Broadband Internet Application Innovation in Peril
“The broadband Internet value chain is headed for a train wreck,” states Sharon Eisner Gillett, Principal Research Associate at the MIT Communications Future Program (CFP). She explains, “Given the widespread use of flat-rate Internet access pricing, broadband service providers have little incentive to support high-volume Internet applications. In fact, they have significant incentives to throttle bandwidth and limit the growth of popular third-party applications such as streaming video, high-definition videoconferencing, peer-to-peer file distribution, video pod-casting, and networked back-up services.”
In a just published report entitled “The Broadband Incentive Problem,” the CFP explains how current broadband access pricing encourages users to adopt innovative, bandwidth-hogging applications, without generating the revenues broadband operators will need to make ongoing capital investments to support the next generation of applications. Co-sponsored by Cisco, BT, Comcast, Deutsche Telekom/T-Mobile, France Telecom, Intel, Motorola, Nokia, and Nortel, the CFP report aims to spark industry action to restructure broadband service pricing models before its too late.
“Any business that expects to reach its customers or employees through broadband Internet channels, or plans to develop and market high performance Internet-enabled devices, software or services, needs to sit up and take notice of this situation,” Gillett emphasizes. “Service providers are advertising high bandwidth services but then including restrictive terms of service that effectively prevent customers from using high speeds on a sustained basis. Usage costs money, and under flat-rate pricing models, the economics don't add up.”
The CFP's report explains how this situation will deter many types of application innovation, unless the broadband industry can come up with new pricing strategies that motivate broadband operators to continue to build out higher capacity networks. “Many operators expect to limit customer usage of high-volume applications, especially if they are not part of value-added services offered by the operator. We question the ultimate viability of that approach,” Gillett explains. Broadband Internet users, applications developers and service operators need to consider a broader range of solutions that can better align customer and provider incentives.
Click here to download "The Broadband Incentive Problem." (.pdf)
About the CFP : The CFP facilitates world-class research that advances the understanding of how changes in global communications technologies, economics, and public policy impact the relationship between traditional communications industries and the many related industries that depend on affordable and ubiquitous communications services for their own success. The goal of the CFP is to help participants in this emerging cross-industry ecosystem to better understand the implications of their co-dependence and to promote policies and technology innovation that benefits all stakeholders across the value chain.
Unlike many university/industry research partnerships that leave the research exclusively to academic investigators, CFP invites corporate sponsors to actively participate in ongoing working group meetings, to co-author white papers and deliverables, and to share the group's findings widely inside the sponsor's company. The study discussed above, “The Broadband Incentive Problem,” is one of the first results of this partnership.
For further information about the CFP or to arrange a one-on-one interview with Ms. Gillett regarding “The Broadband Incentive Problem” please contact: Susan Cass, 617-253-8973, scass@mit.edu
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