Terabeam develops, manufactures and markets optical communications systems based upon free space optics (FSO), for use by both telecommunications carriers and enterprise customers - "Fibre connectivity without the fibre, through office windows", commented Lou Gellos. The system is designed to extend existing telecommunications networks into buildings, providing high capacity connectivity via an invisible, eye-safe, light beam. Links may be made either between two nearby buildings or from a building to hub equipment for onward transmission over conventional networks.

As part of an investment agreement with Lucent Technologies, Terabeam has access to FSO technology and fibre optics intellectual property from Bell Labs. Lucent, however, is a passive investor with no special rights. Terabeam has also absorbed scientists engaged in FSO research from Bell Labs. The company has filed a number of patents, which are pending award, relating to the targeting, 'pointing and tracking', as well as other aspects of its systems.

Service network provision

Although not the prime focus of the company, Terabeam does operate last-mile networks in four U.S. cities, namely Seattle, Denver, Los Angeles and Dallas. Here, a variety of high-end services are offered to enterprise customers. Terabeam is the sole equipment manufacturer in the FSO sector currently operating service networks based upon its own equipment.

Discussing this strategy, Lou Gellos drew a comparison with Amazon.com activities: "At the time Amazon began selling books via the Internet, no one else was doing this. As the business developed and became successful the idea caught on, and so the booksellers themselves began to set up Internet-based operations. In the same way, Terabeam's network services not only serve customers, which is just one part of Terabeam's business, but also showcase the capabilities of FSO technology in general and our FSO solution in particular."

Originally, Terabeam planned to install and operate communications networks in up to sixty U.S. cities. Changes in the market environment over the past eighteen months, and in particular the impact on the CLECs, have resulted in a rethinking of this strategy. Due to the expense involved in deploying networks on this scale, combined with an increasing reticence on the part of the investment community towards funding CLECs, Terabeam made the decision to focus on its core business - equipment development and manufacture.

Commenting on this, Mr. Gellos said, "The main issue for the carriers now is the last-mile. At Terabeam, we believe we have developed a solution to this problem and hope to convince the carriers of this. To continue setting up as a carrier, Terabeam would have to buy network capacity between cities, plus metro links within cities, to link its equipment to the back-haul network. In other words, Terabeam would have to build the infrastructure that carriers already have in place. Further, carriers already own a base of lit buildings in the major cities - these provide ideal sites for installation of FSO heads to extend their networks."

Terabeam has a network operations centre in Fisher Plaza, Seattle. From this unique facility network monitoring, management and maintenance functions are performed for all of Terabeam's customers, with 120 links worldwide. The equipment incorporates a camera at either end of each link to allow visual monitoring of all network links.

In the future, Terabeam will revisit the question of whether to expand, its service provision activities. One consideration, assuming adoption in the market of the FSO solution, would be the perception of the company as a competitor by potential carrier customers.

Free space optics technology was originally developed in the 1960's, primarily for use in space or clandestine security operations - for example, transmitting data between eastern and western block countries across closed borders. Some carriers investigated the utilisation of FSO solutions in their networks around twenty years ago when the technology simply was not suitable for their requirements. According to Mr. Gellos, at this time a 'wide spray' technique was used due to difficulties in targeting the light beam, with the result that the range was extremely limited.

It is only within the past three years that serious attempts have been made to commercialise the technology - key amongst the factors governing its commercialisation are 'pointing and tracking' techniques. Lou Gellos commented that the giant leap forward with the technology, during the intervening period, is the development of Terabeam's pointing and tracking management software.

Up until very recently, many U.S. carriers either were not aware of, or actively excluded from consideration, free space optics as a viable solution for incorporation in their own networks. Terabeam was commonly finding this to be the case as recently as three months ago. However, there are U.S. carriers that have recently begun trialling the company's equipment.

Terabeam's initial product communicates 30 times per second between each end of the link in order to ensure that the beam is always centred on the lens of the transceiver. With the company's new Elliptica product, this rate is increased to 300 times per second. Building on this work, Terabeam has pioneered the development of FSO beyond what is termed 'legacy FSO solutions' - pushing the technology from that of a basic point-to-point system for enterprise customers to that of a carrier-grade network solution including a very sophisticated management system to aid installation, monitoring and remote maintenance.

Current technology

The effective operation of an FSO network necessitates accommodation of a number of factors - firstly, building movement and vibration (accentuated in very tall buildings), secondly temperature variation, and thirdly, weather conditions, especially fog, rain and snow, and also scintillation, associated with high environmental temperature (shimmering over distance and mirages in deserts).

