Research firm: expect high growth over long-term for voice and optical gear

An optimistic research firm foresees a boom in next-generation voice equipment and optical hardware, but cautions that it will take time for the noise to be heard.

Infonetics Research out of San Jose, Calif. said worldwide revenues for next generation voice products – softswitches, for example – counted for US$1.23 billion in 2001. The number represents a 100 per cent increase over global next-gen voice equipment revenue in 2000.

However, revenues are expected to grow at a sedated pace this year. Infonetics figures 2002 will see a 14 per cent improvement over 2001.

“The market is still young,” said Kevin Mitchell, a directing analyst with the research firm. “It’s still growing at a good clip, but the real growth is still ahead.”

The analyst said large telcos like Bell Canada, Telus and other “Tier One” service providers have been slow to adopt next-gen equipment.

“The big spenders of the world…haven’t really jumped on board next-gen voice yet.” But when they do, “that’s really going to kick it into gear.”

Mitchell said that carriers eye the equipment because it offers converged network technology and a migration path towards richer services, for which they can charge premium prices.

John Campbell, director of service development at Bell Canada, agreed with Infonetics’ take on the situation.

When it comes to next-gen voice equipment, “I think our investment is going up, but it’s still really small,” he said. “I think some of the folks that really invested in it big time were some of the next-generation carriers and data CLECs (competitive local exchange carriers), and of course they’re in real financial trouble, particularly in the U.S.”

A number of Canadian CLECs also fell by the wayside after gaining momentum in 1999 and 2000. Campbell attributes the 100 per cent jump in revenues between 2000 and 2001 to those newcomers. As well, he figures their demise accounts for the more modest growth that Infonetics notes for 2002.

Bell is going deliberately slow on next-gen equipment, waiting for corporate-class customers to come on board before pushing next-gen services.

The technology “isn’t quite ready for the big time,” Campbell said.

“The applications are there, but they’re being custom-built, more or less. It’s not like there’s a long laundry list of pre-integrated applications that major customers can just pick up and make use of. Everybody talks about having the capabilities, but there is an awful lot of custom integration to make it work.”

As for the global optical gear market, Michael Howard, Infonetics’ co-founder, said the segment offers good news and bad: the bad is that the market is in a slump. Howard said revenues were down between Q3 and Q4 2001 by 11 per cent as customers quit building their networks and, if they weren’t filing for bankruptcy, focused on service delivery.

“Over the last two years many of the carriers [were]…in trouble or have dramatically reduced their capital expenditures. We had hyper-inflated spending in optical gear, mostly in the long haul. The bubble burst.”

The good news, Infonetics says, is that “intelligent” optical hardware, such as synchronous digital hierarchy (SDH) and synchronous optical network (SONET) gear that is star- and mesh-configurable, is on the rise. Revenues from equipment in this sub-category – just right for carrying data as well as voice traffic – grew 67 per cent from 2000 to 2001.

“Many carriers said this year or last that there is more data traffic running on their networks than voice traffic,” Howard said. “The carrier networks have to accommodate that.”

Spokespeople from Nortel Networks Ltd. in Brampton, Ont. said in a statement to Network World Canada that the company sees “the ongoing importance of intelligence in the evolving optical networks,” but added that the growth will be tempered. “We are talking about evolution rather than revolution.”

Infonetics says intelligent optical gear will count for “nearly all” of the segment’s revenues by 2005.