The positive outlook for broadband access contrasts sharply with general telecom industry malaise. True, recent price hikes and a slumping economy have moderated broadband growth rates. But economic conditions will improve, and average prices should decline when supply soon catches pent-up broadband demand. As tiered services with various performance levels become widely available, price sensitive customers will have more options. Even in the face of a poor economy, demand for broadband access remains fairly strong. With anticipated technical advances and new applications for mass-market consumers, robust growth can continue through 2005 and beyond.

Desire for speedy Internet access is fueling initial sales. More than half of U.S. households are now online. Many Internet users are frustrated waiting for web pages or files to download. As web pages increasingly employ complex graphics, the problem is worsening. The rapid upgrade to 56 kbps modems demonstrated substantial consumer demand for faster access.

However, not all Internet households are willing to more than double their monthly outlays to get speedy broadband access. E-mail and interactive chatting, the current mass-market applications, work just fine with plodding dial-up modems. Enthusiasts spending several hours each week surfing the net and households with business applications are the best residential broadband prospects. Age and household income largely determine the propensity to purchase broadband access.

Commercial establishments are substantially contributing to overall demand for broadband access. Although major business sites often have high-speed access via traditional data communications facilities, newer technologies are bringing affordable broadband connections to smaller businesses and branch offices. And booming electronic commerce is spurring demand for broadband access among businesses of all sizes.

Computing intensive firms and residential early adopters are generating sufficient demand to warrant deploying new broadband technologies. As volume builds and competition among service providers intensifies, costs will decline. At lower price points, more households and small business establishments will find buying broadband attractive. Eventually, subscriber bases will reach levels that merit developing new broadband applications capable of attracting the mass market. In a virtuous circle, additional subscribers will attract yet more application developers.

Consequently, spending on broadband subscription and installation fees is predicted to continue rising rapidly from $6.3 billion in 2001 to $21 billion by 2005 (see figure 1a). Cumulative revenues during this five-year period are projected to exceed $68 billion. Consumers are expected to account for about three quarters of this total, with companies contributing the remainder.

Cable-modem services got big head starts in the consumer market. Standards for broadband cable equipment are comparatively advanced. Speedy data access services provide substantial incremental revenue streams for cable operators, and the requisite network upgrades also support advanced video services. Although the struggles of consortia operating cable-modem networks present significant near-term challenges, cable operators are expected to maintain residential market leadership through 2005.

Digital-subscriber-line (DSL) services, now widely available from incumbent local exchange carriers (ILECs), have gained market share among consumers. However, DSL equipment is costly to deploy and negatively impacts incumbents’ lucrative offerings of extra phone lines as well as their near-term operating margins. Regulatory handicaps and patchwork availability stemming from inconsistent phone lines also temper ILECs enthusiasm. Consequently, DSL subscription levels among consumers aren’t likely to match those for cable-modems in the next few years.

On the other hand, DSL services have distinct advantages in the business market. Cable facilities don't extend to many commercial districts. And DSL technologies can deliver the guaranteed bandwidth in both directions required by many firms. But most ILECs, fearing cannibalization of traditional access services, only reluctantly promote relatively inexpensive DSL services to businesses. Failures among leading competitive local exchange carriers (CLECs) substantially lessened pressures from rivals, further reducing ILECs incentives to aggressively market commercial DSL services. Nonetheless, such services are now widely available, and affordable DSL services expand the overall market by attracting smaller sites unable to justify traditional data connections. DSL services for commercial enterprises will likely maintain steady growth, and ILECs are expected to dominate the market for broadband services among businesses.

Data-oriented CLECs pioneered the use of DSL technologies to serve businesses. However, these companies relied on leasing phone lines and space in central offices from competing ILECs. Despite favorable rulings from regulators, profit margins were slim and uncooperative ILECs successfully delayed deployments and frustrated prompt deliveries of services to customers. When easy financing evaporated, leading data-oriented CLECs were forced into bankruptcy. Some CLECs still provide services, but marketing efforts were sharply curtailed and coverage areas constricted.

Other CLECs used fixed-wireless technologies to target businesses in metropolitan areas. These upstarts competed directly with the ILECs' traditional access services by offering comparable capacities and features at significant discounts. Wireless links were used to reach customers' buildings, completely bypassing the ILECs' loops. Somewhat lower wireless prices made broadband access affordable for smaller establishments, and large offices were interested in wireless as a local-loop backup.

Despite impressive sales growth, immature technologies, overly ambitious expansion plans and heavy debts forced the leading fixed-wireless companies into bankruptcy. While fixed-wireless operations continue on a smaller scale, neither these pioneers nor predecessor companies acquiring their assets are likely to capture a substantial market share. Not only are financing options severely limited, but considerable momentum and customer credibility have also been lost.

However, newer wireless approaches using lower frequencies still hold promise. Sprint and WorldCom are building long-range systems capable of reaching households and small businesses not served by cable modems and DSL. With substantial financial assets and well-regarded brands, these companies have the potential to become significant fixed-wireless players. Although initial deployments demonstrated significant customer acceptance, Sprint’s marketing efforts were recently suspended pending the availability of more economical equipment and WorldCom’s rollout has been tepid. If the next generation of equipment, due in 2002, performs as promised, solid growth should resume. However, late coming fixed-wireless systems aren’t likely to seriously challenge cable-modem and DSL services.

