40 and 100Gbps: Growth assured yet uncertainty remains

Briefing: High-speed optical transmission.

Part 2: 40 and 100Gbps optical transmission

The market for 40 and 100 Gigabit-per-second optical transmission is set to grow over the next five years at a rate unmatched by any other optical networking segment.  Such growth may excite the industry but vendors have tough decisions to make as to how best to pursue the opportunity.

Market research firm Ovum forecasts that the wide area network (WAN) dense wavelength division multiplexing (DWDM) market for 40 and 100 Gigabit-per-second (Gbps) linecards will have a 79% compound annual growth rate (CAGR) till 2014.

In turn, 40 and 100Gbps transponder volumes will grow even faster, at 100% CAGR till 2015, while revenues from 40 and 100Gbps transponder sale will have a 65% CAGR during the same period.

Yet with such rude growth comes uncertainty.

“We upgraded to 40Gbps because we believe – we are certain, in fact – that across the router and backbone it [40Gbps technology] is cheaper.”

Jim King, AT&T Labs

Systems, transponder and component vendors all have to decide what next-generation modulation schemes to pursue for 40Gbps to complement the now established differential phase-shift keying (DPSK). There are also questions regarding the cost of the different modulation options, while vendors must assess what impact 100Gbps will have on the 40Gbps market and when the 100Gbps market will take off.  

“What is clear to us is how muddled the picture is,” says Matt Traverso, senior manager, technical marketing at Opnext.

Economics

Despite two weak quarters in the second half of 2009, the 40Gbps market continues to grow.

One explanation for the slowdown was that AT&T, a dominant deployer of 40Gbps, had completed the upgrade of its IP backbone network.

Andreas Umbach, CEO of u²t Photonics, argues that the slowdown is part of an annual cycle that the company also experienced in 2008: strong 40Gbps sales in the first half followed by a weaker second half. “In the first quarter of 2010 it seems to be repeating with the market heating up,” says Umbach.

This is also the view of Simon Warren, Oclaro’s director product line managenent, transmission product line. “We are seeing US metro demand coming,” he says. “And it is very similar with European long-haul.”

BT, still to deploy 40Gbps, sees the economics of higher-speed transmission shifting in the operator’s favour.  “The 40Gbps wavelengths on WDM transmission systems have just started to cost in for us and we are likely to start using it in the near future,” says Russell Davey, core transport Layer 1 design manager at BT.

What dictates an operator upgrade from 10Gbps to 40Gbps, and now also to 100Gbps, is economics.

The transition from 2.5Gbps to 10Gbps lightpaths that began in 1999 occurred when 10Gbps approached 2.5x the cost of 2.5Gbps. This rule-of-thumb has always been assumed to apply to 40Gbps yet thousands of wavelengths have been deployed while 40Gbps remains more than 4x the cost of 10Gbps. Now the latest rule-of-thumb for 100Gbps is that operators will make the transition once 100Gbps reaches 2x 40Gbps i.e. gaining 25% extra bandwidth for free.

The economics is further complicated by the continuing price decline of 10Gbps. “Our biggest competitor is 10Gbps,” says Niall Robinson, vice president of product marketing at 40Gbps module maker Mintera.

“The traditional multiplier of 2.5x for the transition to 10Gbps is completely irrelevant for the 10 to 40 Gigabit and 10 to 100 Gigabit transitions,” says Andrew Schmitt, directing analyst of optical at Infonetics Research. “The transition point is at a higher level; even higher than cost-per-bit parity.”

So far two classes of operators adopting 40Gbps have emerged: AT&T, China Telecom and cable operator Comcast which have made, or plan, significant network upgrades to 40Gbps, and those such as Verizon Business and Qwest that have used 40Gbps more strategically for selective routes. For Schmitt there is no difference between the two: “These are economic decisions.”

AT&T is in no doubt about the cost benefits of moving to higher speed transmission. “We upgraded to 40Gbps because we believe – we are certain, in fact – that across the router and backbone it [40Gbps technology] is cheaper,” says Jim King, executive director of new technology product development and engineering, AT&T Labs.

King stresses that 40Gbps is cheaper than 10Gbps in terms of capital expenditure and operational expense.  IP efficiencies result and there are fewer larger pipes to manage whereas at lower rates “multiple WDM in parallel” are required, he says.

