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Why Broadband Prices Haven't Decreased
pdragon04 writes "After a new technology is introduced to the market, there is usually a predictable decrease in price as it becomes more common. Laptops experienced precipitous price drops during the past decade. Digital cameras, personal computers, and computer chips all followed similar steep declines in price. Has the price of broadband Internet followed the same model? Shane Greenstein decided to look into it. "
Because companies aren't interested in seeing their profit margins decrease.
In the UK at least. Free broadband deals are common loss-leaders from companies like Sky and Orange.
The pay services have scaled as well, so £35 per month buys you much more bandwidth than it did five years ago.
"The dew has clearly fallen with a particularly sickening thud this morning"
Competition.
Where I live I can have dial-up, or cable.
I'm old enough to remember when broadband to the home was new. DSL was $50/month. At my apartment, they wanted $80/month for 1.5Mbps. I now can get 8Mbps for $40/month. DSL was down to $15/month. So, prices did drop. Now they are bundling and offering "faster" service to keep prices up. I think this is totally inline with declines in tech prices. Every year new PC's are brought out at the same price points but with more or faster or better. PC price drops have stopped too. I don't see any conspiracy or screwing.
i remember the days when 33kpbs dial up was $30 or $40 a month. today i'm paying $120 a month for cable TV, digital unlimited phone over my cable, a DVR and the lowest level of broadband from time warner which averages out to 5mbps on average. sometimes hits 10 depending on time of day. DSL which was close to $50 when it first came out can be had for $15 a month these days.
otherwise there is a big difference in the business models. to build a laptop you need very little resources for the engineering and most of the cost is buying the parts and software. even in the 1990's companies like alienware and falcon northwest started very small because other than the engineering/QA costs your biggest cost is buying the parts which are repaid when you sell the computer.
the ISP/telecom business is different. you need a huge capital investment to lay the wires and upgrade your network. this is usually financed by long term bonds where you pay 8% or so interest on average. in the case of Verizon that spent $10 billion or so to deploy FIOS the interest cost is approximately $800,000,000 PER YEAR. if i'm wrong about the figures then find them yourself and calculate the interest. then you have to buy the equipment whether it's cable modems or FIOS modems or whatever which is very expensive when you are first deploying new tech. i've read estimates that Verizon spent $400 per customer for the equipment. and don't forget about each hick town forcing you to finance a yarn museum or some other nonsense because you are huge company that is going to make a killing on the poor residents and you should pay up
it's almost like the console business where the initial customers are money losers and you make your profits later on
Laptops experienced precipitous price drops during the past decade. Digital cameras, personal computers, and computer chips all followed similar steep declines in price.
These things aren't really comparable. These are all gadgets, the internet is a service.
The range of quality and prices has increased in the gadget market because the cost benefit ratio of getting into that market is extremely different, AND because if you don't like the the most recent laptop you have choices you don't have with ISPs. You have a half dozen other laptops that you can choose instead, in addition to the added choice of, keeping your old one a little longer. That is, you can still have your old camera a little longer and wait for a digital camera you want to come down in price because that decision changed the supply and demand (reduced demand). Choosing NOT to have internet isn't really a choice most people are prepared to make. I guess I could live at my local library, but they don't let me bring my XBOX.
Oligopolys don't have the same sort of competition that drives down prices. Even if they don't fix prices, they don't have an incentive to get into a bidding war. For this reason, the price of cell phones is high, and has remained high. Maybe the Walmart thing, and further work by Cricket or Metro PCS will eventually push prices down.
Walmart is powered by T-Mobile.
Cricket and Metro piggyback on existing national networks.
There are only a handful of national cell phone providers: Sprint Nextel, Verizon, T-Mobile, and AT&T.
Four sellers doesn't have to be an oligopoly, but that's how they've chosen to behave.
[Fuck Beta]
o0t!
