PAM-4 or Coherent DWDM for DCI?

At the March 2016 OFC conference, Inphi announced its delivery of a 100G, QSFP28, PAM-4, pluggable transceiver with 80km reach. PAM technology has been utilized for 100G transmissions (Inphi is a specialist in this area) before but at much shorter distances. Pulse-amplitude modulation (PAM) is an analog transmission scheme similar to NRZ but with multi-level signaling, with PAM-4 utilizing four levels to signal one of four possible symbols (2 bits per symbol). During the announcement, Microsoft also publicly announced that it will begin sourcing the pluggable PAM-4 technology from Inphi for interconnection of its regional, metro-distributed data centers, which by definition are within 70km of each other. Coherent technology will continue to be used elsewhere. The metro-distributed data center deployment model builds and interconnects a number of smaller data centers within a metropolitan area instead of deploying a single hyperscale data center in the region. Microsoft also divulged that it was their intention to turn up all 40, 100G wavelengths at one time (4Tb/s with each carrier occupying 100GHz channel spacing) on a fiber pair, utilizing all available colors in the fixed-wavelength portfolio. 

Some at the conference reacted to the Inphi/Microsoft announcement by declaring the obsolescence of existing optical DCI/coherent DWDM solutions. Although the Inphi/Microsoft announcement is exciting news, ACG thinks the PAM-4 technology is far more complementary to existing coherent DWDM solutions than competitive for multiple reasons. 

Figure 1. Optical Reach for 100G Technologies 

Reach. The PAM-4 solution covers a portion of the optical reach needed to interconnect data centers. Below 10km, IEEE 802.3ba 100G pluggable optics are readily available with 100GBASE-LR4 supporting 10km reach in a QSFP28 package for cost-effective point-to-point connectivity. The 100GBASE-ER4 specification for 40km reach has been more challenging for optics suppliers to deliver and remains either in larger packages (example, CFP, CFP2) or in nonstandard formats, meaning non-interoperable across vendors. So where does the PAM-4 technology fit? In general, its initial fit appears to be in the <40km range as an alternative to existing, suboptimal pluggable solutions. We believe there is limited overlap with coherent DWDM solutions in this range. The solution also plays in the 40–80km range as an alternative to optical DCI/coherent DWDM solutions for some deployment scenarios. 

So, based solely upon reach, a logical question is how much of the optical DCI/coherent DWDM market is covered by 40–80km? ACG Research recently completed a worldwide survey of data center service providers, including network service providers, cloud service providers, Internet content providers and Internet eXchange providers. This research will be available in a published report later this month (April). One of the questions we asked the service providers was the proportion of optical reach needed to cover their data center interconnections today and in 2019. What we found is that service providers on average believe that 30–80km optical reach is needed for approximately 30% of their data center interconnections. The results indicate a modest increase between today and 2019. Based upon this preliminary research, we have a sense of the addressable optical DCI market for this technology. However, we also believe that service providers will consider at least three other factors in making their DCI deployment decisions.

Figure 2. Data Center Interconnect Optical Reach 

Operations. Every data center deployment is not like Microsoft’s plan for metro-distributed data centers, which is to turn up all 4Tb/s of connectivity in a point-to-point fashion on day one of data center activation. By deploying all 40 wavelengths at once, Microsoft could reduce the incremental cost per wavelength of deploying dispersion compensation on the fiber, which is required for PAM but not for coherent DWDM solutions. Dispersion compensation costs include both the capital equipment as well as the operational costs associated with installing and tuning the compensators. Microsoft also avoids the operational complexity of deploying fixed wavelength pluggable optics incrementally, where inventory and on-site resources are required every time a change or a wavelength addition is needed. 

