Laser Blazers

Laser Blazers

Optical networking brings broadband delivery into a new dimension. So why aren't cable operators opting to get on board faster?

Engineers haven’t found a wire yet that they can’t figure out some way to feed more information through, and so it is with optical fiber. There are various methods of expanding the bandwidth of fiber, but the one option that has dazzled Wall Street and MSOs alike is dense wave division multiplexing (DWDM), or optical networking.

Wasn’t fiber supposed to be the ultimate in bandwidth? Why cram more data down the ultimate data pathway? Because there is a definite need for more bandwidth — eventually. It’s the "eventually" that makes DWDM interesting to cable operators such as AT&T Broadband, Charter Communications and the handful of other MSOs exploring the technology.

The quest for bandwidth solutions drove the optical networking craze to near-fever pitch early last year. Dot-coms appeared poised to transform us all into ravenous infonauts, purchasing products, downloading content and surfing the Net all at gigabit-per-second rates to a realm of unparalleled prosperity.

Networking startups had to fend off venture capitalists with a stick, easily raising millions of dollars for merely promising to develop broadband conduits or components using the almighty optical switch.

Investor confidence ran so high that when the NASDAQ dipped 11% in September, stocks for optical systems companies such as Ciena and Juniper Networks were hitting new highs for the year.

As with dot-coms, by the end of the year anything associated with big bandwidth or optoelectronics had lost its sheen.

In October, telecom equipment leader Nortel, which holds almost 40% of the global optical networking equipment market, announced a shortfall in third-quarter revenues. The company’s stock fell hard on the news, plunging 40% in one week, along with those of JDS Uniphase, Ciena and Corvis. Analysts issued advisories, venture capitalists closed their wallets, and investors abandoned the optical networking sector in droves, despite reassurances that Nortel’s problems were a result of surplus inventory.

The skittish money industry’s worst fears were confirmed the following month when AT&T Broadband announced a fourth-quarter shortfall in revenues meant it would rein in spending, delaying rollouts of some equipment — including orders for the MetroLink DWDM system from Harmonic, a primary source of DWDM equipment for cable operators. Other MSOs followed suit, announcing they, too, would pull back on equipment orders and expenditures.

Analysts say that in the wake of tight capital markets and AT&T’s decision to curtail expenditures, the entire cable industry seems to be following suit.

The fiscal cooling led Lawrence M. Harris of Josephthal & Co. to caution investors to explore other opportunities as the level of deployment of DWDM technology in 2001, at least for the first half, is likely to be modest.

"A particular round of upgrading has already occurred," says Harris. "Now cable operators are getting into intangible assets. Optical networking may improve their quality of service, but right now they need to improve their bottom line. So they’re focusing on areas such as digital set-top boxes or cable modems, which produce $10 to $20 a month. In this interim period, their focus has shifted."

Does the snapping shut of corporate checkbooks and recent financial market nervousness for optical networking spell doom for the sector’s growth with cable companies — just as the markets’ recovery from Internet fever over the same period struck a death knell for many dot-coms?

Don’t bet on it, says Michael Kujawa of Allied Business Intelligence, who projects 50% growth in the cable industry for DWDM equipment through the next few years. Kujawa completed a research report on the U.S. and global markets for DWDM equipment. It’s the nature of the money industry to take the short view, says Kujawa.

If something cools off, drop it immediately. Taking the long view, Kujawa asserts that competition from DSL and other communications companies makes it absolutely imperative that cable companies continue to deploy as much bandwidth as possible as soon as they can.

"At some point, cable companies and telcos are going to start eating each other’s lunch," he says. "These two beasts are locked together. They can’t stop. They stop, they die."

Acknowledging the tightness in the capital market and the disfavor optical networking is meeting on Wall Street, Kujawa adds, "You put it in or you go away. Or maybe get bought out, if that’s the way you want to go. People have to make some severe choices right now."

The competition is not just DSL, and the competitive playing field is not limited to consumers’ homes, either. Cable companies have to make a play for corporate business, and that means doing Web hosting and handling Internet traffic.

"The Internet data traffic may be doubling each year globally, but it is multiplying as much as 100 times at the metro area network level because there is so much aggregation," Kujawa says. "So cable companies have to continue these buildouts at a steady rate — including companies like AT&T."

DWDM has passed the crossover point where it is the most cost-effective means of dramatically increasing bandwidth, Kujawa notes. The only other alternatives are to string out more fiber or install equipment that allows you to transmit two specific wavelengths (1310 and 1550 nanometers) through a single fiber strand.

Kujawa also points out that even though AT&T is watching its purse-strings closely, the MSO is still testing DWDM equipment in its "LightWire" trial in Salt Lake City, while Charter Communications is continuing to deploy digital DWDM equipment for its plant upgrades. Others exploring the technology include Cox, Cablevision, Deutsche Telekom and Insight.

Allied Business is not alone in projecting 40% to 50% growth in DWDM equipment for the cable industry. DWDM is just a sliver of a slice of the entire optical networking market, which is anything but homogeneous.

An optical primer

Optical networking has come a long way in its short lifespan. The first version of DWDM technology in the mid-1990s could transmit data or voice (up to 625,000 conversations) through a single strand of fiber that had been divided into multiple colors, or wavelengths. The current version of the technology can deliver about 25 million conversations.

The concept behind DWDM is fairly simple: instead of transmitting a single wavelength of light through a fiber, transmit several. DWDM increases the bandwidth of optical fiber by making it possible to send multiple wavelengths — as few as two but up to tens of them — over a single fiber, with each wavelength constituting a separate channel.

