Buzz Issue: No optical illusion, 09/11/00

Optical networking has gained an incredible following among investors, as one start-up after another has been bought for billions of dollars or has staged an IPO that catapults its market value to breathtaking heights.

The big idea driving this speculative buzz is that optical networking won't simply revolutionize telecom services but will turn the world economy on its head. It'll blow away bandwidth bottlenecks and almost eliminate Internet delays and, consequently, usher in huge changes in how companies are run and how they conduct IS functions. Big companies will outsource everything from manufacturing to marketing, so the buzz goes. As a result, they'll "hollow out" -- revenue will be big, but employee numbers small. A myriad of specialized service providers will emerge, offering applications that target business processes. The telecom networks they run over will be taken for granted.

Simultaneously, the software industry is expected to undergo a shake-up as users start renting applications hosted on remote servers. That could hurt the PC market because many users will employ inexpensive information appliances to access these applications.

It's a fantastic vision. If realized, you could be in for a turbulent time. One day, you could find yourself working for one of these new service providers rather than for a traditional user enterprise.

The great light hope

But for now, you face the tricky task of determining the best way to exploit current optical networking developments. You need a realistic view of when these technologies will start delivering the goods -- drastic bandwidth price cuts, much faster installation times and serious performance guarantees.

Your best hopes hinge on a new breed of start-up carrier that introduces services based on optical networking technologies. In some instances, this means focusing on carriers using cost-cutting dense wave division multiplexing (DWDM) and Gigabit Ethernet. In other instances, it means identifying carriers using new types of equipment so they can offer a complete range of services within buildings, at the drop of a hat.

In either case, coverage is spotty and is likely to be limited to major cities for the next few years. Even so, it's more than you'll get from an incumbent carrier, says Deb Mielke, principal analyst at Treillage Network Strategies, a research firm in McKinney, Texas. "The regional Bell operating companies will wait until they see people eating their lunch before they finally make a move [in optical networking]."

Overlooking these early carrier opportunities could be downright dangerous, says Roger Gullqvist, chief information officer and executive vice president of Swedbank in Stockholm, Sweden.

This retail bank -- Sweden's largest -- is transforming 1,000 branch offices into financial advice centers by furnishing them with high-bandwidth connections from low-cost suppliers deploying DWDM in their backbones and Gigabit Ethernet in their access linnes. The high-bandwidth connections -- operating at up to 34M bit/sec -- let customers watch video marketing material and communicate with Swedbank experts. Sticking with the status quo isn't an option because Internet banking developments are undermining Swedbank's traditional business, Gullqvist explains.

Follow Gullqvist's example, and you can cash in on the opportunities that optical networking is beginning to deliver. Get a grasp of the underlying technologies, then identify service providers leading the charge and figure out how they plan to address your needs.

Bandwidth bottleneck

The optical networking buzz began about a year ago when it became clear that developments within carrier networks could be extended to users. These developments promised to blow away bandwidth bottlenecks that have often dictated the way information systems have been organized.

DWDM, which makes it possible for a strand of fiber to carry multiple wavelengths of light, had already been widely deployed in carriers' long-distance backbones to cope with enormous increases in the amount of traffic crossing the Internet. DWDM equipment supporting 40 wavelengths is commonplace now, and systems capable of carrying hundreds of wavelengths are under development.

But there's a snag. A 40-wavelength DWDM system creates the equivalent of 40 parallel networks, each of which needs its own equipment for sending, boosting and receiving light signals, and for switching those signals from one fiber to another. That means carriers supplementing fiber backbones with DWDM face enormous equipment costs. Until recently, metropolitan network providers haven't been able to afford the high price tag, so a large bottleneck between users and their carriers' high-capacity, long-haul backbones remained.

The SONET equipment used to create virtual connections across carrier backbones has compounded the problem. Designed for telephone traffic, the gear supports bandwidth increments -- 1.5M, 45M, 155M, 622M and 2.5G bit/sec -- that are out of step with the data-centric Internet world, where Ethernet's 10M, 100M and 1G bit/sec speeds prevail.

Plus, setting up SONET circuits is too laborious. It can take a whole year for carriers to install OC-48 connections in cities, says Peter Tierney, founder and chief operating officer of Sphera Optical Networks, a start-up carrier using new optical technology to offer faster installation times (20 days) in New York. The speed comes from using software-controllable optical switches from Sycamore Networks.

One bunch of start-up metropolitan-area carriers is addressing these problems by ditching SONET. They're building fiber networks and rolling out IP services over Gigabit Ethernet. This group includes Telseon in Palo Alto and Yipes Communications in San Francisco, which are up and running in several cities. Another is Cogent Communications, a Washington, D.C., carrier that will launch service next month in New York.

In general, these outfits are using Gigabit Ethernet switches from Cisco, Extreme Networks and Foundry Networks. The connections between the switches are set up using a new generation of DWDM equipment designed for metro environments. (It's less costly and more flexible than long-distance DWDM equipment.)