The title should say "Why Broadband Prices Haven't Decreased in the US"
For which the answer is:
- Most of the US has a de facto oligopoly in the provision of broadband services so the suppiers feel no market pressure to improve services and/or lower prices
The reasons for the oligopoly are:
- High barriers to entry due the cost of laying new cables/fibre, especially for the last mile. The difficulty in getting rights of way raises these even further.
- Entrenched suppliers with fully paid-up infrastrutures. To add insult to injury, most of that infrastruture has been paid for with taxpayer's money.
- Bought up and paid for politician which not only do not take any measures to open the market up for competition (like those that were taken in Europe) but activelly stop new competition from coming to the market (by blocking municipal projects, not assigning rights-of-way for laying new cables/fiber and in general maintain a climate of regulatory uncertainty).
The rest of the world has been hapilly getting better speeds for less money thank you very much.
Broadband prices won't decrease because it would cut down on the profitability of the carriers. I just called my cable provider today and told them to stick the TV service, but we're keeping the Internet feed until they price that out of an affordable budget. I can get everything I ever did via the 'net now, so no worries.
Even the article states that "They found that, even though prices stayed relatively constant, the quality of service rose through the years—for example, in 2004 the median cable modem contract price was about $45 with an upload bandwidth of 3000 bits per second, while in 2009 the median contract cost $53 but had an upload bandwidth of 8000 bps." Doubled the bandwidth per dollar over 5 years. I wouldn't call that insignificant.
Second reason is that there are price points that people are willing to pay. If ordinary household would prefer to have $10 per month broadband or none at all then there would be $10 broadband providers out there and average price would skew towards that. The bandwidth and service wouldn't be as high as it is now or the broadband would be more limited in other ways. The price points are formed over time and they can be wildly different from country to country based on available income and culture.
I'm sure prices will drop soon.
It's like after music CDs were introduced that cost a whole 12-13 dollars each. But that was only because manufacturing plants were scarce and demand was low. Once production ramped up and demand increased then prices naturally went ....
Oh bother.
He took a duck to the face at 250 knots.
Nine years ago I paid $50/month for 640kbps. For the last few years it has been $30/month for 3Mbps and I could have gotten 720kbps for $20/month. That qualifies as a drop no matter how you look at it.
That's not really a fair comparison though. Yes, you're getting a higher speed for less money, but speed is only a piece of what you're paying for. The other $240/month went to the fact that you were paying for internet access that was government regulated to hell so you were guaranteed a full 1.544Mbps 24/7 with 99.999% guaranteed uptime and low latency, and the ISP had to credit your account if you got anything less.
Your DSL line shares a CO with a few dozen/hundred of your neighbors. Even if it's not a single node for your block, at some point you're going to feel the load if everyone is trying to stream the Victoria's Secret Fashion Show simultaneously, and you've got no guarantee other than "best effort" that you're going to get the advertised bandwidth, or what uptime you're going to have. Also, odds are very good that incoming connections to ports 80 and 25 are blocked at the ISP leve. For home users paying $30-$60/month, that's alright. For businesses running their web servers and Exchange servers on a line, DSL simply won't cut it.
yeah, my AT&T DSL pricing shows about the same curve, if not from so far back. Bandwidth has stagnated and prices just go up. There's certainly competition between DSL and cable in my area, but I suspect you need small, hungry companies (or at least the threat of them) for competition to help here.
Socialism: a lie told by totalitarians and believed by fools.
Think the telecom industry is a bastion of good ol' American competition? Think again. These guys have been running circles around the FCC for years. They've taken massive tax breaks and incentives to build out broadband, and by any reasonable standard they have failed to make good on that promise. In the early 2000s, they succeeded in getting the Supreme Court to buy into the idea that they could box out newcomers like Covad, while anticompetitive tactics ran rampant. At the very same time, they were dragging their heels rolling out DSL. The irony is that the Baby Bells only exist in the first place because the government created them by breaking up the original AT&T.
