The Analyst Corner - Private Line: A Casualty of IP?

Private Line: A Casualty of IP?

Once the cash cow of data transport, the future of private-line services is in jeopardy as the world slowly migrates to IP, according to a new report from In-Stat/MDR. The high-tech market research firm expects that growth will stagnate in the near term, with the market facing an eventual and pronounced decline in the long term.

But the bottom has not yet fallen out on private line expenditures -- U.S. businesses spent roughly $23 billion on private line services in 2003, up about 4 percent. "The reality is that the public network is migrating to IP, meaning traditional circuit-switched private lines will need to migrate as well," says Kneko Burney, chief market strategist with In-Stat/MDR. Today, the most common migration path is primarily to switch to a high-end version of DSL, such as HDSL, and this is likely to escalate over time as DSL reach and capabilities broaden, he adds.

"However, this migration will be gradual," says Burney, "meaning that the T1 businesses will experience a long, slow, and possibly painful exit as replacement escalates - similar to that experienced by long distance and now, local phone service." Burney says traditional T1 providers may be able to manage the erosion through innovation, i.e., step up plans to offer integrated T1 lines, and by focusing on specific segments of the market, like mid-sized businesses (those with 100 to 999 employees).  "According to In-Stat/MDR's research, respondents from mid-sized businesses were somewhat less likely than their peers from both smaller and larger firms to indicate that they were planning or considering switching from T1 to integrated T1, cable, or S, H, or VDSL alternatives," reports Colin Nelson, research analyst for Business Market Segmentation with In-Stat/MDR. In-Stat/MDR has also found that:

Post-2004, price pressure and outright replacement is expected to lead to the first decline in this category of spending in years (maybe ever). In-Stat/MDR estimates that beyond 2004, this market is expected to slowly, but steadily shrink, and by 2008, spending is expected to fall approximately 22 percent from 2004 spending levels.

Looking at expenditures by size of business, spending on private line services is already declining on an annual basis in the small business market, as DSL, and to a lesser extent, cable alternatives supplant traditional private lines, and spending is expected to do the same in the SOHO business market next year.  Spending levels among mid-sized and enterprise businesses are expected decline by 2005. The enterprise market drives most of the spending on private line services, currently making up more than 77 percent of expenditures.

“Cash Cows Say ‘Bye-Bye’: The Future of Private Line Services in US Businesses (5+ Employees),” #IN030957BB, presents data on private line services usage in the U.S. business market. A five-year forecast of spending is included, as well as data on applications supported and satisfaction with traditional T1 services. The report contains data on decision-makers' plans to switch from T1 to an alternative. A discussion of integrated T1 services is also included. To purchase this report, or for more information, please visit: http://www.instat.com/catalog/pcatalogue.asp?ID=188 or contact Rick Vogelei at +1 480 609 4533 or rvogelei@reedbusiness.com. The report is priced at $3,495.00 U.S. Dollars.

About In-Stat/MDR:
In-Stat/MDR (www.instat.com) offers a broad range of information resources and analytical assets to technology vendors, service providers, technology professionals, and market specialists worldwide. The company stands alone in its ability to integrate both supply-side and demand-side research methodologies into a single comprehensive view of technology markets and products. This capability relies on a unique ability to cover the entire value chain from engineering-level technology, through equipment, infrastructure, services and end users.