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Carriers Say Bandwidth Glut Is Gone

Raymond McConville
News Analysis
Raymond McConville
12/4/2007
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Yesterday's announcement from XO Communications Inc. that it was planning to double its network's capacity in 2008 was the latest example of a carrier realizing that, unlike a decade ago, there really is a need for more bandwidth. (See Cisco Scores Core Wins and XO Picks CRS-1.)

And XO's not alone. In the U.S., AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have both expressed desires to upgrade their transport networks to 100 Gigabit, and Verizon began trials last month. (See AT&T, Verizon Have Optical Wishes, Verizon Keeps 100-Gig Promise, and 100-GigE Not Coming Soon Enough.)

AT&T itself expects to have spent $18.5 billion this year with much of it on capacity upgrades. CEO Randall Stephenson said earlier this week that the demand for these upgrades is for real this time around. "The bandwidth glut of the 1990s, all those companies that took writeoffs -- it's gone," said Stephenson. (See AT&T Parties Like It's 1999.)

So why will 2008 be any different than 1999 or 2000?

"Today, the demand is real," says an XO representative on its latest announcement. "We've been investing very heavily in our networks on the transport layer. As soon as we would put up capacity, it would be sold."

"The other thing to consider too, is that there are much fewer players today than 8-10 years ago," says the XO man. "Today there are only 6 or 7 true national backbones. There were dozens back in the 90s."

The buildout of the 1990s resulted in a lot of excess bandwidth assets and now some startups, like the recently formed Zayo Group Inc. (NYSE: ZAYO), have come along to purchase the assets at heavily discounted prices. (See Level 3 Co-Founder Starts Zayo Bandwidth.)

If Zayo has been purchasing excess bandwidth assets as recently as this year, it raises the question of whether there really is the need to keep expanding next year.

Zayo Founder John Scarano says the demand for capacity upgrades is for real. "The difference now is that you don't see any wholesale buildouts of fiber, but you do see enormous equipment investment to expand the capability of that fiber. I think it's a different kind of investment," says Scarano.

"In general," Scarano adds, "we seem very like-minded with the XO announcement. What we've seen in our networks is a need to make the doubling up of capacity, comparable to the investments XO has made."

Indeed, much of the upgrades planned for the near future are for existing networks and not for new networks. Most of the expansions of fiber on different carriers' networks have come through acquisition of existing assets and not the building of new assets.

"We wonder: Have we not learned anything from the irrational exuberance of last decade? I tend to think the industry has, somewhat," says Scarano.

— Raymond McConville, Reporter, Light Reading

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Raymond McConville
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Raymond McConville,
User Rank: Light Beer
12/5/2012 | 2:57:51 PM
re: Carriers Say Bandwidth Glut Is Gone
I still can't help but feel skeptical about all this bandwidth cheerleading. Everyone in the industry has a lot invested in the demand being as big as the hype. Have they all just talked themselves into believing it?
paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 2:57:47 PM
re: Carriers Say Bandwidth Glut Is Gone

OP,

Cost or Price. The Price of Long Haul has plummeted. Think about your cell phone being long haul voice for free.

seven
OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 2:57:47 PM
re: Carriers Say Bandwidth Glut Is Gone
Raymond,

Having spent much time buying/leasing longer haul BW, I have been amazed at those involved in access who believe all BW is free, especially core network long haul. (My posts few years ago) Because there was a glut that was written down, many used it for almost free after write down, so it became a cheap comodity.

You might be amazed at the limited paths of these links. A few North and South and a fewer number of paths East and West. Making Reliablility/Availability an issue.

Then as long haul equipment became improved, money was spent on this equipment doubling and tripling fiber BW. This is still going on, but the end of cheap long haul BW is in sight over a few years. (LR articles on DPI and 100G tests) More fiber will need to be laid in not so ea$y paths.

OP

OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 2:57:46 PM
re: Carriers Say Bandwidth Glut Is Gone
seven,
I was really thinking in terms of data (P2P) and video. Yes that additional traffic carried off the internet. But wireless, replaced POTS, still transversing long haul.

I don't think we are there yet.

Also as speeds are faster, even more large individual files take less transmission time, and thus significantly provide less interference with other realtime traffic, statistically blending in better than on those 1.3M links I once thought was fast.

OP
paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 2:57:45 PM
re: Carriers Say Bandwidth Glut Is Gone

OP,

I would argue that the price and cost per bit per second is coming down (well the price is already very, very low). It will never be zero, but the price that folks pay for bandwidth is decreasing.

Now, the question to me is how folks are paying to grow their networks (of any sort) in face of this declining cost model.

seven
Kreskin
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Kreskin,
User Rank: Moderator
12/5/2012 | 2:57:45 PM
re: Carriers Say Bandwidth Glut Is Gone


Cost per bit ... nice industry rhetoric. When is the last time anyone bought BW on a cost/bit quote?

The question is how do they stay in business?
Kreskin
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Kreskin,
User Rank: Moderator
12/5/2012 | 2:57:45 PM
re: Carriers Say Bandwidth Glut Is Gone

Long haul between major cities is over built and will remain so for at least 10 years. Long haul below that --- 85% Gross Margin business due to rational competition.

The top 10 metro's have lots of fiber, access remains the challenge. Below the top 10 metros 85% Gross margins due to limited, rational competition.

The long haul price competitors are their own worse enemy. They deserve what they reap.

How about another LH price war for market share!!! Geniuses.

OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 2:57:44 PM
re: Carriers Say Bandwidth Glut Is Gone
While I a agree price for bit is coming down. This is because equipment has improved to put more bits over same fiber. But the apps require many more bits that has, or soon will fill up these expansions. Can these improvements continue without adding to the fiber?

When I bought long haul links (many years ago before the writedowns), the price was based on BW/1000 miles. Now this was based on the fact that the Cost to provide the link was primarily the cost of putting it the ground and the large amounts of equipment (repeaters/node portions) spread over that distance to deliver the BW.

Has anything changed here, except that there was a glut driving down prices and equipment improvements rapidly expanding capacity?

OP
Scott Raynovich
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Scott Raynovich,
User Rank: Light Sabre
12/5/2012 | 2:57:44 PM
re: Carriers Say Bandwidth Glut Is Gone
I agree cost-per-bit is kind of a silly way to measure the bandwidth question.

It's like the government using Moore's law to deliver hedonics on their inflation statistics. The fact is, when describing your laptop, you say how much you paid for it, you don't describe the cost in terms of the processing power and the size of the hardrive ("What a deal, I only paid $X per Hz and $X per byte!")

The fact is that as technology progresses, the applications grow to consume all available bandwidth and resources so you can't really measure the value in terms of the past. If we could still buy a 28.8Kbps connection for only $2.50 a month, what on earth would we be able to use it for? Non of he applications are designed for that pipe. It would be almost totally useless. So the value is somewhat of a mirage.
paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 2:57:44 PM
re: Carriers Say Bandwidth Glut Is Gone

Kreskin,

I buy bw every month at my home at a much lower price per bit than I did 5 years ago. Do I and EVERY OTHER BROADBAND USER IN THE US COUNT?

seven
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