IP: The trouble with broadband

[David Farber <dave () farber net>]

> From: Dewayne Hendricks <dewayne () warpspeed com>
>
>
> The trouble with broadband
>
> Posted at 2:14 p.m. PST Saturday, Feb. 2, 2002
> BY JOELLE TESSLER AND CHRIS O'BRIEN
>
> Mercury News
> <http://www0.mercurycenter.com/business/center1/bband0203.htm>
>
> Mike Masnick has subscribed to four different high-speed Internet services 
> over the past year. And four times, he was left in the lurch as each 
> provider -- NorthPoint, Rhythms NetConnections, Metricom and At Home -- 
> went bankrupt, disrupting service to him and thousands of other users.
>
> ``It was beyond frustrating. It got to the point where it just became a 
> joke,'' said Masnick, who relies on the Internet to run a technology 
> research firm out of his Foster City home and now gets cable modem service 
> from AT&T Broadband.
>
> So it goes for the consumer as visions of a broadband nirvana -- in which 
> residential customers would have a wide choice of reliable and affordable 
> high-speed Net connections -- fade away.
>
> Six years after the telecommunications industry was deregulated, the 
> promise of more options and lower prices for consumers has collapsed in 
> the market for high-speed Internet services. Bankruptcies have swept the 
> broadband sector over the past year as upstarts that poured billions into 
> building vast data networks failed to sign up enough subscribers to cover 
> their investments -- leaving the cable and phone monopolies to dominate 
> the broadband market.
>
> ``You have to say that the model of competition established by the 
> Telecommunications Act of 1996 has not been successful,'' said Rick White, 
> chief executive of TechNet, a lobbying group that has called for the 
> nation to make universal broadband a top priority.
>
> Today, about 10 million, or roughly 10 percent, of U.S. households have 
> high-speed Internet access -- mostly through cable modem or digital 
> subscriber line, or DSL, connections. That is up sharply from under 2 
> million households in 1999, according to Jupiter Media Metrix.
>
> But while the market continues to expand, growth in new users slowed last 
> year. Jupiter found that the number of U.S. households subscribing to 
> broadband in the fourth quarter of 2001 rose 15 percent from the previous 
> quarter -- a healthy increase, but well below the 31 percent 
> quarter-to-quarter jump the market recorded in the final three months of 
> 2000. Finding little reason to pay considerably more for faster, always-on 
> broadband connections, many consumers stuck with dial-up.
>
> The broadband slowdown is happening when tech executives are counting on 
> growth in high-speed Internet connections to help jump-start stalling 
> sales of everything from semiconductor chips to networking gear.
>
> Trade groups like TechNet and the Information Technology Association of 
> America point to studies estimating that widespread broadband adoption 
> could boost the U.S. economy by several hundred billion dollars a year. 
> And industry groups have been lobbying Congress for a range of measures -- 
> everything from tax credits to the easing of land-use restrictions -- to 
> encourage companies to continue rolling out broadband.
>
> Some in the industry had expected the broadband market to be two to three 
> times bigger by now, and companies like Cisco and Intel are frustrated by 
> what they perceive as slow growth. But Abhi Ingle, vice president of 
> marketing for Covad, a DSL provider that recently emerged from bankruptcy, 
> noted that the industry is still young and that consumers are adopting 
> broadband faster than many other new technologies.
>
> ``Consumer adoption is about evolution, not revolution,'' agreed Yankee 
> Group analyst Mike Goodman.
>
> Just a few years ago, much of the concern about broadband had to do with 
> the limited availability of cable modem and DSL access. The cable 
> companies and Baby Bells had not upgraded much of their networks to offer 
> these services. Today, after billions of dollars in investments by the 
> Bells and cable operators, analysts estimate up to 70 percent of U.S. 
> households can get cable modem or DSL access.
>
> Demand is key
>
> Many say the industry must now focus on spurring demand for broadband.
>
> Mark Cooper, director of research for the Consumer Federation of America, 
> believes there are still not enough compelling applications that require 
> high-speed connections. The streaming video and multimedia offerings that 
> would drive mainstream demand are not really out there, he said.
>
> ``It's a chicken-and-egg issue,'' said Robert Saunders, senior analyst 
> with the Eastern Management Group, a telecom consulting firm. ``We need 
> more applications to get more users, but many applications are in a 
> holding pattern. They need more broadband users to be developed.''
>
> Cost has been the other big sticking point for consumers, particularly as 
> the economy has slowed. At prices starting at $39.95 a month -- and in 
> many cases rising to $49.95 last year -- broadband can be double the cost 
> of dial-up.
>
> ``You can't force-feed someone to pay for broadband,'' said Mike Jackman, 
> executive director of the California Internet Service Provider Association.
>
> Many observers blame the high prices and lack of innovation in broadband 
> partly on the death of competition. Initially, the 1996 telecom act did 
> spark competition and played a key role in driving the rollout of DSL. 
> Caught up in the inflated expectations created by the act, a wave of new 
> companies raised billions from investors to build massive networks to 
> serve a public expected to clamor for broadband.
>
> Covad, Rhythms NetConnections and NorthPoint began offering DSL service. 
> And the Baby Bells -- which had been sitting on DSL technology since 1989 
> to avoid cannibalizing their lucrative businesses of selling dedicated T1 
> lines -- had to follow. At the same time, cable operators began upgrading 
> their networks to offer cable modem access in partnership with At Home, a 
> broadband pioneer.
>
> But the promise of competition began to fall apart in 2000, when the stock 
> market started to slump and Wall Street began to demand profits from the 
> broadband industry -- exposing deep flaws in the business plans of the 
> young start-ups.
>
> For one thing, the challengers had expected that they would have years to 
> sign up the millions of subscribers needed to turn a profit on their huge 
> investments.
>
> What's more, the broadband start-ups had to split their revenue with other 
> companies. The DSL providers had to share revenue with the local Internet 
> service providers that signed up customers, and lease network facilities 
> from the local phone companies, which controlled the lines going into 
> consumers' homes. And At Home had to split its revenue with its cable 
> partners, which marketed its service and controlled the cable links to 
> consumers.
>
> While the Baby Bells and big cable operators had plenty of money to 
> subsidize their broadband losses, the start-ups -- burdened with huge debt 
> payments -- found themselves running out of cash.
>
> To make matters worse, many DSL challengers complained that the Bells 
> didn't grant full access to the networks they needed to reach subscribers, 
> as required by the telecom act. The upstarts also complained that the 
> Bells charged too much for use of their network facilities. The upshot, 
> challengers said, was delay in the rollout of service to their customers.
>
> <snip>

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