Not a single day passes where we do not hear the mantra of a “Bandwidth Explosion” used to justify aggressive financial forecasts for equipment and component companies, carrier backbone demand models, even regulation or deregulation of the Internet.
Lacking in these sweeping statements is a reference to a crisp and concise quantitative explanation of traffic growth. This lack of hard data supporting this bandwidth explosion has weighed heavily on us, particularly because we have seen the damage that nebulous predictions of traffic growth caused in 1999-2001.
Everyone remembers the claims of Internet traffic doubling (even more prescient here) every 100 days in 1999? This was pure fiction, yet the political and investment communities accepted it because it was a useful tool for justifying the irrational activity underway. History does not repeat, it rhymes, and the “Video Bandwidth Explosion” sounds very similar to what was said in the Telecom bubble.
Using data from the Japanese Ministry of Internal Affairs (MIC) one can draw conclusions about the growth in Japanese Internet traffic on a per subscriber basis. The conclusions are not what you would expect given the advanced nature of broadband in Japan, and are troubling when compared with image created by the market.
Japanese Broadband Subscriber Growth
Japan is our favorite proxy for the future of broadband in the world given their aggressive deployment of broadband and more recently, Fiber to the Home. Japan leads the world in absolute FTTH deployment as well as per capita FTTH deployment. It is the worlds de facto FTTH testing lab (see “The Proving Ground of NTT“).
Most notable about Japan is that all broadband subscriber growth in the past two years is a result of FTTH deployment.
(May-07 values are Nyquist Estimates)
Japan has 127M people, with 50M households, and just over 50% broadband penetration. This is in a country where 94% of the country has access to DSL, FTTH, or Cable access in excess of 1Mb/s. DSL growth went negative a year ago as conversion to FTTH accelerated. NTT’s stated goal is to have 30M FTTH connections within 5 years.
No other country in the world has such a widely deployed advanced residential broadband infrastructure.
Broadband Traffic Growth
The MIC released a white paper in August of 2007 that estimated the total average bandwidth used by DSL and FTTH subscribers in Japan. The MIC monitored traffic to and from 6 large ISP nodes that represented approximately 40% of all broadband traffic.
These are raw traffic numbers that represent the average Gb/s traffic rate over a given month. Peak rates in the evening are around 2.3x trough rates in the early morning. In short, total Internet traffic increased just over 2x in the last 2.5 years, with a CAGR of 38%. Not as high as you would expect, but not terrible either. However, these numbers need to be adjusted for broadband subscriber growth in Japan shown above.
Not the Kind of Shock and Awe We Like
When the above numbers are examined on a per subscriber basis, the CAGR for download growth drops from 38% to only 18%.
If peak rather than usage numbers are used, the CAGR for download bandwidth improves slightly to 22%. Japanese Internet use isn’t doubling every year. It isn’t even doubling every three years.
The aggressive deployment of fiber to the home is not driving high bandwidth growth rates in Japan.
Verizon (VZ) and AT&T (T ) have massive capex efforts underway to provide next generation broadband services. AT&T has come under attack by the digerati (including us) for failing to anticipate the demand in broadband growth. What if the demand for massive increases in bandwidth outside a small circle of users simply does not exist? Where could the data be wrong?
One explanation is that the MIC broadband data is flawed - by a lot. However, even if the absolute measurements are incorrect, it is the rate of change that is most important, and it appears the same measurement methodology was used for the last two and one-half years.
It is entirely possible that the behavior of Japanese
FTTH subscribers is a poor proxy for the behavior of users elsewhere in the world. No one has made mention of this before, and given the magnitude of investment based on the assumption a bandwidth boom is happening it would be useful to see these differences in behavior precisely quantified.
Disclosure: Author is long NTT.
Appendix: Source Data Summary
The Japanese Ministry of Internal Affairs (MIC) released data illustrating traffic growth (Full .pdf source here). A1 (in) represents raw upstream traffic and A1 (out) represents raw downstream traffic from a large sample of DSL/FTTH subscribers. A2 is corporate leased line and dial up traffic. We would expect the corporate upload/download ratio to be symmetrical and indeed it is. It is also interesting to note that corporate data growth if far more rapid than consumer broadband.
A proportional mechanism to extrapolate this number to represent all DSL/FTTH subscribers. This graph shows an estimate of the average bandwidth use for all DSL/FTTH subscribers in Japan. 721.7Gb/s is the average download rate for May 2007.
Here is subscriber growth through the end of 2006. (Full .pdf source here). Note that for the period bandwidth data is available, DSL and Cable subscribers are flat. This means that all increases in bandwidth were due to new FTTH subscribers or different online behavior among existing broadband subscribers. By factoring out growth in FTTH subscribers one can clearly see the increase in traffic growth due to user behavior.