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Dubai: 2000 was the last time networking equipment makers had a banner year. Fuelled by the internet boom, telecom companies spent $110 billion laying cables and installing network gear in the US.
But the resulting crash cut demand and created an oversupply of infrastructure, creating lean years for equipment vendors.
Now, another golden era is unfolding as bandwidth-heavy web services like video sharing are pushing telecom operators into massive infrastructure upgrades.
"The internet is now not only something to access, but it's allowing people to become broadcasters and publishers," says Osman Sultan, chief executive of du, a UAE's telecom operator. The new web usage patterns are "definitely having an effect on our network demands."
Data traffic has soared, driven by the popularity of a new generation of online services dubbed Web 2.0.
User-generated content, social networking, file sharing and other collaborative forms of using the internet have created new internet success stories such as Youtube and Facebook.
In the Middle East these media-rich services are putting a strain on existing networks, and firms like Huawei, Nokia-Siemens, Motorola and Cisco are in line for huge deals in the coming years.
Infrastructure
Globally, spending on new telecom infrastructure is expected to rise to $240 billion in 2008, a 19 per cent rise from 2005, according to US-based Infonetics Research.
Although telecom firms earn most of their revenues from voice calls, more and more operators will earmark funds for boosting Internet traffic.
In the UAE, the internet sector still represents only a small portion of overall communications services, registering revenues of $225 million in 2006, according to Pyramid Research.
However, broadband revenues are rising faster than those of any other sector, with a five-year cumulative annual growth rate of over 23 per cent. The group forecasts the UAE broadband market to grow from $95 million in revenues in 2005 to $333 million by 2011.
Consider that an average internet video file consumes 1,000 times as much bandwidth as a typical email message, according to Infonetics.
The cost of sending 100,000 emails figures roughly 20 US cents, but transmitting 100,000 low-resolution video costs around $15. Sending 100,000 high-definition movies, meanwhile, costs more than $10,000.
Subscribers are flocking to the web and sending bandwidth-hungry files, and this is being felt at du. "People are now sending larger and larger data files over fixed and mobile networks," Sultan said.
This has been good news for equipment makers such as Cisco Systems. During its fiscal fourth quarter, ending in July, revenues grew 18 per cent from a year earlier to $9.4 billion, while earnings per share rose 24 per cent.
Middle East focus
In a nod to the new phenomenon, Cisco chairman and CEO John Chambers said Web 2.0 would accelerate its growth similar to the dot-com boom of the 1990s, especially due to collaborative technologies such as video sharing.
Cisco's Middle East business has become its top emerging market worldwide, and the Gulf its best sub-region within the group. Overall sales have grown 100 per cent year over year for the past three years, said UAE general manager, Mazen Jabri.
There is also a bullish mood at Nokia-Siemens Networks, the newly formed joint venture. By 2015, it expects five billion people will be connected via broadband networks - more than double current rates.
Some of the optimism is due to Web 2.0 effect. "The hub of all this content is going to be the internet," said Walid Moneimne, chairman of Nokia-Siemens Middle East and Africa.
And as web companies innovate newer ways to use the internet, data traffic will continue to climb.
Although the number of broadband users worldwide will double, Nokia-Siemens calculates that data will increase more than 100-fold - ensuring companies like it will be in high demand for years to come.
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