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September 25th, 2007
- Market Stats
New York City - Demand for fiber optics takes off
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Despite the countless miles of unused fiber-optic cable laid during the dot-com bubble, demand for the high-capacity lines has been rising. And that bodes well for the stocks of companies that produce not only the cable but also the equipment that runs it. Fiber-optic cable, typically made of ultra-pure glass, can carry vast amounts of data via light. During the boom days of the Internet bubble, phone companies buried vast amounts of fiber-optic cable, in part because they assumed that Internet traffic would soar. Many companies initially laid large cables underground, even though many of the fibers wouldn't be used at first.
In the years since the dot-com boom, engineers have figured out how to move more data through the same amount of fiber, increasing the fiber-optic capacity. As a result, there are still untold miles of unused fiber cable, or dark fiber, in the USA. But now, demand for new fiber-optic cable is zooming. "Worldwide, we expect double-digit growth rates in fiber-optic cable demand the next few years," says Richard Mack of KMI Research/CRU, a London-based research firm. One key reason: the boom in moving video and audio files via the Internet.
Watching a video on the Internet sops up far more bandwidth than just surfing websites does. The proliferation of video sites such as YouTube means that consumers have been demanding more and more bandwidth, to move files at faster speeds. Fiber-optic cable demand should rise 10% in the USA this year, Mack says, and by as much as 15% in China and 20% in India. Each nation has different reasons for high demand. In the USA there's plenty of dark cable left, mainly around large metro areas. And telecom companies are still laying cable. "It's part of forward planning," Mack says. "As we speak, people are putting in more cable than they need."
Demand for U.S. fiber-optic cable isn't coming from companies that are laying fiber for 20 years from now; it's mainly from companies that are connecting houses and apartments to existing fiber-optic lines. Despite all the cable available between cities, telecommunications companies still have to run cable down streets to link homes and offices to the existing lines.
About 1.3 million U.S. households, or 1.3% of all, were connected directly to fiber-optic lines in July, according to the Fiber-to-the-Home Council, a trade group. That number has grown to about 2% of households since then and could reach 25% within three years, says David St. John, spokesman for the group.
Verizon is spearheading the fiber-to-home growth in the USA. It connected about 203,000 new customers to its FiOS broadband and TV services in the second quarter of 2007. The company plans to spend a staggering $23 billion on its fiber-optic network by 2010. "Verizon is betting the farm on it," St. John says.
Helping to accelerate fiber-to-the-home growth is new bendable fiber, which makes it easier to connect apartment buildings to fiber-optic cable. Fiber-optic cable has high capacity. But it can crack or lose capacity if it's bent too sharply. On Wednesday, Corning, the largest U.S. producer of fiber-optic cable, introduced its ClearCurve cable, which it says is as bendable as copper wire — yet has about 3 million times the capacity.
In China fiber-optic-cable demand has grown about 20% a year the past few years, Mack says, but will slow to about 15% this year because China has already built much of its city-to-city backbone. Still, the Chinese will use a great deal of cable as they prepare for the 2008 Summer Olympics in Beijing.
In India they are still building the Internet backbone, and demand for fiber-optic cable should grow about 20% a year, Mack says.
In Britain BT has dropped its hostility to considering a super-fast fixed-line broadband network, which could cost more than £10bn to build.
Ian Livingston, head of BT's retail division, told the Financial Times that the company would discuss investing in an ultra-fast network with the government and regulators at a summit in November or December.
BT's willingness to look at extending an optical fiber network to people's homes follows a warning last week by Stephen Timms, minister for competitiveness, that the UK risks falling behind other leading industrialized countries on broadband.
Mr Timms highlighted how the US, France, Germany and Japan are investing in fiber networks that could deliver broadband speeds of between 50 and 100 megabits per second.
That compares with the top speed of 24 mbps that BT will offer from next year.
BT executives previously insisted that there was no economic case for replacing copper phone wires that run to people's homes with fiber, partly because the company's investors are nervous about the likely cost.
However, Mr Livingston highlighted how BT is planning to install fiber on greenfield sites. He said a housing project at Ebbsfleet Valley in Kent would be a test case for the technology.
Mr Livingston also highlighted how BT is examining the merits of running fiber to the phone cabinets found on street kerbs to enhance broadband speeds. Copper wires would then run from the cabinets to homes.
"BT remains very interested in further expanding the speed of access for customers, whether that be through faster copper, fiber to the home, fiber to the cabinet," he said.
Mr Livingston added that BT could only contemplate replacing copper wires with fiber if regulators allowed the company to charge rivals a "sensible price" for using the network.
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