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It's All Optics
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

 


Something Ventured:

 

June 9th, 2000


Insight For BC Technology Entrepreneurs

By Brent Holliday

It's All Optics

"Things are goin' great
And they're only getting better
My future's so bright
I gotta wear shades"
- Timbuk3 - The Future's Bright

A lot of things are conspiring against me completing this column tonight. Triple overtime Stanley Cup games, BC TIA award dinners and solar storms threatening the power grid. I'm saving every 30 seconds to avoid the wrath of the solar winds. The awesome power of the sun is something we don't really appreciate until it wipes out the power grid in Quebec, as it did 11 years ago during the last flare up... from 93 million miles away. I'm really digressing here, but I read that scientists believe that the secret to manned flight to the outer reaches of the solar system is to catch this solar storm wave and use its energy for propulsion. A really large surfboard and astronauts named Biff inevitably spring to mind. The only thing I can't remember about that theory is how they get back. Hmmmmm.

Another large wave sweeping the earth has more to do with photons than ions. I was at SUPERCOMM in Atlanta this week soaking in the Comdex of the telecommunications world. Optical networks is all anyone wanted to talk about. I probably should have written about this important technology trend earlier, but it shows no sign of abating soon. Since I am fresh from the inundation of companies and technologies in this space, I might be able to impress upon you the impact of optical networks on all of our lives.

The reason that this space is hot is simple. Bandwidth. We want more of it. Old telecom technologies were based on voice circuits. If you and I are talking on the phone, we take up a circuit. We all know that the advent of modems accessing the Internet over old public switched telephone networks (PSTN) just about killed the telcos in 1996 as the average call length (opened circuits) went up, up, up putting severe strain on the available bandwidth. Now we have DSL and cable modems for access that don't connect as a point to point circuit, like a voice call, but are all digital networks based on IP. That relieves the pressure from the voice side, but now we all want to suck on the digital bandwidth straw at 2Mbps. If 10 million of us were logged on at the same time through DSL and downloading MP3s, that's a potential demand of 20 million megabits per second (which is 20 thousand gigabits/s, which is 20 terabits/s) on the network. It's safe to say that there are 10 million high bandwidth users of the Net at any given time, these days. Then factor in all of the voice over IP, e-mails and other data flowing through the fiber pipes circumventing the globe and you start to get to petabits per second of demand. My personal favourite is yottabits, which comes after exabits and I believe is 10 to the power of 24.

Were talking lost of bits needed every second at every corner of the world. In two directions. So double everything I just said.

To move these bits over great distance you need optics. Electronics works for very short distances, say a tenth of a micron on a chip. But, Vancouver to Toronto in 50 milliseconds needs the speed of light. A very simple explanation of how the data (possibly a URL request) goes from Vancouver to Toronto:

Data leaves computer through DSL modem and is an electronic stream of ones and zeros headed for the central office switch of a telco (Telus). It then zips to the "edge" of the city or metropolitan network through a series of routers and switches. Then a laser interprets the 1s and 0s and fires a pulse of light down a fiber strand into the "core" of the network. The pulses of light are amplified every 80km or so by electronic boosting of the signal. Somewhere along the line, the information in the signal tells a big switch in the core to shunt the data out of the core in Toronto. Then a receiver at the "edge" of the network in Toronto interprets the light pulse back to electronic form and sends it to the web server located in an enterprise network. The web server takes the data and performs an instruction and starts sending the requested elements of a web page back.

When you break a data trip down, it's incredible. Add the layers of complexity that are inherent in a huge web of computer nodes, routers, switches and different sets of fiber and equipment in the core and maybe you can start to appreciate the fact that the network sometimes craps out. It's amazing that it works at all.

That's why small fortunes are being made every day in providing the hardware and software that goes into making the incredibly complex network actually deliver. Optical networking makes life even simpler than the story laid out above because it keeps the signal as light for as much of the trip as possible. Every time the pulses of light have to be amplified today, they have to be received and interpreted as electronic signals and then refired by lasers until the next amplifier. This a) costs a lot for all the equipment and b) slows things down. New all optical amplifiers are being tested today that will mean that light can go down fiber 2000 km before needing regeneration. That is an incredible costs savings in amplification equipment and real estate (you can sell the little shacks every 80 km now). New optical switches are coming to the market that switch signals at high speed without the electronic conversion. Again, a huge speed advantage and some cost savings.

