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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. "
Of course not, just look at your bill.
Because companies aren't interested in seeing their profit margins decrease.
I have a pertinent comment - but I can't afford the bandwidth surcharge
In 1997 we got a 30/3 cable modem service, shared with the neighborhood. Since we were the only people on it, we had a 30/3 connection for $60/month. Now I get a dedicated 24/2 connection from U-verse for the same price. I guess it's better now?
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.
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.
Northwestern.edu hasn't been paying their internet bills...
Broadband is more a like service than a commodity. The infrastructure support costs (particularly labor) simply don't respond to economies of scale the way repetitively manufactured items do.
No folly is more costly than the folly of intolerant idealism. - Winston Churchill
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.
Transportation is transferring something that increases as O(size^N) via channels that increase as O(size^(M)) at best, where "size" is information or volume of goods. M N. Transportation costs/volume can only increase with time.
I do not believe in karma. "Funny"=-6. Do good and forbid evil. Yours, Oft-Offtopic Flamebaiting Troll.
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.
I get 10 Mbs for 30 dollars.
In 1998 I got 768Kb for...40 bucks.
So my price per bit has dropped dramatically
The Kruger Dunning explains most post on
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.
You're looking at it wrong. Compare bandwidth/cost. A decade ago my isp offered 256K, 512K, and 768Kbps plans. Now we have 3 5 or 10Mbps and up, but pay about the same. IOW we pay a LOT less per bit than a decade ago.
I remember looking into getting a T1 (or speed equivalent connection) 15 years ago for my house. It would have cost around $10k in initial costs (getting the wire from the street to my house) + $300/month. Now I pay $60/month. So it all depends on how far in time you consider prices.
The last few years I've been calling about once a year just to see if they've installed a closer office and every time I've gotten a reduced price instead.
Lowering prices would cut into the profit margin.
7 Mpbs ADSL is about EUR 15 / month.
Seriously. How can the US lag behind Europe, Japan, Korea, etc.
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.
y2k bug detected in (#33575418)
slashdot: where everyone yells sarcastic metaphors to themselves to understand the issue
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.
The link seems slashdoted. This is a google cache link to it:
http://webcache.googleusercontent.com/search?q=cache:fDtM1ZPbO5kJ:insight.kellogg.northwestern.edu/index.php/Kellogg/article/why_broadband_prices_havent_decreased+Shane+Greenstein+broadband+prices+decreased&hl=en&gl=es&strip=1
Summary: the broadband industry regulates itself, thus prices remain high.
I hate signatures
All the examples cited in the summary are products. Broadband internet is a service. The hardware required for broadband internet access has certainly gotten cheaper. But why does he think the service would get cheaper? I can't think of other examples of services that get cheaper over time unless there is punctuated technological advancement. Broadband gets more or less continuously faster, but no punctuation. Other services like power, water, telephone service, cable television, these have all gotten more expensive. Why would broadband service be any different?
A full box of punched cards was high bandwidth, back in the day. It certainly beat a 300 baud terminal that was largely ignored by the mainframe.
Invenio via vel creo
No, prices have not dropped. Speed has increased, but prices have not dropped. When I first purchased my first internet connection (28.8k mofos!) it was costing me $60 a month. I pay $60 a month now for my cable connection. Its faster, but I'm still paying the same thing I was paying 10+ years ago.
Can anyone tell me why 99% of
So I'm paying one sixth the price and getting over 50 times the speed. That sounds like a pretty good deal to me and makes me think that whoever is bleating on that their broadband price hasn't decreased either has no idea what they're talking about, or should really look around for a better deal, or is living in a country with next to no competition.
But for the vast majority of places, broadband prices have dropped markedly since it's inception - but I don't expect the same degree of reduction in the future, it's a mature market now.
politicians are like babies' nappies: they should both be changed regularly and for the same reasons
When I first moved into my house in 1999, there was no broadband -- it was dialup or a T1.
A year later, DSL, $80/month, 768k bidirectional, 1 static IP.
Switched ISPs, the price stayed the same, but the speed went up to 1.5/1; in essence, a price decrease per kb of bandwidth. Thanks to a kludge in routing, I managed to "steal" 2 more static IPs (broadcast and network) by changing my netmask on my router one bit wider.
