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Private Line and Wavelength Services 2006 - 2011
a market research report
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There are signs today that the heated competition and fierce price cutting that were the norm in the private line market over the past four years are giving way to firming prices. Industry consolidation, such as the SBC merger with AT&T and Verizon’s merger with MCI, as well as the Triennial Remand Order issued by the FCC on February 4, 2005, are creating the preconditions for a recovery in the $35 billion private line segment that is expected to take off as early as 2006.
The nature of the business has been changing. Private lines have evolved from providing a full, end-to-end long distance circuit to providing a series of local-channel circuits that connect businesses to a shared data network or to the Internet. In addition to providing the basic T1 and T3 point-to-point circuits, carriers are now offering point-to-point gigabit Ethernet service that operates 22 times faster than DS3 service, as well as dedicated optical wavelengths that provide higher levels of security and even greater capacity than GigE.
Private Line & Wavelength Services 2006-2011 details revenue and circuit counts by carrier type, and defines the split between wholesale and retail sales of T-carrier (T1, T3) and OC-N circuits (OC-3, OC-12, OC-48, OC-192, OC-768), gigabit Ethernet and wavelength services. Insight’s annual study illustrates how carriers and their customers continue to move to higher capacity circuits in order to reap the benefits of lower cost-per-bit transport.
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Report Excerpt
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1.1 Private Lines Services Return to Growth
Two factors have conflated during the past year to position the private line marketplace for positive growth. While both factors might have been anticipated as part of a long term planning scenario, they have come together over the past 18 months in such a way as to put the private line market on a positive trajectory for the first time in many years.
In watching various trends across the domestic telecommunications industry, INSIGHT believes that the number of broadband connections reached a critical inflection point in 2006. Broadband penetration is currently at 43 percent-a penetration rate sufficient enough to provide the foundation for mass market video services. Video using the Internet or managed IP networks is a hot growth area for service providers, one that we believe will have a direct impact on private line services.
The other factor is industry-wide consolidation. In a period comprising about 15 months (December 15, 2004 to March 6, 2006) a number of major acquisitions in the telecommunications industry were announced. These mergers have profoundly altered the competitive private line landscape for both retail and wholesale services. Nine leading players in the telecommunications industry are impacted by these announcements, as we note in Table I-1.
Table I-1 Continuing Industry Consolidation
Whether it is delivered in the form of IPTV offered by a wireline provider or streamed to a mobile set, new video services have already grabbed the attention of content providers and advertisers that want to put their video in front of consumers. Consumers want the entertainment content anytime and anywhere. Video, we believe, is the long awaited killer application-the one that will drive up network traffic, the one that will tax existing resources, and the one that will eventually soak up the excess capacity.
Some of this video traffic is going to end up traversing private lines. While video transport is unlikely to generate additional new private line revenue on the national backbones, the local distribution of video typically will require substantial local caching to optimize performance; hence, local private line facilities will need to be upgraded to meet the increased demand.
Not only do we expect traffic to grow considerably over the forecast period, we are also seeing price stabilization across the board and even price increases in some high capacity optical circuits.
This price stabilization is a consequence of the other major force impacting the private line market-that being service provider acquisitions. The two biggest deals resulted in two dominant players: a combined AT&T/SBC/BellSouth, and MCI/Verizon. The competitive landscape has been altered, and in effect the local and long distance portions of the old Bell System have been rejoined. The impact of this new competitive equation is more stable pricing, which is already having very positive impact on private lines.
These trends will certainly make private line a more profitable business, which will, in turn, have a two-fold impact. The profits will likely be used to invest in new IP services, and over the longer term these new IP services might gradually cannibalize revenue from private lines. It is also possible that the increased traffic and industry consolidation may entice a new generation of players that would leverage existing fiber assets or fixed wireless spectrum to enter the market.
Conditions in the local private line market are ripe for new entrants. Imagine a market in which prices charged by the dominant player are set by tariffs, there is only a handful of local competitors (and they tend to vary by specific market), and there is a robust forecast for traffic growth. Add to this a growth spurt induced by video distribution service requirements, and it would seem that the private line market is ready to host a new set of players. Cable MSOs and fixed wireless players are already active in the private line market, but we do not expect they will be the only players competing.
1.2 Traditional Private Lines
A private line is a dedicated non-switched circuit or channel that is leased
for a specified period. This channel provides a private and direct
connection between at least two sites. Private lines can support voice,
data, video, fax or multimedia communications. Private line speeds can be
measured by digital signal level (e.g., DS1, DS1C, DS2, DS3), equivalent
trunk level (e.g., T1, T3), or optical carrier level....
