Inside SBC's $15 DSL Deal > Are they really losing money?

Are they really losing money?

Yeah that's called a fixed cost. Problem is adding a DSL sub does cost money.

You have to pay for the modem as SBC does not charge for this. Then you know tech support calls are going to go up when you tack on customers. Then what if a DSLAM runs out of ports and antohter has to be added. Also maybe a tech will have to condition the line. These are all examples of variable costs.

Yeah but those are still incremental costs. $15/ subs aren't the ones that pay 100% of the DSLAM costs, or tech support costs.

The question again is what does it cost to add 1 more subscriber? The cost of the modem sure. But the tech center is already manned and established. The DSLAM is already installed and the addition of another is shared by all subscribers on the DSLAM, just not the new $15/ one.

You already have the DSLAM, you already have a call center, the orders are placed electronically...and how much is a modem? How much does it cost to provision a line.

It goes back to the airline analogy. It doesn't cost that much more to fly a full plane than a 1/2 full plane. To add one more passenger doesn't cost nearly as much as the 1st passenger did.
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Life is good without the headache of Comcrap HSI

The internet access business is cyclical in many ways. The most prominent cycle in a growth stage, like DSL is in, is a cycle of "build capacity->sell capacity until it is used->build capacity->sell capacity until used->etc" The cost of adding that "1 more subscriber" depends on where you are in the cycle. If you have just added a bunch of ports and backbone stuff, then actually NOT adding 1 more subscriber will cost you money, because you are paying for unused capacity and your margin per customer is hurt by that. IF you are at the top of the "capacity used" part of the cycle, then adding that one more customer can cost you one hell of a lot of money. They don't sell DSLAM's and OC3's and stuff in one user increments!
SO in order to add that "1 more subscriber" to a CO may cost you tens, or even hundreds of thousands of dollars, not to mention that now you have a ton of unused ports and capacity laying around and you are going to have to shell out megabucks for the advertising/marketing and the labor and cost of setting up however many thousand customers you need to add to (maybe someday, hopefully?) pay for the gear you added because you were out of ports and had to add "1 more subscriber."
I know this doesn't happen to the bells but there have been several times in the last 10 years when we completely stopped adding people for a while, actually telling interested prospects that we aren't selling new accounts right now, just to avoid adding "1 more subscriber" - because that puts you right in a cash flow hole. The way SBC is doing it, they just keep digging that hole deeper and deeper and deeper. They think that they can get Wall Street to finance their upside down business, and they may be right since they have a monopoly on the telephone network again and those Wall Street guys LOVE a monopoly.

- IP

reply to k_mumm
... and let's not forget the money it costs to acquire the customer too. That cost is the advertisemnet spent over the net gain of customers divided by the profit generated to break even.

There are SOOOOOO much in cost and overhead that non-business savvy people consider when coming up with how much it costs for a service.

That .01 cent cost to deliver the $5.00 service? Part of that pays the power bills, rent, insurance, taxes, advertisement, vehicle feets, repairs, law suits (justified or not, you have to defend yourself when called to court) support contracts, travel expenses, training, you name it.. this is why companies look for low cost to provide services and slap a fee on them.

Again, we only care what we pay.