Wednesday, August 23, 2017

Gigabit Access" Price Really Does Matter

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.

AT&T executives have said that, where it is available, about 30 percent of customers buy a gigabit per second service, even when other tiers of service are available. In part, that relatively high take rate reflects the fact that AT&T builds gigabit networks first in neighborhoods where propensity to buy is highest.

Take rates for some other providers such as Comcast might not be as high, in part because Comcast builds its gigabit internet access everywhere across its service territory, and not only in some neighborhoods.

Service providers who sell a range of internet access products differentiated by speed and price might “typically” find that a minority of customers actually buy the “fastest” tier of service.

That was true in the past when the  top speed was 100 Mbps as well. Still, much hinges as how an internet service provider markets its services. ISPs who sell only one speed--gigabit--at lower prices, will tend to see higher take rates. Prices really do matter.  

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. By 2020, gigabit accounts might number between five and 10 percent of all fixed network connections, Deloitte believes.

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

But there is no reason to believe availability of gigabit connections changes the tradtional demand dynamics for consumer Internet access. Where there are a range of tiers and prices, most consumers opt for lower-priced packages that still offer reasonable bandwidth.

Rarely does demand for the absolute top speed tier ever seem to exceed about 10 percent of the buyer base.

In other words, most consumers will buy a tier of service that is deemed to be “good enough,” and also provides a better price-value relationship, compared to the absolute “best” offer. In other words, given a choice between best, better and standard packages, most consumers will choose the “better” package or “standard” package.
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.

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.

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