Originally Posted by extract
Where are things heading now? The conventional wisdom is that capacity overhang is so large, especially given our ability to squeeze ever more transmission out of existing submarine cables, that we have all that we need. Prices, it is assumed, will keep dropping as the bankrupt carriers re-emerge with their debt wiped clean.
Yet important changes are taking place that may well drag the system in the opposite direction, towards a shortage of capacity. If this seems inconceivable, consider the following. Worldwide, the connectivity to broadband internet has been growing by leaps and bounds. In South Korea, over 40 per cent of households have it. In the US, Canada, Japan and some European countries that figure is around 20 per cent. Growth rates in many countries are well above 50 per cent.
The whole point of such connectivity is to move more bits around more conveniently, to enable users to listen to music, play interactive games and watch video. Broadband internet is a voracious user of capacity. The video it enables uses millions more bits per user than text. Furthermore, real-time applications such as video, games and telephony require an extra cushion of capacity in order not to become jerky during peak load periods.
All this is part of a historic transition of human communications, from the skinny bandwidth of a phone line carrying a few kilobits per second to one of individualised broadband connectivity in the range of dozens of megabits and soon gigabits.
Three related transitions are taking place. First, narrowband internet users are moving to broadband. In America, 27 per cent have made the switch. In South Korea, more than half of users have. It is reasonable to assume that half of all internet users will be on broadband within five years. Second, the use of broadband internet for entertainment is increasing as suppliers serve the larger user pool with more options, from video greetings cards to multimedia shopping to Hollywood movies to sex sites. And the third transition is to significant amounts of †œpeer-to-peerâ₠¬Ã‚ file-sharing traffic, much of it no doubt exchanging pirated Hollywood movies, but some of it resulting from new types of community creativity.
A typical narrowband internet user generates about 36 megabytes of bit traffic per month. A broadband user who regularly downloads movies and music, plays interactive games, shares files with peers and uses internet telephony will generate 230 times as much traffic, over 8,000 MB.
Let us assume that these traffic flows will increase proportionately for international traffic. Since 85 per cent of all international traffic is for internet and data, the rapid growth of broadband internet will raise capacity requirements enormously. If a switch by a narrowband user to broadband adds to his capacity consumption by a factor of 230, and if half of internet users do so within five years, then by the end of the decade international communications traffic will then be one hundred times higher than it is today. In 2003, internet traffic doubled over international backbone routes. This is merely a preview, since broadbandâ₠¬â„¢s real impact is just beginning to show. And on top of that, the added requirements of business communications due to offshoring and the worldwide growth of mobile communications will increase the traffic load.
Even if one scales down these assumptions, for example by reducing the share of international internet traffic among overall internet activities, the results are still enough to swallow up the present excess capacity of 90 per cent.
At the same time, no new capacity is being created outside the Indian Ocean region. It takes 3-4 years to plan and construct a new cable. In the go-go years, it was possible to do this in closer to two years, but those days are gone. Today, investors and banks wouldnÃƒÂ¢Ã¢â€šà ¬Ã¢â€žÂ¢t touch trans-oceanic ventures with a ten-foot pole. Any telecoms company contemplating major infrastructure investments outside of the oversupplied wireless sector would be punished by Wall Street and the City. And existing cable owners will resist through the regulatory process any new capacity that would lower prices.
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