Optical Networking Market Tops $3B; Offers Companies Better Data Traffic

The optical networking market has topped $3 billion for the seventh consecutive quarter. In the coming months, the market is predicted to remain strong as more companies begin using optical networks, which are faster, hold more information, and allow for more traffic flow than traditional copper cabling or wireless networks.

During the past quarter, North America spent just over $1.3 billion on optical networking, outspending all other regions. Why so? North America is moving the most quickly to Wavelength Division Multiplexing (WDM) technology, (where one optical fiber carries multiple signals through different wavelengths). As Dana Cooperson, VP and practice leader of network infrastructure for Ovum, says, Verizon and AT&T are expanding their networks with the latest WDM equipment. Few other service providers around the world have done this, or have such high competition from alternative communications providers, such as cable.

Today, companies have the choice to either buy a network or build their own. Companies such as financial firms or health care centers are more likely to build their own networks so they have more control over aspects like communication costs and security restrictions.

“Photons can’t be “hacked,” so optical signals are inherently more secure,” Cooperson points out. “Using an optical network as transport infrastructure to carry voice, video, and data, however, is typically not a risky proposition because transport networks have decades of “carrier class” 99.999 percent reliability behind them, and offer the lowest latency and so are less prone to reliability problems of any kind.”

Optical networks have obvious benefits, but there are some challenges associated with use. For example, companies building their own networks need to have the know-how to sustain them. Correcting misconnected or dirty fibers can be very time consuming and therefore costly. Or if companies choose to lease a fiber, finding one to lease can be difficult. Although a vendor relationship is important, price is usually the key factor companies go by when deciding from which vendor to lease.

Earlier this month, Ovum announced the top 10 optical equipment networking vendors’ preliminary quarterly results. “Ciena, Fujitsu, NEC and Tellabs all posted positive sequential and year-over-year results; Alcatel-Lucent and Huawei both followed strong 4Q07 results with expected sequential declines; and only Nortel posted both sequential and year-over-year declines. The sequential decline [only a -1.1 percent difference], particularly after a super-hot 4Q07, was expected, while the strong growth over 1Q07 points to continued strength in spending for ON (optical networking) gear used for consolidating disparate services onto a single network and supporting growth in broadband consumer and enterprise services,” Cooperson says.

The optical networking market should continue to do well into the coming months. Last year, enterprises spent about $1.6 billion in on optical networking equipment alone, of the $14.5 billion spent in the entire global market. In 2012, that number is estimated to increase to $2.6 billion. “If the indirect spending by service providers is included, direct and indirect enterprise spending is more like $3.3 billion rising to $4.8 billion, or about 25 percent of total global ON spending. So, this is a big market getting bigger,” says Cooperson.

Many service plans are charging residential consumers a flat rate for bandwidth use, instead of charging by the proportion for the amount of bandwidth used. A more direct relationship between bandwidth use and charges needs to occur. Although growth in the optical networking market will slow down a bit, the world has gotten used to craving more bandwidth and will therefore continue to spend in this area. Regions that are slower to adopt new technologies will especially keep the growth of this market alive once they jump on the bandwagon.