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How Much Should Broadband Cost?
An anonymous reader writes "The difference in cost between broadband options seems to be the primary motivator for consumer spending, reports News.com. Frugal consumers are opting for the lower-priced DSL options, while those with more money to spend on services are opting for cable modems." From the article: "A year-and-a-half ago, pricing of DSL and cable modem service was roughly the same. But over the past year, the phone companies have launched an aggressive assault by dropping prices. At the end of 2005, the average price of DSL service was about $32 per month, roughly $9 less than cable, according to research firm IDC. AT&T has twice lowered the price of its DSL service and now offers its 1.5Mbps service for $12.99 for the first year."
"At the end of 2005, the average price of DSL service was about $32 per month, roughly $9 less than cable, according to research firm IDC."
DSL is still more expensive than cable unless you have a landline already. Home telephone service is around 40$/month here, which would make DSL (assuming I could get 32$/month anyway, which seems low) that would put me at over 70$. Compared to cable which is under 60$ and comes with "free" basic cable, since there's no way not to pay for that too.
I've already got a cellphone and don't have any use for a landline. Maybe if the DSL providers were actually any better than comcast (local cable monopoly), but until they are it's not worth the extra cash.
The Farewell Tour II
Why cable companies haven't changed their marketing to reflect this, I have no idea. Behind the times, I guess.
--triv
good points, but actually, we can either have a sharp demand/supply curve, or a flat one, or a moderately sloped one.
...
in some markets, we may find that the desires of the buyers are the most significant in determing the price of the service (broadband, considering different flavors/brands/speeds).
in other markets, we may find that the lack of competition amongst competitors (places where the same large corporation owns the cable, wireless, and DSL services or reaches a colluding anti-competitive market agreement in our under-regulated market) means that the price is determined by the sellers and their most efficient return on investment (an example being renters where most apartment buildings are owned by the same conglomerate or are dorm rooms owned by a specific college).
and then other markets may be inbetween these two extremes.
Assuming there isn't a monopoly or oligopoly in our current environment will lead one to inaccurately assume perfect competition, with easy barrier of entry (they may only permit one cable provider or provide barriers to cell towers or land lines for DSL), perfect information (knowing what the current and future rates are and consumers having easy access to information to determine the actual true cost (both teaser rate and lock-in rate and cost/length of service contract and installation/disconnect fees)), and perfect liquidity of capital with sufficient equivalent capital for all consumers.
Such a perfect world (the latter case) doesn't exist anywhere I've seen. Thus, we need to use a better economic model, assuming imperfect information for competitors (no published rates), sticky prices (regulator sets levels), imperfect information for consumers (only teaser rates seen and fine print obscuring full cost so what you think is $15 is really $200 when you install), and high barriers to entry (restrictions on building, long permit schedules, long wait times for new installations, lack of supply for materials to install, shortage of contractors to install, etc).
In other words, you're both right. And you're both wrong.
remember, if you get two or more economists in a room, you'll get a number of different answers equal to the number of economists in the room
(grin)
-- Tigger warning: This post may contain tiggers! --
No, actually he's only half right. It's a long aged discussion (177x?) about the differences of intrinsic values. How many pounds of diamonds will you pay for a glass of water? What if you have been in the desert for a week? But without the demand (desert) the product (water) has little perceived value.
The biggest problem with this whole picture is that the market availability of DSL versus Broadband is severely warped and everyone knows it. But we are unable to get the congress-critters to recognize that it's really problem at the consumer level. I can't get DSL for love or money. But I can get this expensive broadband that is only offered by one company. No choices.
I'm becoming a fan of DSL being applied to the United States in the same fashion that the Rural Electification Act was used. It required that EVERY house have electricity. I think it should be required that every house which currently have a phone line also have DSL made available at a consumer price that is consistent. You can't charge the guy with a 12 mile special line $599.99 a month and $9.99 in the big city.
But I don't think this will happen in these times. 10 years ago I was of the opinion that the Federal Government should gaurantee delivery of a TCP/IP connection in the same manner that the US Post Office works. I still am.