Broadband Is Dead
Sad but True, Broadband Isn't Making the Cut, but Bob Has Reason to Believe This Isn't a Bad Thing at All
By Robert X. Cringely
pbs.org
A few weeks ago, back before I was trying to get you all to watch my latest show and even before America and the world were dragged into terrorism, I wrote a column about the then-impending (and since realized) demise of Excite@Home, the high-speed Internet Service Provider. That column produced from the bushes no defenders or apologists for Excite@Home, but quite a number of readers took exception to my claim that "broadband is dead." So here is my long-delayed explanation of that statement.
Broadband IS dead, or certainly dying. By this, I mean that the industry for providing homes and individual users with Internet access at speeds in excess of 500 kilobits-per-second is not generally viable, and the current players in that business are likely to decline over time. There will be little or no growth in broadband subscriptions over this next year, and it will be very hard for broadband ISPs to be profitable. Since profit is now the name of the Internet game, that means broadband will decline.
Look at the major DSL providers -- Covad, Northpoint, Rhythms -- all dead or dying. Yes, there is a particular Covad enthusiast who keeps telling me the company is restructuring and will come back to life shortly, stronger than ever, but I just don't believe it. These DSL vendors have been effectively killed by the phone companies using techniques I have written about before (see the "I Like It" links for more information on that).
But aren't the ILECs -- the local phone companies -- doing well with their DSL efforts? I don't think so. Their motivation for doing DSL was two-fold: 1) to comply with requirements of the Telecommunications Act of 1996, and 2) to keep the CLECs like Covad and the others from stealing that business. With the CLECs dead or dying, the phone companies have little incentive to put more money into DSL, and they have fallen out of love with the 1996 law that essentially allowed them to spend lots of money to get into the long distance business, where they make no money at all.
We are entering a recession. No company -- ILEC or CLEC -- has yet to consistently make a profit on DSL. As a result, they will all stop investing in this area. Those who don't believe this should look at the flat sales and declining profits of DSL equipment makers. There is a simple rule of thumb in the network hardware business that if sales in a particular segment fall in units and dollars from one year to the next, it is time to start making something else. Look for hardware companies to leave the DSL market in droves.
But there is more to broadband than DSL, right? Broadband also rightly covers fiber to the home, cable modems, and various wireless schemes like 802.11b and even my own Starband satellite modem. Cable modem penetration is slowing and the biggest ISP, Excite@Home, is busted. Fiber to the home is years away in any volume, I'm told by the very folks who have so far invested hundreds of millions trying to provide it. 802.11b works fine, except nobody wants to pay the real cost of an 11 megabit-per-second link. There are some Wi-Fi roaming schemes afoot, but none of them have reached critical mass. And Starband, alas, can't really be thought of as broadband, since its uplink speeds aren't much better than dial-up.
This is what happens with new high-tech industries. A bunch of vendors spend a lot of money developing and marketing products, and getting users excited about them. Then, there is an inevitable fall off in demand. The trick is to keep the business running until this valley is crossed and demand increases again. That is going to be very hard to do in the current market for several reasons. It is very hard to raise money, for one, so all the players are pulling back, just trying to survive. That's the smart/stupid thing to do, because the company dies anyway since no money is spent to develop the market. I say have a party. If the market comes back, it is because a miracle has happened. Miracles do happen from time to time, but counting on them is no way to run a business.
It would be great if there were a lot of new DSL and cable modem companies coming into the market to take over for the ones that have died or are dying, but that isn't happening. Venture capital has cut back and broadband will be hurt as a result.
But wait, there's more! Not only is the broadband carriage business in trouble -- so is the broadband content business. There isn't a single company providing high-bandwidth content to mass consumers that is making any money on it. By this, I am not saying that Akamai is going broke, but that Akamai's customers aren't making back their investments. When you watch a broadband video clip on abcnews.com or cnn.com, both companies are losing money to bring you that content. And the accountants have spoken: There is no way they'll ever make that money back. So companies that used to put a lot of money into high bandwidth content are putting in less and less money, so there is less and less content available. If you thought it was bad before, it will get worse.
Sure, the pornography business is probably doing okay on broadband, but that is not enough to support the whole Internet.
Then there is the mobile phone business, which was supposed to bring broadband connections to our cell phones. So-called 3G mobile systems are being scaled-back and cancelled like crazy the world over. If broadband can't even make it to your handset AFTER the investment of tens of billions of dollars, why should we expect it anytime soon in areas where money has yet to be spent? We shouldn't.
So there is a fall-off in demand, a fall-off in carrier incentive, a fall-off in participation and enthusiasm among content providers, AND we are entering a recession. This is not good. And for the penultimate nail in the broadband coffin, look at the recent activities of Mark Cuban, founder of Broadcast.com and now the too rich, too zealous owner of the Dallas Mavericks NBA team. Cuban has started a venture to carry NBA games in High Definition Television over the DirecTV satellite system. What part of his new business involves the words "Internet" or "broadband?" Mark Cuban has moved on.
Notice I listed Cuban's new gig as the penultimate -- the next-to-last -- reason that broadband is dead. The final reason is because broadband, just like every other failed technical initiative, will be redefined, and that redefinition has already begun. The simple fact is that we can't really afford all that bandwidth. Even the cable modem users who are happy would be unhappy if their providers cut back their bandwidth to something economic or added users to the point where the service was profitable. Right now, cable modems don't have to be profitable, but if they became popular enough, they would have to show a profit, and then that service would suck, too.
So our only real choice is to redefine "broadband" as something that can be profitable and useful at the same time, and that is what will happen over the next couple years as we apply more and smarter computing power to bringing broadband-type services to plain old dial-up modems. I'll be telling you more about this in future columns.
And the first shall be last, which will make those 3G wireless guys look REALLY stupid. Stay tuned. |
