Tuesday, July 08, 2008

Is Broadband the Next Oil?

Consumers are nearly livid at the accelerating price of gasoline and heating oil. The price of a barrel of oil seems to have no limit, as traders race to outbid each other on futures contracts. It's a feeding frenzy with no end in sight. Now brace yourself. The next crisis you see could be broadband.

How can broadband, particularly Internet broadband, possibly be anything like oil? Oil is a commodity with over a century of exploitation. It's a product of nature. Broadband is something new. It's a product of technology.

What both have in common right now is that demand is outstripping supply. In the case of oil, we aren't finding new cheap supplies as fast as we are using up proven reserves. Even as developed countries scramble to cope by increasing energy efficiency and pressing alternative resources into service, emerging economies will sop up as much available production as exits.

Broadband capacity isn't limited by a natural resource, such as ancient biomass converted to oil over millions of years. But there is a limit. The installed capacity is a function of the time and money it takes to build-out fiber optic networks and the fiber, copper and wireless delivery systems. The Internet wasn't built in a day and you don't double, triple or increase its capacity by an order of magnitude overnight.

What's precipitating a crisis in broadband is a sudden shift in demand technology. The infrastructure of the Internet was designed around lots of people sending email or browsing Websites, and not all at the same time. What's happened lately is that those uses are overshadowed by an increasing number of people uploading and downloading video content, such as video clips, full length movies and television shows. A dedicated individual couldn't write enough emails or visit enough Web sites to begin to match the bandwidth used by casual video streaming and downloading.

The strain is being felt by Internet service providers, including cable broadband operators, telco DSL providers and wireless and satellite broadband services. Satellite has always had bandwidth limitations due to a limited number of "birds" and frequencies available. Satellite broadband dealt with this through fair use policies that slowed down the connections of bandwidth hogs so that everyone would have fair access.

Recently, the cable companies have been scrambling to do something to throttle the minority of heavy users who are pushing their systems to capacity. In this case, they are not limiting bandwidth but rather planning to charge more for above average usage. That should, in theory, provide the funding to increase network capacity so that more bandwidth is available even as average usage steadily increases.

As with any scarce resource in high demand, something's gotta give. That could be rationing, which could limit bandwidth for everyone and stifle any advance of technology. Or in the case of oil, long lines at service stations and severe economic impact. Another approach is to let prices rise until demand is checked. That also flies in the face of technical progress which as always been better, faster, cheaper. But perhaps in the case of bandwidth, it will manifest itself as tiered service with the well-healed and demanding users charged premium prices for premium speeds.

Both oil and broadband have the possibility of increased production. Oil producers can drill more wells, improve the efficiency of the wells they have, and bring online more of the higher cost resources like oil shales. Broadband companies can light more dark fiber already in the ground, improve efficiency by using denser wavelength multiplexing, and spend a bundle to bring fiber and higher speed copper connections to homes and businesses.

With any luck, the supply crises in both oil and broadband will work themselves out under marketplace forces. But of the two, I think broadband is the one with the brightest future. Now if only they could build a broadband car.

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