April 23, 2002 -- Bandwidth pricing has hit bottom, according to a new report by the telecommunications research firm TeleGeography, which says that after three years of plummeting prices, bandwidth simply can't get much cheaper.
The new report, Terrestrial Bandwidth 2002, doesn't see the "bandwidth glut" evaporating anytime soon, with the supply of lit fiber far exceeding demand in most major markets.
Having sustained annual price drops of 70 percent in each of the last three years (see chart below), TeleGeography says, prices may find support from underlying cost issues.
"With prices already at or even below costs, it seems unlikely that the capacity oversupply will depress prices any further," according to TeleGeography. "Any future price collapse would come as a result of other market forces, rather than the continuing capacity glut."
Yet the glut remains substantial, as the supply of city-to-city bandwidth far exceeds actual needs. TeleGeography found more than 6.5 terabits of lit capacity traversing London - four times more than the combined bandwidth requirements of the 40 largest cities in Europe.
The impact on pricing has been profound. Two years ago an OC-3 (155 Mbps) circuit between New York and Los Angeles cost $1.8 million per year. In the first quarter of 2002, the same lease could be had for less than $150,000.
According to TeleGeography, the market has fallen so far that the price drivers have changed.
"Bandwidth prices are no longer driven by supply and demand," explained TeleGeography analyst Stephan Beckert. "They're driven by short-term costs, and by the fear of bankruptcy court. But as prices fall below costs, carriers will not be able to remain solvent."
TeleGeography also found that carriers' prices still vary dramatically, with the highest price for a given circuit being as much as four times greater than the lowest price.
"This disparity suggests that neither bandwidth sellers nor buyers have systematic knowledge of their comparative position in the marketplace," said TeleGeography.
The inaugural edition of Terrestrial Bandwidth builds on TeleGeography's previous research of terrestrial fiber-optic systems that was initiated in the 'International Bandwidth' series.
. TeleGeography publishes reports, databases, and maps used by communication companies, consultancies, and financial institutions in over 100 countries.