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Andrew Odlyzko, best known for his objective commentary on Internet traffic growth, spoke at the 2008 Gilder/Forbes Telecosm Conference. He helped clarify what really matters in the debate about Internet bandwidth growth. Consider this a survival guide in a time where “Internet traffic growth rates are slowing and Hype is accelerating.”

Andrew Odlyzko was one of the first to burst the misconception (I’m being kind with this word choice) that Internet traffic was doubling every 3 months. He has devoted great effort to gather hard data about Internet traffic growth, a valuable service when virtually all commercial and financial participants are biased towards predicting larger than actual growth.

It is tough to believe Cisco’s (NASDAQ:CSCO) prediction that traffic would grow 40% a year as its objectivity is hopelessly compromised by its market position. Does anyone really expect Cisco to predict Internet traffic below consensus opinion?

The MINTS project organized by Andrew is a step towards objectivity and compiles data from publicly available sources. It is considered the first and last objective measurement of internet traffic growth. A list of sources is here.

Here are some of the interesting points he made during his presentation (full .pdf here)

  • “Should we worry about too much or too little Internet traffic?”
  • “Internet traffic growth rates are slowing. Hype is accelerating.”
  • The per-capita traffic intensity of Hong Kong is 6x the US level but is growing much slower (11% vs approx 50%).
  • Telecom is the only industry that worries about its customers using too much product.
  • Assuming traffic growth of 50%, carrier business is revenue neutral if costs drop 33%.
  • Volume is not value. SMS messages consume almost no bandwidth but bill out at $1000/Mb

Based on Andrew’s data and our own work on Japan bandwidth growth (see “The Bandwidth Explosion Myth”) it appears that internet growth is maturing, and simply installing faster connections (like FTTH in Japan) won’t make a difference. The only thing that will kick-start growth again is new applications.

The application most often touted as the source of the next bandwidth is Video. CEO’s of equipment and chip companies highlight Video as a key factor driving growth. Pundits agree. Yet none can point to specific facts that quantify the claim.

Cisco has shipped only 500 units of their much vaunted Telepresence video conference system (source). Ask a CEO to lay out, in detail, exactly how substantial equipment investment is being used to fund more bandwidth for video specifically. I can’t find one who can do so and would welcome the conversation.

The consensus opinion that video traffic driving bandwidth demand is unchallenged, but is remarkably similar to claims in 2000 that Internet traffic was doubling every 90 days. I would really like to see someone objective, like Andrew Odlyzko, look into the claim that video is driving the growth of the network.

The reality of video is it is highly cacheable. Take the top 1000 videos and store them at the edge of the network and you have eliminated a very large quantity of traffic. This appears to be what Zeuguma Systems is doing. Folks who cite “The Long Tail” and the abundance of niche content forget that The Long Tail isn’t very fat. There are only so many folks who want to watch oddball videos. Most people think they are special but in reality just want to watch “American Idol”.

The most important conclusion I drew from Andrew’s presentation and the panel that followed was the following: Traffic growth simply doesn’t matter. Period. What matters is revenue. Arguments about an ‘Exaflood’ or Video bandwidth explosion are not meaningful unless their deployment results in incremental revenue that carriers can use to fund new investment. And it is very difficult to see how Internet Video (not IPTV, that is different) puts more dollars into the pockets of carriers that they can hand over to Ciena (NYSE:CIEN), Alcatel (NYSE:ALU), and Huawei.

Source: Internet Traffic Growth Does Not Matter