ROADM Deployment Will Address Next-Generation Network Challenges

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1 Y ANKEE G R O U P Communications Network Infrastructure by Nick Maynard February 2006 ROADM Deployment Will Address Next-Generation Network Challenges Executive Summary The deployment of new services by telecom carriers and cable MSOs is increasing demand for a highly scalable and reconfigurable network infrastructure. Carrier offerings such as IPTV and wavelength services, which push large amounts of traffic over metro networks, have provoked carriers to reassess their fixed DWDM equipment in favor of a new set of reconfigurable optical add/drop multiplexers (ROADMs) now available in the market. These ROADM platforms enable carriers to move beyond static connections between network nodes to an infrastructure capable of adding or dropping any wavelength at any node (see Exhibit 1). Although the technology has not yet seen widespread deployment, carriers have quickly moved from deciding whether to deploy ROADM platforms to deciding when to deploy them. ROADM has become a widely accepted technology. Even carriers that have no immediate plans for deploying ROADM technology are looking for these platforms on vendor product road maps. However, there is still some confusion in the marketplace around ROADM platform technology options as well as how these platforms will meet carrier network requirements to support rising end-user demand for next-generation services. In this Report, Yankee Group examines the role of ROADM technology in carrier networks and the high-capacity services that are driving carriers to consider the platform to meet their increasingly stringent networking requirements. Exhibit 1 Static Wavelengths of Fixed DWDM vs. Dynamic ROADM Source: Yankee Group, 2006 DWDM Fixed-OADM Node Site 2 Site 1 Site 3 DWDM Reconfigurable-OADM Node Site 1 Site 2 Site 5 Site 4 Site 4 Site 3 This Yankee Group Consulting Report is published for the sole use of Yankee Group clients. It may not be duplicated, reproduced or transmitted in whole or in part without the express permission of Yankee Group, 31 St. James Avenue, Boston, MA For more information, contact Yankee Group: info@yankeegroup.com; Phone: All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.

2 Table of Contents I. ROADM Overview and Carrier Benefits II. Carrier Network Migration to IP/MPLS III. Trends in Carrier and End-User Services Trends in Consumer Demand for Video Services Enterprise Demand for MPLS-Based Services Wholesale Demand for Wavelength Services IV. ROADM Solutions and Carrier Benefits Wavelength Blocker Wavelength Selective Switch V. Conclusions and Recommendations Conclusions Recommendations for Carriers I. ROADM Overview and Carrier Benefits The technology for ROADMs has been around for years. Originally it focused on supporting a range of optical services such as wavelengths-on-demand and shared wavelength services. Carriers have been slow to deploy these services and uptake has been even slower, particularly from 2001 to 2003, when carrier capex spending and enterprise telecom budgets were reduced. Today there is renewed interest in ROADM technology from a wide range of carriers and MSOs interested in supporting new consumer and enterprise services, most notably IPTV. These services will drive consumer capacity requirements to 25 to 30 Mbps. With the rush to deploy these services and an aging legacy infrastructure that cannot cost-effectively support these high capacity levels, carriers are now highly interested in using the technology. A reconfigurable solution enables carriers to lower their operational and capital costs for their optical networks through a number of advantages over fixed DWDM: The platform reduces complexity and costs of opticalelectrical-optical (OEO) conversion by allowing wavelengths to pass through. ROADMs can reduce the number of truck rolls by making the optical network reconfigurable through a centralized network management system. When truck rolls are necessary, the technology also reduces the required level of expertise for personnel through automatic power balancing and tuning of the reconfigured network. Network engineers can focus on network planning and service creation rather than network reconfigurations while reducing the overall training costs for personnel. This rise in high-capacity services is causing optical traffic to grow quickly in the metro and become less predictable. With current fixed DWDM solutions, carriers must pre-plan their infrastructure deployments to avoid the operational costs of reconfiguring their network due to shifts in traffic or service demand. Truck rolls and sparing costs contribute to high expenses that can cut into margins on a carrier s services. 2

