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Private Line & Wavelength Services 2005-2010
a market research report
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Insight’s annual analysis of the private line market explores buying trends at the wholesale and retail level. Despite the current soft economy, corporate layoffs, and tightened IT budgets—all of which have diminished demand for telecom services—a few verities remain in this dynamic $30 billion market.
Competition, end-user demand for bandwidth, and changing regulations have historically been the principle drivers of growth for private lines. Although these same factors at work today, the nature of the business has changed 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 enterprise demand for private line circuits, we see robust demand for wholesale private line services. Alternative carriers (growing cable MSOs and wireless providers) continue to purchase private lines on a wholesale basis in order to connect their nodes to terminating POPs. Even during bankruptcy, CLECs have continued to gain new customers and increase revenues, further driving the wholesale segment of the private line market.
Private Line Services 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). Wavelength services revenue estimates are also provided. 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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A series of events that have unfolded over the past year will profoundly reshape the private line marketplace. Most importantly, the latest round of acquisitions is altering the competitive landscape by creating two dominant players in the private line market—and in effect rejoining the local and long distance portions of the old Bell System in SBC and Verizon. This new competitive equation is likely to usher in more stable prices and have a very positive impact on private line. It may also make private line a more profitable business, which would generate the cash required to invest in new IP services that might gradually cannibalize revenue from private lines.
The Triennial Remand Order issued by the FCC on February 4, 2005, is also reshaping the market. The Remand Order is yet another attempt by the FCC to implement the Telecommunications Act of 1996, and is intended to encourage CLECs to invest in facilities where there is a sufficient revenue opportunity, such as dense business districts and high traffic locations. Under the order, the CLECs will not be allowed to lease UNE at TELRIC prices in dense business districts and high traffic locations, which means that they will not be able to rely solely on a business model based on resale. The end results may lead to true facilities-based competition and competitive prices, but there is much uncertainty surrounding the transition from where we are today.
Both industry consolidation and the Triennial Remand Order may hasten the onset of the next generation of transport services and signal a maturity of the private line market. While our forecast predicts a modest growth for private line, a few years of profitable private line operations and a few healthy survivors of the telecom debacle could lead to significant investment and growth in the IP services that may one day cannibalize private line revenue.
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 (e.g., OC1, OC3, OC9, OC12, OC18, OC24, OC36, OC48, OC96, OC192). Figure I-1 demonstrates the layout of a typical private line circuit.
Figure I-1 Typical Layout for a Full Circuit
Note: SWC = switching wire center POP = point of presence
End-user demand for bandwidth and new applications have historically been the principle drivers of growth for private lines. INSIGHT believes this will continue to be the case. The ability to increase productivity through E-commerce and IT applications will inevitably spawn future investment in even more applications. Increasing the number of applications will increase traffic on telecommunications networks, and a significant portion of that traffic will travel over private lines. The intense competition precipitated by a glut of capacity has, however, led to the revenue declines of the past few years.
Even though the demand for bandwidth is increasing, the private line market continues to decline as a consequence of price compression, which drove.....
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complete Executive Summary.
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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 Changing the Landscape of Private Lines
1.2
Traditional Private Lines
1.3
Alternatives on the Horizon
1.4
Forecast 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
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 56 Kbit/s Circuits
2.4.1.2 64 Kbit/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 31
3.2
Industry Consolidation
3.2.1
Recent Events
3.2.2
IXCs
3.2.3
ILECs
3.2.4 CLEC
3.2.5
Wireless
3.2.6
ISPs
3.2.7 Emerging Carriers
3.3
Regulation
3.3.1
Impact of Court Decision
3.3.2
FCC
3.3.3
Future Regulatory Considerations
3.4
New Access Alternatives
3.4.1
Cable MSOs
3.4.2 Integrated Access
3.4.3
Pervasive Networks
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
3.6
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
Development of Wavelength Services
4.2.2
Wavelength Services Technology
4.2.3
Impact on Private Line Markets
4.2.4
Example Wavelength Service Providers
4.2.5
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
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
Global Crossing
5.5.1
Network Architecture
5.5.2
Private Line Services Offered
5.5.3
Other Services Offered
5.6
Level3 Communications, Inc.
5.6.1
Network Architecture
5.6.2
Private Line Services Offered
5.6.3
Other Services Offered
5.7
MCI
5.7.1
Network Architecture
5.7.2
Private Line Services Offered
5.7.3
Other Services Offered
5.8
Qwest Communications International, Inc.
5.8.1
Network Architecture
5.8.2
Private Line Services Offered
5.8.3
Other Services Offered
5.9
SBC Communications, 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
Verizon Communications
5.11.1
Network Architecture
5.11.2
Private Line Services Offered
5.11.3
Other Services Offered
5.12
WilTel 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 Totals by Carrier Type
6.2.5
Wavelength Services
6.2.5.1 Wholesale Retail Using New Industry Structure
6.2.5.2 Total Market Using New Industry Structure
6.2.5.3 Carrier Types Using New Industry Structure
6.2.6
Circuit Class
6.2.6.1 Local Circuit Count
6.2.6.2 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 ($Millions)
Chapter II
II-1
Capacities of 64 Kbit/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 (Diverse Cable Redundancy)
Chapter III
III-1
Telephone Subscribers among Major Cable MSOs, 12-31-2005
III-2
Integrated Services Architecture
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
Common Drivers of Private Line Services
Chapter IV
IV-1
Resilient Packet Ring (RPR) Technology
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
SONET Dedicated Ring Service
V-5
Verizon’s National Network
V-6
Circuit Emulation
V-7
XO Communications Network Map
V-8
XO Private Line Network
TABLE OF TABLES
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, 1999-2004
Chapter IV
IV-1
SONET and Ethernet Defined Transmission Rates
IV-2
Wavelength Market Segments
IV-3
US Peak Time Data Traffic Demand: Residential and Enterprise
IV-4
Typical Service Provider Offers for Native Wavelength Services
IV-5
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 2001-2010
VI-2
Private Line Revenue, Local vs. Long Distance, 2002-2010
VI-3
Private Line Revenue by Wholesale/Retail Segments, 2002-2010
VI-4
Revenue for Local Private Line by Wholesale/Retail Segments
VI-5
Revenue for LD Private Line by Wholesale/Retail Segments, 2002-2010
VI-6
ILEC Private Line Revenues, Local and Long Distance, 2002-2010
VI-7
ILEC Private Line Revenues by Wholesale/Retail Segments, 2002-2010
VI-8
CLEC Private Line Revenues, Local and Long Distance, 2002-2010
VI-9
CLEC Private Line Revenues by Wholesale/Retail Segments, 2002-2010
VI-10
IXC Private Line Revenues, Local and Long Distance, 2002-2010
VI-11
IXC Private Line Revenues by Wholesale/Retail Segments, 2002-2010
VI-12
Private Line Revenue Totals by Carrier Type, 2002-2010
VI-13
Wholesale Private Line Revenue Totals by Carrier Type, 2002-2010
VI-14
Retail Private Line Revenue Totals by Carrier Type, 2002-2010
VI-15
Wavelength Services Revenue Totals, 2001-2010
VI-16
Wholesale Retail Private Line Revenue in New Industry Structure
VI-17
Total Private Line Revenue Using New Industry Structure 2002-2010
VI-18
Private Line Revenue by Carrier Type Using New Segment Definitions
VI-19
Local Private Line, Estimated Circuit Count by Circuit Class
VI-20
LD Private Line - Estimated Circuit Count by Circuit Class, 2002-2010
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