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Summary:

Bandwidth caps might not affect many users now, but with services like Netflix streaming and Hulu Plus just gaining momentum, iSuppli warns that carrier plans to set limits on the amount of bandwidth consumers use could pose a threat to the emerging Internet TV segment.

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Bandwidth caps might not affect many users now, but with services like Netflix streaming and Hulu Plus just gaining momentum, research firm iSuppli warns that carrier plans to set limits on the amount of bandwidth consumers use could pose a threat to the emerging Internet TV segment. William Kidd, director and principal analyst for financial services at iSuppli, writes that “caps will only become relevant if users viewed low-quality streaming media — say, a 200-kbps stream — on a wireless device for three hours, or if a standard-definition TV signal on a wired network was streamed for approximately 25 hours.”

Until now, Internet TV has primarily been held back by bandwidth available to end users. As Stacey Higginbotham at GigaOM has long argued, consumers need fat pipes to be able to watch high-quality video over the Internet. That need has only increased as Internet-connected TVs, Blu-ray players, gaming consoles, broadband set-top boxes and other devices have made it possible to watch IP video content in the living room. But to do so, HDTVs require around 5 to 8 Mbps for crisp HD-quality video to fill those flat panel TV screens.

However, the rapid adoption Netflix’s Watch Instantly streaming service shows that users are becoming increasingly comfortable with the quality and available for video delivered over today’s networks and consumer electronics devices. Netflix saw its subscriber base increase 35 percent year-over year, growing to 14 million at the end of the first quarter, compared to 10.3 million a year before. And the subscription rental firm expects that growth to continue, with forecasts that it will have about 17 million subscribers by the end of the year, up from 12.3 million at the start of 2010.

And Netflix isn’t the only provider looking to offer video services “over-the-top”; Hulu just announced its own plans for a subscription video service that will allow users to watch a variety of broadcast TV and movie programming online and through connected devices for $9.99 a month.

But now that users are getting “good enough” IP video streams delivered to their TV sets, consumption-based or capped broadband, as it is currently being tested by service providers like AT&T and Comcast, could end that momentum.

Stacey already showed how metered broadband pricing increases the cost of renting a digital download from iTunes, but the same will be true for the tax that Internet services will add through subscription streaming services.

In an email exchange with NewTeeVee, Kidd writes that he believes bandwidth caps will limit the amount of video that consumers can watch online. “Internet providers cannot improve the quality of their service to be comparable to TV, since bandwidth caps exist. Hence, Internet loses today since their quality is inferior, and cannot raise their quality because of caps,” Kidd writes.

Photo courtesy of (CC-BY-SA) Flickr user tnarik.

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  1. This is where cellphone companies may become the big players. Unlike cable TV and DSL providers, cellphone companies don’t have to run any line into anyone’s homes. Instead, they can send it all over cellphone signals. Think about that. The pipes that cellphone towers use are already massive and, relatively speaking, can easily get bigger. FAR faster than cable and DSL. And one of the simple ways of doing this is simply putting up more cellphone towers so each covers a smaller area thus, overall, can handle more traffic.

    And thanks to MetroPCS pioneering the way, all cellphone companies are already switching to unlimited usage plans. My Virgin cellphone plan currently gives me unlimited phone calls, unlimited text messaging, AND unlimited INTERNET. What this means is that cellphone companies can overcome The Last Dash (the last hundred yards from the fiber optic cable running down your street to your TV [click on my name for a white paper that goes into detail on it {page 13} and cellphone companies competing with current internet providers {page 9}) without running a single cable. All they have to do is have some holster gizmo that you can possibly rest your cellphone in for it to deliver content to your TV and/or computer. Or it could be a special stripped-down dedicated cellphone that you plug into a USB port on your computer and/or screw into the cable TV input jack on your TV.

    If cable TV and DSL providers put on bandwidth caps, they will open up an opportunity for cellphone companies to go after their heavy internet users. And once cellphone companies get their foot in the door, there’s no stopping them. They’ll go after everything else. Cable TV/internet and DSL providers might then very well go the way of PDAs, pagers, watches, and a long list of electronic devises which cellphones have absorbed into themselves and thus run out of business.

    So go ahead, cable TV and DSL providers, I dare you to put a cap on bandwidth. I double dare ya.

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  2. [...] Will Internet TV Be a Victim of Bandwidth Caps? [...]

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  3. Scott, I’m not sure cell phone towers would be the easiest solution. The regulations are so massive, it might be too exhaustive to implement. That also might invite FCC issues, which would choke the system with more regulation.

    The fiber optic cables are getting outdated, and I know a few aerospace companies looked into this problem years ago. They actually came up with a good solution, but the concept was buried by the airline and oil lobbyists. When they blueprinted a high speed rail system that runs on magnetic levitation (which is currently used in Japan), they realized all the copper used on the rail system could also be used as main pipelines for data transfer. In theory, the transfer and throughout rates through those magnetic rail systems would put fiber optics in the stone age. And these rail systems are extremely fast and do not require fossil fuel.