This spring I switched to Comcast Business Class -- 5 real static IPs, $69/month, 12 down/2 up. This is an actual price decrease, but if you look over the past 10 years, the "real" price has gone down, along with the actual dollar denominated cost, *and* the per kb cost, too.
It's like asking why the electricity prices haven't decreased. Its a utility like any other. The cost is for infrastructure and people to support that. The falling cost of technology only marginally affects the cost of providing this service.
It's my sick-nature you know !! http://techrc.blogspot.com
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
is here
that site is taking one heck of a beating...
coding is life
Internet HAS gotten cheaper int terms of kbps/dollar. Minimum prices haven't dropped because there is a given cost in providing someone access. However the cost over all has dropped a whole lot. When I first got broadband it was about $60-70/month (I can't remember precisely) for 256k symmetrical consumer level access. That is more like $75-90 in today's dollars. That was also the very cheapest broadband plan. In my case, it was the only, the phone line couldn't support any more, and there was no other broadband out there.
Well checking with Cox, $90/month today gets you 50mb/5mb. They have cheaper plans, of course. You also have other options the phone company offers DSL, and so does Covad (and their ISPs) and Newedge. Not as high speed as cable, but you can still get 20mbit DSL in many areas.
I'd call that an improvement. A 200x speed increase for about the same price.
Same deal on the professional front. I switched to business/professional class Internet a long time ago since you get static IPs, no transfer limits, can run servers, etc. Well when I first got that it was 640k symmetrical DSL with 5 static IPs for about $230/month. Cox just called me last week and told me that they now have 50/5mb service for home business accounts. Comes out to about $150/month for that with 4 static IPs.
Near as I can tell Internet has gotten much cheaper for what you get, and continues to do so.
Or did you uncap your cable modem?
Getting 30/3 because you are the first on a system and there's not a cap in place doesn't mean it was sustainable.
Last year, I lived in an apartment close to downtown Houston and shared a U-Verse connection with my roommates. When I moved out, I figured I'd ditch cable TV and splurge on a more expensive pipe. Turns out I couldn't do that, because neither U-Verse nor the newer, stronger Comcast connections were coming to the cheaper single-room apartment I'd chosen to move into on a different side of town. The best I could do was a 3Mdown / 384k up for about $40/month.
There's another facet of the duopoly here - there's only real competition in the more dense areas of the city. For the private companies, there's a point that it's not worth it to continually expand (insert note here about the sudden lack of expansion for Verizon's FiOS).
Libertarians somehow believe that private businesses should be stronger than governments but weaker than individuals.
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
I'm fine with my, currently cable, broadband bill. As long as it does not go up and they continue to increase the speed I see it as win win. I'm paying for them for a) their own profit, b) the actual service and all that goes with that, and c) them upgrading their infrastructure as tech advances.
As long as all of those 3 things are happening then I have no issue. I think where some people take issue, and rightly in some cases, is that either not all 3 of those things are happening or that point C is not happening fast enough.
Really, I know what I'm doing...Ohhhh, look at the shiny buttons!
I suppose saying that broadband is cheaper now because we get more speed per dollar and we are paying the same number of dollars is one way to look at it. It is certainly the way that the telecom giants want us to see things. I don't think it's necessarily the only way or even the right way to look at it though.
Take computers... they can be had at about 1/10th of the price they cost when the internet was first being commercialized. And computers are now 200 times or more faster than they were then. Just because technology is getting better doesn't mean we shouldn't see a price drop as that which was a niche market becomes a commodity.
I used to work for a major cable provider and they once told us what there then current profit margin was on internet service. It was almost 70%!!! There is certainly room to charge less. It just doesn't happen because there isn't much in the way of competition.
The price of eggs, milk and tomatoes have increased. Given the advancements in technology and competition in the global market these commodities should be getting cheaper like RAM, not more expensive like cell phone service.
“Common sense is not so common.” — Voltaire
While my connection is faster now, I also have caps which I didn't used to have.
I remember the conversation when I called about my connection being severed.
Telco: "You exceeded your CAP."
Me: "My WHAT?"
Telco: "There are caps now, its all in your EULA."
Me: "It wasn't in there when I signed up."
Telco: "We changed it."
Me: "You can do that?"
Telco: "Sure we just need to notify you."
Me: "I wasn't notified!"
Telco: "Sure you were, we posted the EULA on our website at this obscure web address."
Me: "How am I supposed to know to check? Should I just re-read my EULA every couple of days?"
