The Internet’s Capacity
To Handle Fast-Rising
Demand for Bandwidth
usiia.org
EXECUTIVE SUMMARY
Industry and academic experts are increasingly concerned about the Internet’s capacity to continue to
handle the fast-rising demand for bandwidth, unless investments in Internet infrastructure accelerate
substantially. However these elements are measured, the growth in demand for bandwidth is outpacing the
growth in supply. This begins with the rapid growth in broadband access.
· Between 2004 and 2006, U.S. broadband access increased from 27 percent of households to 44
percent, and it continues to expand here and around the world.
· Industry estimates suggest that between 2006 and 2010, broadband use will grow another 80
percent in the U.S., reaching 90 million households, and by 90 percent worldwide, reaching
474 million households.
The spread of broadband access has been accompanied by large increases in the use of bandwidth-intensive
applications, especially voice, music and video. Absent a significant expansion in network infrastructure,
the Internet’s capacity could be strained, limiting consumers’ ability to fully enjoy its services.
· One minute of text browsing requires an average of 2-200 KB of bandwidth, compared to
some 1,000 KB for audio and 9,000 KB for video in the MPEG-2 compression format.
· Music file swaps and downloads are growing at an annual rate of 50 percent to 60 percent.
· Video downloading and streaming are so bandwidth intensive that they already may account
for 50 to 60 percent of all bandwidth traffic.
· Experts estimate that by 2010, video transmissions could account for as much as 80 percent to
90 percent of all worldwide bandwidth traffic, especially with the spread of IPTV and HDTV
Internet-based TV.
· New ways of accessing the Internet for text, music and video – especially through mobile
phones and appliances – also are driving up demand for bandwidth in major developing
countries as well as the U.S., Europe and Japan.
Accommodating the fast-rising demands on bandwidth will require a significant acceleration in industry
investments – totaling $300 billion to $1 trillion for the United States alone – that current pricing models
discourage.
· Monthly flat-fee pricing and strong competition helped to accelerate the spread of Internet
access by driving down prices, and generated sufficient revenue to support the investments to
serve the new users. In the U.S., the drop in prices has helped spread broadband to previously
underserved populations.
· Now, bandwidth traffic demands are rising much faster than new subscribers, even as
competitive pressures keep driving down prices. As a result, demand is now increasing much
faster than investment.
· For example, Internet traffic across borders has been rising at an average rate of 75 percent a
year, while bandwidth capacity to handle this traffic is expanding by about 45 percent a year.
Projections by TeleGeography suggest that international Internet traffic will continue to grow
much faster than deployment of new international bandwidth will.
In most markets, as demand increases so does revenue, which in turn stimulates the investments needed to
meet higher demand on a sustained basis. With the Internet, increases in demand for bandwidth by existing
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users do not translate into higher revenues for the companies providing the bandwidth and access to it,
because access to the Internet has spread through fixed-fee pricing. This pricing model supported the
necessary investments in bandwidth infrastructure when increases in overall demand were driven mainly by
the rapidly-rising numbers of Internet users, and most individuals and applications used little bandwidth.
As these factors have changed – the number of new user-subscribers has begun to plateau and the average
bandwidth used by subscribers has risen – a mismatch between demand and investment is emerging.
Under this scenario, the quality of Internet services could decline as congestion causes transmissions to
slow, which in turn would discourage the development and introduction of new high-bandwidth services.
Accelerated investment is necessary to meet the growth in capacity demand. New business models that can
monetize part of the sharp increase in bandwidth traffic can help ISPs, telecoms and backbone companies
expand their investments sufficiently to meet the fast-rising demand for bandwidth. Without prejudging
what would be the most economically-efficient and socially-beneficial pricing arrangements, the potential
options include:
· The development by ISPs of service packages tailored for content providers that transmit high
bandwidth content
· A separate fee schedule for consumers whose Internet use requires large bandwidth
· Higher flat fees for all broadband users. |