“We see 100Gbps wavelengths on transmission systems available within a year or so, but we think the cost may be prohibitive for a while yet, especially given we are seeing large reductions in 10Gbps,” says Davey.  BT is designing the line-side of new WDM systems to be compatible with 40Gbps – and later 100Gbps - even though it will not always use the faster line-cards immediately.

Even when an operator has ample fibre, the case for adopting 40Gbps on existing routes is compelling. That’s because lighting up new fibre is “enormous costly”, says Joe Berthold, Ciena’s vice president of network architecture.  By adding 40Gbps to existing 10Gbps lightpaths at 50GHz channel spacing, capacity on an existing link is boosted and the cost of lighting up a separate fibre is forestalled.

According to Berthold, lighting a new fibre costs about the same as 80 dense DWDM channels at 10Gbps. “The fibre may be free but there is the cost of the amplifiers and all the WDM terminals,” he says. “If you have filled up a line and have plenty of fibre, the 81st channel costs you as much as 80 channels.”

The same consideration applies to metropolitan (metro) networks when a fibre with 40, 10Gbps channels is close to being filled. “The 41st channel also means six ROADMs (reconfigurable optical add/drop multiplexers) and amps which are not cheap compared to [40Gbps] transceivers,” says Berthold.

Alcatel-Lucent segments 40Gbps transmission into two categories: multiplexing of lower speed signals into a higher speed 40Gbps line-side trunk link - ‘muxing to trunk’ - and native 40Gbps transmission where the client-side, signal is at 40Gbps.

“The economics of the two are somewhat different,” says Sam Bucci, vice president, optical portfolio management at Alcatel-Lucent. The economics favour moving to higher capacity trunks.  That said, Alcatel-Lucent is seeing native 40Gbps interfaces coming down in price and believes 100GbE interfaces will be ‘quite economical’ compared to 10x10Gbps in the next two years.

Further evidence regarding the relative expense of router interfaces is given by Jörg-Peter Elbers, vice president, advanced technology at ADVA Optical Networking, who cites that in overall numbers currently only 20% go into 40Gbps router interfaces while the remaining 80% go into muxponders.

Modulation Technologies

While economics dictate when the transition to the next-generation transmission speed occurs, what is complicating matters is the wide choice of modulation schemes. Four modulation technologies are now being used at 40Gbps with operators having the additional option of going to 100Gbps.

The 40Gbps market has already experienced one false start back in 2002/03. The market kicked off in 2005, at least that is when the first 40Gbps core router interfaces from Cisco Systems and Juniper Networks were launched.

"There is an inability for guys like us to do what we do best: take an existing interface and shedding cost by driving volumes and driving the economics.”

Rafik Ward, Finisar

Since then four 40Gbps modulation schemes are now shipping: optical duobinary, DPSK, differential quadrature phase-shift keying (DQPSK) and polarisation multiplexing quadrature phase-shift keying (PM-QPSK). PM-QPSK is also referred to as dual-polarisation QPSK or DP-QPSK.

“40Gbps is actually a real mess,” says Rafik Ward, vice president of marketing at Finisar.

The lack of standardisation can be viewed as a positive in that it promotes system vendor differentiation but with so many modulation formats available the lack of consensus has resulted in market confusion, says Ward: “There is an inability for guys like us to do what we do best: take an existing interface and shedding cost by driving volumes and driving the economics.”

DPSK is the dominant modulation scheme deployed on line cards and as transponders. DPSK uses relatively simple transmitter and receiver circuitry although the electronics must operate at 40Gbps. DPSK also has to be modified to cope with tighter 50GHz channel spacing.

“DPSK’s advantage is relatively simple,” says Loi Nguyen, founder, vice president of networking, communications, and multi-markets at Inphi. “For 1200km it works fine, the drawback is it requires good fibre.”

The DQPSK and DP-QPSK modulation formats being pursued at 40Gbps offer greater transmission performance but are less mature.

DQPSK has a greater tolerance to polarisation mode dispersion (PMD) and is more resilient when passing through cascaded 50GHz channels compared to DPSK. However DQPSK uses more complex transmitter and receiver circuitry though it operates at half the symbol rate – at 20Gbaud/s - simplifying the electronics.