Telco: shrugs.
I may be paraphrasing a bit, but you get the general idea. So now, I have a faster connection, with a cap, which will allow me to exceed it faster, so now I can pay them exorbitant fees per GB. Gotta love progress.
Google text cache here.
Products get cheaper, people get more expensive
Damn those electrons for unionizing and threatening to strike if they didn't get a raise. Can't we get some protons or neutrons to cross the picket line and get the job done cheap?
If I have been able to see further than others, it is because I bought a pair of binoculars.
Broadband prices *HAVE* decreased. A lot. You're just using more of it now. Now the average person uses 50 "broadbands," and pay what they paid for 1 "broadband" 10 years ago.
I used to pay $5 (off peak) to $22.50(peak) an hour to use compuserve at 300baud (that's a little less than 1/3 of 1kbps for those that don't know what 300 baud means)
I think the prices have come down a bit. (no pun intended)
Granted that wasn't internet service, but the end result (communication and finding information using a computer) was comparable.
My mom was PISSED when she got that first bill. I was 13 and didn't realize what I was doing.
Don't kid yourself. It's the size of the regexp AND how you use it that counts.
A 16GB flash drive does not cost 3x or 4x as much to make as a 4GB flash, but is priced as if it does.
Actually at first it does cost quite a bit more. Both require up front costs to produce such as R&D, capital equipment purchases, production setup, etc. These get amortized over time but at first the cost per unit is quite high. The 4GB drive has had more time to amortize the fixed costs related to production so even if the materials for the two cost the same (which they almost certainly do not), the selling price for the 16GB will be higher because it's sold fewer units. Additionally there are learning curve effects that have a significant effect on price as well.
To be sure there is a bit of extra margin involved but the cost of the 16GB drives actually might be several times higher at first. Once minimum efficient scale is achieved the costs should be similar but that takes some time.
There is enough competition in flash memory (usually) that I'm pretty sure the prices actually have some relationships to the cost.
Instead what we see are price floors which reflect the real manufacturing and retailing costs. Once the value of some equipment falls below this floor, it vanishes.
That's right and not surprising. As prices fall for higher capacities, demand will dry up for lower capacities. The costs however do not continue to fall indefinitely. At some point there is so much competition and so little profit that makers of low capacity flash memory either exit the market or have to move to higher capacity products.
I see no reason for the price of Internet service to stay as stubbornly high as it has, except lack of competition.
I'd agree there is insufficient competition but I don't think you are acknowledging that you are in all likelihood getting a faster internet service than you were just a few years ago. The equipment to provide this faster service is not free. The phone company has to upgrade its equipment the same as you do to enable faster service. Verizon has spent billions of dollars on their FiOS rollout and AT&T has spent billions rolling out their high speed internet services. These are costs that need to be recovered. The phone line to your house might be the same but the equipment behind the scenes looks NOTHING like it did even 10 years ago. I've been in numerous central offices and can verify this myself. Just because you can't see the capital expenditures doesn't mean they aren't occurring.
There are also government subsidies for laying new line.
Not as much as you might think. The vast majority of costs for the telecom networks are borne directly by the operators of those networks.
Furthermore your analogy to your ethernet cards and other equipment is flawed because the cost structures aren't the same. There are maintenance costs to the phone/cable network which do not apply to your personal equipment. Once the ethernet card leave a manufacturer, the manufacturer no longer owns it. Warranty costs have already been factored into the price and there is no upkeep. The phone network however is owned by the folks that made it, they have to pay depreciation on it and they have to fix it when it breaks, bill customers for service and incur lots of ongoing fixed costs that don't apply to a consumer electronics product.
"In most urban markets, only two wireline providers supply the vast majority of homes, and the remainder are served by a range of wireless Internet providers."
Yes, it's a little redundant, but it bears noting again...
"This site all sites devours, web logs, forums, news..."
Bilbo was going to say "Give me a moment, I have to check slashdot to see how my latest comment was moderated", but all he could squeak out was "Slashdot!"
No broadband tech has lived for more than 3 years so far.
Oh dear Lord! We call that profession "The Widow-maker" - or we would, if any of the proprietors were married.
If I want to buy a digital camera, I can get a Canon, Olympus, Fujifilm, Kodak or a dozen other brand names. These various companies are all vying for my digital camera dollar and so will try to give me the best feature-set for my money.
