The Total Worldwide Optical Networking
market is projected to increase from $14 B to $17.25 B by 2018 (CAGR 4.4%). From
a regional perspective the immediate growth is coming from network expansions
of the incumbent carriers in North America and APAC and driven largely by the
up-take in wireless 4G LTE based services. This build-out should take a couple
years to complete and will also expand to the EMEA market where it will fuel
revenue growth in the outlying three to five years. The projected five-year
growth on a regional basis will be EMEA (CAGR 5.0%), Americas (4.7% CAGR) and APAC
(3.7% CAGR). Based upon revenue generation the ranked order is Americas, APAC
and EMEA.
The packet optical transport
segment (POTS) will grow the fastest over five years (7.2% CAGR) and reach a $2
B run rate in 2018. The POTS segment emerged around 2008 as vendors started
fielding the purpose-built IP to optical platforms that carriers and
enterprises will need as they transition to an IP environment. Although this
segment has not grown as fast as some originally predicted, it has offered new
opportunities for vendors to expand their optical portfolio with minimal
investment and thus has attracted new entrants into this optical market
segment. This segment has the potential to exceed the forecast based upon the
carriers’, content service providers’ and enterprises’ transition to an all IP
environment.
The legacy product segments of
Long Haul DWDM (4.7% CAGR), Metro DWDM (4.7% CAGR) and MSPP (4.0% CAGR) will
continue to grow; they account for approximately 85% of the total optical network
spend during the next five years. This is due largely to the relationships or
dependencies between the product segments. The Metro DWDM and MSPP are the edge
devices and customer interface to the optical network. The Metro is usually
deployed to support Carrier Ethernet-based business services. MSPP supports legacy
voice data and video service offerings. The deployment of these edge devices drives
the need for the Long Haul DWDM platforms to interconnect them, a trend that
will not abate within this forecast window. Most Long Haul DWDM vendors are now
shipping 100G interfaces and have announced or demonstrated their roadmap to
higher rates. These have been well received and are being deployed at a high rate,
demonstrating the advantages of this higher speed interface to support subscribers’ connections.
The only product segments
forecast to deliver negative growth over five years are the optical cross
connect (OXC) segment (-6.0% CAGR) and the SONET/SDH (-9.1% CAGR) segment. These
product segments are the oldest within the optical networking market and are in
the declining phase of their product life cycles. Much of the OXC functionality
has been absorbed into the Long Haul DWDM and MSPP platforms, eliminating the
need for a separate box to accomplish this function. The majority of carriers
have also stopped spending on legacy SONET/SDH gear as they work to transition
their networks to the all IP packet-based environment. Equipment vendors have
also added SONET/SDH gateway functionality to their MSPP platforms to allow
carriers to support these legacy systems both internally and for their
subscribers. These two segments combined account for only 4% of ON spend and
will drop to approximately 2% by 2018.
The optical networking equipment
market is forecast to deliver 10.1% revenue growth in 2013 and experience slow
but steady growth over this forecast period. This is in contrast to the boom or
bust cycles for which optical has been historically known. The applications for
optical technology have expanded in wireline and wireless networks, data
centers and cloud computing and have created constant and ongoing support demand
in support for network services.
The next five years will bring
about stratification of these network services as carriers go to tiered
services to close and cover the gap between costs and average cost per user (ARPU),
the common metric used to derive the revenue generation of a service. ACG feels
a new metric will emerge that defines the profit per user or APPU based upon an
individual’s consumption of network resources and services. This new metric is a
key requirement to determining actual costs and ultimately the profit a user
generates. This capability will require the need for analytics applied to the software-defined
network and virtualization capabilities of the entire element service delivery
chain and will be a serious differentiator for those vendors that can deliver.
jogle@acgresearch.net
www.acgresearch
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