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Internet traffic costs plummet

Posted By TelecomTV One , 02 August 2012 | 3 Comments | (0)
Tags: IP transit Internet internet policy peering

Despite all the catastrophising about rising costs and flattening revenues for mobile telcos and Internet access providers generally, IP transit prices, at least, are actually in steepening decline according to TeleGeography. By I.D. Scales.

IP transit is a key incremental cost for Internet providers. It's what a Tier One Internet backbone provider (one of the huge ones which is broadly peered to the other huge backbone providers) charges other, smaller or regionally-based ISPs or large Internet businesses to carry their traffic across the Internet. The more data users 'consume' the greater aggregate transit capacity a provider must buy to cope with demand.
If we assume that IP transit is a highly competitive market - which it appears to be -  it gives us the best idea of what the underlying Internet connectivity costs actually are and - just as important - how fast they are heading down (or not). 
According to the latest from TeleGeography’s IP Transit Pricing Service, transit prices actually declined at an accelerating rate in most locations around the world between Q2 2011 and Q2 2012, compared with the longer-term trend. So not only are they getting better, the rate at which they are getting better, is also getting better....
  you get the idea. 
The median monthly lease price for a full Gigabit Ethernet port in London dropped 57 per cent between Q2 2011 and Q2 2012 to US$3.13 per Mbps, compared with a 31 per cent decline compounded annually from Q2 2007 to Q2 2012. 
It's slightly less competitive in New York where the comparable price dropped 50 per cent to $3.50 per Mbps over the past year, and 26 percent compounded annually over the five-year period. 
TeleGeography says the pricing for short-term promotions and high capacities has dropped below $1.00 per Mbps per month.
Of course there are huge price differences globally, although all the prices are going down at pretty-much the same rate.  For example, says TeleGeography, despite falling 22 per cent compounded annually between Q2 2007 and Q2 2012, the median price of a Gigabit Ethernet port in Hong Kong has remained 2.7 to 5.1 times the price of the same port in London over the past five years. 
The price of a GigE port in São Paulo also fell 22 per cent compounded annually between Q2 2007 and Q2 2012, but has remained between 5.2 and 8.2 times the price of a comparable port in New York.
Clearly pricing is affected by the distance some developing markets are from major IP transit hubs, but the uniform percentage rate of reduction shows that Moore's law is diligently at work across the globe. 

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(1) 02 August 2012 15:37:33 by Michael Elling

It's both moore's and metcalfe's laws, as the total number of connections drives traffic/consumption more broadly and uniformly. My estimation is that it double's moore's law. So bandwidth pricing should drop 50% every year. Unfortunately bandwidth pricing in the mid and last mile disconnected from moore's and metcalfe's laws about 10 years ago in the US. Otherwise bandwidth should be 20-150x cheaper. The difference between 10% and 50% declines over 10 years is huge.

(2) 02 August 2012 16:02:16 by Tom Gage

So this continues to have big implications for the equipment suppliers. With trend price declines of this magnitude operators and backbone providers must evaluate current investments based on future prices. Even with massive volume increases that the cost side must be managed and that means very aggressive pricing will be needed by all network equipment suppliers.

(3) 02 August 2012 17:29:03 by Ian Scales

Agreed Michael - Metcalfe and Moore are both at work here and there are huge challenges for all the players in the chain... but when you think about that pricing it's astounding. As little as a $ a month for a meg. What an extraordinary achievement by the industry.