Companies such as Verizon are starting to offer Internet connection speeds that are 5 to 30 times faster than standard cable or DSL lines
From the moment the first phone-line modems squawked to life, connecting consumers to early Internet service providers two decades ago, there has been a nearly universal quest for more plentiful and speedier data pipes into the home.
Yet even now that those pipes are arriving, the race to provide even bigger ones is intensifying among telecom and cable TV companies, as well as wireless network operators.
In Millis, Mass., freelance writer Michael Fitzgerald recently boosted the speed with which he can reach the Internet by subscribing to Verizon's (VZ) new FiOS broadband service. FiOS delivers a super-fast connection by replacing the old copper phone line to each home with a fiber-optic cable, offering Internet downloads as fast as 30 megabits per second, vs. the 1Mbps to 6Mbps of the typical cable or DSL broadband line. "I was intrigued by the service when I first heard about it," says Fitzgerald. While he may not fully exploit his new firepower with any regularity, Fitzgerald is one of about 864,000 FiOS broadband subscribers. "Over the long term, I think there will be benefits that I can't even begin to imagine yet."
Competing Modes of Delivery
To deliver FiOS, which Verizon is also using to launch its own cable TV service, the once-stodgy telephone company has embarked on a massive network upgrade that's expected to cost $23 billion between 2004 and 2010. Even then, Verizon expects FiOS to be available to 18 million homes, only a little more than half of its territory.
The FiOS initiative has given Verizon an imposing lead in how much bandwidth it can deliver to U.S. homes, and yet the cable industry won't be going down without a fight. Comcast (CMCSA) CEO Brian Roberts recently demonstrated a new technology called DOCSIS 3.0 (Data Over Cable Service Interface Specification) that promises to give cable modem users speeds as high as 150Mbps. However, there are no plans announced for actual market trials of the new cable technology, let alone deployments. If and when it is implemented, Verizon's ready for the arms race, technologically at least: Its new fiber cables can easily carry hundreds of megabits per second of data, though cost is always an issue.
Comcast's advantage—one that other cable operators such as Time Warner (TWX) and Cablevision (CVC) would presumably share—is that they will be able to boost their speeds without laying new cable. This, says Comcast Chief Technology Officer Tony Werner, will give cable operators a cost advantage over Verizon and any other company that decides to pull up its wires: "We'll be able to launch overnight or area-by-area without any digging."
Upgrade Déjà Vu
But once you have 100Mbps or more available at home, what the heck are you going to do with all that bandwidth? For the average consumer, 6Mbps should more than suffice for today's typical needs, whether it's downloading music, watching the occasional video, or even running a home network that lets two or three computers do the same all at once. Does anyone really care whether that song download from iTunes (AAPL) takes 10 seconds or 2 seconds?
We've been here before. In 1999, there were fewer than 2 million people in the U.S. subscribing to either DSL or cable broadband. By the end of 2006, that number exceeded 51 million, says the Dallas consultancy Parks Associates. Meanwhile, prices have come down. In 1999, Bell Atlantic, now part of Verizon, offered consumers a high-end DSL package that topped 1.6Mbps for about $110 a month. Now it's offering 3Mbps for $30 a month.
That trend is going to repeat itself, says Parks Associates analyst Michael Cai. "You'll see more bandwidth offered at the same price you're paying now for less." The average cost of a megabit per second in 2002 was more than $26 a month, Cai says, and by last year it had dropped to $7. By 2010, it could drop as low as 80¢, making 50Mbps for $40 a month sound positively mainstream.
Is It Ever Too Much?
But again, will consumers really need it? It's a question that consumers will have to ask themselves as speedier offerings migrate downstream from the bleeding edge to the mass market in the same way that broadband supplanted dial-up Internet access. Much as richer Web site graphics and music downloads idled millions of dial-up modems, the smart money is betting that future online video offerings—from high-definition TV and future iterations of YouTube-type (GOOG) video-sharing sites to sophisticated online gaming and video phone calls—will turn your average U.S. home into a 50Mbps bandwidth hog within three years.
"When you start adding up how much bandwidth that the average home with a couple of teenagers might consume between 6 and 9 at night—two or three people watching HDTV shows, playing music from the Internet, playing online games—the bandwidth demands are going to be gigantic," says Mark Wegleitner, Verizon's chief technology officer.
