One of the most fascinating economic stories of the past decade has been how the hapless investors who poured billions of dollars into Global Crossing, Worldcom and the like paved the way for the success of Indian outsourcers, Web 2.0 bandwidth hogs and all manner of other innovative enterprises. These telcos (over)built a global network of fiber optic cables and then conveniently went bankrupt, allowing their successors to charge the super-low rates that enabled new uses of the Internet to flourish while the investors who paid to lay all that cable could mostly only watch and sigh. See, Dan Gross is right! Bubbles are the best!
So it struck me as the end of a glorious era today when Google announced that it was joining five telcos to lay a new $300 million undersea cable between the U.S. and Japan. From the press release:
The new cable system – named Unity – will address broadband demand by providing much needed capacity to sustain the unprecedented growth in data and Internet traffic between Asia and the United States. Unity is expected to initially increase Trans-Pacific lit cable capacity by about 20 percent, with the potential to add up to 7.68 Terabits per second (Tbps) of bandwidth across the Pacific.
According to the TeleGeography Global Bandwidth Report, 2007, Trans-Pacific bandwidth demand has grown at a compounded annual growth rate (CAGR) of 63.7 percent between 2002 and 2007. It is expected to continue to grow strongly from 2008 to 2013, with total demand for capacity doubling roughly every two years.
True enough. But as Google and other big bandwidth users actually start paying full price for what they’d been getting at a discount or for free, their profit margins will inevitably be squeezed. It’s all part of growing up, I guess.