Waiting for Broadband

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Some Web sites still don't get it. They behave as if broadband has already arrived, delivering large graphics, video, audio, and animation. The reality is that for the average consumer, broadband access is at least five years away.

On the surface, broadband use is undergoing healthy growth. According to the U.S. Federal Communications Commission (FCC), the number of American broadband subscribers doubled in the last year. Digital subscriber line (DSL) use grew by 1.5 million new lines for a growth rate of 435 percent. Cable added 2.2 million new lines, or a growth of 153 percent.

But the broadband industry is in turmoil. Broadband service providers are going out of business at an alarming rate. "Regular readers know that Business Week SmallBiz has been warning for months about the shaky finances at some of the biggest vendors of high-speed Web service," stated an August 9 Business Week article. It goes on to discuss the latest broadband victim, Covad Communications, which had 330,000 customers. Those 330,000 customers constitute over 20 percent of the 1.5 million subscriber growth noted by the FCC.

Covad joins a list of bankrupt broadband companies, including Rhythms NetConnections, Winstar Communications, NorthPoint Communications, and PSINet. When NorthPoint Communications went bust a few months ago, AT&T acquired its business, minus the customer base. NorthPoint's customers were mainly smaller Internet service providers (ISPs), and AT&T claimed that such customers were expensive to service and often delayed payment.

Globally the broadband story is no different. According to a report published in April by NetValue, South Korea is the only country where more than 50 percent of households have access to the Internet at speeds equal to or faster than DSL. According to NetValue, 11 percent of American households have broadband access, and in Europe 5 percent of German, 4 percent of French, and 3 percent of British households have such access.

The question is, If there is such a demand for broadband, why is the penetration so low, and why are so many broadband companies going bust? There are two connected reasons. First, it's a lot more expensive to install and run broadband services than was originally estimated. Second, the price the customer is being charged is too low.

Will the customer pay significantly more for broadband? It depends on the customer. Businesses that can become more efficient by using broadband will pay more. Ordinary households will require a lot more convincing. To them, the Internet is fast enough. Or, to put it another way, they can live with the slower speeds rather than having to fork out extra money every month. The bottom line is that a great majority of people have no compelling reason to pay a lot of money to get broadband.

This all means that for a long time to come the Internet will remain a multimedia-poor, text-rich environment for the average person. But then the average person has never seen the Internet as a place to go to for a broadband experience. Most people are there for the text. All the other bandwidth-hungry stuff they can get already on their TVs, with their computer games, in their magazines, or at movie theaters. They like the Web for the simple but powerful reason that it allows them find out stuff.