Asia-Pacific bandwidth demands, questions grow

April 1, 2002
Evaluating Bandwidth DemandBandwidth demand is climbing, but the risks of long-term investment in the region may be too high in today's revenue-driven climate.


Bandwidth demand is on the rise in Asia-Pacific, although the growth is not as fast as analysts' forecasts predicted just a year ago. As liberalization and privatization of state-owned telecommunications carriers open markets to competition, infrastructure investment is pouring in from local governments as well as domestic and foreign companies.

New submarine-cable construction and terrestrial-network build-outs (through deployment, buying, or leasing) continue despite the weak economies in much of the region and a global recession that is crippling debt-laden network providers. Investment activity in the region and the availability of investment capital is slowing, according to analysts.

As investors focus on areas that promise a higher rate of return, the technology divide is widening between the more developed countries (Australia, New Zealand, Japan, South Korea, Hong Kong, Singapore, India, China, and Taiwan) and the less developed countries with lower gross domestic product growth (Indonesia, Malaysia, the Philippines, and Thailand), according to market researcher Ovum (London).

End-user traffic in the entire Asia-Pacific region is expected to climb dramatically over the next five years, from 158 Gbits/sec during peak hours this year to 275 Gbits/sec in 2003, 457 Gbits/sec in 2004, 754 Gbits/sec in 2005, 1.208 Tbits/sec in 2006, and 1.867 Tbits/sec in 2007, according to newly revised forecasts (February 2002) from Ovum.

"The forecasts that we did last year are a little optimistic because one of our key parameters for the Internet is the rollout of broadband access-when people have a bigger pipe into the network, then they will be downloading larger files," says Eirwen Nichols, principal consultant at Ovum. "The growth of the Internet subscriber base in Asia-Pac is carrying on pretty well, but the growth of broadband access outside of Korea is a bit slower than we estimated last year."
End-user traffic by country in the Asia-Pacific region in 2002 and 2007.

Increased competition, lower deployment costs because of newer technologies, and the financial state of some of the cable operators are causing the price of bandwidth to fall dramatically in some countries and on some major routes. International voice traffic is also growing more rapidly due to falling prices, although it constitutes a small portion of the total outgoing traffic. "There is very clearly a price elasticity in international voice, and you are seeing more residential customers make international calls," says Nichols.

Perhaps most significantly, the United States' reign as the hub of the Internet universe for Asia-Pacific end users is likely to change at some point. As pan-regional and submarine cables start to interconnect major cities in the Asia-Pacific region, the area is working to establish it's own communications hubs for Internet and data traffic. As a result, traffic patterns will change dramatically. Rapid adoption of the Internet is occurring in many countries, especially Japan, South Korea, Taiwan, and China.

"In the early days of the Internet, most of the traffic went to the U.S. because that's where all the Websites were," says Nichols. "You are now going through a phase where more of it is staying either within the country or within the region. I think you will see a smaller portion of the traffic going across the Pacific than we have in the past."

Singapore (liberalized in 2000), Hong Kong, and Tokyo are working to become regional Internet hubs. That is driven by national interests and the completion of networks and submarine cables that connect Singapore and Hong Kong to Tokyo, according to Nichols. Japan was partially liberalized in 1985 (competition was initially allowed among domestic carriers), and the country has loosened its controls gradually over the years; the 20% cap on foreign investment in national carriers was finally lifted in 2001. Hong Kong Telecom's monopoly ended in 1997.

One country where Internet traffic is expected to remain primarily within its borders is China. Governmental constraints on Internet access, limiting end-user access to "approved" Websites, and the Chinese language barrier suggest that the relative volume of traffic coming out of China will be much smaller than that of other Asia-Pacific countries. China's Internet traffic is more likely to resemble patterns in the United States, where 80% of the traffic remains within the country, observes Nichols.

The lack of international bandwidth going into China is also a problem. Asia Global Crossing and Level 3 Communications Inc. were trying to negotiate landing points in China to serve as international conduits if granted regulatory approval. But in December, Level 3 announced the sale of its Asian assets to Reach, a joint venture between Hong Kong-based PCCW and Australia's Telstra. Meanwhile, Asia Global Crossing is a subsidiary of Global Crossing (Hamilton, Bermuda), the global carrier that filed for Chapter 11 bankruptcy in January and is now embroiled in a potential accounting scandal.

