Amid a downturn in the fortunes of several prominent telecommunications carriers, such as PSINet, ICG Communications and even the venerable AT&T, new studies from industry researchers RHK and Adventis suggest that it will be the remaining companies that react quickly to market changes that will reap the benefit of what is expected to be a continued boom in network usage.
RHK recently released a report predicting a 300-fold increase in demand for network bandwidth in the next eight to 10 years. Another prominent researcher, Boston-based Adventis (formerly Renaissance Strategy) is also changing its tune, proclaiming in an upcoming report that high-speed connections to the Net will drive demand for more capacity among network operators.
"The outlook really is very, very good," said Tracey Vanik, technical director for RHK. "We don't see any reason to suspect we're at the top of the (growth) curve. We're at the bottom of the slope."
The correlation between demand for network capacity and the health of network operators is significant for those that can alter their businesses accordingly, analysts say.
Telecommunications and Net service providers that focus on data-driven networks could reap profits as use continues, they say. As more computer users get online and hog bandwidth, the reasoning goes, the more services telecom providers will be able to sell them. In turn, equipment companies will continue to reap rewards from sales of the latest gear to power the boom.
With dozens of new carriers building nationwide fiber-optic networks in recent years, Renaissance was an early skeptic of the need for all that bandwidth, particularly at a time when broadband connections weren't yet widely available for many consumers and businesses. But upcoming research from Adventis, expected in December or January, says times are changing.
"In the past, the (capacity) supply did not have a distribution channel to the users," said Ford Cavallari, executive vice president at Adventis. "You had a great big highway but no way for people to get on and off. There has been insufficient last-mile connections" until recently.
For one, many consumers now access the Net using high-speed digital subscriber line (DSL) or cable modem connections. In addition, high-speed metropolitan area networks are being built in most major cities to more easily route and deliver backbone Net traffic.
But some analysts also believe that the bandwidth-hungry applications only dreamed about a few years ago are finally arriving, meaning communications carriers that have built excessive network capacity at great costs may not look foolish for long.
"The big catalyst in the last six months has been Napster," Cavallari said. "Napster is consuming huge amounts of bandwidth on the network. We truly think Napster is the killer app for driving (broadband) adoption."
Adventis believes there is a direct correlation between broadband growth and the rising popularity of digital music and MP3 download sites such as Napster, MP3.com and others.
Similarly, RHK believes high-speed connections and worldwide growth in Net use will drive an expansion of network capacity and result in opportunities for agile network operators, according to Vanik. She pointed to the recent announcement from Sprint that it would hike capital spending to more than $6 billion next year, from $5 billion in 2000, to keep up with demand.
RHK also estimates that worldwide users of the Net will more than double by July of next year, from 380 million today to 800 million. As an example, RHK found that subscribers to the Net in China are growing by 2 million per month.
The studies are good news for equipment makers such as Nortel Networks, Cisco Systems, Lucent Technologies and Ciena, among others, which can only benefit from continued capacity demand despite a current climate of Wall Street skepticism.
"It reaffirms our belief on the impact of the Internet," said Don Smith, president of optical Internet solutions at Nortel. "From an industry perspective, I think it's important for all of us to get our hands around this."
A third study from Infonetics Research, out Monday, predicts that spending among large nationwide telecommunications carriers will grow 220 percent, from $13.3 billion this year to $42.5 billion in 2004, further bolstering the notion that capacity demand will continue as operators scramble to keep up with the latest technology.
Adventis suggests the current swing toward high-speed connections on local networks and among consumers will naturally lead to a problem in another portion of networks--a moving target for the telecommunications industry.
"There is never really equilibrium in the network. It's a leap frog game," Cavallari said. "Backbone capacity is looking pretty good, but I don't think there's insufficient bandwidth."