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Table of Contents
Chapter I
Executive Summary
1.1
SONET, DWDM, and Optical Networks .........................................................................................1
1.2
An All Optical Network ...................................................................................................................3
1.3
Market Analysis of Fiber Optics, SONET/SHD and DWDM Systems............................................5
Chapter II
MARKET DRIVERS ................................................................ 9
2.1
Optical Networks and Broadband Access .......................................................................................9
2.2
Drivers of Broadband Access ..........................................................................................................11
2.2.1
Personal Computers..................................................................................................................11
2.2.2
Web Sites..................................................................................................................................14
2.2.3
E-mail and E-commerce ...........................................................................................................14
2.2.4
Multimedia ...............................................................................................................................16
2.2.5
Infrastructure Demand..............................................................................................................18
2.3
Broadband Access by Geography....................................................................................................20
2.3.1
US.............................................................................................................................................20
2.3.2
Asia Pacific...............................................................................................................................21
2.3.3
Europe ......................................................................................................................................22
2.4
Broadband Access by Type .............................................................................................................22
2.4.1
DSL ..........................................................................................................................................23
2.4.2
Cable.........................................................................................................................................23
2.4.3
Wireless....................................................................................................................................24
2.5
Summary .........................................................................................................................................25
Chapter III
OPTICAL TECHNOLOGY ....................................................... 26
3.1
The Emergence of the Optical Network ..........................................................................................26
3.2
Overview of Today’s All-Optical Network .....................................................................................30
3.3
Components of the All-Optical Network.........................................................................................34
3.3.1
Optical Transmitters .................................................................................................................35
3.3.1.1
Tunable Lasers Diodes ......................................................................................................39
3.3.1.2
Modulators ........................................................................................................................43
3.3.2
Optical Receivers .....................................................................................................................45
3.3.3
Optical Fiber.............................................................................................................................49
3.3.3.1
Development of Fiber........................................................................................................49
3.3.3.2
Linear and Nonlinear Transmission Effects ......................................................................50
3.3.3.3
Types of Fiber ...................................................................................................................54
3.3.3.4
Future Fiber Design...........................................................................................................57
3.3.3.5
Specialty Fibers .................................................................................................................59
3.3.4
3.3.4.1
Erbium-Doped Fiber Amplifiers .......................................................................................62
3.3.4.2
Semiconductor Laser Amplifiers.......................................................................................66
3.3.4.3
Raman Amplifiers .............................................................................................................68
3.3.5
3.4
Amplifiers.................................................................................................................................60
Passive Components.................................................................................................................69
3.3.5.1
Connectors.........................................................................................................................69
3.3.5.2
Splices ...............................................................................................................................70
3.3.5.3
Attenuators ........................................................................................................................71
Optical Systems ...............................................................................................................................72
3.4.1
Multiplexers/Demultiplexers ....................................................................................................72
3.4.2
Optical Switches, Routers, and Cross-Connects.......................................................................76
3.5
Equipment Manufacturing Issues ....................................................................................................78
3.5.1
3.6
Packaging and Assembly..........................................................................................................78
Multiplexing Trends ........................................................................................................................79
3.6.1
Advantages of Time Division Multiplexing .............................................................................80
3.6.2
Advantages of Wavelength Division Multiplexing ..................................................................81
