Monday, January 7, 2008

Massive new investment required for Internet to maintain today's performace

[If this researcher's analysis is correct, the biggest challenge will be finding the $137 billion required to upgrade the access networks. I very much doubt that governments at any level are prepared to underwrite such an investment. Telcos and cablecos face similar changes in making such an investment with the market uncertainty of "over the top" application and service providers (with or without network neutrality). Hence one alternate approach may be From a posting on Dewayne Hendricks list -- BSA]

[Note: This item comes from reader Matt Oristano. DLH]

Internet not growing fast enough, researchers say
By Shamus McGillicuddy, News Writer
12 Dec 2007 |

According to new research, demand for Internet usage will start to
outpace the capacity of the Internet's access points. This potential
crunch could spell trouble for CIOs.

The Nemertes Research Group Inc. in Mokena, Ill., examined revenues
and expenditures of Internet infrastructure companies and the changing
pace of demand for bandwidth to determine this. Nemertes president
Johna Till Johnson said her firm isn't predicting a cataclysmic
failure of the Internet. Instead, the quality of service will start to
drag for businesses, stifling innovation and slowing the speed of
transactions and communications.

Johnson explained that the pace of investment in the infrastructure
that connects individuals and businesses to the Internet
infrastructure is falling behind demand. Nemertes projects that by
2010, for instance, the average amount of time it takes to download a
YouTube video will jump from 10 seconds to as much as two minutes.

"It's that last mile, the pipes at the edges. The access circuit," she
said. "That would be cable for consumers, DSL. For businesses they are
telephony circuits, and increasingly they're wireless. Wireless is one
of the key limiting factors. The technologies for wireless broadband
access exist, but they are not deployed widely."

Johnson likened the problem to a series of broad interstate highways.
Traffic is flowing smoothly on the multilane highways, but the narrow
access ramps that lead to those highways are clogged with cars waiting
to get on.

Nemertes estimates that it will take as much as $137 billion in global
infrastructure investment in the next three to five years to prevent
significant service declines, including $42 billion to $45 billion in
North America alone. Nemertes research shows that service providers
plan to spend just 60% to 70% of that total required global investment.

This could spell trouble for companies that conduct critical
communication and business transactions and processes via the
Internet. Slower or interrupted service means lost productivity.

Midmarket CIOs should pay attention

Johnson said large enterprises should do all right in this environment
because they can afford their own direct access circuit to the
Internet if the need arises. But smaller enterprises and midmarket
companies will be vulnerable.

"If you're one of those lucky people who can get a big fat pipe into
the Internet cloud, none of this matters," she said. "Where this gets
fuzzy is the trend we've been seeing the past five years in our
research, where enterprises are getting more and more distributed with
branch offices. Some of these branches are small facilities and their
staff is highly distributed. These are not places where you'll be
getting fat pipes. And if you're moving toward telecommuting you're
relying on the lowest common denominator of access to your employees.
That's a bad idea. You've got a telecommuter waiting hours for an
accounting dump of sales figures. They're not getting access to the
data they need in a timely fashion."

Johnson said midmarket CIOs should pay close attention to their
connectivity in the coming years. And they should advocate for
infrastructure investment.

Johnson said government policymakers may have to make a choice to
ensure that capacity doesn't become an issue. She said some believe
the Internet is as primal a right as access to basic utilities, and
the government should guarantee access for everyone. Others believe
the free market should determine how investment is made in the
infrastructure. Either way, Johnson said some sort of comprehensive
policy is needed to encourage more investment in the infrastructure.

"We've been told we're fear-mongering," Johnson said. "No one wants to
look at this problem. I don't know what the answer is. I don't know
what the right policy is. They need to come up with that."

Bruce Mehlman, co-chairman of the Washington, D.C.-based Internet
Innovation Alliance said he agrees with most of Nemertes' findings,
"but we're a bit more optimistic."

Mehlman said he thinks investors and innovators will rise to the
challenge that Nemertes has uncovered and make sure that bandwidth
will meet demand.

"As I see what [Nemertes] is saying, the usage curve is steeper than
what most people appreciate. To maximize the value of the Internet in
2010, the capacity curve has to be made steeper than is currently
being made," Mehlman said. "That can be done through investment and
innovation. This is akin to the Y2K scenario, where you could have an
issue, but prudent planning and investment mean it goes off with a
whimper. I see this as a call to investment, to help network providers
and policymakers recognize the magnitude of what needs to get done."