Cable One’s “GigaONE” gigabit internet access service is now available to residential customers across more than 95 percent of its U.S. footprint, representing more than 200 communities.
The primary impact likely will be that more people buy access at lower speeds, ironically. The reason is that when gigabit services are offered, the price of lower-speed tiers tends to drop. And, as you would guess, consumers buy more of a product they like when the price is lower. Verizon, for example, introduced its new gigabit per second at a retail price half that of the former 760-Mbps service, for example.
Gigabit services launches tend to reduce prices of services in the 100 Mbps or hundreds of megabits per second range to drop about $27 per month, or about 25 percent, according to an Analysis Group study.
In markets where gigabit service has been introduced, prices for internet access in the 25 Mbps and lower speeds also tend to drop, by 14 percent to 19 percent.
Likewise, when two providers sell gigabit services, prices for that service tend to decline by $57 to $62 per month, or 34 percent to 37 percent less.
Actual revenue upside might also be complicated. On one hand, gigabit sells for a higher price. But gigabit availability also tends to mean prices for lower-speed tiers fall. So net incremental revenue is tough to evaluate.
Take rates are part of the equation. Some believe adoption of gigabit services could range between five and 10 percent, in markets where lower-speed tiers also are available.
"Price anchoring" is the reason most consumers able to buy gigabit internet access will not do so. Price anchoring is the tendency for consumers to evaluate all offers in relationship to others. As the saying goes, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch.
Anchoring is why "manufacturer's suggested retail pricing" exists It allows a retailer to sell a product at a price the consumer already evaluates as being "at a discount." Price anchoring is why a "regular price" and a "sale price" are shown together.
In the internet access business, price anchoring explains why gigabit access speeds are priced in triple digits, while low speeds are priced in low double digits, while the tiers most consumers buy are priced in between those extremes.
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 is largely because of price anchoring.
People often evaluate a "best quality offer, at highest price" one way against the "lowest quality offer, at lowest price, before concluding that the "best" value is the mid-priced quality, at the mid-tier price.
That was true in the past when the top speed was 100 Mbps as well. Most consumers did not buy the "highest quality" offer, whatever it was.
So it can be argued that gigabit internet access speeds have complex effects on internet service provider business models. Most customers will not buy the top speeds, but will upgrade to faster tiers of service. At the same time, prices generally fall, on a “cost per Mbps” basis.
Consider that Comcast internet access average revenue per account is about $40 a month. Given that Comcast gigabit offers, where it faces little competition, are as high as $160 a month, and perhaps as low as $70 where Comcast faces gigabit competitors, that $40 average suggests uptake of the fastest tiers of service remains less robust than some would imagine.
Against that ISPs must balance the capex to build the faster networks, as well as evaluate the upside from any new apps and services that might be enabled by the faster networks, top speeds or rising average speeds.
The new wrinkle is that ISPs often make gigabit service available in neighborhoods where demand is highest. Doing so might lead to 30 percent take rates in those neighborhoods, as AT&T claims.
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