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Nov. 8th, 2000





Wholesale bandwidth prices have fallen by up to 60% over the last 18 months 
and are set to increase their rate of decline, according to a new report 
published Monday. But industry pundits at a conference in Vienna this week 
say the falling rate in pricing is even more dramatic than this.

According to the report from the Phillips Group, prices were falling by 50% 
every 18 months at the end of 1998. But by the middle of 2000, prices were 
dropping by 50% every six months.

Although the situation appears to be stabilizing, further price slashing is 
projected, said Margrit Sessions, managing director of the Phillips Group, 
speaking at the CWM 2000 Central and Eastern Europe conference in Vienna 
Wednesday.

Company representatives at the conference agreed with the assessment of the 
market's chronic lack of stability, but some claimed that their individual 
experience of the falling rate of pricing is even more dramatic.

According to Sessions, lack of customer loyalty and the growing number of 
players in the market account in part for the decline.

"What's happening here is that clients are being quoted one price, which is 
then undercut by the next provider they speak to," Sessions said, a 
phenomenon that has in turn led to an aggressively falling pricing policy, 
exacerbated by a lack of transparency in the market as a whole.

This lack of transparency has been directly responsible for a "massive spread 
in pricing over individual routes," and a pricing policy that is not always 
reflective of the quality of services offered, she said.

In one example cited in the report, "Carrier A," a major incumbent, was 
forced to drop its prices on a London-New York STM-1 route from just under 
US$600,000 per annum in March of this year to US$500,000 by the end of this 
quarter. The price is expected to fall further to below US$400,000 in the 
next few months.

Another major incumbent, "Carrier B," cut its prices from US$3 million for 
the same STM-1 route over its own network in April of last year to US$900,000 
per annum 12 months later, and then again down to US$525,000 in June of this 
year.

A further key issue affecting prices is that one-year contracts account for 
around 50% of all contracts signed. Only 33% of clients commit to longer than 
one year - a problem that is playing havoc with providers' marketing 
departments, said Christof Rieder, senior product manager of private line 
international at Swisscom, who attended the conference. Although the report's 
findings may confirm wholesale providers's suspicions, so far 
number-crunching evidence of the pricing war has been hard to prove 
quantitatively, he said.

Ulrich Hammerschmidt, manager of carrier services at Telekom Austria, said 
operators are responding to this market-pricing uncertainty by committing to 
short-term lease contracts for bandwidth. "There is no other alternative," he 
said.

Bandwidth prices will continue to fall until demand puts sufficient pressure 
on supply as bandwidth-hungry applications come to the fore, concluded 
Sessions.