Market Overview

To take the measure of how far we come in integrating communications into our daily lives, consider the humble wire that binds our homes and offices to the wider world. On the geopolitical scale, countries that can boast a rough parity between telephone wires and citizens are typically called “have” nations, while those with low penetrations are generally considered less well off. On a micro scale, the sophistication of our premises wiring in a home or office gives an indication of how likely we are to use advanced communications services.

The market for premises cabling systems consists of two major segments:

• the commercial or business market, which is primarily made up of office buildings and other commercial sites; and
  
• the residential market or, as it is more commonly called, the home market. It consists of two separate types of market subsectors for premises cabling:
  
  • single family units (SFUs) and
    
  • multi-dwelling units (MDUs), such as apartment buildings.

Premises cabling for the commercial segment is used to support business communications. It includes voice and data intra-building communications as well as connections to external services, such as the services provided by telephone companies or Internet service providers (ISPs).

In the commercial segment we are witness to a throttling back in demand for new copper and fiber installations as many of the largest companies--those that typically are its heaviest users--have completed much of initial installations.

In the residential space, things look very different. Residential cabling is used to support the distribution of both voice and video communications throughout the home. In addition, homes increasingly are requiring data communications support for Internet-sharing. Cabling is being installed that allows multiple household users to share a single high-speed Internet access line and a single ISP service. Whereas the business premises wiring market can be classified as data-centric, the home market is still clearly video-centric. The home’s largest application is still video entertainment, though the number of cable modems and digital subscriber lines of various types (xDSL) are increasing every month. The home market represents a new frontier for structured cable manufacturers; and the high double-digit growth rates associated with the segment are sure to attract many new players.

Business Market

In the commercial market, voice cabling applications require wiring from the external services to each voice instrument within the business location. In many instances, in order to meet this need, cabling must reach the different floors within the building. The typical voice cabling architecture is a riser cable running from a private branch exchange (PBX) equipment room in a basement to the wiring closet on each floor. From the wiring closet, horizontal cable is then run to the workstation outlet area where the voice equipment is connected. A typical voice cabling layout includes all of the cabling (the voice riser or backbone cable and the horizontal cable) as well as the wiring apparatus in the wiring closets and the workstation outlets. The wiring closets usually contain cross connects or patch panels that interconnect the riser incoming pair to the horizontal cable runs.

Another major component of the apparatus is the workstation outlet, which usually contains one or more registered jack (RJ) connectors for plugging in the telephones or data devices. The trend is to install multimedia outlets which allow both voice and data devices to be connected at a single outlet. This multimedia outlet contains an RJ jack for voice, another RJ jack for data, or a coax or a fiber connector for high-speed data. In the past, the riser cabling was typically a thick, multi-bundle of copper unshielded twisted pairs (UTPs). Fiber is now being used in the voice riser where conduit space is always a precious commodity.

The other major cabling subsystem is the horizontal cable. We continue to see widespread use of the inexpensive D inside wiring (DIW) which has been used for years to connect the telephone closet to workstation outlets; we are not seeing very much fiber cable used in horizontal voice cabling runs. Even with videoconferencing or video telephony, INSIGHT expects high-performance UTP cabling to continue to dominate in the horizontal runs.

The other major business need that premises cabling meets is its use for data communications. This cabling application typically involves interconnecting PCs and associated peripherals to a local area network (LAN) inside the building and oftentimes connecting different departments’ LANs inside the building. These different LANs can be located on different floors, and cable must be run between the floors. In addition, the individual LANs or interconnected LANs are cabled to a centralized router or modem pool in order to access external services, such as the Internet. These connections are typically made using fiber cabling.

A centralized LAN hub located in the floor’s wiring closet is wired to each device on the floor that needs to be interconnected. The other end of the horizontal cable is plugged into a workstation outlet which connects the devices to the horizontal cabling and then to the LAN. In the horizontal data runs Cat 5 UTP cabling dominates; it provides the performance level required to support LAN transmission speeds up to 100 Mbit/s. In addition, in most office buildings, this cable is normally run in the plenum chamber between floors and requires a strict fire safety code cable rating to prevent release of toxic smoke. As a result, most of the Cat 5 UTP is plenum rated which requires that Teflon coating be used on the four-pair insulation coating to meet both the safety code and performance requirements.

