Overview
This report provides the reader with a forecast for North American Network Traffic for the next several years, but perhaps more importantly, it will also explore the industry and consumer patterns that are driving that traffic. The lessons of the very recent history of telecommunications suggest that it is very important to understand network traffic patterns and the resulting, reasonable forecasts for growth. Dramatic “busts” disastrously impacting entire industry segments have resulted from a misunderstanding of traffic patterns and the resulting misleading forecasts. This report is directed at trying to provide understanding of these parameters and providing a basis for sound business judgments. This report will provide hard data traffic forecasts by all sources of traffic on the network and will use those source forecasts to build composite forecasts, but, as noted, it will also do more than just provide raw numbers, by giving the reader a perspective of the drivers and patterns behind those numbers. The report will use the “Demand” (traffic) and “Supply” (network resources) paradigm of the economist to help understand the interactions of the traffic “market place”.
Traffic Demand Today
Traffic demand on the network is largely driven, today, by the various sources comprising the Internet and particularly by mobile data traffic. The data streams resulting from end users accessing the Internet or the cellular telephone network are the major sources of traffic growth. These data streams comprise three of the four “Major Sources of Traffic,” as identified in this report and they are the largest and the fastest growing. Two companies, more than any others, are responsible for this growth – Apple and Microsoft. Of course, there are many other companies (e.g., Samsung – the largest cell phone maker, Google – the developer of Chrome, etc.) that are a part of either or both of these markets, but these two are almost entirely responsible for inventing the markets of the Smartphone as we know it today and the Internet.
Problems in the Industry
There are dramatic changes facing Apple and Microsoft, who are the largest companies in the US telecommunications business and who are among the largest companies in the World. Both Apple and Microsoft are having financial troubles. Regardless of their cash on hand (a measure of past successes, not a promise of future success) these two companies are reporting slowing sales of their major products – hardware in Apple’s case and software in Microsoft’s case – and resulting lower net earnings. As this is being written, Microsoft has bought the Nokia cell phone assets in a bid to get a foothold in the cell business, and Apple has announced a new release of its operating system and new iPhone models. Their troubles are symptomatic of the industry and must be discussed in the context of traffic demand – the subject of this report.
On the supply side of the equation, a similarly caused situation is occurring with the largest telecom companies (primarily AT&T and Verizon) in that they are having to build network infrastructure to carry traffic for which they can’t charge adequately thus reducing their return on investment, while their base services (landline telephones) are disappearing.
All of these problems in our industry are related to traffic: its growth, its source and its nature. This report addresses a forecast for US traffic in total and by source, and provides an analysis of the traffic growth patterns from each of the various sources. The sources have been structured in a way that they are physically separate, and thus can be dealt with on an investment basis.
Organization of the Report
This Report will investigate the parameters of this situation – supply and demand, wire-line income, optical network innovation, and telecoms’ investment. The report is over 130 pages long and contains over 85 figures and charts.
The Report will begin with a discussion of market drivers (the drivers of the market are what drives traffic) and will then look at the demand and supply situation of the network much as an economist would. The reader should remember that either an over-supply (wasted capacity) or unfilled demand (poor service, slow response times, etc.) can affect the traffic that the network experiences. In the “demand” section, we will introduce our first set of forecasts providing hard forecasts for the major sources of Internet traffic. As a part of the demand/supply review, we will investigate related issues such as the impact of changes at some of the major companies (Apple and Microsoft) and the impact of the conversion of the network from wire line to wireless.
The next major section will provide the hard data forecasts for traffic from each of the major sources of traffic. The report uses this breakdown (by sources) rather than just by Internet, etc., to make the data more useful to the reader.
The Appendixes provide several items (traffic definitions, terms, Histories of the companies mentioned, etc.) that are thought to be needed by many readers.
