Uncommon Wisdom

Oct 25 2007   1:58PM GMT

Stopping the revenue-per-bit plunge

Tom Nolle Tom Nolle Profile: Tom Nolle

October 25 2007 regarding the future of routers and routing.
Internet pioneer Lawrence Roberts thinks that the cost of routing threatens the Internet’s future. The view is somewhat self-serving given that Roberts is a founder of an alternative-to-routing company, and it also discounts some current market realities, but it raises an interesting question given some other market trends. There is no question that operator revenue per bit is falling rapidly; one operator told us by 50% per year. Given this kind of decline in bit revenue, it is inevitable that operators either seek to increase margins by selling “fat bits” (bits associated with a higher-margin service) or reduce cost per bit. The Internet doesn’t provide a means of supporting fat-bit revenue generation because it lacks settlement, and so only cost reduction is possible. However, most IP deployment today is by network operators with service designs that include but are not exclusive to the Internet. These operators, which include IPTV providers, would have the option to deploy higher-cost capital equipment to generate their bits. If all of this is true (and it seems to us that it is), then router vendors should be promoting non-Internet missions in order to justify their higher costs, and if those missions are not promoted then routing as we know it will inevitably commoditize

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