on another fiber optic building spree. Some 19 million miles of optical fiber were installed in the U.S. last year, the most since the boom year of 2000, research firm CRU Group says.
This new fiber build-out bonanza comes 11 years after the last one fizzled out. When the telecom bubble burst in 2001, it wiped out $2 trillion in stock market wealth, caused major dislocations at optical networking firms like Ciena and Nortel. It also led to many start-ups going bust, especially those building Multi Service Provisioning Platforms (MSPPs or “God Boxes). Will this time be any different?
The Journal article states, “It is early days in what some in the fiber-optic business are calling a new boom for their long-beaten-down industry. Demand is being driven by skyrocketing Internet video traffic, requests from the financial sector for ever-faster trading connections, and soaring mobile phone use—which has to be tied into landline networks. Even the 2009 economic stimulus plan, which set aside $7.2 billion for telecom projects, is pitching in.”
But already some skeptics caution whether enough demand exists to warrant more fiber build-outs. While stock market and commodity futures trading firms are currently willing to pay a premium for faster connections, some worry that potential new regulations governing high-frequency trading could crimp the market. Skeptics also question how large a mobile traffic surge will materialize given the high cost of delivering wireless data. And even if it does, the amount of fiber needed for mobile backhaul will not be that great. That pales in comparison to the fiber already installed in telco’s long haul, backbone networks.
The WSJ concurs, “There is also plenty of excess capacity available on the nation’s core fiber-optic networks, according to TeleGeography, a telecom market research firm. And capacity is expected to increase as engineers find new ways of squeezing more data traffic into a single strand of glass.” And that’s due to continuing advances in DWDM (Dense Wave Division Multiplexing) technology, which facilitates more optical channels, at higher speeds, to be transmitted and received over a Single Mode Fiber (SMF) cable.
“A lot of us look at the current construction boom and question if history may be repeating itself,” said Will Hughs, the top U.S. executive for Australian telecom giant Telstra Corp., which sells long-haul telecom services to U.S. customers. In the underwater-cable market, he said, “the possibility for system excess is even greater” than it was a decade ago because technological advances mean that new cables can be built more quickly.
Telecom build out construction firms say it is the location of the fiber-optic networks—rather than their capacity—that is driving new demand. Networks don’t exist where they are needed—at cellphone towers, suburban office parks, and remote data centers, for instance. Carriers that prize reliability want alternative routes. And new uses, such as high-frequency trading (HFT), are also emerging that call for new routes and “carrier hotels.”
In most cases, new fiber build projects aren’t started until customers have been lined up. But some speculators are installing unsold “dark fiber” that has yet to be lighted up for customers, raising concerns that builders may again be getting ahead of themselves. Veterans of the 2001 collapse insist they are mindful of the lessons they learned and are being much more careful about where they deploy new cable.
“We are a lot smarter than we ever were 10 or 15 years ago,” says James Crowe, chief executive of Level 3 Communications Inc. His company helped define the telecom boom by building its own network from coast to coast, beginning in 1998. It lost more than 90% of its stock-market value a year after hitting its high in March 2000, but it was one of the few to survive the bust.
In recent months, for the first time since the 1990s, Mr. Crowe has started extending Level 3’s fiber-optic network into areas where he hasn’t yet signed up any customers, betting that the demand he needs to make money is there.
He is starting small, investing $50 million in such projects, less than 10% of Level 3’s capital investments this year. But he says the company built a database of three million office buildings, data centers and cellphone towers, pinpointing areas where Level 3 can risk expanding its network without first selling the new capacity.
“The demand has become so obvious,” Mr. Crowe said in an interview at his headquarters in Broomfield, Colo. referring to the surge in bandwidth intensive uses, like streaming video and smartphones. “You’ve got residential neighborhoods that consume more bandwidth than all of New York City did 15 years ago.”
But what’s so remarkable about this new fiber boom is that it doesn’t seem to be targeting commercial buildings in most metropolitan areas. Recent market research reports indicate that only 15% of commercial buildings have direct fiber access. The reason given is that “fiber to the business building” weren a much more difficult if not onerous buildout. Especially when compared to the long-haul fiber connections that could easily be plowed along railroads or highways.
Opinions differ on whether another fiber glut will result from the new buildout. Analyst Stephan Beckert says there is no lack of fiber in the country now—and with communications technology continuing to improve, it is hard to see a limit to how much data existing fiber can carry.
However Allied Fiber’s CEO Hunter Newby says there is an opportunity to offer fiber-optic capacity to Internet companies, wireless carriers, hospitals and others who want an alternative to entrenched carriers like Verizon Communications Inc. and AT&T Inc. “The notion there’s a fiber glut is not true,” Mr. Newby says, arguing that much of the fiber-optic cable that is available is simply not in the right place—not at the suburban office parks and cellphone towers that need it.
We think a key driver of new fiber optic construction will be 40G/100G Ethernet in Internet exchanges and high capacity data centers. We also see the need to interconnect many such “cloud resident” data centers to enterprise customers private networks and also to each other. So cloud computing and cloud storage could be a big boon to the fiber optic connectivity industry.
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