Other service providers that have existing metro optical networks may not want to deploy in this manner. They may not want the added complexity of dealing with dispersion compensation for PAM deployments. Some may want to utilize existing metro optical infrastructure and/or deploy in a mesh architecture. Still other service providers may not have the same visibility as Microsoft with regard to their data center connectivity needs. They may need to be more agile and utilize a pay-as-you-go/pay-as-you-grow deployment model where they add interconnection capacity over time and in alignment with their data center compute/storage capacity and revenue generation. An incremental deployment model is just more operationally complex with fixed-wavelength pluggable optics. 

Fiber Scarcity. When fiber is scarce or expensive, fiber optic transmission efficiency (bits per Hz) increases in importance. The PAM-4 solution delivers an efficiency ratio of 1 with 100Gb/s transmission occupying 100GHz channel spacing. 16-QAM coherent DWDM modulation offers 200Gb/s in 50GHz channels or an efficiency ratio of 4. Recent flexible grid implementations have an even greater efficiency ratio approaching 7. If more than 4Tb/s of connectivity is needed and incremental fiber is scarce or expensive, service providers may need to utilize the more efficient coherent DWDM system to squeeze more bandwidth through their limited fiber resources.

Programmability. Fixed-wavelength pluggable optics do not advance the broader drive toward a programmable, agile, SDN enabled optical underlay. SDN and NFV are changing all aspects of the ICT industry, including optical solutions. Service providers are looking to utilize intelligence, automation and programmability to reduce operational costs and ensure that network resources adapt to changing business and networking conditions across protocol layers, including optics and IP. Many demonstrations at OFC utilized SDN control and service automation combined with a programmable optical layer to showcase network efficiency and adaptability. The ONS 2016 conference had similar demonstrations with ONOS and ODL controllers programming in near real-time optical and IP networking infrastructure. 

Figure 3. Example of a Mixed Technology DCI Deployment 

The Inphi PAM-4, QSFP28 solution is an exciting achievement and addresses a very real need in the sub-80km 100G market. We believe the solution is actually far more complementary than competitive to existing optical DCI/coherent DWDM solutions. Most service providers will utilize an all-of-the-above approach to their 100G DCI deployments just as they did before with dark fiber, IEEE pluggables and coherent DWDM options. PAM-4 meets the needs of data center operators, such as Microsoft, that intend to turn up 4Tb/s of transmission capacity in a point-to-point fashion between data centers in a ~70km metro-distributed network. However, if a provider needs longer reach or more than 4Tb/s per fiber pair or an incremental growth operational model or if a service provider is looking to advance its programmable, SDN enabled network, then a tunable, coherent DWDM solution is a better fit. PAM-4 or coherent DWDM for data center interconnections? Yes!

For more information about ACG’s DCI services or ACG’s 4Q15 DCI Market Share report, contact info@acgcc.com.

Click for more information about Tim Doiron and his recent articles.

     Tim Doiron

     tdoiron@acgcc.com

     www.acgcc.com

Infinera Delivers the Multi-Terabit Infinite Capacity Engine

Infinera revolutionized optical integration with the introduction of its industry leading 100G Photonic Integrated Circuit (PIC) in 2005.

In 2011 the company followed with the introduction of a 500G PIC and coherent digital signal processing (DSP) technology.

At the OFC Conference in March 2016, Infinera once again pushed the limits of optical integration with the debut of its multi-terabit Infinite Capacity Engine.

The Infinite Capacity Engine is a family of next-generation optical subsystems consisting of fourth-generation photonic integration with advanced coherent signal processing, software defined networking-enabled sliceable photonics architecture and Layer 1 encryption.

Click to read Tim Doiron’s Infinera Infinite Capacity Engine ACG Market Impact.

For more information about ACG's market impact service, contact sales@acgcc.com.

