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SCMP Reporter

Undersea cable carriers get a lift as outsourcing by European and US firms as well as online gaming boost internet traffic

Outsourcing to Asia by United States and European companies and internet gaming is pushing up regional demand for bandwidth, helping to soak up excess capacity in the undersea cable industry that has long depressed prices.

According to To Chee Eng, principal Asia-Pacific telecommunications analyst at Gartner, demand for internet bandwidth is expected to reach 1,000 gigabytes per second (Gbps) by 2007 from 140 Gbps last year, as the volume of internet traffic to Asia grows.

This should help reduce some of the pressure on wholesale bandwidth prices, which have fallen between 33 and 67 per cent in Asia this year due to overcapacity and fierce competition in the sector.

'The good news is traffic actually is growing at a very fast rate. In terms of bandwidth demand, we expect it to grow very nicely,' Mr To said.

But the bubble days - when forecasters predicted internet traffic would double every three months - were far in the past, he said. Instead, traffic is expected to grow by a factor of eight over the next five years.

Though growth is forecast to continue at a steady clip, revenue is expected to gain just 2 to 3 per cent annually with pricing pressure remaining for at least for anther two to three years, Mr To said.

'The pressure will continue to haunt the industry for years,' he said.

'The oversupply problem will still be there. I think what is more important is for prices to stabilise; the competition has to come down significantly.'

According to Asia Netcom chief operating officer Bill Barney, growing demand from US and European companies setting up back offices in Asia is one factor driving internet traffic volumes higher.

Low bandwidth prices allow companies to cheaply ship documents around the globe, permitting US and European firms to  move back office work offshore where labour is cheap.

The growing popularity of online gaming is also driving demand. 'In Asia, internet penetration is growing very quickly. It's interesting that there are more computers out there than televisions ... the gaming industry is on fire,' Mr Barney said.

Asia Netcom is a major backbone operator in the region, leasing pipeline to other carriers as well as internet-based virtual private networks to  clients such as businesses and internet content providers.

'The market trend at the retail end is very positive. I think they will drive the market out of its funk. It is more positive now that it was six months ago,' Mr Barney said.

But neither undersea cable carriers nor analysts are optimistic wholesales prices will pick up.

'The internet bandwidth demand is a lot by Asian standards, but it's not a lot when compared to the capacity that has been put in,' Mr To said.

Reach, an equal joint venture between PCCW and Australia's Telstra, does not see much hope for an increase in undersea cable industry revenue as prices fall faster than voice and data traffic gains.

According to new research from TeleGeography, just 10 to 30 per cent of internet bandwidth along international routes is being utilised and the remainder sits idle.



Asian demand for bandwidth grows