Abstract: The networks literature suggests a network’s value increases in the number of locations it serves (the "network effect") and the number of its users (the "production scale effect"). In this article we discuss the most promising technology innovation in optical industry- photonic integrated circuit (PIC) technology. However, when traditional techniques of optical network have been widely used in the network, in face of new technologies, operators often choose to delay the effect. In this paper, the size and network compatibility, technological innovation, as well as the initial investment cost all cause new technology delay adoption. Through theoretical and practical analysis of the integrated photonic technology competition in the Chinese market, provide operators prospects and decision-making reference.

Key words: networkeffect, innovation, incentives, opticalindustry, PIC