2009 top underreported technology stories:8. From feast to famine: Dark fiber gets hard, and expensive, to find
Early in this about-to-close decade, fiber optic cable was going to be the answer to everyone's bandwidth problems. Before the dot-com bubble burst, "everyone who owned a right of way, from railroads to telcos, got greedy and started laying cable," says Glenn Ricart, an Internet pioneer who is now CEO of National LambdaRail. Not surprisingly, the result was a glut of dark (this is, unconnected and unlit) fiber that lasted for years.
But prices are soaring as the shortage disappears. And it could affect the connectivity choices open to enterprises.
Dark fiber can provide high-speed connectivity at a low cost. Instead of paying telcos to incrementally adjust the bandwidth on a physical link as needed, dark-fiber customers can simply light up the circuit with inexpensive 100Mbps or 1Gbps termination gear. What's more, the use of dark fiber means the circuit can be used for other protocols as well, not just IP.
Until this year, prices were generally reasonable, but have doubled in the last 12 months as the inventory of dark fiber shrinks. By contrast, prices for lit fiber have gone up just 10 to 15 percent, says Ricart.
One reason for the big uptick in prices appears to be a surge of buying by Google and perhaps Amazon.com and Microsoft, which will need ever more bandwidth as they expand efforts in cloud computing. "Google has bought an awful lot of dark fiber from people like us," Mark Lewis, director of service development at Interoute said at an industry conference in November. It's not hard to see the connection between cloud computing and fiber: If services are located outside the enterprise, there's a much greater need for connectivity. Cloud computing still plays a relatively small role in enterprise IT, but buying fiber now is an insurance policy against the day when capacity is needed.
Meanwhile, companies holding dark-fiber inventory have taken portions off the market to push prices even higher, Ricart says. That's a tactic that wouldn't work if there weren't an imbalance between supply and demand in the first place.
Ultimately, the market should correct itself, says Michael Voellinger, executive vice president of IT and telecom consultancy Telwares. "The investment opportunity surrounding low-latency capacity solutions in the context of the cloud and bandwidth-intensive applications and content is enormous. The dollars will flow into fiber," he says.
Voellinger expects the shortage to be short-lived. But it took about nine years for the glut to turn to a drought, so it's not at all clear how long it will take for the balance to swing the other way.
The shortage is not uniform, notes Ricart. Enterprises in the largest markets can still find the capacity they need, but in second- and third-tier cities, there is a crunch. His advice: "If I were a CIO in a lower-tier market, I would think about locking in connectivity."