Gigabit Connections Likely Will Remain a Fraction of Accounts, Even When Ubiquitous

Deloitte Global predicts that the number of gigabit per second (Gbps) Internet connections will grow by an order of magnitude, to 10 million globally, by the end of 2016. About 70 percent of those connections will serve consumer locations.

Still, those 10 million subscribers will represent a small proportion--about four percent--of the 250 million customers on networks capable of gigabit connections as of end-2016.

Though that will grow, over time, there is an important marketing principle at work here: headline speed remains mostly a marketing tactic.

Never, it seems, do “most” consumers buy the top speed, when there are choices offering less speed, meeting consumer needs, at less price. That has been the case for most cable TV and telco providers of Internet access, for example.

Gigabit access availability and marketing has primarily lead to increased sales of 20-Mbps and 40-Mbps accounts, CenturyLink has said.

One example of demand dynamics:  In my own neighborhood in Denver, I can buy a gigabit access service for $110 a month, 100 Mbps for $70 or 40-Mbps service for $30 a month (Granted, all those are one-year promotional prices, so an increase would be expected after 12 months).

All those prices are for stand-alone service, with no phone service.

In that sort of environment, many consumers are going to conclude that 40 Mbps is “good enough,” and provides a better price-value relationship.

Having recently upgraded one connection from about 30 Mbps to 100 Mbps, I have to say I haven’t seen web page load speed advantages at all. There might, or might not, be any improvement in network stability. Content streaming has not been improved.

Granted, that particular connection normally is a one-user connection, so there is no contention from other users. The point is that 40 Mbps per user seems to work as well as 100 Mbps per user. For that reason, I cannot see any advantage to buying a gigabit connection, which I can do.

Google Fiber might test such demand characteristics as it activates its Atlanta gigabit network. There, for the first time, Google Fiber will offer, in addition to the standard “gigabit for $70 a month,” 100 Mbps for $50 a month.

It will be interesting to see how demand sorts out, between the gigabit and 100-Mbps offers.

Deloitte further predicts that about 600 million fixed network Internet access subscribers may be on networks that offer a gigabit tariff by 2020, “representing the majority of connected homes in the world.”

Deloitte predicts that between 50 and 100 million broadband connections may be of the active gigabit variety, representing take rates between five and 10 percent.

There are good reasons to expect such take rates, now and in the future. Historically, only a fraction of consumers actually have bought the “fastest” tier of service marketed at any specific point in time.

“At each point in time much faster speeds have been available, but were only chosen by a minority,” says Deloitte.

It is likely the historic patterns will remain in force: multi-user accounts, and accounts where video consumption is high, will be the scenarios where the fastest speeds offer the greatest value.

Shockingly, consumer Internet access speeds have increased, since the time of dial-up access, at nearly Moore's Law rates. Price-value relationships likewise have gotten better.

source: IP Carrier, Rod Tucker

At the end of 2012, the average entry level price for service was over $400, according to Deloitte.  By the third quarter of 2015, the average had fallen to under $200, and the cheapest package was priced at under $50. Typical prices in the U.S. market range from $70 a month up to about $130 a month in early 2016.

Equally shocking, and perhaps more disruptive, will be the availability of gigabit speeds on mobile devices, a development truly shocking for a market used to typically speeds ranging from hundreds of kilobits per second to a few megabits per second up to perhaps 15 Mbps, on average.

By 2020, the first commercial mobile networks capable of gigabit per device mobile connections should be in operation.

LTE advanced currently offers up to about 500 Mbps in trials, and up to 250 Mbps in commercial offerings. Fifth generation networks are expected to boost typical top speeds to a gigabit or more.

It appears that coming millimeter wave platforms will shatter all past expectations of mobile bandwidth, which historically have been at least an order of magnitude lower than fixed network speeds.