After the implosion: the market for international bandwidth

Table of Contents

Management summary

• Introduction
• International bandwidth: from famine to feast and back again?
• Key messages

A series of fragmented, complex and changing markets

Somewhere between shakeout and stabilisation

The 'end of the glut' - a misplaced perception

• Supply and demand are the critical factors; international bandwidth is many markets, not one
• Geography still matters: market equilibrium depends on the region and the route
• Bandwidth shortages are now becoming a possibility on some routes, in some locations
• One bandwidth swallow does not a summer make

Worldwide, demand for bandwidth has been rising, and will continue to do so

• Rising broadband penetration a major driver

Supply of bandwidth has not changed

• Existing systems upgraded to provide more capacity
• What happens when existing fibres have been lit and sold?

A gradual increase in market stability

The supply side is consolidating

• Consolidation is happening at the global, regional and national level
• Economics is winning: the move to an infrastructure oligopoly
• Market conduct follows market structure

There will be fewer 'pure-play' wholesalers of international bandwidth in future

• Differentiation is hard to do
• ...but wholesale is crucial for retail, driving economies of scale and scope

In some markets, the price free fall is beginning to slow down

• The value of connectivity continues to fall
• Customers are buying bandwidth in bigger increments
• Purchases have switched mainly to short-term leases but the balance may now be shifting back
• In mature markets, the demand for international bandwidth is not price elastic
• In some markets, prices only just cover costs - but which costs?

Supplier tactics to offset the decline in prices

• Adding value by changing the product mix
• Adding value by changing the customer mix
• Ethernet is becoming the favoured choice for long-distance connectivity for some

Market development scenario

• General trends in ICT
• International bandwidth market development scenario