BROADBAND: Helping It Take off

It is commonly observed that broadband has not lived up to its original billing as a revolutionary technology. In fact, with the exception of countries like South Korea and Singapore, which have achieved astounding broadband take-up rates in a record time, other international markets for residential broadband are finding it difficult achieving even the penetration rate of the US.

Currently about 50 percent of US households connect to the Internet. Most experts put the proportion of broadband-enabled households to the overall number of households with Internet access at about 16 percent. In the UK, 5 percent of households have a high-speed link to the Internet.

According to FCC’s figures, the decline in growth was sharpest for ADSL service to homes and small businesses. That category grew 29 percent in the first half of 2002 to 5.1 million lines, from 3.9 million lines in December 2001. But in the last half of 2001, home and SMB ADSL grew 47 percent in the US. Cable experienced its own growth slump in the first half of 2002, slowing to a 30 percent expansion from 36 percent in the six months from June 2001 to December 2001.

Naturally, it’s notoriously difficult to maintain the pace of growth on an ever-expanding base. Still, examples of higher broadband take-up rates in other nations are proof that some providers are able to ‘break through the wall’.

The December 2002 announcement that Hughes Electronics’ satellite subsidiary DirecTV Broadband would cease to offer its DirecTV DSL product throws open the question of access alternatives for regions underserved by wire-line broadband.

Rather, attention in the communications industry has centered on factors on the demand side of the broadband equation for the residential market: price points, support and
value-added services, and the applications that run most effectively over a high-bandwidth connection.

One thesis has maintained that the right compelling application will make broadband as indispensable as e-mail made the Internet more than a decade ago. Right now, this school of thought says, broadband is suffering from a lack of those applications. Its appeal is based largely on its physical properties of large bandwidth, high speed and low latency, and as a result is strongest among online gamers and music swappers.

On the other hand, several analysts have pointed to price as the primary factor hampering its spread. These observers say that residential users who might perhaps be interested in broadband find its value proposition to be out of place. Since in many cases those residential fees include only very thin profit margins–legacy of the days when broadband was a land-grab for the largest number of subscribers–providers are faced with the prospect of adding to broadband’s repertoire or reducing its cost to the consumer in some way that also guards profits.

In 2002, the International Engineering Consortium conducted a survey of major broadband service providers, vendors and industry analysts to determine what would help popularize broadband in the relatively underserved residential market. Respondents were asked to fill out a Web questionnaire that asked for their opinions on applications, price structure, value-added features and marketing strategies for effectively propagating high-speed access in 2003 and 2004. 

Residential Broadband Apps

Obviously, the providers hope that someone will come up with the broadband equivalent of e-mail–an application so attractive and useful that brought consumers to the Internet.

But before determining which applications hold the key to spectacular growth, one must look at customer values, to determine what is attractive about broadband now.

The IEC survey asked participants to rank a list of the values that customers hoped to find in broadband service during the next two years, from most to least important. The average of the entire survey values are in this order:

• Faster downloads / uploads
• ‘Always on’ convenience
• No second phone line needed
• Broadband-optimized applications
• Broadband bundled with other services
• Broadband-specific content
• Intensely interactive broadband experiences
• The pleasure of ‘leading-edge’ status

Response among the categories varied very slightly. Providers ranked broadband applications in third place, for example. But in each case, speed, continuous access, and eliminating the need for a dedicated phone line ranked at the top of the value tree through 2004–qualities used to sell broadband to the early adopter group. One would expect that the next wave of end-users would require a different marketing approach, based less on ‘speeds and feeds’ and more on practical applications. But in fact, those ‘traditional’ values will still hold true for the broadband market in the immediate future. Subscribers will predominantly use broadband in 2004 for faster and more convenient communication via e-mail and information searches on the Web. The broadband industry needs to keep this in mind when pricing their products, outside the early-adopter group.

Consumers have come to see high-speed access as something of a utility that is reliably fast and immediately available.

Survey respondents were asked to sort a list of consumer broadband applications into one of four categories, based on the value they thought subscribers might place on them:

• Mandatory: Users will tend to expect that these applications are included in the basic broadband package, the way e-mail is in narrowband access today. 
• Value adds: The majority of users will find these applications valuable and useful in their broadband experiences, but they will probably not be willing to pay significantly more for them. These apps will function more as service differentiators.
• Revenue generators: These applications and services hold out at least the promise of enhanced average revenue per user, because at least a substantial minority of broadband users will find them useful and functional enough to pay a premium for them.
• Sure things: Many/most users will pay a premium for these applications, either as part of an ongoing subscription or on a per-use basis, and either with a spot payment or as figured into a monthly metered bill. These are the applications that seem now and in the immediate future to have the best chance to reach ‘killer’ status.

Notably, entertainment applications ranked high in the response group’s evaluation of residential broadband apps with revenue potential, while most communications applications (video e-mail, videoconferencing) fell to the bottom of that list and ranked correspondingly higher on the ‘mandatory’ scale. Educational applications such as distance learning and telemedicine fell in the middle in terms of revenue generation.

Two broadband applications, online multiplayer gaming and digital music downloads bear further mention. About 11 percent of the whole response and 14 percent of providers consider online games to be a fairly solid bet for incremental revenue.

Interestingly, though, hosted game software ranked almost as high with service providers. For ISPs, DSL providers and MSOs who do not want to over provision the bandwidth needed for live Everquest sessions over Microsoft’s Xbox, allowing subscribers to test-drive PC games for a month may be a viable alternative.

Music downloads are popular among broadband customers. Unfortunately, they may also be a curse, causing network congestion (especially over shared-cable networks) and leading providers to consider ‘bit cap’ limits on monthly data transfers, and offering at best a muddy profit path dependent on the success of authorized music download services. About 11 percent of the response group said music downloads were a ‘sure thing’, and another 29 percent said they could generate some revenue from a minority of subscribers. Against that, 61 percent of the group ranked such services in the non-revenue-generating ‘mandatory’ and ‘value-add’ categories.

Excerpted from an International Engineering Consortium research study (www.iec.org)