Where Fixed Broadband Prices in Developing Nations Need to Go

Affordability is a key driver of service adoption, even when latent demand is high. That is especially true for fixed broadband access services in developing nations, where prices are dropping rapidly.

Where in 2008 the cost of a fixed network broadband connection represented as much as 165 percent of per-person income, since then, prices have dropped about 500 percent, according to International Telecommunications Union data. 

Still, there is some distance to go. In developed nations, fixed network Internet access represents about 1.7 percent of per-person income. In developing nations, fixed network Internet access represents about 31 percent of per-person income. 

That is why mobile Internet access widely is expected to represent the way most people in developing regions get access to the Internet. For fixed services to reach cost parity (in local terms), retail prices would have to drop another 18 times. 


Prices lower by an order of magnitude is helpful. But prices might need to drop another two orders of magnitude to reach developed region levels. One might suggest that is unlikely to happen over the next decade or two. 

It is far easier to envision mobile Internet access prices dropping by an order of magnitude over that period 

2013 Not the Year Video Subscription Business Breaks

No prediction is required where it comes to expected 2014 price levels for video subscription services. They will rise. They always do.

DirecTV hasn’t announced the precise amount of the increase, but something on the order of a four percent rate increase is logical, after an increase of 4.5 percent or so in 2013.

Comcast typically hikes prices about five percent a year. It is possible the aggregate 2014 rate hikes will amount to about three percent.

In 2013, Dish Network raised prices between seven percent and 20 percent. Another hike, of course, is coming in 2014. Some predict a price increase of about $5 a month, sometime in February 2014.

To be fair, those increases largely reflect increases in distributor programming costs. Time Warner Cable’s 2014 payments just to CBS will triple, some predict.

Some argue those annual price hikes, which consumers almost always say they object to, are the reason people slowly are falling out of the habit of paying for traditional video subscriptions.

There is a more dangerous explanation, though. Many younger users find they do not appreciate the product enough to buy it, even when the actual price is really not the barrier.

But higher prices eventually are going to convince greater numbers of people they can do without the subscriptions, and substitute other behaviors, especially as it is easier to display Internet-delivered content on a standard TV.

To be sure, a major change in buying habits likely will not happen until people can buy, at prices they believe are reasonable, much of the content they now expect to view when they buy a video entertainment subscription. That is a ways off, it would seem.

But pressure slowly is building. That doesn't mean an immediate collapse of the current model. But neither would it be unrealistic to predict that, at some point, a major disruption will happen.

Typically, major changes in consumer behavior happen rather suddenly, when a better alternative to a desired existing product emerges. Globally, there was an inflection point reached sometime early in the 1990s.

An analogy from the mobile adoption rate  in most developing markets provides another example.

About 2003, an abrupt change in buying and adoption occurred. The video subscription business can be likened to the long period prior to 2003. The change, in other words, will be discontinuous, not gradual and linear.

The Year Broadband Access Prices Were "Destroyed"

Major Internet service providers long have argued that demand for very high speed Internet access (50 Mbps, 100 Mbps, 300 Mbps and faster) is limited. For a very long time, those ISPs have had the numbers on their side.

Take rates, a measure of consumer demand for very high speed Internet access services, have historically been rather limited in the United States.

ISPs in the United Kingdom likewise have found demand challenges for very high speed services.

Major ISPs would have been on firm ground in arguing that most consumers were happy enough with the 20 Mbps to 30 Mbps speeds they already were buying, and that demand for 50 Mbps, 100 Mbps, 300 Mbps or 1 Gbps services were largely limited to business users or early adopters.

But something very important changed in 2013, namely the price-value relationship for very high speed Internet access services. Previously, where triple-digit speeds were available, the price-value relationship had been anchored around $100 or so for 100 Mbps, each month.

In the few locations where gigabit service actually was available, it tended to sell for $300 a month.

Then came Google Fiber, resetting the value-price relationship dramatically, to a gigabit for $70 a month. Later in 2013, other providers of gigabit access lowered prices to the $70 a month or $80 a month level, showing that Google Fiber indeed is resetting expectations.

Sooner or later, as additional deployments, especially by other ISPs, continue to grow, that pricing umbrella will settle over larger parts of the market, reshaping consumer expectations about the features, and the cost, of such services.

That price umbrella also should reshape expectations for lower-speed services as well. If a gigabit costs $70 a month, what should a 100-Mbps service cost?

An analogy: in the past, voice service was the basic offer, while “voice mail” was a separate add-on. These days, it is inconceivable that a standard voice service comes without voice mail.