Basically, one of two approaches may be taken when addressing these factors: one is to transmit a broad beam, thus negating targeting issues, and the second is to target a narrow, focused, beam with high accuracy.

The first - the traditional or "legacy" approach - holds the disadvantage that range is very limited, particularly in poor weather conditions. Terabeam took the second approach, made possible through its development of sophisticated pointing and tracking technology combined with dynamic management software overlaying the system. The result is a reliable carrier-grade FSO solution. Analysis of Terabeam's operational networks has shown that the equipment is able to provide connectivity over distances unequalled by competing FSO systems.

Terabeam's solution is designed to operate in the 1550 nm wavelength - the same as that utilised in optical fibre systems. A major advantage derived from utilisation of this wavelength is that power may be boosted substantially to combat factors such as poor weather conditions - up to sixty times higher than is possible with competing systems that are based on the 785 nm or 850 nm wavelength.

Commenting on Terabeam's product, Mr. Elliot commented that size of the optical transceiver has been dramatically reduced over the past two years. "Our prototype gigabit symmetrical transceivers were roughly the size of a large domestic freezer; the Elliptica solution, launched early 2002, is the size of a football."

The company has also paid particular attention to the ergonomics and appearance of its product. Mr. Elliot noted that the company has received design awards from such sources as the Industrial Designers Society of America and Business Week. These are important considerations, as the product will often be installed in offices rather than equipment rooms or on rooftops. While a legacy FSO transceiver might be likened to a mailbox with lenses on it, the Terabeam Elliptica looks like it came off the bridge of the Starship Enterprise. Many of Terabeam's customers choose to place the equipment in open view to show off their high-tech image.

Terabeam presently addresses the enterprise and carrier sectors, although in the future there are plans to address the consumer sector. According to Jim Elliot current systems are simply too expensive to be practical for the consumer market, except when used to light multi-tenant buildings where multiple subscribers share the cost of the connection, although he added that a logical application for Terabeam's long-range equipment is for back-haul links associated with fibre-to-the-home or cable deployments.

From the perspective of a carrier looking to provision a building, there are numerous costs to be considered, including installation of lateral links to the building and riser links within the building (additionally subject to rental charges to the building owner). The total cost incurred in provisioning an office building can range from $200,000 to in excess of $1 million. In contrast, Terabeam could provision the same building for less than $50,000, minus roof rights and riser costs. In general, according to Terabeam, savings over fibre will range from 50% to more than 75%.

The economics for the carriers of serving buildings will be dependent primarily upon demand in each individual building - where there are many clients demanding high capacity links, fibre solutions will be viable; where only a few clients exist, an FSO system will make sense. Mr. Elliot commented that costs for fibre installation also vary considerably from one city to another, citing Chicago as an example of a location where installation of laterals is prohibitively expensive, due in part to the difficulty in gaining construction permits.

As an example of Terabeam's provisioning process, Jim Elliot described the networking of downtown Denver, where he is based. In a five square mile area of high-rise office buildings, Terabeam created the capability to connect every building in about three weeks, subsequent to the selection of four hub locations. He noted that installing a fibre network in this zone would take perhaps fifteen years.

Further discussing the relative positions of FSO and fibre, Mr. Gellos said, "When an enterprise customer approaches a carrier requesting fibre connectivity, unless its building is already connected, the carrier will first assess the economic practicality of installing optical fibre - whether there are enough potential customers in the same building to justify the costs. Only after this will the carrier begin the actual fibre construction and customer installation process."

"If the same customer approaches a carrier who is deploying Terabeam systems, the carrier can assess immediately whether or not it is in an appropriate location, and if so send over our transceivers," said Mr. Elliot. "From there, it is simply a matter of plugging in the equipment and connecting to the customer's local network. To borrow a quote from Forrester Research, we enable carriers to deploy networks using technology rather than hard-hats."

Mr. Elliot said, "We are rapidly reaching the capacity limits of copper connections. Carriers have, to date, been able to serve the needs of customers by deployment of T1 and 'n'xT1 lines en masse. The limits of this technology are being reached in terms of bandwidth demand and absolute capacity, whilst only around 5-10% of buildings are served by fibre links, therefore carriers will be seeking an alternative to expensive fibre connectivity."

Jim Elliot noted that in the U.S. there are estimated to be in the order of five million commercial buildings, of which only around 40,000 are currently connected to fibre rings.

