STARTAP annual meeting Stockholm, June 5th 2001

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STARTAP annual meeting Stockholm, June 5th
2001
The optical network evolution Affected by
current economic slowdown?
Yves Poppe Dir, Liaison RE Networks Global Market
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Agenda

• The difficulty of predictions
• Transoceanic (over)capacity
• Slowdown and rebound
• The optical future is no illusion

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The difficulty of predictions and forecasts

• In october 1994 Teleglobe inaugurated Cantat-3
  with two fiber pairs, capacity of 5gigabit
  (2x2.5Gb) linking Canada to the UK, Germany,
  Denmark, Iceland and the Faroe Islands.
• Doubled the capacity under the atlantic
• 155mb was earmarked for data
• Engineering estimated 17years to fill the cable

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What happened since

• The internet tsunami took everybody by surprise.
• Cantat-3 was full in less than 3 years.
• Five years later cables of 1000 times the
  capacity of Cantat-3 are being installed.
• Deregulation and ease of acces to capital created
  a multitude of new carriers and a cornucopia of
  transmission capacity.
• This in turn now makes it relatively easier and
  less costly to deploy worldwide networks such as
  Teleglobes GlobeSystem.

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GlobeSystem

• Over 400,000 route miles
• Next generation technology
• US5B investment over 4 years

• 160 major global markets
• Advanced services for carriers, ISPs,
  content providers and corporations

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The battle of the Atlantic

• Capacity coming online Gbps RFS
• Level 3/Global Crossing (Project
  Yellow) 1,280 3Q00
• TAT-14 (Club) 640 4Q00
• FLAG Atlantic-1 (FLAG/GTS) 2,560 2Q01
• Hibernia (360networks, Inc.) 1,920 2Q01
• Atlantic Crossing -2 (Global Crossing) 2,560 1Q
  01
• TyCom Global Network 2,560 4Q01
• Oxygen No Go! -------
• Total 8,960

Design capacity Teleglobe buying 2
fibers Cancelled, AC-2 joining Level 3
Does not include CW Apollo cable (RFS 2003)
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Transpacific cables up to June 2001
TPC-5 China-US Japan-US PC1
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Transpacific Terabit capacity ?

• FLAG PACIFIC-1 project
• Dual cable system linking major Internet hub
  cities Los Angeles, San Francisco, Seattle,
  Vancouver and Tokyo
• Southern branch through Hawaii, Northern via
  Aleutians
• Designed to provide 5.12 Tbps fully protected
  capacity.
• Alcatel awarded supply contract for submarine
  system
• Planned RFS date mid 2002
• Expected to commence service at 160Gbps
• Cost US1.2 billion
• Overall lenghth of 22,000km

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Could there be oversupply?
Atlantic supply exceeds conventional demand
forecasts strong downward price pressure
!
Gbps
This does not include CW Apollo cable project
additional 8 terabit for planned for 2003
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Oversupply in the US ?
Carriers spent much of the several years tearing
up streets and laying down fiber routes as if
demand knew no bounds. But now the utilization
rate of that vast network is a staggeringly low
2.5 according to Merrill Lynch Co. Telecom
equipment analyst Tom Astle.
Business Week, April 9th 2001
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Telecom meltdown?

• Telecom debt USA plus Europe US700 billion
• 100 billion could default or restructure
• US comm spending 2000 US124 billion 25 year
  over tear increase from 1996 to 2000 expectation
  for 2001 -15, 2002 flat
• Teligent, Northpoint, Winstar, ICG, PSInet etc.
  file for bankrupcy protection Covad,
  360Networks have difficulties.

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How did we get into this predicament?

• Deregulation combined with the internet and
  wireless boom led to wild spending and
   irrational exuberance  by established telecom
  carriers and start-ups.
• The 1996 US Telecom act and European deregulation
  promised access to a US300 billion market
  growing at 10 p.a.
• Get rich quick model by 1996 purchase of MFS by
  Worldcom for US14billion or 6 times the value of
  assets put in the ground was emulated by lots of
  start-ups and facilitated by the abundance of
  equity capital.

