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In the worldwide optical equipment market, the torch has been passed to a new generation. According to consultancy RHK, global spending on next-generation optical equipment surpassed spending on legacy gear for the first time ever during this year's first quarter. Two years ago, carriers spent, in aggregate, just a third of their optical budget on next-gen gear. This year, they spent 51% on the new stuff, for a total of more than $4 billion in the first quarter alone.

Major equipment vendors are now in the precarious position of transitioning to those next-gen businesses, a move that takes as much finesse (and poses as much danger) as stepping from an unmoored boat to a pier. Lucent Technologies complained in a mid-year earnings call of the pain of waning interest in its legacy gear. Tellabs reported a healthy business from its legacy cross-connects, which would comfort investors if it weren't accompanied by concerns over how quickly and successfully the vendor can ultimately kick the legacy habit and subsist on next-gen revenue.

That these companies would turn to the next generation of start-up vendors for help was no surprise, with strategies yielding mixed results. Lucent used its partnership with Movaz Networks to win a prized MCI contract for reconfigurable optical add/drop multiplexing (ROADM). Alcatel, in turn, teamed with Tropic Networks to steal a coveted SBC Communications ROADM contract away from Lucent. More recently, Alcatel used its TiMetra acquisition to rob Lucent of a fiber-to-the-node contract with SBC.

Such partnerships have accelerated the shakeout of IP core router vendors, as Cisco Systems acquired Procket Networks, leaving one less vendor in the sector's musical chairs game. And Nortel Networks helped Avici Systems secure its place in the market. Start-up vendors left without partners, including Mahi Networks and Avici rival Chiaro Networks, are feeling heat for it.

Still, each relationship carries its own risk. Lucent joined with Ethernet equipment vendor Riverstone Networks despite mounting concern over Riverstone's finances. Ciena is juggling several partnerships and mergers (some would say too many), most recently betting on Turin Networks' next-gen multiservice provisioning platform (according to one source) after disappointing returns from a similar bet on Cyras a few years back. And Fujitsu Network Communications learned the hard way about the pitfalls of start-up partnerships when its stable of three next-gen vendors became a stable of two after one partner, CoSine Communications, went belly-up this fall.

The next year will likely tell if Lucent, Alcatel and others choose to acquire their next-gen partners outright or continue the courtship. Either way, the task is theirs to pick up the torch and light the next generation of optical networks.