Monthly Archives: July 2012

Market research consultancy Ovum predicts good things in the long term for the optical network hardware market, thanks to increasing bandwidth demands from data centers. Sales of fiber-optic network systems will grow at a 5% compound annual growth rate through 2017, to reach $20 billion, according to Ovum's new "ON Forecast Report: 2012-17."

"The new bandwidth driver is data centers. Large-scale data centers continue to be built out – both the multi-tenant, carrier-neutral variety and private data centers," says Ian Redpath, principal analyst in Ovum's Network Infrastructure practice. "The data centers are being placed in brand new locations, creating brand new optical networking demands. For example, the new Facebook data center at Lulea, Sweden, near the Arctic Circle, will require terabits of bandwidth. These new demands are not unique to Lapland – they are emblematic of a trend unfolding in multiple European and North American locations."

Latin America will offer the most opportunity, Ovum believes, because of modernization efforts to improve regional connectivity to support mobile and broadband access network deployments. Meanwhile, North American demand for optical network systems will show what it terms "solid growth" thanks to Tier 1 deployments of 100-Gbps technology.

The Asia-Pacific market will continue to expand as well, although not at the same explosive rate as the past five years. "In China, the optical network market has trebled in size over the past 5 years and continues to grow. Much of the core backbone was built in support of early generations of mobile technology, but there is still a wave of high-speed fixed broadband and next-generation mobile to come," predicts Redpath.

And Ovum even expects good news from the EMEA market despite its current macroeconomic problems, as deployments will continue in Russia, the U.K., Eastern Europe, and Africa. For example, Russian network operators want to supply pan-Asian capacity connecting the Far East to Europe overland. The southeast U.K. is another hotspot, with over 150 data centers outside of central London that require high-bandwidth interconnection.

"All told, the global optical network market is at a very interesting point in its evolution. New demands are arising just as the industry's latest technology offering is coming to fruition," concludes Redpath.

Verizon's (NYSE: VZ) FiOS service continues to be a shot in the arm for its wireline side, as the carrier posted a 2.5 percent year-over-year rise in consumer wireline revenues in Q2 2012, with 65 percent of those generated by FiOS. Wireline operating revenues declined 3.1 percent to $9.9 billion.

Overall, Verizon's total operating revenues climbed to $28.6 billion, or 3.7 percent more than the second quarter of 2011.

Second quarter earnings per share climbed to 64 cents, a 12.3 percent increase from last year and 5 cents higher than the first quarter, the company said. Verizon generated $7.8 billion of free cash flow in the quarter which, Executive Vice President-CFO Francis Shammo said, was "more than twice the amount we generated in the first half of 2011."

While FiOS was credited with rebooting the flagging wireline business, the fiber optic service showed a substantial decline in year-over-year video and data subscriber additions. Video subs grew by 120,000 compared to 184,000 a year ago; data subs were up 134,000 compared to 189,000. Both fell below market and Verizon projections.

On the other hand, the carrier added 350,000 more digital voice residence connections compared to 218,000 last year. Non-FiOS residential connections declined 199,000 in the quarter which, while a 6.6 percent decline, represented an improvement over the 240,000 line loss posted last year.

Shammo, in a Q&A with analysts after the earnings announcement, blamed the slower growth on seasonal factors, including an "unusually high move season in the month of June compared to prior second quarter."

"But more importantly, I think that we have refocused more on our profit on the FiOS side …. (and) you saw some of the benefits there," he continued. "We are focusing on the profitability of FiOS. the profitability increase in wireline this quarter was really centered around FiOS, really progress that we made on a quarter-to-quarter basis."

Shammo also said that the carrier is accelerating its copper shutdown.

"From a FiOS-to-copper migration or copper-to-FiOS migration, we nearly doubled the amount of migrations that we did," said Shammo. "We're being as aggressive as we possibly can in these areas."

On the whole, the lower FiOS subscriber additions could have a ripple effect on Verizon's attempts to purchase AWS spectrum from a consortium of cable operators known as SpectrumCo and standalone operator Cox Communications. Linked to that purchase is a separate joint marketing agreement between Verizon Wireless and the cablecos where Verizon Wireless would resell cable service in its regions and cable operators would sell Verizon Wireless. That plan has come under attack from those who believe it would slow FiOS growth as a cable competitor.

The cable spectrum purchase deal and another planned purchase from Leap Wireless are "at varying stages of review by the FCC and the Department of Justice," Shammo said. "We continue to expect approval and to close those transactions this summer."

Shammo, in a prepared statement, attempted to readjust expectations for FiOS subscriber additions to a "more natural range" that falls 20,000 to 30,000 below the previous range of 180,000 to 200,000 net adds each quarter.

"We are confident that at these levels we can still maintain an increasing revenue growth trajectory and expand profitability," he said.

BT Openreach has formally debuted its set of Fiber to the Premises (FTTP) whole services, enabling competitive providers to higher speed fiber-based broadband services to their respective customer bases.

Offering a suite of speeds ranging from 40/2 Mbps to 330/30 Mbps, BT said this new set of wholesale products will “allow Communications Providers (CPs) to differentiate themselves in the market by offering a wide range of fibre products to suit the needs of small and medium businesses as well as bandwidth-hungry consumers.”

Until now, the FTTP services had been offered to competitive providers such as BskyB and TalkTalk on what it calls an “early market deployment” basis. Now, the new service will initially be available within the 15 exchange areas where BT has built out FTTP network infrastructure.

Beginning next spring, BT will make FTTP available “on demand” in areas that are already being served by its Fiber to the Cabinet (FTTC) network.

The service provider continues to make progress with its overall aggressive Fiber to the X (FTTX) roll out. To date, it has passed 10 million premises with an aggressive goal to pass about two-thirds of UK premises by 2014.

Mike Galvin, Openreach MD for Network Investment, said that while FTTC is a sound near-term method to provide higher bandwidth speeds over an existing hybrid copper/fiber network – some of the fastest in the world – and build propositions which help to grow the market for these higher-speed services.”