Is Gigabit Internet Access an Existential Threat?

AT&T has begun activating its “GigaPower” gigabit network in Austin, where it already provides 300-Mbps service to some neighborhoods.

Customers in Austin who already buy U-verse service at 300 Mbps will see their Internet speeds automatically upgraded to up to 1 Gbps speeds at no additional cost in the coming weeks, AT&T says.

To the extent that GigaPower will not be available to all neighborhoods in Austin, an interesting marketing challenge has to be faced.

AT&T will have to market services with radically different price per bit metrics, in the same market.

The new expectation is that a gigabit service “should” cost about $70 to $100 a month. On a cost per megabit basis, that has implications.

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.

AT&T so far has not adjusted its pricing to such levels, and logic suggests AT&T cannot do so.

And that illustrates a range of tactical issues many major ISPs will face is 1-Gbps service is offered more widely.

Most consumers are smart enough to compare a gigabit for $70 a month with other offers from the same company that feature 50 Mbps for $50 a month. Over time, customer irritation is bound to grow, as the value-price relationship for existing offers will seem quite unfair, compared to the new standard.

ISPs including AT&T will face excruciating challenges adjusting their rate cards. For the moment, some will lift speeds while holding prices the same. That will help, at least until those same firms also begin offering gigabit service.

In the meantime, value propositions are going to be challenging. For some, the challenge likely is existential. Satellite and fixed wireless providers have limited ability to respond. In a new market where 50 Mbps or 100 Mbps is a “low speed option,” inability to supply much more than 20 Mbps will be a huge disadvantage.

One might argue it is an existential threat. Nobody talks about that in public. But it seems an inescapable conclusion.

Broadband Internet access doomed business plans for hundreds, perhaps thousands of independent suppliers. Gigabit access someday is going to pose the same sort of problem.