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October - 2000 - issue > Cover Feature
Building The
Sunday, October 1, 2000

Therefore, as the next decade unfolds, most of today’s telecommunications network will end up in the scrap heap. In its place, an array of new transport, switching and software will deliver novel media-rich services to end users at speeds beyond our imagination. The task of building equipment and providing the services that will get us there is arguably the most colossal undertaking of our lifetimes. For today’s scientists, engineers and entrepreneurs, the Generation I network will serve as their footprint on history. To achieve this legacy, the task will be to create, build or revitalize a host of sustainable companies that will allow the industry to endure throughout the millennium.

It took 100 years to build the collection of disparate voice and data networks known as the Public Switching Telephone Network (PSTN), but today’s PSTN is optimized for human-to-human communications, whereas the future will belong to human-to-machine and machine-to-machine communications. People are inherently band-limited (they will never be able to process more data at a significantly faster rate than they can now), but humans have an insatiable appetite for information. Thus, machine-to-machine communications will drive unprecedented bandwidth consumption in the future.

Many network service providers are taking drastic steps to prepare for the data-centric future. Although an obvious short-term fix is increased capacity, optical technologies are the solution of choice. Already, early players like Avanex and Sycamore have been rewarded with lofty market valuations made in record time. The VC buzzword du jour is “optical.” In fact, venture capital firms poured a staggering $794.6 million into 30 Silicon Valley optical networking startups in the second quarter of this year alone.

However, the challenge is much larger than just increasing the size of the pipes. The real issue is what applications are possible when very low cost, intelligent, and abundant bandwidth is widely available. Cost reduction and network simplifications that enable new broadband applications are the cornerstones of the Generation I Network. Literally every functional area of the current network is being affected, in real time, by this radical transformation from a voice-centric single-service platform to a packet-centric multi-service platform.

Understanding Changing Service Provider Requirements

There are two complementary forces propelling change in the communications network. One is Generation I itself –millions of computer-savvy businesspeople and consumers around the world who demand greater access to information. The second is the global carriers building and maintaining the network infrastructure.

The first driver in building a faster, more robust network starts with traffic. Market research conducted by San Francisco-based consulting firm Ryan, Hankin & Kent estimates Internet traffic will increase from 350,000 terabytes per month at the end of 1999 to over 150 million terabytes per month by 2003.

But the characteristics of the traffic are also changing – demanding increases in bandwidth at a lower cost. And today’s youth propels this sense of urgency as much as the world’s corporations. Several years ago, before widespread Internet use, children traded baseball cards. Today they exchange MP3 files. Teenagers are conversant with Google, and DialPad, long before their parents are.

In addition to its bandwidth hunger, Generation I has already proved itself to be hankering after the emerging wireless Internet. The convergence of the emerging Internet and wireless access will compound the mismatch between today’s network and the needed network. Consider this: In Japan, DoCoMo is already offering Internet-enabled phone service and has signed up more than one million Internet phone users in six months. Over the next 18 months, they expect to top the 10 million mark. The proliferation of bandwidth hungry, always-on wireless devices will create intense pressures, not only on the current transport infrastructure, but on the content management and distribution logic in the large data centers as well.

The second driver relates to handling the services that carriers are scaling to offer. Few, if any, industries have witnessed more consolidation than network services. Consider the corporate evolution of WorldCom (formerly MCI WorldCom). Since 1983, the company has made more than 65 acquisitions. Today, WorldCom consists of wireless services, local services, Internet services and long distance services – all acquired in order to “get big fast.” The experiences of AT&T/MediaOne/TCG, Qwest/USWEST, GTE/BellAtlantic, and SBC/PacBell/Ameritech have followed a similar trend of non-organic growth via acquisition. The reason for the “get big fast” mentality is the benefits that come from sharing installation and lifecycle costs across the largest subscriber base possible.

The post-merger integration challenge is daunting. Yet, at least one major US carrier has already decided to replace all Time Division Multiplexing-based (TDM) switching and transport with a packet network over a four-year period starting in 2001. This is a $2 billion write down of $4 billion worth of equipment, a bonanza for those vendors that have the appropriate next-generation products available for deployment.

But what really matters is not technology but carriers’ ability to attract and retain paying customers. Companies must rapidly develop and launch high gross margin services at lower cost than competitors, thus expanding the business. The Generation I customer is demanding not only the highest quality voice and narrow-band dial-up Internet access, but also broadband access with minimum latency and highest quality.

The Generation I network, powered by optical technology, will outlive today’s infrastructure and serve as the foundation for tomorrow’s sustainable industries. “Smart” applications, ushered in by optics, will supercharge the Internet so that it lives up to its promise of connecting the world.

When Hype Meets Reality

“The Big Overhaul” is not hyperbole but a strategic imperative. The global telecommunication carriers, national cable companies, and other infrastructure conglomerates are sinking billions of dollars into the Generation I network. Their businesses must protect the customer base, acquire new customers, reduce costs by simplifying network complexity and collapse redundant and wasteful systems, as well as grow revenue to offset intense competition in their core businesses.

Those who complete “The Big Overhaul” can then offer new broadband services as the market requests them, support multiple lines of business over a single unified infrastructure with a significantly lower cost of ownership, and leapfrog slower moving competitors by aggressively deploying emerging broadband technologies that provide ongoing strategic advantage.

The amount being spent is astounding. But where are all of these dollars going, and what will the network look like in three to five years?

Tomorrow’s Network Architecture

In today’s Network, each layer’s signaling and switching planes are completely decoupled from adjacent layers. In contrast, tomorrow’s core architecture redistributes the signaling and switching functions, blending them into a mixed packet/optical core based on IP/MPLS over DWDM.

The Future: The Young and the Nimble

Today, major carriers are aggressively pursuing technology breakthroughs in network intelligence, capacity, and reach as they jockey for future leadership positions. These breakthroughs, largely lead by nimble and creative young companies, are building the equipment and software that will transform the current voice-centric networks. In this environment of extraordinary change, we will witness the emergence of the next generation of sustainable companies.

If the IP-centric Generation I network is a fast-growing tree spreading its branches across the world, optical networking is the roots. The aggregate market for optical networking equipment is expected to grow from about $21.3 billion in 1998 to over $90 billion by 2003, according to Ryan, Hankin & Kent. Concerns of a bandwidth glut in the near term are unfounded. In fact, the available capacity to the end subscriber remains a significant choke point. Tremendous resources are being devoted to creating solutions to connect the big pipes in the core of the network to the insatiable appetites of end users.

Increased bandwidth, however, is only one element of the overhaul. Optics is enabling the network to not only get simpler, but also smarter. Capabilities such as switching and routing of wavelengths, and many others are exciting changes that will pave the way for carriers to migrate from commodity transport services to high gross margin content services. Much of the distribution of intelligence is also being redistributed. There is a lot going on in the world of communications – and innovation must continue to keep pace with the demands of Generation I.

There is no equivalent to Moore’s law in the optical world; cost reductions are required across the board to enable a truly connected humanity. In the end, the Generation I network has the potential to collapse time, space and distance between people across the globe. Perhaps by fulfilling the true promise of the “wired world” and bringing people closer together, we can collectively make a lasting contribution much more important than the unprecedented wealth creation that is occurring today in the communications industry. We will build the next wave of companies prepared to lead the global economy into the future.

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