Insight?s annual analysis of the private line market explores buying trends at the wholesale and retail level. Despite the current soft economy, corporate layoffs, and tightened IT budgets?all of . . .
Competition, end-user demand for bandwidth, and changing regulations have historically been the principle drivers of growth for private lines. Although these same factors at work today, the nature of the business has changed from providing a full, end-to-end long distance circuit to providing a series of local-channel circuits that connect businesses to a shared data network or to the Internet.
In addition to enterprise demand for private line circuits, we see robust demand for wholesale private line services. Alternative carriers (growing cable MSOs and wireless providers) continue to purchase private lines on a wholesale basis in order to connect their nodes to terminating POPs. Even during bankruptcy, CLECs have continued to gain new customers and increase revenues, further driving the wholesale segment of the private line market.
Private Line Services details revenue and circuit counts by carrier type, and defines the split between wholesale and retail sales of T-carrier (T1, T3) and OC-N circuits (OC-3, OC-12, OC-48, OC-192, OC-768). Wavelength services revenue estimates are also provided. Insight?s annual study illustrates how carriers and their customers continue to move to higher capacity circuits in order to reap the benefits of lower cost-per-bit transport.
A series of events that have unfolded over the past year will profoundly reshape the private line marketplace. Most importantly, the latest round of acquisitions is altering the competitive landscape by creating two dominant players in the private line market?and in effect rejoining the local and long distance portions of the old Bell System in SBC and Verizon. This new competitive equation is likely to usher in more stable prices and have a very positive impact on private line. It may also make private line a more profitable business, which would generate the cash required to invest in new IP services that might gradually cannibalize revenue from private lines.
The Triennial Remand Order issued by the FCC on February 4, 2005, is also reshaping the market. The Remand Order is yet another attempt by the FCC to implement the Telecommunications Act of 1996, and is intended to encourage CLECs to invest in facilities where there is a sufficient revenue opportunity, such as dense business districts and high traffic locations. Under the order, the CLECs will not be allowed to lease UNE at TELRIC prices in dense business districts and high traffic locations, which means that they will not be able to rely solely on a business model based on resale. The end results may lead to true facilities-based competition and competitive prices, but there is much uncertainty surrounding the transition from where we are today.
Both industry consolidation and the Triennial Remand Order may hasten the onset of the next generation of transport services and signal a maturity of the private line market. While our forecast predicts a modest growth for private line, a few years of profitable private line operations and a few healthy survivors of the telecom debacle could lead to significant investment and growth in the IP services that may one day cannibalize private line revenue.
1.2 Traditional Private Lines
A private line is a dedicated non-switched circuit or channel that is leased for a specified period. This channel provides a private and direct connection between at least two sites. Private lines can support voice, data, video, fax or multimedia communications. Private line speeds can be measured by digital signal level (e.g., DS1, DS1C, DS2, DS3), equivalent trunk level (e.g., T1, T3), or optical carrier level (e.g., OC1, OC3, OC9, OC12, OC18, OC24, OC36, OC48, OC96, OC192). Figure I-1 demonstrates the layout of a typical private line circuit.
Figure I-1 Typical Layout for a Full Circuit
Note: SWC = switching wire center POP = point of presence
End-user demand for bandwidth and new applications have historically been the principle drivers of growth for private lines. INSIGHT believes this will continue to be the case. The ability to increase productivity through E-commerce and IT applications will inevitably spawn future investment in even more applications. Increasing the number of applications will increase traffic on telecommunications networks, and a significant portion of that traffic will travel over private lines. The intense competition precipitated by a glut of capacity has, however, led to the revenue declines of the past few years.
Even though the demand for bandwidth is increasing, the private line market continues to decline as a consequence of price compression, which drove.....
Insight?s annual analysis of the private line market explores buying trends at the wholesale and retail level. Despite the current soft economy, corporate layoffs, and tightened IT budgets?all of . . .
