Demand and traffic soar. Supply surges and prices drop. In the telecom space it seems prices only go in one direction.
IP-transit prices on key international routes having been falling 30% per year, and 10-Gbps wavelength prices have seen similar declines. To get a better idea of the size of that decline, the price of 1 Mb of trans-Pacific bandwidth now costs about 1/50 of what it did in 2003.
The sharp price drops are fueling huge growth in international internet capacity, which is forecast to jump from 55 Tbps to over 900 Tbps by 2020.
Meanwhile, annual growth in carriers' international voice traffic has slowed from the 13% level for most of the decade to just 5% over the past three years while Skype's cross-border traffic jumped 48% last year.
"There's no denying the fact they we operate in a seriously weird business," said Stephan Beckert, VP of strategy at TeleGeography
, at PTC in January. "In telecom, prices only go down."
Also speaking at PTC
, Pacnet chief Bill Barney said that with the emergence of cloud services, carriers that want to remain relevant will have to move into the data-center and content delivery business.
The good news, he said, is that carriers can still turn the rise of cloud to their advantage. "These companies [Google
] are using our networks, so how do we monetize that?"
Barney predicted that the data center, CDN and telecom guys will all be in the same business in ten years. "We have to change the way we operate if we want to be key players in all this, and we can work together to make sure that happens."
Skype steals growth
While the future is going to be weird and disruptive, Beckert said it's going to be extremely bandwidth intensive, which is good because it will make connectivity increasingly important.
Growth in international voice traffic has slowed since 2007 from a 13% per year average over the past 20 years to just 5% for the last three years (see chart 1
). Total international TDM traffic last year was just over 300 billion minutes, with VoIP players accounting for more than 140 billion minutes. Carriers' voice traffic took just six years to jump from 200 billion minutes to 300 billion, but over the past three years the needle has hardly budged.
Beckert noted that when you add Skype's traffic to international carriers' minutes, you see growth would be in line with the historical trend of about 13%. "This suggests that demand for international communications is not declined, it's just that a lot of consumers just don't see why they need your help to do it."