Global IP transit prices see slowing declines
By Bruce Christian
After years of what seemed to be a free fall in IP transit price – especially in major cities – the pace of reductions has slowed, according to new data from TeleGeography’s IP Transit Pricing Service. According to the service, the median price of a 10Gbps Ethernet (10 GigE) port in Hong Kong, London, New York and Sao Paulo fell less than 15 percent annually during the past two years.
While that may seem high by the standards of many industries, TeleGeography points out the prices are at the lowest rates of decline in the past five years and far below the 50 percent plunge experienced two years ago in many markets. Between Q2 2013 and Q2 2014, for example, median 10 GigE port prices in New York and London decreased just 4 and 9 percent, respectively, compared to 28 and 33 percent annually between 2009 and 2013. Meanwhile, in the past year, median 10 GigE IP transit prices declined 10 percent in São Paulo and 14 percent in Hong Kong, well below the 16 and 34 percent compound annual rates of decline experienced in the previous four years.
Of course, as the above numbers suggest, current market prices and the rate at which they’re falling continue to vary widely by geography. Even so, TeleGeography researchers point to a convergence, or flattening, of IP transit prices around the world.
“While the pace of IP transit price erosion varies from place to place and fluctuates from year to year, the recent slowdown in price declines represents an unusually broad trend,” said TeleGeography analyst Erik Kreifeldt. “Many of the carriers surveyed by TeleGeography are making only modest price adjustments, and this pattern holds true in both mature and emerging markets around the world.”
In Europe and North America, specifically, a relative “flatness” in IP transit prices already exists, show TeleGeography numbers. Since the second quarter of 2012, the median 10GE IP transit prices for several Western cities (such as Madrid, Miami, London and Stockholm) have hovered around $2 to $1.50 per Mbps per month, after seeing much steeper declines in years previous.
Then again, these are median prices in more mature markets. Greater levels of price variance, as well as higher prices from which there will still be steep declines, are to be expected in developing and remote areas, said Alan Mauldin, research director at TeleGeography. And some of the factors driving price variance, particularly on submarine transport, will exist for some time.
For starters, cable lengths are a relative constant, and longer cables require more fiber and repeaters, use more power and have higher maintenance costs, Mauldin points out. Varying levels of competition also are always inevitable, so routes served by multiple cables will continue to see significantly lower prices than those served by fewer cables. The same can be said of routes in high demand, as higher capacity cables have lower unit costs for operations, maintenance and capacity upgrades, which mean carriers can
charge lower prices.
Differences in network configurations also will continue to exist. Direct subsea paths exist for London-New York and Los Angeles-Tokyo routes, as examples, so no substantial difference in terminal equipment requirements exists. For Miami-São Paulo, meanwhile, multiple submarine segments are used to create this route (e.g. Miami-St. Croix-Fortaleza-São Paulo), which makes it inherently more expensive. At the same time, even cables serving the same route can have different landings or varying availability of express fiber pairs, further encouraging price variance.
At the same time, some of the most rapid demand growth, as well as new cable construction, is occurring in the more expensive markets, which should lead to lower costs and therefore narrower price differences, said Mauldin. Most notably, many new cables have been laid in Africa and Asia since 2008. And even though no U.S.-to-Brazil cables have been constructed since 2008, prices have moved lower on those routes in anticipation of three new cables coming on line by 2016, he said.
Newer pipes also mean enhanced network design, which tend to bring lower operating and upgrade costs, thereby bringing costs and prices of newer, less-traveled routes closer in line with older, high-volume routes.