51% of U.K. Locations Can Buy Internet Access of at Least 100 Mbps

Platform competition is not always economically feasible, in all countries or markets, making a mandatory wholesale access regime (one infrastructure provider, with retail competitors sourcing access from the infrastructure company )the best alternative.

Yet even where a wholesale approach is taken (United Kingdom, for example), the potential upside for competition dynamics seems clear enough. In the United Kingdom, present deployment of fiber to the home is about 1.6 percent. But the percentage of locations able to buy service at speeds of at least 100 Mbps is 51 percent.

That is because Virgin Media, using the hybrid fiber coax platform, has been able to upgrade to hundreds of megabits per second without installing fiber to the home, and gigabit speeds already possible, using commercial customer premises equipment.

In the U.S. market, where regulators decided to pursue a facilities-based competitive regime, Comcast and other cable operators are deploying gigabit services to every location, using HFC, not FTTH. With the exception of Verizon, which already had upgraded much of its footprint to FTTH, most of the other telcos have moved more slowly, as the business case has not been clearly favorable.

That is a major problem for many internet service providers, not just the tier-one and other telcos. Google Fiber, even using a neighborhood build approach, has found that the key problem is demand. It just costs too much to build lots of FTTH plant, with the prevailing take rates. Verizon has reached 40 percent adoption over a decade. Most other overbuilders struggle to get 20 percent buy rates and Google Fiber apparently did not do that well, possibly getting 11 percent take rates for its internet access service.

Indeed, that might be the big takeaway, so far, after a couple decades of internet access demand. It often is said that internet access prices are “too high” and that people “need lower prices.”

That might not be true. It might be more correct to say that, given a choice between a gigabit service costing $70 to $120 a month, and having the ability to buy other services costing less, people mostly buy the services costing less.

To say they “cannot afford it” is not likely correct. Most U.S. households spend more than $100 a month on a variety of streaming and linear TV services. So the issue is demand, not just supply. One of the key market implications of a headline rate of a gigabit service, sold for $70 to $100 a month, is that it necessarily means existing lower-speed services also have to adjust to the value-price umbrella set by gigabit.

In other words, customers will expect that if a gigabit costs $70 a month, lower speed services will cost less than that. And the truth is that lower speeds work for nearly 100 percent of the potential buyer base.

That has other important implications. If demand tends to center on internet access costing $50 or less, per month, then the network platforms have to match that expected price expectation. That means lower-cost infrastructure, now being addressed by open source, to some extent, and by wireless platforms, which are the big potential game-changers.

source: Think Broadband Can
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