DP-QPSK is even more complex than DQPSK requiring twice as much optical circuitry due to the use of polarisation multiplexing. But this halves again the symbol rate to 10Gbaud/s, simplifying the design constraints of the optics. However DP-QPSK also requires a complex application-specific integrated circuit (ASIC) to recover signals in the presence of such fibre-induced signal impairments as chromatic dispersion and PMD. 

The ASIC comprises high-speed analogue-to-digital converters (ADCs) that sample the real and imaginary components that are the output of the DP-QPSK optical receiver circuitry, and a digital signal processor (DSP) which performs the algorithms to recovery the original transmitted bit stream in the presence of dispersion.

The chip is costly to develop – up to US $20 million – but its use reduces line costs by allowing fewer optical amplifiers numbers and removing PMD and chromatic dispersion in-line compensators.

“You can build more modular amplifiers and really optimise performance/ cost,” says Bucci.  Such benefits only apply when a new optimised route is deployed, not when 40Gbps lightpaths are added to existing fibre carrying 10Gbps lightpaths.

Eliminating dispersion compensation fibre in the network using coherent detection brings another important advantage, says Oliver Jahreis, head of product line management, DWDM at Nokia Siemens Networks. “It reduces [network] latency by 10 to 20 percent,” he says. “This can make a huge difference for financial transactions and for the stock exchange.”

Because of the more complex phase modulation used, 40Gbps DQPSK and DP-QPSK lightpaths when lit alongside 10Gbps suffer from crosstalk interference. “DQPSK is more susceptible to crosstalk but coherent detection is even worse,” says Chris Clarke, vice president strategy and chief engineer at Oclaro. 

Wavelength management - using a guard-band channel or two between the 10Gbps and 40Gbps lightpaths – solves the problem. Alcatel-Lucent also claims it has developed a coherent implementation that works alongside existing 10Gbps and 40Gbps DPSK signals without requiring such wavelength management.

100Gbps consensus

Because of the variety of modulation schemes at 40Gbps the industry has sought to achieve a consensus at 100Gbps resulting in coherent becoming the defacto standard.

Early-adopter operators of 40Gbps technology such as AT&T and Verizon Business have been particularly vocal in getting the industry to back DP-QPSK for 100Gbps. The Optical Internetworking Forum (OIF) industry body has also done much work to provide guidelines for the industry as part of its 100Gbps Framework Document.

Yet despite the industry consensus, DP-QPSK will not be the sole modulation scheme targeted at 100Gbps.

ADVA Optical Networking is pursuing 100Gbps technology for the metro and enterprise using a proprietary modulation scheme. “If you look at 100Gbps, we believe there is room for different solutions,” says Elbers.

For metro and enterprise systems, the need is for more compact, less power-consuming, cheaper solutions. ADVA Optical Networking is following a proprietary approach. At ECOC 2008 the company published a paper that combined DPSK with amplitude-shift keying.

“If you look at 100Gbps, we believe there is room for different solutions.”

Jörg-Peter Elbers, ADVA Optical Networking

“Coherent DP-QPSK offers the highest performance but it is not required for certain situations as it brings power and cost burdens,” says Elbers. The company plans to release a dedicated product for the metro and enterprise markets and Elbers says the price point will be very close to 10x10Gbps.

Another approach is that of Australian start-up Ofidium. It is using a multi-carrier modulation scheme based on orthogonal frequency-division multiplexing. Ofidium claims that while OFDM is an alternative modulation scheme to DP-QPSK, it uses the same optical building blocks as recommended by the OIF.

Decisions, decisions

Simply looking at the decisions of a small sample of operators highlights the complex considerations involved when deciding a high-speed optical transmission strategy.

Cost is clearly key but is complicated by the various 40Gbps schemes being at different stages of maturity. 40Gbps DPSK is deployed in volume and is now being joined by DQPSK. Coherent technology was, until recently, provided solely by Nortel, now owned by Ciena. However, Nokia Siemens Networks working with CoreOptics, and Fujitsu have recently announced 40Gbps coherent offerings upping the competition.

Ciena also has a first-generation 100Gbps technology and will soon be joined by system vendors either developing their own 100Gbps interfaces or are planning to offer 100Gbps once DP-QPSK transponders become available in 2011.

The particular performance requirements also influence the operators’ choices.

