If carriers can\'t better connect revenue to bits, a telecommunications meltdown is imminent, according to some analysts. But the exact timing and depth of that disaster, or even whether it will actually happen, is subject to debate.
Carriers face a core problem: They have been unable to peg long-term profitability onto the Internet services they provide and enable. Even as the demand for bandwidth continues to grow, the revenue-per-bit that they make continues to drop at an alarming rate that could, according to some analysts, discourage future investments.
\'Yes, [carriers] should be concerned about it, and the reason they should be concerned is they don\'t want to replay history,\' said Eric Zimits of Granite Ventures. \'Their mainstay service, voice, has become wildly commoditized, and that\'s become a low-margin race to the bottom.\'
Already, threats against other mainstays are growing. Services like Netflix and Hulu, for example, chip away at money-makers like Video on Demand (VOD) and even basic cable programming.
Tom Nolle, president of consultancy firm CIMI, said carriers will struggle to make money in a variety of wireline service markets.
"If you look at wireline services across multiple areas, you can perhaps make money on television as a provider," he said. "You can\'t make money on voice, and you can\'t make money on data."
Carriers can generate revenue on some of these services, especially in dense urban environments, and they may even be profitable, Nolle said. But, according to his projections, fewer and fewer service providers will hit the return on investment (ROI) goals they set when they invested in the infrastructure to deliver these services.
\'My statistics show that the wireline providers are starting to reach a point where their revenue flow from wireline services is just starting now to push the ROI below the target number,\' he said. \'We were in the healthy zone until the current year.\'
Nolle pointed to US operators Time Warner Cable and Verizon toying with bandwidth caps - after the industry was burned less than a year ago on the Net Neutrality public relations front - as examples of service provider desperation.
But how bad is the problem‾
"I would say if we don\'t have this problem solved within 12 months - by the first half of 2010 - then the service provider behaviors that will be created by a lack of a solution will become permanent," Nolle said. "And then it won\'t matter if we solve them or not. Once they get well into their 2010 budget executions, they won\'t be able to turn back."
This puts the onus on telecommunications equipment vendors to devise what carriers have been requesting for years - new technologies to help turn an increase in bandwidth consumption into an increase in ARPU, , Nolle said. Otherwise, economic necessity will bring back Time Warner Cable\'s cap trials, Comcast\'s traffic shaping, and any number of other trials that critics have labeled "the death of the Internet."
Even if telecoms discover a solution in the next year, they will have some big hurdles to surmount, he said.