3.7
Present and Future DWDM Systems ...............................................................................................83
3.7.1
Long-Haul Systems ..................................................................................................................84
3.7.2
Metropolitan Systems...............................................................................................................86
3.8
Management of All-Optical Networks ............................................................................................89
3.8.1
End-to-End Wavelength Management .....................................................................................89
3.8.2
Optical Network Monitoring ....................................................................................................90
3.8.3
Restoration................................................................................................................................91
3.9
Technology in Development ...........................................................................................................92
3.9.1
Soliton- and Tedon-Based Systems ..........................................................................................92
3.9.2
MEMS Technology ..................................................................................................................93
3.9.3
Advances in Components .........................................................................................................94
3.10
IP, ATM, DWDM, and the Future of SONET................................................................................96
Chapter IV
THE OPTICAL VENDOR LANDSCAPE ................................... 100
4.1
Semiconductor, Integrated, and Planar Optics Vendors ..................................................................100
4.1.1
Fabless Semiconductor Firms...................................................................................................100
4.1.2
Integrated Optics Vendors ........................................................................................................104
4.1.3
InP-Based Development...........................................................................................................108
4.2
Transmitter, Receiver, and Modulator Vendors ..............................................................................109
4.2.1
Edge-Emitting Laser Diodes ....................................................................................................110
4.2.2
VCSELs....................................................................................................................................111
4.2.3
Tunable Lasers .........................................................................................................................113
4.2.4
Receivers, Transmitters and Transceivers ................................................................................115
4.3
All-Fiber Component Vendors ........................................................................................................118
4.4
Multiplexer/Demultiplexer Vendors................................................................................................120
4.5
Active and Passive Component Vendors.........................................................................................121
4.6
Module and Subsystem Vendors .....................................................................................................124
4.6.1
Integrated Components.............................................................................................................124
4.6.2
Switch, Router, OADM and Cross-Connect Vendors ..............................................................125
4.6.2.1
MEMS vs. Liquid Crystals vs. Lithium Niobate Switches................................................127
4.6.2.2
MEMS in Fiber Optic Systems .........................................................................................127
4.6.2.3
Liquid Crystal Switches ....................................................................................................130
4.6.3
4.7
Optoelectronic Devices ............................................................................................................132
Systems, Platform, and Infrastructure Vendors ...............................................................................134
4.7.1
Metro System Vendors .............................................................................................................135
4.7.2
Infrastructure Providers ............................................................................................................136
4.7.2.1
Niche All-Optical Infrastructure Providers .......................................................................140
4.7.2.2
Other Infrastructure Providers...........................................................................................142
Chapter V
MARKET FORECASTS ........................................................... 145
5.1
Summary .........................................................................................................................................145
5.2
Fiber Deployment............................................................................................................................147
5.2.1
Worldwide Fiber Deployment by Network Type .....................................................................150
5.3
Growth in Worldwide Bandwidth Demand .....................................................................................151
5.4
The Future of SONET/SDH ............................................................................................................153
5.5
The DWDM Market ........................................................................................................................159
5.6
Photonic Subsystem Market Growth ...............................................................................................162
5.6.1
Transmitters..............................................................................................................................163
5.6.2
Other Active Components ........................................................................................................166
5.6.3
Passive Components.................................................................................................................166
5.6.4
Amplifiers.................................................................................................................................167
Appendix
GLOSSARY ............................................................................ 169
Table of Figures
Chapter I
I-1
Six Different Layered Approaches Used in Optical Networks Today ..............................................2
I-2
Total SONET/SDH Terminal Market by OC, 2000-2008 ($Billions) ..............................................7