     Tim Doiron

     tdoiron@acgcc.com

     www.acgcc.com

SDN/NFV: Intelligent Transport Networking

Tim Doiron, principal analyst, Intelligent Transport Networking, ACG Research, leads an SDN/NFV panel at Layer123 SDN & OpenFlow World Congress in Dusseldorf, Germany.  Tim introduced the panel participants and shared some of the recent findings of ACG Research as part of the panel kickoff.  In working closely with a number of customers, ACG Research has found that through software automation, service providers cannot only accelerate new service introduction, but also substantially increase revenue.  With more rapid service introduction, service providers can expedite time to revenue, enable reduced services pricing, thus attracting more trial customers and finally obtain more paying customers faster.  In total, ACG Research analysis indicates that this virtuous software-enabled cycle can deliver as much as 400% higher revenue generation over a five year period vs. today’s highly manual new-service introduction processes. 

Click for more information about Tim Doiron or to discuss this topic contact Tim at tdoiron@acgcc.com.  

   Tim Doiron

   tdoiron@acgcc.com

   www.acgcc.com

Migration of Services to the Data Center Driving Optical DCI Growth

ACG Research has released its Q2/2015 worldwide Optical Data Center Interconnect (DCI) market share analysis as well as its 2014–2019 worldwide forecast for Optical infrastructure platforms purchased by service providers for use in data center interconnect applications. Optical DCI product segmentation includes products designed for both long-haul and metro deployments, as well as a parallel view of the market based on large-scale multi-slot chassis platforms and small-form factor (SFF) optical appliances. The top three optical DCI suppliers worldwide in Q2/2015 are Ciena, Infinera and Alcatel-Lucent, respectively.

Purchases of Optical DCI equipment are expected to grow at a compound annual growth rate (CAGR) of 44.9% during the forecast period from just over $1.1 billion in 2014 to $4.7 billion in 2019. Sales of metro DCI platforms (supporting DCI connections up to 150 km) will continue to dominate over long-haul; both metro and long-haul will experience considerable growth at 51.5% and 24.6% CAGRs, respectively. Throughout the forecast period, the Americas and specifically North America remain the dominant geographical location for Optical DCI. EMEA and APAC regions demonstrate considerable optical DCI growth, but each remains about half the size of the Americas market.

Although the majority of Optical DCI deployments to date have been with multi-slotted chassis products, small-form factor Optical DCI appliances are entering the market at a rapid pace, led by Infinera’s two rack-unit (2RU) Cloud Xpress, which debuted in late 2014. Recent announcements from other vendors in the optical appliance category include Ciena’s Waveserver™ and Fujitsu’s 1Finity™ platforms. Adva also recently debuted its FSP3000 CloudConnect™ platform, though Adva is espousing a modular, 4RU chassis as “right-sized” for Optical DCI applications. Expect to see more product announcements in the future for this fast-growing product segment as revenue is projected to approach parity with large multi-slot chassis solutions in the last year of the forecast period.

“Uptake of Optical DCI is being driven by the migration of services to data centers and the cloud as service providers simplify deployment models and accelerate delivery of new and differentiated services,” says Tim Doiron, practice lead for Intelligent Transport Networking at ACG. “New and expanded data center deployments are being driven by a variety of service providers including Internet content providers (ICPs), network service providers (NSPs) and interexchange providers (IXPs) as well as enterprises themselves. As more functions become automated and virtualized, the need to interconnect data centers for capacity, resiliency and versatility will continue to grow and increase the need for reliable, cost-effective, high-speed data center interconnections.”

For more information about ACG’s data center interconnect services contact tdoiron@acgcc.com or info@acgcc.com.

Click for more information about Tim Doiron or to discuss this topic contact Tim at tdoiron@acgcc.com.

   Tim Doiron

   tdoiron@acgcc.com

   www.acgcc.com

SDN & Multi-layer Transport SDN: Notes from Layer123 SDN OpenFlow World Congress

This year’s Layer123 SDN OpenFlow World Congress in Dusseldorf, Germany, was quite an expanded event from last year with over more than 1,500 people registering.

There was a great mix of presentations from equipment suppliers, services providers and open source organizations at the event. SDN and NFV were, of course, top of mind at the event. The number of SDN and NFV PoCs and trials continue to grow rapidly, but live commercial deployments outside the data center remain elusive. Our ideas and thinking about the application of this technology in our networks has, however, matured. The focus has shifted, correctly I believe, from minimizing capital costs with COTS hardware to agile revenue generation via network automation and programmability.

