TeleGeography Update: Internet Traffic Growth Accelerates while Transit Prices Continue to Decline

According to research firm TeleGeography, over the past five years wholesale international Internet service providers have experienced demand increases that are virtually unprecedented in other industries. At the same time, equally stunning price declines eroded much of the benefit of this traffic growth. According to the latest research in TeleGeography's Global Internet Geography 2007, these trends continued through the 12 months from Q2 2005 to Q2 2006, but with a significant twist: International IP traffic growth actually accelerated over the past 12 months, while the pace of price erosion abated noticeably in many of the world's most competitive markets.

According to Eric Schoonover, Senior Research Analyst with TeleGeography, "Carriers should not become too optimistic," adding, "At the moment, nearly all markets have growth rates that more than compensate for the steady decline in wholesale prices, providing opportunities for carriers to increase return on investment. This is particularly true in high growth markets, including Latin America and Asia."  For example; in Buenos Aires, the average price for STM-1 access to Internet networks (known as "IP Transit") fell only 11 percent to $187 per Mbps in 2006; at the same time, average Internet traffic from Buenos Aires increased by 119 percent.

For carriers, investors, and hardware/software vendors, such trends are a welcome change of pace from earlier years, when demand could barely keep up with price declines. However, TeleGeography's data also strike a cautionary note. Residential broadband markets, one of the chief drivers of Internet traffic, are already becoming saturated.