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Where Did Internet Bandwidth Growth Go? Small and midsize businesses depend on the internet to communicate with customers, suppliers and employees. So where will it expand next? Nowhere.

By Paul Korzeniowski

Buoyed by the escalating popularity of social networking sites and the emergence of high-bandwidth applications, such as voice and video, the Internet has recently resembled a starving, voracious beast, chewing up additional bandwidth and demanding more. Yet, it seems that the Internet's seemingly insatiable appetite for bandwidth has been curbed.

According to market research firm TeleGeography, international Internet traffic grew 53% between mid-2007 and mid-2008. That's down from 61% the preceding year. Average traffic utilization decreased from 31% to 29%, while peak utilization fell from 44% to 43% in the same timeframe. In addition, Cogent, a multinational Internet service provider ranked as one of the top five networks in the world, saw its traffic decline for the first time ever during the summer.

So what's behind the changing numbers? One obvious cause is that every market has a ceiling. Internet growth has been increasing at dramatic rates, but no market can maintain double-digit growth in perpetuity. A slowdown had to come sooner or later.

A compounding force is the slowing growth rate of broadband services in the United States. In July, AT&T and Verizon saw demand for their broadband services ebb: Their customer bases increased by tens of thousands instead of hundreds of thousands. Comcast is still adding hundreds of thousands of new customers but at a lower rate than in the past. As broadband subscriber growth rates decrease, bandwidth requirements also will diminish.

The slowdown in the U.S. economy also may have played a role. The slumping numbers coincided with skyrocketing gas prices, when many consumers and businesses cut back on discretionary spending. While some of these items were expected, many observers had anticipated that any slowdowns would be offset by dramatic changes in network usage. With the advent of powerful new devices, mobile applications have become quite common. Employees on the road now funnel more complex files from their handheld devices to the corporate office.

Emerging applications also were expected to require more bandwidth. Nascent applications, such as video and peer-to-peer services, were expected to gobble up oodles of traffic. In fact, some observers had predicted that the YouTube phenomenon eventually would choke the Internet. That fear is one reason carriers such as Comcast have been experimenting with ways to throttle the volume of information that high-bandwidth-intensive customers chew up.

But the bump in consumption from these applications has been less than expected. According to Cogent, the video and social networking sites have exhibited only modest traffic growth recently. The social networking sites are much too popular to be termed a fad, but there clearly must have been some tire kickers, whose level of interest seems to be fading.

Watching video on the Internet is possible but still difficult for most users. The process often entails downloading special software, and the viewing experience is not as rich as a television. Consequently, the average person watches only a few minutes of Internet TV each day but is tied to the TV for hours each night.

The slowdown could affect small and midsize businesses in various ways. On the plus side, more WAN bandwidth will be available, so if a company was having trouble supporting a high-bandwidth application or two, it should find itself less constrained. Also, the carriers will need to look to new sources of revenue to maintain their revenue growth. They may decide to focus more on their business customers, who typically deliver higher profit margins than consumers do, and develop more services for them. Increasingly, the carriers and cable companies have been turning their attention to the small- and medium-business market.

On the downside, these companies may try to milk their business customers. The new services may be designed to squeeze a few more dollars out of these firms by delivering enhanced add-on features, which may come with significant price tags. As the Internet evolves, small and midsize businesses should not be surprised if they are not only able to transmit information more easily but also find their Internet access bills rising.

Paul Korzeniowski is a Sudbury, Mass.-based freelance writer who has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investor's Business Daily, Newsweek, and InformationWeek.

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