John Q. Computer Doesn't Want Broadband? → Welcome To The Real World

In the real world people aren't going to pay forty dollars a month a more just because something is there. They aren't going to pay $40/month to read email 4 or 5 hours a week. They aren't going to suddenly spend twenty hours a week online because it's there. They aren't going to subscribe even to lower cost services when they don't don't understand self-installs and line filters and/or scheduling appts. with the cable company to come over.

There is a group who will pay. There is an even larger group who won't. If they could offer say 128/128 service for $20/month then more would subscribe but not nearly everyone. If all computers came with the appropriate hardware built-in like analog modems are then more would subscribe if all they had to do was plug-in and sign-up. But still not everyone would.

Broadband is not for everyone. Stick your heads out into the real world and see what's going on. Just because you and I are willing to pay for it doesn't mean everyone else is.

said by LifeAintCheap:

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...If they could offer say 128/128 service for $20/month then more would subscribe...

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You're the second person to mention this and while I've never thought of it, it does sound good to customers. Problem is, I don't think there's any advantage to the providers to offer it. Their existing infrastructure is based on, for example, 1536/384k service (using Covad ADSL as my example). Customers who sign up for 608/128k service use the same equipment as 1536/384k customers... I imagine the same may occur with lower 'grades' of service...

You could try and factor in outside costs (money ISPs pay to their backbone providers), but that assumes that a user A with twice the speed as user B actually downloads twice the data. I don't think that is always the case. It's just that user A does it half the time. Bandwidth is charged by the MB, not time.

said by Hall:

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said by LifeAintCheap:

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...If they could offer say 128/128 service for $20/month then more would subscribe...

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You're the second person to mention this and while I've never thought of it, it does sound good to customers. Problem is, I don't think there's any advantage to the providers to offer it.

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That's an example I've used in the past to indicate the need for competitive pricing with dialup to achieve true saturation but you are correct. At least in the DSL world it would not be a money maker and most likely a loser since line costs eat up the bulk of the cost. @ $25/month there would be no money left for the ISP after paying the telco. I have no idea what cable costs are, real costs. Maybe they could pull it off as an value added service to tv services.

I agree with the thrust of the post though. I've said in the past that I know may people who just aren't going to spend that much for a service they use a couple of hours a week. If broadband service could be offered at dialup prices then I'm sure there would be an infusion of new users and the ISPs could offer different pricing on different throughput rates to encourage power users to spend more on higher priced higher speed circuits.

Exactly. The current broadband pricing model is fraudulent. Paying for the capability of a certain amount of bits per second assumes that the back end network is capable of supporting all users using all of their capability at all times. All broadband providers have oversubscribed backend networks. Capping user's bandwidth only means they will contend with other users for a longer period of time. The only multiple tiered pricing model that would make sense would be $ per bit transferred. Even that wouldn't help the providers as the back end network is only a percentage of the cost.

That's basically what ISDN did, at least here. You paid for the traffic you sent, amongst other charges.

said by billsweat:

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All broadband providers have oversubscribed backend networks. Capping user's bandwidth only means they will contend with other users for a longer period of time. The only multiple tiered pricing model that would make sense would be $ per bit transferred. Even that wouldn't help the providers as the back end network is only a percentage of the cost.

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This analysis doesn't work once you've grown your customer base beyond the barest minimum.

After you've built a network of more than a few hundred users, all that matters in terms of back end network capacity is average and flash-crowd utilization levels (measured at the daily peak hour). So long as you have enough to handle a flash crowd (given historical rates of demand and currently-available applications), there is utterly no point in upgrading beyond that.

In every case so far, attempts to impose a tiered pricing model have failed utterly. That's because the back-end network costs a lot less than the last-mile network, so in general they are over-built. The cost of billing and metering multiple tiers outweighs any benefit to the provider.

Statements otherwise are generally just PR BS intended to squeeze dollars out of more people.

I speak from experience, by the way, long-timers here know that I have managed regional networks and have had to plan out and cost-justify them.

Over time, we have seen dialup services offer more hours free per month; we've seen business T1s go from fractional or metered service to full unmetered service; we've seen cellular companies offer more minutes free per month; we've seen a trend toward eliminating per-minute charges for long-distance service.

Too cheap to meter is my mantra, when it comes to a commodity like "bandwidth".

Too cheap to meter is my mantra, when it comes to a commodity like "bandwidth".

For another example, look no further than Enron Broadband. They were betting that a market would emerge for bandwidth trading. I argued (here on DSLR) that a commodity market only works if there is a long-term balance between supply and demand. Bandwidth can be infinitely expanded by the market participants.

Enron learned that the hard way, when it turned out that the deep-pockets market participants had no interest in buying from one another the way oil, gas, and electricity are traded.

They bet wrong, in a big way, fooling themselves. How else can one explain the implosion of a top-10 global company?

said by richb01803:

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How else can one explain the implosion of a top-10 global company?

