One of the greatest frustrations for the network operators plying their broadband trade is the fact that competition demands they push speeds upward, with 1G now substandard and speeds as high as 8G being touted, even as customers reject these speeds when offered. A recent article quoted Calix as saying that less than 20% of broadband consumers opt for speeds of a gig or more. When I asked two dozen operators about their own experience, they said that customers tended to cluster around speeds of 100 to 200Mbps no matter what top-end speeds were offered.
The frustration here is due in no small part to the fact that the operators have clung to the idea that connection services could raise revenues. Even though the revenue per bit for 1G service is substantially lower than for 100 or 200 Mbps, it’s at least more money, and a third of those operators told me that customer who buy services of a gig or more rarely use more than 200 Mbps anyway. The remainder said they didn’t know the percentage of gig-and-over users who actually used what they bought, and I doubt that’s the case. They didn’t want to say.
The fact is that it’s difficult for a household to consume that much capacity. While 4K streaming is available, most streaming customers don’t pay for it even though they have sets that can handle the signal. Standard HD only requires about 10Mbps at most, and you can get buy on “library” or time-shifted viewing with 5-8 Mbps because you can buffer. Full 4K live requires about 35-40Mbps, and time-shifted needs 25-30 Mbps. You can see that even four HD TVs in a home would consume only that 200 Mbps sweet spot. Note that the newer codecs, like H.265, will cut these numbers almost in half.
Fiber broadband providers tell me (with a promise of anonymity) that it really costs them only a little more to offer a gig or two, given that the media capacity is available and that the actual traffic loads generated by users isn’t that high anyway. Thus, higher-speed users are actually considerably more profitable even though the per-bit profit based on access speed is lower. Cable and FWA customers may “share” a pool of capacity, which means that there’s a risk that upselling too many users to gig levels could threaten to cause congestion and reduce QoE for others on the span/node. This is likely why cable companies are likely to push higher WiFi speeds and the speed of their network rather than per-customer access speeds.
The lack of sophistication among broadband consumers is surely a factor here, on both sides. I don’t do consumer surveys, but in talking to friends what I find is that the households most likely to pay for gig-or-better service are those with multiple teenagers, and that it’s the teen market that tends to pressure for better service. One told me “We got gigabit because our son’s friends all had it.” None of the parents I talked with claimed they saw any significant difference with the higher speed themselves, but their kids claimed it was better for gaming and social media. Why? They didn’t know.
So are operators kind of ripping us off here? Perhaps. People buy cars that are twice the price of one that would serve as well (or better) for their transportation needs, and we don’t say that the car-makers are ripping them off. I had a Corvette and an Austin Healey 3000 (at different times) even though there was absolutely no objective reason why either was a smart transportation choice. The fact is that broadband speed is a sort of status symbol, just as a car might be, and that’s coloring service planning decisions.
The very operators who are frustrated that more customers won’t buy the top-tier services are pushing for higher speeds that, based on their own experience, customers will be even less likely to consider. According to four operators, there appears to be a group of customers, comprising between 8 and 20% of their prospect base, who will buy the top tier, period. If they push their top-end service to 2G, the number of those who will adopt that speed will, over a period of about year, migrate up to the new high-end offering. If the price of 1G doesn’t change when 2G is available, few on lower tiers will adopt it, so there’s a widening gap between those clustered at the top and those in the mainstream range. There’s resistance if a 1G provider upspeeds to 2G and changes the price, so they offer 2G as a new tier knowing most will migrate from 1G to it, even at a higher price, eventually.
Operators are also finding that while at least some users consider top-range broadband speed a status symbol, other aspects of QoS are much harder to sell. Reliability? Who wants to start a competitive war over the number of “9s” in the availability number? People might actually start expecting something. Latency? Operators tell me that only the gaming community has any sensitivity to latency at all, and most of them have no idea what latency they have or what they need. Apparently, only speed can be sold, and it can be sold even where it isn’t needed.
But, and it’s a big “but”, business services over residential broadband are becoming more common and more competitive. Businesses, even small businesses, are almost twice as likely to buy a higher-speed service tier than the residential customers of the same geography, according to operators. Similarly, business customers will pay for promises of higher reliability, lower latency, security, top-tier customer support, and so forth. You can upsell a business customer much more easily than you can a residential customer.
The problem with the space, in fact, is related not to too many add-ons but to too few. Operators aren’t sure about the exact numbers, but on the average they believe that at least half of all small business users are actually supported on residential broadband. My research says the number is a bit lower, around a third, and is largely confined to people running home businesses. In any event, the best way to improve business broadband penetration is to offer features businesses value and that are not available or at least promoted on residential broadband. Security, cellular backup, and customized email and voice services are examples. How to target these to those businesses who are using residential services instead is hard to know.
But important to know. Business broadband based on residential broadband infrastructure, is more than twice as profitable as residential broadband, on the average, according to my operator contacts. About half that group are “exploring” strategies that might help convince residential users to value the sort of thing that brings about that hefty profit boost. Some hope that greater “smart home” reliance might help with things like latency awareness, but most just believe that there are sweet targets for residential users, or at least that those targets can be facilitated by a campaign to change attitudes.
