Global Bandwidth Executive Summary
Following several rough years, the wholesale bandwidth market is showing signs of improved health: supply equilibrium, price stability, and competitor consolidation. Long-haul network demand is finally coming in line with supply. Some wholesale carriers have begun upgrading their networks and deploying new lit capacity to keep pace. Circuit prices, while still declining slightly, are beginning to level off on many major routes. The pace of industry consolidation has accelerated thanks to a spate of acquisitions and the departure of several competitors from the wholesale carrier market.
TeleGeography's Global Bandwidth Research Service provides a range of market analysis, forecasts, and essential statistics on long-haul bandwidth supply, demand, prices, costs, and competition around the world. The scope of coverage includes both international and domestic terrestrial networks as well as submarine cables in every region. The content is divided into two main sections: market analysis and network profiles.
The analytical portion of Global Bandwidth quantifies past and present supply and demand for subsea and terrestrial capacity; reviews data on network construction, upgrade, and maintenance costs; presents a detailed analysis and data for circuit and wavelength pricing; and offers a primer on bandwidth products and contracts. The second section of Global Bandwidth contains detailed profiles of all major undersea cable networks as well as 137 carrier networks, which include product offerings, network maps, and contact information.
Supply & Demand
Persistent international bandwidth demand growth has depleted current inventories of unsold circuits on many submarine cables and on some segments of terrestrial networks. As a result, the glut of long-haul capacity has begun to dissipate. Thanks to abundant unlit supply in existing networks, most suppliers have responded to demand increases by lighting wavelengths and fiber pairs on an as-needed basis. This incremental approach to managing spare circuit inventories will contribute to something the bandwidth industry has not seen in over a decade: lit supply and demand coming into balance.
In parallel with the realignment of supply and demand, the consolidations that began in 2004 and continued through 2005 shows no sign of letting up. In the U.S., SBC purchased AT&T for $16 billion and made a bid for BellSouth for $67 million. Verizon purchased MCI for $8.4 billion. Level 3 purchased WilTel for $724 million and Progress Telecom for $137 million. VSNL International acquired the Tyco Global Network and Teleglobe. In Europe, Cable & Wireless purchased Energis for $1.1 billion and Tele2 is in the process of purchasing Versatel for $1.67 billion. GTS Central Europe purchased five smaller regional companies in Central Europe. Industry consolidation has reduced the number of competitors in some areas, but dozens of carriers are still competing in major markets. Additional acquisitions and mergers are needed before there is an end to the glut of competition.
Wholesale Pricing
By the standards of the wholesale bandwidth market, 2005 was a year of relative calm. While median prices continued to decline slightly, these decreases were often the result of high-priced carriers bringing their rates in line with prevailing market prices, rather than by further reductions on the low end of the market (see Figure 2. Los Angeles-New York OC-3 Lease Prices by Carrier, 2003-2005). In 2005, median OC-3 prices on U.S. domestic routes fell 21 percent, compared to 13 percent on European routes. Median prices on key intra-Asian routes continued to decline in 2005, but not as much as in 2004. For example, Hong Kong-Tokyo median STM-1 prices fell only 3 percent in 2005, a significant improvement over the 60 percent and 38 percent annual price declines in 2003 and 2004, respectively (see Figure 3. STM-1 Pricing Trends, 2001-2005).
Outlook
While falling prices continue to present a challenge for service providers, complete price stability is not a precondition for recovery in the bandwidth market. TeleGeography's analysis suggests that bandwidth demand has grown rapidly enough to offset price declines in much of the world (see Figure 4. International Bandwidth Price Declines versus International Bandwidth Usage Growth in Selected Countries and Routes, 2004-2005).
Relatively stable wholesale pricing, combined with strong demand and tightening supply, could indicate that the wholesale bandwidth market is entering a period of expanding revenues. If this happens, it won't be easy: conditions for renewed revenue growth are best on mature routes, where prices have stabilized. Developing markets, where demand growth is strongest, are more likely to see a rush of new supply and rapid price erosion.
To build your own scenario, read on below for much of the data and analysis you will need to draw your own conclusions. Or, check back with TeleGeography in June 2006 when we launch our Global Bandwidth Forecast Service.
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