Worldwide Router Market Dips; Latin American Narrowband Growth Soars

Gartner Dataquest says the worldwide service provider router market took a tumble as a result of supply and demand—too much capacity has creates too little demand for broadband. Meanwhile, Yankee Group says dial-up access has gone through the roof as a result of regulatory relief in Latin America.

by ISP-Planet Staff [September 9, 2002]

According to Gartner Dataquest Inc., the worldwide service provider router (SPR) market totaled $494 billion in the second quarter of 2002, which is down 7 percent from the first quarter of this year.

Gartner Dataquest defines service provider router market as carrier-class routers capable of providing multi-gigabit bandwidth in support of high-speed wide area network (WAN) interfaces. These devices are typically designed for installation in service provider networks.

Jennifer Liscom, principal analyst for Gartner Dataquest's worldwide, said the marked downturn is the result of two different factors—capacity and demand.

"The SPR market decline is due to the slowdown in telecom spending and the fact that service providers still have excess capacity in their networks which will last them at least two more quarters," Liscom said. "SPR sales are indirectly driven by the increase in demand for higher speed Internet access."

Cisco Systems dominated the worldwide SPR market, as its revenue surpassed $300 million in the second quarter of 2002 (Table 1). Juniper was the No. 2 vendor in the market, with revenue totaling $87 million.

Cisco also had a commanding lead in the market in terms of shipments, as its second quarter shipments were more than double the shipments of its nearest competitor, Juniper (Table 2).

While the top-tier vendors account for more than 90 percent of revenue and shipments, Liscon said there are still opportunities for other vendors.

"The worldwide SPR market is still relatively young, so other vendors still have time to capitalize on this emerging industry," Liscom said. "Many technology suppliers will have products by 2003, and they will begin to challenge the incumbents as service providers re-evaluate their next-generation product needs and begin spending."

Gartner Dataquest is research and advisory firm that helps clients understand technologies that drive business growth. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 4,000 associates, including 1,200 research analysts and consultants, in more than 90 locations worldwide.

In related news, router makers should not expect a sales boost from Latin America anytime soon. According to new research from the Yankee Group, Latin American service providers are focusing on meeting growth in demand for narrowband services—not high-speed services.

The Yankee Group contends that flat rate regulation is a key market driver in Latin America's ISP markets, which are continuing to produce robust growth. Narrowband subscribers are predicted to increase from 25 million at year-end 2002 to 65 million by 2007.

The Yankee Group's Networked Business Strategies Latin America research and consulting practice's new report, 2002 Guide to Latin America's ISP Market, reveals major shifts in usage, pricing, ISP infrastructure requirements, and rate regulations across the region.

William Santana, Yankee Group research associate, said flat rates fees for local calls to ISPs enabled increased Internet usage in Latin America.

"Our research indicates the regulatory imposition of a flat rate led to a 246 percent increase in Internet traffic in Colombia," Santana said. "Brazil has been formally considering a flat rate, and this has major implications for the ISP value chain since 52 percent of the region's users live in that market."

Naturally, free, on-demand, and metered service provider business models have quickly died in markets with flat rate regulations. Santana believes that depressed e-commerce, Internet advertising markets, and Web service models will bloom as regional dial-up Internet users stop watching the clock and worrying about the local phone bill and spend more time online.

Based in Boston, the Yankee Group studies communications and IT products and services worldwide, maintaining offices throughout North America and in Europe, Latin America, and the Pacific Rim.

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