Although many challenges remain, the single biggest barrier to mass SDN commercial deployment is operationalization of the technology. It is not just commissioning either. A virtualized and programmable network must still be operated and managed throughout its life-cycle to meet changing networking demands and customer service level agreements. In one conversation with an equipment manufacture, we discussed the simple scenario of a fan failure in a server running multiple VMs and VNFs. Who would know of the failure? How would they know and when would they know? Part of the beauty of an NFV environment is that the VM/VNF can simply be moved to other physical machines. However, financial considerations will always dictate that there is a limit to the number of physical machines (COTS or otherwise) installed in a service provider network. The underlying physical network will have to be maintained and failures addressed lest they eventually lead to poor network performance and customer satisfaction.

The fact that there was broad acknowledgment about the need to close the operational gaps is encouraging and a major step toward increasing commercial deployments.

Multi-layer Transport SDN was another topic that generated a lot of chatter in both Layer123 sessions and at a lunch-time debating table. Is multi-layer only through Layer 2 or 2.5? Or does it involve Layer 3 and IP?

After some discussion, the general consensus emerged that in order to maximize the value of an agile SDN-enabled network, multi-layer SDN and associated path computation must be Layer 0-3. The value of a multi-layer control plane is significantly diminished if IP is not a part of the solution. Independent fault detection and recovery mechanisms (think path computation) is exactly what we have in today’s networks with the packet-optical layers doing their own detection and restoration while IP executes its own Layer 3 detection and restoration mechanisms with protocols such as BFD and EMCP. Break a fiber in a network and all layers work almost completely independently to restore paths and services at their respective protocol layer.

With SDN and centralized control, we have the opportunity to ensure that wavelengths, ports and paths are coordinated and utilized for maximum efficiency. We can simplify our networks and drive out complexity and operational costs. Must a supplier’s controller and path computation element (PCE) contain Layer 0-3 functionality? Not necessarily. The hierarchical nature of SDN control means that hierarchical-PCE across multiple PCEs is a viable option. Packet optical suppliers could focus on Layer 0-2 PCE but then interface in a hierarchical manner with a Layer 3 PCE partner/supplier. Alternatively, a monolithic Layer 0-3 PCE is also possible but might require tighter coordination and integration than an equipment supplier may want to pursue. Either way, packet optical suppliers need to drive their PCE thinking from a Layer 0-3 perspective if we are to simplify the network, improve equipment utilization/efficiency and create agility for the future.

Click for more information about Tim Doiron or to discuss this topic contact Tim at tdoiron@acgcc.com.

   Tim Doiron
   tdoiron@acgcc.com
   www.acgcc.com

1Q Worldwide Optical Markets Affected by Capex Decreases

The growth rate of 100G optical interfaces remains steady and the trend to support 4G and mobile Internet services is driving expansion in all regions

The Worldwide Optical Networking market decreased in 1Q15 to $2.9 billion in revenue, dropping 13.3 percent q-q but increasing 4.1 percent y-y. With the exception of the Packet Optical Transport segment, which was up 3.9 percent q-q and Sonet/SDH segment, which increased 0.5 percent, all segments of the optical market posted quarterly declines.

The POTS segment, after slow growth for several years, is beginning to see an acceleration driven by the transition from legacy services and operators that need to transition their installed base. In the SONET/SDH segment most Tier 1 service providers have stopped building out or capped spending on SONET/SDH as they transition to newer technologies; however, in other global markets and low-tier carriers, E1 interfaces are still fundamental to operators’ businesses. Legacy players tend to dominate these businesses with development support limited to maintenance.

U.S. Capex in the first quarter was down 14 percent and the second quarter is projected to be down 10 percent. The smaller capex spending in Q1 had a direct impact in the overall optical market. Capex allocation for optical equipment has decreased from 9 percent to 4.3 percent during the last 5 years.

