Which Way for Retail Internet Access Pricing?
We are about to see an unusual test of internet access pricing; unusual only in the sense that the direction of retail pricing in the internet era has been down, in a cost per bit basis and generally even in an absolute cost basis.
The test is a thesis some advance that U.S. cable companies--especially Comcast--will be able to boost retail internet access prices dramatically in coming years. That would run counter to past trends, and assumes that competition in internet access space will not increase.
Prices are complicated though, as one broad pattern has been for prices to remain roughly flat while speeds have grown dramatically, in some cases as fast as Moore’s Law might predict, at the high end of the market (what it is possible for a consumer customer to buy from an internet service provider such as Comcast).
That means sharp declines in cost per megabyte per second of speed might not be seen in posted retail prices. Also, pricing trends also reflect consumer decisions to spend more for their access, in the form of tiers of service that are faster.
Still, there is much anecdotal evidence prices are dropping, in developing and developed markets, including prices as a percentage of gross national income per capita.
According to the International Telecommunications Union, broadband prices have declined as much as 50 percent in developing nations, between 2008 and 2010, for example, and about 35 percent in developed nations.
Granted, as a supplier, Comcast might “need” to raise prices to counter lost video revenues.
That effort would aim to sustain average revenue per account as the linear video business declines.
But supplier “need for higher prices” always must contend with market dynamics. And there, one might well question whether Comcast will be able to maintain pricing power. Not only will mobile alternatives become more reasonable in the 5G era, new suppliers are entering the market (both new retail providers, such as Google Fiber, Ting Internet and others, as well as enterprises building their own networks and removing demand from the market).
So the interesting test is whether Comcast and cable can maintain pricing based on market power, in the 5G era, or whether competition will escalate, diminishing both market power and the ability to raise prices.