Multi-Gigabit IP Backbones Ramp Up, But Will Revenues Rise To Match?

Continuing its aggressive rollout of new data services, AT&T announced in January that its OC-192 (10Gbps) IP backbone is now operational. The industry's first 10Gbps coast-to-coast Internet Protocol backbone, the new lines quadruple the company's previous capacity.

Using Avici Systems' core router, the TSR, AT&T backbone links form two paths across the U.S., connecting. Boston, Chicago, Los Angeles, New York, St. Louis, and San Francisco. "With these new 10Gbps ultra-high speed circuits, we could transmit last year's top 25 box-office movies from Los Angeles to New York in less than two minutes," says Kathleen Earley, president of AT&T Data and. Internet Services.

AT&T is not alone in ramping up its backbone speeds, however, and 10Gbps now seems just the tip of the iceberg. A day before the company's announcement, WorldCom Corp. announced that it had completed phase one of its Terabit Challenge by moving 1.6 terabits over a pair of fibers. The Terabit Challenge is a five-phase testing process which will result in a complete optical network, eliminating the need for signal regeneration and optimizing the use of existing available bandwidth. Phase one of the Terabit Challenge deployed hyper dense wave division multiplexing (DWDM) technology onto a network route connecting New York and Washington, D.C. The test was completed in association with Fujitsu, which provided its Flashwave OADX, and Nortel, which provided its OPTera Long Haul 1600 Optical Line System, an open 10Gbps DWDM system that supports 160 wavelengths.

But while the telcos plunge even more resources into IP services, some observers are skeptical about the potential revenue streams they will be able to generate. "Is the guy killed first at Custer's Last Stand 'ahead' or 'behind' the others?" asks Tom Nolle, president of CIMI Corp., a consultancy that follows the Internet backbone market. "There is no proven revenue potential to IP services anywhere in the industry. That's what Wall Street is telling us, and it's true." Nolle feels it's just as likely that AT&T has. squandered valuable capital on a new money sink as that they have a lead in viable business strategy.

Indeed, research firm Cahners InStat finds that while the number of backbone connections will have a compound annual growth rate (CAGR) of close to 23 percent from 1999-2004, revenues for the overall backbone connection market will have a CAGR of just 16.82 percent during the same period. The firm finds that the difference between the growth rates in revenue and connections can be attributed to the continued decline in the cost of bandwidth.

Still, while technology and telecommunications sectors have been hammered in the financial markets lately, many believe the optical fibre market is poised for a broad expansion in 2001. Corning Inc., the world's largest manufacturer of fibre cable, recently announced record $7 billion revenues, with a staggering 70 percent rise in earnings since 1999. The company expects 20-30 percent growth this year.