In Japan, for example, consumers can access the Internet at an average speed of 11 megabits a second. That's at least five times as fast as the average U.S. Internet connection, yet Japanese consumers don't always get to take full advantage of that blazing speed. When they download movies from the Web, the video is often streamed to their computers at only 500 kilobits a second -- about the same as in the U.S., according to Brett Azuma, head of research at technology consultant RHK, in San Francisco. At that speed, video quality lags what's available on digital pay-TV systems. Faster video streaming would eliminate problems with dropped signals, pauses, and herky-jerky pictures.
INVESTMENT IMPERATIVE. The problem: Azuma says the rise of multimedia applications on the Web may be starting to soak up excess capacity in other parts of the network. There's plenty of capacity in the home and in the networks's core, where massive routers can handle almost unlimited amounts of traffic. But capacity in other parts is overbooked, according to Azuma. That's why Internet companies must often prevent consumers from using all of the broadband power that is theoretically available to them.
It could be an important turning point for telecom. The industry has been depressed for years because excess capacity led to a spiral of falling prices and financial ruin. The need to build out more broadband could be a very good thing for the industry's financial health.
No one is suggesting that telecom companies will start throwing more infrastructure into the ground the way they did in the '90s. But telecom outfits may need to spend more money on some kinds of equipment and software. And that ultimately could ramp up demand again.
ON THE EDGE. Where will the money go? In the '90s, telecom spent its capital constructing multibillion-dollar networks spanning land and sea. That generated billions of dollars for equipment makers. The next round of spending is likely to be smaller. And it will be much more carefully targeted. "Now we know that throwing bandwidth at problems to make applications work better is only part of the answer," says Christine Heckart, vice-president of marketing for Internet equipment maker Juniper Networks (JNPR
That means future buildout will focus on the parts of the network that actually need more capacity -- the vast middle of the pipeline, between the consumer and the core. Companies like Juniper and rivals Cisco Systems (CSCO
) and Extreme Networks (EXTR
) are investing more money on the edge routers that handle traffic in these network locales.
These upgrades will be as much about software as hardware. Application developers have to figure out how to better tailor services like video on demand, which originally wasn't designed for two-way broadband networks.
WHAT'S NEEDED WHERE. Take online gaming, which is still in its early, relatively primitive stages. The goal of two players challenging each other in real time has yet to be achieved, even in advanced markets such as Korea -- and that means the industries' players must find faster ways to transmit data over broadband.
Telecom companies, which made a big deal out of carrying voice, video, and data on a single network into the home, now realize they have to sort out that jumble of information to avoid driving their customers crazy. "Most people don't want to watch a movie on their PC. They want to watch it on a giant monitor. So we have to figure out how to separate the video from data, and direct it to the right device in your home," says Greg Evans, vice-president of technology at Verizon Communications (VZ
Telecom spending remains slack for the moment. Capital spending has declined in the U.S. over the last few quarters. But a modest increase in certain strategically important areas could be 12 months to 18 months away, Azuma estimates. It won't be a huge jump. But any sign that the excess capacity of the 90s is going away is good news for the industry. Rosenbush is a senior writer for BusinessWeek Online in New York