A capex reckoning is coming – the falling cost of Gbps is going to slow as it runs into the physics of Shannon’s Limit
For 20 years, the rising demand for optical network capacity has been offset by the falling cost of Gbps, according to Jimmy Yu. He is head of Optical Transport and Microwave Transmission & Mobile Backhaul Transport at research house Dell’Oro and says this is one reason service providers could keep up with customer demand for bandwidth without exponentially increasing capex.
The trouble is, demand for bandwidth keeps rising, but so does the cost of lowering the price-per-Gbps. Optical kit providers have had to invest ever more in R&D to prevent that exponential increase in operators’ expenditure.
Demand for bandwidth grows 30% pa
For the last 10 years, Yu says, demand has driven an increase in the capacity of long distance networks by average annual rate of 30% and the same is expected for the next decade. Put another way, every five years, installed Gbps network capacity rises by roughly 4 times, largely spurred by applications that consume more capacity – see the graph below.
Source: Dell’Oro
Read more about the current and future drivers of increased capacity in Yu’s blog here.
Despite these increases, service providers’ capex per Gbps was linear, as the price of DWDM equipment declined 20% annually or, put another way, halved every three years. How that was achieved is sumarised in the graph below and there is more information about in the blog.
Source: Dell’Oro
The concern is that now we are reaching what is known as Shannon’s Limit in terms of spectral efficiency, the biggest lever the industry had to reduce price-per-Gbp. Yu predicts that in five years’ time, spectral improvements will only be 5%, suggesting that unless the industry comes up with other ways to address the issue, operators are facing a serious hike in capex to keep up with demand for capacity in optical networks.
Source: Dell’Oro