Remember that late 1990s slogan, “Internet traffic is doubling every 100 days”? Well, the true growth rate was around 100% annually. And the Internet bubble blew when investors realized telecom companies had spent hundreds of billions of dollars building capacity that wasn’t needed. Now, the rise of Internet video is prompting fresh forecasts that—you’ve guessed it—global traffic could double every 100 days.
Trouble is, traffic growth may be slowing worldwide, according to the researcher who debunked the hype behind the first bubble. Andrew Odlyzko, a professor at the University of Minnesota, has collected data showing Internet traffic growth has continued to slow worldwide, falling from 100% annually to 50-60% a year.
The slowdown might be temporary. For instance, the adoption of Internet TV could be stunningly fast. The Chinese could develop Korean patterns of extraordinarily high Internet usage. Or there could soon be lots of electronic devices that talk among themselves.
But what if subdued growth set in for years? In that case, many of the victims of the last downturn could be in for a second helping. For example, communications carriers Level 3 Communications, Inc. and Global Crossing are two surviving former high-fliers. They are heavily indebted, and their operating profits do not yet cover interest payments or needed capital expenditures. Slowing traffic growth could damp revenue growth—making it harder for them to grow into their balance sheets.
There could be indirect casualties as well. Less data traffic means less demand for all the telecom equipment that carries it. Cisco Systems Inc. chairman and CEO John Chambers, who has said video could cause the Internet traffic to grow at up to 500% annually, would be proven too optimistic. And companies with high stock multiples such as Juniper Networks, which trades at 45 times estimated 2008 earnings, could see their stocks fall. Of course, measuring traffic is tough and the future is anybody’s guess. But if investors did get caught out again, they’d have only themselves to blame.