North American operators in an optical spending rethink
Optical transport spending by the North American operators dropped 13 percent year-on-year in the third quarter of 2014, according to market research firm Dell'Oro Group.
Operators are rethinking the optical vendors they buy equipment from as they consider their future networks. "Software-defined networking (SDN) and Network Functions Virtualisation (NFV) - all the futuristic next network developments, operators are considering what that entails," says Jimmy Yu, vice president of optical transport research at Dell’Oro. "Those decisions have pushed out spending."
NFV will not impact optical transport directly, says Yu, and could even benefit it with the greater signalling to central locations that it will generate. But software-defined networks will require Transport SDN. "You [as an operator] have to decide which vendors are going to commit to it [Transport SDN]," says Yu.
SDN and NFV - all the futuristic next network developments, operators are considering what that entails. Those decisions have pushed out spending
The result is that the North American tier-one operators reduced their spending in the third quarter 2014. Yu highlights AT&T which during 2013 through to mid 2014 undertook robust spending. "What we saw growing [in that period] was WDM metro equipment, and it is that spending that has dropped off in the third quarter," says Yu. For equipment vendors Ciena and Fujitsu that are part of AT&T's Domain 2.0 supplier programme, the Q3 reduced spending is unwelcome news. But Yu expects North American optical transport spending in 2015 to exceed 2014's. This, despite AT&T announcing that its capital expenditure in 2015 will dip to US $18 billion from $21 billion in 2014 now that its Project VIP network investment has peaked.
But Yu says AT&T has other developments that will require spending. "Even though AT&T may reduce spending on Project VIP, it is purchasing DirecTV and the Mexican mobile carrier, lusacell," he says. "That type of stuff needs network integration." AT&T has also committed to passing two million homes with fibre once it acquires DirecTV.
Verizon is another potential reason for 2015 optical transport growth in North America. It has a request-for-proposal for metro DWDM equipment and the only issue is when the operator will start awarding contracts. Meanwhile, each year the large internet content providers grow their optical transport spending.
Dell'Oro expects 2014 global optical transport spending to be flat, with 2015 forecast to experience three percent growth
Asia Pacific remains one of the brighter regions for optical transport in 2014. "Partly this is because China is buying a lot of DWDM long-haul equipment, with China Mobile being one of the biggest buyers of 100 Gig," says Yu. EMEA continues to under-perform and Yu expects optical transport spending to decline in 2014. "But there seems to be a lot of activity and it's just a question of when that activity turns into revenue," he says.
Dell'Oro expects 2014 global optical transport spending to be flat compared to 2013, with 2015 forecast to experience three percent growth. "That growth is dependent on Europe starting to improve," says Yu.
One area driving optical transport growth that Yu highlights is interconnected data centres. "Whether enterprises or large companies interconnecting their data centres, internet content providers distributing their networks as they add more data centres, or telecom operators wanting to jump on the bandwagon and build their own data centres to offer services; that is one of the more interesting developments," he says.
60-second interview with .... Vladimir Kozlov
A Q&A with Vladimir Kozlov, CEO of market research firm, LightCounting. The first of occasional, brief interviews with industry figures.
"You have to look over a longer time frame to understand the industry and appreciate the progress"
What exactly does your job entail?
As the founder and CEO my primary responsibility is to ensure that LightCounting's business grows smoothly. In practice this means managing a small team of industry experts to deliver quality market intelligence to our customers, co-ordinating sales and marketing and looking for new business opportunities.
What aspect of the job do you most enjoy?
I love talking with clients and industry experts. A good discussion is an essential element of market research, sales and business development. Not to mention that many of these people are my good friends by now.
How is the optical industry changing?
Slowly but steadily. If you look at it on a daily or quarterly time frame, it is full of problems and nothing is really changing. You have to look over a longer time frame to understand the industry and appreciate the progress.
What are you working on now?
I recently attended Optinet China held in Beijing. I am working on a report based on that exhibition and starting to work on a forecast report. China is a wild card, the economic systems of Europe are falling apart, and the U.S. is full of uncertainty. Someone needs to come up with a forecast for the next four years, despite this uncertainty. It is a big responsibility and a privilege at the same time.
You have been covering optical as an analyst for over a decade. What advice about market research would you give to someone starting now?
Doing a really good job in market research is much harder than it looks. You have to live on the edge to be able to do it right. Scanning the news and running forecast models is the easy part. Digging deep into the industry by finding the right questions and people who can answer them is much more challenging, but it is also a lot of fun.
Unless you can live on the edge and get excited by challenges, do not go into market research. Really good market research people are a bit crazy…I am not really good at it, but I am learning every day and I will certainly be crazy when it is time to retire.
LightCounting is a market research and consulting company focused on high speed interconnects for the datacom, telecom, and consumer communications.