China’s deployment of smart grids based on passive optical network (PON) fiber communications is on the rise—and will provide an opportunity of between US$1.5 billion and US$2 billion to component and equipment vendors, according to the findings of a new report.

Indeed, in its recent study, “The Merger of China’s Smart Grid and PON – A Potential Perfect Storm,” Ovum (News - Alert), a London-based independent telecommunications research firm, forecasts that the State Grid Corporation of China (SGCC) will pursue fiber in order to become a major communications service provider.

A passive optical network (PON) is a point-to-multipoint fiber to the premises (FTTP) network architecture in which a single optical fiber can serve up to 128 customers. A PON requires less fiber and central office equipment than a point-to-point architecture. Downstream signal coming from the central office is broadcast to each customer premises sharing a fiber. Encryption is used to prevent eavesdropping. Upstream signals are combined using a multiple-access protocol, usually time division multiple access (TDMA).

While it is still early to predict the probability and parameters of the SGCC opportunity, several PON communications equipment vendors have developed products that meet smart grid requirements along with triple-play communications services.

Julie Kunstler, principal analyst of Components at Ovum, says, “We believe that the ultimate goal of a fiber-based smart grid is to support advanced communications services. Building a fiber-based smart grid communications network creates a very large market opportunity for PON vendors.”

This potential market is important, as Ovum forecasts declining PON OLT (optical line terminal) port shipments beginning in 2013, following major FTTx network build-outs in China. Fiber to the x (FTTx) is a generic term for any broadband network architecture that uses optical fiber to replace all or part of the usual metal local loop used for last-mile telecommunications. The term is a generalization for several configurations of fiber deployment, ranging from FTTN (fiber to the neighborhood) to FTTD (fiber to the desk).

Three segments of the industry stand to profit from the deployment of the PON-based smart grid:

• OLT equipment vendors, such as Huawei, ZTE (News - Alert), Alcatel-Lucent, and FiberHome;
• ONT (optical network terminal) box manufacturers and component vendors, such as Dare, T&W, Cambridge Industries Group, HiSense, Genuine, Cyoptics, Neophotonics, Broadcom, Vitesse, and Semtech; and
•  Fiber cabling manufacturers, such as Yangtze Optical Fibre and Cable (YOFC), Corning (News - Alert), and Prysmian.

Consequently, Kunstler’s recommendation to equipment vendors is to stay close to SGCC to understand its smart grid plans in China. The cost pressures are likely to be brutal and vendors should continue to look for ways to reduce BOM (bill of material).

Kunstler also recommends that component vendors establish direct contact with China’s smart meter companies and governmental agencies, in addition to relationships with PON equipment vendors.

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