Broadband Opportunities: Next Generation Networks

Report Highlights

• The total demand for next-generation network systems in the U.S. will rise at an average annual growth rate (AAGR) of 12.6% from $16.4 billion in 2002 to $29.7 billion in 2007.
• Enhanced Sonet, accounting for 35% of revenues in 2002, will continue by a slim margin to lead in 2007, rising to $9.65 billion, or about 33% of all spending, growing at an AAGR of 10.6%.
• Gigabit Ethernet, a competitive low-cost solution, will, by 2007, account for 28.6% of spending, growing at an AAGR of nearly 13%.
• ATM-over-packet solutions will rise at an AAGR of 13.7% from $1.3 billion in 2002 to $2.5 billion in 2007.
• IP for voice and video will be the fastest growing area at an AAGR of 15%, rising to $5.3 billion in 2007.
• RPR will become a strong competitor to Ethernet, growing at an AAGR of 14% to $3.68 billion in 2007.

INTRODUCTION

OBJECTIVES

In technologies as in life, generation is an overused, always somewhat imprecise term, to convey historical change. While the term "next-generation" implies a decisive break from previous technological generations, in fact "Next-Generation Networks," like human generations, are the product of a myriad of individual innovations and developments, proceeding from baby steps to awkward adolescence toward maturity.

It's clear enough what Next-Generation Networks will look like in theory. They will be networks which have decisively left behind their roots in old public circuit switched telephone networks designed for voice, networks which seamlessly offers voice, video, and data transmission via packet switching at a speed exceeding double-digit gigabits per second. In practice, however, current next-generation networks are actually a complex hybrid of old and new. The often-hyped visions of blinding speed, limitless intelligence and flexibility ushered in by multiplexed fiber optic transmission and Internet packet switched communications have, for many reasons, only partially been realized.

One reason for this is that most larger carriers and enterprises have vested interests and hard-to-jettison commitment to the traditional public switched telephone network and legacy gear and software designed for circuit-switched voice calls. Another is that on top of this public link lies a wide, often unwieldy variety of gear designed to transmit entirely different types and kinds of traffic. This new traffic, unlike voice, which is delivered in neat, fixed 64 Kilobit per second (Kbps) channels, is inherently chaotic, with continuously changing and fluctuating requirements.

In theory again the answer is simple enough, simplify equipment, do away with all ties to the traditional network and migrate all traffic, voice included, to a packet environment. Unfortunately no magic bullet exists to make such a transition either seamless or economical. A gamut of platforms, Enhanced SONET, Gigabit Ethernet, IP, RSP and ATM over Packet, have been advanced, each extremely useful in specific contexts, but, despite much hype, all still works in progress. None, at this point, has proven itself capable of handling converged voice, data, video traffic, as reliably as traditional phone networks handled voice. Norhas any proven itself fully capable of moving multiple kinds of traffic seamlessly across local, metropolitan, long-haul, public and private networks.

The challenge remains to provide workable, all-purpose solutions for super high-speed, flexible, intelligently provisioned packet switching over fiber optical networks. Into this gap a panoply of technologies from SONET and ATM over packet, extra-gigabit Ethernet, voice and video over IP, and RSP, have entered the fray, each with a particular mix of hardware, software and servicing strengths. Each has proved itself to be an important piece of the puzzle and garnered its share of advocates. The combination of these technologies challenges telecom, computer networking gear, software companies, ISPs and ASPs alike in a high-stakes gamble to leverage their massive infrastructure investments to refine and perfect these new multi-traffic networks.

If the period of the 1990s saw the mass commitment to the dream of a fiber-optic, packet-based, flexibly provisioned new network, the near future, for the successful innovators at least, provides the possibility of seeing that dream realized in concrete markets. The whos, hows, when and wheres, however, remain at this point fraught with uncertainty. As does the question of which providers will survive to inhabit the promised land.

This report will explore the recent historical evolution and emerging economic and market structure of this still evolving industry, focusing on demand for emerging hardware, software and servicing solutions in a variety of end-user markets, including carriers, enterprises, education, and government.

REASONS FOR REPORT

The promise of installing, managing and servicing next-generation networks has galvanized dozens of companies, from the most august traditional telecom equipment providers to computer networking firms and software stalwarts to smaller start-up specialty technology firms.

This report is designed to be useful to marketers at telecommunications, networking, Internet and application service firms, software vendors and others developing new solutions for long-haul, edge, metro core, and local area networks. Its goal is to help them grasp the key trends and trajectories that shape new broadband networks, and identify key growth opportunities for the next five years.

CONTRIBUTIONS

This study delineates the most critical developments in Next-Generation network enabling and servicing technologies over the past several years, tracing the history of the field, as well as reporting on the current state of the art. It will examine the near-term commercial opportunities and challenges of several different technologies and products that are designed to enable convergent voice, video and data transmission over fiber packet switched networks. Through the study of historic patterns as well as new and impending technological breakthroughs, forecasts are made of dominant marketing expenditure trends projected from 2002 to 2007.

SCOPE

This Communications Company report includes post-PSTN converged voice, data, video optical networks. These include enhanced traditional network technologies such as Packet over SONET, Packet over ATM, and Gigabit Ethernet as well as IP and RSP. It excludes traditional circuit-switched networks, plain Ethernet, fast Ethernet and other sub-gigabit speed local networking technologies, and non-voice and video enabled IP.

METHODOLOGY AND SOURCES

Preparation of this report involved in-depth study and critical analysis of published data from a wide variety of government and private sources. Industry projections have been made by BCC based on original studies of economic, social and demographic trends, as well as critical examination of projections based on industry analysts and those found in public sources.