Table of Contents
THE LIGHTWAVE NETWORK SERIES OF REPORTS
The Lightwave Network
The Lightwave Series of Reports
General Reports on the Network
General Market Reports
Specific Systems Reports
INTRODUCTION
MARKET DRIVERS
Specific Drivers
The Giants Are Falling
Apple – The Best Device Maker in History
Microsoft – The Preeminent Software Developer in History
INVESTMENT VS. REVENUES – I’M BUILDING IT; EVERYBODY’S COMING; NOBODY IS BUYING (PAYING)
Demand - Optical Network Traffic
Major Traffic Sources
Four Major Sources of Traffic
AAA Access Lines
Mobile Devices
International Traffic
H-S Access Lines
Demand Growth - Summary
Supply - Capital Investment in the Network
Carriers’ Investments
RBOC Investment Plans
Verizon Investment Plans
Importance of Wireline
Summary Thoughts on Investment
INNOVATION – CAN IT SAVE THE INVESTMENT DAY?
Network Innovations in the last 20-30 Years
IMPACT ON WIRELINE REVENUES -RBOCS ARE BECOMING WIRELESS ACCESS COMPANIES
The Wireless Access Landscape
Forecast for Wireline to Wireless
RBOC Loss of Main Lines
It’s a Wireless Access Industry!
Can Advanced Architecture Services Make-Up the Revenue Gap?
Summary of Revenue Issues
DETAILED NETWORK TRAFFIC FORECAST
Major Traffic Sources
IPTV
Four Other (Non-IPTV) Sources of Traffic
AAA Access Lines
Mobile Devices
International Traffic
H-S Access Lines
HIGH-SPEED ACCESS LINES DETAILED FORECAST
High-Speed Access Lines Forecast
Household Penetration — New Forecast
TRAFFIC FORECAST FOR HIGH-SPEED USERS
Developing a High-Speed Line Traffic Forecast
Rationale for Updating the Traffic Forecast High-Speed Lines
New High-Speed (xDSL and Cable Modem) per Line Traffic Forecast
Change to 75% of BH to Average
Components of BH Traffic Change Over Time
New Internet Traffic Forecast from High-speed Lines (xDSL and Cable Modem)
Dialup Traffic
AAA Traffic
Mobile Traffic
Total Internet Traffic Forecast
Lightwave Network
Network Location of Internet Traffic
Internet Traffic Forecast
Other Traffic Types on the Backbone Network
International Traffic
Network Location of International Traffic
Forecast for International Traffic
VoIP Traffic
Location of VoIP Traffic on the Network
Forecast for VoIP Traffic
Other Data Networks
Location of Other Network Traffic
Forecast for Other Network Traffic
Private Line Networks
Location of Private Line Traffic
Forecast for Private Line Traffic
Voice Traffic
Location of Voice Traffic
Forecast for Voice Traffic
IPTV
IPTV Global Architecture
Super Hub Office
Serving Offices
What are the Access Bandwidth Needs?
Drivers of Bandwidth Requirements
Bandwidth Requirements — 2012 Scenario
OVERALL NETWORK TRAFFIC FORECASTS
Total Network Traffic — No IPTV
Growth of the Internet
Total Traffic Forecast — Including IPTV
APPENDIX I - OVERBUILD
Overbuild – How?
