UBS has released a sector report on telecom that suggests that the slowing IP traffic growth will threaten router vendors. While the firm has long taken a rather bearish stance on the industry, this seems more alarming and less justified than most positions.
We know of no credible reports of slowing IP traffic growth; in fact, the increased deployment of high-speed broadband seems to promise the opposite. However, beneath its questionable main thesis is an essential truth, which is that while IP traffic growth may not be slowing, the IP revenue ramp is definitely slowing. Service providers, like everyone else, invest for profits, and revenue per bit has been declining.
We have seen pitch after pitch from the service providers talking about their strategies for transformation, but we have also heard these same providers tell us that their barrier today is equipment vendors that have not followed up on operators’ published strategies. The trend toward usage pricing and caps, and traffic metering, are all related to the need to curtail costs to match revenue potential. If equipment vendors want to continue to sell gear, they need to step up in the NGN revenue game, not just push boxes.