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    Broadband at the vanguard  
    Canadian Business Online  

Rosie Lombardi

    December 19, 2007  

Cheap, plentiful broadband is increasingly seen as the measure of a country’s technical and commercial sophistication. The bigger the pipes, the more economic opportunities can flow across the Web. But broadband penetration is still relatively low and uneven globally. And surprisingly, North America is not as well placed in the global pecking order as one might expect.

There are about 300 million broadband subscribers worldwide today, according to Point-Topic, a UK-based research consultancy. In 2001, Canada and the U.S. held leading positions due to the innovative use of existing cable infrastructure to deploy broadband, says Carmi Levy, SVP at Toronto-based AR Communications. But they've since slipped to the No. 9 and 15 positions, respectively, according to June 2007 OECD rankings based on the number of broadband subscribers per 100 inhabitants.

Europe and Asia now lead. Unlike North America, these regions had inadequate landline telephony infrastructures in the past, so carriers had incentives to move to advanced technology, says Levy. In South Korea, for example, the government and major carriers joined forces to implement wireless broadband(WiBro)for both telephony and Internet access which delivers even higher data rates than third-generation(3G)cellular systems, according to the New York-based Institute of Electrical and Electronics Engineers(IEEE). Says Levy, “They’ve leapfrogged landline to broadband-based mobile telephony services and moved beyond our 1.5 megabits per second(Mbps)standard. In South Korea, 6 Mbps is their baseline to start, and it costs a fraction of what it does here.”

Since broadband is a fairly new capability, there are few studies estimating its economic impact that are based on actual experience. But there are some clear indicators. One study looked at growth across 21 OECD countries from 1970 to 1990 and found that about one-third of per capita GDP growth could be attributed to telecommunications infrastructure investments — and notes these investments yield excessive returns compared to other forms of infrastructure. Another estimated that ubiquitous deployment of broadband may result in $500 billion worth of economic growth.

Countries that don’t have advanced infrastructure will miss out on new economic opportunities. “If we only had dirt roads, we wouldn’t have shopping malls, car dealerships, and so on,” says Bill St. Arnaud, senior director at Ottawa-based network technology think-tank Canarie. In Japan, for example, people routinely use their camera phones to scan special bar codes with embedded Web site URLs called quick response(QR)codes. These ubiquitous codes are printed everywhere in advertisements, and on signs and business cards to get instant information on the Web and even to make purchases, says Lisa Walker, president of the New York-based International Imaging Industry Association.

But the telecom infrastructure isn’t sufficiently developed in North America for QR codes, she says. The existing coaxial and copper infrastructure for cable and phone lines into consumers’ homes continues to be a limiting factor in broadband build-up. Fibre-optic cable can deliver faster speeds that can theoretically approach the speed of light, but there are major costs involved in digging and installing new lines. In countries without existing landlines and with high population densities such as South Korea, the business case for laying "fibre to the home"(FTTH)was compelling.

But the business case in North America is weaker, says Amit Kaminer, analyst at Toronto-based telecom research firm Seabord Group. Carriers are employing various strategies to build out advanced broadband capabilities in that “last mile” to consumers’ homes while also leveraging and maintaining existing networks. In the U.S., Kaminer says New York-based Verizon Communications(NYSE: VZ)leads the pack with its FTTH rollout to a projected 18 million households by 2010. In Canada, Montreal-based Videotron(TSX: VDO)is in the lead, and is promising to upgrade its networks to deliver blistering broadband speeds of 50 Mbps in 2008 — the fastest in North America, he says. Rogers Communications(TSX: RCI)is also upgrading its networks with its deployment of DOCSIS 3.0, a standard that allows high-speed data transfer over an existing hybrid fibre-coaxial network, and is introducing new services such as videoconferencing on cell phones and portable Wi-Max, says Ian Pattison, VP of product development.

But Levy points out that carriers have a vested interest in limiting the pace of broadband development so they can recoup their investments as they build out their networks. “They want to control growth, as they don’t want to move to next-generation technology before they absolutely have to.” And regulators such as the CRTC are unable to keep up with the pace of change in the market. “It’s an unholy alliance: service provider inertia worsened by regulatory deadlock.”

The Future Internet
There are some key emerging business areas whose success relies on ubiquitous broadband. Revenue for software as a service(SAAS), for example, is expected to reach US$5.1 billion in 2007, a 21% increase over 2006, according to research by Gartner. Telecommuting is also on the rise. Eighty-nine of the top 100 U.S. companies offer telecommuting, and 58% consider themselves virtual workplaces, according to a study by Insight Research Corp. And each percentage point increase in broadband adoption adds more than 290,000 jobs to the U.S. economy, according to a study by the Brookings Institution, a Washington-based non-profit research organization.

The explosion of Web 2.0 mash-up businesses(for example, a third-party using Google's application programming interfaces to combine maps with new data)is another broadband-dependent trend with major implications, says St. Arnaud. “Over 2,500 businesses have started up just doing mash-ups,” he says. About US$464 million was invested in Web 2.0 businesses worldwide in the first half of 2007, a 7% increase over 2006, according to research by Dow Jones VentureOne.

Online collaboration fostered by broadband is also having a profound impact on the scientific community. The ability to exchange huge volumes of data that were previously restricted to ivory towers means ordinary people can now participate in science. Says St. Arnaud, “In the past, super-novae were only discovered by astronomers. Today, most of them are discovered by the public, using their computers to scan images downloaded from telescopes.” Elsewhere, Stanford University’s Folding@home project, which harnesses downtime from 2.3 million PCs and Playstations to conduct disease research, uses always-on broadband connections to beat the performance levels of supercomputers.

But there’s widespread recognition that the Internet as it’s currently architected will not be able to sustain the deployment of new services much longer, says AR Communications' Levy. “New services are already exposing the creaking underbelly of the Internet’s Cold War architecture.”

Panelists at the 2007 Cable Telecommunications Engineers conference in Houston forecast a bandwidth crunch, citing the sudden rise of YouTube, which serves 120 million video streams per day, and a surge in HDTV, which requires four times as much bandwidth as standard digital TV. In the U.S., television broadcasters have been mandated to switch by 2009 from analog to digital broadcasting, which means yet more video will hit the Web as broadcasters move to IPTV delivery. “But if you try to load the 500-channel television universe onto the Internet, it will slow to a crawl,” says Levy.

So how will the next-generation Internet’s infrastructure be developed — and who will pay the billions needed for it? Investments of up to $137 billion will be needed to build new capacity, according to a study by the Mokena, Ill.-based research consultancy Nemertes Research Group.

In the U.S., debate has raged since 2001 over the notion of creating a new tiered Internet architecture that provides faster lanes at premium rates for high-priority traffic instead of free and equal access to all. Carriers who’ve proposed this approach argue it’s the only way to fund new infrastructure.



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