Abstract
Overview
Four years ago, the U.S. wholesale telecom market was a wasteland, plagued by
empty networks, plummeting prices, and grim prospects. In the intervening
years, growing broadband penetration and new high-bandwidth applications have
begun to exhaust the excess inventory of long-haul network capacity. Today, a
wave of consolidation is sweeping the industry and wholesale prices are
showing increased signs of stability.
But how fast is traffic growing? Might prices actually increase? How
sustainable is this upturn? While anecdotal stories about market trends
abound, business and investment decisions require real data. In response,
TeleGeography is releasing U.S. Networks Research Service, which takes an
in-depth look at network demand drivers, wholesale bandwidth and IP transit
pricing trends, and cost structure considerations.
Understanding the dynamics of the wholesale telecom market lends insight into
the fortunes of the entire industry; this market underlies the fundamental
business case for service providers and vendors throughout the supply chain.
U.S. Networks Research Service informs profit models and helps industry
executives and investors identify strengths, weaknesses, opportunities, and
threats that yield intelligent business and investment decisions.
The short history of network services during the Internet era breaks into
three separate acts. Act One (circa 1996-2001) was typified by large-scale
network buildout, service provider proliferation, and hopelessly ambitious
business plans. The chronic oversupply of capacity created during the first
act moved the market into a distinctly different Act Two (circa 2001-2005)
marked by carrier bankruptcies, write-offs, and restructuring. During the bust
years, most carrier activity focused on damage control; now, many market
actors are sensing opportunity. We now have entered an Act Three, marked by
consolidation on the one hand and growth possibilities on the other.
No company better exemplifies the new environment than Level 3. In the course
of 18 months, Level 3 swallowed up seven separate networks (360networks,
WilTel, Progress, Telcove, ICG, Looking Glass, and Broadwing). Figure 1 (Level
3 Network Acquisitions) offers a visual depiction on what these transactions
mean to Level 3' s geographic reach. Yet industry consolidation is not the only
structural change afoot. Market participants in this third act of the Internet
age must grapple with a new set of issues:
- Rapid growth of demand for network services. For the last decade, a
severe bandwidth glut rendered the supply/demand equation merely an academic
exercise. With explosive demand growth rapidly depleting supply, tracking
demand is suddenly an urgent economic necessity.
- Network upgrades. The depletion of lit capacity has sent bandwidth
providers scrambling to install new wavelengths over their existing
fiber-optic networks. When carriers were sitting on a large stockpile of
unused capacity, they only needed to focus on recouping ongoing maintenance
and SG&A costs. Now, they must also contend with recovering capital upgrade
costs.
- Price uncertainty. The combined effects of carrier consolidation,
depleted seller inventories, and cost of upgrades have halted the rapid
decline of network service prices. For many years, buyers of bandwidth could
count on 40 to 50 percent declines each year. The changing market realities
have introduced uncertainty: will prices continue to fall? Will they
stabilize? Will we see the first increases in prices in over a decade?
- New services. In the wholesale sector, sales of raw wavelengths are
rapidly supplanting leases of traditional SONET circuits. IP transit and
long-haul Ethernet have now emerged as major service alternatives.
These adjusted market realities require answers to a new set of questions.
Will demand continue its upwards trajectory? After consolidation, which
carriers still have holes in their geographic or service portfolios? How much
do network upgrades cost? How are network service prices changing? The U.S.
Networks Research Service has been designed to answer these questions. This
report serves as a jumping-off point for the presentations and data sheets
that accompany the service. The report is divided into topical chapters
analyzing each area of concern for carriers and concludes with detailed
carrier profiles showing what services they offer and where.
