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China is Just Like Quantum Mechanics: if You Think You Understand it You Probably Do Not

LightCounting Market Research Notes from Optinet China 2014

Read in Chinese

One of the most discomforting ideas in quantum mechanics is that a question may have several different answers, each of which are correct within a certain probability. Accepting such an approach comes in handy when analyzing the optical communications market in China. It has been difficult to forecast this market in the past and it is likely to remain so for some time to come.

Let us examine a recent government announcement on sharing of wireless infrastructure among the three leading service providers. Having more than 750 million subscribers, China Mobile is the dominant player in the Chinese mobile market. The company is well ahead of its rivals in deployment of next generation (4G LTE) infrastructure. It maintains a vast array of antenna towers equipped with fiber connectivity to the optical network. Now the company is being asked to share this infrastructure with its rivals. The objectives are glorious: increased competition and accelerated improvements in mobile services delivered to the end users. However the realization of this plan is already confusing.

Creating a separate company to operate and own the antenna towers around the country makes a lot of sense. The problem is where to draw the line between the antenna towers and the rest of the network. Should the company own just the towers, the towers and antennas, or all of the above plus the base-stations with fiber connections to the antennas? All these options are under consideration at the moment.

Needless to say, this uncertainty complicates market forecasting for optical transceivers connecting base-stations with antennas. This market is booming in 2014, driven mostly by demand from China Mobile. If the company will be sharing these base-stations and antennas with China Telecom and China Unicom, the demand for “wireless optics” may drop once China Mobile equips all the antennas with high-speed optical access. Deployments of fiber to antennas are happening in many countries around the world, but the scale and speed of these deployments are dwarfed by the efforts of China Mobile.

Sharing of wireless infrastructure among the leading carriers was not the only controversy discussed at Optinet China last week. Government plans for opening the access network to virtual carriers are just as interesting. One of the objectives of this plan is to lure the internet companies like Alibaba and Baidu to invest into broadband access networking. Echoes of the Google Fiber project in the U.S. have clearly reached China and 1Gbps access is now on the roadmap of all the leading service providers. This is the main accomplishment of the Google Fiber project to date.

The use of optics in mega datacenters of Internet companies in China was the most interesting news at Optinet. This topic was not included in the conference agenda this year, but it may be the highlight of this event in 2015. Yes, Chinese Internet companies are investing in datacenters and they are just starting to use 10 GigE and 40 GigE optics, following the example of their Western rivals. How large is this market opportunity for component suppliers?

Comparing the scale of massive FTTx deployments in China to broadband access programs in other countries, we should multiply our projections for volumes of datacenter optics in 2015-2019 by a factor of 5 and divide pricing by a factor of 10. However, mega-datacenters in China are operated by young private companies, rather than government controlled entities. There should be less politics and long-term vision involved in making investment decisions, and much more business sense. Spending billions on optimizing datacenter operations with optics has to make commercial sense first, rather than be a boost to national pride. If Alibaba is under pressure to distance itself from potential rivals by using the latest technology, it can certainly afford to invest into modernizing datacenters with 100GigE optics. This will be a test for the market rather than government-driven innovation in China.

There is one more important similarity between China and quantum mechanics: both are essential for the global optical components market. It is hard to imagine laser technology without quantum mechanics, but it is even harder to ignore China when forecasting demand for lasers and everything else that makes up optical networks.

Dr. Kozlov Presents at Optinet China 2014

Dr. Kozlov with FTTH Council Chairman Mao

 

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