Williams, Corvis Lash Back

BALTIMORE – NFOEC – Top executives from Williams Communications Group (NYSE: WCG) and Corvis Corp. (Nasdaq: CORV) banded together at this morning’s opening session at the NFOEC conference in Baltimore to deny the notion of a bandwidth glut.

The position is unconventional, to say the least. The telecommunications industry is scaling back on expansion plans as the financial markets have largely voted against the need for carriers to expand their fiber optic networks while their losses and debt levels mount.

Matthew Bross, senior vice president and chief technology officer for Williams, and David Huber, chief executive officer of Corvis, presented separately at this morning’s session. But both officials blasted the media and analysts for perpetuating what they say is a false claim that too much capacity exists in carrier networks.

In his remarks, Huber went right for the jugular: “The media and analyst community have done a disservice to the public with talk of excess bandwidth,” he said. “It’s true there is a lot of dark fiber, but the fiber cost is only about 5 percent of the total network cost.”

Both Huber and Bross emphasized the difference between dark fiber, raw cabling with hundreds of fiber installed in the ground, and lit capacity, usable bandwidth.

“It’s like saying there are too many microprocessors in the world because there’s a lot of sand on the beach,” said Bross. “Yeah, there’s a lot of fiber in the ground, but you still have to light it and turn it into usable bandwidth. That’s not a long-term oversupply.”

Huber blames the media’s mischaracterization of the issue for exacerbating the lack of capital in the sector. But venture capitalists contend the pervasive notion that there is already too much capacity hasn’t really affected VC investments in new startups looking to create more bandwidth. Instead, they say, the long-haul network was simply over-funded.

“Some areas have definitely been over-invested in,” says Sandy Roskes, investment manager for PentaPort Venture Advisors. “How many more all-optical switching companies do there need to be? Or how many MEMS companies are necessary?”

Bross and Huber aren’t the first executives to lash out at the press over the bandwidth glut. Joseph Nacchio, CEO of Qwest Communications International Corp. (NYSE: Q) ranted on a conference call with analysts and investors last month over the exact same issue. He said that simply calling dark fiber “bandwidth” was misleading, because for every $1 used to dig up a street and install fiber it costs another $2 to actually make that fiber usable (see Sour Grapes of Roth).

“If you want to measure utilization, and you want to measure capacity in this industry, you have to look at the three dollars you have to spend in order to build a network, not the one dollar,” he said.

While these executives say there is plenty of fiber installed in the ground, one lingering question remains: Is there already enough dark fiber lit to satisfy the current bandwidth demand? Williams’s Bross says that demand for bandwidth on his network is growing.

But some industry watchers disagree with Bross’s assessment. “At the moment there is plenty of fiber,” said Peter Tierney, vice chairman of Sphera Optical Networks Inc.. “And these carriers have already lit a lot of capacity. They have enough bandwidth for sale in certain routes; they’re constricted in others. But for the most part they are fine right now.”

These differences of opinion are reflected in the results of Light Research's poll this month, The bandwidth glut. So far, 41 percent of respondents say there's too much capacity, 23 percent say there's too little and 36 percent say it's about right.

- Marguerite Reardon, Senior Editor, Light Reading

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braddillman 12/4/2012 | 8:06:20 PM
re: Williams, Corvis Lash Back Thanks for the numbers.

Does it make sense to guesstimate what customers are willing to pay for residential bandwidth?

Cases: (all figures pulled from my backside, feel free to correct me, please). Obviously, the actual prices and bandwidth vary, etc.

Local phone: $20/month for 56kbs
Long distance phone: $0.05/minute for 56kbs
Cable modem: $40/month for 500kbs
DSL: $40/month for 500kbs
Satellite TV: $60/month for a few simultaneuous, one-way channels (I can have up to 5 receivers for no addl. cost) of ???Mbs (I dunno - 3-5Mbs I would guess)
Digital cable TV: $40/month, similar to satellite TV
Cell phone: $50/month for < 56kbs, but it's mobile.

I think the pattern is that people will pay tens of dollars per month per service. But I doubt any residential customers would pay hundreds of dollars per month per service. Most people don't have that kind of money.

I don't think the total market or revenue for residential communications services can grow fantasically, simply because the average family budget has limits. I can only afford to spend xx% of my net income on those services.

So, how do the residential service providers grow? By taking market share. How to do that? By offering residents a lower total cost, while protecting their margins (not simply reducing their prices).

Example: customer 'X' pays:
$40/month for cable to the cable company
$20/month local service to the LEC (I think)
$0.05/minute to the long distance provider.

The cable company could offer phone for $20/month or less, using VoIP (assuming that technology works). The customer would have a single bill and company to deal with. The cable company makes money on the phone service if it costs them less than they charge the customer (duh).

Anyway, I doubt that residents will buy more bandwidth at current prices. I think the recent growth in residential bandwidth demand started when prices dropped (does that means it's elastic?).

I also doubt that residents have unlimited money for new services, even from killer apps.

I think bandwidth demand is there, but only for cheap bandwidth and a limited number of services.
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