Welcome to the fourth issue of HELLERSTEIN REGULATORY & INDUSTRY REVIEW, a monthly free newsletter covering significant industry and regulatory developments in the telecommunications and technology industries. The newsletter is published by Hellerstein & Associates, a telecommunications and technology research group that provides its clients with a competitive edge through market research, regulatory analysis and competitive intelligence.

As I have in past issues, I again would like to ask my readers for topic suggestions. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com.

This fourth issues will take more of an industry perspective, rather than regulatory, and focus on some of the insight gained at the recently concluded Telecom Business Conference. Several of the conferences were focussed on bandwidth and whether there can ever be too much bandwidth. One of the more interesting panels was a discussion titled "Bandwidth Feast or Famine" and hosted by Deutsche Bank. At this panel executives from Williams, Global Crossing, Lucent Technologies, and Metromedia shared their views on the subject. All agreed that there is still a shortage of bandwidth even with the large number of companies building national and international fiber optic highways and undersea cables. Ron Harden of Williams laid out his reasons why he felt that the new bandwidth coming to market will not come close to meeting consumer and business demand for bandwidth. Harden's reasons were the need for speed, the increasing demand and use of data transmission technologies, the introduction and deployment of new service features, and the plethora of new uses and applications that rely on bandwidth. This view was echoed by executives from Lucent Technologies, Global Crossing, and Metromedia. Hellerstein & Associates believes strongly that there can never be such a thing as too much bandwidth since we have not even scratched the surface of the different types of multimedia applications, Internet Telephony, and E-commerce applications that businesses will depend upon, both to increase their efficiency and to improve their productivity.

Additionally, Hellerstein & Associates believes that as deregulation and privatization of previous state-owned companies and infrastructures continues at a rapid pace, hundreds, even thousands, of new carriers are entering the marketplace, many with business plans centered around bandwidth intensive services and applications. Barry Porter of Global Crossing cited figures of greater than 100% increases in capacity resulting from increasing use of cable modems, xDSL and other broadband access equipment to access realtime video, data, broadcast quality video, and other multimedia applications.

Furthermore, prices for DS-3s, and OC-3s have been falling dramatically and will continue to drop as competition intensifies. According to executives at Williams, 1998 prices for T-1s have fallen by 20% from 1997, while prices for DS-3s have fallen even more, by 50%. Demand for bandwidth continues to escalate such that carriers are now quoting prices for leased lines in number of OC-3s or even OC-48s, whereas before prices reflected number of DS-3s needed. Gemini charges $4 million per DS-3 and as low as $5 million for each STM or Sonet circuits, provided 5 or more are purchased, while Global crossing charges $4.5 million for the same bandwidth.

Additionally whereas carriers were previously content to haul all their international traffic through one termination point in a country, often controlled by the incumbent carrier, they are no longer willing to do this. Today carriers are insisting that they be able to terminate their traffic directly at a city by city level, rather than a country by country level. Companies and carriers who own undersea cables, such as Cable and Wireless's Gemini system and Global Crossing's Atlantic Crossing are responding to this need and leasing private lines directly from city to city, e.g., London to NYC, rather than from UK to NY. Moreover, the prices charged for these private lines are often much less than what carriers had previously charged for country to country connection, especially when you consider that carriers no longer have to pay for expensive connects to the incumbent carrier to backhaul their traffic from the cable termination point to their network. Furthermore, many carriers are building national networks throughout Europe connecting their various leased lines into a global network

Worldwide deregulation of telecommunications infrastructures has permanently changed the way carriers acquire bandwidth. Previously, national fiber networks and undersea cables were subsidized by governments or by incumbent or flag telecommunications carriers. In this new era of competition, governments are no longer subsidizing the buildout of these networks and undersea cables. Carriers, including the incumbents, are unwilling to join with other carriers and share bandwidth or even pool their resources to build new networks or new national fiber networks or undersea cables as they have done previously.

As broadband access and demand, new multimedia applications, broadcast quality video, Internet Telephony, video conferencing, and new and expanded E-Commerce initiatives all continue to grow rapidly, new capacity must follow. Already demand is growing by over than 100% and is likely to continue on this growth path for the near future. Moreover, new applications and new technological developments will spur demand even further necessitating even more bandwidth. As a result, Hellerstein & Associates does not see supply or capacity ever out stripping demand, rather the opposite. Both Harden and Williams stated that their research and projections show that demand for bandwidth is far outstripping the available capacity and predict this problem will continue and even get worse as businesses and consumers begin to use many more multimedia applications that require significant amount of bandwidth to run. Additionally, as more companies begin to rely more heavily on E-commerce and Intranet applications, this need will become even more acute.

Topics covered in the HELLERSTEIN REGULATORY & INDUSTRY REVIEW were chosen because of their interest to the work of Hellerstein & Associates. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com. For past editions of the HELLERSTEIN REGULATORY & INDUSTRY REVIEW please visit the Hellerstein & Associates website at www.jhellerstein.com.