To take advantage of increasing demand from the remoter parts of Western Europe and new markets in the East, telcos must consider new routes to bandwidth delivery.
By Matthew Peach
Over the past two years, the demand for wholesale communications bandwidth in Europe has been a function of the predicted demand for Internet traffic. In 1999, there was a swift increase in the supply of bandwidth encouraged by the dot-coms and easy access to capital. By early 2001, there was a drop in the number of ISPs and in bandwidth demand.
Later last year the bandwidth suppliers themselves started to exit the market, restricting the supply. This made the supply more inelastic and so the trend continues.
Jonathan Wright, product manager, bandwidth services at Interoute made this assessment of the European bandwidth situation at the KMI conference on Fibre Optics Markets in Europe in mid-May. London-based Interoute owns the i-21 fibre-optic network that connects 45 cities in nine countries across Europe.
Wright told Lightwave Europe, "At the moment there is the perception that there is excess supply in the market. Most of the claims of bandwidth glut have been ramped up by two factors: providers exiting the business; and consumers being cleverer about how they use services." In Wright's view there is currently a state of equilibrium.
He believes that the European market could see further development, with consequent demand for new-build, if it develops new types of customer, particularly in corporate enterprises and if it opens up access to new territories.
Customer buying criteria have evolved between 1999 and 2002. Earlier, the key factors were price and quality of service. Nowadays, reach is a more important factor as the market looks likely to expand beyond the "golden rectangle" of London, Amsterdam, Frankfurt and Paris. Communications customers are now more likely to be choosy about the track record of a provider and consider financial stability to be more important than quality of service.
New geographical markets require different types of solutions from those already inside the golden rectangle, he says.
"There has been a march towards optical switching at the highest level, but optical switching is used for high bandwidth. We will need a hybrid of optical and electrical switching to suit the range of customers.
"The perception from product managers has been that, when the enterprise customers come to the market, we could start pushing extra features. But the problem is that, when the new customers come, they may be in the wrong places and with differing needs" (see Figure 1).
To achieve new bandwidth business, says Wright, just "popping" a city will not be enough. "The minimal requirement will be a metro network linking major carrier hotels."
"Over the period 2002-2003 demand will show slow growth. But there are a number of trigger points where it might start creeping up. Prices are falling on the major routes (Figure 2). The other factor is the viable enhanced services solution at the optical level - the hybrid optical-electrical solutions that we can sell off."
Interoute believes that the cost of bandwidth in various relatively expensive European routes will diminish towards the base costs in the golden rectangle. For example, London-Rome could drop by 60%; London-Madrid by 40%; and London-Milan by 20%.
"Another driver lies in offering different levels of protection for the services that a customer needs. A lot of vendors are talking about different levels of protection determined by availability of bandwidth; on demand etc. Once these become viable solutions, then we can use them as selling points."
There is likely to be a second wave of new-build demand from enterprise customers that want new services. But these links are likely to be short spurs off the major routes - perhaps sub-100km links.
So when and where will the market evolution occur?
"Interoute has already heard of enterprise customers in the market looking for new fibre," asserts Wright. "The key development regions include the South of France, such as Nice-Sofia Antipolis. There is also movement in cities such as Prague, Warsaw and in Eastern Germany, although demand in central and Eastern Europe is probably greater for the Internet than arising from enterprises demanding gigabit solutions."