If the Connectivity Business Now is Part of "Computing," Does That Explain Fundamental Price Trends?

It is easy enough to note that the global data access business (wide area, metro area or local) is now part of the computing ecosystem, which in turns supports almost every sort of content, shopping, learning, entertainment or manufacturing activity you can imagine. 

Less obvious are the ways that integration shapes perceptions of value and retail pricing trends in the connectivity business. The old “telecommunications” business was based on scarcity: expensive networks hard to deploy and with competitive moats. 

The replacement “internet” business is based on abundance: ever-cheaper, ever-faster, ever-powerful processing and storage; ever-cheaper connectivity; easier digital replacements for a growing range of products. 

All observers would agree that, in general, prices for home broadband tend to fall over time, while capacity supplied tends to grow over time. That same trend is seen in wide area network -capacity, internet transit or interconnection prices or just about any measure of computing device or computing service prices as well.

The issue is why that should be so, aside from the fact that most home broadband markets are competitive, which should lead to better products, faster innovation and lower prices over time, as might be the case in any other market. 

But home broadband is not the only sort of product that shows that pattern: higher capability and flat to lower prices as a recurring practice. Computing and storage products famously show the same pattern. 

Home broadband unit prices seem to act as do computer unit prices: capability doubles every 18 months while price either remains the same, or drops. To be sure, in some cases other value drivers seem to be at work. Premium level smartphones actually seem to increase in price, in some cases. 

That may be an instance of prices reflecting higher perceived value for some appliances, compared to others. 

Also, in large part, consumer or business spending on connectivity services is limited for other reasons. Most households are only able to spend so much for connectivity; so much for computing appliances; so much for entertainment. Most of the household budget has to go for shelter, food, transportation, healthcare or other necessities. 

Some might argue that household spending on services and hardware is as much as five percent of household budgets.  

Asymco, Federal Reserve Bank 

Even that might be falling, over time. Demand is  relatively inelastic for communications. In other words, people will only spend so much for communications. As a percentage of gross domestic product, for example, communications spending by households fell between 2006 and 2019, for example. 

source: ETNO

The point is that there is only so much incremental growth possible in the home broadband business, once near-saturation levels in terms of subscriptions are reached, beyond new home construction, which grows the number of potential customer locations. At the firm level, growth eventually boils down to taking market share.