Or so he hopes. But realistically, is there anything beyond downloading feature-length movies, an arduous process at today's DSL and cable modem speeds, that will get noticeably better at 50Mbps or 100Mbps? "None of the applications that people use in any large numbers now are really bandwidth-constrained," says Charles Golvin, an industry analyst at Forrester Research (FORR). "I don't think consumers are looking at what's available today and really wishing they could do much more than they actually are," he says. "Consumer behavior is slow to change."
Winning with Gaming
If video is going to take up the most bandwidth, then gaming will likely come in second. A recent study by market research firm NPD found that 62% of all people who play video games spend at least some of their time doing so online. Much of this activity consumes little bandwidth, since casual fare like a tame game of online solitaire accounts for 44% of online game-playing. But a growing number of gamers are playing sophisticated, bandwidth-intensive games that go on for hours at a time. NPD found that owners of Microsoft's (MSFT) Xbox 360 spend an average of about 7 hours a week playing games online.
These games can quickly outgrow the available bandwidth, and some enthusiasts will always be willing to pay for a little extra capacity. Take the case of Optical Entertainment Network, a Houston-based outfit that offers a 10Mbps fiber-to-the-home service called Fision. During a recent beta test with 100 gamers, the company quickly found that heavy gamers liked the 10Mbps but wanted more. The company responded by offering a plan with twice the speed, marketing it to hard-core gamers in particular. At $159 a month, the new 20Mbps service costs more than twice as much as the $70 charge for 10Mbps. Despite the price, about 5% of Fision's subscribers now take the 20Mbps service. "They find they have a better chance of winning on the faster connection," says CEO Al Estrada. Currently available only in the Houston area, the company plans to launch similar services in California and Florida later this year.
At the same time, today's game consoles are hardly limited to gaming. Microsoft is adding Internet-based TV capability to its Xbox 360 Elite, and Sony (SNE) will likely follow suit with its PlayStation 3. Thus equipped, households with a gamer or two will likely eat into their available bandwidth faster than others.
Interactive TV, Again
Remember that old, discredited buzz phrase from the 1990s: "interactive TV." Well, get ready for a comeback. If American Idol doesn't prove that viewers will give more or less instant feedback to TV programs they like, nothing will. Viewers cast more than 600 million votes over the course of Idol's latest season, including 74 million during the finale. Sure, it's easy to vote by phone or wireless text message. But the upstream bandwidth—which users need to upload data to the Internet rather than sucking it down—will be there to allow votes from the comfort of a remote control.
"I've been around long enough not to fall for any of the hype around interactive TV," says Gary Schultz, president of Multimedia Research Group, in Silicon Valley. Having been exposed to TiVo (TIVO) and other digital video recorders for cable TV, Schultz says, consumers are accustomed to ordering television programs at the time and place of their choosing. That, in turn, will force advertisers to adapt—at long last—and learn to love the DVR by giving consumers a reason to not fast-forward through every commercial. "As you forward through the ads, you might see something that catches your eye and slow down to watch it. That's going to take more upstream capacity."
Forecast: New Applications
Bandwidth demand won't be limited to the TV and computer, either. There also will be a growing number of bandwidth-sipping devices around the house, which as yet aren't typically connected to the network. From heating and cooling systems to alarms and surveillance cameras, an increasing number of devices will be plugging into the network. Companies including AT&T (T) and iControl Networks are already building products geared toward monitoring the home and controlling lights and appliances remotely.
But Verizon's Wegleitner also sees an opportunity in enabling the ability to control what goes on in your house from a Web browser or wireless phone. "I don't think we'd want to be the one selling the service," he says. "But in the same way that you might want to turn on the lights or the air conditioner before you get home, you might also want to order a movie to be downloaded and waiting for you."
And there are always applications that no one has thought of yet. "Back when the first cable modems were demonstrated, the only demanding application we could think of was sending photos," says Comcast's Werner. "Now I'd say 80% of the commerce I do is online, and so is a lot of the music and information use." Indeed, much has happened in only the last three to five years to boost our thirst for bandwidth. Given another three years, it can't help but grow further.