I-3
DWDM Total Sales ($Billions) ........................................................................................................8
Chapter II
II-1
Worldwide PCs Online, 2003-2008 (Millions)................................................................................12
II-2
Host and Domain Name Growth, 2000-2008 (Millions) .................................................................13
II-3
Worldwide e-Commerce Revenue, Business vs. Consumer, 2003-2008 ($Millions)......................15
Chapter III
III-1 SONET Ring Configuration ............................................................................................................28
III-2 Switched Optical/Electrical Networks and All-Optical IP Meshed Networks.................................30
III-3 Optical Fiber Structure ....................................................................................................................32
III-4 Optical Transmitter, Electronic Regenerator/Amplifier, and Receiver Basic Configuration...........32
III-5 Three-Stage EDFA Structure...........................................................................................................33
III-6 Functional Elements of Optical Systems .........................................................................................34
III-7 ITU-T Wavelength Spacing Grid for DWDM Systems (Nanometers)............................................37
III-8 DWDM Bands Around 1550 Nanometers .......................................................................................38
III-9 Chromatic Dispersion ......................................................................................................................52
III-10 Stimulated Raman Scattering ........................................................................................................54
III-11 Four-Wave Mixing ........................................................................................................................55
III-12 Three-Stage EDFA Structure ........................................................................................................63
III-13 Demultiplexing Using Cascaded Thin-Film Filters.......................................................................73
III-14 Example of 80-Channel Multiple Step Demultiplexing Using Interleavers ..................................73
III-15 Optical Add-Drop Multiplexer ......................................................................................................74
III-16 Optical Cross-Connect ..................................................................................................................76
III-17 TDM Expansion vs. WDM Expansion..........................................................................................82
III-18 Long-Haul DWDM System...........................................................................................................84
III-19 Two Ways to Expand DWDM Capacity .......................................................................................85
III-20 Six Different Layered Approaches Used in Optical Networks Today...........................................97
III-21 Comparative Restoration Timing Performance (DCS, OXC, SONET, and Optical Rings)..........98
Chapter V
V-1
Fiber Deployment by Region, 2000 vs. 2008 .................................................................................148
V-2
Worldwide Fiber Deployment by Network Type, 2000 vs. 2008...................................................151
V-3
Worldwide Fiber Deployment, 2000-2006 (Thousands) ................................................................155
V-4
SONET/SDH Terminal Market, 2000-2008 ($Billions).................................................................156
V-5
SONET/SDH Terminal Price Forecast, 2000-2008 ($Thousands) .................................................158
V-6
DWDM Mux/Demux Prices, 2000-2008 ($Thousands per Port) ...................................................160
V-7
Worldwide DWDM Sales, 2000-2008 ($Billions) .........................................................................162
V-8
Transmitter Subsystem Market, 2000-2008 ($Billions) .................................................................164
V-9
Receiver Subsystem Market, 2000-2008 ($Billions)......................................................................165
V-10
Other Active Component Subsystem Market, 2000-2008 ($Billions) .........................................166
V-11
Passive Component Subsystem Market, 2000-2008 ($Billions)..................................................167
V-12
Amplifier Subsystem Market, 2000-2008 ($Billions)..................................................................168
Table of Tables
Chapter II
II-1
Online PCs, North America and Rest of World, Home vs. SME, 2000-2008 (Millions) ................12
II-2
Bandwidth Demand, North America vs. Rest of World, Home vs. SME, 2000-2008 (Gbit/s)........18
II-3
Download Time Comparison by Type of Internet Access...............................................................19
II-4
Worldwide Homes and SMEs with Broadband (BB) Subscriptions, 2003-2008 (Thousands)........19
Chapter III
III-1 ITU-T Frequency and Wavelength Grid for DWDM Systems ........................................................36
III-2 Typical Features of First Generation Metropolitan vs. Long-Haul DWDM Networks ...................85
Chapter V
V-1
Fiber Deployment by Region, 2000-2008 (Gigameters)..................................................................148
V-2
Worldwide Fiber Deployment by Network Type, 2000-2008 (Gigameters) ...................................150
V-3
PCs Online, North America vs. Rest of World, Home vs. SME, 2000-2008 (Millions) .................152
V-4
Bandwidth Demand, North America vs. Rest of World, Home vs. SME, 2000-2008 (Gbit/s)........153
V-5
Worldwide Fiber Deployment, Metro vs. Long haul, 2000-2008 (Thousands)...............................154
V-6
SONET/SDH Terminal Market by OC Type, 2000-2008 ($Billions) .............................................155
V-7
SONET/SDH Terminal Price Forecast by OC Type, 2000-2008 ($Thousands)..............................157
V-8
DWDM System Prices, Metro vs. Long haul, 2000-2008 ($Thousands per Port)...........................160
V-9
Worldwide DWDM Sales, Metro vs. Long haul Systems, 2000-2008 ($Billions)..........................161
V-10 Worldwide Photonics Market by Subsystem Type, 2000-2008 ($Billions) ...................................163
V-11
Tunable Transmitter Penetration, 2000-2008 (Thousands) ...........................................................164
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CHAPTER I
EXECUTIVE SUMMARY
1.1 SONET, DWDM, and Optical Networks
Forecasting demand for telecommunications services and equipment has been a
challenge for the last two years—especially with respect to optical networks.
