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Exponential bandwidth growth and cost declines

By Scott Kipp, president, Ethernet Alliance, special to Network World
April 10, 2012 12:45 PM ET

Network World - Global Internet traffic is expected to grow 32% per year from 2010 to 2015. In 2010, an average of 46 terabits/second traveled over the Internet and should surpass 199 terabits/second in 2015. But while IP traffic is growing exponentially, the budgets for network equipment are growing at less than 10%.

IDC predicts that spending on Ethernet equipment will grow about 8% per year from 2011 to 2014, so a critical challenge facing the industry is how to supply 32% more traffic annually while receiving only 8% more revenue per year. To meet both capacity and cost forecasts, the cost of bandwidth must decline at 18% per year (see Figure 1).

OUTLOOK: 1

GROWTH SPURTS: The evolution of the Internet

Meeting this required reduction in bandwidth cost will come from numerous factors, but first let's examine factors contributing to bandwidth growth.

Exponential Growth in Bandwidth and Cost Declines

Factors contributing to traffic growth

1. Video. Internet traffic growth is largely due to video streams to millions of televisions and smart devices (desktops, laptops, media tablets and smartphones). The first generation of Internet video streams were short, low-quality videos at tens or hundreds of kilobits per second (kbps) to PCs. These video streams are now being sent to billions of other devices and second-generation Internet video streams are long, high-quality videos at 1Mbps-5Mbps sent to high-definition televisions. Instead of streaming amateur video of skateboarding dogs to PCs, users are streaming feature-length films with over-the-top (OTT) video services like Netflix to televisions in their living rooms. The combination of long-form, high-definition videos and billions of access devices creates exponential traffic growth. [Also see: "Cisco: Puppy cams threaten Internet"]

2. Proliferation of smart devices. IDC predicts that for the first time ever, more than 1 billion smart devices will ship this year. Smartphones will make up the majority of these devices, with more than 500 million sold in 2012. By 2014, the number of smart devices in use will grow to more than 3 billion devices. These devices will make the Internet more accessible than ever so users stay online from more places for longer periods of time.

3. Expansion of the user base. The user base of the Internet is expanding rapidly as the cost to connect declines and the ease of connecting increases. According to the Visual Networking Index, the Internet user base is growing at about 5% per year from 1.7 billion users in 2010 to 2.2 billion users in 2015. The users are not only growing geographically, but they are growing demographically as the Internet becomes easier to use with more smart devices.

These three factors whip up a perfect storm that will stay with us for at least a decade. Internet service providers need to build out their networks to weather the flood.

The American scholar Albert Bartlett stated, "The greatest shortcoming of the human race is our inability to understand the exponential function." Examples help. If you invested $100 and got an 8% return over 10 years, your investment would reach $216. Not bad. But if you found an investment that had a 32% return rate, the $100 would multiply to $1,606 after 10 years -- much better.

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