Being Stingy with Broadband Speeds

As I work in various parts of the country, I help new ISPs choose the speeds and the prices to offer on fiber networks. Part of that research begins with looking at what other ISPs charge in the region. I should probably stop being surprised, but I’m still taken aback when I see fiber-based ISPs offering what can best be described as stingy speeds. Just the other day, I ran across an ISP that is offering a range of speeds between 25/3 Mbps and 100/20 Mbps on fiber. Earlier this year, I ran across an ISP that has fiber products as tiny as symmetrical 10 Mbps.

This frankly mystifies me, and I always wonder why somebody with fiber would offer broadband products that are similar to their competitors. I figure that part of the reason is what I would call old thinking. Somebody offering that kind of speed is likely a small telco that used to offer DSL or a small rural cable company that didn’t have fast speeds. DSL products were set at a range of speeds up to 25/3 Mbps because that’s what the technology would allow.

I can’t imagine the thought process that says the slow speeds are adequate. According to OpenVault, 75% of U.S. Households are currently subscribing to download speeds of 200 Mbps or faster. That includes over 14% of homes nationwide that are subscribing to a gigabit product. It’s clear that people want faster broadband.

I think another part of the reason that an ISP would set low speeds is a fundamental belief that customers that buy faster speeds will somehow cost the ISP a lot more money. But after having seen the impact of hundreds of ISPs that have upgraded to faster speeds – I know this is not true. There is a one-time increase in broadband usage when you unblock a community that has had restricted broadband. The people in such communities start using broadband like everybody else, and that looks like a one-time big increase in usage – but people are just catching up to the ways that most of the rest of country uses broadband. After that short burst to catch up, usage then grows like everybody else.

Another reason behind offering slow speeds probably goes back to the day when buying Internet backbone connections was extremely expensive, and operators feared that a burst in usage would cost a lot. That’s also not true anymore in most places. Wholesale broadband prices have tumbled over the last decade. I know ISPs that are buying eight or ten times more bandwidth than a decade ago, at basically the same cost. I know that there are still some small ISPs located deep in rural areas that are paying far too much for broadband from the local telco.

There was a time when most of the industry tried to throttle customer usage. I remember quotes from the CEOs of the big cable companies and telcos saying that people didn’t need faster speeds. However, folks like Verizon FiOS and a handful of early fiber overbuilders exploded that concept and the cable companies did a 180 and now routinely increase customer speeds as a way to keep folks satisfied.

This same thinking also manifests in pricing. An ISP that offers 25 Mbps on fiber might also offer a gigabit product – but at a price that nobody can afford. I still run across gigabit broadband on small fiber ISPs priced at $175 per month or higher. These prices are set to make sure that only a few people buy the faster broadband. This thinking comes from the underlying belief that faster speeds are a luxury. But that’s really odd thinking for somebody that operates a network that can easily provide symmetrical gigabit broadband at an affordable price.

And that’s what gets me the most – these ISPs are losing revenues by being stingy. If they offer a slow broadband product at $50, they would likely have a lot of customers willing to pay $70  or $80 per month for gigabit broadband. I can tell by looking at the offerings that most ISPs with slow speeds are making less than their peers.

I understood these speeds and prices somewhat a decade ago when fiber networks were new and buying backbone Internet was expensive. But I can’t understand ISPs that have these stingy pricing plans when their peers a town away have normal broadband pricing.

4 thoughts on “Being Stingy with Broadband Speeds

  1. What are the prices these days you cite? “I know ISPs that are buying eight or ten times more bandwidth than a decade ago, at basically the same cost.”
    Thank you.

  2. There is another “education” issue involved here. I have reviewed business plans as well as had many discussions with consultants (when we have prepared a business plan) who insist that you can’t offer 100 X 100 (example) to everyone because you would need to have 30, 40, or 100 Gigabit pipes to the outside world to serve a community of less than 5,000 subscribers. Amazingly, even some technical people don’t allow that not everyone will be on-line and at maximum throughput at all times.

    This added estimated expense hurts business plans but more importantly, it causes new providers to be overly cautious in their offerings. I recently visited with a client with over 13,000 subscribers offering 250/500/1Gig/10GIG subscriber offerings. This company’s requirements for the wholesale internet backbone only hit a 13 Gig peak once this year. They constantly monitor the network and can increase its “pipe to the world” almost immediately.

    Sometimes we still make decisions based on poor information rather than doing the appropriate monitoring and/or talking to our neighbors who are more aggressive with selling their products.

  3. It’s not all a matter of what fits in the last mile fiber. The traffic has to fit through choke points up the tree so there is, absolutely, a cost to adding in lots more traffic at the edges of the network since it can force a cascade of upgrades or expansions all the way up the line. That gear’s cheaper than it used to be but it’s still more stuff to truck into the field, to power, to operate, to maintain, to upgrade, etc.

    It’s one thing if you’re funding it through organic growth (which isn’t happening any more) but it is going to cost real money to add in.

    More likely, though, the clever MBAs at the various ISPs have focus groups and models that just don’t show a way to make much more money by offering more speed because there aren’t currently any compelling applications that really require tons more speed. At least, compelling enough to spend money on — getting 8k streaming for junior playing CoD probably isn’t going to be worth the extra $$ to clients what it would take to bump profits by xx%.

    Anyway, I’d bet that this _is_ something they’re doing on purpose, not just leaving opportunity lying on the ground. All the more reason for muni broadband.

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