There is a confrontation brewing between ISPs and their users over pricing models.
Internet users should brace for the worst. The ISPs are about to take advantage of an already-strapped consumer by raising prices, for largely unfounded reasons.
To see how this is happening, a comparison is worth investigating: As reported in The New York Times, Japan has been able to upgrade its network to provide 160 Mbit/s of high-speed Internet bandwidth to customers at a cost of $20 per household passed. Monthly access to this network costs a reasonable $60, and a new high-speed modem around $55.
Here in the U.S., the download speed of Verizon Communications Inc. (NYSE: VZ)'s premier service, FiOS, tops out at between 20 Mbit/s and 50 Mbit/s. The premium speed package runs $149.95 a month. Verizon has claimed it spends $817 per household passed to provide fiber optics for FiOS, plus another $716 for equipment and labor as subscribers sign on.
The cable industry doesn't fare much better, despite the fact that both Cablevision Systems Corp. (NYSE: CVC) and Comcast Corp. (Nasdaq: CMCSA, CMCSK) are adopting Docsis 3, the same broadband technology deployed by Jupiter Telecommunications Co. Ltd. (J:COM) in Japan. Prices are still high, and customers question the basic premises on which they are based.
Time Warner Cable Inc. (NYSE: TWC), another large high-speed Internet and cable provider serving around 15 million homes, has ideas of a tier-based metered plan. Services would be billed per Gbyte downloaded, starting at 5 Gbytes and ranging to 40 Gbytes. Also available is the unlimited plan for $150 per month.
Time Warner Cable COO Landel Hobbs issued a "long reply" early this month to deal with irate customers, which explains how and why the industry is about to change.
Some see the high pricing for services in the U.S. as unrelated to the cost of facilities. "To me, this just isn't an expensive capital investment," Michael T. Fries, CEO of Liberty Global Inc. (Nasdaq: LBTY), parent company of J:COM, told The NY Times.
So why the ramp-up in charges? The equipment needed to supply the extra capacity in a high-speed network would appear to be a small percentage of a monthly customer's bill. Furthermore, the costs for a cable ISP should decline once Docsis 3 technology is fully in place.
But with so many programs of every stripe and color from multiple ISPs, successful implementation of a meaningful pricing structure seems elusive. The ISPs want us to believe the Internet Blitzkrieg is coming and the only way to combat the download assault is to increase bandwidth and capacity at inflated costs.
Some unintended consequences could accompany this approach. Cable service users, for instance, could wind up watching streaming video on the Web, dropping their cable service. Whether the cable companies shoot themselves in the foot or not may be decided by the Federal Trade Commission next year.
So hold one hand on your mouse and the other on your wallet; it's going to be a bumpy ride.
— Chris Poley has been a professional trader for more than 20 years.
He was refering to transfering bits but without being part of the content. In the cable industry, this doesn't happen. They deliver the content, but you pay for content (how they get revenues).
In the ISP industry, you pay for the service of delivering bits but the content is owned by some other company, which business is more lucrative.
I think Mr. Rogues, your Cisco representitive, should learn to read the financial statements. Without doing the breakdown, this industry has enjoyed steady growth. I am not saying the VOIP, and cable doesn't increase profitability, but once the build out of Docsis 3 is completed the costs for the cable indusrty will decrease marketedly, but the consumer rates will increase or remain high.
I also came late, sorry for that. This entire industry is going through a very interesting period. Comcast has seen their cable customers go to FiOS, voice customers cancel their services (although their new VoIP service is not doing bad - mostly because of the triple play offering). Their internet service isn't structured to success.
A few weeks ago I went to a talk and a representative from Cisco said one interesting fact. He said there isn't any data assuring that moving one bit from point A to point B is profitable - under current conditions.
nasimsom, Let's hope the content providers suppying, movies and network TV can put some pressure on the ISPs, to challenge their impassive behavior towdars the consumer. There is a likelihood that cable TV watchers may get enough content on Hulu and others, to forfeit their service in due time.
Sorry to catch up with you late on this. I am not surprised by ISP behavior. But I am surely disappointed by the behavior of regulator who is supposed to protect the consumer from exorbitant charges.
And by the way this Oligopoly also explains that why access providers are making more money than the content providers/content aggregators. Despite the fact that the service is not commodity & they are closer to customer in the value chain.
A.C. You see where this is going, right? We are going to be forced to have premium plans, with little or no options, because the capability is there and paid for by the ISPs.
Is the FTC presiding over legislation to address everything that was not enforced in the 1996 bill?
As a consumer, the cable and telco industry might as well be utilities and just say so. Rather then this benal treatment we recieve from both sides.
I do question some of your ROI data. Although your figures may be accurate, the don't fairly indicate investment capital for upgrades of service to the consumer.
My understanding is the infrastructure build-out comes to fruition, costs per household will decrease substantially. Now, this may not benefit the consumer, for sometime. But as a publicly traded company, TWC's first and foremost concern is to increase shareholder equity.
Differentiated pricing will maximize consumer welfare by letting consumers pick the service that best fits their need. For those who are currently not online because of costs, tiered pricies will allow these consumers to afford broadband services for the first time. Dr. Larry Darby explained this in our letter to Congress on April 17th.
Today, 5% of broadband consumers account for 50% of the Internet's traffic. These bandwidth hogs oppose tiered pricing because they like the majority of consumers subsidizing their p2p applications.
Many of these so-called "consumer groups" claim to be looking out for consumers, but their positions prove otherwise.
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