If I want to buy a computer, I could get a Dell, Hewlett-Packard, eMachines, etc. Same rule applies as above.
If I want to get broadband Internet access, I can go with Time Warner Cable or.... or.... Well, Verizon has DSL which they aren't supporting as well anymore. No FIOS in my area. Other than that, nothing. Most areas have two or less providers. With that, companies know that a person shopping for broadband has a 50-50 chance or 100% change of choosing them (with 2 or 1 providers respectfully). This means they have to do pretty much nothing to get your dollars. They can spar gently with the opposing company (if one exists) to get their churned users, but otherwise they have no incentive to give users great speeds at low prices. Now, if there were a dozen broadband companies serving each area, you'd see low prices and better service.
My sci-fi novel, Ghost Thief, is now available from Amazon.com.
still technically applicable, just not computationally convenient. :)
Just one trillion millihertz to the gigahertz
I can respond in kind to your pedanticness about SI prefix symbols.
http://www.newegg.com/Product/Product.aspx?Item=N82E16819116283&cm_re=Pentium-_-19-116-283-_-Product
In base 10, only 3.6 billionths of a cent per millihertz. :P
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
for being the first to point out that thousands miles of network are not the same as a digital camera .
Deleted
Don't know about the price (still in my parents' basement, LOL), but our Frontier DSL connection seems to be 1mbps symmetrical, maybe 768kbps (as with dial-up, you can't be expected to exactly hit the listed maximum all the time, it's just that the maximum is higher.)
Pricing is somewhat complicated by the option to bundle it with phone and TV (both Frontier and Time Warner have such packages available.)
It's indeed unreasonable to assume that all massive connection users are file sharers, but it's easy to assume that as the default because, let's face it, a lot of them are.
You *aren't* actually sharing files, and you find it hard to force the issue.
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
The authors of TFA say they are "surprised" that despite the payoff of infrastructure and the age of the technology that prices have not come down.
It's as if they think rich people don't like money.
The only reason a rich person gives up money is if he thinks he will lose more if he doesn't give up a little -- or if he thinks it will lead to getting even more money back. I.e. competition. And progressive taxes.
There's zero reason for telecommunications companies to reduce rates. This notion that "they make enough now, therefore they should lower/stop raising rates" is so silly, it's like trying to argue that greed = benevolence.
And yet this very principle is the underpinning of the libertarian free market religion. But like those of all other religions, it is utterly flawed, unfounded, and unrealistic.
Terrorists can attack freedom, but only Congress can destroy it.
I worked in an IT department for a major telco around 2006 and picked up a few things. For starters, and I haven't seen this mentioned yet, the telco I worked for as well as all the others in the industry are all unionized. That means the unions don't want anything too radical to happen to competition or whatever else that could affect their pensions/retirements/existing contracts. So the major corporation makes donations to one party whilst the unions make donations to the other. I don't think either party is really going to mess with the status quo.
In support of this was a TV/radio spot that was running around 2008 I believe in my area (Northern California). There was some kind of reform bill coming up that would have done something to further open broadband to competition. So this ad was running that absolutely no sense obviously aimed at union members of the various companies (all I remember of the ad was a lady mentioning the bill and saying something like "it's supposed bring...*choice* to Californians" ...then the rest of it was very much against the bill but less than specific as to why said "choice" is bad).
Anyway my thesis remains the unions of the comcasts/verizons/(insert large telco here) of the world have as much to do with this as anything else I think.
"UNIX is very simple, it just needs a genius to understand its simplicity." -Dennis Ritchie
But they have decreased.
In South Korea.
In Japan.
In Canada.
In the EU.
Just not in the US. Where we pay 20 times as much for one-twentieth the service.
-- Tigger warning: This post may contain tiggers! --
Capitalism (not that we have anything resembling it in the United States) only drives down prices when the Fed isn't running the printing presses at full tilt. There's a reason the dollar lost 98% of it's value since 1913.
the article mentions that most areas have a duopoly of providers with no threats of new entrants.
Can someone explain why the US has this system?
I though you were all about market competition..
VLC Remote for iPhone and Android
Hahahahahaha *gasp* haha ha ha ha!
I still face DSN failures, poor infrastructure, and lag. And I never hear about companies favoring net neutrality. Quality does not appear to be going up much.
i'd hit it so hard, if you pulled me out you'd be the king of britain [bash.org]