Silicon Valley's JDSU (NASDAQ:JDSU) and Finisar (NASDAQ:FNSR) are supplying the urgent need for optical equipment in the wireless backhaul and next generation LTE network. The backhaul upgrade will relieve network congestion and help eliminate dropped calls, while LTE will add speed to aid video and other bandwidth intensive downloads.
Verizon Wireless (NYSE:VZ) recently completed preliminary trials of its new 4G network. The LTE network is being built using the 700MHz spectrum Verizon (VZ) bought in the huge 2008 FCC auction. The initial trials took place in Seattle and Boston. Verizon plans to roll out 4G in over 25 markets by the end of the year.
AT&T (NYSE:T) CEO Randall recently said that AT&T will invest "$19 billion this year, more than any company in the U.S." on improving its mobile network. AT&T will initially increase the speed in its 3G network with an HSPA+ upgrade. Trials of its 4G LTE network will begin in 2011.
AT&T and Verizon have had to significantly increase network expenditures in order to keep up with the escalating wireless data traffic, which grew 160 per cent last year, according to networking giant Cisco (NASDAQ:CSCO). Sales at Finisar, the world's largest supplier of optical gear for telecom equipment, have grown dramatically. The company has had to increase its staff by over 20 percent. "Demand has accelerated," says Jerry Rawls, chairman of Finisar. "It's a breathtaking pace right now."
JDSU is also prospering once again. The optical firm nearly collapsed following the bursting of the tech bubble in the spring of 2000. At its peak, JDSU had a market capitalization larger than either Cisco or Intel (NASDAQ:INTC) have today. During the past decade it has had four CEOs. JDSU is now expanding into new markets. It recently bought a testing business from Agilent (NYSE:A).
The AT&T cellular network now faces a new challenge. The iPhone 4, the latest version of the popular Apple smartphone, is expecting a record-breaking launch.
Since the launch of the original iPhone in 2007, the AT&T wireless network has been overwhelmed, especially in Manhattan and San Francisco. Since the introduction of the iPhone, AT&T has seen wireless data traffic increase 18 times. Currently, the company has more the twice as many smartphone customers as its competitors. To cope with the resulting bottlenecks, AT&T has recently tripled the number of fiber links to existing cell sites.
This will greatly improve the backhaul network that connects the cell towers to the main network. Upgrading the overburdened backhaul network is critical to improving service for iPhone customers. AT&T is "continuing to invest in backhaul and trying to migrate their infrastructure to HSPA+, which should give them faster network speeds and more network capacity," says Ross Rubin, an analyst with NPD group.
JDSU and Finisar gear will also be used as fiber is increasingly used in landline networks. Verizon is the first major U.S. carrier to offer fiber to the home. The expanding fiber deployment is part of the Verizon FIOS bundled Internet, telephone and television service.
Many telecom operators are starting to use reconfigurable optical add/drop multiplexers to add bandwidth while containing costs by reducing the need for traditional SONET network gear. Verizon undertook the biggest ROADM deployment to date when it introduced FIOS. ROADMs allow the use of mesh architecture with links between many cities. This makes it possible for one circuit to provide protection for two or more routes, thus reducing the amount of fiber needed to provide a reliable network.
The newest ROADMs use wavelength selective switches. JDSU, one of Verizon's FIOS partners, is the leading maker of ROADM components, but Finisar has recently closed the gap considerably. "Finisar has come from nowhere to take a lot of the market," according to Andrew Schmitt, an analyst with Infonetics Research. "There's been a shift away from JDSU as the WSS market started."
Disclosure: Author holds a long position in FNSR