3 For carriers considering ROADM technology, capital and operational expenses are key to deciding when and how to deploy these platforms. However, carriers cannot justify the platform cost on a purely capex and opex basis; opportunities for revenue generation are just as important. ROADM platforms will enable carriers to accelerate new service deployment and lower provisioning times to customers. This technology will also be key for IPTV and on-demand services by supporting dynamic bandwidth allocation and multicast capabilities at the optical layer. II. Carrier Network Migration to IP/MPLS Although revenue generation and service creation are key factors for carriers considering the ROADM platform, these issues are also causing another important shift in carrier networks. Carriers are moving their networks away from legacy infrastructure and are seeking more cost-effective and operationally efficient Layer 2 and Layer 3 platforms to support their services. In the last 2 years, carriers from around the globe have announced plans to transform their series of overlay networks into a single unified network that will rely on multiprotocol label switching (MPLS) infrastructure. Carriers have already deployed a signficant amount of IP/MPLSenabled platforms and are currently looking to expand and upgrade this equipment to support a range of new services. Today, most carrier backbones contain multiple switches and routers, each serving a specific function, in the IP/MPLS edge. Carriers globally will collapse their networks and move services to the edge as they shift toward a unified IP/MPLS backbone supported by next-generation IP/MPLS platforms. These nextgeneration platforms will support a range of network functions and enable carriers to phase out their current overlay networks. Carrier capex for IP/MPLS platforms will increase during the next 3 to 5 years as carriers deploy their next-generation platforms. During the next 5 to 10 years, carriers will be able to increase their profitability by reducing the number of network elements, element managers and operational processes, which will in turn lower both opex and capex. Their profitability will also be enhanced through the deployment of a new suite of MPLS-based services to end users. MPLS-based services are becoming the cornerstone of network managed services in the enterprise market. These services support a range of business application needs while lowering network operational costs for the end user. The growth of these enterprise applications is driving a rapid transformation of the network services market to meet stringent network and cost requirements. MPLS-based solutions offer several key advantages: MPLS-based solutions offer enterprises cost-effective national networks capable of higher levels of scalability, availability and capacity than are available from legacy services. These next-generation solutions also ensure enterprises operational and capital expenses will decrease. MPLS services offer end users better network management by providing visibility into the network. Despite the growing demand for MPLS-based services, traditional private line, ATM and frame relay services will remain the dominant solutions for the foreseeable future. Although these legacy services are experiencing flat or declining revenue, their large installed base guarantees that the enterprise shift to MPLS-based services will be a gradual process. The pace of adoption for Layer 2 and Layer 3 MPLSbased solutions, such as VPNs and Ethernet WANs, will only increase as carriers roll out their suite of services that offer similar levels of end-user management and network reliability. Based on Yankee Group WAN service forecasts, the Ethernet WAN and IP VPN markets, including both MPLS-based and managed CPE-based VPNs, will total $12.8 billion in revenue and surpass the FR/ATM services market by The Yankee Group 2005 US Enterprise Communications Survey indicated the continued importance of private line, frame relay and ATM (see Exhibit 2 on next page). Combinations of these legacy services will operate alongside MPLS- and Ethernet-based WAN services in many enterprise networks for the foreseeable future. In Exhibit 2, managed IP VPN services include all CPE-based and network-based IP/MPLS VPNs managed by the service provider. This category does not include any type of VPN managed by the enterprise. Metro Ethernet includes all point-to-point and multipoint Ethernet-based WAN services; this category does not include MPLS-based VPNs or dedicated internet access with Ethernet access. 3

4 Exhibit 2 MPLS-Based Solutions Are Supplanting Demand for Legacy Services Source: Yankee Group 2005 US Enterprise Communications Survey Managed IP VPN Metro Ethernet Private Line III. Trends in Carrier and End-User Services Several emerging services will drive bandwidth consumption during the next 5 years on carrier networks. These services include video services for consumers, Ethernet services for enterprises and wavelength services for wholesale customers. Together, these services will push carriers to adopt new optical platforms capable of cost-effectively meeting the strict network requirements necessary to support these applications. ATM Frame Relay Percent of Respondents Currently have and do plan to buy more Currently have and don't plan to buy more Don t currently have for the first time in 12 months Don t currently have and have no plans to purchase Don't know Trends in Consumer Demand for Video Services Although broadband data and VoIP to consumers will help drive carrier revenue, IPTV will increase capacity requirements. Yankee Group estimates capacity requirements for broadband services are less than 1 Mbps on average per household, given that not all households will download content simultaneously. For VoIP, the capacity requirement is only 0.1 Mbps per household. The significant increase in capacity requirements for telco networks is caused by the 15 to 20 Mbps of bandwidth required for IPTV. Exhibit 3 ivod Revenue Will Grow to $171.4 Million by Year-End 2009 Source: Yankee Group, 2006 Revenue (in Millions of Dollars) Subscription Rental Within the suite of IPTV services, internet video-on-demand (ivod) will push carriers to consider ROADM technology. We expect ivod to grow quickly by 2009 (see Exhibit 3), pushing large streams of data across the network. These streams will be more difficult to predict and plan for than broadband data traffic. Video data will be pushed to the edge of the network and close to the consumer. However, there will be demand for content from media servers across the network. To quickly deliver these services while lowering operational expenses, many telcos and MSOs are turning to ROADM technology to solve this issue. 4

