"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 CIMI Corp., 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 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, Nolle said -- new technologies to help turn an increase in bandwidth consumption into an increase in ARPU. 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. Whatever they come up with will involve changing consumer behavior that has developed over the past decade. Consumers are used to getting a lot of things free of charge, and that just isn't sustainable.
"It will eliminate this notion that I have a right to a free everything," Nolle said. Advertising-based solutions, even ones that cut the carriers in, just can't support the infrastructure investments needed, he said. Instead, they have created a fundamentally unsound Internet economy.
"The only way this problem will get fixed is by creating services that people will pay for -- period!" he said. "The sooner we figure that out as an industry, the sooner we can put something together that is survivable."
Zimits was a little more generous about timing, but he essentially concurred that the free rides would end in due course.
"The business model will not be disrupted in the course of a year or two," he said. "They're working on the politics, working on different technical solutions, and looking for a path that will work."
It could be years before service providers fully develop a strategy, partly because of the regulatory component, Zimits said. Existing revenues can tide carriers over until then, and service providers might find that some former enemies could become friends.
"At some point, the Googles of the world could use ... a metered bandwidth to their advantage," he said. "They can afford to pay for that. Google could pay a small premium to a carrier to get preferred carriage for [its] services and lock out competition."
And even if the transition does occur as a knock-down, drag-out fight between content providers and service providers, the transition might not be as violent as one might think, particularly given the harsh words executives from the major players have traded in the past.
There are some signs that such a collaboration is already quietly taking place, such as the colocation partnerships Google has established with various providers.
"All the capex that's been laid for the past decade is paying good dividends right now," said Frank Bernhard, a technology economist with OMNI Consulting Group. "The economic policies will start to dictate how service providers and content providers and users interact with each other."
Given the complexity and cost of adding additional OSS and BSS support for charging users on a per-site basis, Bernhard predicted the financial onus would eventually fall back on the content providers like Google and Hulu, or carriers might revisit the bandwidth capping that Time Warner Cable tried.
"Certain operators, like AT&T and Comcast, have piloted safe filtering subscriptions," Bernhard pointed out. Shifting from "safe filtering" to content blocking of sites unwilling to pay for carriage was as simple as switching blacklists. "It's easy to say you can't get to Hulu on this network."