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Will consumer/wireless be optical net saviors?By Loring Wirbel
Eric Mentzer, chief technology officer of Intel Corp.'s communication group, and former Uniphase chief executive Kevin Kalkhoven cited strategies from the earlier recessions as examples of how the industry can emerge from its current doldrums.
Both executives said component suppliers can no longer rely on demand from telecom OEMs supplying traditional carriers as a means of salvation. Instead, demand would come from broadband consumer devices feeding access networks, and meshes of wireless LANs creating localized bottlenecks in core transport.
This is a profound difference, Kalkhoven said, because of its similarity to the PC revolution in the 1980s. Minicomputers and mainframes, for example, continued to offer better performance and lower prices in the 1980s, he said, but OEMs continued to go bankrupt because market drivers had turned to consumers.
Intel's Mentzer compared the optical communications industry to the battle between Mack and Kenworth trucks following deregulation of the trucking industry in 1979. Mack continued to custom-manufacture trucks from the ground up, failing to achieve economies of scale or to design for mileage standards. Kenworth gained market share by using modular manufacturing methods, designing for driver comfort and applying aerodynamic design rules to improve mileage.
The lesson, Mentzer said, is that demand for bandwidth in the long term is real, but that current business models of serving the industry are not sustainable. New demand will come from end users, and will not follow the economics that rule in the transport core, he said.
Mentzer also warned that debt levels remain too high in the telecom industry, and headcount too low, for leading OEMs to continue setting the tone for the industry.
Instead, the new reality calls for total scaleability of hardware, for full efficiency in capital and operating expenditures, for innovating around open standards and for designers to follow the dictum, "don't differentiate without a difference."
In practice, he said this requires open multi-source agreements in optical standards, open backplanes and serial interconnects, and open hot-plug architectures like the Advanced Telecommunication Computing Architecture.
Mentzer stressed the need for WiFi hotspots that would help drive backbone capacity.
Kalkhoven, cofounder of Kalkhoven, Pettit and Levin Ventures. agreed. He said a factor that slowed DSL and cable-modem growth in the late 1990s was the failure by carriers to notice that consumers were curtailing spending on advanced telecom services.
Kalkhoven said the impact from collapsing companies still has not been fully felt. Market capitalization for telecom OEMs was around $330 billion in February, yet the global market for their services was only around $140 billion. Since many could enter Chapter 11 bankruptcy and emerge as strong companies, widespread bankruptcy only delayed this inevitable reckoning, he said.
"The airlines show us that companies can go into Chapter 11, and emerge stronger," he said. "What this shows us is that service providers cannot increase their prices significantly, and so they must look for different strategies."
Kalkhoven said allowing consumers to define new broadband demand with mixes of Wi-Fi, cellular services and residential-gateway video services was the only way to boost broadband demand and capacity.
"We should all be paying attention to consumer peripheral devices here," he said. "Telecom is no longer an industrial capital expenditure. It's now a consumer game."
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