October 21, 2013
Data transmission capacity has historically been sold on a monthly basis in fixed flat increments, contracted for in advance, usually as part of multi-year contracts.
Market interest has grown in "dynamic" or "flexible" bandwidth, paying for capacity that fluctuates as usage and requirements change, rather than customers being stuck with bandwidth contracted for based on old projections. Dynamic bandwidth means customers no longer have to provision to peak requirements and less often need to create new transmission capacity.
According to the new Heavy Reading Insider, "Cloud Growth Boosts Demand for Dynamic Bandwidth," emergence of the cloud is driving intense new focus on dynamic bandwidth. The cloud both contributes to greatly increased transmission volumes and radically increased data flow variability across wide-area networks (WANs), which intensifies appeal and market logic of more flexible usage-sensitive billing.
At the same time, by embodying a "buy by the drink" message for its applications, the cloud raises interest in and comfort with arrangements such as dynamic bandwidth, as it increasingly accustoms business customers to usage-sensitive buying.
Dynamic bandwidth manifests itself in two main varieties: Usage-based billing (UBB) is still more widespread, primarily for dedicated Internet access (DIA), but bandwidth on demand (BoD) will grow more rapidly across a wide range of services over the next three to five years, with the cloud as the predominant driver.
UBB requires no customer action beyond signing up and paying one's bills. Customers simply "burst" above their normal committed information rate (CIR) up to their port capacity level and are billed for the excess, typically on a "95th-percentile" basis that allows them to exclude some of that extra bandwidth usage from billing.
BoD, by contrast, requires customer planning and action to reserve extra bandwidth beyond the usual contracted level for specified time periods.
While UBB measures IP packets transmitted, BOD simply records circuit on-off status and bills for blocks of time for which extra bandwidth is reserved. In contrast with UBB, BoD can be used for virtually any type of service.
A fairly wide variety of innovative services incorporating greater bandwidth flexibility have been recently introduced or are soon to be tested. "Flexing" by location as well as bandwidth level will likely characterize emerging dynamic bandwidth services in the next few years, again largely driven by the cloud's requirements.
Carriers will invest increasingly in dynamic bandwidth even though its specific economic payback is uncertain. ILECs particularly seem cautious, tending to "slow-roll" BoD out of lack of confidence in its economic appeal, sometimes based on disappointing past experience. Competitors, by contrast, tend to see more opportunity in using dynamic bandwidth to differentiate and gain market share.
— Steve Koppman, Analyst at Large, Heavy Reading Insider
"Cloud Growth Boosts Demand for Dynamic Bandwidth," an 14-page report, is available as part of an annual subscription (12 monthly issues) to Heavy Reading Insider, priced at $1,995. This report is available for $900. To subscribe, please visit: www.heavyreading.com/insider.
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