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End of the never ending high-revenue growth

• The perfect storm of sky high investments
  combined with the proliferation of competitors
  and spectacular advances in fiber transmission
  and processor capacity led to too much of a good
  thing.
• Economics similar to railroads once the money is
  sunk into the ground, incremental cost to provide
  the service is almost nil.
• While capital spending grew by 25, revenue
  growth remained stuck around 10. Long-distance
  per minute revenue collapsed the price of a
  NY-London STM1 went from US 12million to less
  than US2 million between 1999 and 2001.

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For when the upturn? The BW 2 year theory

• Postulate after 18 growth in 99 and 23 in 00,
  growth in 01 and 02 will be 3 to 5
• Reasoning
• Slowdown would bring the industry 5 y growth back
  to its long-term average of 12
• 3 to 5 growth-rate not unprecedented for the
  86-87 and 90-91 tech slowdowns the 2 y growth
  rate was 4 and 2.5 respectively
• Return of 30 to 50 growth rate unlikely in
  foreseeable future more likely 20 range.

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Who will be the beneficiaries?

• With more consolidation and less capital for
  start-ups competition on the local access risks
  disappearing. Even the promise of local access
  competition from cable TV companies seems to be
  receding
• Local phone companies such as Verizon, SBC,
  Bellsouth, Bell Canada continue to produce steady
  financial results with relatively little
  competition in core local access and capitalize
  on BB internet and wireless.
• New generation carriers Qwest, Level3, GC,
  Tycom, Williams, Broadwing et all Darwinian
  process in progress.

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Dare to extrapolate for the next 5 years?

• Will Moores law and related laws for growth of
  fiber transmission capacity and internet growth
  continue to apply? Probably
• The laws of gravity still apply, even in the New
  Economy. Progress alternates between periods of
  exponential growth and plateaus were the progress
  is absorbed.
• Progress continues unabated
• Alcatel tested 10Tb over single fiber with 256
  channels at 40Gb and demonstrated 3TB over 7300km
  using wide band EDFA
• Intel announced chipsets for OC192 and 10GbE
• Ciena announces 160 channels at 25GHz spacing
• Although traditionally spacing in GHz2.5x
  channel capacity in Gb Ciena claims to have
  10Gbps using 12.5GHz spacing in lab

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The optical future is no illusion

• Most major carriers are committed to an optical
  backbone as a cost effective way to meet the
  increasing bandwidth demands.
• RE, community and condominium fiber projects
  help accelerate the extension of capilarity all
  the way to schools, businesses and homes
• Optochips will do for telecom what
  microprocessors have done done for computers.
  They will usher in vast increases in power along
  with huge savings in cost. (Otis Port in BW May
  14th)
• Commitment of heavyweights such as Intel and
  progress in optical switches, tunable lasers, use
  of indium-phosfide chips.
• Most important US6.4 billion in VC for
  photonics (71 deals since 96)
• June 4th FT quoting Merrill Lynch Spending on
  optical will grow by more than 30 p.a. over the
  next 5 years despite the bust in other parts of
  the equipment market.  

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The need for next gen applications .

• Once the carriers will saturate their DSL and
  cable access markets for high speed  internet
  access what then?
• What happened to HDTV? Where is HD Video-conf?
  Desktop video-conf? Interactive cubicle?
• Are the next gen killer apps in interactive
  entertainment? Sony deal with AOL and Realplayer
  is a first step.
• Hot products these days are local HD (DVD
  players, home theaters, high res digital
  cameras). Cable TV down load of movies was
  supposed to make the local video store obsolete
  years ago.
• Hot telecom products are not high-speed but
  relate more to mobility and universal (wireless)
  accessibility

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Satellite will continue to play a crucial role to
connect many countries, even in an increasingly
optical world.
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(No Transcript)