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July 08, 2014

Internet Protocol Shrinking the Capacity Business


By Gary Kim Contributing Editor



It has become a fact of business life that the Internet not only brings efficiencies to any market it touches, but can vastly destroy legacy markets, too.

And that might be the fate of the wide area network capacity business. In 2003, the global private line business generated about $36 billion in annual revenue. 


But there is an unmistakable trend: legacy voice and capacity revenues are declining, at least in developed markets.

Between 1997 and 2007, for example, long distance, which represented nearly half of all U.S. telecommunications revenue, was displaced by mobile voice services.

The IP transit market generated $2.1 billion in revenues in 2013. Sales of circuits connecting customers to Internet hubs contributed an additional $2.5 billion, for a total of $4.6 billion in revenues.

But consider that other new segments, such as content delivery networks , already by 2013 had grown to be a business generating perhaps $2.5 billion in global revenues, headed for perhaps $4.5 billion by 2017.

By way of comparison, U.S. local access revenues generated from business segment Ethernet access services passed $4 billion worth of revenue in 2011, and is projected to reach $11 billion by 2016.

And though global wholesale revenues might total $142 billion in 2019, that amount is driven largely by mobile service wholesale, not wide area network transport.

TeleGeography analysts say that the fate of IP transit rests on the growth of peering relationships that obviate the need for IP transit purchases.

“As Internet service providers worldwide have gradually migrated from purchasing transit to establishing mostly free peering arrangements, the share of global Internet traffic connected via transit agreements declined from 47 percent in 2010 to 41 percent in 2014,” TeleGrography says.

In other words, undersea and long haul capacity—which once was a significant revenue stream—is gradually becoming a matter of private networks interconnecting without charge.

As long as this relative decline of transit continues, TeleGeography forecasts that IP transit-related revenues will fall from $4.6 billion in 2013 to $4.1 billion in 2020. If the ratios of traffic routed via transit and peering were to stabilize at current levels, IP transit revenues would increase to $5.5 billion by 2020.



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