Don’t expect video to exhaust fiber glut

Bandwidth prices stabilizing based on additional factors, consolidation

Cisco says that in 2010, just 20 homes using the latest broadband technology to access video content will generate enough traffic to equal the entire load on the Internet in 1995.

Cisco says that in 2010, just 20 homes using the latest broadband technology to access video content will generate enough traffic to equal the entire load on the Internet in 1995.

Juniper says YouTube already generates traffic equal to the entire Internet load in 2000.

Indeed, the widely held assumption is that the explosive growth of video across the Internet will quickly exhaust excess capacity and spike bandwidth prices that have dropped almost 60% per year for the past three years. But so far, this has yet to prove out.

A pie chart of videos' share of traffic on DSL, cable modem lines

Not everyone believes the widely reported “fiber glut” of the late 1990s and early 2000s will be exhausted by video, prompting a spike in the price of retail and wholesale bandwidth. Some believe video will hardly make a dent in excess capacity but that pricing will stabilize based on other factors, such as industry consolidation creating fewer suppliers.

“In long haul, there is still plenty of fiber,” says Andrew Odlyzko, director of the Digital Technology Center at the University of Minnesota. “If you look at the total Internet traffic in the U.S., it could be squeezed down one or at most two fiber strands. And on most routes you have hundreds of strands.”

David Rusin, CEO of American Fiber Systems, a Rochester, N.Y., provider of lit and dark fiber resources, agrees that fiber is plentiful. “Now what’s happening with consolidation, which affects supply. . . that could have an impact if [carriers] no longer provide dark fiber.”

Insight Research did a study back in 2001 of fiber utilization among 13 major long-haul carriers. Data was culled from fiber pairs in 24 major cities.Only 7% to 8% of the total capacity was used, and of that only 3% to 4% was actually lit, says Robert Rosenberg, president of Insight Research. Historically, utilization has been more like 30% to 40%, he says.

“It was really a small percentage of the capacity in the ground," Rosenberg says "You said to yourself, ‘Gosh, this thing is never going to go away.’”

Tracking traffic

Couple with that the slowing growth of Internet traffic. Even though the rate of video growth has been increasing – Level 3 says 50% to 60% of the traffic across its IP backbone is video, compared with 5% to 10% five years ago – the overall growth of traffic on the Internet has slowed to 50% per year from 100% or more in the heady days of the bubble.

“Back in those days, everybody was putting in as much as they could and it made sense,” says Clif Holliday, an analyst with Information Gatekeepers Inc. (IGI). “There’s probably an awful lot of excess fiber in the ground.”

According to IGI, Internet traffic is expected to grow 45% to 50% per year until 2010. The major feeders of traffic on the Internet backbone will be high-speed DSL and cable modem broadband access lines, international transactions and fiber-to-the-premises (FTTP) lines.

File sharing is a major component of high-speed traffic, and the largest segment of file sharing is video, according to IGI. But video file sharing will be dwarfed by FTTP traffic in the form of IPTV, especially high-definition IPTV, Holliday says.

“Using digital delivery of HDTV is a tremendous bandwidth hog,” Holliday says. “It will overshadow everything else if the telcos do what they say they are going to do, and if they are successful at it.”

AT&T and Verizon are spending billions laying fiber closer to homes in order to deliver TV and IPTV service. Verizon reported 207,000 FiOS TV customers at year-end -- adding 89,000 in the fourth quarter alone -- and wants to have its TV services available to sell to 5 million homes by the end of 2007.

AT&T has less than half as many subscribers as Verizon. AT&T uses Microsoft software to deliver its IPTV services, but there are apparent issues with the software's ability to scale over millions of homes while supporting high-definition, video-on-demand and digital video recorder service. Investment firm UBS Warburg estimates AT&T will have 93,000 Uverse video subscribers by year-end.

IPTV will not dent excess Internet capacity per se but will help alleviate overcapacity on specific routes in the facilities of some of the largest carriers of Internet traffic, Holliday says.

Pricing watch

As a result, bandwidth pricing could increase, he says, because carriers will need to purchase equipment to support IPTV across specific fiber routes with a shortage of capacity.

