FEATURES & COMMENTARY

New York, N.Y. — Wylie Wong reports that the newest battle in the optical-networking wars is based on how much intelligence can be stuffed down high-speed Internet connections.

The race among networking companies is to provide the software that can automatically slice a high-capacity fiber-optic connection so customers can buy as much of the pipe, or “bandwidth,” as they need, whenever they need it.

Previously, carriers with fiber-optic networks could only offer massive chunks of bandwidth. But with added intelligence in the technology from networking companies such as Nortel Networks, Sycamore Networks and Ciena, customers can now subscribe for more bandwidth and receive it within minutes, rather than having to wait months.

All of these entrants have recently made moves in this area, hoping to garner free-spending telecommunications customers with new features for their optical networks. Adding more so-called intelligence to what were previously “dumb” parts of a network will likely be among the most interesting wrinkles to the optical networking equipment race, according to analysts.

Instead of having to order bandwidth at 155 megabits per second (mbps), a small company can simply ask for 10 mbps, for example.

“It’s like you go to the grocery store and want only seven pounds of sugar. Today, you can only get five- or 10-pound bags of sugar,” said Denny Bilter, Ciena’s senior director of marketing. “Now you can get any size. If you want seven pounds of sugar, you will be able to buy seven pounds. Essentially, you can buy what you want when you want it.”

Fiber-optic networks are high-speed pipes that make up the Net. With such a network, telecommunications carriers can send voice, video and data at superfast speeds.

“If you call up a carrier and say, ‘I want a high-speed connection from Los Angeles to New York,’ you can’t get it in real time today,” said Ciena’s Bilter. “With this optical technology, a customer can call up and have it up and running right then and there – it will have a huge impact on the industry.”

The emerging market for smarter optical-networking equipment is expected to grow from $8 billion in 2000 to $50 billion in 2004, according to Pioneer Consulting.

“It’s a trend of the future, and service providers are just beginning to do it,” said Dataquest analyst Tim Smith.

Analysts say the smaller networking players are the front-runners in the market, but the more established companies are coming on strong. Nortel recently announced its products, touting itself as the first to market. But Sycamore Networks has been shipping its technology for more than a year, and Ciena has been shipping its products since June. Cisco Systems and Lucent Technologies have also made investments in the area.

“There’s front-runners like Ciena and Sycamore who are really cutting edge,” said analyst Doug McEuen of Cahners In-Stat Group. “But there’s a slow adoption rate for radical technology, and when it becomes mainstream, (all the networking companies) will sit in good position. They’re developing and harnessing the technology – and it will be something that will be around for a while.”

Analyst Laurie Gooding of Cahners believes a newer breed of service providers, such as Williams Communications and 360networks, will offer the optical-network services. More established carriers, like the Bell companies, may not want to cannibalize their existing revenue from T1 or T3 high-speed connections that use traditional networks, she said.

The new technology is good news for small and midsize companies that otherwise couldn’t afford the high-speed connections, Gooding said. For service providers, it’s a huge opportunity to make more money, she said.

“Small and midsize businesses can’t afford the bandwidth from large-scale optical networks, so the new optical technology offers service providers a bigger revenue opportunity,” she said.

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