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

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.