Gigabit is also aiding in a shift of market power to the demand side and away from legacy telephone and cable companies that supply megabit class service – often in the single digit Mbs range in the case of telcos -- over “last mile” metal wire or cable to customer premises. The limitations of this infrastructure versus fiber optic lines easily capable of delivering gigabit class service have led telephone and cable companies to ration bandwidth, selling it in various “bandwidth by the bucket” consumption tiers like electricity or natural gas. Gigabit over fiber to the premise will obsolete that business model at the same time premise bandwidth demand continues to rapidly accelerate. Drivers include more and higher definition video streams, multiple devices in the home and emerging Internet-enabled home services. Also, more knowledge workers working at home at least part of the work week.
Gigabit over premises fiber service will also obsolete the legacy telcos and cablecos themselves, burdened with decades-old twisted pair and coax cable infrastructure as well as high debt and shareholder dividend obligations. That will give advantage to agile and financially creative overbuilders connecting premises with fiber service.
Since telecommunications infrastructure is a natural monopoly, once fiber first movers have established a substantial market presence, the economics of challenging them with parallel infrastructure become very difficult. This same dynamic has historically deterred those who would overbuild the incumbent telcos and cablecos. But the shift toward gigabit class service delivered over fiber could reverse the advantage of incumbency the legacy telephone and cable companies have enjoyed for more than a decade.
The first mover advantage would be particularly high in parts of incumbent telephone and cable company service territories where the incumbents don’t offer landline Internet connections or very slow ones such as first generation DSL.