In the optical communications industry, it’s important to look back before you look forward. History has a way of putting the future into perspective.

Opnext’s LX4 fiber communications transceiver module is designed for multimode fiber for short-run communications, such as storage area networks, vertical building runs, and building-to-building communications.
Many of us have witnessed the communications industry roller coaster through the last decade as new applications have continued to expand the need for bandwidth, while multiple service providers put infrastructures in place to compete for the business. The Internet evolved from an American academic and governmental research network to a global information network used by businesses, individuals, and institutions to exchange e-mail, music, data, graphics, and even telephone calls and full-length movies. And we haven’t yet seen the end, as Internet traffic, on average, continues to double each year.

The boom in the 1990s brought rapid advancement of optical technologies backed by large venture capital investments at a time when telecommunications deregulation offered the opportunity to challenge incumbent carriers. In the bust that followed, industry-wide reorganization and rebuilding efforts taught us to make lemonade from lemons, optimizing existing technologies and infrastructure.

Now our history has brought us to a place of new growth. Today, opportunities for optical are brighter than ever, and it all starts with the transition of the transmission infrastructure from lower speeds to 10G (10 Gbps). This transition is being accelerated by the convergence of telecom, datacom, and storage markets at or near 10G, as well as the reduction in equipment costs thanks to standardization and technology advancements. The technological advancements in lasers have been the key enabler in driving the cost, size, and power consumption down to allow for more cost competitive 10G products.

Developing lasers is not easy — it’s difficult from a technical perspective and requires significant investment and years of learned knowledge. This creates a natural barrier to entry that favors only a few optical companies. A solid core technology base is required, plus a continuous investment in R&D to evolve the laser capabilities. With the market downturn in 2000-2003, the number of companies continuing to invest in laser technology has been reduced to a handful while a significant number of companies remained in the business of manufacturing optical transceivers. Both are important to the evolution of optical components for the system providers. Now the investments of the past years begin to pay off for those few companies who lead the 10G market as a result of their R&D. They are set to head future standards and speeds like 40G and 100G.

The Need for Speed

What does all that speed mean? For telecom, driven by data and new services, the industry must make the most of existing copper and fiber infrastructure to generate new revenue. Fortunately, there’s lots of fiber thanks to the 90s bubble, and there’s not a service provider out there that doesn’t have a plan for it. Expect to hear much more about VoD, IPTV, and applications with massive bandwidth demands.

Datacom’s desperate need for longer links and bigger pipes can thank e-mail, the killer application. Look for new offerings in VoIP, IM technology extending to video conferencing, cultural-driven music, and video exchanges (yes, more iTunes and YouTube) and a surge in wireless email, video, music, and photos.

In storage, security backups, compliance, and data mining are the big three. While servers, routers, and fiber connections running at up to 10G can move data to storage systems fast, those systems need equally high-speed interfaces to accept the data. Help is on the way.

Even cable television, stuck with copper, will get a shake-up. Copper can only go so fast and so far. Optical is ready to finally move in and capture customers who want the full package: data, phone, and next-generation video. Expect this market to be drawn straight to 10G to piggyback on the technology developed for other arenas at shared costs.

10G is big, but it isn’t the only news in 2007. We can’t ignore the power of lower speed telecom, which has also been influenced by the datacom side, as it experiences a boom in the small-form-factor pluggable (SFP) component space. Telecom SFP can be a challenge because of the major Telcordia requirements associated with it.

In 2007, the reign of the customer will be in full swing. With demands to improve interoperability, create common parts, and reduce costs, we again, as an industry, find ourselves scrambling to deliver. Smart customers who want value will continue the trend of consolidating their supplier base. They will look for companies who offer a full portfolio, customized versions of products, strong customer relationships, mutually-beneficial R&D, and long-term business and partnerships. This isn’t news to those bent on being the leaders. Their structures already have changed. For those lagging behind, it will be do-or-die as competition heats up.

Yes, the industry has right-sized, but the excitement hasn’t died down. Optical communications is white hot in ‘07.

This article was written by Harry Bosco, President and CEO, of Opnext Inc., Eatontown, NJ. For information, contact Mr. Graves at This email address is being protected from spambots. You need JavaScript enabled to view it..


Photonics Tech Briefs Magazine

This article first appeared in the November, 2006 issue of Photonics Tech Briefs Magazine.

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