The Letter - Yes, Virginia, There is a Glut. But for How Long?

Posted: 12/2001

The Letter

Yes, Virginia, There is a Glut.

But for How Long?

Is there a bandwidth glut or not?

The question persists. Carriers fought long and hard to say there was no glut for the obvious reason of boosting their valuations. Now, as prices for long haul circuits plunge and market capitalizations shrivel, it can be assumed there is a surplus. (Even antiglut cheerleader Joe Nacchio recently told CNBC he could carve up bandwidth all day long.)

Conventional wisdom states multiplexing technologies and a huge supply of deployed but unlit fiber compounds overcapacity on existing routes. That means the glut would continue far into the future.

However, the future may come sooner that we think, according to what is surely a controversial analysis by TeleChoice Inc. (www.telechoice.com). The research firm found dark fiber could be used up as early as 2004.

Telechoice’s analysis evaluated three potential growth scenarios — low supply/low demand, low supply/high demand and high supply/high demand — for lit and unlit bandwidth linking the top 12 cities in the United States. In two of the three scenarios, unlit fiber — representing 80 percent of the nation’s fiber supply — is exhausted within the next three years. Only in the final scenario, which presumes a return to speculative investment in new long-haul capacity, is there a resulting transport oversupply.

“This finding clearly contradicts the recent assumptions that there is a glut of dark fiber,” says report author Russ McGuire, chief strategy officer for TeleChoice. “It is critical for carriers and vendors to consider the implications that such a near-term dearth of fiber would have on their business models.”

The study looked at the plans of 29 companies, 14 of them had built fiber routes while the others purchase fiber, McGuire told PHONE+
news editor Josh Long. On average, 22 percent of the dark fiber on the 22 routes (connecting 12 U.S. cities) studied has been lit. Another way of saying it is that of the average 690 fibers installed on each of those routes, about 150 fibers have been lit. In the extreme supply-demand ratios are the Dallas-to-Houston route with 1,073 fibers and 168 lit and the Denver-to-San Francisco route with 212 fibers and 108 lit.

Long talked to commodity bandwidth traders who believe it would take a miraculous surge in demand for the consulting firm’s predictions to bear out.

In a press release, McGuire admits to incorporating some major what-ifs into its model. The analysis, he says, includes unanticipated new applications, such as machine-to-machine traffic, “which can explode overnight as small amounts of status and alerting information start proliferating the network.”

Even so, you have to give the firm credit for looking at the issue on a route-by-route basis, which more closely matches carrier planning and building. Oversupply on one city-to-city pair does you no good if you have congestion on another.

Khali Henderson
Editor in Chief

Additions, Corrections to October 15 PHONE+ Fall 2001 Source Book.

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