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espaeth
Digital Plumber
Premium,MVM
join:2001-04-21
Minneapolis, MN
kudos:2
Reviews:
·Vitelity VOIP

Increasing prices creates a market for competition

The key limiting factor that prevents upstarts from entering a market and providing ISP services is money. The existing LECs and Cable Cos already have infrastructure deployed under self supporting business models with Cable TV and Telephone service; internet access is just an add-on service. Any new player to the market has to start from scratch and deploy the access infrastructure and provide the service.

If the incumbent providers want to keep raising prices, eventually it becomes cost effective for others to build out their own network access to compete.

FFH
Premium
join:2002-03-03
Tavistock NJ
kudos:5

1 recommendation

Service Industry costs are people costs

What Karl neglects to mention in his claim that hardware costs are decreasing and bandwidth costs are decreasing is that other costs are rising. Content costs are rising and customer service & install & repair people(and their healthcare) costs are rising and as service industry companies(cable and telco), that is their major costs.

So, rising costs have to be paid for SOMEHOW. And how they do it will make or break them. But, THAT IS THEIR DECISION. And the gov't shouldn't step in just because some people want everything to cost less.
--
My BLOG .. .. Internet News .. .. My Web Page

Thislilfishy

join:2008-10-28
Orangeville, ON
kudos:1

Re: Service Industry costs are people costs

said by FFH:

What Karl neglects to mention in his claim that hardware costs are decreasing and bandwidth costs are decreasing is that other costs are rising. Content costs are rising and customer service & install & repair people(and their healthcare) costs are rising and as service industry companies(cable and telco), that is their major costs.

So, rising costs have to be paid for SOMEHOW. And how they do it will make or break them. But, THAT IS THEIR DECISION. And the gov't shouldn't step in just because some people want everything to cost less.
Somewhat true, except an ISP should NEVER be allowed to be a content provider, secondly, content should be self supporting and not rely on profits from an outside source.

Customer support is getting less expensive as they ship that source out of country to the third world. Actual techs are mostly outsourced to sub-contractors that bid on the right to be sub-contractors, and Rogers for one sets the price that those contractors can charge. So I'd say at best that cost has stayed level....perhaps a slight increase over the last few years...but that would be a very slight increase. Many of those 'techs' are taking home close to minimum wage once you calculate the number of hours they work (I was one, so I know this to be fact). There are in fact very few in house ROGERS employees, and they are very well compensated for the most part. However I think the number of actual employees has dwindled over the years...this is just guess work, but I believe if we look at a subscriber to employee comparison we'd see a dramatic increase in that ratio over the last 15 years.

I am not a hater of Rogers, but I feel their fee's of late have been criminal and mirroring Bell in disdain for customers, as what choice do those customers have? Buy bell tv/internet or buy Rogers tv/internet. Pretty much that's your choice. Being smart business men, they've raked in millions in profits weekly....becuase without competition you set your price and the customers like it or lump it.

I don't pay for tv anymore, as close to $100/month for the few channels I actually wanted was not justifiable. Also, I use an independant ISP, but at the end of the day most of my money ends in Bell's pocket. I've not had a raise in 4 years, but still my cel phone, internet and tv rates have increased almost exponentially every year.

Ian
rahvin112

join:2002-05-24
Sandy, UT

1 recommendation

Re: Service Industry costs are people costs

said by Thislilfishy:

Somewhat true, except an ISP should NEVER be allowed to be a content provider, secondly, content should be self supporting and not rely on profits from an outside source.
I agree with your first point. Allowing the providers to own the content is a huge mistake. We used to prevent that, we used to refuse to allow the providers to get to big or to control to much area because we had that situation once and he made himself very wealthy and abused his position in just about every manner you could imagine while kicking the ordinary citizen in the nuts at every opportunity. Then we went through a political shift and forgot all these past abuses and certain groups proclaimed that the only solution is to deregulate, deregulate, deregulate. Waive the restrictions, allow Ma Bell to reform and allow the cable companies to consolidate to a single company. Then allow the providers to buy all the content. What's happened? Prices have gone through the roof, Disney forces the entire country to buy 20-30 channels of pure garbage at $0.25-1.00 per channel to get 2 key channels.

The only solution to the problem is to force unbundling of content and fixed prices for all purchasers. Force Disney to sell each channel individually, force them to charge every provider the same price regardless of size, customers or relationship or existence of a contract. Once the provider can only buy the channels they want, they aren't forced to bundle channels together, they aren't forced to put the channel in a certain package and the providers only have to pay for those subscribers that want the channel (rather than charging it for everyone) and finally do away with the multiple outlet charge, once all that occurs the prices will level off except for inflation.

The reason prices are going up a double to triple inflation right now is the content companies have the service providers between a rock and hard place. You can't get ESPN for the rabid sports addicts without buying every channel in Disney's line up and paying for every subscriber to have the channels whether they want them or not. Break those requirements and cable prices will level off to near inflationary levels. Not only that but it would give the providers the option of ditching expensive channels on certain packages for people that don't want them. I don't watch ESPN, and I know my provider pays more for it than any other channel on the TV. I also know because of Disney's blackmail I pay for that channel regardless whether I want it or not.

