Activity in the access part of the network has slowed drastically, as Covad (COVD:Nasdaq - news - commentary), Winstar (WCII:Nasdaq - news - commentary), Teligent (TGNT:Nasdaq - news - commentary) and many other alternative access providers have failed so miserably. The real value in teleconomics can be found here because very few buildings in the U.S. generate enough teleconomic revenue to warrant having more than two or three connections. Thus, companies that own the connections have significant competitive advantages and barriers to entry. The problems are that it's very expensive to take a new connection to a building and that you've got to take connections to a bunch of buildings simultaneously to spread your network's costs across many customers. In case you hadn't noticed, not a lot of investors are willing to finance a new access network.

Recognizing this, most of the larger equipment vendors are focusing resources on other areas, although many start-ups at the recent SuperComm trade show were showing off their new access-build solutions. Most impressive was World Wide Packets' gigabit Ethernet-over-fiber solution. More mainstream innovation continues for delivering services over existing connections, and next-generation digital-subscriber-line access multiplexers, or DSLAMs, which will reach further and ease provisioning of services, from Alcatel (ALA:NYSE ADR - news - commentary) and others are powerful and cost-effective enough that many DSL providers will go ahead and upgrade.

The metro area of the network continues to be addressed for several reasons:

• It's much easier and cheaper to build a metro network than an access network. (You don't have to go to all those darn office buildings -- you only have to go to the major hubs.)

• You don't have to have billions of dollars.

• There's still a major bottleneck in most metro areas.

Believe it or not, lots of companies are focusing on laying and lighting fiber connections between these central offices and carrier hotels. Ultimately, these carriers are going to end up in much the same precarious position that so many of the long-haul carriers are in: running from commoditization and gluttishness, at least until the access bottleneck is somehow broken when carriers are offering 100 megabits-per-second or 1 gigabit-per-second access speeds to most businesses and even some residential customers.

Riding on the Metro

Vendors and start-up carriers are very active in the metro. ONI (ONIS:Nasdaq - news - commentary) is the clear technological leader here. ONI's platforms are truly transparent, supporting virtually any type of the many different protocols that a given network operator might use. Its platforms quickly pay for themselves because service providers don't have to send, say, three technicians with a bunch of wrenches and screwdrivers to each central office every time a new customer wants to use a different protocol. ONI's transparent boxes are going to be very hot sellers in the metro buildouts of the next few years. ONI does need to add some incumbent local exchange carriers, or ILECs, to its portfolio of customers, though.

Ciena (CIEN:Nasdaq - news - commentary) is another company whose products are advancing at such a pace as to stimulate carriers to upgrade existing products. The big-dog equipment vendors, too, are really going after the metro area. Nortel (NT:NYSE - news - commentary), in particular, has products that should spur demand by carriers that will want to replace legacy metro equipment. (Of course, that's not going to make up for the near-collapse of much of the rest of its business.)

Many of the new long-haul networks have been completed, and, like I said, gluttishness is preventing the sale of this capacity. Corvis, Nortel, Sycamore and many other vendors have sold great long-haul platforms to the carriers. However, the innovations coming down the pipeline just don't add enough value for the long-haul providers. Long-haul equipment is a terrible market to be in today.

The inventory problems faced by the vendors mainly resulted from the popping of the alternative-carrier bubble and the failure of so many competitive service providers. But the reason why some companies continue to see growth and demand for their new products is that their innovations are technologically compelling and necessary for most carriers to compete with any success. The vendors can't blame all of their problems on the failures of the alternative carriers and the closure of the capital markets to new start-ups. Certainly, they can spur demand and fuel their growth with new and better products.