Telecom Ramblings

According to research by Telegeography, internet traffic growth has remained very robust despite the global economic slowdown, tipping the odometer at 79%.  In fact, it has accelerated since the prior year’s study, which saw 61% growth internationally.  The big time growth came, as usual, from the less developed parts of the internet world.  Eastern Europe, South Asia, and the Middle East continued to grow at triple digit rates.  But even the US and Canada managed a very respectable traffic growth rate of 59%.  Which leads to an obvious question…

Where has all the capex gone?  For the last 3-4 quarters, carriers have been guarding their pocketbooks very carefully.  The spending cuts have been deep, as evidenced by the revenue pressure on every company in the equipment sector, from Cisco on down.  But the fundamental driver for that capex hasn’t even blinked, in fact it has gotten more demanding if anything.  Yet Telegeography reports that capacity is keeping pace despite it all, it is the more fundamental network upgrades that have been postponed.  In other words, they’re still buying additional line cards for their current gear at normal rates, but they’re not buying new gear.  Nevertheless, this can’t go on forever, spending must come back to sustainable levels or the infrastructure of the internet will begin falling behind demand.

But when?  How much inventory is there to use up before those more fundamental upgrades take place?  How hot can they run the networks?  My sense is that the spending starts to come back in the fourth quarter and surges from there, as the industry becomes more confident in the recovery and equipment purchases become undelayable.