In the company’s latest earnings call last month, Nortel Networks’ then-chief executive officer Bill Owens called the third quarter the best one Nortel’s optical business has seen since the first quarter of 2003. Though he didn’t elaborate, market researchers backed him up. Amid the optical market’s unseasonal third-quarter boom, Nortel--along with Siemens and Lucent Technologies--grew faster than the market average, according to Ovum-RHK. Telephony’s Ed Gubbins recently spoke with Philippe Morin, general manager of Nortel's optical business, on what drove those third-quarter results and where the optical market is headed next.

On the third quarter: It’s been quite a turnaround for the optical business. This was our best quarter since the first quarter of 2003. At that time, the optical division was a separate business unit (now it’s part of the Carrier Packet group). We reported about $317 million in revenue at that time. This quarter we did better than that. And not by single-digit millions. We’ve now had four quarters of sequential growth, which is important, considering the seasonal aspect of our business. Usually the first quarter, because of the holidays and the start of the year, is a softer quarter. The optical business is now profitable as well. We haven’t said which quarter it started, but we have been profitable. [Editor’s note: A Nortel spokesman added that its optical business has been profitable for at least two quarters.]

On the drivers behind the growth: The growth is being driven predominantly by two things: On the carrier side, we’re seeing a lot of deployment of DSL, IPTV and video-on-demand. In the last two to three years, Nortel’s put a strong emphasis on cable [operators]. We’ve announced Rogers, Cox, Charter, Time Warner and Lightpath--these are all optical accounts we didn’t have before. That’s driving a good portion of the growth. The second part of the growth is our enterprise focus. We’re selling a lot of optical solutions for storage connectivity--major banks, for example, trying to get into disaster recovery solutions, connecting servers between Manhattan and New Jersey. We get a bit of the one-two punch here: Carriers are spending more, and enterprises are seeing optical as the best platform for their server connectivity, in terms of performance and security.

On 2006: The optical industry is going to continue to grow. We’re just going to bring more and more bandwidth down to the consumer, not just with DSL but on the wireless front, with 3G-type deployments. The question is going to be how big the growth will be. The OME 6500, our key new platform--a converged platform that does metro DWDM Layer 1 (which is basically Sonet) and data in one single platform--has now been deployed by over 65 customers and in over 1300 nodes. So business is growing, we’re profitable and our next-gen products are getting traction. That’s leaving me pretty bullish for next year.

On where the optical market’s going: You’ve got to simplify that photonic layer. You’ve got to get rid of regenerators, you’ve got to provide reconfigurable optical add/drop multiplexers flexible enough so you can migrate and switch wavelengths, and you’ve got to be 40-Gb/s ready. It will happen. That’s ultimately where the market’s going to go.

On 40-Gb/s wavelengths: The Common Photonic Layer platform, introduced late last year, is 40-Gb/s-ready. Customers will be able to upgrade and bring in a 40-Gb/s wavelength. We’ll have some limited deployment of 40 Gb/s in 2006, but 2007 is where the market for 40 Gb/s should really kick. Not before that.

On metro versus long-haul: The metro and long-haul is becoming a blur now. To me it’s the same market. In the past, we used to have a metro DWDM product in our portfolio, a long-haul product and an ultralong-haul product. When you start looking at where the market is going, there will be wavelengths you need to collect and be a regional type of application. Some of these wavelengths you’ll want to go longer reaches, some of them you’ll want to do coast to coast. What customers don’t want is to have three different platforms. They want to see one Common Photonic Layer, with your terminal deciding how far you want to go. Our CPL is an amplifier platform. It’s the same platform whether it’s regional, long-haul or ultralong-haul. It’s at the source of your wavelength that you decide what kind of reach you want. It adds much more flexibility and simplifies the network.

On ROADM: We introduced ROADM 12 to 18 months ago with the 5K product line. The majority of our ROADM business is going toward eROADM, based on [wavelength-selective switching] technology, in the CPL platform.

On Infinera recently claiming leadership in the 10-Gb/s optical market: Actually, 10-Gb/s ports is where they believe they’re No. 1. When you put regens everywhere, you will have a lot more 10-Gb/s ports than competitors that do not put regens everywhere. We believe the way to go forward is to simplify the offering as much as we can. Infinera is going the opposite way, putting regens every 80 km. We’re trying to get rid of regens, to simplify the network and have DWDM capabilities.