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Internet traffic growth not enough for optical networking

Posted: 15 Jan 2015     Print Version  Bookmark and Share

Keywords:Internet traffic  optical network  bandwidth 

The growth of the Internet traffic has affected network bandwidth and sales of optical components and modules, according to research firm LightCounting. This information has been issued for clients using data from its Market Forecast report published in July 2014 and the latest information on Internet traffic growth.

"The latest data from one of the leading service providers confirms our projections for a gradual decline in the annual growth rate of Internet traffic," commented Dr. Vladimir Kozlov, founder and CEO of LightCounting Market Research. "Let me emphasise that the traffic will continue to grow, but it is the annual growth rate that will moderate. This gradual decline will translate into lower growth in annual sales of telecom optical components and modules, even if suppliers manage to mitigate current price declines. Gains in market share may boost the performance of selected vendors in the short term, but discipline in price reductions has to balance ambitions for gaining market share in order for the industry to develop and prosper."

LightCounting market forecast methodology is based on an assumption that growth in network bandwidth is correlated with growth in network traffic over the long term. The two growth rates may diverge during economic downturns and recoveries, but should follow the same trend in the long run.

Projections for growth in network bandwidth are directly related to the bandwidth (and therefore the number) of components and modules to be sold in the future. Future sales of these products can also be calculated from the network's bandwidth growth by making assumptions on price declines.

This analysis suggests that component sales are effectively a derivative of the network bandwidth (in mathematical terms, not Wall Street jargon). A small decline in the annual growth of network bandwidth will be magnified in the annual sales of components. For example, a 3 per cent to 5 per cent reduction in annual growth of DWDM network bandwidth projected for 2016-2017 can shave off more than 10 per cent from annual market growth. Annual sales of DWDM components and modules increased by 15 per cent to 20 per cent per year in 2013-2014, but it is likely to be just 5 per cent per year in 2016-2018 even if price declines moderate.

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