Searching for pockets of growth, but telecom IT convergence is the mega-trend

With carrier capex under pressure, what pockets of growth exist in the optical industry? What type of vendor can best go after these opportunities? Speakers at OFC/NFOEC’s State of the Industry panel disagreed on the answers, but all seemed to accept that these were the right questions to ask.

Ovum’s own Dana Cooperson kicked things off by reminding attendees that, in an industry as huge as telecom (with 2012 service revenues of nearly $2 trillion and capex around $325bn), slow growth comes with the territory.

The challenge is to find pockets of faster growth hiding in plain sight, such as 100G, ROADMs, converged packet optical, and OTN, all expected to grow at double-digit rates.

ACG’s Eve Griliches called out the vertical market of content providers as also being attractive in optical, citing network builds at Google and others. While content players may be sexy, they are also small, as Lightcounting’s Vladimir Kozlov pointed out.

After all, Google is the 800-pound gorilla in this space, and its global capex for 2012 was $3.3bn, about 1% of global telco capex. But telcos themselves are increasing data center capex, impacting optical demand more directly.

Wherever the growth is, who will capture it? A specialist with scale and focus in just optical, answered Pat DiPietro of Marlin Partners. Marlin is assembling an optical specialist – now called Coriant – out of the assets of Sycamore, NSN’s optical division, and Openwave.

The Coriant experiment carries huge risks but may benefit from financial turmoil at two other big optical players, Alcatel-Lucent and ZTE.

While specialists remain key across the network, and more scale at the components level may help (as Subu Subrahmanyan of The Juda Group noted), in Ovum’s view telecom-IT convergence is the mega-trend. IT is entering the network domain via policy control, network analytics, software-defined radio, and software-defined networking.

For telcos to survive, they need intelligent networks to help yank back some of the market power (and market cap) currently held by companies such as Apple, Google, and Facebook. Vendors that figure out how to do this, whether organically or through M&A (Oracle–Acme Packet sequel, anyone?), are truly the ones to watch.

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