Taxpayers have been getting reamed by US telecom companies for decades, the FCC is far too close to the industry it regulates, and the courts have done a very poor job of safeguarding a level playing field. The entire industry needs an enema.
Read the EFF's Fair Use FAQ
I read this kind of article and think, The last mile services should be owned by the municipality. All coming to a central data center where ALL the players have to sit in the same CoLo and compete for customers. This of course relies on the municipality being able to maintain a basic level of service on their lines. This would require fibre to make it reliable and cost effective in the long run. It would also make it rather competitive as the providers would not have a captive customer. You could have dozens of providers and literally switch to another provider with a change in the routing table of the switch. The FCC is not here for the consumer, they are owned by the large communications corps and only work in their interest to help maintain obscene profits and control of the customers under them. Seeing the issues and fixing them are on vastly different plains though..... We are destined to be bent over for a long time to come. Chattanooga, TN. is starting to look very good.
This just in: Providing a service doesn't follow the same price changes over time as providing a product. There's much more support and infrastructure maintenance/upgrading involved.
"Always forgive your enemies; nothing annoys them so much." - Oscar Wilde
>>>The price of your broadband hasn't decreased, rather the speed has increased
Same with laptops and other gadgets.
2000 - spent $350 for Win98 laptop. Today - spent $350 for Win7 laptop.
2000 - spent $200 for TV. Today - spent $200 for TV.
2000 - spent $300 for VCR. Today - spent $300 for DVR.
Prices have not dropped for other electronic devices, so why do we expect prices to drop for high-speed internet? It is illogical. Actually now that I think about it: ONE thing has dropped. I used to spend $19 for my AOL dialup internet in 2000, but now it costs $7, and I even have the option to get it free (netzero).
"I disapprove of what you say, but I will defend to the death your right to say it." - historian Evelyn Beatrice Hall
The reason things like PCs and laptops have gone down in price so much is due to overzealous price-cutting that has lead to razor-thin profit margins and that they are heavily subsidized by the people who pay to get the crapware pre-installed on those machines and from various other kickbacks from their suppliers.
What kind of laptop were you able to get for $350 in 2000, that was capable of running a 2-years-old operating system smoothly? You sure weren't shopping where i shopped.
DRM: Terminator crops for your mind!
what basis do you have to judge broadband on the same standard as CPU speed? It's well known as a radical outlier to the point that it's the subject of jokes.
"We returned the General to El Salvador, or maybe Guatemala, it's difficult to tell from 10,000 feet"
That's because you live in an affluent, Eastern European, formerly communist country with a functioning government rather than a po dunk banana republic run by a corporate oligarchy like we have in the US.
But hey...our military (parasite) is bigger than yours and until it completely drains the life blood from our country, we get to feel smug about beating up on just about the only countries poorer than us. Go Team!
how is this hard for you to understand?
It's not that things got better, it's that price hasn't dropped, and price should drop (as that's what market influence does). Just because you can get a 50 pack of DVD-r's for $20 versus a 10 pack years ago for the same price doesn't mean that it's as substantial a drop as it sounds like, even with inflation considered, especially since the discs cost pennies to make.
The same is true of cellphone service, which actually hasn't dropped anywhere near it's cost either. It's mostly because it's a freakin cartel, basically.
Market influence doesn't actually make things better, but it does provide price pushing towards zero/free/cost, and never pushes price up.
I see broadband more as a utility than as a consumer good. The price of my electricity has gone up. THe price of my water has gone up. It's not surprising to me that the price of my broadband has also risen.
OTOH, I'm still getting the same old water and electricity I was 5 years ago, while my broadband speed has increased somewhat. So in that way, it's a better deal.
The cost of providing broadband has decreased dramatically, though. For the most part, your ISP can just plug everything in, sit back, and let it work. The exception of course is when you have some kind of issue connecting, or when enough subscribers saturate the lines, routers, and switches that more have to be installed.
As many have said, I think the issue is that there isn't much competition.