IP transit prices on downhill mode

USA: IP transit prices are declining around the world, falling below $1 per Mbps for high volume transactions in major markets, according to new data from telecom market research firm TeleGeography. It adds that intense competition, increasing demand for higher capacities, and technological advancements that handle greater throughput per bit expense are driving price reductions.

As buyers' bandwidth requirements grow and they transition to higher capacity ports, the unit price they pay for transit decreases. For example, customers who paid the median price of $13 per Mbps for a GigE port in London in 2008, are now seeing the median price of just $1.50 per Mbps for a 10 GigE port. While median GigE and 10 GigE port prices have decreased at a compound annual rate of 28 and 30 per cent, respectively, over the last five years, buyers making the transition between the two have obtained a steeper price decrease of 35 per cent.

Similar trends are seen in other global hubs. In New York, GigE prices fell 24 percent over the past five years, while 10 GigE prices fell 27 per cent. Customers transitioning from a GigE port bought in 2008 to a 10 GigE port would experience a slightly greater price decrease of 31 percent, paying the 2013 median price of $1.71 per Mbps. In Hong Kong, GigE and 10 GigE prices fell 15 and 26 percent, respectively, but a customer making the transition between the two would see a price decline of 28 percent, and pay around $7 per Mbps for the 10 GigE port.

"The rapid decline in price per Mbps may appear alarming, but the total price of a large port still runs thousands of dollars per month," said TeleGeography analyst Erik Kreifeldt. "At $1 per Mbps, the price of a full 10 GigE port is $10,000 per month. Furthermore, robust demand growth helps neutralize the effects of price erosion on IP transit revenues."