A Fiber Optic Glut? Not Necessarily So
May 29, 2000
telecomweb.com
Although the supply of international bandwidth is increasing exponentially, fears about an overabundance of fiber -- a fiber optic glut -- may be misplaced, according to International Bandwidth 2000, a new report by the Washington, D.C., research group TeleGeography Inc. An overabundance of fiber could drive prices for bandwidth down, hurting carriers' bottom lines.
Most international Internet sessions and phone calls use fiber cables laid on the ocean floor. According to the report, the total capacity on these cables will grow from 300 Gbps in 1999 to nearly 12,000 Gbps in 2002. That's a 40-fold increase in three years, and enough bandwidth to make 250 million simultaneous phone calls.
These networks are being built by young, publicly traded companies with a new business model: to supply the bandwidth used by Internet service providers and other data-intensive customers. The new companies include FLAG Telecom [FTHL], 360networks [TSIX], Global Crossing [GBLX] and Level 3 Communications [LVLT], which together have a market capitalization of more than $65 billion.
However, over the past several months, market enthusiasm for these stocks has been greatly diminished. This is not without reason. The TeleGeography report indicates that end user demand for bandwidth may fall well short of potential supply.
Long-term concerns about oversupply may be overwrought. According to Graham Finnie, the report's editor, "The companies that buy bandwidth -- carriers and ISPs -- acquire 10 or 12 times more capacity than they actually use off-peak for any given service. They need to reserve sufficient capacity to meet unexpected demands for data traffic, redundancy, quality of service, and network restoration."
The TeleGeography report also maintains that a small but sustained change in the price elasticity of demand for international bandwidth may have a large impact on the total use of undersea cable capacity. How much new capacity today's large buyers will demand when prices fall is still undetermined, but the report says that for companies provisioning Internet services, the demand for bandwidth appears to be much more elastic than it is for telephone services. So, for every 50 percent drop in the price of bandwidth, some ISPs have purchased 100 percent or more additional capacity. At these rates, demand for bandwidth would grow 25-fold in just five years.
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A year ago telco analysts were quoting a 3% increase in capacity for ever 1% decrease in price.
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Something else along the same theme, food for thought...
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