Dot Commentary: The High-Speed Slowdown

Article From: Products Finishing, ,

Posted on: 10/1/2002

As recently as two years ago, the "next big thing" to hit the Internet was supposed to be the introduction of broadband (high-speed) Internet services.

As recently as two years ago, the "next big thing" to hit the Internet was supposed to be the introduction of broadband (high-speed) Internet services. Yet, the growth of broadband already seems to be slowing down. To date, only around 14 million Americans have high-speed Internet access at home. And while it's estimated that there will be as many as 4 million new customers in 2002, that's down from 5 million in both 2000 and 2001.

Not surprisingly, the single largest factor holding broadband back—at least on the individual consumer level—is cost. It's logical to assume that as the technology and the market mature, the cost would go down. Not so, according to industry figures. Business Week magazine reports that the current average price for cable-based Internet access is $45.31 per month, up 15% from $39.40 a year ago. It seems that cable companies are testing the market to see just how much people will be willing to pay. And given the fact that there are very few players in the broadband market, we can't rely on competition to drive prices down.

There's also the issue of whether people find value in broadband. If all you do at home is check e-mail, you really don't need anything faster than a dial-up connection. Why shell out an additional $25-30 per month for technology that you don't need?

Speaking of value, one of the factors that was supposed to drive broadband growth was the emergence of new bandwidth-intensive applications such as audio and video. But as broadband providers have learned, the market for downloadable movies and subscription music services just isn't there right now, due to a number of factors, such as the economy and the availability of free file-swapping services.

The funny thing is that broadband operators don't seem to be particularly alarmed by the slowdown in highspeed growth. While they could open the service up to more customers by lowering the cost (current operating margins range between 35-45%), most of the companies are seeing their profits maximized by offering the service to a smaller audience at a premium price. It won't be until broadband sign-ups stall that they'll lower prices or consider offering tiered services.

One positive sign as it relates to the growth of broadband is that the government is getting involved. In May of this year, the "National Broadband Strategy Act of 2002" was introduced. If passed, the bill will "require a report to Congress on a national strategy for the deployment of high speed broadband Internet telecommunications services, and for other purposes."

Regardless of how quickly (or slowly) broadband becomes the standard for Americans, it will not go the way of betamax or the 8-track. It's here to stay. But if broadband providers (and legislators) don't get serious about making high-speed Internet access a priority, neither will consumers.

Want more information about broadband Internet services? Check out broadbandreports.com (http://www.broadbandreports.com), a source for news and reviews about broadband service providers.

 

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