Modeling the Value Proposition for Core Switching: New Methods to Deal With High Investment Risks and Uncertain Demand. Why Optical Switching and Why Now?

The cost of switching in the core transport networks has historically been justified by gains in the transport efficiency that such switching enables. As the cost of bandwidth declines (to zero), however, the value of increased network efficiency also approaches zero. When bandwidth is cheap many carriers have concluded that it is cost effective to over-provision the network links and rely on manual methods to reprovision point-to-point demands as the demands change in time (even with high volatility demands and increased labor costs). This "efficiency-only" view of core switching, however, ignores the potential revenue gains that can be achieved by utilizing network switching features that support services that command a premium price. The present study models this phenomenon and estimates the potential importance of the market for premium bandwidth services as well as the importance of intelligent optical switching products (e.g., LambdaRouter (TM) All Optical Switch (AOS) to capture a higher proportion of such higher-price market. It develops methods for service providers to estimate both cost and revenue as function of network-reconfiguration capabilities. Examples of premium services are such managed bandwidth services as: bandwidth on demand, by-the-minute, Optical Virtual Private Networks, etc.