Harmonic’s MetroLink DWDM system, which was introduced in 1998, increases a cable operator’s return-path capacity by transmitting eight wavelengths over a single fiber, which eliminates the need to build equipment into the hubs.

The technology increases the downstream and upstream bandwidth capacity of hybrid fiber/coax (HFC), allowing operators to provide narrowcast services directly from the headend — making it an ideal platform for two-way interactive services.

"Fiber is expensive. The biggest advantage of DWDM is that you get more bandwidth without using any extra fiber," says Chris Donang, Harmonic’s director-marketing development. "And if you want to segment your network, DWDM let’s you do that too without installing any extra fiber."

Besides the relative ease of installing Harmonic’s DWDM equipment, Donang points out an added attraction: There’s nothing to upgrade from the node to the home.

A brighter future?

The DWDM systems market jumped from $4.2 billion in 1999 to $8.9 billion in 2000, according to estimates from KMI in a recent report.

The market has grown at a 73% compound annual growth rate over the last four years, and KMI projects a growth rate of 43% through 2005.

According to another consulting firm, RHK, Nortel Networks led the overall optical transport market in 2000 with a 38% market share, up from 29% in 1999. This was due to strong shipments of both synchronous optical network (Sonet) and DWDM equipment, RHK says.

Lucent and Fujitsu follow with 14% and 12% share, respectively, in the overall market. Tellabs, Alcatel, Cisco, NEC, Ciena and Sycamore round out the list of leaders.

The rapid growth in the networking market is indicative of the utility of the technology and the relative ease with which it can be implemented. Those numbers, however, are driven almost entirely by long-distance carriers, which represent 90% of the DWDM market, according to KMI estimates.

Cable operators and other carriers are adopting DWDM at a slower rate — a rate that is accelerating, but nowhere near the activity of the telcos. Harmonic may be a bellwether company for DWDM, but only in the tiny cable portion of the market.

Meeting the cable challenge

That’s not to say MSOs aren’t exploring the technology.

In addition to AT&T Broadband’s test of Harmonic’s DWDM equipment in Salt Lake City, Comcast began deploying Harmonic equipment in 1999 to upgrade the return path from its hubs to its cable headends. Harmonic’s other MSO customers include Comcast, Adelphia Communications, Cablevision Systems, Cox Communications, Time Warner Cable and Charter Communications.

In November, Charter also tapped optical networking provider Synchronous as its primary supplier of 1550 nm fiber optic transmission systems. The San Jose, Calif.-based networking company has also been working with Adelphia, Cablevision, Time Warner Cable and Cox.

In a cable plant, DWDM technology is used primarily to increase bandwidth, but also for optical routing and reduction in access cost. The issue is one of flexibility, of having options. The factors a cable company has to work with are frequency, spatial multiplexing, spectral efficiency and wavelength.

Frequency options in an HFC plant include 750 MHz, 862 MHz and 1 gigahertz. Each frequency can be reused over time as the service set changes, providing flexibility.

Spatial multiplexing is contingent on the number of fibers necessary to run in the backbone and to each node, and how to load them. Spectral efficiency is based on modulation techniques — so that 64 QAM (quadrature amplitude modulation) can be switched to 256 QAM to increase bandwidth. To boost capacity further, there is the flexibility to combine transmission at 1310 nm and 1550 nm or use DWDM.

Most major cable operators are well on their way to upgrading their plants to HFC architecture, if they haven’t already finished doing so. As a consequence, the major MSOs have an abundance of bandwidth capacity just waiting to be used.

Unless the need for more bandwidth suddenly becomes critical — an unexpectedly huge adoption of cable modems, for example — cable operators are likely to have priorities for 2001 that do not include fiber optics, in general, or DWDM, specifically.

Tom Nolles, president of CIMI, a telecommunications consulting firm based in New Jersey, puts the situation bluntly.

"Without a doubt, there is too much bandwidth capacity already," he says. "The largest problem regarding optical networking has been the lack of a provable profit and revenue paradigm beyond the Internet. The cable industry hasn’t seen proof that they can make money off this. That’s why AT&T has cut back on their investment in optical networking and why the rest of the cable industry has followed suit. For the time being, further optical expansion is not likely to be rewarded on Wall Street absent some kind of regulatory reform."

Growth in the use of DWDM technology in the cable industry may be gradual in the short term, but there will continue to be growth, according to Harmonic’s Donang.

"Where it saves people from deploying fiber, they will be using it more and more," he says. "As cable modem subscriber numbers go up, the importance of using DWDM in the back-end will increase too."

That’s all downstream. On the upstream side, DWDM can also be the answer to a problem which few cable companies have much experience with.

Each customer subscribing to high-speed, two-way services represents a certain amount of traffic back toward the headend. Each customer’s line is susceptible to a certain amount of noise. The noise from each customer’s return path gets aggregated through neighborhood nodes, again through intermediate nodes, and again on into the headend. The more customers, the more noise — potentially too much noise.

To combat this, the industry devised a technique called "frequency stacking," which few consider an adequate response. DWDM can also provide a solution.

If each node is given its own wavelength and re-multiplexed on the way back, noise levels are never given the chance to combine to troublesome levels.

While the likelihood of returning to last year’s optical frenzy is unlikely, Josephthal’s Harris says cable companies simply cannot ignore the technology.

"As the number of cable operators increase their digital video, voice telephony, video-on-demand and Internet access, the need for optical networking will increase," he says. "Optical networking is not going away."