During this time, SONET/SDH sales have tanked as service providers chose to
limit their capital investment in growth and responded to additional capacity needs
by using up the reserve capacity in their well-engineered networks, leaving little
margin for planning errors. INSIGHT’s research suggests that SONET/SDH will
resurge as carriers again see the need to add capacity in response to undiminished
end-user demand for ever-greater amounts of bandwidth. Carriers will continue
using SONET/SDH since it is an established technology that has already
performed well for voice transmission. Given the hype about replacing
SONET/SDH with alternatives such as dense wavelength-division multiplexing
(DWDM), the path of SONET’s evolution is not entirely clear.
DWDM increases the capacity of optical networks by increasing the number of
wavelengths, or “colors”, of light that can be transmitted down a fiber optic path.
At the same time, DWDM possesses advantages that may reduce reliance on
SONET in the network, at least in the form used today. In particular, routing
traffic by wavelength may render some of SONET’s advantages obsolete.
Although SONET carries multiplexed voice circuits well, the multiplexing of
voice is now a much less important task in optical networks compared to the
movement of data. In most systems today, data is still multiplexed by SONET
add-drop multiplexers (ADMs) before transport by DWDM systems. One
advantage of this approach is that SONET provides many functions to simplify the
management and operation of transport networks. Network management functions
are performed by an embedded communications channel between network
elements that allows signal labels, remote error indicators, signal traces, error
detection, multiplexing, and synchronization.
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Yet with so much data traffic in the form of pure Internet protocol (IP) packets,
service providers are tempted to boost the efficiency of their networks by
eliminating layers between IP and DWDM. Figure I-1 shows the different layered
approaches employed today within optical networks. Recently-developed OC-48c
and OC-192c high-speed interfaces enable routers and switches to interface
directly with DWDM systems without time division multiplexing (TDM) from a
SONET ADM. For the first time, carrying IP or asynchronous transfer mode
(ATM) traffic directly over photonics becomes possible. Such a move could
reduce the costs of high-capacity networks, if the network functions now provided
by SONET could be built into the optical layer. Some of the SONET management
functions can indeed be provided by DWDM systems by using an optical
supervisory channel (OSC), which uses either a separate wavelength or a small
amount of bandwidth (per-channel) to facilitate communications among optical
network elements. The OSC typically provides an embedded data
communications channel, order-wire capability, signal label and trace, and remote
error indications. Some SONET features, however, such as fault isolation,
synchronization, protection, and restoration are not easily duplicated within an
OSC.
Figure I-1 Six Different Layered Approaches Used in Optical Networks Today
Source: Cisco Systems, Inc.
While DWDM will not replace SONET entirely—at least not any time soon—
SONET’s long-term future is certainly not rosy. Whether SONET can last or
should be abandoned is a popular question, with more than a few players in the
business hoping for SONET’s speedy demise. Any network architecture that
requires significant SONET multiplexing also requires burdensome optical-toelectrical conversion with added cost. Misleading advertising by many vendors
has unfortunately created confusion by suggesting the imminent arrival of an “All
Optical Network”.
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1.2 An All Optical Network
The average person with limited understanding of optical systems would assume
that an all-optical network offers the same functionality as today’s optoelectronic
network. Imagine what would be required by an all-optical switch to be able to
route individual messages (packets) to their desired destination. A packet of 125
bytes of information carried on a light wavelength running at ten Gbit/s passes a
routing node in less than 0.1 nanoseconds. This would require optical switches
that respond 100,000 times faster than today’s optical cross-connect (OXC).
These routing switches would also have to decode, interpret, and act on
information that is at the head of the packet in the optical stream in even less than
a 0.1 nanosecond interval.
