New Internet Apps Spark Broadband Investment

Published April 1, 2007

Spurred by growing demand for Internet bandwidth, North American telecommunications companies are projected to spend $70 billion on new infrastructure this year, a 67 percent increase from spending levels in 2003, according to a new report from Infonetics Research, a high-tech market research firm.

Much of the spending growth is in response to the explosion of file-sharing, Internet phone services, and online video applications on the Web. According to the Wall Street Journal, the boost in carrier spending has helped lift the bottom line of large companies such as Cisco Systems, which recently reported a 27 percent increase in quarterly revenues and a 40 percent increase in quarterly profit, as well as smaller ones. Avici Systems, which manufactures equipment that manages quality and reliability of data as it crosses service provider networks, has seen revenues double over the past year.

‘A New Boom’

“We’re definitely at the beginning of a new boom,” Kevin Denuccio, CEO of Redback Network, told the Journal. “Video takes a lot more infrastructure to deliver. It’s a new ballgame.”

Video file transmission adds considerable cost to carrier facilities, according to Infonetics. A typical Internet video file consumes 1,000 times more bandwidth than an average email message. Transmission of 100,000 emails costs a telecom company around 20 cents, while transmission of 100,000 low-resolution videos costs $15, and sending 100,000 high-definition movies costs around $10,800.

From a policy standpoint, analysts are watching how Congress and regulators approach the issue of network neutrality, which would prohibit service providers from recovering these costs by charging content providers a premium rate for quality and reliability (see related story, page 6). Many fear a network neutrality law would puncture this spending boom, much in the same way the FCC’s price controls on wholesale broadband bandwidth killed carrier spending and slowed rollout in the late 1990s.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.