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To: jghutchison who wrote (11223)	6/22/2001 1:13:55 AM
From: Robert Ling	Read Replies (1) \| Respond to of 12623

On the same note.... What Bandwidth Glut? By: Steve Waite 20-Jun-2001 Some analysts believe that there is a bandwidth glut in the global communications industry today. Over the past several weeks, we have seen numerous stories in the popular press about miles and miles of fiber in the ground that is causing a glut of capacity. What should folks make of these stories? We certainly understand how analysts could be worried about too much capacity in the telecommunications industry. After all, many new entrants in the sector—particularly those in the wholesale long haul segment—are struggling today. However, for all the doom and gloom in the telecom sector today, it is interesting to note that global broadband communications penetration is only around 1%. Broadband penetration has risen 1,000% over the past three years, but the basic fact is that most folks still connect to the Internet using a 28.8k or 56k modem. That seems absurdly slow compared to what scientists and physicists tell us we are capable of achieving with a state-of-the-art, all-Optical Internet—a network that has the potential to deliver almost limitless bandwidth. Many analysts see cheap bandwidth as a disaster for communications services and equipment companies. After all, how can anybody make a profit providing a service that is almost free? Interestingly, this is precisely the same argument that chip analysts used back in the 1980s. At that time, many analysts wondered what in the world we were going to do with hundreds of millions of chips. The answer, as we all know today, is that chips are everywhere—in our cars, appliances, computers, and stereos--even in hockey pucks. The truth is that most analysts—not to mention scientists and inventors—have a difficult time envisioning applications for innovative technologies. The market for bandwidth, like the market for microprocessors, is largely driven by what is known in economic circles as Say’s Law—a law that says supply creates its own demand. The dramatic decline in the cost of microprocessors and the concomitant rise in the power of chips did not result in disaster for the industry. On the contrary, the industry flourished precisely because of these conditions. What happened is that advances in chip technology fostered the development of new industries, goods and services that led to greater demand for microprocessors. It’s interesting to note that Intel’s stock price has risen over 7,000% since arguments of a chip glut first emerged. If Say’s Law is the driving force in communications, as we believe it is, then what we should see is a similar process to what we saw in microchips during the past 15 years. The provisioning of additional bandwidth in the global communications sector should create a rise in the demand for more connectivity and the provisioning of more content and interactivity. Analysts who argue that there is a bandwidth glut fail to mention that there is a gigantic bottleneck in the local loop—the so-called last mile—that is just waiting to be opened. Imagine if fiber optics were channeled into every home and business in the future. Most analysts, including ourselves, have a difficult time envisioning such a world. The truth of the matter is that the next decade is likely to see a complete transformation of the global communications industry. Optical communications are roughly at a stage where the microprocessor was during the early 1970s. Analysts that are writing off the communications sector today remind us of those analysts that wrote of the microchip industry in the 1980s. In our view, the communications revolution is in its infancy and the next decade is likely to see an enormous amount of change and opportunity. We aren’t sure how long it will take to achieve 10% global broadband penetration or more, but we have little doubt that that is where we are heading. Where others see darkness, we see light at the end of the tunnel.