Free-Space Optimists

Free-space optics (FSO) companies pretty much have cut through the technical fog, only to find that an economic fog still awaits them.

When FSO firms such as Terabeam, LightPointe, AirFiber and Tellaire (www.tellaire.com) started up over the last 18 months, one of the first questions always posed to them was about fog — the literal kind. Everyone wanted to know whether it would work through fog, and it was a realistic concern. Most of the documented trouble with FSO technology up to that point had revolved around the weakening strength of FSO laser power as fog rolled in between window-based cell-site equipment.

Terabeam (www.terabeam.com), which in addition to being an emerging FSO carrier also may be the dominant technology innovator, has worked to solve the fog problem. Rather than increasing the number of cell sites and decreasing distance between sites to ensure strong signals, thereby also increasing architectural costs, Terabeam technologists have developed a way of controlling signal strength by literally fitting their transmitters with multiple layers of light filters or “sun glasses,” according to a Terabeam spokesman. In instances of increasing fog, the filters can be peeled off layer by layer to maintain signal strength.

The solution just may bring FSO some of the technical legitimacy that was lacking before. However, now that FSO is gaining solid technical footing, it may face an even more daunting roadblock — widespread adoption in an industry downturn that has many carriers and users keeping their checkbooks closed.

Carrier or Vendor?

Terabeam is feeling the effects of a sour economy in its carrier unit and is betting that a greater windfall may lie in its vendor business. As a carrier, Terabeam so far is operating FSO networks in its headquarters market of Seattle, as well as Denver. It previously had planned to enter another four markets this year, but that likely will not happen.

“We have slowed down deployment and network-investment plans to make our money go longer,” said Dan Hesse, Terabeam CEO.

Having both a vendor unit and a carrier unit under the same roof means that Terabeam “has two bites at the apple.” In other words, it can shift its focus easily to selling FSO technology if selling FSO-based high-bandwidth services isn't winning over enterprise customers. It appears that Terabeam is ready to do just that.

“Selling the technology to carriers is a better opportunity than selling it to (enterprise) customers,” Hesse said. “End users have been tentative in adopting broadband services. Selling to carriers is really a network-integration play, and we can offer them more than just a box.”

It remains to be seen whether carriers will fill Terabeam's appetite for revenue in its vendor business — Hesse admitted that the company is just starting to sell to carriers and has not closed a deal yet.

However, Hesse said Terabeam, which has been lauded for the experience of its management team, knows its target. Hesse himself once headed AT&T Wireless (www.attws.com) and held several domestic and international executive positions in its Lucent Technologies network equipment spin-off (www.lucent.com).

He said carriers may not be ready to build entire markets from the ground up using FSO technology, “but there is a big opportunity in selling FSO links to carriers to solve their pain points. It is cheaper and much quicker to put an FSO link up when you need the bandwidth rather than waiting months for fiber.”

On an international basis, the opportunity may be even bigger, Hesse said, because foreign carriers face restrictions, especially in some ancient cities, regarding where they can dig to lay fiber.

Looking to Foreign Markets

LightPointe (www.lightpointe.com) expects as much as 60% of the FSO market to originate from foreign-carrier deployments, said John Griffin, president & CEO. “Companies outside the United States have skipped wireline (because of restrictions), and they are also more open to trying something new,” he said.

Griffin is “starting to see a drumbeat” for FSO deployment both domestically and internationally.

“Carriers can no longer justify the cost of putting in fiber just because it's big-bandwidth fiber,” he added.

LightPointe has made several sales, according to Griffin, including its most recent — and undeniably, most significant — deal with Qwest (www.qwest.com).

“We're putting the technology in a couple of places for them and have been testing it for about a year,” Griffin said. “We have deployed with other carriers before this, but none of them are as big as Qwest.”

Although big carriers are more accustomed to buying technology from established vendors such as Lucent, Nortel Networks (www.nortel.com) and Cisco Systems (www.cisco.com), Hesse pointed out that none of the big network vendors has FSO in-house, giving the small guys a competitive edge despite the FSO market's slow emergence. Most of the FSO vendors, however, have gained strategic heft and money from the big vendors. Terabeam has an investment from and partnership with Lucent; AirFiber (www.airfiber.com) has links to Nortel; and LightPointe has received funding and distribution channels recently from Cisco and Corning (www.corning.com), Griffin said.

Griffin added that the investment by fiber manufacturer Corning is a sign that vendors recognize there will be an increasing demand for fiber alternatives. Big-vendor interest in FSO should make Griffin's market “drumbeat” a little louder, but with a focus on building links rather than networks, the FSO vendor community and market likely will keep a low profile for some time to come. Merrill Lynch (www.ml.com) published a report on FSO last spring in which it forecasted that the FSO market would grow from a paltry $100 million in 2000 to a modest $2 billion by 2005.

Carriers Cautious

A market growing by 20 times is nothing to scoff at, but Merrill Lynch stated in its report that the fog problem and other perceived shortcomings of FSO, such as laser misalignment resulting from building sway, are keeping carriers cautious. Maybe the technical fog has not completely dissipated after all.

Still, Terabeam officials argued that FSO is leaving all of its technical hurdles behind. To combat building sway, the company has invented an auto-tracking solution that keeps FSO lasers on target as building bases are pushed to and fro by variable winds. Without auto tracking, laser beams would need to be broadened, which would require greater power and cost.

With FSO companies, success will rely on their ability to outrun and outlive such technical issues. Other broadband-access technologies, such as DSL, took several years to emerge as viable market options due to the technical glitches that haunted them.

FSO vendors that have seen this happen time and again are optimistic the FSO market eventually will find footing. LightPointe's Griffin said, “Technologies come and go, and most of the time, it is because technology-adoption curves take longer than we think.”