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Internet spotlight. The valuations of optical companies have been
multiplied by this single act. The craziness slowed a bit at the end of
2000, but it is expected to regain momentum again.An industry that
is only five years old has created a gold rush that pits the three net-
working giants (that is, Cisco, Lucent Technologies, and Nortel Net-
works) against one another.
The long-term goal is to make a pure optical network in which a
light packet shuttles digital data at tremendous speed without ever
having to be converted into electrical signals.A group of optical start-
ups is aiming to deliver the components and new technologies in
order to make end-to-end optical a reality. No one is sure when all-
optical networks will become the norm, but within 10 years, these
networks should be deployed at major companies. Plenty of research
and development dollars and effort will be directed toward pure opti-
cal switches and optical technologies for metropolitan markets.
The pace of this fiber network buildout has been nothing short of
astonishing. Carriers such as Qwest Communications International,
Level 3 Communications, and Global Crossing have snapped up opti-
cal gear (lasers, amplifiers, and other components) so fast that short-
ages have occurred. Manufacturers and start-ups cannot ramp up
production quickly enough to meet the demand. The companies sup-
plying the underlying components, such as Nortel, Lucent, and
Cisco, are also struggling to keep up with the demand. Nortel esti-
mates that it will spend $260 million to boost its production by 30
percent in 2001. One telecom research company expects annual
spending on optical networking equipment to quadruple over three
years, to $23 billion, which can be seen in Figure 9-3.
The economics of optical networking are now starting to appear
and are becoming very favorable. For example, the cost of installing
optical networks over the traditional time-division multiplexed
(TDM) networks of the past are favorable, representing as much as
a 50 percent savings over traditional TDM installation costs. Figure
9-4 attempts to show this relationship of installed costs for optical
versus TDM equipment. The savings for long-haul networks can
mount up quickly in this way.
This figure shows that there is a 50 percent or better savings at
the representative number of OC-48s installed. Carriers like the
average savings per point of presence (POP) of $520,000. This allows