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Study: fiber-optic demand to keep pace with supply

Analysts expect that demand for high-speed networks will quickly grow to keep pace with the burgeoning bandwidth market.

Demand for undersea international communications network capacity may keep pace with ever-expanding supply, according to a new study.

TeleGeography, a Washington-based international communications market research firm, expects that capacity on undersea fiber-optic cables will grow more than 40 times over a three-year period.

The report appears to run counter to some prominent theories in the communications industry that in the race to build new fiber-optic networks, too much capacity is being created for today's demand. As the theory goes, the glut will spur massive price wars and reduce profits for the new carriers that have spent billions building their networks, according to many industry observers.

Emerging communications carriers such as Global Crossing, 360networks, Qwest Communications International and Level 3 Communications, among others, are building thousands of miles of transoceanic submarine cables designed to shuttle Internet and voice traffic between the United States and growing markets in Europe, Asia and Latin America.

But TeleGeography's report suggests that although consumer demand will fall short of the supply of bandwidth, the purchasing patterns of Internet service providers (ISPs) and other communications companies will make up much of the difference. It indicates the gap between the demand and potential supply of bandwidth is not as wide as some have speculated.

Many ISPs are purchasing huge amounts of network capacity for redundant network backup and to provide high-quality Internet-based voice services. ISPs routinely purchase excess bandwidth in order to handle unexpected spikes in usage. TeleGeography estimates ISPs sometimes buy up to 12 times the necessary bandwidth.

"We definitely think there's a lot of fiber out there right now. But the positive is that there's not as huge a gap between what the purchasers are buying and the supply," said Jessica Marantz, manager for business development and marketing at TeleGeography. "The business plan for these carriers may not be that crazy after all. There's not that huge fiber glut that people have been talking about for months."

Some analysts agree that demand will quickly grow to keep pace with new network construction and technologies capable of expanding network capacity.

TeleGeography believes that general demand for bandwidth could grow 25 times over the next five years. The report also indicates that for every 50 percent reduction in the cost of bandwidth, ISPs have purchased 100 percent more capacity.