Fiber hits the road
Conventional wisdom suggests that once the top-10 multiple system operators (MSOs) begin slowing their "fiber-rich" plant rebuilds and upgrades-predicted to be in about seven years-the domestic cable fiber market will dry up.
With 80 percent of cable's customers being serviced by those top-10 MSOs, and with that number sure to increase, fiber's domestic cable market certainly seems headed for a correction.
Fiber, however, is proving to be one of the most resilient, diversified products ever, and is rewriting the record books for the product "most likely to generate new business," both home and abroad. With just 15 to 20 percent of U.S. cable subscribers accessed by 750 MHz two-way systems, bandwidth usage below 20 percent for the entire universe of homes passed, and a huge international market of 500 million homes, fiber's future in cable, both domestically and internationally, is far from being parched, at least any time soon. So much for conventional wisdom.
Yet producers of fiber components such as glass, lasers and transmitters, and original equipment manufacturers (OEMs) are well aware of the seven-year wall the domestic cable fiber business is likely to hit, but they remain undeterred. "If you look at cable's fiber demand, you could maybe say fiber will decline. But there are so many other services, and people are talking about 500 homes per node, then splitting to 250 and even 125, and that requires two to four times the nodes and headend lasers. Then, there's the return path," says Bill Moore, vice president and general manager of Ortel Corp., a laser transmitter manufacturer.
Add to the mix more overbuilds, utility companies and telephone companies expected to enter the cable market, and the fiber business gains additional strength and diversity. Asks Moore: "Is cable going to be the only provider? We're hearing about lots of utilities getting into the fray."
Most cable and fiber manufacturing executives agree fiber will reach a saturation point. According to Paul Kagan & Associates, domestic cable fiber miles installed will drop from 860,000 in 1998 to 541,000 in 2001, with dramatic drops in fiber miles predicted beyond 2001.
In the meantime, however, the fiber business is expected to continually re-invent and re-distribute itself to new businesses such as high-speed data and Internet. "Much depends on voice, video, IP and the Internet. They can really drive the need for bandwidth in the return path," says John Dahlquist, vice president of broadband marketing for Harmonic Lightwaves Inc., a designer and manufacturer of lightwave and digitally-based HFC networks.
The insatiable thirst for more bandwidth, Dahlquist says, will drive fiber deeper into domestic cable networks for several years to come. "More operators are building out to 500 homes per node or less. And because of the traffic models generated by each MSO, like new services, new transmitters will need to be installed."
He is also cognizant of the potential domestic fiber downturn. "The domestic market will remain strong for five to six years. Our product development strategy takes us outside the traditional lightwave business because the competition for a finite market will get even more intense," Dahlquist says.
In Harmonic Lightwave's case, the non-traditional market means international. "We will increase our focus internationally. That market has a good chance of growing larger than our domestic market," Dahlquist adds.
Several fiber manufacturers see the overseas market as their next logical step, should the domestic market falter. And despite the recent "Asian Flu" economic malady which has slowed the fiber business overseas, they remain bullish on international markets for fiber. "Up until now, international cable was on a growth curve, but we've all been stung by the economics overseas. I think as an industry, we got ahead of ourselves," says Ron Coppock, president of Antec International, a producer of optical and RF transmission systems.
Coppock is confident of a global recovery, however, and is moving ahead with the company's international strategy. "From a fundamental standpoint, we have to look at our company from a global perspective. We're not just a U.S. company doing business internationally, but an international company doing business in the U.S." In 1999, Antec for the first time is expecting equal growth from its domestic and international markets.
Corning, the leading producer of glass for fiber products, is also re-emphasizing its overseas markets, based on its experience with domestic fiber installs in the cable industry. "We know MSOs won't put in fiber at the rate they are now, so we are looking internationally," says Pat Brown, cable TV marketing manager for Corning Inc.
Brown insists, however, that MSOs aren't nearly finished installing fiber. "The North American fiber market is up about 10 percent, and MSOs are not done. They continue to be very aggressive. As an industry, about half of the cable fiber has been installed. But at some point, fiber installation will drop."
Brown says Corning's international goal is to be even more aggressive than in years past. "We're a global company, so it's not like we've had a wake-up call. But we do want to expand internationally." And why not? Corning has seen an annual 30 percent increase in kilometers of fiber installed during the past eight years, worldwide.
Ortel's Moore is impressed with fiber's potential as an international business as well. "There are six to eight times the number of homes in the rest of the world (as compared to the U.S.). It's really grown in importance."
Just as important, Moore notes, is the reduced cost of fiber components such as lasers. Lower costs translate to new market segments, which include smaller cable operators and businesses who in the past have not had the capital to rebuild or upgrade with fiber. With laser prices dropping 20 percent each of the past three years, and with more price cuts on the way, smaller cable systems will have easier access to fiber upgrades and rebuilds.
"Assuming there are no new developments, the prices will come down," he says. Moore expects a 10 percent reduction in laser costs this year.
Other components such as splitters, transmitters and couplers are expected to drop in price as well, making fiber re-builds and upgrades more affordable than ever. "Today, if you build a new network, building fiber to 100-home pockets costs less than 10 percent more than a traditional network," says Bob Scott, director of marketing for optoelectronics at Scientific-Atlanta (S-A).
New services are also driving more cable operators to fiber rebuilds and upgrades. Adds Scott: "Data traffic has increased 35 percent in the past five years. Telephony is increasing as well, so we have to conclude that bandwidth growth will continue to occur, and that optics will increase capacity."
Increased capacity is especially vital to S-A's international interests, Scott says. "Fiber is expensive to install overseas, so multiple wavelengths and 1550 (nm) transmission techniques will be valuable enablers to expand their capacity."
For the domestic cable business, fiber and the various techniques designed to expand channel capacity will be just as valuable, says Wayne Davis, VP of technical operations for Jones Intercable, which was recently acquired by Comcast Corp. "At some point in time, your business model says you've built your system out and the fiber backbone is in place. So you then start using optoelectronics to maintain it."
Jones and Comcast, says Davis, will continue building out fiber with a goal of eliminating capital investments in fiber products. Adds Davis: "Fiber is indefinite. We hope to get to a point in seven to eight years when gross deployment of strand miles of optics diminishes. Then, I hope we don't have to continue using capital expenditures for fiber."
At that point, Davis suggests, a third tier of fiber deployment will emerge: smaller, rural cable operators. "Smaller systems are being gobbled up and upgraded. It will be good for the smaller systems, especially the ones we haven't been able to upgrade," he says.
Emmanuel Vella, VP of product management for active electronics at Antec, sees a fertile new fiber market with smaller operators, especially with lower fiber costs imminent. "The cost of optical equipment is decreasing each year, and the cost reduction for transmitters and nodes is dizzying. We're expecting a continued 20 percent growth pattern this year, and good growth in the small- to mid-size cable market," he says.
In seven years, however, the fiber business is likely to look very different, and very foreign. Says Dahlquist: "There's a tremendous amount of business out there, and we'll start to see a comeback in the year 2000. It will eventually grow faster than the domestic market."
Yet most fiber component manufacturers expect the next seven years to produce impressive revenues on the domestic side, along with providing a road map to new services that will require a substantial number of fiber miles in the U.S. Beyond the magical seven-year mark, however, the fiber business "over there" is likely to take hold.