Gigabit Ethernet beats SONET hands down on costs when handling Internet traffic. First, Ethernet gear is far less expensive. Second, service providers and users aren't forced to buy extra equipment -- typically expensive ATM switches -- to carry IP traffic over an Ethernet infrastructure, as they are with SONET. From an IT standpoint, that means you get some of the advantages of optical networking without incurring substantial bills.

That's the case for Fenwick & West, a San Francisco law firm. It pays "less than $6,000 a month" for 10M-bit/sec Internet access from Yipes. The SONET alternative, T-3, would have cost between $18,000 and $35,0000 a month, says Matt Kesner, the firm's chief information officer.

With Yipes, Kesner can specify the bandwidth he wants. He only needs to give 24 hours' notice if he wants to make changes; he can scale in increments of 1M up to 1G bit/sec. The service has run without a hiccup since it went live in April, he says.

Cogent plans an even better deal -- 100M bit/sec Internet access at $1,000 per month, or 30% less than a typical T-1 connection. Moreover, Cogent is engineering its network so there's no sharing the 100M bit/sec among users, as is common with Internet services.

One of the other problems holding back wider deployment of optical technologies has been the high cost of installing fiber access lines connecting customer sites and carrier points of presence. Digging up streets in cities is an expensive business, costing as much as $300,000 per building, according to carriers.

In the past, this has encouraged carriers to focus their efforts on big customers from which they could quickly recoup investments. Smaller business users have often found themselves with no choice other than dealing with incumbent carriers, which take a couldn't-care-less attitude to customer service.

Lit buildings

That's beginning to change, thanks to the emergence of so-called multitenant broadband service providers. These outfits -- typically start-ups -- work with landlords to wire buildings and offer tenants an alternative to services from the incumbent telephone company. The economics work out because multiple tenants share an access line, and because operators aim to address all voice and data requirements. This has been made feasible by the development of so-called multiservice provisioning platforms that funnel traditional telecom services such as Internet traffic and telephone calls on and off optical backbones. These platforms, which are typically SONET-based and incorporate DWDM technology, let carriers provision services rapidly from a remote console, and keep a log of the traffic they handle so they can generate bills for multiple clients.

Early users of these multitenant broadband service providers praise them for their fast installation times and excellent customer service. OnSite Access in New York, "just blew my socks off," says Deny Firebaugh, MIS director at Pace Communications Network, an investment bank in Encino, Calif.

The incumbent, Pacific Bell, repeatedly promised to install DSL service but kept moving the installation date back, month after month. Then OnSite turned up and got Pace Communications wired within a week.

Dan Lau, president of Phat Noise, a Los Angeles company that makes equipment for downloading music from the Internet and playing it in cars, reports similar experiences with his service provider, Eureka Broadband. Lau wanted scalability for his Internet connection to accommodate possible rapid growth of Web site traffic. "With Eureka, I can make a phone call and barely an hour later we can increase our bandwidth right up to T-3," Lau says.

It's a similar story elsewhere. Allied Riser Communications in Dallas "is a lot faster than the telephone company. It's been very responsive," says Ron Dukes, founder and president of Ron Dukes & Associates, an executive search firm in Chicago.

Still, finding a building that's already wired isn't that easy. Most multitenant broadband service providers are in the early stages of deployment. They cite plans for coverage in as many as 50 metropolitan areas, but it's tough to determine whether they're referring to general agreements with real estate companies, agreements with building owners covering specific office blocks, the installation of wiring or the actual service. At least one start-up, BroadBand Office in Falls Church, Va., refuses to giive information, saying rollouts are happening so fast that it can't give meaningful figures. (It could also mean it isn't as far advanced as it would like you to think.)

If your building is already wired by one of these operators, your landlord has probably told you all about it (it's a money-making scheme for them). If not, see whether your building owner has an exclusive deal with a service provider. If it doesn't, get on the Web and identify operators in your area and see whether they're willing to wire you up.

Right now, these start-ups offer fairly run-of-the-mill service packages including Internet access, telephony and Web hosting, sometimes with systems integration. However, many would ultimately like to offer a range of business applications, joining an already established host of application service providers (ASP).

Existing ASPs, too, are hoping optical networking developments will unleash huge demand for their services. Right now, they are limited in the types of applications they can offer by the availability and price of high-speed connections.

"No doubt, we need more bandwidth. The public network poses a challenge, especially in the metro area, which is a huge choke point," says Amit Jasuja, senior director of system engineering at Corio, an ASP in San Carlos, Calif.

"ASPs have found that running the current generation of business applications over the WAN is problematic," agrees Daniel Sholler, a director at Meta Group, a research firm in Stamford, Conn. "Bigger companies demand quality of service. When they get it, they'll dive in."

Optical networking promises to deliver that quality, in terms of bigger bandwidth pipes and low, predictable delays, at affordable prices. It also promises to deliver phenomenal flexibility, giving you the opportunity to set up and tear down connections almost instantaneously. When this happens, it'll become easy for freelancers and small companies to work together in "virtual" corporations -- the model for the new world economy.

This story, "Buzz Issue: No optical illusion, 09/11/00" was originally published by Network World.

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