Ike Elliott and Dan Caruso have been going back and forth on whether there has been a resurgence in IP traffic and revenue from it over the past couple years. First Ike challenged the idea that growth is happening by looking at Level 3's IP/Data revenues and their total lack of movement in 2007, but Level3's numbers include other stuff that makes it hard to read. Dan then offered Cogent's growth as an example, but Cogent's numbers are skewed by their pricing strategy. They grew revenue for the last few years at a fixed price, having forward-priced the market. Those chickens came home to roost recently with slower traffic growth at Cogent, leading to pricing changes there - but as a proxy for industry trends, Cogent is hard to use because their pricing only changes every few years but then all at once. Ok, so why am I rehashing this?
Because there is a company out there whose traffic growth and pricing has followed the industry. One which reports its IP revenue in an undiluted form, one without acquisitions that affect it, and which can be traced back quarterly over the past 17 quarters. That company is Internap. Internap is Cogent's opposite, they are a Tier-3 operator, they buy IP Transit from folks like Level 3 and Cogent (and a dozen others), blend them together for increased reliability, then resell it for a premium, and they do it in the datacenter only. What this means is that their pricing and traffic trends mirror those of the raw bandwidth industry. Add in the fact that they report their IP revenue number without other crap thrown in, and you have a proxy for the relationship between IP Transit traffic, pricing, and revenue over the past 3+ years. Here it is:
As you can see, Internap's IP revenue was dead flat for two years at $25M quarterly, nothing could budge it. Then, in 2006, something happened at last - yes, traffic grew faster than pricing declined - and since then Internap has been doing better and better. At least until last quarter when they screwed up their integration of the Vitalstream CDN business and there was collateral damage.
In my book, this is evidence for Dan's case, that in mid 2006 there was a resurgence in this sector. One that continues today, Cogent's and Level 3's pecadillos not withstanding. But that growth, while real, remains a bit weak yet - about 10% a year at Internap for the last two years. Their real growth product these days is colocation.
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