New Zealand Home Broadband is a Reminder About Digital Era Competition

Incumbents in the New Zealand home broadband market lost about  three percent account market share over the last year ending in March 2022, says IDC. 

Notable share gainers include Trustpower, Contact Energy, Electric Kiwi and Nova Energy,  energy retailers who now are bundling home broadband with their energy services. 

“The energy retailers have a distinct advantage over the telcos; energy retailers don't need to make a profit on their broadband services,” says Monica Collier, IDC New Zealand researcher. 

Where have you seen this story before? Fairly broadly in the consumer internet app and consumer access services business. The scary implication: “it is hard to compete with firms that give away what you sell.”  

In other words, can you compete with "free?" That complaint lies at the heart of issues connectivity service providers have had with over the top edge providers or app providers.  

How to ”compete with free" is a major question in the Internet era, where many goods--especially of the non-tangible sort-- can be replicated and produced with low marginal cost.

For communications service providers, the issue has arisen mostly in conjunction with low cost or “free” services such as Skype or WhatsApp that supply voice or messaging services “at no incremental cost,” once a user has suitable devices and Internet access.

That has led many to say the economics of abundance makes new revenue models possible. Some would say “abundance,” a relative term, makes new models essential, in at least some cases. But the implications are startling.

The basic idea is that transistors, storage, computation and bandwidth are so abundant  the cost of their use--and digital products built on them-- is a price very close to zero. 

The corollary is that businesses based on the use of such resources can be viewed differently from businesses where physical  inputs are necessary and relatively expensive.

In other words, businesses based on abundant inputs can "waste" those resources. In a pre-broadband, pre-Internet-Protocol era, unicasting (content on demand) would have been nearly impossible. That is why video entertainment was broadcast or multicast. 

The same sorts of economics apply to digital products whose cost of replication is quite low, in comparison to physical goods.