Just a few years ago, the Internet seemed like the biggest threat to the cable and telecom business. But now, through their ability to charge for access to the Web, those broadband service providers see the Internet as their key to future success.
Their business models, analysts say, may lie in data caps — the monthly tiers Comcast, Verizon, AT&T and others have set for consumers on broadband to the home and on mobile devices.
Julius Genachowski, the chairman of the Federal Communications Commission blessed data caps at a cable trade show last month, a decision that immediately sent shares of competing streaming video service Netflix into a nosedive.
AT&T CEO Randall Stephenson last week predicted that Web firms would begin to partner up with Internet service providers and offer to pay telecoms and cable firms to offer their content and services to consumers for free.
“An obvious reason data caps are important to wireless operators is they generate additional revenue. A less obvious reason it they may help operators persuade content companies to pay their way out of caps,” said Paul Gallant, managing director at Guggenheim Securities research.
That business model poses a problem for a company like Netflix, which has a competing video product to cable television, analysts say. Neflix’s CEO Reed Hastings complained on his Facebook page recently that Comcast wasn’t counting its XFinity XBox streaming service against its 250 gigabyte data cap.
Comcast has countered that it isn’t using the public Internet for that service, but does count some of its other services as data consumption that ride on its public Internet channels.
Besides, Comcast says, a very slim minority of users even get close to 250 gigabytes a month.
So when will data caps really become a major issue for consumers? Even though consumers aren’t hitting their monthly data limits today, they soon will as a flood of more bandwidth-intensive applications like real-time video chats and multiplayer HD gaming become more popular, according to Sandvine CEO David Caputo.
Caputo said average broadband use in March increased 40 percent from the previous year to 32 gigabytes a month. That 40 percent increase has been the trend for years.
So imagining all the same applications we are using today, that means it will take a decade for consumers to hit 250 gigabytes. But the thing is, users will be using many more apps that require much more bandwidth going forward, he said.
“All bets are off when it comes to the future,” Caputo said. “Web pages are going to be 100 times more complex, which will drive up usage. Extra high definition video is on its way. The Internet of the future may look nothing like today.”