    When the time comes, I think necessity will be the mother of this invention.

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    1. Todd,

      Where there is a demand, regulations get changed. That has been a constant in the US for a very long time.

      As for your maglev idea, sorry, but that falls into the tinfoil hat category. Read up why fiber optic cables carry more information than copper ones. We won’t ever go back to copper.

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  4. Scott,

    The cellular providers will be capping bandwidth long before the landline providers. ATT already has, VZW will by years end. The small carriers are still with unlimited but if they become big unlimited will go away.

    At the end of the day it is MUCH easier to add capacity by pulling parallel fibers through conduits you already own rather than trying to change the laws of physics by stuffing more data through the limited RF spectrum that is licensed to the cellular carriers. There simply is not enough data transfer capacity in the available RF spectrum to support lots of video on the cell phone.

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    1. Erik,

      It is the other way around. It was a small cellphone company (MetroPCS) that started the unlimited usage plans. Everyone … and I do mean EVERYONE in the cellphone industry thought they were nuts and would fail. Just the opposite happened. MetroPCS only lost money the first three months as heavy cellphone users moved to them but then so did so many others that didn’t want to worry about their minutes anymore. Now all cellphone companies are moving to the unlimited model. This is just the way it is. And if any cellphone company were to put a cap on their bandwidth usage, their competitors would gleefully inform that company’s users that they don’t. Welcome to capitalism.

      As for getting more data through cellphone signals, you just put up more towers that cover smaller areas.

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      1. Dude, what on earth are you talking about?

        ATT (86 million subs), the 2nd largest carrier in the US just killed unlimited data because they could not support it.

        http://news.yahoo.com/s/ytech_gadg/20100602/tc_ytech_gadg/ytech_gadg_tc2354

        VZW (93 million subs), it expected to follow along in this Q3-4 2010.

        http://www.neowin.net/news/verizon-wireless-looking-to-kill-unlimited-data

        So of the big 3 only Sprint has no plan to kill unlimited data. So by your theory Sprint will become the market leader soon… Want to wager money that Sprint does not catch either ATT or VZW?

        No one cares what MetroPCS (7 millions subs) does.

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      2. Wireless is also running up against the bandwidth limit. Each tower can only support so many data streams before it chokes and drops the connection. Once more and more people start using their cell for video, you will see how it will grind to a halt. Just check it out in the Bay Area – cell performance is pathetic.

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  5. I have to disagree with some of these statements as the data and facts we have the market shows otherwise:

    “But to do so, HDTVs require around 5 to 8 Mbps for crisp HD-quality video to fill those flat panel TV screens.”

    That’s not accurate. The Xbox 360 can stream 1080p video with only 4Mbps of bandwidth and Netflix’s 720 HD streams at encoded at 3.8Mbps and both look amazing on a 50″ screen:
    http://blog.streamingmedia.com/the_business_of_online_vi/2009/10/xbox-1080p-streaming-uses-iis-media-services-smooth-streaming-but-not-silverlight.html

    “Internet TV has primarily been held back by bandwidth available to end users”

    Internet TV is being held back due to the business models, not anything technology related. The average broadband user in the U.S. has at least a 5.5Mbps connection (From Akamai’s state of the Internet report). The average video encoded by Netflix, Hulu, EpixHD etc… is about 4Mbps. So bandwidth is not the problem.

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  6. I think it will be difficult to put the genie back in the bottle. With unmetered broadband being the norm, going to a metered billing system will cause customers to migrate to the IPS’s offering unmetered billing.

    There is more than enough bandwidth available to service the customer’s growing needs without metering. Adding more head-end infrastructure to reduce gateway bandwidth demands will be required though. But wait, didn’t major ISP’s get billions from the government to do just that? Ah, maybe it’s time for the government to do a value for money audit to see where that funding really went.

    I think ISPs keep forgetting who paid for a majority of the internet infrastructure that they are using – the tax payer. If they move to metered billing for data moving on their portion of the “net”, will they give a credit for the amount of data flowing on tax payer funded infrastructure?

    It’s a slippery slope.

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  7. Interesting.

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  8. Maybe we should meter cable television consumption instead.

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    1. Isn’t that just Video on Demand – pay for what you use.

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  9. jamies pierce Thursday, July 22, 2010

    carriers can keep dreaming about protecting their wall garden networks with bandwidth cap but iptv over the top is unstoppable.

    A lot of new technology from companies such as matrixstream deploy bandwidth saving technology to overcomes most of the bandwidth capp with the same quality as telco iptv.

    Over 60% of the netflix users uses streaming currently and the number will increase. These numbers don’t lie. Over the top iptv is coming with a vengence.

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