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Bandwidth Bust: Hype and HopeMarch 12, 2002 Five years of frenzied network construction have resulted in a 21-fold increase in trans-Atlantic bandwidth and a 23-fold increase in trans-Pacific bandwidth, according to a recent report from research group TeleGeography, Inc. Companies such as Global Crossing blazed trails across the world's oceans, but suffered when demand failed to increase as quickly as hoped. "Ambitious network builders, such as Global Crossing, were caught between falling prices, slowing demand, and difficult debt covenants," said Alan Mauldin, Research Analyst at TeleGeography. After spending billions to construct their networks, the companies' costs could not easily be recouped with capacity prices declining 50 percent or more each year. In the past year, investor sentiment has shifted from irrational exuberance to profound skepticism. However, TeleGeography's research indicates that, although far less spectacular than once assumed, bandwidth demand growth remains robust. According to estimates based on reported capacity sales, the amount of purchased transoceanic submarine bandwidth roughly doubled in 2000 and 2001. TeleGeography's recent report, entitled Submarine Bandwidth 2002, documents a number of factors that may provide hope for the bandwidth industry:
"In the short term, demand could not keep up with the extraordinary increases in network capacity," explained Mauldin. "The current market turmoil obscures the fact that demand for bandwidth has continued to grow rapidly." Once the market chaos finally does subside, investors will likely perceive what no one wanted to admit in the 1990s: when stripped of its "new economy" glamour, the old rules of competition still apply to the bandwidth industry. As with most companies in competitive markets, the surviving bandwidth suppliers will likely earn a respectable — if unspectacular — return on their capital investments. The inaugural edition of the Submarine Bandwidth report builds on TeleGeography's previous research on undersea bandwidth supply and demand, initiated in the International Bandwidth series. Submarine Bandwidth 2002 quantifies present and future capacity supply and demand; offers a primer on bandwidth products, contracts, and technology; reviews data on cable construction, upgrade, and maintenance costs; and presents detailed pricing data for circuits and wavelengths. The second half of Submarine Bandwidth presents detailed, two-page profiles of 68 undersea cable networks.
For more information, please contact: Alan Mauldin
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