The content providers are by definition a monopoly because no one can rebroadcast their content. For that reason Congress should enact rules that level the play ground for the service providers. Force fair pricing, level playing fields and alacart purchasing by the service providers and prices will level off.
jjeffeory

join:2002-12-04
USA

1 edit
Where are the customer service and install/repair people's raises? Healthcare costs look like they're being offloaded onto the employee. Content costs are rising, but then again, ISPs should be dumb pipes, so that shouldn't really have an effect on them. I know that ISPs are changing that ( Comcast/NBC Universal merger), but my opinion is that they shouldn't be permitted to do so... Too much vertical integration opens the door to even more monopolistic behavior.

HappyAnarchy

@iauq.com
I would believe this if they weren't posting record profits. Profits are the amount you are making after taking out expenses. This means that they are making more money than ever before, which would imply that either costs are going down, or at the very least they are raising the rates faster than the costs are going up.

This is not something I disagree with in principle.

In practice, the way they are doing this is by cutting on investing for expanding their service, trying to offer less service for more price and in general cutting costs and raising rates.

In a healthy capitalist economy, this is prevented by competition. A company that raises costs and provides less value is quickly shown the error of its way. Unfortunately, across the board that hasn't happened in this industry, due to duoopolies and cooperation in raising rates and providing less service.

This is not healthy competition, and this is not good for the country, or the industry. It is great if you are a day trader however.
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KrK
Heavy Artillery For The Little Guy
Premium
join:2000-01-17
Tulsa, OK
Content costs are decreasing for all but TV and music rights, and they already sell those in their new TV plans. The costs of maintenance and employees and overhead naturally figures into pricing; However this kind of draconian new pricing model is way out of line with costs. It's driven by the same unrealistic expectations that stock value and profits must keep increasing by double digits year in, year out.

Because the market simply isn't competitive enough, we have to either pay the increases or do without.... but it's starting to break the back of the American consumer. Government regulations may end up being the ONLY options available to curb the abuse.
--
"Fascism should more properly be called corporatism because it is the merger of state and corporate power." -- Benito Mussolini
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Ignite
Premium,VIP
join:2004-03-18
UK
Reviews:
·PlusNet
said by FFH:

What Karl neglects to mention in his claim that hardware costs are decreasing and bandwidth costs are decreasing is that other costs are rising. Content costs are rising and customer service & install & repair people(and their healthcare) costs are rising and as service industry companies(cable and telco), that is their major costs.

So, rising costs have to be paid for SOMEHOW. And how they do it will make or break them. But, THAT IS THEIR DECISION. And the gov't shouldn't step in just because some people want everything to cost less.
Those rising costs are essentially fixed or irrelevant to HSI service so I'm not sure of the point here. It's not about things needing to cost less. ISPs can simply increase fixed costs.

If bandwidth and hardware costs are lowering why level charges based on bandwidth and hardware, why not increase the fixed cost of the product given that CS, install and repair costs are going to be fixed across the entire base?
kaila

join:2000-10-11
Lincolnshire, IL
People costs can be controlled pretty easily with cuts in labor, wages, and benefits. It's pretty clear that Rodgers is using their marketplace advantage to influence customer behavior while raise profits. There really is no other reason for it.
--
Jeff Howe
Jeff's Blog - »www.ostjournal.net

DSLInstaller

@covad.net

Re: Increasing prices creates a market for competition

Not so...In cases like this what the ILEC's will do is reduce the prices in the area where the "competitor is trying to launch his service at dirt cheap prices until they drive this new market player out of business and then raise the price again.
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McMadeye

@rogers.com
It's not only the infrastructure deployment costs. Others have tried entering the market here in Canada and have met harsh anti-competitive tactics. When a firm started to offer a cheaper and better service to some apartment buildings in BC the local cable provider cut their tv/internet/phone rates by up to %90, but only to the customers who had the option of switching. Similar situation happened in Ontario.

If you were going to start an internet company, and knew the local cable company will drop their rates from $54.99/month to $10/month once you showed up in order to insure you dont have any customers.. how would your business model work?
MaynardKrebs
Heave Steve, for the good of the country
Premium
join:2009-06-17
kudos:4
said by espaeth:

The key limiting factor that prevents upstarts from entering a market and providing ISP services is money. The existing LECs and Cable Cos already have infrastructure deployed under self supporting business models with Cable TV and Telephone service; internet access is just an add-on service. Any new player to the market has to start from scratch and deploy the access infrastructure and provide the service.

If the incumbent providers want to keep raising prices, eventually it becomes cost effective for others to build out their own network access to compete.

You quite correctly point out that the incumbents have structural cost advantages - several existing business lines, and in many cases fully amortized infrastructure (or largely so - especially the outside cable).

Any new player would be able to buy better/faster/cheaper hardware - but then again so can the incumbents. The incumbents can probably get bigger discounts on the gear and fiber than a new competitor simply as a result of volume purchases and a desire by their suppliers to keep their business.

So the new guys invest all this money and build-out their network for a while and then the incumbents use their cost and triple/quadruple-play advantages to selectively lower prices to undercut the new guys. Seen this before in places like Vancouver with Shaw Cable and the upstart Novus www.novusnow.ca

The incumbents can keep the pricing pressure on far longer than most upstarts can remain financially viable. Later when the upstart goes bust, the incumbent buys the assets for pennies on the dollar.