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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.
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.
You must have competition there. We dont.
---- Booth was a patriot ----
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
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.
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.
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
Finland has half the population density of the US and far faster, cheaper broadband. NYC has huge population density, but very slow, very expensive broadband.
The key factor is competition: US infrastructure owners are allowed to block competitors from using their bits of wire. This creates an almost insurmountable barrier to entry on the market and effectively establishes local monopolies. Consumers have little or no choice, usually.
Everywhere else in the world has a regulatory framework that enforces open access: owners of infrastructure have to sell access to their cabling to all comers at non-discriminatory rates. As a result setting up an ISP is cheap and easy, there is enormous competition, and consumers get fast broadband for chickenfeed.
Here's a lecture by Lessig on the subject:
http://lessig.blip.tv/file/3485790
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 :)
I live in Finland. We have 41.124 persons per square mile. You have 81.769 persons per square mile. Yet for some reasons broadband prices here are dirt cheap compared to yours. How is that possible?
Just think about it. You have extremely expensive broadband even in places such as New York which is bustling with people. We can get faster and cheaper connections in middle of nowhere (outside the few major cities).
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
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.
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.
$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 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.