Great news for ALU: China to require FTTH for new homes

China Daily reports that a new policy from the Ministry of Industry and Information Technology will mandate that all new residences have a fiber-to-the-home (FTTH) connection where such broadband access networks are available. 

The policy, which goes into effect April 1 of this year.

Alcatel-Lucent  has been chosen to expand China Telecom’s broadband access network, bringing services such as IPTV, video-on-demand, and voice-over-IP (VoIP) services to millions of homes in China.

2013: The world becomes increasingly connected and mobile, the world becomes increasingly connected and mobile

If the past year could be defined by a few big headlines, one would be “Economic Crunch Hasn’t Slowed Urgency for Network Capacity.” Or how about “Network Players Constantly Evolving Business Models to Support New Era of Connected Living”?

These overarching themes will keep evolving in 2013. As the world becomes increasingly connected and mobile, all of the tech companies that touch the network are pushed to find new ways to remain relevant to survive. They must continue honing their business models and operations for maximum efficiency in an unpredictable economic environment. They must continue building out faster and more flexible networks to support increasing and more random traffic patterns. And they must continue to create innovative products and services that support our need for instant access via new apps and the next shiny and new connected device that captivates us based on increasingly shorter product cycles.

This is not breaking news, but themes that will intensify throughout 2013. Here’s a look at how these themes will play out in various aspects of optical networking.

Network providers rally behind 100G, self-aware networks; 400G on the horizon

To bolster and speed up network infrastructures, network operators began volume implementations of 100G optical equipment in 2012. 100G took off much more quickly than 40G, as all network players bought into to the overarching need for 100G and developed a healthy supply chain with a variety of competing building blocks.

Many experts believe 100G will play a central role in transmission much the way 10G did in the past. 100G creates a new baseline for network performance by using bandwidth in an efficient way; it aligns with 100GbE standards, and today’s 100G technology is expected to serve as the foundation for higher transmission line rates in the future.

With 100G in full swing in 2013, many will look ahead to 400G. Most agree that 400G will be implemented in two forms with either four 100G dual-polarization quadrature phase-shift keying (DP-QPSK) modulated wavelengths or two 200-Gbps wavelengths encoded with dual polarization 16QAM. Each approach has its benefits and drawbacks. DP-QPSK modulation provides better performance over long distances but consumes more spectrum within the fiber; 16QAM suffers from shorter reach but offers more efficient spectrum use.

The 16QAM option will likely be a good fit for areas of high population density, such as Europe and the East Coast of the United States, where the end-to-end service distances are shorter. The DP-QPSK option will be necessary where distances between major population centers are greater, such as the rest of North America. Since many of the technologies for 400G are very similar to 100G and exist today, the industry could see initial deployments in late 2013 or early 2014.

Alcatel-Lucent source: Capella’s WSS products are “strategic to our business.”

Alcatel-Lucent acquires Capella for WSS technology

Alcatel-Lucent  has shored up its in-house optical transport expertise with the acquisition of wavelength-selective switch (WSS) developer Capella Intelligent Subsystems Inc. (a.k.a. Capella Photonics).

The privately held Capella was one of the few independent vendors of WSS subsystems for reconfigurable optical add/drop multiplexers (ROADMs) in the optical communications market.

ECI Telecom was one of Capella main customers.

The deal was first reported by Ray Le Maistre of Light Reading. In confirming that report, an Alcatel-Lucent source described Capella’s WSS products as “strategic to our business.” The source declined to provide other details of the transaction, other than to say, ”the acquisition was not considered material.”

Capella was founded in 2000. Investors have included Formative Ventures, Levensohn Venture Partners, Lucas Venture Partners, Rustic Canyon Partners, Silicon Valley Bank, Saints Capital and Black Diamond Ventures. SingTel Innov8 joined as strategic investor in early 2011. Executives included Larry Schwerin as CEO, Bruce Gray as president, and George Berberis as COO.

The company’s last announced new product was the CR-EX 1x20 WSS subsystem.

ALU update: Alcatel-Lucent Submarine Networks, has launched marine route survey activities in the United States and Brazil

Seaborn Networks says that its contractor, Alcatel-Lucent Submarine Networks, has launched marine route survey activities in the United States and Brazil ahead of the deployment of the Seabras-1 undersea cable project.

 The submarine fiber-optic network will link the two countries with a capacity of 32 Tbps.

In addition to connecting Sao Paolo to New York, Seabras-1 also will have a branch that lands in Fortaleza, Brazil. Tata Communications has raised its hand to be the anchor customer.

Alcatel-Lucent revealed last October that it had won the contract to build the network, including the provision of the company’s 1620 Light Manager (LM) submarine line terminal equipment.

"We are pleased to announce this important milestone as part of the overall implementation of Seabras-1,” said Larry Schwartz, CEO of Seaborn Networks. “Together with the permit acquisition work currently underway and the completion of the cable route study, the marine surveys represent excellent progress as we maintain the schedule for Seabras-1 to enter service in the first quarter of 2015."

2013: Good News for ALU, CSCO,CIEN

Telecom infrastructure spending is projected to bounce back in the year ahead, with investment in North America and Asia driving growth. Infonetics Research is projecting worldwide growth of roughly 4%, as even operators that have been delaying investments finally start spending. “Service providers have no choice but to invest in their networks now; some have been restricting capex for so many years that they are experiencing network outages, unable to handle exploding traffic,” said Infonetics analyst Stéphane Téral.

Infonetics projects that carrier spending on every type of telecom equipment except optical and TDM voice will be up in 2013, and that capital expenditures will focus on fiber-based wireline broadband, 2G mobile network capacity expansion, 2G migration to 3G, and migration to LTE projects through 2015.

