From the Chicago Tribune:

Those amusing YouTube video clips that Internet users send to friends gobble up large chunks of bandwidth and may cause the Net to crash, some elements of the telecom industry warn. It’s an admonition many dismiss as political posturing intended to dissuade lawmakers from restricting the freedom of phone companies to manage Internet traffic as they wish. But no one disagrees that the Web’s capacity is being pushed to its limits. (…)

The problem (…) is that traffic volumes are growing faster than computing power, meaning that engineers can no longer count on newer, faster computers to keep ahead of their capacity demands. A recent report from Deloitte Consulting raised the possibility that 2007 would see Internet demand exceed capacity. Worldwide, more users every day join the 1 billion people who now use the Internet. Popularity of bandwidth-hungry video makes far greater demands on the network than more basic applications like e-mail, Web browsing or even voice over the Internet. (…)

While the network was famously overbuilt during enthusiasm of the 1990s Internet bubble, much of that capacity is being used now or soon will be (…) and network operators are faced with making significant investment to expand capacity further to meet growing demands fueled largely by video applications.

The Deloitte report, along with comments earlier this month by a Google executive at a technology conference in Amsterdam about Web capacity problems, have been cited as examples why telecom companies shouldn’t face new regulations. Walter McCormick Jr., chief of US Telecom, the trade group representing dominant phone companies, wrote to lawmakers arguing that the need to manage capacity would be impeded if “network neutrality” legislation passes. Backed by several consumer groups as well as large Internet enterprises such as Google, network neutrality legislation forbids phone companies from managing the network to favor one Internet user’s content over another’s. (…)

Telecom executives focus on possible broadband capacity shortfalls because of their heritage, said David Isenberg, an independent industry analyst who once worked for the Bell System. “They want to manage the Internet as a scarce resource,” Isenberg said. “Internet executives want to manage it as an abundant resource. It’s a basic philosophical difference.” A major obstacle for telecom managers in planning future capacity needs is that much of the Web’s video traffic is generated by individuals who send clips to friends. This contrasts to the broadcast model, where one source sends the same program to many recipients, said Bill Kleinebecker, a senior consultant with Austin-based Technology Futures Inc.

While keeping ahead of bandwidth demand is challenging and expensive, it’s not impossible, said John Ryan, a senior vice-president at Level3 Communications, which operates part of the Internet backbone. “With appropriate continuing investment, the Internet is capable of handling any applications,” Ryan said. “What we’re starting to see is a distinction between those operators who have the capital to fund expansion and those that don’t.”

What it means: as many of you know, there’s a big debate in the US around Net Neutrality (here’s Google’s take on it). If you’re running a business that depends on the Web, you need to follow where this dossier is going as it might have major impacts on the way online businesses are run in the future. Here’s what my crystal ball is telling me: if the Net Neutrality bill is passed, we won’t see too much change as the market will dictate the future. If network operators are allowed to prioritize any content or services that travel across their pipes, we will first see the birth of Haves and Have-Nots (web site properties who can pay and those who can’t). This might stifle innovation for a while until Google/Yahoo/Microsoft partner to launch their own free version of the Internet (monetized using advertising). Think that’s crazy? Rumors have been circulating about Google building their own Internet…