1 Gbps: If You Build It, Will They Come?

Individual subscribers connected at gigabit speeds constitute a relatively new phenomenon.
First introduced by Hong Kong Broadband in 2010, the number of service providers offering
residential gigabit services is growing, with more than two dozen service providers providing such service, according to a study by Joe Savage, Telecom ThinkTank principal, and Michael Render RVA Market Research principal.

About seven of those providers offer service to residences as well as businesses, and have networks that pass at least 100,000 sites (not to be confused with “customers”). “Our March, 2012 estimate is that global residential gigabit subscribers number in the hundreds,” the authors say.

Historically, consumers have responded enthusiastically to higher speeds, at least up to a point. For both dial-up Internet and then broadband Internet access, consumers responded in overwhelming numbers. Both were examples of “build it and they will come” optimism on the part of service providers.

But that has not yet proven universally true. As many people buy automobiles, but not everybody buys a luxury automobile, service providers probably should maintain some circumspection about demand for “super-fast” access, defined as 50 Mbps, 100 Mbps or even 1-Gbps service.

As with the market for automobiles, user have distinct needs and spending abilities. Any auto provides “transportation.” But most people do not buy high-end luxury vehicles. In the same way, one might argue, demand for broadband speed is simply not highly elastic.

Verizon, for example, had a total of five million FiOS Internet connections in service at the end of the first quarter of 2012. That works out to FiOS Internet penetration of 36.4 percent.

That should provide evidence that fiber to the home does not sell itself. Some of us tend to believe that the advantages of fiber to the home are so obvious Verizon would only have to "build it and they will come." Not so, it turns out.

Though there is slow movement to higher access speeds, Verizon's experience suggests providers of 1-Gbps services should have realistic expectations about take rates.

Some of us immediately would wonder whether existing 1-Gbps customers, especially in markets where monthly prices are in the $200 range, actually are “business” users, though, much as Google product managers and others have 100-Mbps connections, paid for by Google, so they can work efficiently at home. Some ISPs have found scant interest for 50-Mbps services, for example.

Prices for residential gigabit service range from a low of $26 per month for Hong
Kong Broadband’ s service to a high of $560 per month at network operator Turkcell. Prices
roughly correlate to the capital investment required to pass a subscriber in the serving area, the authors say. It costs $200 per home passed in Hong Kong compared to $1,000 to $4,000 per home passed in Europe and North America. ISPs have seen price resistance whenever monthly recurring costs approach triple digits.

In North America, Sonic.net will be seen by many, and ought to be seen as notable, for offering 1-Gbps service to consumers for $70 a month, including two phone lines with no-extra-charge domestic long distance. Comcast’s 105-Mbps service in San Francisco costs about $200 a month, by way of comparison.

Gigabit subscribers report that they are online an average of eight hours per day. That compares with the “typical” U.S. Internet user average of 2.5 hours per day. By definition, 1-Gbps customers are not “mainstream.”

In addition to being “early adopters” and “technology enthusiasts,” they stream high-definition content, engage in multi-player online games and tend to be content creators.

It remains to be seen whether there will be higher adoption as the service is made available to more potential users. At least up to this point, few subscribers who pay for their own connections (as opposed to having the bills paid by an employer) seem to have become customers. Also, surveys have shown that most users are happy with speeds they now get.

That said, we will soon get a better look at receptivity to 50 Mbps and 100 Mbps services in a number of markets, such as United Kingdom. Some question whether “build it and they will come” is so reasonable an assumption, at this point.