Infobahn glut
Telecom industry may be left severely overbuilt after rush to
add 'bandwidth' capacity
By Peter J. Howe, Globe Staff, 07/10/99
f Mark Bruneau is right, tens of billions of dollars worth of stock
market investment in information-highway communications networks
runs the risk of going up in smoke.
As the high-flying US telecommunications industry races to add
exponentially more ''bandwidth'' carrying capacity for data, video and voice,
Bruneau, head of business strategy at the Boston consulting group
Renaissance Worldwide, is warning that the industry is on the brink of being
severely overbuilt.
Other industry analysts also are skeptical that all of the billions of dollars
worth of fiber-optic cable being laid and upgraded around the world will
ever get enough use to prove economical.
But Bruneau's more extreme view compares the situation to wiring a home
for 20 times more electricity than it will ever use. He predicts that within two
years, the United States will have 400 times more telecommunications
capacity than it had in 1998 - demand for space on networks to carry
computer traffic, video and voice calls will grow only 20 times.
''It could be that the builders and investors supporting more and more
bandwidth into the backbone are collectively hallucinating,'' Bruneau said in
a recent interview. ''It's definitely a controversial point of view, but the huge
increase in supply is undeniably there.''
With one company alone, Qwest Communications International Inc., now
building network capacity that could move the the entire contents of the
Library of Congress coast-to-coast in 20 seconds, a number of other
analysts agree there is reason to question the need for the the half-dozen
more like it that are also under construction.
Many industry officials and other analysts, however, find Bruneau's
predictions of imbalance and looming financial disaster misleading and
far-fetched.
''I have heard these predictions over and over again in my career, going
back 20 years, but what none of these predictions ever account for is the
unpredictable,'' said Michael J. Zak of Charles River Ventures, a Waltham
early-state venture capital firm active in telecommunications.
Each wave of new capacity, Zak and others note, has produced its own
explosion in new demand for formerly costly services, from long-distance
calling and faxing in the 1980s to data transmission in the early 1990s and,
today, Web surfing and zapping video clips and huge files over the Internet.
However, Peter Sevcik of Northeast Consulting Resources in Boston,
warned earlier this year that ''the easy converts to the Internet have been
made.''
Writing in Business Communications Review, a trade magazine, Sevcik said
that to meet some of the most bullish recent predictions about Net growth,
within two years every American Internet user would have to spend 24
hours a day logged on.
Sevcik said the history of Internet usage is a cycle of boom times followed
by slack periods - suggesting that demand will catch up with the growth of
the technology, but not as soon as investors might hope. ''The danger is that
actual demand won't support the infrastructure being proposed,'' Sevcik
wrote.
Bruneau, however, fears that just as in industries that sell physical goods for
which demand is slow to develop, the mismatch between bandwidth supply
and demand will lead to a discounting war that would pummel the stocks of
companies building the networks.
Many of these have been stock-market darlings in the late 1990s, including
equipment makers and big cable-system builders such as Global Crossing,
Qwest, and Teleglobe, as well as MediaOne and other cable television
giants that are rebuilding their systems to grab Internet traffic.
These companies find Bruneau's thesis preposterous.
''I'm not going to put in 40 times as much capacity and twiddle my thumbs
and say, 'Anybody want to use my capacity?''' said Dan Sheinbein, vice
president for network architecture and development with AT&T Corp.
AT&T now has 41,000 route-miles of intercity backbone fiber crisscrossing
the nation, one of the biggest US networks. ''We're deploying it as fast as
we can, and we're chewing it up as fast as we can,'' Sheinbein said.
MediaOne Group Inc. is spending $7 billion nationwide - $1.3 billion of that
in Massachusetts and New Hampshire - to upgrade its cable television lines
to carry high-speed Internet and local telephone traffic. Kevin Casey, senior
vice president for MediaOne's Massachusetts-New Hampshire division,
says: ''I find it hard at my vantage point to think we've got this glut of idle
capacity.''
Already more than 70,000 of 1 million eligible customers have signed up for
MediaOne's RoadRunner fast Internet access in the region. In some
communities MediaOne claims 20 percent penetration, Casey said, as
people move from slow dial-up modems move to cable connections that are
up to 50 times faster.
While Bruneau's prediction that bandwidth capacity will outstrip supply by a
factor of 20 is daunting, that situation in practical terms is far less irrational
than, say, building a 20-lane highway to serve two dozen new homes.
First, says Mark Wegleitner, chief technology officer at Bell Atlantic Corp.,
much of the increased capacity over the next two years will come not from
new wires but by adding multiplexing devices and faster switches that can
''relatively inexpensively'' increase carrying capacity of existing fiber cable by
a factor of 20 or more.
Casey at MediaOne said much of the 400-fold capacity increase Bruneau
cites involves redundancy being built as backup in case a wire gets sliced or
fails, or ''dark fibers'' that are not being turned on immediately but are
cheaper to install now.
''When you run 100 miles of fiber, the major cost is digging up the street.
Whether you put in one fiber or 100 gets lost in the rounding; the backhoe
cost is the real cost,'' Casey said.
Bruce Leichtman, director of media and entertainment strategies at the
Yankee Group in Boston, a consulting firm, predicts that by 2002, 60
percent of Americans will have access to high-speed cable modems and
Digital Subscriber Lines that could mop up much excess capacity.
But for the momment, Leichtman asks, ''What is the content or service that
will push [usage] to the next level? Right now, there is no killer application
that is out there.''
This story ran on page F1 of the Boston Globe on 07/10/99.
© Copyright 1999 Globe Newspaper Company.
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