Although average broadband speeds are increasing, the global average masks big disparities within different countries. As the proportion of video and cloud-delivered content and services increases, this divide is in danger of hampering wider adoption of more digitally rich commercial and public goods and services. Although there is room for diversity in broadband access services and tariffs (it is essential for supporting the sustainable development of the telco industry), raising the broadband bar by ensuring everyone has access to faster broadband is also important. These two objectives require a number of different measures. These range from effective subsidy schemes for covering rural areas to more innovative pricing for higher-speed broadband from operators.
Digital consumption evolving rapidly
Cisco recently released its global VNI (Visual Networking Index), which forecasts the global development of IP traffic across fixed and mobile, consumer and enterprise segments. There are no surprises when it comes to the underlying growth trends in traffic, connected devices and the growing proportion of traffic that is video. However, it is the pace of growth that stands out; Cisco projects a ten-fold increase in IP traffic between 2008 and 2016. This equates to the transmission of 38 million DVDs per hour. Combine this with the pressure to deliver more critical services from the cloud and the challenge facing network development is starkly clear.
How does this break down into individual user consumption? Cisco forecasts an increase in average Internet household traffic from 26.2-GB per month in 2011 to 83.7-GB per month in 2016 and an increase in broadband speeds, with 74% of all broadband connections delivering 5-Mbps by 2016 and 3% delivering 100-Mbps.
These, of course, are global averages. The crucial factor is how they break down on a country basis and then at a more local level. The major challenge facing governments and operators is to ensure both the provision of higher minimum speeds for all (many governments have introduced 2-Mbps as a baseline) and adoption of higher speeds across fixed and mobile to support and encourage growing digital consumption. Operators report that households that switch to FTTH broadband access and install next-generation home gateways automatically consume more data and are more likely to purchase more paid-for services.
Those at the other end of the spectrum with less than 2-Mbps fixed broadband and slower mobile broadband may be able to access online video services (although IPTV is ruled out), but simultaneous usage is much more limited and consumers with patchy mobile coverage are put off using mobile data for anything beyond email access. Most are aware of the growing digital divide between rural areas where many users are on less than 1-Mbps, and dense areas where 100-Mbps plus is now common.
Big gaps within markets
In Belgium, 22% of households were on between 10-Mbps and 30-Mbps at the end of 2011, but 18% were on less than 2-Mbps, a similar percentage to Switzerland. In Sweden, a significant proportion (6% of homes and businesses) are on at least 100-Mbps, with only 5% on less than 2-Mbps. This variance in speed distribution repeats itself across all markets. The performance of broadband access is not just about speeds, but it is a key indicator we have for the progress towards next-generation access.
According to Cisco, it will take users on 5-Mbps 41 minutes to download an HD video; those on 10-Mbps, 20 minutes; and those on 100-Mbps, 3 minutes. Raising the baseline is important as it enables more users to consume and share digital content and information, but also facilitates the delivery of more complex and critical services in areas such as health and education, particularly for those services in which video is an important component. Sweden is an example of a country which is much further down this path.
Our recent analysis of broadband access services and tariffs highlights another facet of this diversity. Packages range from combined mobile and fixed broadband packages tiered by speeds and usage allowance in Belgium, to unlimited high-speed broadband in France, or incentive pricing to migrate customers to FTTH networks or much higher prices for FTTH-based broadband elsewhere. We also see cable operators consistently offering higher speeds.
This diversity is a result of a number of different factors, ranging from the challenging economics of serving less dense areas, to mixed consumer demand, diverse usage patterns and pricing pressure. Diversity is an essential part of economic development. However, in an environment in which broadband access is becoming akin to an essential utility, diversity in supply which results in significant segments of the population being “poorly connected” or not at all will hold back the kind of mass-market adoption of richer services which Cisco refers to in its VNI.
Solutions require action on two fronts. Firstly, more effective intervention from governments – not just in terms of subsidies for rural areas, but also in facilitating new forms of infrastructure and network sharing. Secondly, operators need to continue to push innovation and choice in broadband access services and tariff[s], including incentive pricing for encouraging adoption of higher-speed broadband.
Charlie Davies is a principal analyst in Ovum’s Strategy Practice