TeleChoice, Inc. has created a model of United States fiber capacity reflecting total bandwidth supply and demand on a route-by-route basis between major US cities. The model, called MADCAP, for Model for Advanced Capital Planning, is available now.
"We created MADCAP to go beyond anecdotal evidence of bandwidth supply and to look at the specific cities our client carriers serve and the fiber routes that link those cities," says Daniel Briere, Chief Executive Officer at TeleChoice. "This allows carriers to determine: first, what the current supply is; and second, the different applications driving bandwidth on those routes and how fast they are growing."
MADCAP gives carriers a planning tool to help them decide where to invest their capital (CAPEX) as well as a way to more clearly communicate the value of their network assets to investors. The tool looks not only at a carrier's network assets, but also available capacity that can be purchased from other carriers along the same routes -- giving a full view of available fiber supply at any point.
Williams Communications is the model's first customer and will use the information to help guide capital equipment deployments on its nationwide network.
No widespread fiber glut exists; problem is only on three key US routes
According to TeleChoice, recent studies have generally concluded that a majority of fiber is not in use, thereby declaring a glut of fiber in the US. There are three critical flaws in the recent information:
(1) The critical supply variable is available (e.g., lit fiber) capacity, not constructed fibers.
(2) A provider's strategic decision to make additional capacity available is evaluated on a route-by-route basis, not a nationwide basis.
(3) Available capacity must always lead demand by at least 30-50% per route to avoid the severe capacity constraints and long service waiting lists faced by customers in many other countries.
Most recent information has focused on industry-wide generalizations about an oversupply of constructed fiber. The cost of a network build is very high while the cost of a strand of fiber is incrementally low. In reality, carriers must install 10-20 years' worth of fiber in the ground each time they go to the expense and trouble of building new physical networks. Since the new networks have all been built in the last few years, having a shortage of constructed fiber at this point in time would be a crisis situation for the industry. Having more fiber in the ground than is currently required is consistent with the initial plans for these networks.
"Not every new supplier of bandwidth will necessarily survive long term; consolidation is a healthy part of the Innovation Cycle," says Russ McGuire, Chief Strategist at TeleChoice. "However, the recent focus on aggregate supply, including lit and unlit fiber, instead of a route-by-route analysis, completely misses the important factors that drive the industry."
On 14 of the 22 routes analyzed by TeleChoice using the MADCAP tool, indications are that current demand equals or exceeds 70 percent of total supply across all carriers. The traditional carrier threshold for increasing available capacity is when 70 percent of capacity has been provisioned on an individual fiber or network route.
"The fact that over 63 percent of the key routes initially evaluated are over the new construction/activation threshold really underscores the fact that, from where the service provider sits, there is no nationwide glut of available lit fiber," McGuire says.
Only three routes -- three of the most popular US telecom corridors -- were identified as significantly oversupplied: New York to Chicago, Denver to Los Angeles, and Los Angeles to San Francisco.
"Over the past several years, virtually every new network project has included creating capacity to overcome traditional shortages on these three routes," says McGuire, who led the MADCAP development team. "Based on a conservative projection of applications demand growth, the excess capacity on these routes will be totally consumed within the next three to five years."
Route-specific view of supply/demand
TeleChoice initially designed the framework to help service providers make capital deployment decisions. The model provides critical planning analysis of industry-wide supply and demand on specific network routes.
SUPPLY: For supply, the model provides a detailed analysis of all constructed fiber, all fiber made available for service (or lit fiber), and how much capacity has been made available on that fiber for all providers serving each route.
DEMAND: For demand, the model provides detailed analysis of a wide range of current and projected applications that consume the available lit capacity on those routes and how that capacity is provisioned to meet those demands.
Thus, the provider can concentrate capital expenditures on routes where there is a current or near future shortage of supply compared with demand, instead of adding to the over-capacity situation that exists on some routes.
The fully interactive model allows sophisticated modeling of current and future network build scenarios. A lightweight version of the model has been developed for equipment vendors, financial analysts, and investors to provide insight into the real picture of supply versus demand at the route level. TeleChoice is offering the model inclusive of regular updates for companies interested in retaining current industry perspective on both supply and demand.
The model may also be used to drive a more rational approach to pricing within the industry. Currently, most carriers price capacity on a set unit price basis, independent of specific routes. Given the high level of competition in the industry, these unit prices have been driven to ever lower market levels, perhaps driven by fierce competition on the handful of oversupplied routes. Today, even on routes where no capacity is available and it takes months for service to be provisioned, pricing has fallen to irrationally low levels.
"With renewed focus on supply and demand dynamics of individual route segments, carriers may be able to restore rational pricing to the industry," according to McGuire.
Applications demand projected
A core module of the MADCAP system is the ability to evaluate and quantify applications demand per route. By evaluating historical and projected demand growth, under-built routes can be exposed.
"We're seeing the highest applications demand in Internet Protocol-based services," says McGuire. "Contrary to common perception, IP is very inefficient because of all of the extra packets flowing on IP networks -- BGP routing tables, IP signaling, all the traffic that is in addition to true application data."
TeleChoice is talking with partners about extending the model to look at other possible facility "gluts" including collocation space, hosting and data centers, international gateways, metro networks, and access networks.
MADCAP can be purchased in two forms including a customized model for service providers that reflects all available capacity on that client's critical network routes. The provider can modify dozens of different model parameters to analyze potential future supply and demand scenarios. The second option is a prepackaged tool for vendors, analysts, and investors to allow for more aggregate analysis of supply and demand that is specific to their requirements.
About TeleChoice, Inc.:
TeleChoice, Inc. is a strategic catalyst for the telecom industry. TeleChoice focuses on the intersection of strategy development and technology for telecom service providers and the vendors who serve them. For more information, visit www.telechoice.com.