Cheap DSL Will Hurt Providers? But Won't Expensive DSL Hurt As Well?
from the but-won't-it-help-customers? dept
A misguided research report is warning DSL providers in Europe to avoid offering cheap deals on DSL, saying that it will end up hurting the providers. Now, it’s true that it will cut into their margins, and has the potential to harm the provider if they don’t have any other plans to make money. However, keeping your prices high can cause just as much (if not more) damage. The problem here is that customers want cheap prices. You can keep your prices as high as you want if you don’t want any customers. So, in an open market, it isn’t really the choice of the DSL provider as to what price they should be setting. If they want to encourage adoption (and it appears they do), then they have to realize that the market is setting a lower price. If the market is setting a lower price, then it’s the job of the service providers to figure out other ways to make money, by offering additional services that users will value and pay more for. However, following this study and keeping prices artificially high results in unhappy customers who will leave to go to cheaper services that know how to keep customers happy.
Comments on “Cheap DSL Will Hurt Providers? But Won't Expensive DSL Hurt As Well?”
Clarification please
I’ve been told before there is some sort of “physical” limitation of 56k on regular phone lines, but then DSL lines are basically phone lines. What prevents there from being 112k or 224k modems?
Re: Clarification please
The issue has to do with how much current the phone company is legally allowed to push through the phone network. There was a push awhile back to actually get 56K out of a 56K modem. It would have taken the phone company to boost the signal just a little, but the FCC prevented that from happening. Because DSL is two copper conductors not connected to the POTS, you can drive pretty much as high as you dare too.
Re: Re: Clarification please
Well, would that explain why the economics of DSL has been so bad? We’re basically building a redundant phone system, and some people want to “save” money by VoIP, to package and garble voice data over a redundant phone line.
No Subject Given
What happens is that while “the last mile” of phone connections is analog – it is all digitized at some point before it’s transmitted for long distances. That’s how they’re able to fit so many phone calls on a single strand of fiber optic.
By digitizing, they can cram together hundreds if not thousands of phone calls into a single stream of information. A long, long time ago – someone decided that 56kpbs created good enough quality for voice calls, and so the entire country standardized on equipment that digitizes our voices in 56kpbs chunks. If you were to try and digitize a signal smaller than 56kpbs – like 112kpbs – each two bits of information would be crunched into a single bit and half your information would be lost.
DSL equipment, on the other hand, is installed right before your voice becomes digitized and reroutes it to newer equipment which can handle much higher bitrates – bypassing the old 56kpbs equipment.
That’s why you have to wait until “DSL is in your area,” and not every part of the country can go to broadband immeadiately.
How markets work...
While I understand the argument that charging a high price is likely to lead to loss of business when there are lower-priced competitors, the fact that users like low prices does not establish some kind of magical “market” price that is lower. In fact, customers would prefer free, but for lots of things, there’s no provider willing to supply at that price point. The market is a compromise mechanism. As I understand the original story referenced here, they were saying that selling below cost is a recipe for long-term disaster, and it doesn’t much matter how much the customers like those low prices.
Re: How markets work...
Indeed. I never said anyone should charge below cost, but that they do need to recognize market forces.
If you read the report, they’re basically telling DSL providers to form an oligopoly and artificially keep prices high.
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