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Korea is becoming an appealing marketplace for companies seeking to enter the global optical telecommunication markets

Role of Optical Telecommunication

The new ICT trends have one thing in common—they are all based on a network system, or an “optical telecommunication” infrastructure. In other words, in the intelligence information society of the future, the optical telecommunication network is the single most important infrastructure. It will allow people to use future technologies whenever and wherever they want. As such, optical telecommunication technologies will no doubt satisfy the following demands amid changing ICT trends:

1. (High-speed/broadband) Data traffic is increasing exponentially with the widespread penetration of smartphones and tablet PCs. This “Traffic Big-Bang” leads to the fast increasing needs for networks.

- Optical telecommunication satisfies the needs for the highspeed, broadband networks as it can transmit and process data at a speed from hundreds of Gbps up to tens of Tbps. 

2. (Ultra-low latency) Ultra-low latency can be realized when ICT devices send signals and carry information to one other.

- Among existing media, optical media has the fastest data processing speed. So if the optical media is employed in wider parts of networks, more data can be processed in real time, lowering data traffic and achieving ultra-low latency.

3. (High integration) There are greater demands to address the Traffic Big Bang by increasing the network equipment’s capacity without increasing its footprints.

- The new optical transmission technologies for super high speed, high capacity, and super small size can effectively deal with the exponential growth of data traffic 

4. (Low power consumption) There are growing demands for a new network structure and technologies that can efficiently process a large volume of traffic with less footprints and electricity so that operating costs will not increase.

- Optical media process a high volume of traffic with a fairly low amount of electricity compared with other electrical and electric media.

Scope of the Optical Telecommunication Industry 

As traditional media, such as electronic and electrical media, were replaced by optical media, optical telecommunication—a bridge between the optical industry and the telecommunication industry—has emerged. Thus, optical media has gained attention as a means of telecommunication because there was a rapid development of technologies in regards to the components of the optical industry including optical material, light source and photoelectric element, optical precision instrument, optical information device and optical instrument.

The optical telecommunication technology encompasses the transmission and reception of information using light. To be more specific, the technology is comprised of three parts: the optical transmitter where an luminous element encode an electrical message into an optical signal, the optical repeater that uses optical fibers to carry the light signal and the receiver where a photodetector converts the light signal into the electronic message again.

The industry value chain is composed of the upstream businesses that produce intermediary products (materials and components) and the downstream businesses that produce end-use products. First of all, the components (LD/PD chips, light receiving/emitting components) are made of materials (silica and silicon). Then, devices (active devices, passive devices and optical fibers) and modules (optical transceiver, ROADM module) are combined to make end-use equipment and systems (transport network equipment, switch/router, access network equipment).

If both the technologies and value chain of the industry are put into perspective, the scope of the optical telecommunication industry includes optical telecommunication equipment and system, modules and components and other equipment. 

Market Prospects of Optical Telecommunication

As of 2014, the global market of optical telecommunication equipment was approximately USD 73.8 billion. It will likely reach approximately USD 92.4 billion by 2020.

The optical telecommunication equipment and system industry, which occupies the highest proportion of the entire market, amounts approximately to USD 55.8 billion. In particular, the optical transport equipment (SDH/SONET, WDM) market is expected to maintain its growth rate thanks to the increased capital investment of China’s major telecom network operators, growing data traffic at mobile backhauls and the widespread establishment of data centers. The SDH/SONET equipment market will shrink, while WDM equipment will continue to grow. China’s global vendors such as Huawei, ZTE, Alcatel-Lucent, Cisco Systems and Juniper Networks are dominating the global equipment and system market. 

In the most representative optical module ‘transceiver’ market, increased demand for 100- Gigabit transceiver modules led the global market. It is expected that demand will further increase for 100-Gigabit QSFP28. The active device market continues to grow thanks to the booming optical transceiver market. A global leader in this market, Finisar, is also fast growing because of the increased demand for transceivers as they are necessary to expand the LTE system and mobile telecommunication base stations in China. On the other hand, the optical telecommunication component industry is an area where vendors are engaged in a fierce competition in the forms of M&A (according to componentdevice-module supply and demand) and strategic alliance because the verticalization of vendors is becoming ever more prominent.

