What's Up With The Fiber Optic Market?
In the last month, we have attended two marketing meetings on fiber optics. The first, sponsored by the San Diego Telecom Council featured a market analyst for an investment company looking into the prospects from a investment standpoint, while the second was KMI Research's 25th annual extravaganza in Newport RI. Both offered some hope, but also some worries.
The SDTC meeting was held in a hotel meeting room next door to a medical seminar on "Wound Management." Several attendees at the SCTC meeting wondered if we were in the wrong meeting, as "wound management" could rightfully describe the current activities of lots of companies in the fiber optic business! We were surprised at the big turnout, as San Diego is the center of wireless telecom (Qualcomm is based here) and wireless is pushed for every possible application here.
KMI's meeting was even bigger and included many "movers and shakers" from the industry. This meeting is where lots of important information gets released - going back to the meeting exactly 20 years ago when MCI announced their commitment to use SM fiber for their long distance network, abandoning digital microwave.
Both meetings came to the same conclusion. The FO business has reached the bottom and things are looking up. Well, sorta. The bust has driven component costs so low that profitability is difficult for manufacturers. Rich Mack of KMI pointed out that prices for SM optical fiber is at about 2 cents per meter, less than kite string and monofilament fishing line! Consensus was that manufacturing in very large volume and/or low labor cost areas was the only way to make a profit. Component prices being lower means volume is higher to reach equal sales.
Long haul telephony is still slumping but metro networks, especially in second-tier cities is healthy. FTTH (fiber to the home) is getting a lot of attention because of the PON (passive optical network) standard and open RFQ from Verizon, SBC and Bellsouth, but nobody seems to believe it is real. See our notes on FTTH below. SM fiber consumption by the RBOCs was down from 8 millon fiber-km in 2000 to about 2.3 million fiber-km this year. Growth rates in the single digits compare poorly with 20-30% in the 1990s.
A consequence of the big blackout earlier this year is renewed interest from the power companies in more efficient grid management. Using fiber for both feedback and control creates a big market for fiber optic cable, components and installation.
Multimode fiber and components are doing better, up to about 6-8% of the market, due to its use in high speed networks and security systems. This is good news for installers, as more are active in MM installations for premises and campus networks and security systems. Prices are down to about 6-7 cents per meter for fiber and consumption is up to about 2.8 million km per year - that's a lot of links when you consider how short the average MM link is.
Fiber To The Home...Promises, Promises...
Verizon, SBC and BellSouth have agreed on a standard architecture for FTTH, using a PON (passive optical network) architecture that allows sharing expensive components like lasers among up to 32 customers to reduce costs. Some people (the optimists) see this as a sign that FTTH's time has finally come. And they note it's a good time, as component costs have declined severely since the bubble burst two years ago and we are still in an oversupply condition for most components.
Mumbles of 5 million ( yes, 5,000,000) FTTH connections per year are heard in some of these meetings. Naysayers point out that the telcos are famous for getting vendors hopes up but never following through with big orders.
We remain skeptical. Some reasons we've heard recently that we'll probably never see FTTH
Another possibility for FTTH involves nontraditional communications suppliers like power utilities. Several utilities have commited to fairly large installations - tens of thousands of homes - but only time will tell if these are simply field trials or the beginning of some serious investments in communications infrastructure.
Obviously, hope FTTH will take off and we'll be working overtime to certify enough CFOTs and CFOSs to install 5 million lines per year. Keep your fingers crossed.
New Tech Topics
Plastic Optical Fibers (POF)
Eric Pearson's Newsletters - with some tests on connectors.
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