"With the tools that we have with FiOS and delivering messages to our consumers on the TV or on their broadband connection, that they have the ability to just click and upgrade to 50 megabits for an extra $10, we are seeing a huge take rate on that click," Shammo said.
To be sure, Verizon often has very good reasons for wanting customers to upgrade. As it converts customers fro digital subscriber line to FiOS, it must allow consumers to keep the legacy price. So that generally means a former DSL customer gets the 25 Mbps service, for the same price as the older DSL.
That effectively means Verizon has invested in FiOS but is unable to reap any incremental revenue for doing so, in terms of high speed access. The upgrade offer allows Verizon to generate some incremental revenue.
In fact, Shammo suggests the upgrade policy is driving four percent growth in consumer revenues, year over year.
Shammo also says Verizon believes use of Long Term Evolution in place of fixed access can work in rural areas, but not in urban areas. What Verizon found from its tests of LTE-plus-DirecTV was that data consumption was so high that mobile network performance suffered.
The other issue is that LTE will not deliver the 50 Mbps or 100 Mbps access Verizon believes will be needed in urban areas.
The larger point is that price matters, when ISPs try to migrate consumers to higher-speed service plans. Take rates for 50 Mbps, 100 Mbps or 1-Gbps service plans can be significant, when retail prices are deemed to offer value.
The point is that take rates will not be too high when prices are in the $100 a month rate. Take rates climb dramatically when the cost of a much-faster plan is only $10 or $20 a month over the existing basic plans.
Where it comes to very high speed Internet access, price really does matter.
In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while 41.5 percent of households had dial-up access. At that time, the effective price for a 1-Mbps connection might have been $234.
A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, 68.2 percent of households subscribed to broadband service, with effective prices per Mbps of perhaps a couple to a few dollars.
That suggests what will happen, eventually, with take rates for 50 Mbps, 100 Mbps or 1 Gbps services. As prices per Mbps of service drop sharply, take rates will climb rapidly.
Up to this point, most consumers have not felt the need to upgrade to the fastest available speeds, in part because retail prices reflect costs per Mbps of service that are seen as “too high.”
In the U.K. market, for example, though service at 30 Mbps is available to at least 60 percent of homes, buy rates were, in mid-2012, at about seven percent (to say nothing of demand for 100 Mbps).
But price arguably has much to do with the resistance. By June 2012 about 75 percent of U.S. households could buy a service of at least 50 Mbps, while half could buy service at 100 Mbps. Relatively few chose to do so.
For the sake of argument, assume a price per Mbps of $3. That implies a 20 Mbps connection would cost about $60 a month. Typically, the faster a connection is, the lower the per-Mbps price actually becomes. So assume a $1.50 per Mbps price for 50 Mbps services. That implies a monthly price of $75 a month.
A 100-Mbps service might sell for about $1 per Mbps, implying that a 100-Mbps service costs $100 a month.
Google Fiber, of course, deliberately disrupts those pricing metrics, offering 1,000 Mbps for $70, or seven cents per Mbps.
When price per Mbps of service drops two orders of magnitude, most people will upgrade to much faster service.
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