Four carriers, the names of which have not been disclosed, were involved in Terabeam's November 2000 funding round. Mr. Gellos stated that these companies are happy with what has been achieved to date, "These companies realise the potential of FSO technology - basically, it will enable them to reach more customers, increase traffic across their under-utilised backhaul networks, and ultimately improve profitability."

Mobile applications

The company expects mobile operators to be a further sector investing in FSO equipment, particularly as data traffic increases with 3G networks. Mr. Elliot noted that operators typically have T1 links to their cell sites and these links are very quickly reaching capacity with the growth in subscribers and rapid growth in data/Internet services now flowing over cellular networks. Terabeam presently supplies a core back-haul application for use by mobile operators that can be mounted on cell towers. A further application would be in serving buildings, where mobile coverage and capacity inside tends to be limited.

Temporary connections

A secondary application for Terabeam's FSO solution leverages the rapid provisioning and reusability aspect of the transceivers for temporary connections. The system may be deployed to provide short-term or emergency links between offices, or to serve specific events, such as conferences, sports or entertainment occasions. Mr. Gellos offered an example of this type of provisioning, where, in the aftermath of the September 11 attack in New York, a fully redundant gigabit symmetrical ring network linking three offices up to 2.6 km apart was set up for client Merrill Lynch.

Market size

Terabeam bases its estimates of demand for FSO solutions in part on a perceived imminent requirement from enterprise customers for increased bandwidth. Adventis Consulting group has conducted research in this area, based on totalling the basket of applications that enterprises are evolving towards. This research reveals that currently a T1 connection is adequate for the needs of the average desktop user; however, in the very near future this same user will require a 10 Mbit/s link. Even small companies with relatively few employees will demand 100 Mbit/s connections as a result of the use of multimedia applications and rapidly multiplying storage requirements - as digital assets multiply and are increasingly stored at remote data centres demand for bandwidth grows inexorably.

Regarding total spending on FSO equipment, Strategis conservatively estimates the market at $2 billion by 2005. This value is based upon a total spending figure of $536 billion in 2001 for network upgrades in the U.S., of which a substantial portion will have been accounted for by SONET rings, extending fibre networks, and more generally boosting network capacity at the network edge.

At present FSO equipment holds a negligible proportion of the market. It is believed by Terabeam that, globally, FSO networks could usurp fibre networks in certain circumstances - where the economics of fibre networks simply do not add up today, and are unlikely to become commercially viable in the foreseeable future. While the costs of FSO technology are continuously dropping, labour and equipment intensive fibre construction projects are getting more expensive and involve increasingly more restrictive permitting processes.

It was noted that the major system vendors have yet to move into the FSO space in any big way, although some companies have made investments in the sector, including Lucent's interest in Terabeam. Nortel Networks has made an investment in competitor AirFiber, of San Diego, California. When the sector begins to take off, Terabeam believes the major players will take an interest.

The primary threat to Terabeam's success is felt to stem from the financial difficulties faced by the large carriers, resulting in cuts to their capital expenditure allied with an aversion to investing in new technologies. However, Terabeam is also addressing the enterprise market directly, and will seek to push this segment of the business whilst waiting for the carrier segment to take off.

Mr. Gellos stated that the first carrier customer, Utfors of Sweden, connected a customer with Terabeam FSO equipment in October 2001. He claimed that this illustrates perfectly the complementary nature of optical fibre and FSO systems - fibre for high-density locations, FSO for low density.

Regarding enterprise customers, Terabeam counts some of the major hotel chains (Westin, Four Seasons, Sheraton, Seattle Grand Hyatt) present in Seattle as customers, where the system is used to offer 10 Mbit/s connections. Here the company offers what is effectively a bandwidth-on-demand service, ranging from 10 to 100 Mbit/s - optical fibre connectivity would not be an economic proposition in such locations.

Terabeam is also preparing to announce Seattle University as the first Seattle network client to be located outside of its downtown Seattle zone. A single transceiver situated in the downtown Seattle area beams across to a transceiver sited on the campus, providing campus-wide fibre connectivity.

In summary, of the issues facing Terabeam, the market environment is seen as the prime obstacle, in particular the ever-shrinking CLEC customer base. This issue apart, the company is comfortable that technological issues have been addressed - the system works - and that there is a latent demand for the product. As Lou Gellos notes, "The bottom line is businesses are not getting the bandwidth they need for the money they can afford to spend. Terabeam can supply the solution to this problem."