Optical technologies are everywhere in the data delivery world. The lasers are improving. Nortel just announced a laser that can fire signals so fast that it can do 40 Gbps of data throughput. That's a 4X improvement. Wave Division Multiplexing (and Dense WDM) revolutionized data delivery a few years back with the innovation of splitting the light beam into wavelengths that could all carry different data. First 4, then 8, 16 and now up to 48 wavelengths are possible with today's equipment, meaning that you could send 48X as much data down the same fiber strand. Now companies are figuring our how to interleave different data in the same wavelength, doubling or quadrupling what each wavelength can deliver. Tiny components are helping increase bandwidth too. Micro mirrors are being used as well as thin films and small gratings for light reflection and refraction into wavelengths. These are the "passive" components and part of what makes JDS Uniphase such a hot company (they also do some "active" components).

Our own PMC-Sierra plays a big role in data networking as their chips supply the intelligence in many of the routers and switches that are in the core and at the edge of the networks. Theirs are not optical components, per se, but even optical switches need a silicon brain.

Now that you understand the importance of optical networking, look at some of the data on investment and investor interest in this space.

  • US$1.040 Billion invested in the US in early stage networking companies in January, February and March of 2000.
  • Ottawa has optical networking companies like Nu-Wave that received over $50M CDN in one round in March
  • Hyperchip, in Montreal, is working on petabit router technology and is about to close $100M CDN
  • Qtera, maker of optical amplifier technology, bought for $3B by Nortel
  • Cerent, maker of optical network technology for the metropolitan market, bought by Cisco for $7B
  • Chromatis, maker of optical switch technology, bought by Lucent for $4.5 B
  • Sycamore, Juniper, Redback and ONI are some of the best performing IPOs that still hold their value after the spring market slump. All are optical networking companies.

Vancouver is still percolating some companies in this space. We have some upstarts on the periphery of optical networking like Abatis Systems, which is more into the provisioning of services over the complex IP networks and not transporting the data. But new companies are likely to emerge from the woodwork shortly. Ottawa and Montreal have more visibility in this area, but I believe we have the expertise here to get a few of these companies off the ground.

The future is very bright for light.

Random Thoughts -

  • Microsoft Rumour - Keep it tuned here for breaking rumours, months before they become real stories. I let you folks know about that rumour to move Microsoft to BC last November 12th. I can't believe that the press bought that one and turned it into a story. Ever here of any company that wasn't going out of business try and relocate 10,000 workers? Not likely. Now ask them to move to a foreign land where they all need NAFTA visas. C'mon people.

 

  • Microsoft Breakup - There will be no break-up of Microsoft. By the time the appeals process finishes, the competition will have nipped enough at Microsoft's core business to make the whole issue irrelevant, if it isn't already. It makes no sense to punish Microsoft going forward for actions that it took years before that did not manage to increase their lock in the operating system and application market. It's a Justice Department hissy fit. I read an incredible article on the economics of the whole thing in this month's Red Herring. It's not on-line yet, but it's the one with the Top 100 companies that weighs as much as the Yellow Pages. The article argues that the economy is actually better served by a dominant payer or monopolist and that the break-ups of the past (Standard Oil, Alcan and AT&T) probably did not help the economy in any way. In the end, politics forced the break-up of Standard Oil after Rockefeller had been painted as evil by the media and the public. The politicians that vanquished the evil oil and railroad baron became heroes to the electorate. Sound familiar? Microsoft is blatantly guilty of helping themselves get painted as evil. Their defiance and perceived arrogance lost them the battle of public scrutiny.

 

  • BC TIA Awards - A huge turnout this year to celebrate the best in our business here in BC. Over 700 people attended. George Hunter, Executive Director of the BC TIA, was starting to resemble a big time show host with all the flash and the booming sound. Maybe he can do a Billy Crystal type song and dance number to introduce the nominees next year...
    Congratulations to the winners.

What Do You Think? Talk Back To Brent Holliday



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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