To be sure, instant messaging and over the top VoIP services do not routinely include the equivalent of “voice mail.” But the price-value relationship there also is quite different. People expect to use those services, much of the time, for no incremental cost. So despite the fact that a store-and-forward messaging capability is not available, the retail price also reflects the difference: no messaging, but also no incremental cost.

For a “paid” service, voice mail has to be included in the basic product.

The big change in 2013 was that the high end of the Internet access or broadband access market was fundamentally reset, even if the practical implications will take some time to be realized on a fairly ubiquitous basis.

Google Fiber’s 1 Gbps for $70 a month pricing now is reflected in most other competing offers, anywhere in the United States.

And those changes will ripple down through the rest of the ecosystem. Where Google Fiber now offers 5 Mbps for free, so all other offers will have to accommodate the pricing umbrella of a gigabit for $70 a month.

Be clear, Google Fiber has sown the seeds for a destruction of the prevailing price-value relationship for Internet access.

Eventually, all consumers will benchmark what they can buy locally against the “gigabit for $70” standard. And those expectations will affect demand for all other products.

Where alternatives are offered, many consumers will opt for hundreds of megabits per second at prices of perhaps $35 a month, because that satisfies their needs, and is congruent with the gigabit for $70 pricing umbrella.

One might also predict that, on the low end, 5 Mbps will be seen as a product with a retail price of perhaps cents per month.

Someday, we will look back and likely see 2013 as the year broadband access prices started to be “destroyed” (one way of looking at matters) or “reshaped” (the way Google looks at it).

Raising $20 Billion is the Easy Part of Potential Sprint Acquisition of T-Mobile US

Even if the $20 billion in financing is raised, rival bids do not emerge, or not successful, and a deal is agreed to by T-Mobile US, getting a transaction approved by the Federal Communications Commission and U.S. Justice Department remains the truly hard part of the effort.

When AT&T tried to buy T-Mobile USA, the U.S. Depart of Justice argued that the U.S. mobile market already was so concentrated DoJ could not allow the deal to proceed.

DoJ also favors having four national competitors in the U.S. mobile industry, an opinion that likely is shared nearly universally among national regulators.  

For that reason, some believe Dish Network would have advantages in any buyout effort, as antitrust issues arguably would be less. At least in principle, were Dish able to buy T-Mobile US, market structure would not be affected.


None of that would change what many observers believe about long term market structure, which is that, ultimately, the market will only support three major competitors. The simple empirical observation is that the two strongest providers--Verizon Wireless and AT&T Mobility--are gaining share and revenue, while the two smaller carriers struggle.

And some would argue Dish Network is almost impelled to make a bid. The former mobile satellite spectrum Dish Network wants to use to support a terrestrial Long Term Evolution network has a market value estimated at $9 billion. 

If Dish Network fails to meet its construction obligations, though, the FCC has the right--indeed, the obligation-- to revoke the license, wiping out $9 billion worth of equity value. 

Were it to acquire T-Mobile US, Dish Network also would nearly double in size, and escape the confines of the "satellite TV" segment of the market Dish now occupies. 

Dish also would gain the ability to offer triple play or quadruple play services. 

Sprint likewise arguably sees a Sprint combination with T-Mobile US the fastest way to increase existing market share and level the competitive playing field with both AT&T Mobility and Verizon Wireless. 

Though a potential Sprint purchase of T-Mobile US poses major regulatory issues, regulators also have to ponder the other major deals that also could be proposed in 2014, including major cable TV mergers, or even a merger between Dish Network and DirecTV, should Dish fail in any bid to acquire T-Mobile US.

And some will continue to argue that the only long term way the smaller providers ever will catch up to AT&T Mobility and Verizon Wireless is on the strength of a combined Sprint and T-Mobile US, with initial market share substantial enough to rival the other two service providers.

Freemium is Leading App Pricing Model

"Freemium" is the most popular retail pricing model used by mobile apps in the Apple App Store, according to Distimo Distimo analysis, except for the navigation, education and productivity categories.

Between 2011 and 2013, the proportion of revenue based on in-app purchases increased from 77 percent to 92 percent in the Apple App Store and from 89 percent to 98 percent on Google Play.

Rise of Ad-Supported App Firms Could Have Access Provider Implications

There is a potential lesson for communications service providers in the rise of the ad-supported software company, something never seen previously. And the glimmer of significance is the notion that third parties might provide the revenue model for some communication services, at some level.

That would be a historic change from the traditional pattern, which has communications service providers making their revenue from selling services directly to end users.

Granted, it might not be unusual to argue that a smallish firm might attempt, or even succeed at, providing some communication services in exchange for agreeing to view, listen or watch some amount of advertising.

