TeleGeography Issues Bandwidth Report

TeleGeography asks: an end to the bandwidth price collapse?

April 23, 2002

2 Min Read

WASHINGTON, D.C. -- The dramatic price collapse caused by the infamous "bandwidth glut" may be nearing an end, according to a new report by research group TeleGeography (www.telegeography.com). The new report, 'Terrestrial Bandwidth 2002,' confirms that the supply of city-to-city bandwidth far exceeds actual needs. More than 6.5 terabits of lit capacity now traverse London--four times more than the combined bandwidth requirements of the forty largest cities in Europe. The staggering increase in telecom capacity has sent bandwidth prices and, by extension, carrier revenues into a downward spiral. Prices for capacity between major cities in the U.S. and Europe have fallen by approximately 70 percent annually in each of the past three years. For example, two years ago, an OC-3 (155 Mbps) circuit between New York and Los Angeles cost $1.8 million per year. In the first quarter of 2002, the same lease could be had for less than $150,000. With prices already at or even below costs, however, it seems unlikely that the capacity oversupply will depress prices any further. Any future price collapse would come as a result of other market forces, rather than the continuing capacity glut. "Bandwidth prices are no longer driven by supply and demand," explained TeleGeography analyst Stephan Beckert. "They're driven by short-term costs, and by the fear of bankruptcy court. But as prices fall below costs, carriers will not be able to remain solvent." Steep price declines have been an industry concern for several years. The TeleGeography report highlights another problem stemming from turmoil in the telecom sector: a lack of market transparency. Individual carriers' prices still vary dramatically. TeleGeography has found that the highest price for a given circuit will often be four times greater than the lowest price. This disparity suggests that neither bandwidth sellers--nor buyers--have systematic knowledge of their comparative position in the marketplace. TeleGeography Inc.

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