“Somebody could say, ‘we’ve got a lot more fiber than we need’ – that’s probably going to be true maybe forever – but that doesn’t mean that we don’t need to have more,” Holliday says. “It doesn’t make any difference how much fiber you’ve got in total in the United States. If you need to get from A to B, the only thing that makes any difference is how much you've got from A to B. There will be routes where you’ll see major additions.”

Global Crossing recently increased wholesale and “selective” retail bandwidth pricing by 5% to 10% due to “supply and demand equilibrium,” says Anthony Christie, director of marketing for the carrier.

Christie says this equilibrium is a confluence of several factors – not just the growth of streaming video on the Internet. The virtualization and Web-ification of enterprise applications, industry consolidation and inexpensive broadband access – which enables sharing of video files – are all playing a role in the stabilization and increase of bandwidth pricing, he says.

As is the case with Level 3, Global Crossing finds that 50% to 60% of the traffic from its top 10 IP transit customers is “video driven,” Christie says.

Level 3 is seeing increased demand from YouTube and other companies that are aggregating user-generated content; as well as from companies looking to offer broadcast-quality content through the Internet, such as studios distributing DVDs online, and portals offering video downloads to PCs or set-top boxes.

So much for a boost from video Even though U.S. spending for video-on-demand content is expected to boom . . .
 2005200620072008200920102011CAGR
Internet streaming video on demand spending (in millions)$53.5$62.4$72.5$84.0$97.1$111.8$128.515.7%
IPTV video on demand spending (in millions)$8.0$49.8$125.6$199.1$294.6$395.1$525.1101.0%
. . . carrier revenue on wavelength services to deliver such content is expected to stay relatively flat since bandwidth supply remains plentiful.
 2005200620072008200920102011CAGR
Wavelength services revenue (in millions)$230 $234 $225 $232 $240 $245 $252 1.5%

Jeff Tench, senior vice president of offer management for Level 3 Content Markets, also sees prices for that bandwidth -- be it transport bandwidth, IP transit or content distribution – stabilizing due to higher demand from the end-user as well as from carriers for edge applications.

That higher demand has helped absorb the capacity glut, Tench says, prompting a round of reinvestment in the network. Level 3 has been investing in its network for the past three years at both the wavelength division multiplexing and IP layers, he says.

Level 3 has also been one of the more active carriers on the consolidation front, acquiring seven companies over the past two years.

“If you look at the price for bandwidth fives years ago on a unit basis, it was not economical to distribute movies online,” Tench says. “At the current levels, people are finding new opportunities to use the Internet to shift an entire industry.”

Demand and upgrade costs to light unused fiber will help stabilize bandwidth prices, says Eric Schoonover, senior analyst at research firm TeleGeography. He said it would be a “stretch” to expect prices to increase based on the growth of video.

“I’m not sure enterprise and wholesale customers would bear an increase after so many years of precipitous declines,” Schoonover says. “But I have no doubt there will be an amount of stability that hasn’t been seen in a few years, at least. And really in the end it all comes from video.”

Video is driving the user’s experience, which is prompting providers to buy more IP transit bandwidth to handle the increase in traffic on their long-haul networks, Schoonover says. But this will not eat into fiber glut, he says.

“There’s plenty of fiber in the ground for years to come,” Schoonover says. “In terms of the long-haul major routes, they just have so much glass in the ground that they’re just going to put lasers on either end and call it a day. Most of that fiber is capable of significant DWDM deployments of 96 wavelengths per fiber pair. So you’re getting almost a terabit of data traffic per fiber pair. That’s just a lot.”

Insight’s Rosenberg disagrees. Carriers will need to replace that embedded and unused glass with newer-generation strands, he says.

“This is what the industry has waited for since the 1960s,” he says. “Once you get a mass market for video telephony, that application is going to continue to suck up capacity because whatever you gave them last week is not sufficient: I want better definition, I want better sound, I want better quality in the image.

“It will mean that the industry will begin another round of investment with a new generation of glass and a new generation of optics to be able to meet that capacity demand,” he says. “Current unutilized fiber will be obsoleted by changes in technology over time.”

What, then, is the legacy of all that unused fiber from the late 1990s and early 2000s?

“Telecom industry wasted $100 billion putting down all those redundant long-haul fiber strands,” says the University of Minnesota’s Odlyzko. “One of the great tragedies is that if the $100 billion could have been used instead to take fiber to the home, we would have had more than half of the households in the U.S. wired up with fiber.”

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