Comcast, CenturyLink Take Different Paths to Challenge of New Gigabit Markets

The shift to gigabit access continues to gain traction in the U.S. market. Perhaps the interesting now-developing issue of how a legacy provider adjusts value and pricing of its offers to protect legacy revenues while adopting a new pricing umbrella set by gigabit services.

In other words, if a telco or cable company sells a stand-alone standard high speed access product for $50 to $80 a month, how does it align value and price in a market where 1 Gbps costs only $70 a month to $80 a month?

The issue is, depending on your view, either less complicated or more complicated because a clear majority of cable and telco customers buy services as part of a bundle, where the actual cost of each component service is hidden, more or less.

Still, all telcos and cable TV companies have to post stand-alone prices, because at least some customers prefer to buy service that way. Comcast and CenturyLink are taking two possible, but different, routes.

As part of a move to higher speeds, Comcast has doubled Internet access speeds that it has increased Internet speeds for customers in almost all of its residential service areas in California, as well as select markets in Kansas, Missouri and Texas, doubling speeds for buyers of 25 Mbps and 50 Mbps services, for example.

Customers now will get 50 Mbps or 100 Mbps for the same price they have been paying for either 25 Mbps or 50 Mbps services.

That is a classic example of how prices and value historically have been changed, over time. Customers get “more for the same price,” while more-pricey and faster offers are added at the top end.

Such an approach protects revenue earned from the standard offers, while gradually allowing faster speeds to be sold, for higher prices, and simultaneously adjusts value-price relationships.

Separately, CenturyLink has launched symmetrical gigabit speeds for residential and business customers in select locations in 16 cities. But CenturyLink is taking a different tack, apparently leaving existing prices for its 20-Mbps or 40-Mbps standard services in place, with unchanged value propositions, but adding a new higher-price option.

It is a subtle difference, but an important strategy. Committed to a new top-end speed of 1 Gbps, CenturyLink also wants to avoid cannibalization. But it can do so by leaving the current value proposition where it has been, and simply adding a new offer.

To stay within the broad framework of “1 Gbps for $70 or $80 a month,” CenturyLink offers that price only to customers who bundle a voice line, a product some 40 percent of potential customers likely do not want.

The additional revenue from the unwanted product then brings the effective revenue for the gigabit service up to about $120 to $150 a month.

Comcast, by taking its “more for the same price” strategy, does not immediately have to commit to upgrading to a gigabit service, but also provides more value for money, making its lower-speed offers superior to the CenturyLink standard offers at speeds Comcast already can offer.

In essence, then, CenturyLink will try to leapfrog to higher speeds, for more money, while Comcast will try to supply a better value proposition for the lower-speed offers, now boosted to 50 Mbps to 100 Mbps.

Both approaches make sense for suppliers who have made different decisions about physical upgrades. To offer a gigabit, CenturyLink has to make a historic break with its traditional fiber to neighborhood approach.

Comcast is able to keep its hybrid fiber coax approach, without immediately shifting to a fiber to home approach. In essence, Comcast is betting that much faster speeds for the existing prices will be valuable enough to forestall share losses to a competitor offering much higher speeds.

The other consideration is that the full extent of CenturyLink’s upgrades are as yet unknown.

The initial deployments are said by CenturyLink are said to reach “thousands of locations.”

CenturyLink expects to have gigabit services available to “hundreds of thousands of residential and business customers”  within the next 12 months.

The 10 cities where both consumers and business customers can buy include Columbia, Mo.; Denver; Jefferson City, Mo.; Las Vegas, Minneapolis-St. Paul; Omaha; Orlando; Portland; Salt Lake City and Seattle.

Markets where business customers now can buy 1-Gbps symmetrical services include Albuquerque, N.M.; Colorado Springs, Colo.; Phoenix; Sious Falls, S.D.; Spokane, Wash. and Tucson, Ariz.

CenturyLink plans to charge $150 a month for the service, but $80 a month if the access is purchased in a bundle including fixed network voice service. Since many customers really do not want to buy voice service from CenturyLink, the effective price in many cases really will range from $125 to  $150 a month.

Comcast has increased the speeds of three Xfinity Internet tiers: "Performance" now offers speeds up to 50 Mbps, up from 25 Mbps; "Blast" is now 105 Mbps, up from 50 Mbps; and "Extreme 105" has been bumped to 150 Mbps. The changes impact all California customers (except those in Santa Cruz, Scotts Valley, Isleton, Lodi and Rio Vista), as well as those in the Olathe, Kan., Independence, Mo., and Houston, Texas markets.

Those speed boosts will be provided at no charge for Comcast customers.

Essentially, Comcast will in the near term simply boost value while maintaining price. CenturyLink will preserve existing offers while adding a pricier and faster option at the top of the range.
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