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 report from research group TeleGeography. 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. 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 scepticism. 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 report, entitled ‘Submarine Bandwidth 2002’, documents a number of factors that may provide hope for the bandwidth industry:
Internet network bandwidth, which accounts for the majority of capacity purchases, roughly quadrupled in 1998 and 1999 and tripled from 2000 to 2001;
There are growing indications that bandwidth prices are finally stabilizing on some routes, particularly on trans-Atlantic routes;
Construction of new cables has slowed sharply, with only two cables scheduled to be deployed during 2002, one each in the Atlantic and Pacific.
In the short term, demand could not keep up with the extraordinary increases in network capacity. 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.
Table 6 – Transoceanic bandwidth capacity (Gb/s) – 2000-2004
(Source: TeleGeography, Inc). Note: Capacity figures denote lit, protected capacity at the end of the respective year.