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January 5, 2023

Metcalfe’s Law: Why the Move Towards Faster Speed, Higher Bandwidth Networks is a Gift That Keeps Giving

In a world currently concerned with global economic performance, supply chain issues and the cost of upgrading or building new networks, Metcalfe’s Law is more relevant than ever. Here’s how. 

Metcalfe’s Law, Explained

It’s been 40 years since Bob Metcalfe predicted the explosive growth in the value of networks over time. In what’s termed as Metcalfe’s Law, he hypothesized that a network’s value would increase at an exponential rate as more users join it. Since then, networks have evolved dramatically, pushing fiber ever closer to customers and empowering new opportunities for communication and collaboration. With data gravity continuously shifting to the edge, technologies once in the realm of science fiction, like machine learning (ML) and artificial intelligence (AI), have now become part of mainstream discussion. If we look to the future through the lens of Metcalfe’s Law, every network upgrade or expansion undertaken today will, in turn, create an exponential abundance of new opportunities tomorrow for future societal advancement and economic growth.

Everyone Agrees: We Need More Bandwidth

Every one of the leading network operators and cable/broadband providers around the world agree that they need more bandwidth to meet the growing requirements of corporate and residential end-users. This is not a surprise, as they are all planning to deliver more content and new services like 5G over their networks – and to more rural and traditionally underserved locations as well. The reason for this is simple: faster speed, higher bandwidth networks are the key enabler of new opportunities for work, communication, collaboration, and recreation.

Bandwidth capacity is also a key factor in unlocking new business models that will generate revenue for both service providers and content owners alike. It’s easy to see that if a network operator increases their bandwidth capacity by 50%, they can deliver twice as much data through their network than before, which means more revenue from consumers who want access to these higher capacity networks.

More Network Capacity = More New Technology = Even More Network Capacity

The more capacity that is available, the more new applications and services will be created to take advantage of this new capacity. This, in turn, means even more demand for higher speed connectivity. It’s essentially a self-perpetuating cycle that continues to accelerate at an exponential rate.

The result? Rapid innovation in technology—a trend that has already been demonstrated by companies like Alphabet (parent company of Google), Facebook and Amazon, who have developed technologies such as Google Glasses and drones based on their access to high-speed broadband networks. As these innovations become increasingly embedded into our daily lives, we’ll find ourselves with easy access to high-speed bandwidth anytime we want it, allowing us the freedom to do things like stream videos from anywhere in the world or perform remote surgery live.

Metcalfe’s Law and the Value of a Network

In the words of Metcalfe’s Law, “the amount of value created by a network is proportional to the square of the number of connected users.” In other words, it can be mathematically expressed by the triangular number n (n-1) / 2, which asymptotically approaches n^2/2.

In simple terms, the value a new user brings to a network can be measured in terms of the new connections that suddenly become possible thanks to their arrival. One link in a network provides 1 unit of value, but 10 links in a network will provide 10(10-1)/2 = 45 units. From a network operator perspective, Metcalfe’s Law provides an important conclusion: every time a new user is added to their network, the cost to do so is exponentially outpaced by the value that this new user brings. A network with significantly increased value tends to attract even more new users, driving revenue growth in the shorter term and providing a base for further expansions in the longer term.

The Hunger for Bandwidth is a Gift That Keeps on Giving

Network operators (carriers, MSOs, MNOs, etc.) and governments worldwide are all investing in new network buildouts or upgrades to existing deployments. The hunger for bandwidth is only accelerating. From our blog, here are a few ways in which today’s networks are being reshaped for tomorrow’s needs:

  • XGS-PON: Many of today’s fiber-to-the-home (FTTH) architectures currently feature gigabit PON (GPON). By 2026, however, symmetrical 10G PON (XGS-PON) will account for 55% of the overall PON market, up from 15% in 2021. Driving this growth are the performance benefits of XGS-PON combined with decreasing equipment costs, new opportunities to drive revenue and government investment programs for rural connectivity.
  • 204MHz Digital Return: Cable operators like Cox, Charter, Shaw and others continue to move forward with trials of high-split digital return solutions to meet the demand for speeds of up to 1Gbps (and beyond) in the upstream part of their networks.
  • 5G and a fully interoperable RAN: Transitioning from 4G to 5G is revolutionizing how network operators think about fronthaul and backhaul architectures. Precision OT, as part of the O-RAN Alliance, is on the forefront of enabling tested and verified 5G xHaul transport solutions. This new kind of configuration will make it easier for operators to balance latency, reliability and throughput demands from all the applications that will run on 5G networks.
  • 400G: As network end-users build and leverage new innovations using virtual reality, AI and even 5G, there will be a corresponding surge in demand for the speed and capacity that 400G offers. As Dell’Oro has noted, 400G drove double-digit revenue growth for the first half of 2022 in North America’s service provider router and aggregation switch market.

In the end, we can see that Metcalfe’s Law predicts that we’ll continue needing more and more network capacity as time goes on. This means that the hunger for bandwidth is an insatiable one, but fortunately, it is a gift that will keep on giving. Making investments in new or upgraded networks today will lead to further opportunities tomorrow, not just for network operator revenue but the wider economy. As manufacturers of NEM-compatible products and experts in network systems integration, we at Precision OT have you covered for all your network expansion needs. Whatever your questions, we can help you find the answer. Contact us today to learn more.