If
you get excited about the prospect of really, really fast broadband
Internet service, here’s a statistic that will make heart race. Or your
blood boil. Or both.
Pretty much the fastest consumer broadband in the world is the
160-megabit-per-second service offered by J:Com, the largest cable
company in Japan. Here’s how much the company had to invest to upgrade
its network to provide that speed: $20 per home passed.
The cable modem needed for that speed costs about $60, compared with about $30 for the current generation.
By contrast, Verizon is spending
an average of $817 per home passed to wire neighborhoods for its FiOS
fiber optic network and another $716 for equipment and labor in each
home that subscribes, according to Sanford C. Bernstein & Company.
Those numbers from Japan came from Michael T. Fries, the chief
executive of Liberty Global, the American company that operates J:Com.
His larger point: “To me, this just isn’t an expensive capital investment,” he said.
The experience in Japan suggests that the major cable systems in the
United States might be able to increase the speed of their broadband
service by five to 10 times right away. They might not need to charge
much more for it than they do now and they’d still make as much money.
The cable industry here uses the same technology as J:Com. And
several vendors said that while the prices Mr. Fries quoted were on the
low side, most systems can be upgraded for no more than about $100 per
home, including a new modem. Moreover, the monthly cost of bandwidth to
connect a home to the Internet is minimal, executives say.
So what’s wrong with this picture in the United States? The cable
companies, like Comcast and Cablevision, that are moving quickly to
install the fast broadband technology, called Docsis 3, are charging as
much as $140 a month for 50 Mbps service. Meanwhile other companies,
like Time Warner Cable, are moving much more slowly to upgrade.
Competition, or the lack of it, goes a long way to explaining why
the fees are higher in the United States. There is less competition in
the United States than in many other countries. Broadband already has
the highest profit margins of any product cable companies offer. Like
any profit-maximizing business would do, they set prices in relation to
other providers and market demand rather than based on costs.
Pricing at Liberty varies widely by market. In Japan, its 160 Mbps
service costs 6,000 yen ($60) per month. That’s only $5 a month more
than the price of its basic 30 Mbps service. In the Netherlands,
meanwhile, it charges 80 euros ($107) for 120 Mbps service and 60 euros
($81) for 60 Mbps. Mr. Fries said that he expected these prices would
fall over time.
“Our margins go up,” he said. “But we are delivering more value.”
Cable executives have given several reasons for why many cable
systems in the United States are going very slowly in upgrading to
Docsis 3. There’s little competition in areas not served by Verizon’s
FiOS system, which soon will offer 50 Mbps service. And some argue
there isn’t that much demand for super-high speed.
Mr. Fries added another: Fear. Other cable operators, he said, are
concerned that not only will prices fall, but that the super-fast
service will encourage customers to watch video on the Web and drop
their cable service.
The industry is worried that by offering 100 Mbps, they are opening
Pandora’s box, he said. Everyone will be able to get video on the
Internet, and then competition will bring the price for the broadband
down from $80 to $60 to $40.
Aren’t you worried that the prices will fall too? I asked.
“Maybe,” he said very slowly. “We’ll see how it happens. We want to keep it up there for now. It is a premium service.”
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