Setting Broadband Rates

One of the more interesting things about being a consultant is that I often get to work with new ISPs. One of the topics that invariably arises is how to set rates. There is no right or wrong answer and I’ve seen different pricing structures work in the marketplace. Most rate structure fit into one of these categories:

  • Simple rates with no discounts or bundling;
  • Rates that mimic the incumbent providers;
  • High rates, but with the expectation of having discounts and promotions;
  • Complex rates that cover every imaginable option.

Over the years I’ve become a fan of simple rate structure for a couple of reasons:

  • Simple rates make it easy for customer service reps and other employees.
  • It’s easy to advertise simple rates: “Our rates are the same for everybody – no gimmicks, no tricks, no hidden fees”.
  • It’s easy to bill simple rates. Nobody has to keep track of when special promotions are ending. Simple rates largely eliminate billing errors.
  • It eliminates the process of having to negotiate prices annually with customers. That’s an uncomfortable task for customer service reps. There are customers in every market who chase the cheapest rates and the latest special. Many facility-based ISPs have come to understand that such customers are not profitable if they only stay with the ISP for a year before chasing a cheaper rate elsewhere.
  • It’s easier for customers. Customers appreciate simple, understandable bills. Customers who don’t like to negotiate rates don’t get annoyed when their neighbors pay less than them. Simple rates make it easy to place online orders.

As a consumer I like simple rates. When Sling TV first entered the market they had two similar channel line-ups to choose from, with several additional options on top of each basic package. Since they were the only online provider at the time, I waded through the process of comparing the packages. But I was really annoyed that they made me do so much work to buy their product, and when a simpler provider came along I jumped ship. To this day I can’t figure out what Sling TV gained from making it so hard to compare their options.

ISPs can be just as confusing. I was looking online the other day at the packages offered by Cox. They must have fifty or sixty different triple and double play packages online and it’s virtually impossible for a customer to wade through the choices unless they know exactly what they want.

There are fiber overbuilders who are just as confusing. I remember looking at the pricing list of one of the earliest municipal providers. They had at least a hundred different speed combinations of upload and download speeds. I understand the concept of giving customers what they want, but are there really customers in the world who care about the difference between speed combinations like 35/5 Mbps, 38/5 Mbps, or 35/10 Mbps? I know several smaller ISPs who have as many options as Cox and have a different product name for each unique combination of broadband, video, and voice.

There is such a thing as being too simple. Google Fiber launched in Kansas City with a single product, $70 gigabit broadband. They were surprised to find that a lot of customers wouldn’t consider them since they didn’t offer video or telephone service. Over a few years Google Fiber introduced simple versions of those products and now also offer a 100 Mbps broadband product for $50. Even with these product additions they still have one of the simplest product lineups in the industry – and they are now attractive to a lot more homes.

I know ISPs with complicated rates that have achieved good market penetration. But I have to wonder if they would have done even better had they used simpler rates and made it easier on their staffs and the public.

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