A projected slowdown in the fibre optics industry will likely force a large-scale consolidation of long-distance carriers across North America, according to a recent report.
Fibre-optics market research firm KMI Corp. released a report Tuesday, which indicated that fiber deployment will slow significantly over the next several years. That means consolidation is likely, according to Providence, R.I.-based KMI.
It predicted that others, however, will emerge stronger, and will prosper during the “broadband boom” KMI expects after end users move away from dial-up service.
KMI analyst Angela Wang said the report found little difference between the Canadian and the American markets.
“Long-distance carriers in Canada have gone through changes over the last few years,” she said, noting several recent mergers and acquisitions. “This created a new competitive era in Canada’s telecommunications landscape. Carriers in Canada are now developing strategic alliances with the U.S., and that is a trend.”
Dr. Alex Ferwon, a Ryerson University computer engineering professor, said the predicted slowdown and resulting survival-of-the-fittest business model makes sense.
“I would be surprise if it doesn’t grind to an almost complete halt,” he said. “We saw 360 Networks completely go away, mostly because it tried to throw all this fibre into the ground for a lack of customers. That fibre stays in the ground, and it will be used by somebody. But as it turns out there isn’t the huge bandwidth demand everyone claimed there was going to be.”
He noted that while video-on-demand, for example, had been a hot issue for years, not “all that many people are demanding video.
“There is projected demand that isn’t there,” Ferwon said. “What compelling application are you going to provide me that makes me want to use this bandwidth? The most popular application on the Internet is still e-mail. I am sure there is a real need for bandwidth, but it isn’t by the consumer, and the businesses already have it.”
Doug Strachan, a spokesperson for Burnaby, B.C.-based Telus Corp., said he was already seeing a slowdown in the build of fibre and the laying down of cable. However, he said demand has not diminished.
“There is always potential for industry consolidation,” Strachan said. “It wouldn’t be surprising. At Telus, we are really going gangbusters in getting ADSL deployment out to customers and trying to keep up with demand. Certainly, there is demand for the technologies that use fibre optics and fill those pipes, as it were.”
Ferwon, however, casts doubt on the predicted bandwidth boom. “I don’t see how you can make a prediction three years in advance,” he said. “No one predicted the Internet. Three years before the Internet was here, people were predicting that we would have flying cars and would be walking around on Mars.”
The report, entitled “Fiberoptic Networks of Long-Distance Carriers in North America: Market Developments and Forecast”, is an update of a study released in 1999 which forecast a U.S. downturn in the long-distance fibre and cable market during 2001. The report assessed markets in the U.S., Canada and Mexico.
It also found that, by the end of 2000, carriers had assembled 672,000 route-km of fibre optic cable in long-haul networks. The annual numbers peaked in 1999 at 140,000 route-km. But KMI predicts that number to fall back to just under 35,000 route-km by 2003.
However, KMI found higher fiber counts may soften the dip. Improved business conditions and a refreshed demand for bandwidth in 2003 will rejuvenate the market, but still leave it below 1999 standards.
The cumulative long-haul cable deployment in Canada, as of the end of 2000, is at 92,200 root kilometres, Wang said.
“This number will increase to close to 110,000 root kilometres by 2005,” she said. “Massive long-haul network construction in Canada between 1998 and 2000, with a peak in 1999, represented 80 per cent of the cumulative networks roots kilometres. Since 1999, more than half of long haul fibre in Canada has been deployed by 360 Networks. Most existing carriers have now completed their long-haul fibre building in Canada.”
Wang said those that carriers that survive the downturn will be stronger, not just by virtue of surviving, but also because they will be able to keep and recruit high-end skilled workers.
KMI Corp. is at http://www.kmicorp.com