Thursday, February 6, 2014

Even if Gigabit Connections are Available, Will Most Consumers Buy 100 Mbps?

Whether the typical consumer will buy a gigabit service, by about 2020, is not so clear. What is more clear is that such speeds will be generally available to most U.S. consumers, by about that point.

Perhaps the bigger question is what gigabit services will cost in 2020. Generally speaking, the trend in the U.S market has been for average speeds to grow, at about a 50 percent a year clip, while absolute prices remain roughly stable, while premium services have been priced higher.

The issue is whether a gigabit service will remain the premium offering in 2020. Some predict that half of U.S. households will be buying 100 Mbps in 2020, for example.

The other complication is that broadband speeds keep changing, so the product a consumer bought in 1998 is different from 2008 and will be different from what is purchased in 2018.

In 2002, only about 10 percent of U.S. households were buying broadband service. Back then, where a dial-up connection might have cost about $20 a month, a then-current broadband connection would have cost much more. Some of us were buying 756 kbps connections for $100 a month, back then, for example.

So one might argue either that monthly prices will remain roughly constant, while speeds grow, or that prices will grow as speeds increase. The “natural limit” would seem to be Google Fiber’s gigabit for $70 a month price point. It is hard to see triple-digit broadband prices for gigabit services in 2020, if $70 or $80 a month is the current price of a gigabit connection.

Back when modems operated at 56 kbps, Netflix took a look at Moore’s Law and plotted what that would mean for bandwidth, over time.

“We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get,” says Reed Hastings, Netflix CEO.“If you drag it out to 2021, we will all have a gigabit to the home.”


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