The next generation of cellular networks will have sufficient capacity to offer residential broadband services, and cellular operators can market to their huge subscriber bases. However, mobile data services will mainly complement, rather than supplant, broadband services in fixed locations. Altogether, wireless services are expected to capture a relatively small portion of broadband subscribers during the next several years.

Like terrestrial wireless systems, satellites transmit data via microwaves. However, the orbital vantage points of satellites essentially eliminate line-of-sight constraints faced nearer the ground. Although tall buildings block access in portions of urban areas, satellite providers typically offer services throughout the continental U.S.

Satellite system costs generally prohibit directly competing with DSL and cable-modem services. Not only are the up-front expenses of building and launching satellites daunting, but also relatively costly end-user terminals necessitate heavy operator subsidies.

Consequently, the primary target market comprises households and businesses not served by terrestrial alternatives. This includes pockets in metropolitan areas as well as many rural and most remote locations. Offering broadband to those without alternatives lets satellite operators charge somewhat more. This un-served segment is presently substantial, but providers of ground-based services are rapidly expanding coverage areas, narrowing the potential market for pricey satellite services.

Although a couple of operators have begun offering two-way services with moderate data rates using interim technologies and existing satellites, systems specifically designed for broadband aren’t yet ready. Satellites currently in use have limited capacities, and systems capable of serving large numbers of subscribers won’t be fully operational until 2003.

Relatively simple, cost-effective systems, early availability and effective distribution will be key factors determining which of the many potential entrants succeed. Satellite TV providers marketing broadband access can leverage sizable customer bases and extensive distribution channels. Most aspirants will be weeded out in the financial markets, rather than the broadband services arena.

In addition to offering extensive geographic coverage, satellite operators can use unique multicasting capabilities to boost revenues and secure customer loyalty. Satellite systems might link communities of interest spread across the country. By drawing from a nationwide audience, multicasting could make niche programming economically viable. Audiences with specialized interests are often intensely loyal.

Popular applications requiring speedy connections are essential for sustained growth in the broadband access market. Although some potential applications can be implemented immediately, others require a critical mass of broadband users. As demand among early adopters is satisfied, developing applications with mass-market appeal becomes essential.

Home-based workers, including corporate telecommuters, are prominent among early adopters. Broadband access facilitates telecommuting by giving remote users access to corporate local-area networks (LANs) at speeds comparable to those enjoyed by their cohorts at the main offices. Large companies can more easily pay for broadband access before increased competition lowers prices.

Online shopping is fast becoming a huge application with important benefits for both consumers and merchants. Broadband access greatly enhances the display of many products by quickly delivering sophisticated graphics. Attractive images of cars, clothing or vacation resorts can be instrumental in making sales. However, few consumers are expected to acquire broadband access mainly for online shopping.

However, revenues from Internet transactions among businesses dwarf online sales to consumers. New broadband access methods spur business-to-business electronic commerce by replacing more costly facilities, such as T-1 lines. Moreover, lower broadband prices encourage smaller businesses to develop online operations. Electronic transactions are expected to be important commercial market drivers.

Broadband access significantly enhances the effectiveness of online education. With speedy connections, remotely located students can watch instructors and enter material on virtual blackboards for simultaneous viewing by all participants. Corporate training is an important early educational use of broadband facilities.

Entertainment applications have considerable potential for attracting mass-market consumers. Such diversions as adult sites, interactive gaming and gambling are already boosting demand for broadband access. Not only are entertainment applications generally graphics intensive, but they also often benefit from the real-time interactions broadband links potentially enable. Eventually broadband access promises to greatly expand Internet broadcasting. Audio is substantially improved, and fast connections are essential for transmitting video of decent quality. The always-on feature of broadband connections also facilitates broadcast applications.

Two-way communication applications will most likely propel broadband into mass-market acceptance. Just as e-mail is the vital narrowband Internet application, enhanced multimedia messaging will probably be the killer application for broadband. Initially, text messages will be augmented with voice and still images. In the longer term, broadband access is paving the way for long-anticipated personal videoconferencing. Although advanced networking capabilities must also be developed, widely available speedy access links greatly enhance prospects for this next logical step in the evolution of Internet communication capabilities.

However, broadband voice technologies are immature, and failures among data-oriented CLECs championing voice over DSL sharply reduced R&D investments. Although ILECs have much less interest, they are considering deploying voice over DSL to alleviate copper loop shortages in some areas. As IXCs and surviving CLECs begin using voice over DSL to offer cut-rate deals to businesses, ILECs may be prodded to respond in kind.

Cable operators are keenly interested in adding telephony capabilities to cable-modem offerings. With voice connections to customers' homes, they can offer discounted long-distance services as well as extra local phone lines. Initially, residential customers are likely to retain primary analog phone lines for emergencies. As reliability improves and customers gain confidence, cable companies will begin vying for basic local phone services.

