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Fiber and caps are the future: A view from a small ISP

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Much of the discussion about Internet Service Providers centers around the nation’s largest players in the telecommunications and cable fields, but there are a number of smaller ISPs and it’s worthwhile to talk to them to discover how competition is faring in the U.S. and what might happen if more flourished. Royster Tucker, the COO of North State Communications, an ISP serving a 600-mile area in North Carolina, highlighted the importance of fiber to the home, but also indicated that metered billing isn’t just for the big guys.

Fiber is the future, and North State is on board.

North State, which includes Greensboro in its service area, began deploying fiber to the home in 2009 because it was losing out to the cable companies with its DSL-only option. Tucker declined to tell me how many customers it currently has, but he says it’s now the No. 1 provider of broadband in a region that includes Time Warner Cable (s twc) and AT&T (s t) as well as smaller cable companies. “We said we want to be the broadband market leader and the way to do that in late-2009 was with fiber to the home,” Tucker said.

Now North State offers an 80 Mbps down/30 Mbps up for consumers at a 12-month introductory price of $49 a month, which is about what I pay for 12-13 Mbps down/ 2Mbps up cable broadband from Time Warner here in Austin. However, the most popular package North State sells is a 30/30 Mbps symmetrical package, although he didn’t disclose penetration or take rates. Tucker also noted that the company is still supporting its 10 Mbps DSL business in its service area, but he doesn’t plan on making more investments in the technology. “Back in 2003 and 2004 and 2006, we were out there shortening loop lengths, building out fiber to the node and all that, but now we’re going to stick with maintenance,” Tucker said.

To cap or not to cap? That is the question.

North State doesn’t currently have a broadband cap, as Tucker believes the fiber network can withstand the speeds that today’s traffic requires. However, Tucker says, “We believe ultimately that is the direction the broadband market will go.” When pressed on the subject, Tucker says, “As over-the-top video becomes more and more prevalent and there’s more HD and bigger broadband requirements, the broadband market will move to some kind of cap or metered service.”

However he couldn’t explain precisely why this would need to happen. “The networks are expensive. We are providing bandwidth for all these wonderful things that are showing up on the Internet and that is costly,” he said. “This market is highly competitive and we have to get some money from somewhere to pay for these networks. All of it is not falling on the user.” But when asked if his financial models could support the delivery of more traffic he said that, “in a multi-product scenario, yes it does. We look at the whole household and the revenue we’re getting out of the households.”

When I asked if that meant North State could only recover costs and make money off a user that subscribed to multiple services, Tucker appeared to backtrack. A user that subscribed to broadband alone would suffice, he said. He then implied that part of the issue around capping was because some people use so much more than others. “All the rich content that’s showing up on the Internet is driving tremendous demand on our network, and we want our customers to have access to that.” He continued, “There are those that are more bandwidth-heavy users, and we need to strike a median on who’s paying for what, and that’s where we see that capping may come in.”

However, Tucker was very clear that North State wasn’t capping service now — and that it may never cap or meter service. However, one could hear the amazement in his voice when we discussed what people were doing over the network.

“I don’t think anyone could see what we would drag across these pipes, and people thought the unlimited model would be fine,” Tucker said. “But this is evolving and it’s something that we’re all having to deal with. We’re a broadband company, and we want people to do what they want to do, and we want to deliver value to our shareholders.”

As people consume more bandwidth, it may well be smaller ISPs such as North State that are answering to private shareholders in highly competitive markets, that show us exactly what networks are capable of, both in terms of technology and in delivering profits.

11 Responses to “Fiber and caps are the future: A view from a small ISP”

  1. Elmer D. Johnson

    Maybe a better way would be to offer uncapped 100 Mbps with three or four QoS levels? Sorta like the feeder road, versus the freeway versus the toll roads versus the autobahn.

  2. In Canada, caps are actually starting to go away. Shaw offers 100mbps and 250mbps with both capped and uncapped packages. And we JUST flipped the switch from analog to digital across country. I’m just trying to figure out why the US thinks caps are necessary when the pipe supports speeds of 500mbps and more.

    Honestly, it’s just standard business modus operandi to speak this way, just in case their company makes it big and does an IPO and then has to submit itself to the Wall Street model of ineptitude that requires businesses to constantly outdo their record performances or else watch their stock be devalued by people who couldn’t even make a lemonade stand profitable in the desert if it was the only source of hydration around for 100 miles.

    Word of wisdom to small businesses…allowing for further growth into your business model and making sure you are profitable is all that matters. Don’t listen to Wall Street Analysts and don’t ever pay your executives on any kind of a pay structure where their motivation is to the stock price and not to the profitability of the company in the long term.

  3. Kobe Wild

    Metering service sucks.
    What’s the point of 80mb down if you can’t use it.
    currently i’m paying $80 a month for 3mb down(ha it’s more like 1.2 down.) and 480k up with a data cap of 150gig’s. this is f-ing stupid.

    AT&T sucks and i’m getting screwed but it’s the only company in my market with adsl.

    For 30mb up and 30 mb down.
    I would pay $100.00 no questions asked as long as there was no caps..

  4. Quentin Dewolf

    wouldn’t scaled service solve the balancing issue? The BroadBand companies should just charge a scaled price (10Mbps, 30Mbps, …) and presume that we will fill that pipe. Nothing would be more anoying than to get a certain level of service and then to all of a sudden have it reduced. It is very hard for even knowledgable consumers to understand when a cap or overage charge will appear. It is much better to offer services that sound like super user, light user, extensive streamer, … Imagine if all of a sudden your cable offered you less channels because you changed the channel too much or watched it too long.

  5. Jeffrey McManus

    Caps aren’t the future; they’re a symptom of the way that telecom is organized into chains of duopolies. It means there’s insufficient competition in a market.

    Could you imagine if there were caps on other commodities — food, energy, health care? No way, people wouldn’t stand for it. In time consumers will come to understand how bogus caps are and vote with their dollars.

    • Caps on food, energy? It’s called rationing – obviously this does happen when resources are scarce. Quite valid and necessary in extreme situations, but certainly doesn’t make for stable society the longer rationing continues.

    • I don’t think that the broadband providers would cut off your service if you exceeded the cap. They would just charge you an extra fee based upon how many Mb of data you used over the cap level. Personally, I see no problem with metering bandwith usage. I think customers should pay for what they use, just like they do with energy, power, and health care.

  6. It will all come down to whether or not there is true competition. Since there is no additional cost to offering uncapped fiber service (and any service provider that claims otherwise is lying), a market with two real competitors would not have any capped service offering. It’s just a mechanism to maximize profits, and would be sacrificed as a no-cost feature of a company that wants to win business.

    For an example of a market with very few competitors and real competition, look at the disk drive industry. When the latest round of consolidation is complete, there will be only 3 manufacturers, and yet the price per bit continues to decline, and profit margins frighten investors so much that the two pure play vendors (Seagate and Western Digital) often have P/E ratios of 5 or 6. If those companies colluded like wireless carriers and banks (to name a couple), entry level disk drives would cost $75 and would max out at 500 Gbytes.

  7. It’s called the effects of “net neutrality”. Metered billing will be required. It will be the only way to keep things “equal”.

    As wireless provider MetroPCS (I think) found out, when they tried to come up with lower priced plans that disallowed some high volume traffic, they were sued by the left wing loons who like “net neutrality” – remember, the goal is not related to the quality of the network, but who controls the network.

    The regulatory winds are pushing these guys towards having to meter.