The United Telecom Council says don’t believe everything you hear when it comes to fibre pricing.
“While prices for fibre-based telecom products are falling, which we all knew, they’re not falling nearly as drastically as a lot of people have suspected and a lot of people have actually said,” says Beth Griffiths, director of research for the Washington, D.C.-based firm.
“In fact, the largest price decline . . . was six to 10 per cent and most of that decline is actually happening in long-haul markets. In the metropolitan and short-haul fibre markets, in fact, prices are still increasing.”
From these and other results the council concluded the state of the telecom market isn’t as bad as we’ve been led to believe in terms of comoditization of bandwidth and fibre.
The survey was conducted by Boston-based The Yankee Group. It polled 48 companies (buyers and sellers of bandwidth and fibre-based products) across the telecommunications sector in Canada and the United States. Participants included long distance providers, competitive local exchange carriers, Internet providers and construction companies.
Michael Sone, president of Toronto-based NBI/Michael Sone Associates says he agrees long haul prices have dropped, but isn’t convinced the short haul market is doing a lot better.
“I don’t know about an increase. I would say it’s probably flat or marginally higher. There’s still a fair rate of competition out there to keep them honest,” says Sone.
Griffiths blames the spiraling telecom reputation on declining stock prices, a number of bankruptcies and venture capitalists pulling their funding. The bad news has in turn bred more bad news, she says, despite demand increasing. The industry is experiencing a much needed and long predicted consolidation, she adds, “to make companies remember what they have to do to really successfully operate in a capitalist marketplace.
“Maybe that sounds very, very simple, but I think for a lot of telecom companies what the last few months have been, and what the next several months will be, is a return to basic business principles. It’s getting out of the dot-com era, the venture capitalist era of being able to expect $100 million to fall on your doorstep because you have a neat name or you have a great CEO, and really going back to a model that requires you to know what corporate finance is and how it works.”
What did come as a surprise was circuit sales. Griffiths says DS3s led the way accounting for 33 per cent of circuit sales for metropolitan networks, but what was somewhat shocking was OC-12s came in second at 23.5 per cent. She says she was also caught off guard by DS3s finishing on top again at almost 50 per cent in the long-haul market.
“That’s very surprising, as you see all the information that’s come out about the new technologies and how everyone’s moving to bigger circuits. Why are DS3s still the most popularly sold?” says Griffiths.
Sone, however, doesn’t understand what the fuss is about.
“There is a lot of DS3 out there, but by the same token you’ve got long haul at OC-12 and OC-48 as well,” Sone says.
“It’s not that surprising, I mean there’s still pretty good capacity on DS3. It’s not like everything that you want to put down the pipe is swapping DS3 and it’s not longer able to handle it.”
What the survey did not address was future expectations. Griffiths says respondents were reluctant to answer any forward-looking questions.
“The impression I got as an outcome of this study is that everyone is really down in the trenches, shoring up their defenses and playing the wait and see game,” she says.