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Market Segmentation
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Private Line Revenue
by Service Type
Local
Long Distance
by Carrier Type
IXC
ILEC
CLEC
Other (DLECs and Gigabit Ethernet Providers))
by Wholesale vs. Retail
Wholesale
Retail
Private Line Circuit Counts
by Circuit Class
DS-1, T-1
DS-3, T-3
OC-3
OC-12
OC-48
OC-192
by Wholesale vs. Retail
Wholesale
Retail
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Table of Contents
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Chapter I
EXECUTIVE SUMMARY
1.1 Private Lines Services Return to Growth
1.2 Traditional Private Lines
1.3 Alternatives to Private Line Services
1.4 Revenue Forecast for Private Lines: A Summary
Chapter II
BACKGROUND
2.1 History and Development of Private Line Services
2.2 Evolution of Private Line Technology
2.2.1 Transition to Digital Networks
2.2.2 SONET and Optical Carrier Transmission
2.2.3 Internet Protocol (IP)
2.2.4 Private Line Emulation
2.3 Types of Providers: Blurring Boundaries and Definitions
2.3.1 IXCs
2.3.2 Local Exchange Carriers
2.3.2.1 ILECs
2.3.2.2 CLECs
2.4 Description of Traditional Private Line Services
2.4.1 Circuit Types
2.4.1.1 56Kbit/s Circuits
2.4.1.2 64Kbit/s Clear-Channel Circuits (DS0)
