Carriers Say Bandwidth Glut Is Gone
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