Good news at last? Elsewhere in this issue we report on preliminary indica-tions that the worst may be over for wireless chip manufacturers (see Portfolio). The fiber-optic sector is also seeing a glimmer of hope, in the form of a new study of fiber capacity utilization in the US released by TeleChoice Inc, a telecommunications consulting firm based in Tulsa, Oklahoma. TeleChoice says that it has developed a new model of fiber usage which indicates that many routes will soon need upgrading, with over 63% of the fiber routes between major US cities at or near full capacity. These findings stand in stark contrast to the general consensus in the financial markets that there is already far too much installed capacity. The model TeleChoice developed is based on information it collected from 25 different fiber providers in the US, including AT&T, WorldCom, Qwest, Level 3 and Williams Communications. TeleChoice looked at routes between 12 major US cities that are most often used by all 25 companies, comparing the lit fiber capacity to projected peak business and consumer demand for voice and data transmission. On 14 of the 22 routes, current demand equals or exceeds 70% of total supply. According to TeleChoice, 70% utilization is the traditional benchmark that indicates that the carriers need to "light up" more fibers which means more spending on fiber-optic components and related equipment. Static on the line These findings come hard on the heels of several media reports of a "fiber glut" in the US including an analysis from Merrill Lynch which concludes that less than 3% of US fiber capacity is in use. The image that has been created in the popular press is of an enormous oversupply of capacity that will take years to work off. Industry executives have been striking back in recent weeks, saying the amount of lit fiber is being over-estimated and that some analysts are mixing lit and dark fiber together inappropriately, thereby misconstruing the economic purpose of "dark fiber". (Since most of the cost in laying a cable comes from digging the trench, and not the cable itself, most companies add in as much fiber as possible when the trench is open, knowing that it may be years or even decades before it will be put into use.) Telecom carriers in particular have been arguing that the size of the "glut" is being overstated. However, the opposite camp is quick to point to the rapidly declining prices for bandwidth as an indicator that supply and demand are indeed badly out of alignment. For example, Sprint offers long-distance service at two cents a minute, one-eighth what AT&T charged four years ago. The Wall Street Journal predicts that wholesale prices for bandwidth are expected to fall another 60% this year. And Qwest estimates that the price of a single fiber line which many large enterprises lease for their own internal data traffic has fallen from $5000 per mile in 1997 to $1200 this year. The TeleChoice thesis The TeleChoice report is also somewhat controversial, largely because it was funded in part by Williams Communications, one of the major carriers taking part in the study. This fact has led some commentators to suggest that it may be self-serving. But TeleChoice executives are unfazed. President Christine Heckart, in a recent interview with the Boston Globe, said that the TeleChoice model, based on examination of actual traffic routes, rather than treating the entire US fiber infrastructure as one big pipeline, proves that the notion of a systemic glut "is just baloney. There may be a lot of unused capacity in the middle of Nebraskabut not in the high-growth corridors." TeleChoice found only three important routes that it would define as "significantly oversupplied" New York to Chicago, Denver to Los Angeles and Los Angeles to San Francisco. These three are among the most popular US telecom corridors. But even that does not seem like bad news to TeleChoice. "Over the past several years, virtually every new network project has included creating capacity to overcome traditional shortages on these three routes," says Russ McGuire, chief strategy officer for TeleChoice. "Based on a conservative projection of applications demand growth, the excess capacity on these routes will be totally consumed within the next three to five years." Commenting on the Merrill Lynch report, Heckart told the Globe "we re not saying these numbers are wrong, we re saying these numbers are completely useless". McGuire concurs, saying "the recent focus on aggregate supply, including lit and unlit fiber, instead of a route-by-route analysis, completely misses the important factors that drive the industry. The fact that over 63% of the key routes initially evaluated are over the new construction/activation threshold really underscores the fact that, from where the service provider sits, there is no nationwide glut of available lit fiber." And while there is no denying the fact that carriers are having a hard time raising new capital for investment in their networks, McGuire says the supply and demand picture cannot justify that pattern of behavior on Wall Street. "The truth is there isn t a glut on most of the major routes on the long-haul network," McGuire said. "The lack of carrier spending seems to have little to do with how much capacity is in the network. It s more about how they are managing their business."