Do We Really Need Gigabit Broadband?

I recently read an article in LightReading titled “All That’s Gigabit Doesn’t Glitter.” The article asks the question if the industry really needs to make the leap to gigabit speeds. It talks about the industry having other options that can satisfy broadband demand but that telco executives get hooked into the gigabit advertising and want to make the gigabit claim. A few of the points made by the article are thought-provoking and I thought today I’d dig deeper into a few of those ideas.

The big question of course is if telco providers need to be offering gigabit speeds, and it’s a great question. I live in a cord cutter family and I figure that my download needs vary between 25 Mbps and 50 Mbps at any given time (look forward to a blog soon that demonstrates this requirement). I can picture homes with more than our three family members needing more since the amount of download speed needed is largely a factor of the number of simultaneous downloads. And certainly there are people who work at home in data intensive jobs that need far more than this.

There is no doubt that a gigabit is a lot more broadband than I need. If we look at my maximum usage need of 50 Mbps then a gigabit is 20 times more bandwidth capacity than I am likely to need. But I want to harken back to our broadband history to talk about the last time we saw a 20-fold increase in available bandwidth.

A lot of my readers are old enough to remember the agony of working on dial-up Internet. It could take as much as a minute at 56 kbps just to view a picture on the Internet. And we all remember the misery that came when you would start a software update at bedtime and pray that the signal didn’t get interrupted during the multi-hour download process.

But then along came 1 Mbps DSL. This felt like nirvana and it was 20 time faster than dial-up. We were all so excited to get a T1 to our homes. And as millions quickly upgraded to the new technology the services on the web upped their game. Applications became more bandwidth intensive, program downloads grew larger, web sites were suddenly filled with pictures that you didn’t have to wait to see.

And it took a number of years for that 1 Mbps connection to be used to capacity. After all, this was a 20-fold increase in bandwidth and it took a long time until households began to download enough simultaneous things to use all of that bandwidth. But over time the demand for web broadband kept growing. As cable networks upgraded to DOCSIS 3.0 the web started to get full of video and eventually the 1 Mbps DSL connection felt as bad as dial-up a decade before.

And this is perhaps the major point that the article misses – you can’t just look at today’s needed usage to talk about the best technology. Since 1980 we’ve experienced a doubling of the amount of download speeds needed by the average household every three years. There is no reason to think that growth is stopping, and so any technology that is adequate for a home today is going to feel sluggish in a decade and obsolete in two decades. We’ve now reached that point with older DSL and cable modems that have speeds under 10 Mbps.

The other point made by the article is that there are technology steps between today’s technology and gigabit speeds. There are improved DSL technologies and G.Fast that could get another decade out of embedded copper and could be competitive today.

But it’s obvious that the bigger telcos don’t want to invest in copper. I get the impression that if AT&T found an easy path to walk away from all copper they’d do so in a heartbeat. And none of the big companies have done a good job of maintaining copper and most of it is in miserable shape. So these companies are not going to be investing in G.Fast, although as a fiber-to-the-curb technology it would be a great first step towards modernizing their networks to be all-fiber. CenturyLink, AT&T and others are considering G.Fast as a technology to boost the speeds in large apartment buildings, but none of them are giving any serious consideration of upgrading residential copper plant.

It’s also worth noting that not all companies with fiber bit on the gigabit hype. Verizon always had fast products on their FiOS and had the fastest speed in the industry of 250 Mbps for many years. They only recently decided to finally offer a gigabit product.

And this circles back to the question of whether homes need gigabit speeds. The answer is clearly no, and almost everybody offering a gigabit product will tell you that it’s still largely a marketing gimmick. Almost any home that buys a gigabit would have almost the same experience on a fiber-based 100 Mbps product with low fiber latency.

But there are no reasonable technologies in between telephone copper and fiber. No new overbuilder or telco is going to build a coaxial cable network and so there is no other choice than building fiber. While we might not need gigabit speeds today for most homes, give us a decade or two and most homes will grow into that speed, just as we grew from dial-up to DSL. The gigabit speed marketing is really not much different than the marketing of DSL when it first came out. My conclusion after thinking about this is that we don’t need gigabit speeds, but we do need gigabit capable networks – and that is not hype.

What’s the Right Price for a Gigabit?

