Friday, August 10, 2018

How Many Consumers Would Willingly Buy Internet Access at $80 a Month?

With news that the U.S. Federal Communications Commission is once again going make its annual study of U.S internet access speeds, keeping the minimum at 25 Mbps, it is worth noting that, in the first two quarters of 2018, the “mean” (average) mobile internet access speed was 27.3 Mbps, according to Ookla.

In the first two quarters of 2017, the mean fixed network speed was 64 Mbps, according to Ookla. With the normal caveats (mean is an “average”; median is the midpoint).

The point is that the FCC definition is a minimum definition, not a statement of direction, as both mobile and fixed network speeds, “on average,” already surpass that level.

Keep in mind that internet service providers operate on many different platforms, and not all the platforms can upgrade speed as “easily” as fixed network operators. One thinks of satellite operators, at least one of which would, were the minimum raised to 100 Mbps, as some already argue is needed, would not longer be able to sell a “broadband” service.

In principle, the FCC is trying to maintain a platform-agnostic metric.

To be sure, there are areas with what most would consider unacceptably slow fixed network speeds (below 10 Mbps), especially common in rural areas.  

And many would argue prices are too high. The point is that U.S. ISPs are making rapid progress on speeds available to most potential buyers.

The FCC report does not stake out new ground on aspirational levels of speed; that is happening in the market, in any case. What the FCC wants to do is set minimum expectations that all the platforms can reasonably expect to deliver, not the “maximums.”

By way of comparison, advocates of adopting a minimum definition of “broadband” at 100 Mbps might not be so clear on consumer willingness to pay for such speeds. One recent study suggests demand for 100 Mbps, at current pricing levels of roughly $65 a month, is close to the maximum most consumers are willing to pay.

As much as 75 percent of all consumers might refuse to pay that much for an internet access service.

Consumers seem to evaluate internet access offers the same as any other product, which is to say they compare value to price. And that means most consumers do not buy the most-expensive, fastest service, but tend to pick services that offer high enough value, at a reasonable enough price. In other words, they tend to buy the good enough service because it costs less than the “best possible” service, sold at premium prices.

“We find that households’ valuation of bandwidth is highly concave, with relatively little added value beyond 100 Mbps,” researchers assert in one study. “For example, households are willing to pay about $2.34 per Mbps ($14 total) monthly to increase bandwidth from 4 Mbps to 10 Mbps, $1.57 per Mbps ($24) to increase from 10 to 25 Mbps, and only $0.02 per Mbps ($19) for an increase from 100 Mbps to 1000 Mbps,” the authors say.

“As with the PC, one could again reasonably ask whether bandwidth increases continue to generate substantial value for consumers,” researchers at the Technology Policy Institute say. “Consumers highly value bandwidth enhancements at lower speeds, but the incremental value of bandwidth decreases rapidly” as speeds increase.

Since few consumers think about their internet access purchases in “dollars per Mbps,” the more relevant graph is that which shows willingness to pay for bandwidth at various speeds. Though total demand continues to increase from about 150 Mbps up to a gigabit, most of the demand is at 150 Mbps and below, TPI surveys have found.

One way of parsing this data is that about half the total demand is for service costing about $40 a month, while the overwhelming majority of consumers seem resistant to pay more than about $70 a month.

As you might expect, consumers value bigger usage allowances and lower latency, and appear willing to pay some incremental fees to get reduced latency and bigger usage allowances. Still, there also is reluctance to spend more than $80 per month for service, no matter how fast the service is.

No comments:

"5G or 4G" Will Not Matter for Most Users, in Practice

It already is tough to determine what “5G speed” actually means, as early 5G often is based as much on 4G as 5G. And the problem of a...