Investors can cash in as demand for fiber optics takes off

Despite the countless miles of unused fiber-optic cable laid during the dot-com bubble, demand for the high-capacity lines has been rising. And that bodes well for the stocks of companies that produce not only the cable but also the equipment that runs it.

Fiber-optic cable, typically made of ultrapure glass, can carry vast amounts of data via light. During the boom days of the Internet bubble, phone companies buried vast amounts of fiber-optic cable, in part because they assumed that Internet traffic would soar.

Many companies initially laid large cables underground, even though many of the fibers wouldn't be used at first.

In the years since the dot-com boom, engineers have figured out how to move more data through the same amount of fiber, increasing the fiber-optic capacity. As a result, there are still untold miles of unused fiber cable, or dark fiber, in the USA.

But now, demand for new fiber-optic cable is zooming. "Worldwide, we expect double-digit growth rates in fiber-optic cable demand the next few years," says Richard Mack of KMI Research/CRU, a London-based research firm. One key reason: the boom in moving video and audio files via the Internet.

The light fantastic

Watching a video on the Internet sops up far more bandwidth than just surfing websites does. The proliferation of video sites such as YouTube means that consumers have been demanding more and more bandwidth, to move files at faster speeds.

Fiber-optic cable demand should rise 10% in the USA this year, Mack says, and by as much as 15% in China and 20% in India. Each nation has different reasons for high demand:

•USA. There's plenty of dark cable left, mainly around large metro areas. And telecom companies are still laying cable. "It's part of forward planning," Mack says. "As we speak, people are putting in more cable than they need."

Demand for U.S. fiber-optic cable isn't coming from companies that are laying fiber for 20 years from now; it's mainly from companies that are connecting houses and apartments to existing fiber-optic lines. Despite all the cable available between cities, telecommunications companies still have to run cable down streets to link homes and offices to the existing lines.

About 1.3 million U.S. households, or 1.3% of all, were connected directly to fiber-optic lines in July, according to the Fiber-to-the-Home Council, a trade group. That number has grown to about 2% of households since then and could reach 25% within three years, says David St. John, spokesman for the group.

Verizon vz is spearheading the fiber-to-home growth in the USA. It connected about 203,000 new customers to its FiOS broadband and TV services in the second quarter of 2007. The company plans to spend a staggering $23 billion on its fiber-optic network by 2010. "Verizon is betting the farm on it," St. John says.

Helping to accelerate fiber-to-the-home growth is new bendable fiber, which makes it easier to connect apartment buildings to fiber-optic cable. Fiber-optic cable has high capacity. But it can crack or lose capacity if it's bent too sharply. On Wednesday, Corning, the largest U.S. producer of fiber-optic cable, introduced its ClearCurve cable, which it says is as bendable as copper wire — yet has about 3 million times the capacity.

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