The problem: The explosive growth of the Internet spurred by high-speed access networks and flat-rate mobile billing plans has caused ferocious competition in the telecom service provider market, as well as an alarming disconnect between traffic growth and carrier revenue. It's impossible to charge more for ever-increasing access speeds, and service providers are faced with an impossible dilemma: how to increase network throughput and reduce costs at the same time.
Solutions: One potential answer is IP over DWDM. In that vein, router vendors, including those that market their routers as layer 3 or network-layer switches), are trying to position themselves as the saviors. Their message is simple: 1) You need to deploy DWDM in the network core to increase throughput without incurring additional fiber-related costs; 2) We can help you save money by eliminating all the components between the core DWDM system and the router ports.
Their target is also obvious: vendors want to persuade service providers to eliminate the legacy SONET/SDH boxes (or at least push them aside) in favor of new investments in DWDM-enabled routers and switches.
When to use IP over DWDM in metro networks
In some cases, eliminating legacy SONET/SDH makes perfect sense. For example, if you use a metropolitan DWDM core in a design that does not need ultrafast convergence or signal regeneration within the DWDM system, it's cheaper to generate DWDM-compliant signals on the router/switch ports.
You can also realize significant savings when designing DWDM-based backhaul of residential Internet traffic. You can replace a short-reach (multimode) Gigabit Ethernet connection between an Gigabit Ethernet switch or router and a transponder card in your DWDM shelf with a DWDM-compatible SFP transceiver (small form-factor pluggable (SFP) is a specification for a new generation of optical modular transceivers) in the Gigabit Ethernet port, and an add-drop multiplexer card (which you need anyway) in the DWDM shelf.
As long as these connections are used for point-to-point links between compatible devices, you don't exceed the optical budget (and thus require no regeneration), and you don't need very fast convergence, as offered by SONET/SDH or G.709. Similar solutions exist for 10 GE backhaul links.