The top five worldwide players in 1Q were Huawei with 15 percent market share; ZTE, 15 percent market share; Alcatel-Lucent, 12 percent market share; Ciena 12 percent market share and Cisco, 8.5 percent market share respectively.

TREND AND DRIVER HIGHLIGHTS

Web 2.0/Webscaller/Co-location capex is expected to grow in 2015 in the $36 billion range and will be a new growth area for selling virtual routers, DCI optical and packet solutions. We expect to see growth with web scale companies growing their capex.

Data center interconnect positively impacts both the optical and packet domain. Currently, ACG sees six to eight percent of edge routers being dedicated to DCI. ACG sees three main areas that will be the foundation for DCI: Optical, Layer 2 and Layer 3.

MSPP solutions continue to decline as subscribers transition from legacy protocols such as ATM and TDM based technologies to the IP/Ethernet environment continues.

100G in metro applications in high demand, which will help drive growth in overall optical market.

For more information contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

Worldwide Optical Market Increases Slightly in 4Q

Demand for rich media and OTT services to the home and mobile devices are market trends that continue to pressure providers to move DCs into the metro and enhance core infrastructures

The Worldwide Optical Networking market rebounded slightly in Q4 2014 to $3.375 billion in revenue, dipping 7.0 percent q-q but increasing 2.7 percent y-y. The year closed with annual revenue of $13.1 billion, 0.9 percent y-y increase. Demand for high-speed optical infrastructure remains steady, driven by increased sales of 100G interfaces in the Metro and LH WDM segments. “The 4Q revenue jump has been observed within the optical market for the last three out of four years. The year-over-year growth indicates a slight increase of spending but not necessarily a bullish market,” stated Dennis Ward, principal optical analyst, ACG.

Regionally, APAC is the top producing region though revenue declined 5.3 percent q-q. North America remained in the 2nd position, increasing 7.8 percent q-q and up 25.4 percent y-y. EMEA remained a strong 3rd at 11.4 percent q-q but showed a dip of 5.2 percent y-y. LAM improved with 6.3 percent q-q and 10.2 percent y-y growth.

The growth rate of 100G optical interfaces remains steady. The trend to support 4G and mobile Internet with its rich services is driving this as well as 400G trials in all regions. But 400G standards are still in flux. Although the Tier 1 communication service providers gear up for 2015, many of the optical equipment providers are finding a real market with the content service providers (CSPs) as they migrate their data centers into the metro closer to their customer bases. Some of these CSPs are looking for simple high- capacity solutions via dark fiber across the metro; others want more sophisticated long-haul solutions into the metro. “We see the demand for DCI bifurcating into two distinct market segments of products, small slot versus multislot solutions,” says Dennis Ward.  

Service provider SDN and NFV in combination with P-OTS/Metro WDM solutions are gaining traction in network infrastructure selection and deployments. P-OTS segment saw a quarterly dip in its revenue contribution but maintained its $.5 billion run rate, decreasing 7.9 percent q-q but increasing an impressive 28.9 percent y-y. The top five worldwide players in 4Q were Huawei, ZTE, Ciena, Infinera and Alcatel-Lucent, respectively.  

Metro WDM maintained its quarterly $1 billion run rate but decreased 0.7 percent q-q and 9.2 percent y-y. Metro traffic is predicted to grow faster than backbone traffic as more regional data centers are located closer to the user community. As much as 70 percent of the traffic is predicted to stay within the metro from which it originated, bolstering east-west traffic between data centers. The increase in DCI supports this trend and will drive the need for additional capacity by the traditional service providers, MSOs, cloud and data center operators.

For more information about ACG's optical services, contact sales@acgcc.com.