5 Enterprise Demand for MPLS-Based Services During the past 5 years, Ethernet WAN services have matured in several key areas, including quality of service (QoS) and SLAs, and integration with MPLS-based offerings. Unlike the first generation of Ethernet WAN services, a select number of available Ethernet services offer multiple classes of service, flexible bandwidth increments, managed and unmanaged options, and inherently secure connectivity. Flexible Ethernet WAN services can be accessed over any protocol including FR and ATM, and can offer native Ethernet handoffs for simple connectivity to point-to-point or multipoint WANs. Ethernet services also offer flexible bandwidth increments from 1 Mbps to 1 Gbps, allowing enterprises to pay for only the capacity they need. Moreover, instead of SLAs tracked only to the network node, Ethernet can now offer end-to-end SLAs that are similar to legacy services. Exhibit 4 Ethernet Adoption Is Becoming Widespread in Enterprises Across Industry Segments Source: Yankee Group 2004 US Enterprise Communications Survey Healthcare Retail State and Local Government Federal Government Manufacturing (IT and Telecom) Financial Services Other Totals Don't know Ethernet WAN Services Percent of Respondents Currently have and do plan to buy more Currently have and don't plan to buy more Don t currently have for the first time in 12 months Don t currently have and have no plans to purchase Ethernet WAN services are gaining traction across all industry sectors, according to the Yankee Group 2005 US Enterprise Communications Survey. With 444 respondents, this survey focused on the WAN solutions and business applications of US enterprises. The high-tech manufacturing sector leads other surveyed sectors among businesses that have implemented or will implement an Ethernet WAN solution (see Exhibit 4). A large share of respondents from the retail and financial services sectors also have an Ethernet WAN solution with plans to expand it. Both the healthcare and local government sectors have significant shares of respondents with plans to implement Ethernet solutions within the next 12 months. Yankee Group predicts that Ethernet services in the North American business market will reach $3.59 billion by 2009 from a base of $521 million in With a CAGR of more than 57%, these services are set to dominate deployments of new network services to midsize and large enterprises. Once connected to an Ethernet service, enterprises will quickly upgrade their capacity to support a new range of missioncritical applications. With many Ethernet offerings, enterprises will be able to more than double their capacity for the same monthly charge as their current legacy data service. The resulting traffic increases across the metro network to support these enterprises services will force carriers to assess their current fixed DWDM infrastructure. Carriers must be able to flexibly respond to spikes in business Ethernet traffic without incurring the operational costs of truck rolls or upgrading optical platforms, both of which can severely decrease margins for these managed services. Reconfigurable optical networks can facilitate these operational improvements while costeffectively supporting capacity requirements as they expand. 5