But the technology for providing packet voice services via broadband cable facilities isn’t yet ready for commercial deployment. Although cable modems and head-end gear based on new standards that facilitate voice services will be probably available from several vendors in the first half of 2002, related soft switches for economically routing packet calls won’t likely be ready. And affordable systems for providing back-up power are also needed.

Meanwhile, two major cable operators are offering voice services over cable with traditional circuit switches. This initiative demonstrates that cable companies can successfully market phone services, but the potential cost advantages of end-to-end packet voice transmissions aren’t being realized. AT&T is the main champion of circuit-switched voice over cable, and the pending divestiture of its cable unit may slow this approach. Most operators are waiting for more cost-effective, packet-switched telephony.

Whether provided over DSL, cable or wireless facilities, broadband voice services have important implications for the telephony business. Effects will be felt across the industry. Alternative connections to customers via broadband links will gradually erode local-loop monopolies. Voice over broadband also promises to further boost long-distance competition.

A key broadband attraction for service providers is the opportunity to enhance customer control by bundling Internet access with local and long-distance phone services. Cable operators and some wireless firms have the added prospect of bundling video services.

Not only do cable operators gain substantial revenues by providing data services, but they can also use broadband links to compete for local-phone services. Eventually, broadcast-TV providers and video-rental companies will be affected as more broadband subscribers begin receiving streaming video.

Internet service providers (ISPs) failing to adopt broadband technologies risk losing millions of their best customers. On the other hand, broadband access offers ISPs a chance to improve margins. Many ISPs are pioneering the new technologies.

Cellular companies see broadband data as a way of sustaining growth. Although the mobile voice business is maturing, wireless data applications are just emerging. Moreover, data revenues are needed to help recoup the enormous investments required to field third-generation cellular systems.

Broadband access presents a huge new market for suppliers of computers and software. Vendors of voice and data-communications equipment must catch the broadband wave or see their market positions erode. Since broadband entails a significant paradigm shift, innovative suppliers can gain substantial market shares. Content providers will get substantial new distribution opportunities.

Perhaps most importantly, broadband access paves the way for personal videoconferencing. This nascent service promises to eventually generate more revenues than the huge telephony business. Service providers and equipment suppliers winning the broadband battle will be well placed for videoconferencing success.

Focusing on the U.S market for emerging broadband services, this report reveals technologies, business models and market trends that have important implications for service providers and suppliers abroad as well as domestic industry participants. Insights gained from studying the relatively advanced U.S. market can be applied elsewhere.

To provide an accurate picture of the competitive dynamics and market development, all the important new broadband technologies are covered in depth. The strengths and limitations of each technology are considered. Specific market segments best served by various access methods are identified.

Detailed, forecasts through 2005 include services based on cable modems, DSL, satellites and fixed-wireless systems using several frequency bands. The broadband outlook for third-generation cellular is assessed. Implications for traditional telephony and data services are discussed. Business and consumer markets are separately analyzed and forecast. Projected market shares for broadband technologies are provided for commercial and residential markets. This comprehensive approach is essential for understanding overall market positions and trends. For instance, DSL services are widely available businesses as well as households while cable-modem offerings mainly apply to households.

Combined analyses also highlight interactions between business and consumer markets. After all, low consumer prices put downward pressure on business pricing. Security and guaranteed-bandwidth features developed for businesses will likely filter into the residential market. And infrastructures initially built to provide high-margin, business services may later serve consumers as well.

Forecast models incorporate in-depth analyses of potential subscribers in both residential and commercial markets. Age and income are shown to be key indicators of consumer demand. Penetration is separately considered for all age and income categories. Overall residential forecasts are derived from modeling demographic demand as well as the availability and anticipated pricing of broadband services.

Commercial markets are also carefully segmented. Establishment size and computer usage are among the key variables considered. Broadband penetration is separately calculated for several categories based on establishment size. Projections of business demand incorporate data concerning computer usage in various industries. Growth in optical-fiber connections is predicted and the consequent impact on demand for alternative technologies is evaluated.

The market potential among multi-tenant buildings is described for both consumer and business segments. Multi-tenant buildings provide economically attractive customer concentrations. Separate consideration of commercial and residential multi-tenant buildings reveals unique market dynamics and regulatory considerations.

Preparation of this comprehensive market study involved in-depth, primary interviews with dozens of key industry participants. Contacts included a broad range of equipment suppliers, regulators, service providers and customers. In addition, expert analysts spent hundreds of hours reviewing regulatory filings, corporate financial documents, product literature, and relevant web sites. Statistics from extensive AIS databases on wireless, wireline and Internet markets were incorporated. Appropriate consumer demographics and business profiles were developed using authoritative sources.

These data were used in conducting rigorous analyses of market potentials, relative economics, competitive dynamics and technology trends. The resultant analyses and forecasts provide an informed, objective assessment of the prospects for new broadband technologies and services. Since industry participants with vested interests didn’t sponsor this research, the projections present a realistic, unbiased view of the broadband market's likely development.