Dennis Ward

dward@acgcc.com

acgcc.com

4Q 2013 Optical Networking Market Update

Once again the optical infrastructure market grew; 4Q quarter budget flush delivered 19.5% quarter-over-quarter gain and increased the Worldwide Total Optical Networking market revenue to $4.01 billion, the highest run rate level since 4Q 2008. 

The fourth quarter year-over-year growth for the optical infrastructure market was 16%, growing 9% for the year. Of the six product segments tracked within the optical market five of the six reported positive quarterly gains. The Long Haul DWDM segment returned to the number one position based on revenue with 45.6% quarter-over-quarter growth. The Metro WDM segment was the second highest segment, delivering 15.9% quarter-over-quarter growth.

Only the POTS segment experienced negative quarterly growth, -4.1% but was up in 42.1% year-over-year. It also remains the fastest growing segment on a yearly basis. All the other product segments of MSPP, Optical Cross Connect and SONET/SDH saw demand increase and reported positive quarter-over-quarter growth.

In 4Q not all vendors benefited equally from the increased spending with some significantly missing their revenue targets. The vendors’ performance varied widely with several reporting banner quarters with the highest revenue levels seen for years or new highs. For the top 10 positions for the total worldwide optical networking market this caused a reshuffle of positions 2–8 within the Optical Networking market for 4Q.

4Q, 2013 Worldwide Total Optical Networking Market
Company	Rank	4Q Revenue ($M)
Huawei	1	$ 1381.9
Alcatel-Lucent	2	$ 432.8
Ciena	3	$ 403.5
ZTE	4	$ 364.5
Ericsson	5	$ 225.9
Cisco	6	$ 210.0
Coriant	7	$ 152.0
Fujitsu	8	$ 146.0
NEC	9	$ 121.5
Infinera	10	$ 115.1

Huawei maintained its lock on the first position and reported its highest optical revenue quarter ever. The advancers included: Alcatel-Lucent, Ciena, Ericsson, and Coriant, which all advanced one position. The decliners included ZTE and Fujitsu; both lost multiple ranks within the market for 4Q. Cisco managed to maintain its position although its quarterly performance was also below target.

APAC, the largest region from an optical revenue standpoint, reported 25.6% quarter-over-quarter growth and positive 27.0% year-over year gain. This was largely driven by Huawei and the company’s wins with both China Mobile and China Telecom. The economy in EMEA is beginning to show signs of picking up and vendors reported 48% quarter-over-quarter growth and 11.9% year-over-year. LATAM was the largest increase on a percentage basis, delivering +58.9% quarter-over-quarter but only +3.3% year-over-year increases. On a regional basis North America was the worst performing region, -15.0% quarter-over-quarter but still managing a gain of 10.0% year-to-year. This was largely driven by AT&T, Verizon and Sprint, North American Tier 1 providers, curtailing their CapEx spending toward the end of 2013. 

4Q Trends

• The MSPP market segment continues to experience declining revenue and for 4Q was able to post a small positive gain of 3.9% quarter-over-quarter but dropped 15.4% year-over-year. On a yearly basis in 2013 the MSPP segment dropped 17% and is 52% down from its all-time high achieved in 2007. The general transition away from legacy technologies is driving the decline in this market segment. As enterprises move to the IP/Ethernet environment it is driving a shift of product type from MSPPs to POTS platforms.

• Though the POTS segment saw a decline in demand during 4Q and decreased 4.1% quarter-over-quarter it was still up 24.1% year-over-year. This segment grew 25.9% on a yearly basis, making it one of the fastest growing segments in the optical equipment market. These platforms are widely deployed in data center solutions and are generally all SDN ready. There are a large number of both incumbents and newcomers to this market segment, making the competition extremely fierce and partnering and technology decisions more complex.

• Marlin Equity Partners completed its acquisition and privatization of Tellabs and has set its strategic direction. A portion will fold into Coriant and the other will be spun out as a separate entity called Tellabs. With Coriant in seventh position and Tellabs in eleventh, the combined revenue will bring them on par with Fujitsu and Cisco. Marlin Equity Partners has become a major stakeholder in the optical market, and it must now focus on execution.