Speed_Street_SignI often get asked how to price gigabit service by clients that are rolling it out for the first time. For an ISP already in the broadband business, layering in a super-fast Internet product on top of an existing product line can be a real challenge.

Google certainly lowered the bar for the whole industry when they priced a gigabit at $70. And that is the real price since Google doesn’t charge extra for the modem. I think the Google announcement recalibrated the public’s expectations and anybody else that offers a gigabit product is going to be compared to that price.

There are a few other large companies marketing a gigabit product in multiple markets. CenturyLink has a gigabit connection for $79.95 per month. But it’s hard to know if that is really the price since it is bundled with CenturyLink’s Prism TV. The cheapest Prism TV product offered on the web costs $39.99 per month and includes 150 channels of programming and also comes with an additional settop box fee of $9.99 per month – the highest box fee I’ve seen. I don’t know exactly what kind of bundle discount is available, but on the web I’ve seen customers claiming that the cheapest price for the gigabit bundle is around $125 per month. That’s a far cry from Google’s straight $70. And for customers who want to use a gigabit to cut the cord a forced bundles feel a bit like blackmail.

Verizon FiOS has not yet given in to the pressure to offer a gigabit product. In looking at their web site their fastest product is still a symmetrical 500 Mbps connection at $270 per month plus an added fee for a modem, and with a required 2-year commitment. A 1-year commitment is $280 per month.

Comcast will soon offer a gigabit in more markets than anybody else. In Atlanta where Comcast is competing against Google Fiber a gigabit is $70 per month with a 3-year contract, including an early termination fee (meaning that if you leave you pay for the remaining months). This package also requires an additional modem charge. Without a contract the price for the gigabit is $140. It’s unclear if Comcast is offering the same lower-price deal in other markets with newly upgraded DOCSIS 3.1 like Chicago. The word on the Internet is that customers are unable to sign-up for the lower-price option in these markets, but the company says it’s available. I’m sure the availability  will soon become clear.

One thing that happens to any company that offers a gigabit is that the prices for slower speeds are slashed. If a gigabit is $70 – $80 then slower products must become correspondingly less expensive. Google offers a 100 Mbps product for $50 and each of the other companies listed above has a range of slower bandwidth products.

The first question I always ask an ISP is if they are offering gigabit speed for the public relations value or they really want to sell a lot of it. There are plenty of ISPs that have gone for the first option and have priced a gigabit north of $100 per month.  But for somebody that hopes to sell the product, the dilemma is that they know that the majority of their customers will buy the least expensive product that provides a comfortable speed. The rule of thumb in the industry is that, in most markets, at least 80% of customers will buy the low or moderate priced options. But if the choice is between a gigabit product and a 100 Mbps product, the percentage buying the slower product is likely to be a lot higher.

The issue that small ISPs face when recalibrating their speeds is that they end up increasing speeds for most existing customers. If they migrate from a scale today where 50 Mbps or 100 Mbps is the fastest product up to a new scale topped by a gigabit, then they have to increase speeds across the board to accommodate the new gigabit product.

This is a hard mental block to get over for many small ISPs. If a company offers a range today of products from 6 Mbps to 75 Mbps it’s mentally a challenge to reset their slowest speed to 50 Mbps or faster. They often tell me that in doing so they feels like they are giving away something for free. If a company has been an ISP since the dial-up days they often have a number of customers that have been grandfathered with slow, but inexpensive broadband. It’s a real dilemma when rebalancing speeds and rates to know what to do with households that are happy with a very cheap connection at 1 Mbps or 2 Mbps product.

For the last ten years I have advised clients to raise speeds. ISPs that have raised speeds tell me that they generally only see a tiny bump in extra traffic volume after doing so. And I’ve always seen that customers appreciate getting faster speeds for the same price. Since it doesn’t cost much to raise speeds it’s one of the cheapest forms of marketing you can do, and it’s something positive that customers will remember.

I think most ISPs realize that the kick-up to gigabit speeds is going to be a change that lasts for a long time. There are not many customers in a residential market that need or can use gigabit speeds. What Google did was to leap many times over the natural evolution of speeds in the market, and I think this is what makes my clients uneasy. They were on a path to have a structure more like Verizon with a dozen products between slow and fast. But the market push for gigabit speeds has reduced the number of options they are able to offer.