The phrase ‘information superhighway’ – much beloved of politicians in the mid-1990s – now sounds rather old-fashioned. But there is a real superhighway powering the global internet – it’s mostly underwater and is costing a fortune to build.
The long-haul internet backbone is the framework of routing equipment, satellite links and, above all, undersea cables that makes the web truly worldwide. It is the M1 to the local networks of A and B roads which bring internet data such as e-mails and web pages to any desktop computer equipped with a modem.
Unlike the internet, which is the child of the IT sector, the long-haul backbone is dominated by the telecoms industry. It is a direct descendant of the early telephone connections that allowed people on either side of the Atlantic to talk to each other for the first time.
Until now, the movement of internet protocol traffic has been bolted on to the existing networks which supply voice communications. But the balance of power is shifting. In a development described as ‘historic’ by the International Telecommunications Union, last year internet capacity exceeded worldwide telephone circuit capacity for the first time. In future, voice traffic will be just one element of IP-centric networks.
Companies such as Global Crossing, 360networks and FLAG Telecom have been busy building networks able to cope with the expected boom in demand.
They want to sell the capacity on to the multitude of individual carriers expected to be providing internet and data services to consumers and businesses when e-commerce begins to fulfil its potential.
TeleGeography, a US research firm which tracks the development of the internet, calls the increase in worldwide bandwidth availability ‘astounding’. Between 1998 and 2000 the installation of new submarine cables boosted trans-Pacific bandwidth from 14 gigabits per second to 244GB/s.
But, according to TeleGeography, ‘that achievement pales in comparison with what is yet to come’. The firm claims European networks now have the potential to eventually carry one million GB/s of traffic between cities – equivalent to 2 megabits per second of capacity for every person on the continent.
Geoffrey Smith, professor of communications engineering at Glasgow’s Strathclyde University, says emerging technologies, especially in the area of optical networks, will continue to push back the boundaries of what carriers can provide.
In fact, a shift towards optical networks could push the backbone’s capabilities well beyond the needs of even the biggest forecast increase in global traffic. The question facing the industry, says Smith, is commercial, rather than technical. So how much capacity will actually be needed?
‘That is where there is some uncertainty, at least in the short term. If you take the transatlantic network as an example, demand has always expanded to match the capacity available,’ says Smith. ‘What we don’t know is how far you can extrapolate that as a guide to the future. It very much depends on the user and whether e-commerce takes off to the extent people hope it will.’
Smith’s comments get to the heart of an issue that is troubling many in the global telecoms industry, where there is currently a fierce debate about possible overkill. Every high-profile announcement of a new project fuels speculation that supply is outpacing demand to an untenable extent.
For example, late last year Singapore Telecom announced a project to build the world’s highest capacity cable linking Singapore and India. The $650m project will create bandwidth capacity of 8.4 terabits per second (8,400GB/s), and a network able to carry 100 million-voice conversations simultaneously. That means this single cable will have a capacity roughly four times as great as the entire world’s current broadband demand.
In January, UK telecom provider Cable & Wireless announced Apollo, the most advanced IP transatlantic cable yet. To be built in conjunction with optical networking specialist Alcatel, Apollo will provide 3.2 terabits per second of traffic transmission on each of its two legs.
Depending on which side of the argument you believe, these massive investments either leave carriers well placed to cope with the inevitable boom in traffic or looking at some severely under-utilised assets. But even if demand matches supply in the long term, the immediate consequences have been uncomfortable for the capacity builders.
There is evidence of prices falling by about 50% a year on major routes, and drops of up to 90% in a single year. Grant Zimmerman, a bandwidth broker, told a recent conference that he has ’20 sellers for every buyer on the New York to London cable.’Talk of a ‘broadband glut’, in which operators are forced to virtually give away capacity, have struck a chord with the world’s stock markets.
The markets currently need little encouragement to wreak vengeance on new technology sectors, which they believe are failing to deliver the goods fast enough – and the long-haul broadband market is no exception.
Plunging shares have wiped about $100bn from the value of the industry, affecting the ability of some of its small and medium-sized players to raise the capital they need for their ambitious plans. Just two months after announcing Apollo, Cable & Wireless was back in the news but for the wrong reasons. Its share price fell sharply after the firm admitted it was suffering from ‘severe price reductions’ in some of its global markets, especially the US.
Data traffic surge
The capacity builders remain publicly confident that their strategy is right. They point out that for every statistic relating to the increase in available broadband, another is available to show the relentless surge in data traffic, especially over the internet. Some forecasts expect transatlantic traffic alone to increase tenfold by 2002.
The industry claims that having a gap between available bandwidth and demand is healthy, as it allows them to provide a consistently high service level to their customers. There is also a distinction between the total capacity built into the design of long-haul networks and how much of it is activated – or ‘lit’ in industry-speak – at any one time. Mool Singhi, director of network planning for Global Crossing, says: ‘What appears to be a glut is actually an industry inventory management process. It takes huge amounts of capital to convert design capacity into available capacity.’
Analysys, the specialist telecoms consultancy, recently spelled out the potential prize on offer to global backbone operators that can hold their nerve and ride out the current storm.
The firm estimates revenue from carrying data on the IP backbone will experience a significant upturn after the end of next year and reach $225bn by 2006. By then, it believes the international backbone carriers will have diversified their operations and be using their networks as a springboard for offering a range of value-added services such as e-business applications.
However, before that pot of gold is reached most industry observers expect high-profile consolidation and casualties, and it is safe to assume that some of the builders of tomorrow’s long-haul internet will not be around to collect on their investment.