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Worldwide appetite for fiber is voracious

Sun, 04/30/2000 - 8:00pm
Craig Kuhl, Contributing Editor

The enormous appetite for optical fiber is reaching prodigious proportions as communications companies of all flavors gobble up every last available strand in their quest for more bandwidth. The furious pace in which fiber is being driven deeper into neighborhoods and metropolitan areas is pushing the record-setting demand for optical fiber and photonics to new heights, fueled by a first-to-market mentality and explosion of new services being offered by converging cable and telecommunications companies.

Add in the emergence of ISPs (Internet Service Providers), utilities and independent players to the fiber equation, and the demand for optical fiber components around the world intensifies.

The voracious appetite for fiber has caught even the experts by surprise, and is putting stress upon fiber manufacturing plants, fiber distributors and entire industries rushing into multi-service markets such as Internet access, data, digital video, telephony and IP telephony, all of which require increasing amounts of bandwidth.

The result is a worldwide shortage of fiber. So short, in fact, that the demand far outweighs the supply, and in many cases, requires a one-year lead time for fiber delivery, if you can get it at all.

"The demand for fiber in North America this year will equal the worldwide demand for fiber in 1996, and in the U.S., cable's demand for fiber will increase by 25 percent this year to nearly 6 million kilometers," says Patrick Fay, media analyst for KMI Corp., a media research and analyst firm.

The North American market alone accounted for half of the world's demand for fiber and grew by 45 percent in 1999, to 32 million fiber kilometers, according to a fresh report by Corning Fiber and Photonics. Total worldwide demand for fiber jumped to 70 million kilometers in 1999.

Those numbers are expected to spike even higher, however, once the Regional Bell Operating Companies (RBOCs) and competitive providers such as Qwest, Level 3, Sprint and others ratchet up their fiber installations. "The combination of long-haul telephone companies, CLECs and cable are driving the demand for fiber. But the key is how quickly the RBOCs are willing to move from copper to fiber. Their infrastructure is 75 percent copper, and maintenance is a huge issue, so fiber is still the minority. They need some type of fiber backbone, so the demand is there," Fay says.

The demand for more fiber is also forcing companies such as Corning Inc. to aggressively expand their manufacturing plants. As the world's leading supplier of optical fiber, Corning is investing $750 million to expand its optical fiber manufacturing facilities to increase its capacity by more than 50 percent.

"There's 40 percent growth in the metro and access markets, and significant growth in the cable market. Laying fiber is much more economical, and more carriers are erring on the side of more fiber. I've never seen any regrets about putting in too much fiber," says Teresa Hawtof, manager of cable TV and ILEC markets for Corning Inc.

Lucent Technologies, another leading fiber producer, is feeling the pinch as well. "It's sparking in all phases. There's a strong second wave of long-haul network builds, and first waves like Qwest. There are overbuilders and newcomers who are demanding more fiber because of no incumbent infrastructure, and that's driving CLECs to build around cities," says Tim Cahall, vice president of marketing and sales for network cable systems at Lucent Technologies.

Competition is igniting the demand for fiber as well. Says Cahall: "Cable's drive to get fiber deeper into networks is critical in their first-to-market foot race, so fewer homes per node is crucial. And CLECs know long-haul is coming. The more people who jump in, the more interesting it gets."

Lucent, too, is expanding its plant to increase fiber output by 60 percent. It will invest $650 million in the next two years for plant expansion—on top of the $350 million it currently is spending. "We've seen fiber growth at 17 percent forever. Now, we think the growth rate will be 30 percent this year. There's an enormous amount of fiber required to have the penetration needed by long-hauls, cable and others," Cahall says.

The numbers seem to bear that out. Worldwide fiber demand in 1999 increased by 38 percent over the year prior, and in the U.S., long-haul demand for fiber in year 2000 is expected to reach 11.5 million fiber kilometers, reports KMI. "RBOCs want to offer DSL so they aren't completely shut out of additional services. And, cable modems aren't strong enough to meet bandwidth demand and will require more fiber. That could be a huge part of future fiber demands," Fay notes.

Just how those demands are being met is an exercise in creative fiber management. For resellers such as ICS Inc., a broadband services company, the skyrocketing demand for fiber is literally changing the way it does business, with fiber allocations now depending on customer relationships and rationing.

"The demand is affecting us very much. We're seeing a huge demand from RBOCs, CLECs, overbuilders and from other sectors," says Juan Fuenzlida, director of product management for ICS.

One ICS customer, Fuenzlida notes, reports its fiber demand to be eight times its projected annual capacity. "Several customers have already put together fiber projections for next year. We're not even taking orders for this year because we have to take care of our traditional, loyal customers first," he says.

ICS' lead time for fiber delivery is better than most, adds Mike Lynch, vice president of sales and marketing for ICS, but still requires eight months for new customers. "We're very surprised how quickly this took place (higher fiber demand). In four months, our lead time went from three weeks to eight months for new customers. We're encouraging customers to project fiber allocations one year in advance. If they don't, they'll get shut out," Lynch cautions.

The spiraling demand for fiber could send costs higher, too, Fuenzlida says, as supply and demand principles enter into the equation. "Fiber prices will probably increase 10 percent to 15 percent in the next few months." He adds that there's been no major price correction in several years, so manufacturers will try to increase prices to improve profit margins.

Currently, the price for "bare" singlemode fiber is roughly a nickel per meter, a 40 percent drop from four years ago, Fuenzlida says. That will probably change soon, however. "I wouldn't be surprised if that goes up to eight cents this year. And for specialty fiber, we'll be paying a 25 to 30 percent premium."

Yet the cost of adding fiber count is having little effect on the overall fiber strategies of mega-companies determined to add fiber. Says Fay: "The cost of buying higher fiber count for cable is negligible. You don't have to retrench or dig new construction with higher count fiber, and that's contributing to future fiber demand. Some counts are reaching as high as 864 [strands]."

The spiking demand for fiber is affecting newer U.S. fiber manufacturers as well. Alcatel, which is gradually entering the North American market, is grappling with fiber allocation and is limiting the number of new customers—not exactly the ideal market entry scenario.

"We have to be careful not to over-commit. We have a direct link between our plants, and we continuously run our machines, expand our capacity and are focusing on fiber partners, but we didn't anticipate this growth, so we're missing out on opportunities to expand," says Todd Jennings, marketing manager for Alcatel's cable networks.

Alcatel, Jennings notes, is shifting part of its fiber capacity reserves from its overseas inventory to meet some of its current demands in the U.S. But the fiber path ahead, Jennings admits, could get scary. "The RBOCs haven't fueled the fiber demand in several markets; cable and newcomers like Qwest have. But the RBOCs are warming up."

Stocking inventory to meet the new fiber demand is one strategy some manufacturers are trying, but with little success. Chuckles Fuenzlida: "We thought about it, but we sold the fiber faster than we could make it. We could do 10 times the business if we had the capacity, and have sold out fiber allocations for next year already."

Higher fiber counts, low cost, competitive factors, the Internet, data and other new services, and deeper fiber penetration by a host of multi-service companies are overwhelmingly compelling reasons why the demand for fiber is off the charts.

Most experts say it won't slow down until the RBOCs have nearly built-out with fiber, which they've barely begun to do. Concludes Cahall: "It's growing faster than Moore's Law, and that's nice. But is it a bubble or a rocket ride?"

E-mail: cakuhl@compuserve.com

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