Highlights from OFC 2017
Last week’s OFC 2017, the world’s largest optical networking and communications conference, celebrated the revival of an industry severely hobbled at the turn of the millennium. The mood at the Los Convention Center was lively and positive, showcasing an exhilarating breadth of new products and technology. Revenues and profits are up, but is the expansion sustainable?
Optical Networking Capacity Issues
Early in the millennium, a combination of easy access to capital and low technical barriers-to-entry lured an excess of competitors into the marketplace. Each new arrival to the marketplace brought their own networks and range of internet backbone services. In addition, major miscalculations in the challenges of “last mile” build-out and unpredictable internet traffic growth created a fiber glut. In 2001, the Wall Street journal in 2001 wrote “….about 39 million miles of fiber-optic cable stretch underneath United States railroad beds, corn fields, natural-gas lines and roads, enough to circle the earth 1,566 times. Companies racing to build or expand nationwide networks laid some $90 billion of fiber during the past four years. Merrill Lynch & Co. estimates that only 2.6 percent of the capacity is actually in use. Much of it may remain dark forever.”
In 2011, some 19 million miles of optical fiber were installed in the U.S., the most since the boom year of 2000. There is plenty of excess capacity available on the nation’s core fiber-optic networks, according to TeleGeography, a telecom market research firm. Capacity is expected to increase as technology allows more traffic in each single strand of glass. According to Will Hughes of Australian telecom giant Telstra Corp., “A lot of us look at the current construction boom and question if history may be repeating itself,” and regarding the underwater fiber market, “the possibility for system excess is even greater.”
Outsourcing for Optical Networking Solutions
Outsourcing additional production to contract manufacturers such as Revotech is a proven way to satisfy capacity requirement fluctuations, without the risk of capex commitments. Changes in production quantities may change the terms and costs associated with the original production contract. As a result, outsourcing provides more flexibility and less risk then capital investments that could sit idle if the demand changes.
What’s Next for Optical Networking
Revotech believes fiber is the future of data communication. The global fiber market is projected to reach $23.5 billion by 2022. While lighting up dark fiber may be more cost effective than stringing new fiber for years to come, we also see many opportunities for new fiber too. Increasing bandwidth requirements has increased deployment of last mile fiber (to the home, building, etc.), and ultra-high capacity fibers may find their own niches, such as within data centers. As with the “overbuild” of the early 2000s, we foresee the strongest potential coming from suppliers who are agile, able to fulfill needs without taking on too much risk. That’s where we believe Revotech can help – by sourcing and manufacturing cost-effective fiber and optical networking products with lower capital expenditures. So we believe the positive mood could be reasonable if managed while keeping an eye on the lessons learned 16 years ago.