INSIGHT believes such OXCs will not be feasible for at least a decade or longer,
and it is not clear that they can ever be made without some optical/electronic
conversion. Today, “all optical” refers to fixed wavelength channels that are
routed through OXC systems to manage network capacity allocation. Continued
advancement toward the “all optical systems” will depend on continued
improvements in a number of key components:
•
•
•
•
transmitters,
amplifiers
receivers, and
the fiber itself.
In transmitter technology, tunable lasers went from prototype to production in
2001 and 2002, in time for an historic telecommunications industry downturn.
Tunable lasers initially addressed the need in early DWDM systems for spare
lasers to replace the enormous number of those in use, since a single basic laser
design could be kept in stock and then tuned to the required application.
Ultimately, tunable lasers will be an integral part of all-optical mesh networks,
which will require wavelength translation in optical add-drop multiplexers
(OADMs) and OXC switches.
The most common fiber amplifier technology in use today, the erbium-doped fiber
amplifier (EDFA), stemmed from the discovery in the early 1980s that, by adding
a small amount of erbium to the glass during the manufacturing process, the fiber
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itself could be turned into an amplification system. Compared to a traditional
repeater, a single EDFA has multichannel capability and has the ability to transmit
three times the distance of a traditional repeater, which significantly reduces the
costs of installing, upgrading, and maintaining a long-distance system. EDFAs are
moving in on metro networks, but basic performance limitations have forced
developers to come up with new versions of the technology. In metro networks
where amplification accounts for 20 percent of overall system cost, a new
generation of EDFAs needs to be in place that is flexible, scalable, and robust.
Optical receivers convert modulated light from the optical fiber back into a
reproduction of the original electrical signal. Optical receivers are composed of:
• a photodetector, which does the optical/electrical conversion;
• a front-end amplifier, which increases the power of the electrical signal to a
usable level; and
• a demodulation circuit which restores each bit’s timing.
Today it is the electronics—including the preamplifier, amplifier, and
demodulation circuits—that form the development bottleneck for 40 Gbit/s
systems. Both the optical and electronic components in OC-768 systems will
likely depend on the continued development of indium phosphide (InP)
technology, and the relatively slow rate of that development will at least partly set
the pace for the rest of the development in 40 Gbit/s systems. The problem with
InP is that it is significantly more difficult to work with than, for example, gallium
arsenide (GaAs). The continued development of InP technology will also require
new technologies for packaging radio frequency and digital integrated circuits
(ICs) in the 40 Gbit/s range. The frequencies required may well result in a
merging of optics and microwave engineering at OC-768.
All in all, the progress in optical fibers has been enormous by any measure.
Whereas fiber optic cables once contained perhaps six fibers, higher density
packaging and lower costs have led to cables with 64, 128, and even more than
400 fiber filaments. One new metropolitan area network (MAN) in Silicon Valley
uses a single cable with 432 fiber filaments. When a fiber optic cable is dropped
into a trench today, it may have 150,000 times the capacity of an older fiber on the
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same route, and bandwidth capacity improvement on ocean crossings is even
greater.
Dispersion-shifted fiber (DSF), first introduced by Corning in 1985, was designed
to support gigabit-per-second single channel systems, but did not work well in
multi-channel wavelength division multiplexing (WDM) systems. Dispersioncompensating fiber (DCF), which employs fiber with negative dispersion to
compensate for the dispersion, has seen widespread adoption. Non-zero
dispersion-shifted fiber (NZDSF) and non-zero dispersion-compensating fiber
(NZDCF), which introduce small amounts of dispersion in the fiber to compensate
for other nonlinear effects, will experience widespread adoption as well.
Ultimately, both DCF and NZDCF will reach their performance limits and new
solutions will be needed. One proposed solution is a variation of dispersion
compensation—dispersion management. Dispersion management alternates
lengths of positive and negative dispersion fiber in a planned configuration. In
this way, a finite local dispersion is preserved while overall dispersion is kept near
zero. Dispersion management has been shown to be effective at handling 32
channels at ten Gbit/s over a 640 km distance.
