Optical transport adaptability, flexibility, and cost reduction were among the main topics at the WDM & Next Generation Optical Networking Conference (WDM 2013) held in Monaco June 17–20. Carriers need core transmission data rates beyond 100G to support traffic growth. Higher data rates are part of the solution, but physical-layer network flexibility through software is also critical to lowering cost in emerging networks.
Meeting market demand requires significant R&D investment at a time when margins and revenues are tight, especially at the component level. Ovum finds good technology roadmap alignment among carriers, equipment vendors, and component vendors, but the margin imbalance versus service providers is exasperating: most service providers pay little to nothing for bandwidth, while carriers and vendors are expected to deliver leading technology, improve customer experience, and grow profitable businesses.
Peering agreements hurt infrastructure economics
The familiar industry chart showing exponential telecom traffic growth alongside flat carrier revenues was shown at WDM 2013 as it has been shown everywhere for the past few years. But how did we get here?
The Ovum-led panel discussion, “Connecting the Dots from Services to Network from Systems to Components – What Can Be Done to Stop Margin Compression?” pointed to peering as a significant contributor. Content providers often pay nothing to transmit large volumes of traffic across telecom networks, so carrier traffic grows while revenues stall. Carriers accept peering agreements partly due to history and perhaps partly due to underestimating traffic growth.
ISPs have good reasons for pursuing peering agreements, as summarized in Ovum’s recent research titled IP Peering and Transit: Critically Important Wholesale Relationships. Peering helps ISPs reduce cost, increase reach, and deliver a more robust service with more route redundancies.
While these agreements make it difficult for carriers and infrastructure vendors to enjoy the financial benefits of traffic growth, vendors need to focus on delivering technology leadership that reduces the cost of transport and improves the customer experience.