Verizon Business has limited its deployment of DPSK due to the modulation scheme’s tolerance to PMD. “It is quite low, in the 2 to 4 picosecond range,” says Glenn Wellbrock, director of backbone network design at Verizon Business. “We have avoided deploying DPSK even if we have measured the [fibre] route [for PMD].”

Because PMD can degrade over time, even if a route is measured and is within the PMD tolerance there is no guarantee the performance will last. Verizon will deploy DQPSK this year for certain routes due to its higher 8ps tolerance to PMD.

China Telecom is a key proponent of DQPSK for its network rollout of 40Gbps. “It has doubled demand for its 40Gbps build-out and the whole industry is scrambling to keep up,” says Oclaro’s Clarke. 

AT&T has deployed DPSK to upgrade its network backbone and will continue as it upgrades its metro and regional networks.  “Our stuff [DPSK transponders] is going into [these networks],” says Mintera’s Robinson.  But AT&T will use other technologies too.

In general modulation formats are a vendor decision, “something internal to the box”, says King. What is important is their characteristics and how the physics and economics match AT&T’s networks. “As coherent becomes available at 40Gbps, we will be able to offer it where the fibre characteristics require it,” says King.

“AT&T is really hot on DP-QPSK,” says Ron Kline, principal analyst of network infrastructure at Ovum. “They have a whole lot of fibre - stuff before 1998 - that is only good for 2.5Gbps and maybe 10Gbps. They have to be able to use it as it is hard to replace.”

BT points out how having DP-QPSK as the de facto standard for 100Gbps will help make it cost-effective compared to 10Gbps and will also benefit 40Gbps coherent designs. “This offers high performance 40Gbps which will probably work over all of our network,” says Davey. 

But this raises another issue regarding coherent: it offers superior performance over long distances yet not all networks need such performance. “For the UK it may be that we simply don’t have sufficient long distance links [to merit DP-QPSK] and so we may as well stick with non-coherent,” says Davey. “In the end pricing and optical reach will determine what is used and where.”

One class of network where reach is supremely important is submarine.

For submarine transmission, reaches between 5,000 and 7,000km can be required and as such 10Gbps links dominate. “In the last six months even if most RFQs (Request for Quotation from operators) are about 10Gbps, all are asking about the possibility of 40Gbps,” says Jose Chesnoy, technical director, submarine network activity at Alcatel-Lucent.

Until now there has also been no capacity improvement in submarine adopting 40Gbps: 10Gbps lightpaths use 25GHz-spaced channels while 40Gbps uses 100GHz. “Now with technology giving 40Gbps performance at 50GHz, fibre capacity is doubled,” says Chesnoy.

To meet trans-ocean distances for 40Gbps submarine, Alcatel-Lucent is backing coherent technology, as it is for terrestrial networks. “Our technology direction is definitely coherent, at 40 and 100Gbps,” says Bucci.  

Ciena, with its acquisition of Nortel’s Metro Ethernet Networks division, now offers 40 and 100Gbps coherent technology.

“It’s like asking what the horsepower per cylinder is rather than the horsepower of the engine.”

Drew Perkins, Infinera

ADVA Optical Networking, unlike Ciena and Alcatel-Lucent, is not developing 40Gbps technology in-house. “When looking at second generation 40Gbps, DQPSK and DP-QPSK are both viable options from a performance point of view,” says Elbers. 

He points out that what will determine what ADVA Optical Networking adopts is cost. DQPSK has a higher nonlinear tolerance and can offer lower cost compared to DP-QPSK but there are additional costs besides just the transponder for DQPSK, he says, namely the need for an optical pre-amplifier and an optical tunable dispersion compensator per wavelength.

DP-QPSK, for Elbers, eliminates the need for any optical dispersion compensation and complements 100Gbps DP-QPSK, but is currently a premium technology. “If 40Gbps DP-QPSK is close to the cost of 4x10Gbps tunable XFP [transceivers], it will definitely be used,” he says. “We are not seeing that yet.”

Infinera, with its photonic integrated circuit (PIC) technology, questions the whole premise of debating 40Gbps and 100Gbps technologies. Infinera believes what ultimately matters is how much capacity can be transmitted over a fibre.

