Telecoms crisis will push up bandwidth prices

Businesses could soon be paying higher prices for bandwidth as a result of the crisis gripping the telecoms industry.

Businesses could soon be paying higher prices for bandwidth as a result of the crisis gripping the telecoms industry.

WorldCom's decision to file for protective bankruptcy follows hard on the heels of KPNQwest's collapse and Global Crossing's protective bankruptcy.

The result is reduced competition among telcos, while users are left gripped by uncertainty and scrambling for alternative suppliers.

Roy Bailey, spokesman for the European VPN (virtual private network) Users Association (EVUA), said, "Customers with binding contracts don't have to worry just now, but what about later? The fact is, we just don't know what to expect, and that is disturbing."

The shakeout in the telecommunications sector is putting pressure on the survivors to increase prices to meet costs and please shareholders. Users looking to secure alternative suppliers are more likely to pay, said analysts.

"Our index has shown the first increase in bandwidth prices since we started tracking prices in 1997," said Alexandra Rehak, director of European research at Telegeography, the market research arm of London-based bandwidth exchange Band-X. "Until recently, prices have fallen steadily."

Telegeography monitors rates for bandwidth sold among carriers, but the prices have a "knock-on effect for corporate users downstream", Rehak said. "In the end, someone has to pay for the bandwidth."

European bandwidth prices have remained stable but they are going up on routes between the Continent and the US, between major US cities and between North America and Latin America, according to Telegeography.

Last month, for example, the price of a STM 1 leased line, which transmits data at speeds up to 155Mbps (bits per second), increased around 20% on routes between New York and Los Angeles.

Analysts have warned that prices could also rise when corporate users switch to alternative carriers.

Camille Mendler, an analyst at Yankee Group, said, "The new service provider may not have the same volume discount [as the old supplier]," she said. "Several customers have rung me up the past few days; they're worried."

According to Mendler, telcos are less interested in increasing prices than they are in luring away customers from distressed rivals.

"It's not in their interest to raise prices now," she said. "But that doesn't mean they won't do so later."

"Many users are caught between a rock and a hard place," said Josephine Kenny, an analyst with Current Analysis.

"They're under pressure to reduce costs, yet they need state-of-the-art network services to run their many applications and carry their huge traffic."

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