Pent-up Customer Demand

I’ve recently read several articles that talk about how the new ‘unlimited’ cellular plans have increased data demands. One article quoted analyst Chetan Sharma who pointed to research done by Opanga Networks that show that Verizon’s daytime data traffic has doubled since the introduction of the unlimited cellular data plans.

These plans aren’t really unlimited, but have increased the monthly data caps to much higher levels of 20 Gigabytes or more per month. For the average cellular user this is a large enough increase to allow them to stop self-limiting their cellular data usage. It finally frees customers to use their cellphones in the way they want.

This phenomenon was expected and is familiar to any network owner who has ever done a major broadband network upgrade. I’ve worked with a number of companies over the years that have improved customer broadband and they always see a similar surge in customer broadband usage. For example, companies that have made the transition from DSL to fiber have seen this same immediate surge in customer use of the network.

But it doesn’t take a network upgrade to experience this kind of surge. I’ve had customers that operate fiber networks that have had the same phenomenon when they increased network speeds. When one of my clients moved their basic broadband product from 10 Mbps to 50 Mbps they experienced almost the same thing as Verizon.

This surge comes from freeing pent-up customer demand for broadband. Customers limit their data usage when their broadband connection isn’t fast enough. For example, with a slow broadband connection they quickly learn that they can’t watch two different video streams simultaneously. Or parents might not let their kids game online while somebody else is watching streaming video. Customers quickly understand that slow download speeds impede their ability to do multiple things at the same time. And they learn to curtail their broadband usage accordingly.

But when customers find they can do multiple things at the same time they do so. They begin to use the broadband for anything they want to do and they stop curtailing usage. When a lot of customers discover they are no longer throttled then network owner experiences an immediate surge in broadband usage. Customers will use broadband in multiple ways simultaneously in the evenings. They will begin watching HD video instead of SD video. They will subscribe to OTT video services for the first time.

But speed is not the only thing that curtails customer usage. In the case of the unlimited wireless data plans it is the fear of exceeding a costly data cap that curtails usage. The same thing can happen for home broadband usage that has data caps – customers consciously don’t use bandwidth to avoid getting higher monthly bills.

There is an interesting thing that always happens following these data surges when customers are freed to do what they want. The amount of usage surges higher, like Verizon’s doubling, and then it flattens out at a higher usage level.

It’s been well known that home broadband usage, both in terms of desired speeds and total monthly downloads, has been doubling every three years for decades. Any time that customer broadband usage is somehow capped or curtailed, customers will catch up to this original curve and will start looking like other customers that don’t have broadband restrictions.

ISPs need to be aware of this phenomenon. I still know of numerous fiber-to-the-home networks that have base data products of 10 Mbps or 20 Mbps. The owners of these networks are squelching their customers’ usage and they are dictating to customers what they can and cannot do.

The bigger ISPs understand this. The cable companies have kept ahead of the customer broadband demand curve by unilaterally increasing data speeds. In many markets the base broadband product is now at least 60 Mbps – higher than the FCC definition of broadband and higher than what most customers need today. Cable companies have learned that giving customers a little more broadband than they need stops most complaints about broadband.

Little ISPs and fiber network owners need to understand this as well. There is not a lot of excuse on a gigabit-capable network for a fiber-owner to limit customers to speeds under 25 Mbps. Their base product ought to be at least as fast as what the big cable companies offer.

I know it is fear of having a surge in network usage that stops a lot of network owners from increasing speeds. I think a lot of them also don’t fully grasp the real implications of broadband demand constantly growing in a geometric manner. When a network owner first set speeds at 10 Mbps that might have been a great speed – but it’s now holding back customers from using the data product they are paying for. I always ask network owners the question – why did you build a fiber network if you don’t want customers to use all of the broadband they want?

2 thoughts on “Pent-up Customer Demand

  1. I think you’ll be hard pressed to find a company that built a fiber optic network for any other reason than to make money, outside of member owned co-ops.

    Very few, if any, ISPs only offer a low base level tier. The question isn’t why shouldn’t ISPs give away bandwidth upgrades for free. The question is, why aren’t customers upgrading to higher tiers?

  2. “I always ask network owners the question – why did you build a fiber network if you don’t want customers to use all of the broadband they want?”

    The reason IMHO is the legacy telephone company POTS incremental unit billing business model that bills based based on minutes per call and distance. Hence, ISPs have largely adopted this consumption-based model. The more megabytes that flow to the customer, the higher the bill. That makes sense for utilities like natural gas, water and electricity where there are costs to produce and store the service delivered to the customer’s premise, but not for IP-based telecom and certainly not for residential premises.

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