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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.
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.
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.
Price per Mbps has most definetly dropped down. I'm paying $2/Mbps now... I used to pay $40/Mbps 6 years ago.
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.
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.
That's not the answer to the question. The price of your broadband hasn't decreased, rather the speed has increased. I recently experienced the opposite, having to switch to cable from fiber, I now pay quite a bit more for a less advertised speed (actual speed is ridiculously low).
Lucky.
I get 3Mbps for $55.
6 months ago I got 3Mbps for $50
12 months ago I got 3Mbps for $45
5 years ago I got 3Mbps for $40.
7 years ago I got 3Mbps for $35.
What the fuck Time Warner?
Go green: turn off your refrigerator.
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.
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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.
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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
Rochester, NY
My options are:
1Mbps/256Kbps for $40 from Clearwire.
3Mbps/512Kbps for $55 from Time Warner.
The telephone company offers DSL at similar speeds and price to Time Warner, but I have had only unpleasant dealings with them in the past, and have heard* that they used to "accidentally" disconnect the CLECs until they all stopped offering competing services.
* off-the-record comments from people who dealt closely with CLECs. I do not know if it is true or not.
Why can't I get anything better than 768K up? A few times I have asked and they responded with an angry "Why? Are you doing a lot of file sharing?". I tried to explain that I back up my data to a VPS and I work from home and push a lot of data through a VPN, but I got the impression that they think anybody who wants a good upload speed is a pirate.
Go green: turn off your refrigerator.
Huh, beat me
30$ for 100Mbps full duplex country wide, capped to 10Mbps for overseas.
Riga, Latvia, Eastern Europe :)
My parents use to pay $40 for 386kbit back in '98
I now pay $50 for 16mbit.
account for 4% inflation over 12 years and that $40 was worth ~$60 in todays money.
yep, has gone down
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 $7, and I even have the option to get it free (netzero).
"I disapprove of what you say, but I will defend to the death your right to say it." - historian Evelyn Beatrice Hall
I'm fine with my, currently cable, broadband bill. As long as it does not go up and they continue to increase the speed I see it as win win. I'm paying for them for a) their own profit, b) the actual service and all that goes with that, and c) them upgrading their infrastructure as tech advances.
As long as all of those 3 things are happening then I have no issue. I think where some people take issue, and rightly in some cases, is that either not all 3 of those things are happening or that point C is not happening fast enough.
Really, I know what I'm doing...Ohhhh, look at the shiny buttons!
where the hell do you people live?
i pay 50$ a month for 5Mbps/512k
i'm not a stickler looking for more bandwith - it'd rather have lower cost - hell 20$ for 1Mbps would be fine.. i never need more than that really, its the low latency i need.
'...if only "Jumping to a Conclusion" was an event in the Olympics.'
It's tempting to point out that that's a factor of three drop in price per performance unit over 10 years, while CPUs, consumer gadgets, and other high technology goods have fallen in price by factors of 10 or more. However, there's no reason to compare the perishable commodity of bandwidth provided through government subsidy, to the durable goods of CPUs, cameras, etc. provided without artificial production stimulus.
The cost of copper landlines in North America have not changed by more than a factor of 2 over the last 30 years, falling somewhere in the $10-30/month range. That's a feature of non-scale-free infrastructure with sunk costs, unlike bread or televisions where the cost to produce each unit doesn't vary much with the total number of units produced. Ten bread factories cost 10 ten times the cost of 1 bread factory to operate. Ten phone or broadband head-ends cost ten times the cost of one head end, plus a fancy Cisco box or two, plus a more expensive upstream SLA. Plus, bread and television factories can ramp up or down production rapidly to meet changes in demand, and also produce related goods for varied geographies, while broadband providers must pay (and charge) for most of their (oversubscribed) capacity to produce a single kind of immobile good even though most of it is unused for half of each day.
There are 1.1... kinds of people.
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"
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.
>>>Nine years ago I paid $50/month for 640kbps.
I pay $15 for similar speed (750). And you're right - that qualifies as a drop. I don't see how anyone could disagree. I think this article is yet another example of "lying with statistics" to make a point. I said as much in the comments (that DSL dropped from ~$100 to $15 during this decade), but I bet it will never appear.
BTW is anyone else surprised by Dialup's revenue? According to the article they earned $5499 million in 1999, and $10982 million in 2006. Double. I thought dialup was supposed to be dying out, not growing?
"I disapprove of what you say, but I will defend to the death your right to say it." - historian Evelyn Beatrice Hall
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.
Here in Finland we are in a lucky position compared to US citizens and I chuckle to myself every time I see how hideously high prices people there pay. My mobile phone has a 384kbit/s upload-download data plan, with absolutely no limits, for 5 euros a month, and at home we have ADSL 12Mbit/s down and 3Mbit/s up, unlimited, for about 40 euros a month. That's about $6.50 and $52 respectively. Oh, and the phone is not locked to any specific carrier or anything, I just bought it from the store unlocked.
The title of the article is correct though, the bill seems to stay rather same but the speeds continue to rise all the time.
Even more strange, now you can buy AOL for about 19 bucks, the whole company.
Try again:
http://www.pcworld.com/article/13806/compaq_prosignia_150_amd_k62475.html
The Compaq Prosigna with an AMD K6-II @ 475 MHz and 64 MB of RAM listed at $2299 in November 1999. Even if you discounted the software and 32 MB of RAM (which was actually not that expensive by 1999) we're not even in the sub-$1000 range.
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.
I don't know where you're getting these numbers, but as someone who works for TWC and services Rochester, that's dead wrong.
RR Lite 768Kbps is 22.95, 24.95 if it's your only service.
RR Basic 1.5Mbps is 29.95, 32.99 if it's your only service.
RR Standard 10x1 is 42.95, 49.99 if it's your only service, 44.95 if you only also have basic cable (broadcast basic, which is about 12 channels, not standard cable with about 80)
RR Turbo 15x1 is 9.95 on top of the price of standard.
RR Extreme is 30x5 and is $20 on top of the price of standard, with free wireless.
Wideband internet is 50x5 and is $99.95, with free wireless.
These are all residential class, but I do not believe business class has a 3Mbps offering either.
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.
In the same time frame (1998), I was paying $35/mo. for 10Mbps. I was luckily living in the West Seattle pilot project, and was unthrottled. It was extremely painful when I moved to the other side of Seattle and had to go back to dialup because there was no cable there. Now I'm paying $45/mo. and getting 16Mbps, so really, I'm just staying even.
Don't know about the previous poster, but in a lot of the New York area you can get Cablevision. They offer 15/5 service for about $45/month. An extra $15/month doubles the rate. There's also 100Mbps down for something around $90-$100 a month. Those numbers all go down a little if you have the triple play package. The lowest end package is fine for me, so I never looked too hard into the specifics on the higher options.
$12/mo for 100Mbps full duplex fiber, uncapped worldwide
Bucharest, Romania, Eastern Europe
Actually it's my dad's connection, and he has the 50mbps package for $9/mo. 100mbps is available, but he says 50 it's more than enough for his needs.
Meanwhile, I pay $60/mo for 30/5 mbps here in the good ole US of A, the birthplace of the Internet.
If con is the opposite of pro, is Congress the opposite of progress?
Heck even if the $/month remained constant that would be a significant drop in price as inflation over a decade would reduce the real cost significantly (according to an inflation calculator I found $50 in 2009 was equivalent to $38 in 1999).
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
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.
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