“Most people want pure capacity,” says Drew Perkins, Infinera’s CTO, who highlights the limitations of the industry’s focus on line speed rather than overall capacity using the analogy of buying a car. “It’s like asking what the horsepower per cylinder is rather than the horsepower of the engine,” he says.

Infinera offers a 10x10Gbps PIC though it has still not launched its 10x40Gbps DP-DQPSK PIC. “The components have been delivered to the [Infinera] systems group,” says Perkins. The former CEO of Infinera, Jagdeep Singh, has said that while the company is not first to market with 40Gbps it intends to lead the market with the most economical offering.

Moreover, Infinera is planning to develop its own coherent based PIC. “The coherent approach - DP-QPSK ‘Version 1.0’ with a DSP - is very powerful with its high capacity and long reach but it has a significant power density cost,” says Perkins. “We envisage the day when there will be a 10-channel PIC with a 100Gbps coherent-type technology in 50GHz spectrum at very low power.”  Such PIC technology would deliver 8 Terabits over a fibre.

Further evidence of the importance of 100Gbps is given by Verizon Business which has announced that it will deploy 100Gbps coherent-optimized fibre links starting next year that will do away with dispersion compensation fibre. AT&T’s King says it will also deploy coherent-optimised links.

Not surprisingly, views also differ among module makers regarding the best 40Gbps modulation schemes to pursue.

“We had a very good look at DQPSK,” says Mintera’s Robinson. “What’s best to invest? The price comparison [DQPSK versus coherent] is very similar yet DP-QPSK is vastly superior [in performance]. Put in a module it will kill off DP-QPSK.”

Finisar has yet to detail its plans but Ward says that the view inside the company is that the lowest cost interface is offered by DPSK while DP-QPSK delivers high performance. “DQPSK is in this challenging position, it can’t meet the cost point of DPSK nor the performance of DP-QPSK,” he says.

Opnext begs to differ.

The firm offers the full spectrum of 40Gbps modulation schemes - optical duobinary, DPSK and DQPSK.  “The next phase we are focussed on is 100Gbps coherent,” says Traverso. “We are not as convinced that 40Gbps is a sweet spot.”

In contrast Opnext does believe DQPSK will be popular, although Traverso highlights that it depends on the particular markets being addressed, with DQPSK being particularly suited to regional networks. “One huge advantage of DQPSK is thermal – the coherent IC burns a lot of power”.   

Oclaro is also backing DQPSK as the format for metro and regional networks: fibre is typically older and the number of ROADM stages a signal encounters is higher.

Challenges

The maturity of the high–speed transmission supply chain is one challenge facing the industry.  

“Many of the critical components are not mature,” says Finisar’s Ward. “There are a lot of small companies - almost start-ups - that are pioneers and are doing amazing things but they are not mature companies.”

JDS Uniphase believes that with the expected growth for 40Gbps and 100Gbps there is an opportunity for the larger optical vendors to play a role. “The economic and technical challenges are still a challenge,” says Tom Fawcett, JDS Uniphase’s director of product line management.

Driving down cost at 40Gbps remains a continuing challenge, agrees Nguyen: “Cost is still an important factor; operators really want lower cost”. To address this the industry is moving along the normal technology evolution path, he says, reducing costs, making designs more compact and enabling the use of techniques such as surface-mount technology.

Mintera has developed a smaller 300-pin MSA DPSK transponder that enable two 40Gbps interfaces on one card: the line side and client side ones. Shown on the right is a traditional 5"x7" 300-pin MSA.

JDS Uniphase’s strategy is to bring the benefits of vertical integration to 40 and 100Gbps; using its own internal components such as its integrated tunable laser assembly, lithium niobate modulator, and know-how to produce an integrated optical receiver to reduce costs and overall power consumption.

Vertical integration is also Oclaro’s strategy with is 40Gbps DQPSK transponder that uses its own tunable laser and integrated indium-phosphide-based transmitter and receiver circuitry.

“[Greater] vertical integration will make our lives more difficult,” says u²t’s Umbach. “But any module maker that has in-house components will only use them if they have the right optical performance.”  

Jens Fiedler, vice president sales and marketing at u²t Photonics,stresses that while DQPSK and DP-QPSK may reduce the speed of the photodetectors and hence appear to simplify design requirements, producing integrated balanced receivers is far from trivial. And by supplying multiple customers such as non-vertically integrated module makers and system vendors, merchant firms also have a volume manufacturing advantage.

