Challenges Loom, but Experts Expect Continuing Growth for Optical Market

The optical network market continues to grow after a “slight hiccup” in 2020 when providers hesitated briefly after the COVID-19 pandemic started, said Jimmy Yu, Dell'Oro Group analyst for optical transport, during the Fierce Telecom Optical Summit Tuesday. But Yu predicts challenges ahead. Other speakers predicted growth as providers look to cut operating costs and make their networks more efficient.

In 2020, providers weren’t sure how much they should spend on equipment but recognized “there’s really no change in how people are using the internet,” Yu said. “The spending continued to grow.” As people worked remotely, network traffic was still going through the backbone, he said.

Yu said an overall decline in metro deployments in recent years is tied to China, which largely locked down during the pandemic. There are also “real estate issues in the China market where there are just fewer new buildings going up, fewer new cities being expanded, and that of course impacts the needs for metro equipment,” he said.

Another looming challenge to metro growth is IP over dense wavelength-division multiplexing, which adds a router or switch to a network instead of installing new fiber, Yu said. The technology collapses the number of equipment layers into one, he said. Hyperscalers use that architecture, and it’s spreading to providers, he said. “That’s going to be a strong headwind for the metro market going forward,” he said.

But growth continues, Yu said: “All said and done,” the market is likely to grow globally 4% each year. Prompting growth is that the demand for bandwidth continues to grow at 30% each year, he said. Dell’Oro expects that trend to continue and that means the amount of bandwidth required in the network is four times what was required five years ago, he said.

Cable operators want to provide 10 Gb service to the home, Yu said. Wireless carriers offered kbps service with 3G and now provide Mbps service with 5G, “and 6G is just around the corner,” he said. Networks are also being densified, Yu said: Providers want to bring fiber to the home, not a neighborhood node, and “people are talking about taking fiber to the room. … We’re just densifying. We’re getting more and more connections.”

The major “wild card” is AI and machine learning, Yu said. Companies are going to come up with new apps that use AI, which could mean bandwidth growth faster than rates already being seen, he said.

The biggest “promise” of optical networks is they “make it look like there’s nothing in between these different locations that you’re connecting,” said Rick Talbot, principal analyst at ACG Research. These networks also don’t require end-to-point coordination, he said: “Your application doesn’t have to get involved in what’s in the middle of the connection. You don’t have to do any kind of translation. … It’s just straight through one end to the other.”

Capacity is the biggest challenge, Talbot said. AI will get much more use in data centers, he said. “To whatever degree we have distributed processing … that traffic is going to flow between those data centers and that’s going to ramp up tremendously,” he said. An important trend is the miniaturization of components, which means data centers don’t need as much space, driving down costs, he said.

Big Bend Telephone (BBT), which serves remote parts of Texas, used USF funding, in part, to build a fiber network, said Lauren Sanders, chief financial officer. BBT also uses fixed wireless and satellite in the most remote locations, she said. BBT’s market is “rocky, mountainous, very-high cost, and not just due to the sparse density but also due to the terrain,” she said.

Having an optical network is important because of some of the customers BBT serves, who demand reliable coverage, including U.S. Immigration and Customs Enforcement, Sanders said. “Fiber is definitely our foundation,” she said: “We can’t always deploy fiber everywhere, but even when we’re utilizing fixed wireless, we are using fiber as our backbone to the tower.”

Sanders also expects optical networks to help the carrier control costs. “We’re constantly looking for efficiencies,” she said. “The wonderful thing about an optic network is it is scalable based on customer demand,” she said.

Pennsylvania’s Blue Ridge Communications is rebuilding its network using 10 Gb symmetrical passive optical network (XGS PON) technology, said Zac Cronauer, fiber network manager. Blue Ridge expects its operating costs and energy use to decrease as the technology is deployed, he said. XGS and fiber-to-the-home offer “a simpler, more green network than previous … deployments,” he said.

Fiber offers “upgraded capacity for the consumer, whether it’s residential, community or business,” Cronauer said. Towns that previously weren’t connected to fiber can now grow and add businesses, he said. “As the consumer kind of gets caught up in that bandwidth usage I think that’s when you’re going to really see this explosion in growth in these small towns and rural areas,” he said.