October 2, 2003 -- The median price of bandwidth between major markets in the US and Western Europe slid 10 to 20 percent in the first half of 2003, according to new data from TeleGeography, a research division of PriMetrica, Inc.
But the drop in prices for IP transit seems to be driven by issues of supply and demand, rather than discounting by bankrupt carriers that emerge from Chapter 11 with sharply reduced cost structures, according to the study's authors.
The report, which also covers international IP traffic volumes and bandwidth, attributes the continued decline of transit prices to cutthroat competition and slower than expected growth in demand.
"The cheapest rates tend to originate from suppliers with low network utilization," said TeleGeography Senior Research Analyst Rob Schult. "Their attempts to gain market share and to get customer traffic onto the network frequently result in prices that are at or below marginal cost."
Competing carriers have expressed concern that WorldCom and Global Crossing could emerge from bankruptcy with less debt and use cut-rate pricing to capture market share from rivals. TeleGeography said that projection isn't consistent with the data from the first half of the year.
"There is little evidence that carriers re-entering the market after bankruptcy are using reduced debt levels to price services more aggressively than their competitors," said Schult.
The downward trend in bandwidth pricing seems unlikely to reverse itself anytime soon, according to TeleGeography.
"Demand for IP transit continues to grow at a healthy rate, however IP transit price stability will remain elusive until further consolidation takes place," said Schult.
Founded in 2002 from the integrated operations of TeleGeography and CIT Publications, PriMetrica delivers time-sensitive statistics and insight on hundreds of markets and thousands of service providers.