Buzz

The Line is Busy, Please Hold

Joseph W. Bartlett, Founder of VC Experts.com


Investors have been puzzled and dismayed by a host of recent studies that claim there is not a glut in the market of telecom capacity, particularly fiber optic capacity. Despite the fact that Internet and other users are crying loudly for more robust message carrying facilities, study after study has declared that only about 2.7% of trunk line capacity is in use at any one time. Now at last there is a study that points out the flaws in the existing data, data which has influenced a sell off in telecom stock.

It is true that, on a given line or network at any one point in time, only about 5% of the capacity is actually in use. Similarly, it is true that only a tiny fraction of the skies over our heads in this country are being used by airplanes at any one time, but that number doesn't mean anything to me if I am waiting in Denver for four hours to get into Laguardia. What is important is to look at the capacity of the lines in heavily trafficked areas.

A recent study by TeleChoice, a Tulsa consulting firm evaluated actual "lit" fiber among Boston and eleven other big cities and compared this to projected peak demand for internet and voice services. Since this is an important issue, we quote liberally from the report of the study by Peter Howe in The Boston Globe (Friday, July 20, 2001).

"Challenging the widely accepted consensus that telecommunications carriers are plagued by a `fiber-optic glut,' a Tulsa, Okla.-based consulting firm this week released a route-by-route study that finds in most cases - including major segments serving Boston - fiber lines are actually operating at close to current capacity and will need to be expanded soon.

"Of traffic passing over 22 city-pair routes studied, only three showed signs of major overcapacity that will take years to absorb. Three others had some level of overcapacity that could take a year or 18 months to be worked down. But in all others, demand is at or close to the point where carriers typically would need to 'light up' more installed fibers, or add new gear to squeeze new light waves or faster streams of data through already active fiber-optic lines."

Between Boston and New York, for example, there is capacity to carry 1.5 terabits of data a second.

"But about 80 percent of that, or 1.2 terabits, has already been reserved. That does not mean that 1.2 terabits of voice and data traffic are ever actually flowing between the two cities, but rather that phone and Net companies have reserved that much of the capacity to cover peak traffic demands, typically with a cushion to cover the next several months of projected growth and contingencies."

The Merrill Lynch report contends that only 2.7 percent of U.S. fiber capacity is actually in use in the average moment. However,

"TeleChoice president Christine Heckart said looking at actual traffic routes, rather than treating the entire US fiber network as one big pipe, proves that the notion of a systemic glut `is just baloney. There may be a lot of unusual capacity in the middle of Nebraska, but there is not in the high-growth corridors. Heckart added that `we're not saying these [Merrill Lynch] numbers are wrong, we're saying these numbers are completely useless.'"

It is true that the TeleChoice route-by-route study was funded in part by WillTel, a major provider of fiber-optic; but it comports with common sense. There may be plenty of empty tables in a hot restaurant when you and your spouse walk in. However, if they've all been reserved, that means you have an hour and a half wait at the bar.


joe@vcexperts.com