When multiple LANs must be connected, a riser backbone cable is run between floors. Fiber cable is increasingly the backbone of choice since only fiber is capable of supporting the aggregated bandwidth of the individual floor LANs. For example, if ten floors each running 100 Mbit/s Ethernet need to be interconnected, the riser cabling needs to be able to support an aggregated bandwidth of at least one Gigabit/s. Fiber riser cabling is also used to connect the individual floor LANs to a centralized router.

In the commercial segment our research suggests that the high-performance UTP represents the majority of horizontal cabling runs, while fiber rules the riser. Looking ahead, the promise of fiber-to-the-desk (FTTD) is still years away since every improvement in UTP copper cable makes the economics of FTTD harder to prove. In the past year, the use of Cat 5e has increased the performance UTP, enabling it to support Gigabit Ethernet using all four pairs of the cable. As a result, INSIGHT does not believe that FTTD will become a major factor in the cabling market over the next five years.

A tertiary commercial cabling application is campus wiring. It requires cables to be run between buildings in a campus environment. Campus wiring continues to be dominantly fiber cables which have been hardened for the external environment between buildings. Although Cat 5 external cables are offered by a few cable manufacturers, the bulk of the campus cabling continues to be fiber cables.

Residential Market

The other major market for premises cabling is the home or residential market. The cabling architecture in a SFU resembles the cabling in a small business office. A centralized distribution panel, typically located in the garage or basement, is effectively the equivalent of a commercial patch panel and acts as the center in the home’s star wiring architecture. Cabling emanating from the star is run to each home outlet that requires service delivery or interconnection. External services, such as high-speed xDSL service or cable TV (CATV), are run into the star distribution panel for distribution inside the home.

The Telecommunications Industry Association (TIA) has recently released its 570A standard for home cabling, which recommends the type of home cables to be installed. The cable recommended for SFUs is a hybrid consisting of Cat 5 UTP and RG-6 coax. The UTP cable could carry voice and xDSL data signals throughout the home, while the coax cable could distribute the video signals and a cable modem service. As an option, fiber cable could be pulled for future proofing, but INSIGHT believes fiber will play only a very minor role in the home market.

Unlike single-family homes, the cable market in the MDU or apartment building segment resembles commercial cabling. In MDUs we find a multi-floor building with riser cabling running between floors. Phone, xDSL high-speed data, and other services typically come into the building through its basement. In the MDU cabling architecture, riser cabling is run from the basement’s entrance service terminal and is dropped off at different floors. These cables are then run to an individual distribution panel in each apartment. The distribution panel is wired exactly as in the SFU, with star wiring running to each outlet requiring service in the apartment.

The cabling inside the apartment will be the same as in the SFU: a hybrid Cat 5 UTP and RG-6 coax cable. The riser cable in the MDU will either be a multi-pair copper cable or a fiber cable. INSIGHT’s research suggests that space in the riser conduit of MDUs is not as much of a problem as in commercial buildings. Thus, the increased cost associated with fiber transceivers on each floor will preclude widespread deployment; fiber will be deployed in risers in apartment buildings, but its use will be limited compared to the commercial fiber riser cabling segment.

Market Forecasts

In our review of the fiber optic cabling market we have developed separate estimates for the cable market and the passive field-installable connectors and apparatus connection products. For the most part, the fiber market estimates in this report are driven by installations in commercial buildings, campuses, and apartment buildings; specialized applications, such as smart stadiums and warehouses, are not included as they are a very small percentage of the market.

In the copper cabling forecasts, we have concentrated on the cable market, although apparatus forecasts have been broken out for the residential market. The copper connectivity products consist of modular RJ jack-type patch panels, RJ jack outlets, and field-installable RJ jack connectors.

