Bandwidth Demand Outpaces Price Declines

After a brutal five-year downturn, the international bandwidth market is showing renewed signs of life. Demand for long-haul capacity grew briskly in 2004, and circuit prices, while not exactly stable, have been declining at a more moderate pace in many regions of the world. Steady traffic growth and a freeze in network construction have been whittling away at the persistent overhang of excess capacity.

Although data traffic has not grown at the astronomical rates forecast by some analysts during the late 1990s, companies' appetites for bandwidth has been immense by any other standard. Aggregate global demand for international bandwidth grew 42 percent in 2004, with the largest gains coming in Asian countries.

Yet even relatively modest growth in bandwidth demand will soon deplete the current inventory of unsold circuits on many submarine cables and on some terrestrial network segments. This demand growth will not require additional network construction, however. Thanks to abundant unlit supply on existing networks, most suppliers can respond to demand increases by lighting wavelengths and fiber pairs on an as-needed basis. This incremental approach to regulating spare circuit inventories will contribute to something the bandwidth industry has not seen in over a decade: lit supply and demand coming into balance.

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