The FCC released a report this week that makes me wonder what will happen to broadband wireline services in the next 5 years.  The report, titled “Internet Access Services: Status as of December 31, 2009.”, explains that 68 percent of connections in the US advertised as “broadband” can’t really be considered broadband.

I know that already, tell me something good?

As many of our customers know, our roots are in the Internet access world.  Some of us around here have been doing the online thing since the mid 80’s. (seriously)  If we’ve learned one thing over the last 25 years is that people will consume data for a fixed amount of time.  It’s roughly 4 hours per day.  Anything more than that and we suggest an intervention.

All kidding aside, we have seen a steady growth in consumption of bandwidth from our customers. It’s because there is an explosion of ever increasing high quality data available to them.  I think it’s an odd twist on Moore’s law. But if consumers have come to expect a doubling of performance every 2 years, then we should be able to turn that into a mechanism to extract more revenue from them, right?

Well, maybe.  Here’s why I don’t see that happening.

It’s because the Internet access world comes from the telephone world.  A world where it was expected that a voice line subscriber wouldn’t use the phone for more than 4 hours per day.  And even if you did, you can only max out at 24 hours per day.  That’s the max a subscriber could use.  No matter how many words you spoke on the phone, the most you could use was 24 hours.  Simply put, it was billing for service based on time.

“I got something that will sure ’nuff set your stuff on fire”

Along comes the Internet and billing for time was annihilated in the rush to get subscribers online.  Large and small, Internet access companies, telephone companies, and cable companies rushed to get subscribers online.   These companies built out networks and hooked up subscribers and enjoyed huge profits.  They certainly missed billing for time, but seriously, the bandwidth the subscribers were using was minuscule.  The unanimous chorus was “We’re making money hand over fist, let’s enjoy this for a bit.”

And they did.

The Internet access providers adopted billing for services based on a flat rate. “Pay me $19.95 a month and you can have all the Internet you can eat.”  This worked great.  The outlying users who were pushing big piles of bits around gladly paid a little more for higher capacity, but in general, the trend has been for the Internet access providers to offer more and more bandwidth for less and less per month. Who was offering a 100Mbps Internet connection for $30.00 per month?

So…Tell me something good.

Then along comes the digitization of everything and I mean EVERYTHING and the world changed.  Now those Internet access providers are wondering how to keep giving subscribers more bandwidth without getting more revenue.  It’s illogical to say the least.  In the old days, if you used more minutes or hours, you paid more money.  But now, you don’t pay more money to the access provider, you just download more.  If you pay anyone, it’s the content source, not your access provider.

Take these five destinations, iTunes, Pandora, Youtube, Hulu, Netflix.  They didn’t exist 10 years ago and now my family cannot live without them.  Each of these behemoths directs a perfect storm of traffic onto my home network.  I dare say, they deliver heavy traffic to anyone who visits them.  Now multiply this by 100,000 or 500,000 or 10,000,000.  Do you see what will happen to the Internet access provider?  Wait, didn’t we just talk about this last week?

“What I got to give will sure ’nuff do you good.”

The FCC report plainly states that about 68% of reportable Internet access service connections were too slow in both the downstream and upstream directions, or too slow in a single direction, to meet the broadband availability benchmark adopted in the Sixth Broadband Deployment Report.

Well duh.  As I already said, this report doesn’t tell me anything I didn’t already know.

What we know is this; Our subscribers are making do with what was sold as broadband a few years ago for one of three reasons: It is all they can afford, it’s all they can receive, or it’s all they need.

In many cases we have subscribers leave us because they want faster speeds.  Our subscribers end up going to cable or Qwest directly because, thanks to the FCC, we’re not allowed to sell the higher capacity services Qwest offers.  That reminds me, we know one more thing.  Internet access providers do not have any incentive to increase broadband capacity because there isn’t any competition for the wireline providers.

Yet.

We might actually see competition once the wireless players are pushing the bits the wireline providers are pushing (if the technology improves enough).  Until that time, we’ve got to live within the online world that’s available to us, at the speed that’s available where we live.

You see, I’ve got DSL at home and that’s what I tell my kids.  Sadly, we’re all usually online at the same time so you can imagine the traffic load we create.  In our defense, we’re way under 4 hours per day, so stop thinking about that intervention.  Ok, I’m going to go listen to Rufus & Chaka Khan again and wish for something good.

Peace.

-Bil