They have built the pipes, now where is the traffic?
Broadband carriers that went on a network-building spree in recent years were fueled by the promise of consumers rushing to a host of bandwidth-hungry applications. While the carriers correctly anticipated the Internet becoming a powerful communication tool, various Internet applications haven't created as much data traffic as many thought they would.
Consider Adam Smith, who for years has chatted with friends primarily through e-mail and instant messaging, since it is convenient and allows many people to chat simultaneously. "I find it a lot better than talking on the phone," says the computer-savvy Brampton, Ontario, high-school student. Because a typical e-mail takes a fraction of the bandwidth of a phone call, people who use e-mail instead of the phone are actually causing less network traffic.
Other widely used Internet applications such as static Web pages and typical e-mail attachments don't drain much bandwidth either. And higher-bandwidth applications like video and music streaming and downloading are growing only in fits and starts because of technology limitations and legal action taken by content owners to block widespread pirating of their titles.
So now telecom carriers are on the hunt for broadband "killer apps" to fill up their fat, often largely empty pipes. Broadband refers to high-capacity data transmission.
WorldCom Inc.'s long-haul network is utilizing only 33 percent of its capacity, while Qwest Communications International Inc.'s network is running at 15 percent, a recent report by Morgan Stanley says. A WorldCom spokeswoman declines to comment. A Qwest spokesman says the company doesn't publicly confirm its utilization rate, but "advances in technology have allowed us to increase our network capacity significantly."
Broadwing Inc., a Cincinnati broadband carrier, says just 5 percent of its high-capacity fiber-optic network is in use. A spokesman notes that carriers must have the capacity in place before it can be sold and applications can proliferate.
To boost its network utilization, Broadwing has been forming alliances with upstart broadband content providers. One such arrangement is with Media Station Inc., a closely held video-game company in Ann Arbor, Mich. "Video-on-demand gets all the talk, but games are really here today," says Media Station's president and chief executive officer, Jim Maslyn. Customers across the U.S. can buy, rent or subscribe to Media Station's video games and other content that is streamed and downloaded to their hard drives.
Broadwing was "looking for a killer app, and I said I've got one," says Lynn MacConnell, who holds the title "chief instigator" for closely held San Francisco video-game start-up New Millennium Entertainment LLC. New Millennium plans to launch later this month a multiplayer online-game service built on Broadwing's fiber-optic national network. New Millennium expects to attract as many as 1.5 million subscribers in its first year and has engineered its network with plans to provide glitch-free games to 100,000 users simultaneously. That would hog about 2.6 gigabits (billion bits) per second of bandwidth, says MacConnell. That is more capacity than some telecom carriers use to link countries and continents.
Both New Millennium and Media Station share part of their revenue with Broadwing, which provides network capacity for the companies to transmit their services.
Another broadband carrier, Williams Communications Group Inc., Tulsa, Okla., created its Vyvx Broadband Media unit to help boost traffic on its fiber-optic network. The network's utilization rate is running "a little above" 30 percent, and the company is targeting 60 percent by year end, a spokeswoman says. Under one arrangement with a national television network, Vyvx director of product development Mark Dunn says, the company is delivering advertisements and syndicated programs to various affiliates of the network, which he declined to identify, around the U.S. The shows travel through the Williams network via a dedicated link that can handle data at rates of as much as 25 megabits a second.
Vivx last fall digitally transmitted the film "Bounce" from Tulsa to a New York theater with a 45 megabits-per-second link. Besides seeking movie-distribution opportunities, Vivx says it is now in talks about feeding live events such as music or sports to theater chains around the U.S. via its fiber-optic network.
One high-bandwidth application with widespread appeal is videoconferencing. A few years ago, a typical videoconferencing system could cost as much as $100,000 and was an "executive-boardroom type of application," says Stacy Saxon, director of video-product marketing for Polycom Inc., a Milpitas, Calif., maker of videoconferencing equipment. Typical systems today cost between $5,000 and $18,000, and the quality has sharply improved, the company says. Polycom has recently added Procter & Gamble Co., International Business Machines Corp., Microsoft Corp., Towers Perrin and the U.S. Navy to its list of customers, some deploying hundreds of systems at a time. Ford Motor Co. uses videoconferencing to allow its globally dispersed design teams to collaborate more effectively, Polycom says.
Most videoconferencing systems use traditional corporate networks running at rates of as much as 500 kilobits a second, but companies are starting to adopt high-quality Internet-protocol systems that can use as much as two megabits per second of bandwidth, Saxon says. Seeking to boost home use of videoconferencing, Polycom is discussing with telecom carriers possible strategies that take a page from the cellphone industry by providing low-cost equipment and charging a subscription rate for required bandwidth, she adds.
Music and video have long been seen as big-bandwidth applications, but their growth has been hampered by technology limitations and content owners' legal moves. Though music companies are forcing music-sharing service Napster to move away from providing free copyrighted music, Web surfers often tie up their connections for hours at a time with other popular file-sharing services such as Gnutella, Aimster and DivX.
But the bandwidth that such applications consume will be limited for the foreseeable future, analysts say. Though inter-city fiber-optic networks supply abundant bandwidth, "the weakest link is still the last mile," says Douglas Shapiro, an analyst with Banc of America Securities in New York, referring to the lack of high-speed Internet connections in most people's homes.
Eventually, there will be "enormous demand for bandwidth," but cable and satellite companies are formidable obstacles to telecom-delivered applications, Shapiro says. For example, several cable companies are rolling out movies-on-demand services. Internet delivery of movies is emerging, but "I'm not sure how many people want to watch a movie on their PC," Shapiro says. Although there are gadgets that allow the transfer of desktop video to a television, he adds, "in this nation of blinking 12 o'clocks on VCRs, I don't know how many people want to link their PCs to their TVs."