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Apps and Services Are Bandwidth Hogs

Donnelly says that even though consumer bandwidth consumption habits haven't changed much over the past few years, they are causing a rapidly escalating demand for data transmission. The more consumers take advantage of bandwidth-hungry services like Apple TV Take Two (which now allows you to download large, high-definition movies), he says, the greater the challenge will be for ISPs.  

Not Ready for Future

What would ISPs do if legally downloading high-definition movies, streaming TV shows from sites such as Hulu.com, and backing up PCs online became as commonplace for consumers as Silicon Valley companies hope they will? In big trouble, responds ABI's Schatt, vice president at ABI Research.

Schatt says that ISPs need to spend a lot more money now to beef up their networks' bandwidth capacity for the future. ISPs are reluctant to admit that there's a problem, he adds, because "no investor likes to hear the phrase 'upcoming capital expenditures.'"

"ISPs don't want to spend money to upgrade their networks, so they have to limit the amount of bandwidth a customer can use," says Mike McGuire, an analyst with market research firm Gartner.

McGuire says that the situation is likely to get a lot worse with regard to quality of service and value for customers before it gets better.

According to network monitoring firm Keynote Systems, broadband users rarely feel the impact of bandwidth bottlenecks today unless a big media event causes a brief spike in Web use or unless a major component of the Internet infrastructure suffers unexpected damage. Keynote describes these types of Internet slowdowns as virtually imperceptible brown-outs.

Neither Keynote nor any of the analysts consulted for this story would forecast when or whether the Internet--left in its current state--might start slowing because of bandwidth traffic congestion.

Schatt says that he wouldn't be surprised if ISPs--hoping to push customers to higher tiers of service--let the less expensive tiers of broadband service deteriorate.

Sandvine's Donnelly anticipates a day when ISPs will charge a premium to customers for access to better-managed networks--as opposed to higher-speed networks. For example, an ISP could offer you access to a tier of service in which bandwidth for peer-to-peer applications was not artificially slowed and where VoIP traffic was prioritized--for a price.

Rob Enderle, principal analyst with the Enderle Group, emphasizes that ISPs have a lot of bandwidth capacity on the back end. The real challenge for ISPs, he says, is to improve their networks' so-called last mile to the home. "The [profit] margins just aren't there for ISPs to justify expensive network upgrades," Enderle says.

Enderle believes that, when given the option of raising bandwidth capacity versus raising monthly broadband fees, ISPs will choose the latter every time. Earlier this month, AT&T raised the price of some of its monthly DSL broadband data service plans by $5.