After the implosion: the market for international bandwidth published by Ovum, Ltd. in June, 2006. This report consists of 60 PAGES and the price starts from US $ 3600.
Abstract
This report is split in two parts. The first part, After the implosion: the
market for international bandwidth, presents our conclusions on how the
international bandwidth markets will develop in the future. The second part,
Supply and demand in the markets for international bandwidth, further explores
in detail the factors that shape the supply side and demand side of this
complex market.
1. After the implosion: the market for international bandwidth
In many ways, the international bandwidth sector exemplifies the
roller-coaster ride of information, communications and technology (ICT) in
recent times. The bandwidth explosion created a massive increase on the supply
side, driving prices down, and paring margins to razor-thin. The result was a
bandwidth hangover, from which the industry is still recovering. Falling
bandwidth prices have undermined the basic revenues of the bit haulage
business and volumes have not risen enough to compensate for this.
Overall, the massive oversupply in the long-distance wholesale market has
meant that prices just kept on getting lower, and profitability has been hard
to achieve. Now, for the first time since the Millennium, there are signs that
the continuing growth in demand is moving the industry closer towards some
kind of equilibrium. This varies by geography, and from route to route, and a
return to stability is clearly some way off, but it now seems possible that we
are on the path towards economic rationality, where price balances supply and
demand.
Despite this, the margins available from providing bandwidth alone will not be
sufficient to sustain more than a small number of players, which will supply
very high volumes to the market. The differences between managed transmission
services from competing carriers are already minimal. Managed transmission is
looking more and more like a commodity. The main factor that stops this
becoming the case is geography - even on the 'fat' routes between major
cities, there are still wide variations in the availability of bandwidth. If
we look at second-tier routes, there can still be pinchpoints for bandwidth
supply which set a floor to prices and underpin, for the time being,
continuing economic viability.
2. Supply and demand in the markets for international bandwidth
'International bandwidth' is a market in which supply and demand conditions
vary significantly from time to time and from place to place. There are many
variables that make it difficult to even speak of 'a market' for international
bandwidth. However, some things may be said without ambiguity: carriers have
been badly burned from the bandwidth explosion, are still reeling from the
bandwidth implosion, and have learned to look more carefully at each specific
market. Caution has become the watchword and new supply is only being added
where customers demand it.
Key messages
Key findings
Supply, demand and markets for international bandwidth
- Factors influencing the supply and demand
- Conventional economics and the market for bandwidth
- Too much, too soon?
- Price: where supply meets demand
- 'What goes down might come up.' But when?
- As prices fall, other factors become more important
The supply of international bandwidth
- Factors affecting the supply of international bandwidth
- Telecoms liberalisation at all levels in the market, including
international
- Competition on the major routes
- Supply-side consolidation is happening globally, regionally, and nationally
- Global consolidation
- Regional consolidation
- National consolidation
- Networks are moving towards oligopoly
The demand for international bandwidth
- Factors influencing the demand for capacity
- Reduction in the bottleneck posed by access networks
- Increased regionalisation of the Internet
Table of Contents
Management summary
- Introduction
- International bandwidth: from famine to feast and back again?
- Key messages
A series of fragmented, complex and changing markets
Somewhere between shakeout and stabilisation
The 'end of the glut' - a misplaced perception
- Supply and demand are the critical factors; international bandwidth is
many markets, not one
- Geography still matters: market equilibrium depends on the region and the
route
- Bandwidth shortages are now becoming a possibility on some routes, in some
locations
- One bandwidth swallow does not a summer make
Worldwide, demand for bandwidth has been rising, and will continue to do so
- Rising broadband penetration a major driver
Supply of bandwidth has not changed
- Existing systems upgraded to provide more capacity
- What happens when existing fibres have been lit and sold?
A gradual increase in market stability
The supply side is consolidating
- Consolidation is happening at the global, regional and national level
- Economics is winning: the move to an infrastructure oligopoly
- Market conduct follows market structure
There will be fewer 'pure-play' wholesalers of international bandwidth in future
- Differentiation is hard to do
- ...but wholesale is crucial for retail, driving economies of scale and
scope
In some markets, the price free fall is beginning to slow down
- The value of connectivity continues to fall
- Customers are buying bandwidth in bigger increments
- Purchases have switched mainly to short-term leases but the balance may
now be shifting back
- In mature markets, the demand for international bandwidth is not price
elastic
- In some markets, prices only just cover costs - but which costs?
Supplier tactics to offset the decline in prices
- Adding value by changing the product mix
- Adding value by changing the customer mix
- Ethernet is becoming the favoured choice for long-distance connectivity
for some
Market development scenario
- General trends in ICT
- International bandwidth market development scenario