Table of Contents
- List of Figures
- List of Long-Haul Provider Profiles
- List of Broadband Provider Profiles
Executive Summary
Supply and Demand
- Network Supply
- Long-haul Network Supply
- Metropolitan Area Network (MAN) Supply
- Consolidation in the Telecom Market
- Network Demand
- Broadband Users and Traffic Generation
- New Applications and Bandwidth Demand
- The Effect of Burgeoning Demand
- Supply and Demand Outlook
Cost Structure
- Network Construction Costs
- Laying Fiber
- Lighting Fiber
- Cost of Lighting Fiber
- Upgrading Capacity
- Lighting Fiber
- Adding Wavelengths
- Increasing Bit Rate
- The Cost of Upgrading
- Overhead Cost
- Cost Outlook
Pricing
- Point-to-Point Bandwidth Products
- SONET Circuits
- Wavelength Pricing
- Long-Haul Ethernet
- Dark Fiber
- Pricing Factors
- IP Transit Products
- Price Overview
- Ethernet versus SONET Ports
- Pricing Outlook
Long-Haul Carrier Profiles
Broadband Internet Provider Profiles
About TeleGeography
List of Figures
Executive Summary
- Figure 1. Level 3 Network Acquisitions
- Figure 2. Los Angeles-New York OC-3 Lease Prices by Carrier, 2003-2006
- Figure 3. Mobile Interconnection Rate Declines,
Supple and Demand
- Figure 1. Long-Haul Wholesale Bandwidth Providers in U.S. Cities
- Figure 2. U.S. Long-haul Network Upgrades, 2005 & 2006
- Figure 3. Geographic Distribution of Connectivity Los Angeles versus San
Francisco
- FIgure 4. Geographic Distribution of Connectivity: New York versus
Washington
- Figure 5. U.S. Metro Network Connectivity, 2006
- Figure 6. U.S. Metro Network Suppliers, 2006
- Figure 7. Major U.S. Network Industry Acquisitionsw
- Figure 8. Level 3 Network Acquisitions
- Figure 9. Broadband Subscribers by Region, 2006
- Figure 10. U.S. Broadband Subscribers by Technology, 2002-2005
- Figure 11. U.S. Broadband Subscribers by Company, Q2 2006
- Figure 12. P2P Traffic by File Type, 2006
- Figure 13. U.S. Broadband Subscribers and International IP Network
Connectivity, 2000-2006
- Figure 14. Trans-Atlantic Purchased versus Lit Capacity, 2002-2006
- Figure 15. Trans-Pacific Purchased versus Lit Capacity, 2002-2006
Cost Structure
- Figure 1. Basic Network Overview
- Figure 2. Basic Fiber Optic Network Diagram
- Figure 3. Amplification and Regeneration .
- Figure 4. Protected Ring Network Architecture
- Figure 5. Mesh Network Architecture
- Figure 6. Short-Term veruss Long-Term Costs of Adding Capacity, 2007
- Figure 7. Cost Elements for an OC-48 Circuit, 2007 versus 2012
- Figure 8. O&M Cost Components for Terrestrial Networks
Pricing
- Figure 1. OC-3 Price Trends, 2002-2006
- Figure 2. Los Angeles-New York Circuit Prices, 2003-2006
- Figure 3. Los Angeles-New York OC-3 Lease Prices by Carrier, 2003-2006
- Figure 4. Los Angeles-New York OC-48 versus 2.5 Gbps Wavelength Prices, Q3
2006
- Figure 5. Lease Price versus Distance on Major U.S. and European Routes,
Q4 2006
- Figure 6. OC-3 Lease Prices on Major U.S. Routes, Q1 2001-Q3 2006
- Figure 7. Absolute versus Relative Price Ranges on Major Routes, Q3 2006
- Figure 8. Installation Charges
- Figure 9. U.S. Indicative Capacity-Price Multiples, 2006
- Figure 10. Average IP Transit Prices per Mbps, DS-3, OC-3, OC-12, and GigE
Q2 2003-Q2 2006
- Figure 11. OC-3 IP Transit Prices in New York by Provider, June 2003-June
2006
- Figure 12. U.S. IP Transit Prices per Mbps: SONET versus Ethernet Ports
List of Long-Haul Carrier Profiles
- 360networks
- AboveNet
- ALLTEL
- AT&T
- Bell Canada Enterprises
- BellSouth
- Big Pipe
- BT Global Services
- Cable & Wireless
- calpoint
- Cavalier Telephone
- CityNet
- Cogent Communications
- DeltaCom
- Deutsche Telekom
- DukeNet
- Electric Lightwave
- France Telecom
- Global Crossing
- Globix
- Hydro One Telecom
- Level 3
- LightCore
- MTS Allstream
- NEESCom
- Norlight Telecommunications
- NTT Communications
- Onvoy
- PalmettoNet
- PPL Telecom
- Qwest
- Rogers Communications
- Southern Telecom
- Sprint
- TeliaSonera
- TELUS
- Time Warner Telecom
- US Signal
- USCarrier
- ValleyNet
- Verizon Business
- Veroxity
- VSNL International
- XO Communications
List of Broadband Provider Profiles
- AT&T (formerly known as SBC)
- BellSouth
- Bright House Network
- Cablevision Systems
- CenturyTel
- Charter Communications
- Cincinnati Bell Telephone
- Citizens Communications
- Comcast
- Covad
- Cox Communications
- Earthlink
- Embarq
- Insight Communications
- Mediacom
- Qwest Communications
- Time Warner Cable
- Verizon Communications
- Windstream (ALLTEL Communications)
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