According to ABI Research, the global spend on telecom infrastructure in 2009 is likely to be around $49 billion. However, 2010 promises to be somewhat better with the spend rising by about 1.5 per cent year-over-year. The renewed focus on investments will be due to increased competitive pressures. Operators will be compelled to undertake capacity expansions and ensure wider coverage.

Regional differences exist of course. Spends have reduced in mature markets like Western Europe and North America as deployment cycles for 2G and 3G coverage are rapidly approaching maturity and 3.5G infrastructure upgrades (HSUPA, HSPA+) are incremental in value.

But capex in China and India is expected to get a boost as 3G deployments pick up pace. Operators in these countries have already awarded substantial contracts to infrastructure vendors. Ericsson, for instance, has assisted Bharat Sanchar Nigam Limited (BSNL) to roll out 3G infrastructure in 400 urban areas across India.

Even in Western Europe and North America, the anticipated wave of 4G deployments, including long term evolution (LTE) and Wi-Max 802.16m, spells good news for technology heavyweights. The induction of 4G will involve major hardware upgrades to existing transmission networks and thus contribute meaningfully to equipment spending. Operators will also build new LTE networks during the 2011-15 time-frame.

The tally of wireless operators committed to deploying LTE networks in 2010 and offering LTE-based services now numbers at least a dozen, according to a new study from ABI Research. A few operators have already awarded contracts. For instance, Alcatel-Lucent, Ericsson and Starent are the winners of a major set of contracts from Verizon Wireless. In Japan, NTT DOCOMO, in addition to tapping the world's largest network infrastructure supplier Ericsson, is also supporting local vendors NEC and Fujitsu.

All of this indicates that the transmission segment, which forms the backbone of communications networks, is going to experience another growth spurt. Infrastructure upgrades and the installation of new equipment will continue with the mobile subscriber base expected to touch 5.4 billion by 2013.

In August 2009, China Telecom Corporation launched the first terrestrial broadband cable transmission system between China and India. The cable system, with an initial capacity of 20G, is connected through Tibet to India. The terrestrial cable is co-built by China Telecom and Reliance Communications, and carries DWDM and SDH transmission. The total cable capacity design is 4.8 terabits, which is a thousand times more than the earlier available China-India bandwidth. In addition, as operators expand their footprint and migrate to new technologies, the need to build new networks will represent a huge opportunity for transmission vendors.

Clearly, there could be exponential growth in bandwidth demand and this will also lead to more complex transmission network topologies. Technical requirements and business development needs have prompted many carriers to simultaneously own different types of transmission networks, such as optical media, copper and microwave backhaul, as well as Ethernet-based solutions.

Key trends

New technologies with faster speeds are evolving and operators are ramping up existing networks to meet the dramatic growth in traffic generated by voice, messaging, emails, games, content downloads, mobile internet access, video streaming and other services. Backbone speed wars are intensifying in the transmission segment and 100G networking is clearly gaining momentum. This trend is driven primarily by rising mobile broadband traffic.

Optical fibre

Networking technologies for core routing and optical transport received major upgrades in the first half of the year with Juniper making its 100 Gigabit Ethernet network interface card official for its T1600 core router and Fujitsu upgrading the 40G capabilities of its ROADM platform. In May 2009, Verizon Business conducted a trial of the 100G optical transmission technology and found that the higher bandwidth signals may actually be more reliable than the current generation of 10G networks. NTT Communications also successfully conducted an end-to-end trial of 100 Gbps networking in Tokyo.

Since fibre networks offer considerably more capacity and greater speed than legacy copper infrastructure, technology has now become a key requirement for delivering high definition and interactive content and applications. While the use of optics was initially focused on the longhaul transport segment, optical fibres are increasingly seeing use as the backbone of metro networks. These are also gaining popularity in access and LAN networks. High bandwidth video services such as HDTV and video-on-demand as well as enterprise storage networks and backhaul from emerging 3G/4G wireless standards will require increased network capacity. Providing the extra wavelength to meet this apparently insatiable demand for bandwidth will translate into strong growth for optic fibre networks.

OTN infrastructure is now being upgraded from 10G to 40G and then,100G. A number of operators, both incumbents and alternative carriers, have begun rollouts of next-generation infrastructure. For instance, in February 2009, despite the economic downturn, AT&T outlined another $1 billion international fibre expansion to improve connectivity (last year too, the company had invested significantly in this space).

In Asia, while Japan and Korea are the poster boys for fibre, Chinese operators have been aggressively upgrading their legacy networks as well. Meanwhile, Europe is still lagging behind economies such as the US and Japan in terms of nextgeneration access (based on optic fibre) deployment. In the UK, BT's deployment of fibre has been a stop-start affair because of the high cost of deployment and concerns over return on investment. In Germany, when Deutsche Telekom began building a fibre network, it sought a regulatory holiday on the deployment in order to help it recover that investment.

