The Fake Broadband Price War

from the it-doesn't-really-exist dept

One of the favorite lines trotted out by the telcos and their think tanks concerning the lack of competition in the telco world is that there obviously is competition, otherwise how would you explain the fact that DSL prices keep getting cheaper. The problem is that this is false. While it's true that many DSL providers now offer introductory, time-limited, promotional pricing, the price can go up quite a bit once the promotion ends. Not only that, but since they refuse to offer you DSL without a phone line, you're going to end up paying a lot more than the promotional rate no matter what. When someone from a think tank made the claim recently that DSL prices are now only $18/month, I asked to see the $18 bill. Not surprisingly, there was no response -- because such a bill doesn't exist. Once the forced bundles come in and the various fees, you're talking much higher prices. Now, there's a new study that gives actual numbers noting there is no real price war in broadband. The true price of DSL remains around $35 -- just slightly lower than cable broadband. Don't let the introductory prices, hidden fees and required bundles fool you. There isn't enough competition in the broadband space -- which is just the way the telcos and the FCC like it.

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  1. identicon
    Jim Harper, 12 Jul 2006 @ 8:50am

    Re: Re: Price . . . or Other Dimensions

    Funny, we've been hearing that story for four years now, and the competition has only decreased during that time.

    I quoted the research study underlying your post. Surely you don't think the author of the study is accurate to the extent he shows lacking price competition and telling a "story" to the extent he believes it's coming . . . .

    The study shows that price has gone down for both DSL and cable. That's evidence of some price competition - perhaps not enough.

    That said, I'm not sure why *price* competition is so important. The study appears to reflect that some consumers want more bandwidth, a niche being pursued by cable. Other consumers want savings, and DSL is more for them. (You could just as easily complain about lacking "throughput competition" because DSL isn't increasing its throughput as fast as cable.)

    The study that would really be insightful is one that showed whether broadband service was priced at (or barely above) the cost of providing it. Measuring profit per unit of bandwidth sold would be the best measure of how effective price competition is, as opposed to deductive metrics like counting the number of competitors.

    I'll bet such a study would find profit to be relatively high because it's a new market with lots of innovation happening along a lot of dimensions. Innovations give companies opportunities to profit. It's good to give them that incentive because, as competitors close the gap, they take away the innovator's profit opportunity, leaving the benefits of profit-driven innovation with consumers. Since the late 60's, productivity in the U.S. has doubled, while corporate profits (as a %) are essentially flat. That means that the benefits of innovation, driven by profit, have been passed to consumers.

    And just to preempt any critic who might want to leap on the idea that there is innovation happening in broadband provision, the study cited as authoritative for this post says "Cable systems have increased their download speeds to a maximum of 30 mbps, versus a 10 mbps top common just a year ago . . . ." That's good evidence of innovation at work - I don't think the cable providers tripled their use of year-old co-ax, routers, switches, etc.

    There's lots more market evolution to come before bandwidth is a true commodity and price becomes the only dimension along which providers can distinguish themselves.

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