• Demand for 100 Gig interfaces remains strong and ACG estimates more than 10,000 100G ports were shipped in 4Q. The overall port count for 100G deployment was up by approximately 26% in 4Q and accounts for as much as 30% of some vendors’ revenue. We anticipate a flattening of growth but project that demand will remain strong during the first half of 2014.

• The Metro WDM market segment was strong, particularly in North America, and has surpassed sales of the MSPP market segment. The Metro WDM growth is driven by increased user traffic as well as a traffic pattern shifts where more of the traffic originates and terminates within the Metro itself. This trend, which predicts as much as 75% of the traffic, will stay within the Metro and will drive equipment sales.

The optical networking equipment market continues to be driven by its traditional application of wireline services (dry and wet), wireless back haul, data centers applications and emerging M2M applications. Demand for services that will rely and effectively run over optical infrastructure will remain strong. With the global economy showing strength and government outages behind us consumers should help drive demand. In the optical market, however, 1Q of every year tends to be down as vendors generally attempt to pull in all possible revenue to finish their year strong.

For more information about ACG'spacket optical transport services, contact sales@acgresearch.net. 

         Jeff Ogle
jogle@acgresearch.net   
    www.acgresearch

Cyan Packet-Optical Hollow Core: Addressing Service Providers’ Requirements

ACG Research's business case examined the five-year total cost of ownership of Cyan’s packet-optical hollow core network solution versus comparable LSR and IP over OTN  solutions. 

Demand for bandwidth is being driven by an increase in services and network traffic. As a consequence service providers’ margins and business models are being challenged. These factors as well as the attractive economics of 100 Gbps transport technology have prompted SPs to look toward opportunities to optimize their traffic flows, simplify their core network and minimize their need for routing.

Cyan addresses service providers’ requirements with its IP over Connection-Oriented Ethernet solution for the core network, which takes advantage of the economics of 100 Gbps transport technology, and Blue Planet, its SDN software. ACG Research compared the five-year TCO of Cyan’s core network solution with LSR and IPoOTN alternatives for a typical core network. The analysis finds that the TCO of the Cyan solution is 71 percent lower than the LSR alternative and 48 percent lower than the IPoOTN alternative. The packet optical transport platforms used by Cyan and IPoOTN operate at much lower cost than the router-derived technology of the LSR alternative, which is a significant part of the cost savings of Cyan’s platform and IPoOTN as compared to LSR. Cyan employs an open and virtualized SDN control plane that is more cost efficient than the proprietary and embedded G-MPLS distributed control plane used by IPoOTN. This accounts for the remaining TCO savings produced by Cyan as compared to IPoOTN.

Additional benefits of Cyan’s packet-optical core approach and its open SDN architecture include enabling the streamlining of business processes such as service delivery, supply chain, customer management and service creation. There is also the potential that the packet-optical core approach may ultimately eliminate the need for some core routers, which will produce an even more dramatic TCO reduction.

Cyan’s Blue Planet software includes the following capabilities whose benefits reach across multiple service providers’ business processes:

• End-to-end Provisioning
• Troubleshooting
• Service Level Agreement Assurance
• Network Planning and Design
• NOC Services

For more information, downloadthe business case.

For more information about ACG's business case analysis services, contact sales@acgresearch.net.

Michael Kennedy

mkennedy@acgresearch.net
www.acgresearch

Q3 Optical Networking Market Update

The optical infrastructure market continues to exhibit its cyclic nature with the 3Q Worldwide Total Optical Networking market dropping 7.4% quarter-over-quarter but still managing to yield a year-over-year gain of 5.7% with revenues of $3.36 billion. POTS and Metro WDM were the only two segments reporting positive quarterly growth, and for the first time the Metro WDM segment surpassed the Long Haul DWDM segment to become number one on a revenue basis. Traffic in the Metro WDM segment is closely tied to user demand and applications, and more traffic is staying within a metro, partially by network design and architecture. This growth will drive the need for higher performing Metro networks.  

