The future will be filled with fiber optics. The search for potential Drip investments in this rapidly growing industry begins with a basic understanding of the principles of optical information transmission. In columns soon to follow this one, we'll look at the key companies in the industry. Today's column provides some background on the technology involved.
There is a memorable scene in the classic film, The Graduate, where a family friend gives the leading character, young Benjamin Braddock (played by Dustin Hoffman), some advice on the future. Well, that was 33 years ago and the future is here. Turns out "plastics," which was the message conveyed, was not a bad field to be in over the past three decades. Now, what if we were filming that movie today? How would we rewrite that scene to reflect the promise of the next 33 years? This is how I see it:
Mr. McGuire: I just want to say one word to you... just one word.
Benjamin Braddock: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin Braddock: Yes sir, I am.
Mr. McGuire: Fiber optics.
Okay, that's actually two words. Though Mr. McGuire may not be very grammatical in this instance, his message is sound. Information, and the movement, exchange, and timeliness of information is the focus, sometimes obsession, of society and technology today, and will be even more so tomorrow. Speed is the key, and since nothing travels faster than light, "fiber optics" is the word... er, words, of the future.
Even though more than half the world has yet to place a phone call, the other half is wired to the hilt. Traditional copper wires and silicon circuits carrying electrical signals are being pushed to the max, and businesses and consumers are demanding more. More speed. More information. More. Faster. More.
Enter fiber optics
With fiber optics, strands of glass replace copper wires, and information is transmitted in the form of light pulses rather than electricity. Information is now able to travel at nearly the speed of light. Problem solved, right? Not so fast, Bub. Although the issue of speed was addressed with fiber optics, there comes with it a natural consequence -- increased traffic. When you build the world's fastest subway, everyone is going to line up to ride it. You end up with more passengers than it will hold, and many of them are left waiting at the station.
Once a significant number of optical networks were put in place, engineers needed to find a way to pack more data into each strand, rather than merely adding more fibers at great expense. The advancement of "tunable lasers" provided the solution. Tunable lasers allow the transmission of specific wavelengths, or colors, of light. The more precise the tuning, the more wavelengths that can be simultaneously transmitted over a single fiber with the need for spacing between wavelengths. Then, using a process called Wavelength Division Multiplexing (WDM), these wavelengths can all be packed together and sent along their way. Several passengers can now fit into one seat of the world's fastest subway, right on top of one another -- without any lawsuits!
Another instrumental development was the discovery of optical amplifiers. Optical amplifiers use fibers that have been doped with the element erbium, which boosts the power of an optical wavelength passively, or without the need of a power source. By positioning optical amplifiers at the source of transmission, the need to periodically regenerate the signal is much less than before. We now have higher bandwidth needing less maintenance and power. However, regeneration of the signal is still required in long-distance routes, typically every 200 kilometers or so, requiring the use and maintenance of costly lasers.
The transportation of information has come a long way in the last few years. Still, there is significant room for improvement. Rather than one continuous pathway, most fiber optic networks are subdivided into three circuits, known as "rings." The rings are built in tiers, representing local, regional, and long-distance zones. The transmission management technology known as SONET (synchronous optical network) enables carriers to allocate the capacity of each ring to support the multitude of connections that link various places.
Configuration of the rings and their connections is a complicated process. Also, using SONET, the beams of light traveling along the network are converted to electrical signals at points where traffic enters and exits the network. This is done at what is called an Add Drop Multiplexer (ADM). However, the conversion of light to energy in this process, which is done to drop or add bandwidth, marks an inefficiency in the process and new methods of managing transmissions are still being considered.
Okay, enough technical talk for tonight. In coming columns, we'll look at the key players in the present and future of optical communications, and we'll search for the best potential investment opportunity among them.
Drip on, Fools!
-- Vince Hanks, TMF Elwood on the Fool discussion boards