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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