International Internet traffic up, but rates keep falling

Welcome to this week’s ISP News Report. I take over the reins this week from Denise Pappalardo, who launched this twice-weekly update on Internet services several years ago. I am a 15-year veteran of the high-tech news business and as a senior editor with Network World, I cover emerging Internet trends, standards and technology. I look forward to covering developments in the ISP market for this newsletter. Feel free to send me feedback and suggestions of topics you’d like to see addressed at: cmarsan@nww.com. If there’s information I can gather on buying services from ISPs that would make your life easier, let me know.

International Internet traffic will grow 67% during 2003, according to a recent study by TeleGeography, a research division of PriMetrica. The study is based on data collected from major backbone operators earlier this year.

Despite the anticipated traffic growth, the study reports a significant glut of unused transatlantic and transpacific fiber. These trends point to continued low rates for Internet traffic traveling between the U.S. and many major cities overseas.

“Between Q1 and Q2, there was a 10% to 20% drop in the price per megabit of transit,” says Alan Mauldin, a senior research analyst with TeleGeography. “The U.S. continues to have the lowest prices for Internet bandwidth along with London, Frankfurt, Paris and Amsterdam. Hong Kong and Tokyo are considerably higher, with rates 40% to 100% higher for a comparable amount of Internet bandwidth.”

Overall, IP transit pricing in major world cities has fallen about 80% since mid-2000, the study found. ISPs that are on the verge of bankruptcy tend to drive down transit prices rather than ISPs emerging from Chapter 11, the study says.

Prices may be heading down in Asia, which has seen the most activity in terms of network deployment. TeleGeography found that international Internet bandwidth connected to Asia grew 114% in the last year, the highest growth of any region.

The second-highest growth was in Latin America, where Internet capacity grew by 105%.

In general, ISPs are adding capacity overseas at roughly the same rate as traffic growth – 74% for capacity growth and 67% for traffic growth. The fact that capacity and traffic growth are in sync is a sign that the irrational exuberance among ISPs in the late 1990s and 2000 has given way to a more reasoned approach to network deployment.

“The deployment of international Internet capacity is mirroring traffic growth loosely,” Mauldin says. “This is a very welcome trend that shows some rationality to this market. Companies are upgrading their networks in an orderly fashion.”

Mauldin noted less upheaval among ISPs this year vs. last year, when several major carriers such as KPNQwest went under and took large parts of the Internet offline.

“This year, we’ve seen less of that kind of up and down,” he says. “Now we’re seeing carriers adding capacity on major routes.”

Many ISPs still have too much international capacity. The study found that international links average only 10% to 30% of available bandwidth. TeleGeography estimates that transatlantic traffic will average only 18% of available bandwidth in 2003, with peak traffic consuming 26% of that capacity. Meanwhile, transpacific traffic will average 22% of available bandwidth in 2003, with peak traffic consuming 30% of that capacity.

These low rates of utilization of transatlantic and transpacific Internet links will continue through 2006, TeleGeography predicts.