6 Wholesale Demand for Wavelength Services Yankee Group forecasts that revenue for the wholesale carrier market for metro services will remain flat or decline during the next several years. One bright spot within this market is metro wavelength services, which constitute a small but rapidly growing component of the wholesale market. Metro wavelengths typically connect carrier PoPs and COs at rates of 2.5 Gbps or 10 Gbps. These connections can be more cost-effective for many carriers with short-term contracts or only a handful of waves compared to leasing dark fiber and lighting it themselves. Carriers are also attracted to the security, capacity and flexibility of wavelengths, with their ability to support a range of service protocols, including Ethernet, SAN and legacy SONET. Alone, the metro wavelength services market is not large enough to shift telco networks to ROADM platforms, but 10-Gbps wavelengths do drive significant traffic in the metro and are one of several factors that are inducing carriers to consider ROADMs. ROADM technology will enable wholesale carriers to cost-effectively offer mesh wavelength services to their customers, which will expand the suite of metro wavelength services and potential revenue. Wavelength services are a small piece of metro wholesale revenue when compared to traditional private-line services or even wholesale Ethernet services. Metro wavelength services will still represent less than 1% of the total wholesale market in Despite the fact that most wholesale service revenue is declining, Yankee Group predicts a 23.9% CAGR for metro wavelength services, which will reach almost $200 million by 2009 (see Exhibit 5). Exhibit 5 Metro Wavelength Services Market Will Reach Almost $200 Million by 2009 Source: Yankee Group, 2006 Metro Wavelength Service Revenue (in Millions of Dollars) IV. ROADM Solutions and Carrier Benefits Although there are a variety of ROADM platforms, there are two basic types of solutions. Each has its advantages and disadvantages depending on the carrier network requirements and cost constraints. Wavelength Blocker The wavelength blocker is a single-input, single-output solution that has been on the market for several years. It has come down in cost as manufacturing has scaled. This solution has several limitations for carriers: Increased network complexity due to single input and output Does not support any-wave-to-any-port functionality Supports ring architecture but cannot cost-effectively support mesh (it would require so many blockers that the network would be too expensive and complex) Wavelength Selective Switch The wavelength selective switch (WSS) is a single-input, multiple-output solution. WSS has a higher initial capital investment than the blocker solution and fixed DWDM. As demand grows for ROADM technology, the economies of scale should begin to bring down the component costs for the platforms during the next 2 years. WSS supports a generalized MPLS (GMPLS) control plane, which offers a common control plane for TDM, packet and optical networks. The GMPLS control plane also increases management flexibility by making the optical layer servicesensitive. This feature will assist carrier networks in handling large traffic shifts by allowing point-and-click provisioning of services. Unlike the blocker, the WSS also offers colorless ports and mesh capabilities

7 Although WSSs hold several advantages over wavelength blockers, there will not be a wholesale transition to this solution. Instead, combinations of ROADM technologies will be deployed in carrier networks during the next several years depending on costs and the level of need for mesh networks in a given network node. Mesh configuration will not be required for some nodes, which means that carriers will prefer to deploy both blockers and WSS to lower the overall cost. That said, several blocker platforms are currently upgradable to WSS. The wavelength selective switch solution may come to dominate the market in the long term. The WSS is upgradable from a ROADM platform to a multidegree wavelength cross-connect (WXC) with no local add/drop of wavelengths, a feature that supports mesh networks at interconnection nodes. This in-service upgrade will be key for carriers connecting several rings within a metro or region with OEO conversion. The SpectralWave series, a next-generation ROADM platform from NEC, is an example of a product line with all the advanced features and technologies mentioned above. Exhibit 6 illustrates the product application in carriers metro/regional networks. Exhibit 6 WSS Enables Carriers to Connect Multiple Rings Without OEO Conversion Source: Yankee Group, 2006 Regional Ring Regional Ring Regional Ring V. Conclusions and Recommendations Conclusions The ROADM market is still in its early days, but vendors are positioning the platform as the foundation of nextgeneration networks, capable of supporting the consolidation of the network around the MPLS protocol. During the next 3 to 5 years, there will be a window of opportunity for ROADMs as carriers migrate their networks from legacy infrastructure to next-generation platforms. This technology will also be integral to supporting the explosion of new high-capacity services, such as IPTV and business Ethernet, that will drive carrier revenue. These services will grow rapidly in the same time frame and this reconfigurable optical technology will enable carrier networks to quickly adapt to changes in traffic and service types while cost-effectively scaling to meet future demand. In the near term, demand for the wavelength blocker and WSS solutions will grow rapidly as carriers integrate the platform into their next-generation network plans. These platforms will offer reduced capital and operational costs in each of the customer segments while decreasing the time for service deployment. ROADM platforms will meet the networking requirements of the various service provider segments, filling the need for reconfigurable optical networks across the spectrum of carriers, cable MSOs, large corporations and government agencies. Recommendations for Carriers Consider ROADM technology as an integral part of your networking plans to support IPTV and nextgeneration business solutions. The high capacity and unpredictability of these new services have led many carriers to deploy adaptive optical infrastructure. With huge shifts in traffic volume and type, carriers will need the flexibility and management capabilities of ROADM to cost-effectively support these services. Carefully examine the operational savings and revenue generation of ROADM deployment. Although capital costs are the easiest to track, reductions in opex coupled with growth in revenue due to ROADM deployment may have a larger impact on carrier margins than capex. 7

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