2.4.1.3 Fractional T1 Circuits
2.4.1.4 T1 Circuits (DS1)
2.4.1.5 Fractional T3 Circuits (Fractional DS3)
2.4.1.6 T3 Circuits (DS3)
2.4.1.7 Optical Carrier Circuits
2.4.1.8 IRUs and Dark Fiber
2.4.2 Circuit Layout
2.4.3 Redundancy & Restoration
Chapter III
TRENDS, APPLICATIONS, AND MARKETS
3.1 Overview
3.2 Increasing Traffic
3.2.1 Video: The Next Killer Application
3.2.2 Pervasive Networks
3.3 Industry Consolidation
3.3.1 IXCs
3.3.2 ILECs
3.3.3 CLEC
3.3.4 Wireless
3.3.5 ISPs
3.3.6 Other Long Haul Carriers
3.3.7 New Entrants (CATV and Fixed Wireless)
3.3.7.1 Cable MSOs
3.3.7.2 Fixed Wireless
3.4 Regulation
3.4.1 Impact of Court Decision
3.4.2 FCC
3.4.3 Future Regulatory Considerations
3.5 Traditional Applications
3.5.1 Dedicated Private Line Networks
3.5.2 Interexchange Private Line
3.5.3 Local Private Line
3.5.4 Adding Voice to Data
3.5.5 Packet Networks
3.5.6 VPNs
3.5.7 Special Access
3.5.8 Internet Access
3.5.9 Integrated Access
3.5.10 Wireless Backhaul
3.6 Markets
3.6.1 Wholesale vs. Retail Markets
3.6.1.1 Wholesale Services
3.6.1.2 Local Resellers
3.6.1.3 Long Distance Resellers
3.6.2 Retail
3.6.2.1 Large Enterprise
3.6.2.2 Small/Medium Enterprises
Chapter IV
EMERGING PRIVATE LINE SERVICES
4.1 GigE Services
4.1.1 Ethernet Services Technology
4.1.2 MPLS
4.1.3 Impact on Private Line Markets
4.2 Wavelength Services
4.2.1 Carrier Segment
4.2.2 Large Enterprise Segment
4.2.3 Development of Wavelength Services
4.2.4 Wavelength Services Technology
4.2.5 Impact on Private Line Markets
4.2.6 Example Wavelength Service Providers
4.2.7 Wavelength Services Market Direction
Chapter V
NETWORK PROVIDERS
5.1 Overview
5.2 AT&T Corporation
5.2.1 Network Architecture
5.2.2 Private Line Services Offered
5.2.3 Wholesale Private Line
5.2.4 Other Services Offered
5.3 BellSouth Corporation
5.3.1 Network Architecture
5.3.2 Private Line Services Offered
5.3.3 Other Services Offered
5.4 Broadwing, Inc.
5.4.1 Network Architecture
5.4.2 Private Line Services Offered
5.4.3 Other Services Offered
5.5 Cox Business Services
5.5.1 Private Line Services Offered
5.6 Global Crossing
5.6.1 Network Architecture
5.6.2 Private Line Services Offered
5.6.3 Other Services Offered
5.7 Level3 Communications, Inc.
5.7.1 Network Architecture
5.7.2 Private Line Services Offered
5.7.3 Other Services Offered
5.8 Optimum Lightpath
5.8.1 Network Architecture
5.8.2 Private Line Services Offered
5.9 Qwest Communications International, Inc.
5.9.1 Network Architecture
5.9.2 Private Line Services Offered
5.9.3 Other Services Offered
5.10 Sprint
5.10.1 Network Architecture
5.10.2 Private Line Services Offered
5.10.3 Other Services Offered
5.11 Time Warner Telecom
5.11.1 Network Architecture
5.11.2 Private Line Services Offered
5.12 Verizon Communications
5.12.1 Network Architecture
5.12.2 Private Line Services Offered
5.12.3 Other Services Offered
5.13 XO Communications
5.13.1 Network Architecture
5.13.2 Private Line Services Offered
5.13.3 Other Services Offered
Chapter VI
MARKET FORECASTS
6.1 Private Line Market Summary
6.1.1 Methodology
6.1.2 Definitions
6.2 Forecasts and Analyses
6.2.1 Total Market
6.2.2 Local and Long Distance
6.2.3 Wholesale and Retail
6.2.4 Carrier Types
6.2.4.1 ILECs
6.2.4.2 CLECs
6.2.4.3 IXCs
6.2.4.4 New Entrants
6.2.4.5 Totals by Carrier Type
6.2.5 Wavelength Services
6.2.6 Wholesale Retail Using New Industry Structure
6.2.6.1 Total Market Using New Industry Structure
6.2.6.2 Carrier Types Using New Industry Structure
6.2.7 Circuit Class
6.2.7.1 Local Circuit Count
6.2.7.2 Long Distance Circuit Count
Appendix
GLOSSARY
Table of Figures
Chapter I
I-1 Typical Layout for a Full Circuit
I-2 Total Private Line Revenue, 2005-2010
Chapter II
II-1 Capacities of 64Kbit/s, T1, and T3 Circuits
II-2 Typical Layout for a Full Circuit
II-3 ISDN Switched Backup
II-4 SONET Rings
II-5 Fiber-to-Fiber Redundancy
II-6 Cable-to-Cable Physical Redundancy
Chapter III
III-1 Data vs. Video Traffic, 2005-2010 (Tbit/s)
III-2 Telephone Subscribers among Major Cable MSOs
III-3 Typical Circuit Switched Voice Network
III-4 Typical Packet Switched Network
III-5 Typical IP Network
III-6 Interexchange Private Line Architecture
III-7 Managed Packet Network--Virtual Private Line
III-8 Special Access Architecture
III-9 Internet Access Architecture
III-10 Integrated Services Architecture
III-11 Typical Backhaul Configuration
III-12 Common Drivers of Private Line Services
III-13 AT&T Data Transport Revenue Growth (2005-2006)
Chapter IV
IV-1 Resilient Packet Ring (RPR) Technology
IV-2 Managed Wavelength Service Evolution Path
Chapter V
V-1 Broadwing All-Optical Switch Network
V-2 Level3 Private Line Metro Service
V-3 Level3`s National Backbone (3)Link Intercity Wavelength Network
V-4 XO Communications Network Map
V-5 XO Private Line Network
Table of Tables
Chapter I
I-1 Continuing Industry Consolidation
Chapter II
II-1 Digital Services Hierarchy
II-2 SONET/Optical Carrier Hierarchy
II-3 Coordinated vs. Non-Coordinated Circuits
Chapter III
III-1 Continuing Industry Consolidation
III-2 CLEC Mergers and Acquisitions, 2002-2005
III-3 ADSL vs. Coaxial Cable: Number of High Speed Lines
Chapter IV
IV-1 SONET and Ethernet Defined Transmission Rates
IV-2 Wavelength Market Segments
IV-3 Typical Service Provider Offers for Native Wavelength Services
IV-4 Typical Service Providers Offers for Wavelength Services Over SONET
Chapter V
V-1 Carrier Network Architecture Comparison
Chapter VI
VI-1 Total Private Line Revenue 2004-2011
VI-2 Private Line Revenue, Local vs. Long Distance, 2003-2011
VI-3 Private Line Revenue by Wholesale/Retail Segments, 2003-
VI-4 Revenue for Local Private Line by Wholesale/Retail Segments
VI-5 Revenue for LD Private Line by Wholesale/Retail Segments
VI-6 ILEC Private Line Revenues, Local and Long Distance
VI-7 ILEC Private Line Revenues by Wholesale/Retail Segments
VI-8 CLEC Private Line Revenues, Local and Long Distance
VI-9 CLEC Private Line Revenues by Wholesale/Retail Segments
VI-10 IXC Private Line Revenues, Local and Long Distance
VI-11 IXC Private Line Revenues by Wholesale/Retail Segments
VI-12 New Entrants Private Line Revenues by Local and Long Distance Segments,
VI-13 New Entrants Private Line Revenues by Wholesale/Retail Segments
VI-14 Private Line Revenue Totals by Carrier Type
VI-15 Wholesale Private Line Revenue Totals by Carrier Type
VI-16 Retail Private Line Revenue Totals by Carrier Type
VI-17 Wavelength Services Revenue Totals
VI-18 Wholesale Retail Private Line Revenue in New Industry
VI-19 Total Private Line Revenue Using New Industry
VI-20 Private Line Revenue by Carrier Type Using New Segment Definitions
VI-21 Local Private Line, Estimated Circuit Count by Circuit Class
VI-22 LD Private Line - Estimated Circuit Count by Circuit Class
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