Uncommon Wisdom

Oct 11 2007   1:43AM GMT

Doubts about consumer demand for bandwidth

Tom Nolle Tom Nolle Profile: Tom Nolle

Research is casting doubt on the notion that consumer demand will explode bandwidth needs, a story promulgated by Cisco and others. Skeptics note that in mature markets where high speed is available, traffic grows at about 18% per year. We agree with the notion that traffic explosions are highly overrated, but we believe that some of the conclusions that the more conservative camp draw from their numbers are also off the mark. There is little doubt that the growth in Internet traffic alone will not drive bandwidth growth by much more than 20% per year in most markets, and will likely do less in many. There is also little doubt that consumers will increase their consumption of non-Internet (meaning content video) traffic through substitution of downloading or streaming video versus traditional TV viewing. The question not yet resolved is how these truths will balance over time. We also note that the current rate of revenue-per-bit decline is faster than the rate of traffic growth, which is what apparently leads some to the conclusion that providers should be encouraging more bits to be used. That’s not a reasonable assumption; commoditization of bit pricing is the problem even today.

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