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Actually, at least according to reports, anyway, Enron was doing ok in the trading market (Of Energy, but not broadband.) What wrecked the company (and can wreck any company) was gross mis-management, apparently.... perhaps even criminally so. When the shannagins began being revealed to the public, the confidence in the stock value was shaken--- stock value is largely based on perception... scare investors and stockholders a few too many times, and they lose faith in you and start dumping... in less then two months Enron's stocks plunged from high prices to practically nothing. Stock value = company value. Plunging stock prices cause a liquidity crisis and wrecks your credit rating--- and without that you simply can not remain in business, even if you have a lot of physical assets.

The "Dot-com" tech fallout was much the same. Seemingly virtually overnight investors went from confidence in the future to fear and panic and "Show us the money NOW". While many companies were indeed questionable business models, plenty of other companies that were on track and just needed time to come to fruition were dragged down in the melee as everyone fled the market in droves.

Perception is reality... perceived value can make you, and it can break you... and it can do it virtually overnight.

But every company makes management mistakes. If the core business is healthy, then there is enough resilience in the business to keep going despite those mistakes.

Fraud is another story; some Enron managers are accused of fraud.

But if a profitable bandwidth business had emerged, then there would be a buyer out there who wants to buy that portion of the business even if the fraudulent managers wound up in jail.

said by LifeAintCheap:

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If they could offer say 128/128 service for $20/month then more would subscribe but not nearly everyone.

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QWEST had a 19.95 DSL that was similar, but it was a shared line, not "always on". Kind of a higher speed AOL dial-up.

charge per byte and watch your customers drop you like a hot potato

No, not per byte but by broad classes of use. Below, for example, .5GB/month %50 discount. Between .5 and 1.5GB 20% discount. And such schemes would only apply to restricted bandwidth users such as 128/128 or 256/128 provisioned circuits. There are virtually similar pay by class schemes in place already in the long-distance voice business. Everything from pay per call/minute to pay a minimum for x minutes then pay for extras. And message-rate plans for those who don't use flat-rate calling. There are dozens of such pay-for-use and pay-per-use schemes in America. You just don't think of them that way.

If I was charged per data transferred, does that mean I could sue all spammers, sites with unwanted ads, pop-ups, etc for "damages"? After all, they WOULD be "damaging" me. I'd be being forced to pay for stuff I don't want and can't avoid...

Hell, the whole concept of the internet would be trashed... are you going to comparison shop knowing it's eating your $$$? What about video? Sound? Images? No thanks--- I'd want text based systems only.

A giant leap backwards for mankind...

I was just about to mention the that great point Rich, that telcos need to start offering DSL at reduced speeds but at dial-up comparable prices. This is so obvious that it really baffles me as to why companies don't do it. The Telcos are notoriously short-sighted and thet are showing it here. This industry lacks a long-term strategy.

Contemplate this for a moment. Why doesn't Verizon offer that 128/128 package you suggested and price it the equivilent of AOL at $23.99 per month? Basically, you'd be giving consumers the more than twice the speed at the same price. Heck, why haven't telcos teamed up with retailers and such as Best Buy, Circuit City, or CompUSA, and PC manufacturers such as Dell, Gateway, Compaq??? They could offer broadband- ready machines, rebates, and other incentives. They really do need to take a page out of the MSN book.

Some here have said that such a low-cost. low-speed plan would not make a Telco money because of the high equipment costs. First of all, this is a customer that the Telco wouldn't even have if not for the new service, so this really is extra income. Also, you have to look at this as an entry point. People jump on at the lower speeds, and then you offer a tiered pricing structure to get people to move up eventually, if possible. Either way, if these customers keep their connections over several years, the Telcos will make money by expanding their subscriber base ten-fold.

What many people seem to forget is that mainstream America has a a good deal of trust in local telephone companies because of their highly-reliable telephone system, stable pricing, and over (??) a century of service. I think people have less trust in cable companies and the young satellite companies. Nevermind the DSL resellers etc. Also, i think a high-speed service from a company such as Verizon carries a little bit more weight than even AOL, if if Verizon and other bells do everything in their power to screw their major advantage up. We need a long term sales strategy. But its a Catch-22...To get the content,, we need the large subscriber base...but to get the large subscriber base...we need the content. Which came first the chicken or the egg!!??

Well here's one more good reason. The DOJ and the FCC would jump on them in a flash in response to cable lobyist$ claiming they are underpricing in order to destroy cable broadband. And you can be sure the NY AG would be in there too!

said by biggbrother:

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Why doesn't Verizon offer that 128/128 package you suggested and price it the equivilent of AOL at $23.99 per month? Basically, you'd be giving consumers the more than twice the speed at the same price.

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As Rich01803 mentioned almost all the cost in rolling out DSL is in account management and cost of the dedicated customer circuit, for all intents the backend is free.

A reasonable ROI model is that you need about a 40% return on investment. If you charge a customer $25 a month that is $300 a year in revenue so DSL capital cost needs to be less then ~$750 per subscriber. This does not factor in the cost of tech support tech support.

Another argument for low end DSL pricing is a reduction in cost for the PSTN as users move off dialup modems. One would assume hard core users have already opted for either cable or DSL. So the impact on the PSTN of moving casual users off dialup network is relatively small.

Until the market is saturated the Telcos and Cablecos have very little incentive to reduce cost. The Telcos have to be cautious of low ball pricing or their competitors will accuse them of unfair predatory pricing.