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Summary:

During the dot-com boom, so many undersea cable delivering the Internet traversed the bottom of the ocean between the U.S. and Europe that bandwidth prices plummeted and providers of submarine cables filed for bankruptcy. But those cables may soon no longer be enough to satisfy the […]

During the dot-com boom, so many undersea cable delivering the Internet traversed the bottom of the ocean between the U.S. and Europe that bandwidth prices plummeted and providers of submarine cables filed for bankruptcy. But those cables may soon no longer be enough to satisfy the global demand for bandwidth between the two continents, according to research out today from TeleGeography. The research firm estimates that bandwidth requirements will grow 33 percent between 2008 and 2015, and trans-Atlantic capacity will be exhausted by 2014.

The report also notes that the wave of bankruptcies caused by the oversupply of trans-Atlantic fiber during the boom artificially lowered the cost of providing bandwidth on those cables because many of the pipe providers were able to erase their cable construction debts. That’s good for the current customers who now pay lower prices for transporting their bits, but it means current prices don’t take into account the construction cost of the cables. So future customers will likely see some price increases on wholesale bandwidth as pipe operators add more capacity, and find themselves paying for expensive optical infrastructure. It’s a good thing that this undersea cable buildout is expected to be cheaper than the last one. From the report:

Consequently, current wholesale rates of approximately $14,000 per month for a 10 Gbps wavelength reflect only the incremental cost of the optical equipment needed to provision the circuit, but not the cost of cable construction. “Trans-Atlantic cable operators and wholesale buyers are facing a slow-motion crisis,” said TeleGeography analyst Alan Mauldin. “The cost of circuits on a new cable built today would be far higher than prices prevailing in the market.”

TeleGeography argues that while 2014 is still five years off, lengthy cable financing and construction cycles mean that carriers must confront this challenge soon. Cable operators may be able to extend their existing infrastructure by using 40 Gbps transmission line rates, but these technologies are unproven on a commercial long-haul submarine cable, and will only postpone the need to lay new fiber.

capacity

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  1. courtney benson Monday, June 22, 2009

    Does this mean we should be investing in Global Crossing or that Goldman Sachs should not have sold them?

  2. Alan Wilensky Monday, June 22, 2009

    I think there is missing information here:

    For a fact we know that some of the existing conduit bundles are being raised and upgraded with new repeaters for upgraded optical “magic stuff”, the carrier line cards are evolving, and the monomode fiber that is in place has lots of room to grow.

    I think this is a synthetic story. There is a technical, network upgrade challenge here, not a crisis in the making.

    1. Yeah, how much room is there to squeeze more bandwidth out of current fiber. I read for years about how technology to put more signal on the same fiber was making the telecom crash worse, on top of all the excess fiber that was laid. But I don’t know how this affects transoceanic routes.

    2. Well, its the “magic stuff” being identfied in the orange section of the graph. What the article is referring too is the physical capacity of the undersea cables leveraging today’s technology. They are calling out for more cables or higher capacity cables to be laid.

  3. Actually the current trans-Atlantic 10G rates are 40-50% below those in the story… I would put money in the companies that build the cables and not the operators…

  4. Mark Strangio Monday, June 22, 2009

    If Alan Mauldin is correct, then will bandwidth prices continue to decline across the Atlantic? Or will they stabilize in the face of increasing demand, caused by what seems to be explosive growth in Internet video? Assuming increasing stability in worldwide economies, should we anticipate lower bandwidth prices as demand for bandwidth increases? While we (www.peerapp.com) have seen gradual decreases in bandwidth prices, the rate of downward change appears to be slowing. Hence, more service providers are beginning to appreciate the value in caching video content at the edge of their networks.

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