The extension of WDM beyond the conventional C-band to the L-band (1570 nm
to 1610 nm) will bring back DSF, at least for early L-band applications. Moving
to the L-band increases dispersion slightly, which works better for WDM
transmission.
1.3 Market Analysis of Fiber Optics, SONET/SHD and DWDM
Systems
INSIGHT’s analysis suggests that a gradual return by carriers to investment in
network infrastructure could begin as early as the fourth quarter of 2003. End-user
demand for bandwidth has indeed continued to grow unabated. This means that
when equipment demand does come back, an explosive growth period is possible,
as carriers try to catch up.
INSIGHT’s forecast for fiber deployment, SONET, and DWDM equipment is based
on input from a number of suppliers and carriers, as well as projections of user
demand. User demand is based on a broad range of market statistics resting
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primarily on Internet-connected PCs used both in businesses and homes. The
rapid proliferation of Internet usage, combined with a significant movement
toward higher-speed access, has led to growing bandwidth demand. Providers
have relied on existing facilities for the last couple of years to meet this demand,
but new investment will be required in order to keep up.
Growth in fiber optic cable markets, measured in Gigameters (Gm) and counting
the length of all of the fibers in a multi-fiber cable, is expected to grow at a
compounded rate of 18 percent worldwide from 2003-2008. Fiber will grow from
just over 200 Gm at the end of 2003 to more than 450 Gm by 2008. Growth in
fiber deployments will be fueled primarily by the rest of the world, and not North
American sales. For most of the world, particularly the developed countries, there
will be a significant redistribution in fiber deployment, with long haul showing the
slowest growth over the forecast period, and strong growth for short-haul/metro
and residential access.
As the industry retools and recovers from the debacle of the last couple of years,
the carriers still in business will be very conservative in their investment
philosophy. This equates to continued reliance on SONET/SDH for the major
network demands in spite of all the glowing advantages promoted for other
choices. With the cutbacks in personnel needed to weather the crisis, these
surviving carriers can ill afford to start training people to use new approaches.
Thus, INSIGHT sees the potential for SONET/SDH equipment purchases to return
to their earlier levels over the next three years. Figure I-2 shows the projected
SONET/SDH terminal unit sales.
These sales are forecasted to recuperate from a downturn in the last couple of
years, with the total market growing at a compounded rate of 53.3 percent from
2003-2008, fueled by the growth in the OC-48, OC-192, and OC-768 markets.
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Figure I-2 Total SONET/SDH Terminal Market, 2000-2008 ($Billions)
$70
$60
$50
$40
$30
$20
$10
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008
The introduction and rapid evolution of DWDM is often cited as the disruptive
technology that drove bandwidth costs downward, which fueled price-cutting
competition, and brought on the industry meltdown. Technology research
continues in DWDM, albeit at a reduced level, so that as the market recovers, even
more DWDM capacity becomes feasible. Our view, however, is that the
industry—having felt the disruptive power of long distance “lambda” races―is
not likely to push the research and development envelope for ever greater
capacity, which should put downward pressure on system prices. We believe the
average pricing for DWDM systems is going down fairly fast and will continue to
drop over the forecast period.
INSIGHT’s forecast for DWDM system revenue growth, noted in Figure I-3, shows
the significant effect of the last two years and a slow recovery. Since the pullback
has been disproportionate in the long haul facilities, the metro DWDM will
become an increasingly important part of the total demand, as it will in all
segments under review.
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Figure I-3 Total DWDM Sales, 2000-2008 ($Billions)
$16
$14
$12
$10
$8
$6
$4
$2
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008
The real variable in the present analysis is whether the industry can meet what we
believe to be very clear indications of continued end-user bandwidth demands in
the face of shrinking service revenue, shrinking capital availability, and major
dislocations caused by the collapse of many of those involved in implementing the
Internet. What is surprising is how resilient the industry has been to date, which
makes us cautiously optimistic that the worst downturn in industry history will
soon be behind us.
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