• Subscriber Values • ISP Rankings • Buy Reports

TeleGeography Asks: An End to the Bandwidth Price Collapse?

The economics that drove bandwidth prices down by 50 percent per year may be have changed, according to a new report from research group TeleGeography.

by ISP-Planet Staff [May 1, 2002]

The report, Terrestrial Bandwidth 2002 confirms that the supply of city-to-city bandwidth far exceeds actual needs. More than 6.5 terabits of lit capacity now traverse London—four times more than the combined bandwidth requirements of the forty largest cities in Europe.

TeleGeography analysts contend that the staggering increase in telecom capacity has sent bandwidth prices (and, by extension, carrier revenues) into a downward spiral. Prices for capacity between major cities in the U.S. and Europe have fallen by about 70 percent consecutively over the past three years. For example, two years ago, an OC-3 (155 Mbps) circuit between New York and Los Angeles cost $1.8 million a year. In the first quarter of 2002, the same lease could be had for less than $150,000.

2000 to 2002 Annual OC-3 Lease Prices on Major U.S. Routes:

Route	Q1 2000	Q1 2001	Q1 2002	Change 00-01	Change 01-02
L.A.-N.Y.	$1,800,000	$600,000	$200,000	- 70%	- 70%
Miami-N.Y.	$900,000	$200,000	$100,000	- 80%	- 50%
Atlanta-N.Y.	$400,000	$200,000	$70,000	- 50%	- 70%
Chicago-N.Y.	$400,000	$200,000	$70,000	- 50%	- 70%
Atlanta-Dallas	$300,000	$200,000	$60,000	- 30%	- 70%
L.A.-San Fran.	$200,000	$90,000	$30,000	- 60%	- 70%
N.Y.-D.C.	$200,000	$50,000	$20,000	- 80%	- 60%
Boston-N.Y.	$100,000	$50,000	$20,000	- 50%	- 60%

Stephan Beckert, TeleGeography analyst, said since prices are already at or even below costs, it seems unlikely that the capacity oversupply will depress prices any further.

"Any future price collapse would come as a result of other market forces, rather than the continuing capacity glut," Beckert explained. "Bandwidth prices are no longer driven by supply and demand. They're driven by short-term costs, and by the fear of bankruptcy court. But as prices fall below costs, carriers will not be able to remain solvent."

Steep price declines have been an industry concern for several years. The TeleGeography report highlights another problem stemming from turmoil in the telecom sector: a lack of market transparency. Individual carriers' prices still vary dramatically. TeleGeography has found that the highest price for a given circuit will often be four times greater than the lowest price. This disparity suggests that neither bandwidth sellers nor buyers have systematic knowledge of their comparative position in the marketplace.

Terrestrial Bandwidth 2002 surveys the shifting landscape of suppliers and products, as well as the causes and effects of financial turbulence in the industry. The first half of the report also reviews current trends in fiber-optic technology and their associated costs. The second half of the report presents detailed profiles of over 80 terrestrial networks in the U.S., Europe, and Latin America.

— End