IP transit prices continue on a years-long decline, even as international traffic volumes continue to grow more than 60 percent annually, according to New data from TeleGeography (News
- Alert). Few will be surprised by that finding, as the general trend for global high-bandwidth products has been of declining prices, on either a per-bit basis or nominal pricing, for a decade or more.
There typically are pricing variations on some routes that brake the rate of decline, but the overall trend remains in place.
Although prices are declining throughout the world, both prices and the rate of decline vary sharply, says TeleGeography. In Hong Kong, the median price for a 1,000 Mbps GigE port has declined at a compounded rate of 15 percent over the past five years, to $28 per Mbps.
Prices have fallen more rapidly in other markets, though. For example, the median GigE port price in New York City has fallen at a compounded annual rate of 22 percent between the second quarter of 2005 and the second quarter of 2010, to under $8 per Mbps, less than one-third the price of a comparable port in Hong Kong, TeleGeography notes.
'Prices often decline more steeply where they are high, in part because there is simply greater potential for decline,' says TeleGeography analyst Erik Kreifeldt. 'But for IP transit, the downward price trend has continued unrelenting for many years, even where prices are already lowest.' Although median GigE prices offer a useful benchmark over time, prices for higher volumes of capacity can be much lower, he adds.
Median monthly IP transit prices for 1,000 Mbps Gigabit Ethernet (GigE) ports in major U.S. and European cities ranged from $10 to $14 per Mbps in the second quarter of 2008, report researchers at TeleGeography.
IP transit prices in Asia remain far higher than in the United States and Europe, which explains the surge in undersea cable construction across the Pacific Ocean that was evident around 2008. Pricing was even more unstable in the aftermath of the Internet and telecom bubble of 2000.
The IP transit market in 2003, for example, faced pressure on pricing as routes in the U.S. and Europe leading to declines between 10 percent and 20 percent from the first to the second quarters of 2003, TeleGeography said at the time. That's a quarter-over-quarter decline, not a year-over-year decline.
The rapid drop reflected the desperation of carriers pricing below cost to bring network usage up and gain market share at a time of severe over-capacity conditions, TeleGeorgraphy said at the time.
The problem back in those scary days was not steady price declines, but rather unstable and somewhat unpredictable price declines. "Transit prices are tending to converge but that doesn't imply price stability," TeleGrography noted at the time.
IP transit pricing in major cities had fallen about 80 percent since mid-2000, as a result. "There are still just way too many people all offering the same type of product," TeleGeography noted.
But declining prices are as close to a premanent trend as one can imagine. Analyst Dan Rayburn says that in 1998 the average price paid by content owners to deliver video on the web was around 15 cents per megabyte. In 2010, a company such as Netflix can stream an entire two-hour movie for about five cents, total.
At 1998 prices, that same movie, encoded the same way, would have cost $270 to deliver. The "post-bubble" pricing declines were unstable. These days, a steady pricing decline of perhaps 20 percent a year is just what people expect to see.
See http://blog.streamingmedia.com/the_business_of_online_vi/2010/01/bandwidth-pricing-trends-cost-to-stream-a-movie-today-five-cents-cost-in-1998-270.html for the analysis.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.Edited by Erin Monda