A recent study by the Berkman Klein Center for Internet and Society at Harvard University looked at the prices charged by community-owned broadband networks and found that in 23 out of 27 networks they studied that the municipal provider offered the lowest price in the market for broadband.
They didn’t just consider the monthly fees but looked at the total costs to a customer over a 4-year time frame and considered connection charges, equipment and other ancillary charges and fees along with price increases that come after the end of introductory specials.
I’m not surprised by these findings, but my experience is that this phenomenon is not limited to municipal providers. Around the country there are now hundreds of commercial ISPs and fiber overbuilders who are also building into competitive markets and competing against the big cable companies and telcos. And for the most part they compete with a combination of lower prices and better service.
It’s interesting to watch how the big cable companies react to competition. Most of them react by offering special rates that are lower than the published rates of a new competitor. They will often blitz a market with these special rates when a competitor is building a network to try to lock up customers before the new ISP launches. Some of these ‘special’ prices are incredibly cheap and I’ve seen markets where the special rates are half of the regular rates offered by a cable company. What I find surprising is that I sometimes see special package rates that look to be even lower than the cost of the cable TV programming – meaning no margin for the cable company. It’s also not unusual to see the incumbents enforce customer contracts in competitive markets and make it hard and expensive for customers to leave them.
But even with special rates the cable companies often can’t resist sliding other charges onto bills. If you haven’t looked at a big cable company bill in detail, you ought to. In addition to the normal triple play product bundle there are usually charges and fees that are tacked onto the base prices. These fees might be for network programming, for sports programming or just some invented fee that’s not particularly for anything. The cable companies hope that customers mistake these for taxes, but they are just ways to increase the base price of the triple play advertised or special prices. The big ISPs also have jacked up ancillary charges or the last few years, like Comcast’s most recent increase to $11 per month to use one of their cable modems. If a fair comparison is made of the charges on bills, then it’s going to be rare when competitors don’t have the lowest prices. These extra fees and charges are likely to be the reason that incumbents cost more even in markets where they try to ‘match’ rates of competitors.
One thing that these comparisons don’t discuss is how competition lowers the prices for everybody in a market. Customers jumping to a competitor get lower prices, but so do most customers that stick with the incumbents. I’ve seen a number of competitive markets where the incumbents stop raising rates every year, and it’s not unusual to see rates in a competitive market fall significantly below prices in nearby markets with no competition. I wish this Harvard study had looked into this in more detail. I’ve only ever seen once study that looked at this phenomenon and it must have been ten years ago when a study showed that competitive markets had overall rates roughly 15% lower than surrounding communities. I’d like to see how that looks today.
Competition also brings other benefits to a market. For example, one of my clients a few years back was competing in a major market with Comcast and noticed that when customers called Comcast customer service that their calls went straight to the top of the call cue. But even without such trickery it’s pretty normal for incumbents to up their game in competitive markets with better customer service, more repair technicians and other changes to help retain customers. Fees that punish customer behavior also largely disappear in competitive markets, such as charges for exceeding monthly data caps.
The other thing that I often see in competitive markets is a win-back program. It’s not unusual to see an incumbent make it hard for a customer to leave without having to first suffer through a long call offering major incentives to stay. Some of the most famous customer service horror stories are about overzealous employees in a win-back program who do crazy things to try to keep customers from leaving.
There are not that many truly competitive markets in the country. There are only a relative handful of urban municipal providers, and other fiber overbuilders have still barely made a dent in the potential market. Where Comcast competes with Verizon FiOS the two companies stopped competing with price years ago and have largely reach a stasis in each market. It will be interesting to see if fixed 5G wireless and other new competitors bring more real competition. The strategies the incumbents use today to deal with real competition work because they can cut prices in the few competitive markets and make up for it elsewhere. But that dynamic will change if we ever see widespread competition.