The optical fiber/circuit market stood at around USD 6.4 billion in 2014. This market grew when the Chinese government expanded investment in the optical telecommunication industry, but after the demand decreased, the growth of the market also slowed down. The market size is expected to decrease after 2018. 

The OTDR equipment sector, which is currently leading the optical measurement and manufacturing equipment market, has seen much price competition. The growth rate of this market is expected to be affected temporarily by the optical network projects in North America to establish mobile stations. The no.1 vendor in the other equipment sector in terms of market share is Corning, which has approximately 15.2 percent market share as of 2013. 

Current Status of Korean Optical Telecommunication Companies

As of 2013, there are approximately 160 optical telecommunication companies in Korea. 93 percent of them, or 149 companies, are small and medium-sized companies, while 6 percent of them, or 11 companies, are enterprises of middle standing. In terms of location, 88.8 percent, or 142 companies, are concentrated in four major cities: 83 companies in the Seoul Metropolitan City and the Gyeonggi Province, 42 in the Gwangju Metropolitan city and 17 in the Daejeon Metropolitan City.

Among the four areas, the Gyeonggi Province and the Gwangju Metropolitan City showed the highest concentration. In the Gyeonggi Province, 62 companies (38.8 percent of total companies) are located primarily in Anyang and Gunpo cities, including optical cable manufacturers (LS Cable & System and GAON CABLE) and optical network providers (DASAN Networks, Dongwon Systems, HFR, UBIQUOSS, and etc.). In Gwangju city, there are 42 companies, or 27 percent of total companies, in the optical transceiver and packaging sector (OE Solutions, Coset) and optical passive component sector (PPI, Wooriro, Finisar Korea, Neon Photonics). Most of them are located in advance industrial complexes.

By sector, there are 45 companies in the optical network system industry. Although most of them are SMEs, five companies (10 percent) have a sales volume of over KRW 100 billion (USD 84.5 million). It is true that they are less competitive than major global players, but they are tapping into the niche market in Korea, targeting public institutions, especially the ones related to public security. 

Optical transceiver companies are competitive in the mobile access sector such as optical modules for mobile telecommunication and FTTH optical modules. Since this is a technology-intensive sector, Korean products still remain competitive against Chinese counterparts that are equipped with price competitiveness. 

Korean companies are set to explore a new market for high-end products of over 100-Gigabit capacity. 

The active device sector is divided into two groups: the first one is the TOSA/ROSA packaging companies, and the second is LD (Laser Diode) and PD (Photo Diode) module manufacturers. 

Packaging companies such as Coset, Phovel, and LED Package & Solution are growing thanks to overseas partnerships. Eldis, a LD module company, is producing less than 10-Gigabit products for mobile telecommunication. Wooriro, a PD module company, is producing 10-Gigabit products as their main products. 

The optical power splitter is the main product in the passive device sector. Korean companies, based on PLC (power line communication) technologies, took up 90 percent of global market share in 2010, securing the world’s best competitiveness. They are actively entering overseas markets with optical fiber patch cords and on-site assembly connectors, among others.

The fundamentals of the optical cable sector are strong because seven companies out of total 13 companies have total sales of more than KRW 100 billion (USD 84.5 million). LS Cable & System is the most representative optical cable company in Korea, which not only produces optical cables and connecting materials, but also provides network solutions including FTTH (Fiber to the Home), OSP (Outside Plant), construction and maintenance services. 

Conclusion

Social, economic and cultural trends around the world are evolving with new network systems. The optical network, in particular, is a vital infrastructure and its importance will only become greater as we approach the intelligence information society. Although our optical telecommunication companies are less competitive than major global companies, there are several reasons why we can be optimistic about the industry’s future. First, many SMEs wish to cooperate together based on a diverse set of technologies and second, Korea has an advanced ICT infrastructure and can serve as a test bed. Lastly, the government is strongly determined to nurture the optical telecommunication industry. Therefore, Korea is a remarkably appealing marketplace to enter the global as well as niche optical telecommunication markets. 

Shin Yong Hee, Ph.D

Director / Principal Researcher

Industry & Strategy Research Section, Future Technology &Strategy Research Laboratory

syong@etri.re.kr