We’re pumped to have Dennis Thankachan, Co-Founder and CEO of Lightyear, back on TeleGeography Explains the Internet.
Last time Dennis joined us on the show, we dug into Lightyear’s approach to creating a digital telecom lifecycle automation platform for enterprise networks.
This time, we discuss their State of Connectivity Report, which dovetails nicely with many of the issues we research here at TeleGeography. (Perhaps this read is a perfect companion to our State of the Network? A match made in heaven, etc.)
In this episode, we first discuss how Lightyear has seen network prices react to global inflation, in some cases bucking the very long-term trend that telecom prices always go down. We also talk about point-to-point service in the enterprise network and how DWDM is emerging as a more common product for enterprise customers.
Obviously, we touch on the impact of AI and other drivers on bandwidth demand. And where the market is in terms of the decline of MPLS and the corresponding rise of SD-WAN.
If you can’t tell, there’s a lot in this episode. You can preview our chat below or scroll to the bottom to enjoy the full conversation.
Greg Bryan: Everyone who’s been playing in the telecom market long enough has known that, typically, prices are going down.
There’s sort of like Moore’s law of data transmission. Supply is always going up, even though demand is rising—we’ve just seen telecom prices tend to fall pretty regularly, right?
What did you see happen over this global inflationary period? Did that bleed into your customers’ circuit prices as well?
Dennis Thankachan: Yeah. So, as an investor, I would read that bandwidth costs deflate at something like 5% to 10% annually, kind of like clockwork.
Greg: I would agree with that.
Dennis: And it was fun to sort of enter the space and observe that cost deflation play out in the data. We would see something like 5% to 10% annual declines in cost per megabit for dedicated connectivity. Again, sort of like clockwork.
2024 was the first year where we began to see that trend bucked to some degree. And depending on geography from 2023 to 2024, we actually saw cost inflation relative to trend in select markets.
We would see something like 5% to 10% annual declines in cost per megabit for dedicated connectivity. Again, sort of like clockwork. 2024 was the first year where we began to see that trend bucked to some degree. And depending on geography from 2023 to 2024, we actually saw cost inflation relative to trend in select markets.
In the U.S., we saw costs generally unchanged year over year, with some minor fluctuations, but certainly not a 5% to 10% decline. So, although that is not outright cost inflation, that is inflation that is somewhat significant relative to trend.
Greg: Yeah, it may as well be, especially when you’re thinking about owning circuits for many years, right? It was always baked in the idea that there would be this 5% to 10% kind of decline over the life of that contract, right?
Dennis: That is right. And in certain international GOs, we saw cost inflation of between 5% and 15%, particularly like LATAM, Europe, and Asia Pacific—in LATAM and Asia Pacific we saw 5% to 8% inflation. And in Europe, we saw quite significant inflation north of 15%.
And I would keep in mind, this is what was observed in what you’d call on-net or near-net enterprise building situations. I’m not talking about internet exchanges or data centers where costs generally continue to follow somewhat deflationary trends. But that actually doesn’t make up the majority of what the average enterprise is buying. Typically, they’re buying a connection to a warehouse, an office, or something of that sort. And that’s where we saw this cost inflation.
It is difficult to point to an exact cause of inflation in particular, because inflation in and of itself is pretty multivariate.
But, over the past several years, we had inflated costs for supply of a variety of hardware goods, intermediate goods, things of that nature—and also significant cost inflation and specialized labor. And these dedicated circuits require specialized hardware, specialized labor, both of which had inflated.
You know, we may be seeing that come through to enterprise costs with a time lag.
The other thing to note is the U.S. saw inflation dissipate earlier than some of these other geographic markets where, you know, Europe, parts of Asia, parts of Latin America, had inflation persist at sometimes higher rates and also for longer.
Listen to the full episode below.
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