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Positive Outlook for Investments in Backbones

When talking about the problems of attracting infrastructure funds to the telecoms industry, I would make one exception; that is backbone infrastructure. This driven by three developments:

  • Increased investments in fibre networks from the national incumbent network operators;
  • Increased demand for fixed network infrastructure from mobile operators; and
  • Increased demand from private network operators, including the OTT providers.
  • Pressured by competition from the wholesale providers using their copper networks as well as from increased competition from the mobile operators, national telcos are forced to invest more and faster in fibre network in order to stay competitive.

We increasingly describes mobile networks as fibre networks with a wireless access component. This clearly indicates the need for fixed backbone network capacity, eventually all the way to the street.

A similar demand exists from private digital media and entertainment network operators as indicated below.

There is also an increased activity in very large projects and in particular the backbone projects in Africa are worthwhile mentioning. At this point in time some 30 such projects are in existence on that continent. Unlike the problems encountered by vertically-integrated access networks in attracting investments, a more straightforward business and risk analysis is attached to the business case for backbone infrastructure, as these projects are, in general, not based on a vertically-integrated telco business model.

But as well as this, the outlook for investment in backbone projects is much brighter than those for the national access networks. Large investments are occurring in such networks in developing economies because of the enormous growth in mobile broadband. Given the need to offload mobile traffic quickly, national networks are suddenly becoming an issue and, with only relatively small fixed infrastructure in place in most of these countries, significant investment in new infrastructure is needed.

Another backbone market that is doing well is that of international backbones. According to Teleography, in 2013 international bandwidth grew by 39% (to 138 Tbps), a 4.5-fold increase from the 30 Tbps of bandwidth used globally in 2009.

The research company indicated that while internet backbones remain the primary users of international bandwidth (accounting for 75% of demand in 2013) private network operators, including large content providers like Google, Microsoft, and Facebook, are expanding their private networks, and their bandwidth requirements increasingly exceed those of the largest carriers.

Private networks accounted for 25% of used international bandwidth in 2013, up from 20% in 2009. Due to their massive capacity requirements some of the largest content providers have moved towards owning infrastructure as a means of lowering their costs. Private network operators are poised to play a leading role in future global network development, including that of anchor investors and consortium members in submarine cable systems.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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