Gigabit Access Also Disrupts an ISP's Other Lower-Speed Offers

AT&T says it now is looking at building gigabit networks in up to 100 cities and towns nationwide, including 21 new major metropolitan areas.

The list of 21 candidate metropolitan areas includes Atlanta, Augusta, Charlotte, Chicago, Cleveland, Fort Worth, Fort Lauderdale, Greensboro, Houston, Jacksonville, Kansas City, Los Angeles, Miami, Nashville, Oakland, Orlando, San Antonio, San Diego, St. Louis, San Francisco, and San Jose.

AT&T now has committed to or is exploring 25 metro areas for gigabit networks , including the networks AT&T is building in Austin and Dallas, and the likely networks in Raleigh-Durham and Winston-Salem, N.C.

AT&T faces both strategic and tactic issues as it weighs what essentially are gigabit “spot upgrades.”

At a strategic level, AT&T has to avoid finding itself relegated essentially to the third choice in many markets, behind Google Fiber and a cable operator, as a desired provider of high speed access.

Up to a point, AT&T might also want to discourage Google Fiber building in its fixed network service footprint, and instead encourage Google Fiber to attack elsewhere.

But there are plenty of tactical issues as well. Keep in mind that for about the past year, AT&T has been touting its “Project VIP” upgrade program, promising many households access at 45 Mbps.

Now “U-verse with GigaPower” becomes the “headline offer,” with likely implications for the way AT&T packages all slower-speed offers as well. So far, AT&T has suggested it will price gigabit access at $70 a month if consumers allow AT&T to harvest usage data, and $80 a month otherwise.

But that, like Google Fiber, is going to create new consumer expectations, namely that a gigabit service “should” cost about $70 to $80 a month. On a cost per Mbps basis, that has implications for the pricing of the U-Verse VIP service at 45 Mbps, for example.

At $70 a month, the implied price of 1 Mbps of speed is about seven cents. So the implied price of a 10-Mbps service would be 70 cents a month. A 45-Mbps service “should” cost about $3.15 a month.

And that illustrates a range of tactical issues AT&T will face if its GigaPower offer is offered more widely, namely the impact of the offer on all other AT&T high speed access offers. As consumers reset their expectations, ISPs including AT&T will face excruciating challenges adjusting their rate cards.

To be sure, gigabit offers also will create incentives for users to upgrade to gigabit speeds. But it will be quite a complex undertaking to adjust all access efforts to account for gigabit value-price offers.