I recently received a free upgrade from my cable provider who increased my download throughput from 35 Mb/s to 55 Mb/s.
Every eighteen months, fixed broadband providers leverage technology investments to differentiate broadband products and increase the value prop illusion. It is a bit of a cat and mouse game in the market but a preferred solution over deflationary pricing but is this type of differentiation strategy sustainable?
The US broadband market is largely monopolized by cable providers offering faster broadband speeds. In non US markets, the opposite is true. Population densities and copper local loop lengths make DSL technology as speed competitive as cable. In speed competitive markets or hyper-competitive markets driven by network unbundling, a different price versus speed dynamic is at play. This dynamic will eventually enter the US market as fiber/DSL investments level the playing field and mobile small cells and LTE devices become more prevalent.
From a consumer perspective, tablet and smartphones devices can typically only choke down 32Mbps over WiFi networks. Desktop and laptops do not have this problem, taking advantage of faster CPU’s to download at current network speeds. So in a post PC market, as consumers spend more time watching TV and interacting with mobile devices, the perceived value of a >50 Mbps product has already started to diminish. Even with a higher number of users per home, broadband speeds going beyond 50 Mbps won’t demand the same premier value as today. South Korea makes for a great case study on what to expect.
Content caching, federated CDN, image compression, and video compression algorithms enable the delivery of content to consumers much more efficiently. The acceleration of content efficient technologies are driven by Cisco’s VNI forecast that 90+ of all Internet traffic will be video. The resulting onslaught of innovation will decelerate consumers need for speed. As a result the US fixed broadband consumer value will diminish as the primary broadband differentiator. Mobile broadband providers will likely follow this trend but on a much slower trajectory and longer deflationary cycle. Usage caps will become more meaningful element of the subscription and broadband managed services will become more dependent on application bundling and ecosystems than Multi-play subscriber discount programs.