After the disasters, a more ordinary broadband

By David Walker (Google profile)

Broadband Internet is dead.

Don't worry: if you own a cable modem, it will still work; if you've yearned for DSL, you can go on yearning. What's dead is not the technology of broadband, but the dream of a separate and exciting broadband Internet experience, the idea that broadband will make the Internet into something new. In 2002, broadband Internet is about to become just like dial-up, only with a permanent connection and no delays.

First, some background. Not so long ago, broadband was depicted as a sort of alternative universe of technology. Back in 1997 and 1998, when broadband Internet first appeared in the US and Australia, its providers made the standard promises of revolution: a new world of interactive, fast-moving, talking Internet, of instant everything, of broadcast-quality movies and other, as yet unimaginable high-bandwidth delicacies that would transform the Internet experience. As late as May 2001, the technology Maoists at Wired magazine were still declaring that broadband would "change the picture radically and destroy your old ideas of ..." blah, blah, blah.

Since May 2001 the broadband picture has indeed changed, but not as Wired expected. The new picture has been devised by insolvency specialists, and it shows a string of businesses going into bankruptcy.

First up to the courthouse door was Excite@Home, possibly the world's best-known broadband ISP. For years Excite@Home claimed it could eventually charge users large premiums for all that exciting broadband content. In 1996 Wired had taken seriously @Home's claim that it could have one million users within a year. Wired quoted chief executive William Randolph Hearst III - grandson of that William Randolph Hearst - saying the speed of cable modems "will make the Web and the Internet more like an entertainment medium". The company's one millionth user eventually turned up in 2000, rather late. Excite@Home filed for bankruptcy in September 2001. As of February 2002, the top item on its home page read: "Excite@Home Reduces workforce as operations wind down."

By then, though, Excite@Home had been overshadowed by Enron, the biggest bankruptcy in the history of global business stuffuppery. Enron began life as an oil and gas pipeline company, and its biggest journalistic boosters wrote not for Wired but for The Wall Street Journal, Fortune and Business Week. But its stock price really took off after CEO Jeff Skilling began explaining that its future was not in energy but in Internet-driven global broadband capacity. Wired eventually took notice, profiling Enron with impeccable timing in June 2001, along with quotes from Salomon Smith Barney analyst Ray Niles about the the expected five- to seven-fold growth in the 2001 bandwidth market. Then it turned out that Enron wasn't actually doing many broadband deals; market volumes weren't growing that much after all. Meanwhile, bandwidth prices were halving, according to some estimates. Enron filed for banruptcy on 2 December 2001.

A broadband boom was also at the heart of the flawed vision of telecommunications group Global Crossing, which on 28 January 2002 became the fourth-biggest bankruptcy in history. Global Crossing borrowed like a Third-World dictator on the expectation of rapid returns from world-wide Internet demand; its customers had other ideas, leaving Global Crossing unable to cover its interest bills.

Confronted with the avalanche of bankruptcies and broadband industry gloom, technology analysts have been forced to drop in their earlier broadband demand predictions and run for their professional lives. For instance, IDC has reportedly sliced 60 to 70 per cent from its Australian broadband uptake forecast, leaving 2.6 million users by 2005.

Other professional analysts have discovered views outside their Wired magazine subscription:

• A Jupiter Media Metrix study declares that "applications that are uniquely popular among the broadband community remain elusive". What's popular with broadband users? Not fancy broadband services, but the same old boring email, instant messaging and Web browsing that dial-up users use - plus security programs to block outside infiltration of users' PCs through those always-on broadband connections. According to Jupiter, US consumer broadband adoption actually slowed during 2001.
• Consulting powerhouse McKinsey & Co. - the firm that launched a thousand would-be dot-commers - announces that the PC is not about to become the favored home entertainment device after all. It turns out that sending broadband data costs money, more money than most users will pay to have jerky litle videos running on their PCs. Instead, McKinsey expects the next round of entertainment advances to line the pockets of TV networks.
• UK consultancy Ovum finds that broadband business Internet users use the Internet much the same way their dial-up neighbours do. ""It's mostly more emails and more attachments to emails," says Ovum research director Sue Uglow.
• Forrester Research, another consultancy, claims that 72 per cent of US dial-up Internet users won't pay more than $US25 a month for broadband - "half of what most providers now charge", according to Business Week magazine.
• Gartner G2 reports that US broadband users will have to wait for Internet video-on-demand services until 2005 - and even then, only 2 percent of film distribution revenue will come from Internet video-on-demand.
• The US Federal Communications Commission estimates that fewer than 10 percent of American households have signed up for broadband Internet access, even though it's available to 130 million homes.
• The Yankee Group chimes in that three quarters of households in the US would have been able to access high-speed Internet access services by the end of 2001, if they wanted to do so.

On the current evidence, most broadband Internet users like the content of the Internet as it is. They just want to use the Net any time they like and not wait too long for things to happen.

So on the current evidence, broadband Internet is heading for the opposite of revolution. It's exploiting its always-on nature to make the Internet a utility service as boring as the telephone, or the electricity, or the gas - reliable, dependable, hassle-free.

Take the recent actions of the Big Two Australian broadband providers, Optus and Telstra. Both companies built large cable networks in Sydney, Melbourne, Brisbane and other areas in the mid-1990s in a short-lived competitive scramble, and have been trying to make a buck out of broadband ever since.

A few months ago I started seeing Optus's new televised attempt to attract Australia broadband Internet buyers, a lengthy "infomercial" in which an enthusiastic presenter discusses cable Internet with a spikey-haired Optus marketing rep. The presenter's enthusiasm mostly goes into explaining that cable Internet is always on, dependable and never ties up a phone line.

In other words, broadband is like any other utility.

Meanwhile Telstra last month cut broadband Internet prices for moderate-use households and businesses. And it cut those prices in an interesting way.

Not everyone gained from Telstra's repricing. Some high-consumption early-adopter private users, already annoyed by Telstra's 2001 retreat from the promise of unlimited bandwidth, have complained loudly after losing out again in the changes: a 3-gigabyte-per month package now costs $A87.95, up from $A72.55. The repricing shows that these sorts of user - the downloaders, gamers, streaming video fans and newspaper Internet commentators with Web sites - are no longer at the top of Telstra's list. Telstra no longer expects to make new corporate fortune in the next few years out of the late-1990s broadband Internet video and multimedia dream.

Instead, Telstra's new pricing is designed to attract a more pragmatic audience. Businesses have won far better prices than were previously available, and consumers can now pay $54.95 for a 300-megabyte-a-month package - not that much more than a heavily-used dial-up modem would deliver, but well-suited to those same unglamorous email, text-based Web pages and business data content that drive the dial-up Internet.

Overall demand for bandwidth continues to double each year, new applications will continue to emerge, and the always-on Internet will keep attracting consumers. Even broadband Internet video will grow more viable over time, in certain niches. (A change in attitude by film and music copyright holders would help, but don't count on that.) A few broadband players may be able to cut prices if they can snap up cheap assets in the current round of US disasters.

So by the second half of this decade, the broadband industry should return to prosperity. But it will be a different kind of prosperity than the dreamers of the late 1990s expected.