Opnext has already gone down the vertically integrated path with its portfolio of 40Gbps offerings and is now developing an ASIC for use in its 100Gbps transponders.

Estimates vary that there are between eight and ten companies or partnerships developing their own coherent ASIC. That equates to a total industry spend of some $160 million, leading some to question whether the industry as a whole is being shrewd with its money.  “Is that wise use of people’s money?” says Oclaro’s Clarke. “People have got to partner.”

The ASICs are also currently a bottleneck. “For 100Gbps the ASIC is holding everything up,” says Jimmy Yu, a director at the Dell'Oro Group

According to Stefan Rochus, vice president of marketing and business development at CyOptics, another supply challenge is the optical transmitter circuitry at 100Gbps while for 40Gbps DP-QPSK, the main current supplier is Oclaro.

“The [40Gbps] receiver side is well covered,” says Rochus.

CyOptics itself is developing an integrated 40Gbps DPSK balanced receiver that includes a delay-line inteferometer and a balanced receiver. The firm is also developing a 40 and a 100G PM-QPSK receiver, compliant with the OIF Framework Document. This is also a planar lightwave circuit-based design but what is different between 40 and 100Gbps designs is the phodetectors - 10 and 28GHz respectively - and the trans-impedence amplifiers (TIAs).

NeoPhotonics is another optical component company that has announced such integrated DM-QPSK receivers.

And u²t Photonics recently announced a 40G DQPSK dual balanced receiver that it claims reduces board space by 70%, and it has also announced with Picometrix a 100Gbps coherent receiver multi-source agreement.

40 and 100Gbps: next market steps

Verizon Business in late 2009 became the first operator to deploy a 100Gbps route linking Frankfurt and Paris. And the expectation is that only a few more 100Gbps lightpaths will be deployed this year.

The next significant development is the ratification of the 40 and 100 Gigabit Ethernet standards that will happen this year. The advent of such interfaces will spur 40Gbps and 100Gbps line side. After that 100Gbps transponders are expected in mid-2011.

Such transponders will have a two-fold effect: they will enable more system vendors to come to market and reduce the cost of 100Gbps line-side interfaces.

However industry analysts expect the 100Gbps volumes to ramp from 2013 onwards only.

Dell'Oro’s Yu expects the 40Gbps market to grow fiercely all the while 100Gbps technology matures. At 40Gbps he expects DPSK to continue to ship. DP-QPSK will be used for long haul links - greater than 1200km –while DQPSK will find use in the metro. “There is room for all three modulations,” says Yu.

40 100G market	Compound annual growth rate CAGR
Line card volumes	79% till 2014
Transponder volumes	100% till 2015
Transponder revenues	65% till 2015

Source: Ovum

Ovum and Infonetics have different views regarding the 40Gbps market.

“Coherent is the story; the opportunity for DQPSK being limited,” says Ovum’s Kline. Infonetics’ Schmitt disagrees: “If you were to look back in 2015 over the last five years, the bulk of the deployments [at 40Gbps] will be DQPSK.

Schmitt does agree that 2013 will be a big year for 100Gbps: “100Gbps will ramp faster than 40Gbps but it will not kill it.”

Schmitt foresees operators bundling 10Gbps wavelengths into both 40Gbps and 100Gbps lightpaths (and 10Gbps and 40Gbps lightpaths into 100Gbps ones) using Optical Transport Networking (OTN) encapsulation technology.

Given the timescales, vendors still to make their 40Gbps modulation bets run the risk of being late to market. They are also guaranteed a steep learning curve. Yet those that have made their decisions at 40Gbps will likely remain uncomfortable for a while yet until they can better judge the wisdom of their choices.

For the first part of this feature, click here

For Part 3, click here

Comments

[Roy Rubenstein]

Ciena Insights blog post: The hidden cost of lighting fiber http://bit.ly/d8t6iS

[Rafik Ward]

Nice Job, Roy.

There is a massive amount of press, market reports, analyst talk, and of course noise on 40G and 100G, but it is rare to find such a thoroughly written article on the topic. Roy Rubenstein – one of the best analysts in the business – has gone to great lengths to talk to almost everybody in the industry and put together a comprehensive picture of the technology, issues and viewpoints that exist in the industry.