The POTS segment, the fastest growing segment as both a percentage of revenue and total dollar contribution, saw strong demand, growing 8.3% quarter-over-quarter and 42.1% year-over-year. MSPP, Long Haul DWDM and SONET/SDH segments, however, saw demand decrease; all posted negative quarter-over-quarter growth. The Long Haul DWDM segment did grow 5.2% year-over-year and was number two in terms of total revenue contribution.

In 3Q the vendors’ performance did not vary as widely as observed in previous quarters, enabling most of the top 10 vendors to keep their relative positions. There was, however, enough variation to reshuffle positions 5–10 within the Optical Networking market.

3Q, 2013 Worldwide Total Optical Networking Market
Company	Rank	3Q Revenue ($M)
Huawei	1	$ 710.8
ZTE	2	$ 427.0
Alcatel-Lucent	3	$ 376.2
Ciena	4	$ 368.2
Fujitsu	5	$ 260.5
Cisco	6	$ 247.0
Ericsson	7	$ 147.6
Coriant	8	$ 128.0
NEC	9	$ 126.6
Infinera	10	$ 120.8

Huawei and ZTE maintained their lock on positions one and two. Alcatel-Lucent and Ciena both are vying for the third place and are within 2% of one another. A similar situation exists for Cisco (fifth position) and Fujitsu (sixth place); they only differ by 5.26% points and traded places this quarter. In a similar vein Coriant and Ericsson swapped positions 7 and 8. NEC made the top 10 this quarter by bumping Tellabs out of the ranking.  

By region North America was the best performing, providing 5.2% quarter-over-quarter gains and 23.3% year-to-year. This growth was largely driven by AT&T, Verizon and Sprint. Although the CapEx spending of these Tiers 1s is winding down, it has been a significant driver throughout this year. APAC, the largest region from an optical revenue standpoint, reported a decrease of 15.4% quarter-over-quarter but managed a positive 4.5% year-over year. EMEA is still showing lethargic performance and was down 3% quarter-over-quarter and 7.0% year-over-year. LATAM posted the largest declines on a percentage basis: -26.4 quarter-over-quarter and -9.8 year-over-year.   

Trends

• The MSPP market segment continues to decline revenue and for Q3 dropped 15.3% quarter-over-quarter and 14.5% year-over-year. The general transition away from legacy technologies is driving the decrease in this market segment. As enterprises move to the IP/Ethernet environment, product types are shifting from MSPPs to Metro WDM platforms.

• Marlin Equity Partners continues its acquisition and privatization of companies within the optical vendor ecosystem. With its recent Tellabs offer now approved by shareholders, Marlin Equity Partners has become a major player in the optical market. In the LAM region Tellabs and Coriant held the fifth and sixth positions. 

• Demand for 100 Gig interfaces is tapering. Although many vendors made their 3Q revenue target, the product mix is still largely being driven by 100G deployments by the major Tier 1 service providers. The overall port count for 100G deployment was down 12.5% for some vendors.

• The Metro WDM market was strong, particularly in North America, and will soon surpass sales of the MSPP market. This transition is driven from the migration away from the legacy technologies such as ATM and TDM to an all IP/Ethernet environment. We expect this trend to continue as well as spread to other regions with long existing legacy infrastructures.

The optical networking equipment market continues to be driven by its traditional application, wireless backhaul and data centers applications. Although there has been some consolidation, the space has numerous players and competition remains fierce as vendors compete for Greenfield opportunities, target the installed base of their competitors’ aging solutions and look for any chance to unseat an incumbent. This trend is expected to continue throughout the remainder of 2013 as vendors attempt to pull in all possible revenue to have a strong finish this year.

For more information about ACG's packet optical transport services, contact sales@acgresearch.net. 

         Jeff Ogle
jogle@acgresearch.net   
    www.acgresearch