U.S. ISP Profit Squueze Now is Likely
The decision on Feb. 26, 2015 by the Federal Communications Commission to preempt state laws prohibiting municipal broadband networks is but one example of growing competition in the U.S. high speed access market that arguably already was getting more competitive, thanks largely to Google Fiber.
Consumers will benefit, at least in the near term, as the actual presence of a third provider in a growing range of local markets both increases speeds and lowers prices.
Consider what Sonic.net is doing. It now is selling gigabit connections, with voice service, for $40 a month, submarining even Google Fiber pricing of $70 a month for gigabit high speed access.
Cumulatively, all the coming new competition, plus declines in mobile high speed access, are going to mean service providers must reduce their operating costs.
From 2010 to 2013, U.S. mobile data pricing (per unit sold) declined by only single digits year over year.
But in the first nine months of 2014, data pricing dropped by 77 percent, according to industry analyst Chetan Sharma.
At the same time, average (mean) mobile data consumption increased to about 2 gigabytes (Gb) a month. Sharma notes it took 20 years for consumption to reach 1 Gb per month usage levels.
The increase to 2 Gb took about a year.
In addition to plunging prices (less revenue per unit sold) and higher usage (more network cost), marketing costs have grown as competition has become more intense.
Overall U.S. operating expense rose 20 percent, year over year. Income was flat while earnings grew three percent.
Like it or not, more competition in Internet access is coming. Profits are going to get squeezed.