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Thursday, 03 April 2008 11:24

Cisco riding high on a flood of terabytes

Cisco attributes burgeoning sales of its high end carrier router to carriers having to cater for massive increases in video traffic on the Internet, but how do carries generate additional revenues to recoup their investments?

When Cisco launched its flagship core network router product, the CRS-1, in mid 2004 it lobbed onto the market with a massive maximum throughput of 92Tbps. The CEO of Cisco Australia, Ross Fowler said at the time that "I think this has caught the industry by surprise...nobody expected a 92 terabit router...The benchmark today is 940Gbps and they can be daisy-chained to achieve about 10Tbps. This is a major leap forward."

Cisco pointed out that a single fully configured CRS-1 pumping through 92Tbps would be able to support a 850kbps broadband connection to every household in the USA, or handle three billion telephone calls per second.

Cisco hasn't said if it has yet sold a fully configured CRS-1 (very unlikely) but it has just announced total sales of 1800 units, and significantly that half this total was sold in just the last nine months, to the end or March 2008.

It's flagged the driver of this growth as being the increase in video traffic on the web, quoting Michael Howard, principal analyst at Infonetics Research, saying: "Exponential traffic growth on the Internet - driven largely by increased deployment of video services - is causing more and more providers to rethink their core architectures...as business and residential consumers demand more video content in increasingly personalised bundles."

Cisco has available a couple of very comprehensive white papers setting out its methodology and forecasts for traffic growth: Global IP Traffic Forecast and Methodology, 2006–2011 and The Exabyte Era.

Just a few snippets illustrate why CRS-1s are selling like hot cakes: Three years from now, Internet video traffic will be twenty times what it was in 2006; driven by video, Internet traffic will quadruple by 2011; in 2011, online video will generate  one billion DVDs worth of traffic each month.

In short there are three reasons why Internet traffic is exploding: video, video and video.  But at present revenues from all this video traffic are not keeping pace, and in particular are not flowing to the carriers that are buying CRS-1s and all the other gear they need to carry this traffic: much of its is peer-to-peer, much of it is driven by the huge popularity of YouTube. Consumers, meanwhile think they should pay a set monthly fee for their Internet connection and download as many videos as they like.

Cisco might now be well on the way to recouping the $US500m in R&D costs it claims to have put into the CRS-1, but clearly the buyers of those 1800 units, and that includes Telstra, will need new ways of monetising these massive traffic volumes to recoup the investments they have to make in delivering them. Either that of the cost of gear such as the CRS-1 in terms of dollars per Tbps of throughput will have to keep falling fairly rapidly.


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