In Africa, five major new cables and a host of smaller ones are to be deployed and launched over the next three years. Twelve new undersea cables planned for launch between the third quarter of 2009 and mid-2011 will increase Africa's total international bandwidth from about 6 tbps to as much as 34 tbps.

The strong demand for fibre has resulted in growing demand for optoelectronic components like InP-and GaAs-based lasers and photodetectors. According to experts at Strategy Analystics, fixed wavelength in transmission lasers currently represent the largest share of revenue for this market. However, these will increasingly be replaced by tunable lasers, especially for linecards in high capacity DWDM systems. The growth of 10GbE and 10G fibre channel will be another important driver of this market and will begin displacing copper from the enterprise.

Mobile backhaul

As mobile operators migrate to LTE, they will also have to upgrade their backhaul capacity. According to ABI Research, capital expenditure on microwave backhaul is likely to exceed $8.5 billion in 2009. The market opportunities generated by this growth in backhaul are spread around the backhaul equipment vendors and fixed line operators. Some backhaul infrastructure vendors like Ericsson, Alcatel-Lucent and Nokia Siemens Networks will also benefit from operators' strong interest in carrier Ethernet solutions. Fixed line operators such as British Telecom, Embarq, AT&T and Verizon Communications will develop new revenue streams by providing leased backhaul services.

Worldwide revenues from backhaul leasing are expected to double over the next three years, according to a new study from ABI Research. Growth is expected to further accelerate after 2012, resulting in a fivefold revenue increase between 2009 and 2014.

Business models are also evolving with the industry moving towards backhaul as a managed service. This enables mobile operators to focus on their core business while guaranteeing a backhaul capacity matched to their changing traffic demands. For instance, BT provides this managed service to four of the top five European operators. In the US as well, telecom operator Embarq is moving in the same direction. Analysts at ABI Research expect wireline operators who were typically losing business to wireless operators to capitalise on this opportunity and thus get a piece of the wireless pie.

Ethernet-based solutions

In order to optimise costs, operators are adopting Ethernet-based solutions, including Ethernet over fibre and Ethernet over copper. Ethernet over fibre will be a popular choice between now and 2012, primarily due to its lower cost per megabit and high data rate. Many service providers use Ethernet to attract new customers with a lower cost per bit than traditional WAN services and, at the same time, they reduce capex and opex by installing a single 100M or GE link to initially sell lower speeds. This allows later upgrades to higher speeds without changing equipment at either the central office or the customer location.

Within this segment, carrier Ethernet technologies and products will witness rapid growth as they are less expensive alternatives to legacy equipment. In fact, service provider investment in carrier Ethernet equipment is growing faster than overall telecom capex. Carrier Ethernet is one of the key technologies integral to IP next-generation network (NGN) transformation projects, pushing the move from TDM to packet-based networks. These IP NGN projects depend heavily on IP, MPLS and Ethernet, and will gradually employ the use of Ethernet transport instead of SONET/SDH. Service providers spent $17 billion on carrier Ethernet equipment in 2008 and are likely to increase their spending every year at a healthy clip over the next five years.

In Europe, operators are now limiting deployments based on SDH and ATM technologies and are increasingly using carrier Ethernet to support services and applications over a converged, packetbased network infrastructure.

According to Infonetics, the carrier Ethernet equipment market is likely to cross $32 billion in 2013, driven by the need to handle fast growing traffic from consumer, business and mobile backhaul networks, including skyrocketing video traffic. For instance, in 2008, mobile operators experienced heavy traffic due to highly popular iPhones and other bandwidth-hungry mobile data devices. AT&T Mobility found that one iPhone user typically generates as much data traffic as 30 basic feature phone users.

The largest investments will be in IP core and EDGE routers, carrier Ethernet switches and optical gear. Ethernet microwave is expected to be the fastest growing segment based on its use for mobile backhaul.

Mobile backhaul, rapid service provider rollout and customer uptake of Ethernet connections and services drives the need for EADs, specialised Ethernet access devices designed with demarcation and OAM functions to deliver E-LINE and E-LAN services. Worldwide sales of EADs are forecast to increase at a compounded annual growth rate (CAGR) higher than carrier Ethernet equipment in general, and much higher than the slowly growing CAGR of telecom capex.

It appears that transmission technologies as well as the related equipment are set to grow as operators the world over scale up their networks and implement newer technologies to handle the exponential growth in bandwidth.