Fear of fiber-optic glut may be misguided

Despite an exponential increase in transnational bandwidth capacity, current fears about a fiber-optic glut may be misguided, according to a new report from research group TeleGeography Inc. (Washington, DC).

Most international phone calls and Internet sessions travel across fiber-optic cables stretched across the ocean floor. The total capacity on these cables is expected to jump 40-fold in just three years, from 300 Gbits/sec in 1999 to nearly 12,000 Gbits/sec by 2002, which is enough capacity to support 250 million simultaneous calls or stream four million DVD-quality movies at the same time.

These networks are primarily built by publicly traded startups such as Global Crossing, Level 3 Communications, FLAG Telecom, and 360networks, which have embraced a new business model: to supply the cable used by Internet service providers and other data-intensive customers.

However, enthusiasm for these stocks has diminished in recent months, due to the widespread belief that end-user demand for telecommunications bandwidth may fall short of the potential supply.

While the possibility of oversupply exists, TeleGeography analysts believe long-term fears may be "overwrought." Says report editor Graham Finnie, "The companies that buy bandwidth-carriers and ISPs-acquire 10 or 12 times more capacity than they actually use off-peak for any given service, [because] they need to reserve sufficient capacity to meet unexpected demands for data traffic, redundancy, quality of service, and network restoration."

As the report suggests, a slight change in the price elasticity of demand for international bandwidth could have a potentially large impact on the take-up of undersea-cable capacity. According to TeleGeo graphy analysts, some ISPs purchase 100% or more additional bandwidth for every 50% drop in the price of bandwidth. At that pace, demand for bandwidth could grow 25-fold in five years.

The report, "International Bandwidth 2000," analyzes supply and demand for global capacity and profiles more than 60 major bandwidth systems. For more information, call (202) 467-0853 or visit www.telegeography.com.

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