2012 has been a year that many infrastructure providers “would rather just forget,” said Daryl Raiford, CFO of Genband. “Now everyone is waiting to see what 2013 has in store for us.” Raiford thinks that small cells and small cell backhaul will be a focus for 2013 infrastructure spending, as will semiconductor solutions that can increase bandwidth. Raiford also noted that late last year infrastructure spending was projected to increase about 4% for 2012, but in reality spending turned out to be down.

The outlook brightened last month when AT&T announced Project Velocity IP, a $14 billion investment in network infrastructure planned for the next 3 years. Then Deutsche Telekom said it would invest almost $40 billion over the next 3 years, with much of that investment slated for its T-Mobile USA unit and for MetroPCS, which is merging with T-Mobile USA. Verizon Wireless has not released a dollar amount for its planned investment next year, but has outlined the areas that it will prioritize.

Competitive carriers should also account for a significant portion of capital investment in the year ahead. Infonetics says that in 2012, independent wireless operators bucked the downward trend, increasing their capital expenditures by 12%.

ALU, CSCO, CIEN: Global capital expenditure (capex) by telecommunications service providers is expected to reach $223.3 billion in 2017

Global capital expenditure (capex) by telecommunications service providers is expected to increase at a compounded rate of 1.5% over the next five years, from $207 billion in 2012 to $223.3 billion in 2017, according to a new market report from The Insight Research Corp.

The new study says capex in the various global regions will be uneven, with North America, Europe, and the Latin American-Caribbean regions showing little or no growth and only Asia-Pacific and Africa continuing to make investments in telecommunications hardware and software to keep up with burgeoning customer demand for new services. Capex among fixed-line operators continues to decline, while capex growth comes mainly from mobile operators in developing countries, who continue increasing  their capital outlays to meet pent-up demand for service.

While demand for telecommunications services may be income-inelastic and industry revenues may actually grow over the forecast period, services in every global region will nonetheless come under heavy pricing pressure as operators fight over the cost-conscious customers who are quite willing to delay new device purchases, the market research report says.

"Customers in every region are pinching pennies and the demand for advanced applications is uncertain," says Insight Research President Robert Rosenberg. "The confluence of these trends means a further erosion of operator margins, which in turn will affect investments into infrastructures and new technologies since funding is now more difficult to obtain."

The difficulty in finding funding now faced by many operators will certainly slow down, if not derail, the rolling out of investments in next-generation networks, WiMAX, LTE, and converged services, he warns.

The report, entitled Telecommunications and Capital Investments: Impacts of the Financial Crisis on Worldwide Telecommunications, 2012-2017, provides capital spending forecasts for the U.S., Canada, UK, Germany, France, Japan, China, and India. On a per country basis, capex spending is subdivided according to fixed lines, mobile, and broadband. 

Ciena (CIEN) an investor darling

Despite missing on earnings per share in its fiscal fourth quarter and entering what management describes as “a quarter in which we typically experience seasonal reductions in order volume and customer deployment activity,” shares in Ciena Corp.  rose on Wall Street yesterday.

Analysts speculated that the growth in order backlog may have led investors to conclude that Ciena is in good shape for a hoped-for future turnaround in fiber-optic network equipment spending.

Ciena reported December 13 results for its fiscal fourth quarter, which ended October 31. Revenues of $465.5 million represented a 1.8% sequential decline but a 2.2% improvement over the year-ago quarter. For the recently concluded fiscal year, Ciena reported $1.8 billion in revenue, up from $1.7 billion for fiscal 2011.

GAAP net loss for the recently concluded quarter was $38.8 million ($0.39 per common share), worse than the GAAP net loss of $22.3 million ($0.23 per common share) suffered in the year-ago fourth quarter. For the fiscal year 2012, Ciena reported a GAAP net loss of $144.0 million ($1.45 per common share) versus a GAAP net loss of $195.5 million ($2.04 per common share) for fiscal year 2011.

“With five percent annual revenue growth and fourth quarter financial performance in line with our expectations, we continued to significantly outpace the market and take share in 2012 despite the challenging environment. That momentum resulted in record order flow and year-end backlog,” said Gary Smith, president and CEO of Ciena, via a press release. “Customers require more network convergence with greater programmability to deliver more services, and we believe our portfolio is leading the transformation to next-generation intelligent networks.”

Investors appeared to buy the story, despite the fact that Ciena guided revenues for the first quarter of fiscal 2013 at $435 to $460 million, with adjusted (non-GAAP) gross margin percentage in the low 40s and non-GAAP operating expense in the high $180s million range. Shares of the company’s stock closed yesterday at $15.80, up from the previous day’s $15.57 on a volume of 15,671,698.

Investor enthusiasm for the stock left several analysts puzzled. “A record $2 billion of orders in FY12 and 25% backlog increase to $900 million along with hope regarding a capital spending cycle seems to have fueled investor optimism,” wrote Raymond James analyst Simon Leopold in a note to investors by way of example. “We note that FY11 ended on a similarly upbeat note with backlog rising ~20%, yet FY12 fell short of expectations.

“The intraday rise in Ciena's shares surprises us and appears as a hope trade (i.e., belief that it generates significant growth and margin improvement eventually),” continued Leopold, who has Ciena’s stock rated as “Market Perform.” “Ciena's return to profitability and achievement of its long term 10% to 12% operating margin target slide out in time again. We remain optimistic regarding demand, but we're surprised and disappointed by the higher expense and lower margin outlook.” 

Weakness in both packet-optical transport and packet-optical switching led to the sequential revenue decline in the fiscal fourth quarter. Packet-optical transport sales shrank $9.1 million sequentially, while packet-optical switching revenue retreated by $17.3 million