Nortel Networks has said that bandwidth-on-demand will become a reality this year due to recent acquisitions, and that its investment in optical technology is finally beginning to pay off.

Last month Nortel snapped up CoreTek, a player in the VCSEL (vertical cavity surface-emitting laser) and MEMs (micro-electromechanical systems) optical networking market. Its systems use tiny movable mirrors to alter the wavelength of light emitted by semiconductor lasers and other optical components.

The purchase follows other optical networking buys including Xros (pronounced KyRos), for $2.5bn (£1.5 bn) in shares.

Chris Lewis, researcher Yankee Group's European managing director, said: "Nortel Networks is a leader in the European terrestrial optical transmission market, and is well placed to benefit from the development."

Lewis also believes that a "self perpetuating cycle" is developing. As pan-European capacity grows, bandwidth prices will fall and more traffic is stimulated, leading to greater demand for capacity.Nortel's European chief Pascal Debon attributed a 60 per cent increase in company earnings to its commitment to optical equipment.

"This is part of our optical network evolution. Users want bandwidth-on-demand and only optical switching technology can deliver this," said Debon.

In January Nortel also acquired Qtera Corporation, a privately held company that produces ultra-long-reach optical networking systems, for up to $3.25bn worth of Nortel Network's shares.

Yankee Group estimates that over 50 per cent of optical traffic travels over Nortel's kit.