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Bandwidth Price Plunge Nearing End?

The dramatic price collapse caused by the infamous "bandwidth glut" may be nearing an end, according to a new report by research group TeleGeography. The new report, "Terrestrial Bandwidth 2002," confirms that the supply of city-to-city bandwidth far exceeds actual needs. But with prices already at or even below costs, however, it seems unlikely that the capacity oversupply will depress prices any further. Any future price collapse would come as a result of other market forces, rather than the continuing capacity glut.

The staggering increase in telecom capacity has sent bandwidth prices and, by extension, carrier revenues into a downward spiral. Prices for capacity between major cities in the U.S. and Europe have fallen by approximately 70 percent annually in each of the past three years. For example, two years ago, an OC-3 (155 Mbps) circuit between New York and Los Angeles cost $1.8 million per year. In the first quarter of 2002, the same lease could be had for less than $150,000.

Steep price declines have been an industry concern for several years. The TeleGeography report highlights another problem stemming from turmoil in the telecom sector: a lack of market transparency. Individual carriers' prices still vary dramatically. TeleGeography has found that the highest price for a given circuit will often be four times greater than the lowest price. This disparity suggests that neither bandwidth sellers -- nor buyers -- have systematic knowledge of their comparative position in the marketplace.

"Bandwidth prices are no longer driven by supply and demand," said TeleGeography analyst Stephan Beckert. "They're driven by short-term costs, and by the fear of bankruptcy court. But as prices fall below costs, carriers will not be able to remain solvent."

"Terrestrial Bandwidth 2002" surveys the shifting landscape of suppliers and products, as well as the causes and effects of financial turbulence in the industry. The first half of the report also reviews current trends in fiber-optic technology and their associated costs. The second half of the report presents detailed profiles of over 80 terrestrial networks in the U.S., Europe, and Latin America.

The inaugural edition of "Terrestrial Bandwidth" builds on TeleGeography's previous research of terrestrial fiber-optic systems that was initiated in the "International Bandwidth" series. The report can serve as a stand-alone analysis of the long-haul terrestrial network industry or as a companion to TeleGeography's "Submarine Bandwidth 2002" report.

An independent subsidiary of Band-X Ltd., the Washington, D.C.-based TeleGeography publishes reports and maps used by communication companies, consultancies, and financial institutions in over 100 countries. TeleGeography's flagship report -- the self-titled TeleGeography series -- has been published annually since 1989.