The bandwidth business is not what it used to be. These days, data traffic is what drives capacity demand, not voice, which tends to be more of a rounding error, in terms of bandwidth demand. Cost drivers also are changing: aggregation functions now are a growing part of total cost, rather than bandwidth transport.
Also, where demand once was driven by carrier partners and enterprises, demand now increasingly is shaped by content providers and consumer access providers.
"In terms of traffic growth, our enterprise customers use fast Ethernet down to DS3 connections," said Doug Junkins, NTT (News - Alert) America CTO, recently. But a typical "content" company more commonly orders up links running at 10 Gbps. "Content companies are a very important customer from a traffic volume perspective."
Overall, NTT America (News - Alert) finds, as do other global carriers, that traffic grows relatively constantly at about 60 percent a year. "Year over year in the last six years, we average 60 percent annual growth in demand," said Junkins. "Some areas are growing faster."
As volumes grow, however, the cost structure of the wholesale IP business is changing, said Junkins. Basically, data center and router cost is growing as a percentage of total cost. In fact, bandwidth costs are falling, on a per-megabit of capacity basis. Other personnel and overhead costs are relatively static.
But hardware costs are not falling anywhere near as quickly, and are becoming a bigger and bigger part of IP transit cost. "We have been pounding Cisco (News - Alert) on this," said Junkins. "We need lower prices per port."
That in turn is driving port density and power consumption trends, as it is unworkable to keep stacking more and more routers to handle the higher bandwidths. As carriers push towards a 100-Gbps standard, power and real estate issues are growing. "You want the smallest number of aggregation router boxes and ports," said Junkins.
Junkins expects the Cisco ASR 9000 routers NTT America just bought will last at least four to five years, "which is as good as a return on invested capital as we tend to see," he said.
It is shifting where cost of delivery is. Last mile is where the cost always is. We are getting closer to that model now. We've been flat in terms of opex expense per year. Not a material issue.
There's always a lot of fiber swapping going on, to get diversity of routing. Tier ones have better paths through some parts of the country. Seattle to Chicago through California or through Utah and across, depending on which railroad path they follow. One or two can go straight across the Cascades. If you look at latency, it makes a difference. We can cherry-pick our routes; quite an advantage. We have very rigorous cost models. We know when we will make or lose money, and how much.
The Cisco ASR 9000 has a per-slot capacity of up to 400 gigabits per second and to scale up to 6.4 terabits per second.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary's articles, please visit his columnist page.Edited by Marisa Torrieri