INSIGHT’s market forecasts for both copper and fiber cabling include passive physical devices; we have specifically excluded all active electronic devices, such as LAN hubs or fiber/electronic transceivers or multiplexers. Passive connection devices, such as patch cords and equipment cords, are excluded since they are incidental to the other major cabling components.

The total market for premises cables is projected to grow from $2.2 billion in 1998 to $5.6 billion by 2004 at a compound annual growth rate (CAGR) of 16.4 percent per year. This projection includes only the cable media, not the apparatus and is made up of the cables used in both the business and residential markets for all of their communications needs.

Although the business market segment is the largest throughout the forecast period, the residential market is forecast to grow faster and will start to become a significant portion of the total market by 2004. By 2004, the residential market will account for 37.7 percent of the total market whereas in its early stages in 1998, it accounted for less than three percent of the total market.

The Industry Players

The cabling industry includes not only the cable and apparatus manufacturers but also ancillary participants that support the installation of cabling systems in buildings. In the commercial market, distributors play a key role as they account for about 90 percent of the sales of cabling products. The big three nationwide distributors (Anixter, Greybar, and Sprint North Supply) provide cabling products on a nationwide basis.

Besides the distributors, other industry participants in the business market include the cabling system designers, the cabling contractors, and the cabling installers. In a large commercial cabling project, cabling designers will typically lay out the cabling in the office complex working with the building’s architects. They are fairly influential in decisions about which brand to purchase. The cabling contractor is typically a specialist firm that focuses on cabling installations and is hired by the building’s general contractor to supervise the cable deployment in the building. These contractors will either have their own installation teams or will recommend and supervise a local firm which installs the cables.

In the residential market, distributors who specialize in home cabling systems, such as Great Northern Wire and Cable, GNWC (now CSC), supply only a few products. Most current sales in the residential segment are associated directly with the manufacturer. In addition, the LAN value-added resellers and some forward-looking electrical contractors are getting involved with home wiring installation. Security firms installing alarm systems in new homes seem to be a natural for installing the communications wiring at the same time; some of the larger security firms have recently made moves in this direction.

The premises cabling product suppliers consist primarily of cable manufacturers and apparatus assemblers. A few large manufacturers, such as Lucent, can supply one-stop shopping for all cabling and apparatus products; but most of the industry is comprised either of firms specializing in cable manufacturing or in apparatus manufacturing. Over the past several years, these two groups have formed partnerships to offer an integrated systems approach, guaranteeing end-to-end performance when using both suppliers’ products.

The larger cable manufacturers produce both copper and fiber cable products, while others may focus on either copper or fiber cables. Most of the manufacturers have started in copper cable production and later expanded to include fiber cable production. Some companies, such as Optical Cable Corp. or Siecor (now part of Corning Cable Systems), focus solely on fiber cable production. The fiber apparatus manufacturers are typically copper apparatus manufacturers that have expanded their businesses into fiber apparatus assembly. Several larger firms, such as Lucent, Siecor, and NORDX/CDT (Cable Design Technologies Corp.), supply both fiber cable and apparatus that they have manufactured.

Suppliers to the residential cabling system market consist of commercial cabling manufacturers as well as commercial apparatus suppliers. The apparatus suppliers have taken the lead position in selling total home cabling systems based on their commercial apparatus products which they have downsized for the home market; these products are being integrated with cables on an original equipment manufacturer (OEM) basis. Lucent is the one exception: they are a cable manufacturer that has taken the lead in selling a home cabling system based on their end-to-end commercial SYSTIMAX cabling system. In addition, a number of small start-up firms are bringing their expertise to the home market, producing limited products, OEMing most of the products, and supplying a systems integration function. USTec, FutureSmart Networks (formerly IES), and Greyfox Systems are included in this group.

If the sophistication of our premises wiring in a home or office does indeed suggest where communications is headed in the next decade, the communications wiring in our homes is about to undergo its first major overhaul in decades. While the commercial segment continues to be the biggest buyers of structured cabling and apparatus, it is the emergence of a new home market that has vendors excited.

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