The End of the Broadband Buffet Is Nigh

[qi:gigaom_icon_fttx] Get ready for the next generation of fiber to the home, which will deliver 10 Gbps downlink and 2.5 Gbps uplink shared across 32 homes. Verizon (s vz) will announce next year that it has achieved these results in its labs, a huge improvement over the 2.5 Gbps down and 1.2 Gbps up the company is currently deploying. But get ready to dig deeper into your wallet, too, because even if the demand for broadband isn’t breaking the Internet, it’s surely forcing ISPs to rethink how they charge for such a valuable service — even Verizon.

While many ISPs are implementing caps or tiers because they have real resource constraints at points in their network — Comcast’s (s cmcsa) 250 GB-per-month cap, for example, is aimed at stopping folks from unduly clogging its shared, last-mile networks — some are eying such measures as a source of additional revenue and a way to fend off potential competition from online video. The best example of this is Time Warner Cable’s (s twc) tiered broadband plan, which caused such consumer ire that the company ended up backing down from it. However, when Verizon’s CTO Dick Lynch said in September that Verizon was also in favor of some kind of consumption-based billing, it was kind of like watching your favorite indie rocker sell out. Why would Verizon, which is building out a fiber-to-the-home network, plan to eventually move to some sort of consumption model?

The answer is because it can. I spoke with Brian Whitton, executive director of access technologies at Verizon, about the FiOS network in an effort to get some clarity regarding the rumor that even it would eventually face constraints under the onslaught of video. Whitton quickly disabused me of that notion, pointing out that the network is built to be upgradeable for decades to come by replacing electronics at the ends of the pipe. He basically told me that Verizon didn’t spend $18 billion (it spent $23 billion in total but some of that would have been spent anyhow) in additional upgrades to its network only to rip it out a few years later, and explained how the fiber stretches from the customer home all the way back to the fiber-based long-haul network.

But he did acknowledge how valuable broadband has become — valuable enough that people will pay for premium access to it, especially those using up a disproportionate amount of network assets. “Ultimately this is the fairest cost recovery model, and with a tiering plan or a meter everyone is paying their fair shares to finance the network,” Whitton said. Unlike other ISPs, Verizon doesn’t view heavy bandwidth users as hogs, but it does view them as potentially high-end customers.

What’s frustrating as a consumer is that because of the fragmented nature of competition in U.S. broadband markets, providers offering these consumption-based plans don’t have real competition to keep prices in check. Most places have two providers that offer slightly different sets of services and plans, making it hard to compare prices. I don’t mind paying more for a better network (I do so for my cell phone), but most consumers don’t have that option when it comes to wired access. While Comcast (which competes against Verizon in about 12 percent of its footprint) is rolling out faster broadband to ensure its customers don’t leave the cable provider for fiber, in other areas of the country, such as here in Austin, Texas, folks get the choice between DSL (with some U-verse) and cable that hasn’t been upgraded to the faster DOCSIS 3.0 speeds. So while Verizon’s FiOS will deliver faster service to customers, as it implements consumption-based billing of some sort, there’s no real competition to keep its pricing in check for those who have a need for speed. And eventually, we’ll all have that need.

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