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March 13, 2002 — (WEB HOST INDUSTRY REVIEW) — Five years of frenzied network construction have resulted
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in a 21-fold increase in trans-Atlantic bandwidth and a 23-fold increase in
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trans-Pacific bandwidth, according to a recent report from research group
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TeleGeography, Inc. (telegeography.com). Companies such as Global Crossing blazed trails across the world’s oceans, but suffered when demand failed to increase as quickly as hoped.
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“Ambitious network builders, such as Global Crossing, were caught between
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falling prices, slowing demand, and difficult debt covenants,” said Alan
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Mauldin, research analyst at TeleGeography. After spending billions to
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construct their networks, the companies’ costs could not easily be recouped
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with capacity prices declining 50 percent or more each year.
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In the past year, investor sentiment has shifted from irrational exuberance
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to profound skepticism. However, TeleGeography’s research indicates that,
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although far less spectacular than once assumed, bandwidth demand growth
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remains robust. According to estimates based on reported capacity sales, the
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amount of purchased transoceanic submarine bandwidth roughly doubled in 2000
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and 2001.
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TeleGeography’s recent report, entitled “Submarine Bandwidth 2002,”
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documents a number of factors that may provide hope for the bandwidth
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industry:
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Internet network bandwidth, which accounts for the majority of
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capacity purchases, roughly quadrupled in 1998 and 1999 and tripled from
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2000 to 2001.
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There are growing indications that bandwidth prices are finally
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stabilizing on some routes, particularly on trans-Atlantic routes.
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Construction of new cables has slowed sharply, with only two cables
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scheduled to be deployed during 2002, one each in the Atlantic and Pacific.
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“In the short term, demand could not keep up with the extraordinary
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increases in network capacity,” explained Mauldin. “The current market
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turmoil obscures the fact that demand for bandwidth has continued to grow
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rapidly.”
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Once the market chaos finally does subside, investors will likely perceive
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what no one wanted to admit in the 1990s: when stripped of its “new economy”
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glamour, the old rules of competition still apply to the bandwidth industry.
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As with most companies in competitive markets, the surviving bandwidth
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suppliers will likely earn a respectable, if unspectacular, return on their
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investments.
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The inaugural edition of the “Submarine Bandwidth” report builds on
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TeleGeography’s previous research on undersea bandwidth supply and demand,
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initiated in the “International Bandwidth” series. The new report quantifies
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present and future capacity supply and demand; offers a primer on bandwidth
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products, contracts, and technology; reviews data on cable construction,
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upgrade, and maintenance costs; and presents detailed pricing data for
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circuits and wavelengths. The second half of “Submarine Bandwidth” presents
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detailed profiles of 68 undersea cable networks.
