IP: WELL WORTH READING: Broadband deployment versus broadband adoption

[David Farber <dave () farber net>]

Michael was at the FCC when I was in the Office of Plans and Policy djf

> From: "Michael Kende" <Michael.Kende () analysys com>
> To: <dave () farber net>
> Date: Thu, 17 Jan 2002 23:11:48 -0000
>
> Dave,
>
> The recent FCC report on Competition in the Market for Delivery of Video 
> Programming, released by the Cable Services Bureau on Monday, highlights 
> an interesting point that is not often discussed in the whole residential 
> broadband debate.  This debate tends to focus on broadband deployment, and 
> specifically, obstacles to that deployment.  The FCC's numbers indicate 
> that deployment of broadband is less and less of an issue (see numbers 
> below).  We have long maintained that the debate should also focus on 
> roadblocks to adoption, as discussed in the article that I wrote below 
> (from the Analysys website).
>
> FCC numbers:  Almost 80% of households were estimated to be able to 
> receive cable modem service by the end of 2001 (that is 81 million out of 
> roughly 104 million households); likewise, 51.5 million households could 
> receive DSL.  At the end of 2001 there were roughly 7.2 million cable 
> modem subscribers, and 4.3 million DSL subscribers.  Thus under 9 percent 
> of those who could get cable modem service were subscribing, and likewise 
> for DSL (of course, a true picture of adoption rates would have to account 
> for overlaps in cable modem and DSL service coverage).   I think that 
> these numbers show that adoption rates are not as high as one might 
> expect, given the intensity of the debate over deployment.
>
> Michael
>
> Who done it? The dearth of broadband
> Millions of households that could sign up for broadband today have not yet 
> found a compelling reason to do so. Michael Kende, Senior Consultant at 
> our Washington office, investigates what the problems are.
>
> What happened to the promise of broadband to the home? Excite@Home 
> recently joined fellow broadband providers Covad, NorthPoint, and Rhythms 
> in bankruptcy. The Bell Operating Companies still have fewer residential 
> subscribers between them than Excite@Home, without laboring under the same 
> financial burden as Excite@Home. Most explanations for this state of 
> affairs examine the high costs and lack of incentives for providers to 
> deploy broadband. But what about the incentives of customers to sign up 
> for broadband once it has been deployed? Broadband deployment has proven 
> to be expensive. The cable companies and the Bell Operating Companies have 
> had to invest billions to upgrade their networks, and in turn have not 
> made it easy or cheap for the likes of Covad and Excite@Home to provide 
> services over these networks. At some point, each camp of providers has 
> pushed for or against some law or regulation that stood between them and 
> rapid roll out of broadband to all Americans.
>
> This focus on deployment brings to mind the old joke about the drunk 
> searching for his car keys under the street light because it was easier to 
> look there. Deployment is easy to measure and it is easy to find someone 
> to blame for any problems that may arise. However, looking for the problem 
> here has meant that consumer demand for broadband has been left in the dark.
>
> Listening to all the rhetoric about broadband, one would be tempted to 
> conclude that deployment is barely able to keep up with demand, but the 
> fact is that the deployment of broadband already far outpaces demand. For 
> instance, according to the National Cable & Telecommunications 
> Association, up to 60% of the 100 million plus households in the US have 
> access to cable modem service, but less than 10% of these households have 
> signed up (see note 2). According to eMarketer, the numbers for DSL tell 
> the same tale 50% of households could receive DSL today, yet less than 10% 
> of these are DSL subscribers (see note 3). How can we explain the 90% who 
> are sitting on the fence?
>
> Of course, everyone has heard horror stories about the difficulties of 
> installing broadband connections at home, but that can t be the only 
> roadblock. Also, some of the 90% who could get broadband do not have a 
> computer, or do not use the Internet. However, although economics also 
> plays a role, it is perhaps not a terribly significant one when you 
> consider that 70% of households already afford cable television. Many 
> color televisions rival computers in cost and a cable subscription can 
> easily equal the cost of broadband access, but it is almost laughable to 
> suggest that households would drop cable in favor of broadband. Why is that?
>
> The answer is that cable sells itself on programming and consumers 
> currently have no similar compelling reason to pay for broadband. Of 
> course, broadband has some advantages over dial-up it s faster and always 
> on, but this has proved so far to be only an evolutionary step, rather 
> than the revolution that broadband promised. The capabilities of broadband 
> networks available today far outstrip the requirements of current 
> applications. It is like having a multi-media Pentium PC running 
> mono-media DOS.
>
> Without question, there are a number of applications available today that 
> are enhanced with high-speed Internet access for example, streaming video, 
> streaming audio, and PC telephony. However, even in combination, these do 
> not present a powerful incentive for consumers to sign up for broadband. 
> The video is still not as good as with television, the audio is not as 
> good as a stereo receiver, and PC telephony is not as good as the regular 
> telephone. New applications are needed that can only be used with a 
> broadband connection before this service will become really attractive to 
> consumers. Who knows what they will be video instant-messaging or 
> real-time games for multiple participants? Perhaps there will be a steady 
> drumbeat of new applications that will slowly make the case for broadband, 
> or perhaps there will be one new killer app that will transform broadband 
> the way the World Wide Web transformed the Internet.
>
> Two things, however, are clear. Millions of households that could sign up 
> for broadband today have not yet found a compelling reason to do so. And 
> if it were easy to create applications that would provide the compelling 
> reason for broadband, providers would be doing that instead of shining 
> streetlights on roadblocks to deployment.
>
> Notes
> 1) Excite@Home claims 3,271,000 customers in North America as of 30 June 2001.
> According to xDSL.com, all ILECs (which include the Bell Operating 
> Companies) only had 2,800,160 lines as of 30 June 2001 (of which only 80% 
> were residential). See Resources section of xDSL.com website.
>
> 2) The following numbers come from the National Cable & Telecommunications 
> Association, as of 14 August 2001:
>    * 102,184,810 million households in the US have a television.
>    * 60,000,000 homes are passed by cable modem service. (<60% of total)
>    * 5,000,000 households subscribe to cable modem service (<10% of total 
> homes passed by cable modem).
>
> 3) These numbers come from the eMarketer Broadband Report (April 2001). On 
> page 46, eMarketer provides the following (estimated numbers) for 2001:
>    * 104.3 million households in the US.
>    * 52.4 million households are DSL-ready (50% of total)
>    * 3.4 million DSL households in US (<10% of total DSL-ready households)
>
> 1c5c64b.jpg
>
> Michael Kende
>
> Senior Consultant
>
> Analysys Consulting
>
> Tel:  1 202 756-1366
>
> Fax: 1 202 756-1548
>
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