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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. "
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.
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.
How is the cynical answer not accurate here?
The article states that in most locations, broadband access is controlled by a duopoly of businesses that are unwilling to initiate a price war. This state of non-competition means prices are NOT being controlled by outside forces. The only thing that makes this duopoly better than a monopoly is that each non-competitor doesn't have the balls to actively exploit their position by raising prices.
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.
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