Speed kills (business models, anyway)

It seems that everyone is building faster, next generation networks. So, will many consumers enjoy faster access in the US any time soon? I don’t think so.

I believe that consumers will not see widely available faster Internet because it would undermine revenue from entertainment products. TV sells for more $$ than Internet, and by selling you a “triple play”, carriers can dip three times, collecting revenue for Internet, voice, and video. If the Internet access offered was faster, I believe that services like YouTube/Google Video would quickly begin to offer high def content, and that new peer to peer video solutions such as Joost and Veoh would see a huge boost to their business models.

Access spawns applications. If everyone had 20Mbps Internet, many would skip the whole $50 to $100 video and premium channel package and use newly enabled HD video over IP.

We’ve seen similar things happen in voice – Skype, Vonage etc have all taken bites out of land line revenue. Voice is not very bandwidth hungry, so there’s little that carriers can do to prevent its use. I think the same thing would happen to video if access was faster.

A prime example of this is AT&T’s new UVerse product, which is available in some limited markets in the US now. You can’t even have Internet on UVerse without buying TV. Sorry. And the fastest Internet access on UVerse is….6Mbps. This, on a VDSL2 circuit that syncs at 24Mbps or faster. The big bandwidth is allocated to TV, even if you are not watching it. There’s no legitimate technical reason for this.

Another example is Comcast’s “PowerBoost”, which offers a temporary doubling of bandwidth, but just for the first few moments of a download. The net result: no viable streaming high bandwidth HD video. Guess why? Because that would enable someone else’s video business model, a business that the cable executives would prefer to retain.

Are consumers being well served by the triple play? I don’t think so.

I predict that over the next few years, the marketplace will see offers of small incremental upgrades, with Cable and Telco each matching or slightly beating the other from time to time.

Neither wants to actually deliver enough bandwidth to enable HD streams.