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Price Matters:

With recent regulatory changes regarding UNEs impacting competitive carriers of all types, it is appropriate to say that in wholesale telecom price matters. With this in mind, research consultancy ATLANTIC-ACM compiled a snapshot of pricing trends to establish a baseline view of metro and long-haul pricing trends. The following is a summary of key findings:

Metro Pricing.

Over the past year, carriers have been aggressive in core metro pricing, with price compression weighted heaviest in mid-range bandwidths. For small metro core bandwidth, such as DS3, pricing declined by approximately 10 percent over the past year (see Figure 1). At the same time, prices for bandwidth - OC3 to OC12 - declined by approximately 20 percent, reflecting intense competition for these capacities in the metro space. Stepping up to larger pipes, the price for OC48 decreased by 15 percent from mid-2003 to mid-2004.


Figure 1

Figure 2

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Figure 4

When looking at metro Ethernet by port, the price per megabyte changes dramatically according to port speed. In other words, the higher the port speed, the lower the price per megabyte. Looking at the timeframe from mid- 2003 to mid-2004, however, price depreciation was restricted to slower speeds.

The actual price per megabyte per port for metro Ethernet decreased from $1,702 to $1,446 at 10mbps, whereas pricing for 100mbps and 1gpbs remained flat (see Figure 2).

Long-Haul Pricing.

Just as local connection pricing is reshaping competitive telecom models, metro costs are rapidly becoming the key cost component in overall long-haul pricing. Over the past year, the metro portion of long-haul costs has grown from 10 percent to 40 percent, due primarily to rapid long-haul price compression (see Figure 3).

When looking at pricing in terms of cost per gigabyte, the higher the bandwidth, the lower the cost is per gigabyte per year. For example, in 2003, a 1.25gbps wavelength cost approximately $4,000 per gigabyte per year, but a 10gbps wavelength cost approximately $1,600 per gigabyte per year (see Figure 4).

Looking at long-haul pricing based on geographic region, wholesale PSTN pricing per minute to fixed lines in Europe over the 2000- 2003 timeframe remained relatively stable while pricing to Latin America and Asia declined sharply and pricing to Africa declined through 2002, but began to rise again in 2003.


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Figure 7

On the mobile network termination side of the equation, pricing to Africa experienced a nearly 43 percent decline during 2000-2004 - the greatest of any region. However, pricing to Latin America’s and Asia’s mobile networks also demonstrated double-digit declines. As with fixed-line pricing, mobile pricing to Europe has largely remained flat.

(See Figures 5 and 6.) As most large carriers finish building their IP infrastructure and migrate their traffic to IP platforms, the average IP price per gigabyte is expected to dramatically shrink over the next several years.

The price was $3.9 per gigabyte in 2003. By 2007, the price will have shrunk at a compounded annual rate of 31 percent, to 90 cents per gigabyte (see Figure 7).

Taher Bouzayen is a vice president and Dr. Judy Reed Smith is CEO of Boston-based ATLANTIC-ACM, a research consultancy serving the telecommunications and information industries. They can be reached at atlantic@atlantic-acm.com.

Links

ATLANTIC-ACM www.atlantic-acm.com.


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