InformationWeek
Defining The Business Value Of Technology
February 7, 2000
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Optical networking is poised to change business networks--and their IT departments--forever
By Stephen Saunders And Peter Heywood
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ptical networking may sound like some far-out technology, the effects of which won't be seen for years. Though it's true that it will be some time before human brains are directly linked to optical networks or goggles replace televisions and computer screens, as some industry experts foresee, optical networking is poised to profoundly affect business processes and company information systems--to the same degree the Internet has, some analysts predict--within the next few years.Optical networks transmit voice, data, and video traffic over fiber cables using light streams. By delivering huge amounts of bandwidth and virtually eliminating network delays, optical networks promise to radically improve the performance, price, and flexibility of network services.
What's predicted? Fundamental changes in the way people work together will result from quick service setup coupled with lower network delays and distance-independent pricing. Instead of buying and maintaining software and running it on PCs, companies will shift to inexpensive thin-client hardware and either run applications on their own central site servers or outsource the task to application service providers. Video will go into much more widespread use--and E-commerce usage will skyrocket. "Big bandwidth is clearly one of the fundamental enablers for E-commerce," says Daniel Sholler, a senior program director at Meta Group. "One reason E-commerce companies are getting sky-high valuations on Wall Street is because people expect the pipes that carry E-commerce information to get a lot faster."
Some companies already are charging ahead with plans to reengineer their businesses on the basis of these developments. "This kind of revolution will result in big changes in our business," says Roger Gullqvist, CIO and executive VP of Swedbank in Stockholm, Sweden's largest retail bank. Starting in April, Gullqvist plans to use high-bandwidth circuits from carriers with optical networks to roll out video applications in its branch offices.
That will help the bank transform branches into financial advice centers so they can survive the undermining of their traditional business by Internet banking developments. "We have to do it," Gullqvist says. "If we don't, we'll go out of business."
In countries such as Finland, Sweden, and the United Kingdom, fiber is plentiful and prices for telecom services are higher, giving alternative carriers more scope for undercutting the former monopoly operators. Some next-generation optical services will go live in the United States. this summer, although most won't be widely available until 2002, says Deb Mielke, an analyst at Treillage Network Strategies. Still, that doesn't leave a lot of time for CIOs and IT managers to prepare, considering that the changes could be momentous for their companies and their careers.
The best place to start is by understanding why optical networking technology is coming to a boil right now, how it will be used in carrier networks, and what benefits it will bring in terms of price, performance, and flexibility. It's also important to look at how long it will take for these new services to arrive by reviewing vendor rollout plans and identifying carriers planning to offer services. Coverage will be patchy and focused in cities for the foreseeable future, making it impossible for most businesses to move all of their information systems onto a new footing at once.
Sooner or later, though, the impact of these developments will be seen everywhere, Mielke says. "The future of the services market is all about optical access."
Optical networking already exists in pockets in carrier networks, with synchronous optical network (Sonet) and dense wave division multiplexing devices. But the real changes will occur once next-generation optical networking devices become reality.
There are two fundamental reasons optical networking is growing so quickly. First, the technology has advanced greatly, partly because of standardization, which has driven down the cost of key components such as Sonet chipsets to $750 today from $20,000 four years ago.
Second, the Telecommunications Reform Act of 1996 has created competition by opening local access markets to new service providers. As they deploy the latest optical technologies, incumbents are being forced to upgrade their networks to keep pace. The projected demand has led to a blossoming of optical startups and an expansion of optical product portfolios by established vendors.
Until now, the main focus for optical networking has been long-distance backbones, because that's where the savings are. Nortel Networks Corp. recently unveiled optical products that will carry 6.4 terabytes per second on a single fiber strand, more than 2,000 times the 2.5 Gbps of systems now in long-haul networks. Though many carriers have rolled out super-fast fiber backbones, users haven't seen major price reductions because other costs, such as providing access lines and billing customers, have gone up rather than down. Plus, local competition is still in its infancy.
continued...page 2, 3, 4
Illustration by Campbell Laird
Photo of Gullqvist by Claes Lofgren
Stephen Saunders and Peter Heywood are editors at Light Reading (www.lightreading.com), which provides analysis of optical networking.
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