The growing number of Americans with high-bandwidth Internet connections creates a potential market for a host of new consumer applications. But will consumers really embrace these applications?

New findings from RVA Market Research shows that consumer behavior is already changing for the small group of Americans with very high-bandwidth direct fiber connections.

And regardless of the type of broadband connection they now have, a large majority of Americans say they are interested in emerging high-bandwidth applications.

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RVA surveyed a random sample of  fiber-to-the-home (FTTH) users and asked them about their current behavior. Those few North American consumers lucky enough to be offered direct fiber connections at the residence typically have between 30 and 1,000Mbps of private bandwidth capacity.

Part of this large broadband pipe is usually dedicated to fast Internet connections. A second portion is typically used for more robust television programming, including more channel choices, more video on demand and more high-definition television selections. A third part of the pipe is currently unused – available and waiting for new applications.

The survey found that most FTTH users very much appreciate the opportunity to purchase a triple play of services - voice, video, and data - from a single provider, with a single bill. Most users were quite satisfied with the service they received.

The availability of triple-play services over a high-bandwidth connection tangibly affects consumer purchase behavior. As one example, 15 percent of FTTH users purchased high-definition televisions specifically to take advantage of their high-bandwidth connections.

Consumers also said that the ability to upload and download large files quickly was an important benefit of a direct fiber connection. Since telecommuters often need to send and receive large files, we weren't surprised to find that FTTH users reported working from home more often.

Telecommuters told us they had increased their telework by an average of about one full day per month because of their fiber connections.

What's Next?

In a second survey of all types of broadband users, we asked respondents about their interest in 17 upcoming broadband applications. More than three quarters of them expressed interest in one or more futuristic applications, and about half expressed interest in five or more. (We described these applications very briefly, and most of the respondents had not been exposed to any other previous description or promotion. Typically, such exposure and promotion can be expected to increase users’ interest in applications.)

Consumers showed different levels of interest for different types of applications. Respondents were extremely interested in true digital convergence – the ability to switch between television, Internet, and phone communications with one remote control and one display screen. New information and communication applications rated most popular overall, followed by advanced entertainment options, such as niche television programs, and then by lifestyle uses such as face-to-face interaction with doctors and nurses from home.

Applications that involved user-generated content, such as personal television stations and advanced multiplayer gaming, appealed to the smallest group of respondents. However, even though the number of consumers interested in generating their own content was smaller, those who expressed interest appeared to be quite passionate about the possibilities.

Of the consumers we surveyed, those in younger age groups were most intensely interested in all types of applications. Age differences in interest levels were most pronounced for applications that let people do things in radically new ways – what we've termed the “lifestyle uses.” Still, there are indications that older Americans may adopt some of these lifestyle applications, especially if they decrease costs or increase convenience -- and if the technology is easy to use and helps people interact with each other.

For example, applications that use high-quality, two-way videoconferencing over high-speed broadband may help facilitate old-fashioned, face-to-face human contact.

Chickens and Eggs

Advanced broadband applications and advanced broadband pipes seem to present a chicken-or-egg dilemma. On the surface, it appears impossible for either the applications or the infrastructure to come into existence without the other. Without a very-high-bandwidth delivery system, there is no way to deliver advanced broadband applications. Without advanced broadband applications, who would want to invest in very-high-bandwidth delivery systems?

Fortunately, our study concludes that there is already enough market motivation for providers to install high-bandwidth delivery systems.

Incumbent telephone providers have determined that they need to deliver a triple play of voice, video and data to customers in order to compete with cable TV suppliers who are doing the same. Since the telephone companies’ existing infrastructure is usually insufficient to deliver such services, many of them are choosing to install high-bandwidth solutions such as fiber to the home. Some competitive providers have also determined that there is a market for high-quality triple-play services in areas that are currently underserved.

Eventually, advanced broadband applications will cause a second and even more profound inflection point in the rate of installation of very-high-bandwidth systems. Assuming that customers are interested in these applications, installation rates of very high-bandwidth pipes will increase.

It’s useful to draw an analogy to the early days of cable television. Initially, cable was installed as a way to extend the reach of the three broadcast television networks into rural areas. Since cable sometimes provided better quality signals, providers began installing cable even in areas where broadcast signals were available. Once there was a critical mass of cable customers, content providers could begin taking advantage of the cables’ carrying capacity, and they created scores of television channels that simply couldn’t be delivered via the airwaves.

In the same way, application developers today are carefully watching the growth of very-high-bandwidth services and connections, such as the fiber-to-the-home industry. Many of them are now saying that the time has come to develop and test new applications in order to stay in front of the coming wave. Some developers have a dual strategy: creating basic versions of applications for use on existing broadband connections, along with more advanced versions for very-high-bandwidth connections.

While fewer than 1 percent of North Americans currently have very high-bandwidth connections (primarily over direct fiber), the study predicts that about 10 percent will have such connections in a relatively short period of time.

In addition to direct fiber of nearly unlimited capacity, other systems will allow interim high-bandwidth solutions of up to 50Mbps by bringing fiber relatively close to residents and making the final hop via copper. 

Today about 1,000 geographically dispersed “fiber-connected communities” exist in the United States. Connecting these communities with each other, either through the public Internet or perhaps through a secondary, higher-capacity network, would create a large mass of potential customers with very-high-bandwidth capacity. This group might well be the critical mass needed to unleash a flood of new applications designed for high-speed networks.

About the Author

Michael Render is the president of RVA Market Research, the leading firm reviewing both the advanced broadband applications market and its primary delivery system: fiber-to-the-home. A review of the current annual study “Fiber-to-the-Home: Advanced Broadband 2006,” including a table of contents, is available at RVALLC.com. The 182-page full report analyzes interest in potential new applications in detail and reviews all facets of the fiber-to-the-home market.