Report shows SONET carriers grappling with pricing, competitive pressures

April 14, 2005 Palo Alto, CA -- A report from Frost & Sullivan says that, since the dot com era, the competitive landscape of the North American telecom industry has drastically altered, with regulatory changes spurring RBOCs to expand into new markets, while some older companies, fresh from Chapter 11 restructuring, provide strong competition to established participants. The report reveals a similar situation occurring within the North American market for wholesale SONET services.

The report shows companies in the SONET services market caught in a race to out-price each other, with virtually every carrier targeting the profitable enterprise space in their search for new sources of revenue. According to the report, the total market for North American wholesale SONET services generated revenue of $718.7 million in 2004, and is expected to reach $1.26 billion in 2010, at a compound annual growth rate (CAGR) of 8.3%.

"While the increased competition has come as an advantage for the end user, it has proved to be a major source of worry for the carriers," observes Vinod Ramanathan, research analyst at Frost & Sullivan. "The lucrative enterprise market represents a big portion of the profits for carriers, and such aggressive pricing only results in lower profit margins."

The report shows year-on-year price decreases for SONET services averaging more than 12%. According to the report, while revived economic growth and increased demand from the government sector are providing impetus for services, these volume increases are offset by falling prices. At the same time, according to the report, SONET services are facing a significant threat from IP VPNs and Gigabit Ethernet offerings, which have grown into favor with carriers. The study notes that IP VPNs provide an attractive alternative due to their lower transactional costs.

The report says that, with "convergence" and "triple play" as the industry's new buzzwords, equipment vendors and carriers are now focused on increasing the life of legacy applications and building suitable bridges to help make convergence a reality, while providing extremely reliable "on demand" networks.

"As triple play gains traction, it is imperative that SONET providers concentrate on optimizing networks to carry voice, data, and video," notes Ramanathan. "Going forward, the focus will be on designing, building, and managing future networks for customers."

Nevertheless, with the rapid onset of the digital age, substantial growth opportunities still exist for SONET carriers, maintains the report. The report sees wireless markets witnessing a massive increase in voice and data traffic, with wireline markets showing equally impressive growth rates for data services.

"With digital data traffic doubling approximately every year, the need to manipulate, store, and move data at lightning-speed connectivity is greater than ever before," concludes Ramanathan. "Business on demand is here to stay, and this trend bodes well for the SONET services market."

The report, "North American Wholesale SONET Services," analyzes the North American market for SONET services, covering wholesale SONET capacity while examining key issues impacting the market, focusing on growth drivers and restraints, as well as market, pricing, and technology trends. The report also provides a detailed analysis of the market's transforming competitive scenario, while highlighting potential growth opportunities arising from these changes.