Leased-Line Market Thrives in Asia/ Pacific Despite Bandwidth Glut (Executive Summary) Executive Summary

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1 Leased-Line Market Thrives in Asia/ Pacific Despite Bandwidth Glut (Executive Summary) Executive Summary Publication Date: December 4, 2002

2 Authors Alayne Wong To Chee Eng Evelyn Goh Kenshi Tazaki Andrew Chetham Kobita Desai Lee Hyun-sook This document has been published to the following Cluster codes: TELC-WW-EX-0492 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Leased-Line Market Thrives in Asia/Pacific Despite Bandwidth Glut (Executive Summary) Bandwidth was considered one of the hottest growth segments at the height of the telecommunications bubble. But a series of high-profile collapses in the past year, including big names such as Global Crossing, Level 3 in Asia/Pacific, KPN Qwest and Williams, has raised a worrying question: Is the bandwidth and leased-line business in jeopardy? The answer is no. In fact, demand for leased lines is healthy and will continue to support today's revenue during the next five years, a big plus considering the severe price "commoditization" in this sector. The Asia/Pacific leased-line market is forecast to grow from US$12.9 billion in 2001 to US$14.1 billion in 2006, a CAGR of 1.9 percent. International leased lines account for 14.0 percent and are forecast to rise to 17.3 percent. Local leased lines are also expected to increase from 43.5 percent in 2001 to 46.6 percent in In contrast, domestic long-distance is expected to shrink from 42.5 percent in 2001 to 36.1 percent in Corporations are the largest users of leased lines, accounting for 37 percent of revenue in 2001, followed by cellular operators at 31 percent, ISPs at 20 percent and carriers at 12 percent. When viewed from a regional perspective, the revenue mix will only show small changes over the forecast period, with modest revenue growth from all segments. However, when viewed by country, there will be big differences in the revenue mix and growth trends between markets. Generally, demand for bandwidth is strong because markets in Asia/Pacific are still expanding and higher-speed applications are emerging. However, robust demand is matched by falling prices, therefore muting revenue growth. Increasing deregulation in Asia has led to the deployment of high capacity cables in the region, especially on the international front. The result is that more operators, especially alternative carriers, now have access to inexpensive capacity, thus intensifying competition in the leased-line market. Further, alternativetechnologiessuchasip-vpns,xdslandethernet,willintime make a dent on the leased-line market. Figures 1 and 2 detail the Asia/Pacific leased-line market in 2001 and Gartner, Inc. 1

4 2 Leased-Line Market Thrives in Asia/Pacific Despite Bandwidth Glut (Executive Summary) Figure 1 Asia/Pacific Leased-Line Market: 2001 (By Market Segment) International (14%) Local Access (44%) Domestic Long-Distance (42%) Figure 2 Asia/Pacific Leased-Line Market: 2006 (By Market Segment) International (17%) Local Access (47%) Domestic Long-Distance (36%) Gartner, Inc. December 4, 2002

5 Leased-Line Market Thrives in Asia/Pacific Despite Bandwidth Glut (Executive Summary) 3 The segmentation of the leased line market is as follows: International: Capacity glut and price competition is most severe in international leased lines. Competition is particularly fierce in "liberalized" markets like Japan, Australia, Hong Kong, Singapore, South Korea and Taiwan, that are well-connected by new high-speed cables. However, international leased lines, with the exception of Hong Kong and Singapore, only contribute a small portion of total leased-line revenue, while latent demand is being fueled in large emerging markets. As such, impact on the bottom line is limited. Demand for international bandwidth is largely from Internet service providers (ISPs), carriers of Voice over Internet Protocol (VoIP) and corporate data traffic. Use by corporations is higher in regional commercial hubs such as Hong Kong and Singapore. Domestic Long-Distance (DLD): Compared with international private leased circuits (IPLCs), competition is more muted because of less infrastructure competition. In markets that are already liberalized, like Japan, South Korea and Australia, competition has already set in and there is little room for more price cuts. Also, in many Asia/Pacific countries, most of thebusinessisfocusedonthecapitalcity,whichlimitsdemandfordld. Demand for DLD is largely from alternative carriers who have not rolled out their own national backbone and from cellular operators and ISPs that are expanding their networks and coverage. In countries with well-dispersed cities, corporate users, especially banking and finance, distribution and retail and government and primary industries, have strong demands for long-distance bandwidth. Local Leased Lines: This is the main growth segment for many countries. Incumbents still have virtual monopolies over this sector. Without competition, there is little pressure to cut prices. Demand for corporate networks is still growing strongly from corporations, including retail systems such as point-of-sale terminals and automated teller machines (ATMs). Cellular carriers have also emerged as the next-biggest buyer of local leased lines for linking base stations. And their requirements are growing because of an increasing subscriber base and the arrival of mobile data and 3G. Figures 3 and 4 detail the Asia/Pacific leased-line market by use in 2001 and For the full report, see the Gartner Dataquest Focus Report, "Leased-Line Market Thrives in Asia/Pacific Despite Bandwidth Glut" (TCPS-WW-FR-0136) Gartner, Inc. December 4, 2002

6 4 Leased-Line Market Thrives in Asia/Pacific Despite Bandwidth Glut (Executive Summary) Figure 3 Asia/Pacific Leased-Line Market: 2001 (By Use) Other Carriers (and Telephony) (12%) Internet (20%) Corporate Data (37%) Cellular (31%) Figure 4 Asia/Pacific Leased-Line Market: 2006 (By Use) Other Carriers (and Telephony) (12%) Corporate Data (37%) Internet (20%) Cellular (31%) Gartner, Inc. December 4, 2002