Indeed, from time to time, that has been tried, especially for use of voice services.

What is unusual, historically, is that a firm such as Google can become a giant software company based nearly exclusively on advertising support.

But Google is no longer unique. One might count Facebook and Yahoo as among technology firms supported nearly entirely by advertising support.

In recent years, there has been much talk of ways communication service providers can earn more money from third parties, such as advertisers or application providers buying some network features, to reach or better serve application provider users.

At least so far, the trend remains seminal, in some cases because regulatory bodies prohibit one or more of the business models that would make third party payments lawful. The U.S. fixed network network neutrality rules provide an example, barring Internet service providers from creating quality of service features application providers can use.

It does not seem likely that the revenue driver for an access provider would primarily become services sold to third parties and business partners, rather than business and consumer end users.

But as the experience of Google, Facebook and Yahoo suggests, indirect revenue mechanisms, which generate cash from business partners, not end users, are a new factor. The issue is the extent to which communications service pr

Can "Internet Access" Be More Than a Commodity?

What makes today’s “Internet access” different from voice, text messaging or video entertainment? The answer explains why service providers spend so much time thinking up ways to make Internet access more like voice, texting or video entertainment.

And might ISPs (at least some tier one ISPs) eventually have a business model more akin to Amazon?

Without overplaying the analogy, Amazon’s network resources are a platform for selling things. People pay for the products they buy, not “access” to Amazon.com.

That is the same model service providers have used for voice, text messaging and video entertainment. Only Internet access has used a distinctly different model, namely, selling the right to access the trading platform.

And though we now commonly count a unit of “Internet access” as merely one of several products sold by an ISP, the business model is quite different from the other products. In other words, the other products are “applications” people want to use that require the use of the network. But access to the network is not what people buy.

In the case of Internet access, the model is inverted. People want access to Google Maps, search, Facebook, Twitter, Amazon, eBay and other Web-based apps.

That makes Internet access, by definition, a “dumb pipe” commodity service.

Precisely how that might change in the future is the issue. Though it is unlikely people will stop wanting general purpose Internet access, which might always be the most-purchased product, there potentially are other models, all based on the traditional way service providers have created their products.

It will not be easy to create such services or attain critical mass. Even the traditional apps have become more “commodity like” in recent years, as a wider range of solutions now exist for the communication needs once supplied exclusively by voice (mobile voice, texting, email, instant messaging and social app point-to-multipoint capabilities).

Still, the principle remains: people will buy apps that use networks. That is the principle behind machine-to-machine (Internet of Things) sensing apps. People want the advantages of instant and continual access to sensor data. They will buy the app functionality, thereby creating revenue models for network service providers.

It will not be easy. Still, in principle, nearly all the ways Internet access can be reimagined will involve the ability to create, or participate in, new apps that solve new problems, using the network, but not based on access to the general purpose Internet.

In principle, those new apps will exist, side by side with general purpose Internet access, much as Internet access now rides on the same networks used to deliver voice and video entertainment.

The interesting problem for mobile service providers is that texting is possible because it is enabled by the signaling system that supports legacy voice. As the older voice networks are shut down, in favor of voice over IP mechanisms, “texting” will become an app enabled by the network, not a byproduct of the operations of the network.

Texting functionality can be provided, in principle, though it will not be a simple byproduct of the signaling system. Precisely how much money mobile service providers will want to spend to replicate text messaging functionality in an IP environment, and how to retain distinctiveness, compared to instant messaging, is the issue.

As we now can conceive of video entertainment packages that emphasize sports, might we also conceive of a sports-optimized service including video, audio, shopping and news functions all related to sports (by extension, U.S. football, soccer, basketball or baseball offer further refinements), and sold as a bundle?

Assume for the moment we don’t have to worry about traditional line of business regulation, and that the only thing that matters is creating the product and then marketing the product to a large enough group of buyers to create a sustainable revenue model.

Health applications obviously offer a similar opportunity, where it is the “health monitoring, information and transaction” application that is the retail offering, not general purpose Internet access.

Sirius XM sells satellite audio, primarily for vehicles. In principle, Sirius XM might also provide the foundation for some connected car services as well, where the same fleet of satellites, possibly augmented by terrestrial access (mobile service providers being the logical suppliers), underpins the service.

One might argue there is no need for mobile operators to use the Sirius point to multipoint capabilities, but such “broadcast or multicast networks” are highly efficient for those parts of a service that deliver content not required to be customized.

The point is that ISPs might someday learn to create apps using the network that change “access” into managed apps. That is a big deal.