Services

Bandwidth glut and high prices don't match

In response to the September 17 Perspectives column by Amra Tareen, "The wiring of Main Street, USA":

"There is a glut of bandwidth that was overbuilt during the bubble."

"DSL providers are implementing new rate plans that charge more for higher bandwidth."

Two "well-known" facts that seem to be in complete disagreement. Is there a bandwidth glut--really? If so, why isn't there price pressure to offer more bandwidth for less? Would the Qwests, Sprints and WorldComs of the world really rather write down billions of dollars in assets rather than sell some of that bandwidth for less than their existing contracts are written for? And why would Cisco rather write off inventory than sell it to metro ISPs (Internet service providers) so that they can upgrade their back-haul networks?

That odor we smell is the "networking" industry starving itself in the hopes that we will "return" to the good old days of 85 percent gross margins on routers and 92 percent gross margin on network "services." Perhaps the fact that the market sustained that sort of business model was always an anomaly. In this scary scenario, it means that the models on which a number of established companies based their business are not only underwater, they are wrong. Perhaps a company like LinkSys or D-Link can start shipping metro-capacity routers without Cisco-style pricing.

The demand for bandwidth is still there, and the resources to fill that demand would appear to be available. What keeps the market from filling the demand?

Chuck McManis
Sunnyvale, Calif.