Caspian Study: The Internet's Exploding
Such data appears to contradict information from other Internet traffic studies. In fact, the Caspian study is remarkable in that it proclaims that the Internet is growing even faster than the 280 percent annual growth rate it has maintained since 1997.
Of course, a vendor-sponsored study invites skepticism. But Roberts is one of the original pioneers of the Internet, and he has been studying the growth and engineering of the global network since its inception.
The study runs counter to what others in the industry have been saying about the growth of Internet traffic. For example, back in May, McKinsey & Company and J.P. Morgan & Co. issued a report stating that IP traffic growth was actually due to slow from its current 200 to 300 percent rate to roughly 60 percent by 2005 (see Report Heralds IP Doomsday). John Roth, CEO of Nortel Networks Corp. (NYSE/Toronto: NT) blamed slowing IP traffic for the company’s problems selling gear (see Sour Grapes of Roth).
As an obvious red flag hangs above Roberts’s head, he plans to hold a Webcast today in conjunction with Michael Ching and Sam Wilson, analysts with Merrill Lynch & Co. Inc. A report released by Ching earlier this summer, in which he stated that telecom network capacity levels were at 2.7 percent, set off a firestorm of criticism in the industry (see Fiber Utilization Figures Challenged). Merrill Lynch also happens to be an investor in Caspian. While Roberts’s accolades as a researcher are well noted (he was one of the original creators of Arpanet, the precursor to the Internet) he is still the founder and CTO of a startup playing in the core routing market, a segment that desperately needs traffic to grow in order to justify its large, scaleable platforms.
“It’s true that Larry has a vested interest in saying that traffic is increasing,” says Bob Lucky, corporate vice president of applied research at Telcordia Technologies Inc. “And I have no way to verify what he says is true. You have to take it with a grain of salt. But Larry is extremely competent and well respected, so I have no reason to doubt the information.”
The research data in the study comes from 19 different service providers that released the information on the condition that their names and individual data would not be disclosed. The information tracks the IP traffic running on trunks between service provider routers, the core of the service providers' Internet connections. What Roberts found was a fourfold increase in traffic from April 2000 to April 2001. This traffic is primarily being driven by enterprise businesses that are using the Web more and more for business applications, according to the service providers.
“The most important thing this study tells me is that this downturn is cyclical,” says Wilson, of Merrill Lynch. “As traffic grows, networks will grow out of their capacity, and they’ll need to add new equipment. It’s different from what some analysts are saying, believing the over-build will take ten years to right itself.”
If traffic is growing, why are equipment vendors selling less gear? Roberts explains this by saying that service providers bought too much equipment in 2000. They were also testing a lot of new gear, including equipment with OC192 (10 Gbit/s) capabilities and are now deploying it to carry live traffic. Carriers are also making adjustments to existing gear to get more bang for their buck.
Roberts believes that as growth rates continue to increase, service providers, which like to keep utilization in the 40 percent range to allow for bursty traffic, will eventually be forced to start spending again. And that will create a sharp increase in demand for core IP switching and routing products.
“Eventually, they will have to buy new gear to keep up with the demand,” he says. “If a service provider decides not to upgrade the network, allowing utilization to go to 50 percent or 60 percent, he risks losing a customer, because during bursts he will lose traffic and the service will degrade.”
Other vendors agree with this logic, but the question is when. "The general consensus is that things will start to pick up in the first half of next year," says Robert Redford, vice president of marketing for the public carrier IP group at Cisco Systems Inc. (Nasdaq: CSCO). "We've already been saying that."
Whether Wall Street buys into this exceptionally optimistic outlook is still uncertain, but Telcordia's Lucky (aptly enough) thinks there's some truth to the study.
“My gut feeling is that that he’s right,” he says. “At least I hope he’s right. Good news would be nice for a change.”
- Marguerite Reardon, Senior Editor, Light Reading