In addition to the rise in Internet usage and e-commerce, bandwidth demand in many countries is being fueled by in-region and global trade, an increase in offshore manufacturing because of the availability of cheap labor, and a trend among Western companies to establish subsidiaries in the region due to favorable economic conditions and labor costs. However, exports in some countries are not as strong as they were even a year ago, as the United States, a major trading partner, crawls out of a recession and Japan falters again economically.

The Figure shows the end-user traffic proportions by country in the Asia-Pacific region in 2002 as well as projections for 2007, and the Table presents forecasts of the regional percentage of outgoing end-user traffic by country over a five-year period between 2002 and 2007.

An onslaught of new submarine cables is interconnecting countries in the region, unleashing pent-up bandwidth demand and increasing the traffic on terrestrial networks. One such cable is East Asia Crossing (EAC), a bidirectional, four-fiber-pair, 80-Gbit/sec submarine cable that uses DWDM technology. It connects the Pacific Crossing-1 (PC-1) cable-an east/west pan-Pacific cable that runs between Asia and the United States-from Japan to landing sites in Hong Kong, Taiwan, and Korea. EAC linked to landing sites in Malaysia and Singapore in late 2001 and is expected to land in the Philippines during the first half of this year. EAC is also the Asia Global Crossing cable designed with branching units that can connect to landing stations in China, if and when regulatory approval is granted.

And for the first time, an undersea cable is linking Australia directly to Japan via Guam. The Australian-Japan Cable (AJC), a 12,000-km, 40-Gbit/sec collapsed-ring configuration, started to carry live commercial traffic in late December. Shareholders in the cable include Telstra, WorldCom, Japan Telecom, NTT, Teleglobe, and Concert.

"There have obviously been a number of new cables put into the area, and they have a design capacity of a significant level of bandwidth," says Neil Lambert, chief marketing officer at AJC (Bermuda). "Japan is Australia's single largest trading partner, so it makes very good sense from our perspective to link the two trade nations together. Every one of the markets [in the region] is growing significantly. We envision it to grow significantly as the reliance on the U.S. for all Internet traffic and data actually starts to dissipate and you see local hubbing and mirrored sites coming up." Asia faces a dilemma, to some extent, because of the multitude of languages used to communicate, adds Lambert.

Bandwidth demand in many countries in the Asia-Pacific region is growing rapidly, but providers evaluating the opportunities in the region face considerable risks. Incumbents maintain a stronghold on many markets. Foreign investment in domestic carriers in several countries, including the largest markets (Japan and China), is heavily regulated. Limiting exposure to carriers exiting the market such as Level 3 or on the verge of collapse such as Global Crossing, which has a 58.2% interest in Asia Global Crossing, presents other potential hurdles.

How quickly broadband infrastructure will roll out in these countries is another huge gamble. The range and sophistication of the technologies involved is widespread. Disparate languages and cultures may also hinder the development of more than a handful of pan-regional IP applications.

Another challenge is the ability to fund long-term investment in a region of political and economic uncertainty, when funding for carriers has all but evaporated.

Yet, says AJC's Lambert, "the ultimate demand for bandwidth is the end user irrespective of the economic climate that the carriers are operating in. In some instances, it has been slowed down by the availability of broadband access in the last mile, but Internet usage and growth is still around the 100% level in the markets that I primarily deal with, so carriers are having to address that demand. How well they are able to address it is driven by the economics of their home base. They are certainly tight with their cash, but they have still got to buy [capacity] and they have still got to grow, because if they don't, they won't survive."

Lightwave is a monthly international publication focusing on fiber optics and optoelectronics, the technologies driving the growth, convergence, and improved performance of telephony, computer communications, and video. Lightwave provides technology news as well as applications and product information for corporate and technical managers and staff engineers. Lightwave's editors emphasize analysis and interpretation in their reports on the technological impact of fiber-optic components, systems, and networks in these markets.