Bandwidth demands continue to grow despite recession

Demand for bandwidth continues to grow unabated, according to a leading optical components manufacturer.

"Fundamental bandwidth demand just continues to increase for applications on computers and  cellphones," said Sinclair Vass, senior EMEA sales director for JDSU. "Over a the year period bandwidth demand is at least doubling and if anything that rate is picking up. And you just can't get around putting fibre in the ground to feed that demand.

Vass sees increasing demand driving consolidation in the market.

"The challenge for the whole industry is to find a business model which allows a smaller number of players to get sufficient revenue from the end customers to service that bandwidth."

The result has been consolidation in the network equipment manufacturing market, particularly with the merger of Ciena and Nortel-MEN, which could now become one of the top three companies in the market. Pressure from Asian companies will also keep the pressure on for equipment makers to cut costs and increase efficiency.

"Price erosion in this industry can be up to 30% per year, though usually it is more like 15 to 20%,' said Vass. "So you have to keep up with lean manufacturing techniques and cost reduction schemes to keep profitable."

Large Asian equipment makers, such as China's Huawei, which is now market leader in fixed-line DWDM equipment, are continuing to pile the pressure on to European and American rivals. Vass sees some Asian companies concentrating on delivering low-cost equipment by relying on lower-cost assembly at home, while some Western companies may have to move up the value chain by outsourcing the integration of basic components into higher level modules that they put together in their equipment.

"The market is going in two directions," said Vass, "one where customers want the lowest level of integration and the other where people want to outsource as much as possible."

Vass also predicts that the uptake of 40Gbit/s and 100Gbit/s optical links will change the supply chain for optical components.

"At 10Gbit/s, the optical components were the difficult thing," he said. "At 40Gbit/s and 100Gbit/s you need very strong links with ASIC manufacturers to do the electronics to stabilise the optical signals. So you have to choose who you want two work with and share the development costs. You need to find people who are prepared to lose money at the start so that they are in the best position to take advantage when the market takes off."

Vass says that the industry also needs to move quickly to ratify key standards to avoid the proliferation of multiple modulation standards in equipment deployed for 40Gbit/s and 100Gbit/s networking. The chosen schemes also need to provide  path to higher speed links at 400Gbit/s.

Vass also sees optical networking going the same way as wireless networking, with operators outsourcing the management of their networks to their equipment providers.

"For the network equipment makers there is an advantage in terms of bigger revenue, plus sales opportunities as networks get extended," said Vass. "But whether this approach will make it into the wireline side of the business is yet to be seen."

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