the current broadband infrastructure could handle them, notes Gartner analyst Jopling. But video and future bandwidth hogs could get in the way of such services' availability. "It's unrealistic to have all entertainment be delivered digitally [over the Internet]," he says. "You would need fiber to the home [everywhere] to be able to have unlimited capacity."
The pressures against increasing capacity
It's no secret that Americans' appetite for broadband has been enormous ever since cable and DSL service appeared on the menu only a few years ago. Today, more than half of adult Americans have broadband at home, with nearly a third subscribing to a premium broadband service that gives them a faster Internet connection, according to a recent survey by Pew Internet and American Life Project.
The top 20 cable and telephone providers -- such as Comcast, Cox, and Time Warner for cable, as well as AT&T, Qwest, and Verizon for telecom -- boast nearly 65 million subscribers, representing about 94 percent of the U.S. market, Leichtman Research Group reports.
With that level of penetration, the carriers are now moving to open up the pipelines. Verizon, for instance, is investing $23 billion to roll out by 2010 in many parts of the country its FiOS fiber-optic network, which provides Internet, television, and telephone service at near-100Mbps download speeds. Meanwhile, AT&T is spending $4.6 billion to upgrade its network with fiber optics.
Broadband cable providers are also trying to open the pipe. A technology called wideband, whereby cable operators bond several channels together to increase Internet-access speeds, is gaining momentum. This technique can provide speeds of 150Mbps.
But such large investments have been slow in coming, mainly because Wall Street dislikes them. Every dollar on capital improvements reduces carriers' profits, and investors tend to punish capital investments by reducing carriers' stock prices, notes the Free Press's Turner. Because most broadband providers have little or no competition, he says, the Wall Street pressure usually prevails.
Here come usage caps, overage charges, and metered Internet
Despite the distaste for capital investment, carriers have begun investing in it. A big reason is that with the high availability of broadband in urban and suburban areas, there aren't enough profitable new customers left to reach.
Carriers can't raise prices for their current service levels -- current prices are already too high to attract the broadband holdouts. But the carriers also can't lower their prices to attract those customers, since that would reduce their income as existing customers trade down to lower-priced plans, says Gartner's Jopling. "For the foreseeable future, there is a limit on how pricing may increase or decrease. We will only get much lower prices if every home has fiber to it," because that would make capacity essentially unlimited.
That leaves two options: offering premium-priced high-capacity services (a form of tiered pricing) and charging based on usage. Carriers are experimenting with both to bring in more dollars.
Usage caps are the stealth form of usage-based pricing, though several lawsuits have forced U.S. carriers to stop being secretive about them. For example, Comcast agreed this summer to pay Florida $150,000 in a settlement over Comcast's policy of prohibiting excessive use of bandwidth without informing customers of limits. Some customers had their service cut off. In October, Comcast started its new policy, which limits the amount of data a subscriber can send and receive every month at 250GB. Violators will have their service suspended for a year.
Now, Time Warner Cable is testing metered-usage pricing. New broadband subscribers in Beaumont, Texas, are the test case. Pricing
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