Why Smart People Do Stupid Things - NANOG Archive · Why Smart People Do Stupid Things: Submarine...

Why Smart People Do Stupid Things:

Submarine Cables, Network Oversupply, and the Inexorable Decline of IP Transit Prices

Tim Stronge TeleGeography

NANOG 62

•  Hello. •  My name is Tim. •  I come in peace.

Introduction

How Carriers See the Internet

Internet

Customer Touchpoint

Stakeholder

Solutions!

How Carriers See the Internet

Internet

•  Where is new infrastructure investment occurring? •  Why is there new cable investment occurring?

–  Is it truly a case of people doing stupid things? •  Will this new investment push down prices? •  Will we ever reach a global bandwidth "singularity" in which

transport and IPT will be priced the same no matter the location?

Topics to Cover

From a 10G to a 100G World Potential Capacity per Fiber Pair on FALCON Cable

59 x 100 Gbps!

96 x 10 Gbps!64 x 10 Gbps!

40 x 40 Gbps!

Lots of Investment … in Old Cables

Trans-Atlantic Potential Capacity Potential Capacity as Currently Announced by Operators

Trans-Atlantic Potential Capacity Potential Capacity if 100 x 100G Wavelengths per Fiber Pair

Wrong.

So No One is Bothering to Build New Cables … Right?

Construction Cost of New Submarine Cables by Region, 2012-2015

Topics to Cover

•  The Dumb Reasons – National pride – Corporate pride (for some companies, leasing capacity is not "cool") – 3rd-party developers look at a cable map and see empty space without

any lines

Why Build New Cables?

•  The Not-Dumb Reasons – Capacity exhaustion – Connecting new markets – Providing physical diversity – Supplying niche markets (trans-Atlantic financials, oil/gas, mining) – Economies of scale of ownership

•  Microeconomic logic ≠ macroeconomic logic – A company may want to build a cable of its own even if there's plenty

of spare capacity in the market.

Why Build New Cables? (cont’d)

Planned Cables: Brazil-Europe

Planned Cables: Hibernia Express

Planned Cables: Trident

Planned Cables: FASTER

Topics to Cover

Are Transport Prices Falling? [Yep.] Monthly 10 Gbps Wavelength Lease Price, 2004-2013

Regional Price Differences Narrow 10 Gbps Wavelength Price Multiples over London-New York

What About Convergence Elsewhere? 10 Gbps Wavelength Price Multiples over London-New York

Median 10 Gbps Wavelength Prices per Month, Q4 2013

Let’s Not Get Carried Away

Route Price London-New York ~ $7k Los Angeles-Tokyo ~ $18k Miami-Sao Paulo ~ $55k London-Mumbai ~ $105k London-Johannesburg ~ $250k

IPT vs. Transport Prices: Asia Monthly Price per Mbps for 10GigE Port and 10 Gbps Wavelength

IPT vs. Transport Prices: Americas Monthly Price per Mbps for 10GigE Port and 10 Gbps Wavelength

Topics to Cover

Singularity in Sight?.... Not Exactly 10 GigE IP Transit Price Multiples Frankfurt

IPT Convergence (or Lack Thereof) 10 GigE IP Transit Price, 2010-2014 (Log Scale)

How Long till Price Convergence? [For Fun] What Happens if We Apply 2010-2014 CAGR to Future Years?

•  IPT prices often reflect the cost of transport to a hub country – Higher transport prices à higher IPT prices

•  Lack of IP backbone provider competition –  IPT providers offering low-price service do not exist in each city

•  Unfavorable regulatory environments •  Expensive backhaul/cross-connects

What Factors Prevent IPT Price Convergence?

•  Lots of new cables, capacity on their way – Some built for “stupid” reasons (e.g., national pride) – Most built for solid corporate reasons (e.g., carriers/ISP/content

providers building to handle internal traffic) •  Prices faster falling as a result

–  IPT price declines roughly match transport price declines – Prices falling everywhere, but we are not moving to a single, universal

Conclusions

MataHmeH maSachnIS. —Ancient Klingon Proverb

“To survive, we must expand.”

A Quote to Inspire

Tim Stronge

tstronge@telegeography.com Complaints hotline: 1.202.741.0040

Thanks for Listening

Why Smart People Do Stupid Things - NANOG Archive · Why Smart People Do Stupid Things: Submarine...

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