Local services will grow, while long-distance services will decline.
Private-line revenue will continue to grow steadily through 2008, despite competition from Internet services, according to a recent report from Insight Research.
Private-line revenue will continue to grow steadily through 2008, despite competition from Internet services, according to a recent report from Insight Research.
“Since the mid-1990s, people have been saying private lines would disappear because of the Internet,” says Robert Rosenberg, president of Insight. “Instead, the Internet has been a spur to private-line sales.”
The Internet is increasing private-line use because companies need to connect to local Internet hubs. In the past, companies would connect far-flung branch offices with long-distance private lines, Rosenberg says.
That model is disappearing though. Instead, Rosenberg says, many companies now use local private lines to connect multiple offices in one area to a nearby Internet hub. Once traffic hits the hub, IP VPNs are used to communicate with other company offices around the country or the globe.
While private-line revenue will grow at a rate of 7.7% between 2003 and 2008, most of that growth will be in local private-line sales, according to the study.
Local wholesale lines sold to other carriers and ISPs will show double-digit growth; local retail lines, which carriers sell to companies, and long-distance wholesale lines will show single-digit growth; and long-distance retail lines will decline, the report says.
One factor driving the growth of wholesale local private lines is increasing broadband usage, Rosenberg says. Broadband traffic is becoming more image-oriented. And because images consume a great deal of bandwidth, ISPs will have to buy more private-line bandwidth to handle the image-oriented traffic the ISPs’ customers demand.
Despite the steady increase in demand for private-line bandwidth, Rosenberg doesn’t expect prices to increase. Private-line pricing has decreased consistently over the past three years. The demise of many competitive local exchange carriers and the financial instability of some established providers has led to speculation that bandwidth pricing in general would begin to stabilize or perhaps even increase.
“If you look into the future I think you’re going to see that you can get more capacity for the same price you’re paying today,” he says.
The carriers that will benefit most from the rising sales of local private-line services will be those that own metropolitan-area networks, in particular the regional Bell operating companies, Rosenberg says.