Overbuild - Significance
A New Type of Competition
Summary of Overbuild Forecasts
APPENDIX II, TRAFFIC STATISTICS RELATIONSHIPS
APPENDIX III, DATA TRAFFIC FUNDAMENTALS
Internet Traffic Calculations
Bits and Bytes
Transfer Rate
Busy Hour Traffic
Protocol Efficiencies
Statistical Multiplexing
Peaking
APPENDIX IV, HISTORY OF APPLE
APPENDIX V, – HISTORY OF MICROSOFT
Table of Figures
Figure 1, Lightwave Network
Figure 2, Market Capitalization of Various Competitors - 2012
Figure 3, Market Capitalization of Various Competitors – 2013
Figure 4, Mobile Traffic Forecast
Figure 5, Data Traffic from Major Sources
Figure 6, Comparison of Four Major Sources to Total Traffic
Figure 7: Internet Growth Rate — New Forecast
Figure 8, Summary Points on Demand
Figure 9, Supply Demand Relationship
Figure 10, AT&T Capital Investment 2009-2012
Figure 11, Verizon Wireline Capital Expenditures 2009-2012
Figure 12, Verizon Wireline Negative Growth
Figure 13, Verizon Wireline Revenue Negative Growth
Figure 14, Verizon Wireline as a Portion of Total Revenues
Figure 15, Network Showing Wireless Access
Figure 16, Wireless Data Forecast
Figure 17, Network Innovations
Figure 18, Mobile Network Access
Figure 19, Dilemma of Wireline vs. Wireless
Figure 20, Wireless Competition
Figure 21, Summary for Wireline to Wireless Migration
Figure 22, Verizon Wireline vs. Wireless Revenues
Figure 23, Verizon Loss of Main Lines vs. Wireline Revenue
Figure 24, Wireline Customers vs. Wireline Total Revenue
Figure 25, Alternatives for Making AAA Lines More Important
Figure 26, FiOS vs. Uverse Services
Figure 27, FiOS vs. Uverse Quarterly Additions
Figure 28, Revenue Issues
Figure 29, Total Traffic Compared to IPTV
Figure 30, Data Traffic from Major Sources – NO IPTV
Figure 31, Comparison of Four Major Sources to Total Traffic (no IPTV)
Figure 32 New High-Speed Access Forecast
Figure 33, High-Speed Lines Forecasts - All Types
Figure 34: High-Speed Access HH Penetration Rate — New Forecast
Figure 35: BH High-Speed per Line Usage — Old Forecast
Figure 36: New Forecast for Per Line Traffic
Figure 37: Components of New Forecast for per Line Usage in BH
Figure 38: Components of the Total per Line BH Traffic Estimates
Figure 39: Changes in per Line BH Usage Components
Figure 40: File Sharing Component Decomposition
Figure 41: File Sharing Components — 2006
Figure 42: File Sharing Components in 2010
Figure 43: File Sharing Components Change Over Time
Figure 44: Internet Traffic Formula
Figure 45: Forecast for Internet Traffic from High-Speed Accesses
Figure 46: Dial-up Lines Forecast
Figure 47: Dial-Up Traffic Forecast
Figure 48: High-Speed vs. Dial-Up Traffic
Figure 49: Ratio of High-Speed Traffic to AAA per Line Traffic
Figure 50: AAA Line Forecast
Figure 51: AAA Traffic
Figure 52, Mobile Traffic
Figure 53: Lightwave Network
Figure 54: Network Location — Internet Traffic
Figure 55, Internet Total Traffic Forecast
Figure 56: Internet Traffic Change over Time
Figure 57: Network Location of International Traffic
Figure 58: International Traffic
Figure 59: Location of VoIP Traffic
Figure 60: VoIP Traffic
Figure 61: Location of Other Network Traffic
Figure 62: Other Data Networks
Figure 63: Location of Private Line Traffic
Figure 64: Private Line Networks
Figure 65: Location of Voice Traffic
Figure 66: Voice Traffic
Figure 67: IPTV Global Architecture
Figure 68, Drivers of Access Bandwidth Requirements
Figure 69, Usage Scenario - 2012
Figure 70, 2012 Bandwidth Requirements
Figure 71, Forecast Access Bandwidth Requirements 2012
Figure 72, Comparison of Internet Access Speed Offered
Figure 73: Total Traffic Forecast (No IPTV)
Figure 74, Growth Rate - All Traffic - No IPTV
Figure 75, Internet Components Forecast
Figure 76: Internet Growth Rate — New Forecast
Figure 77, Total Traffic Forecast - Including IPTV
Figure 78: Backbone Growth Rates (Includes IPTV)
Figure 79, All Traffic Components with IPTV
Figure 80, Total Traffic Forecast and Growth Rate with IPTV
Figure 81, Verizon's NOOF Arrangement
Figure 82, Overbuild Forecasts
Figure 83: Traffic/Speed Relationships
Figure 84: Example of Various Traffic Sizes
Figure 85, Multiples of Byte
Figure 86: New Transfer Rate Forecast
Figure 87: Summary of Concepts
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