Blog Post

Broadband Price Wars Could Hurt Consumers

Today the Wall Street Journal drills into another aspect of the maturing broadband market: price wars. But instead of being good for consumers, in the end these may actually end up hurting them — by enticing them into capped services from cable providers or tying them to plans with early termination fees.

With fewer new customers signing up with DSL or cable providers, we’ve tracked the side effects of maturity such as negative advertising and the boosts in speed offered to prospective customers. To illustrate the expected price wars, the WSJ cites price cuts from Verizon and pricing guarantees from AT&T, the nation’s two largest DSL providers, and assumes cable companies will respond. The cable guys had pretty much won the war when it came to attracting new broadband subscribers, partly because they can advertise faster speeds, and because the newer high-speed services from the phone companies are cannibalizing DSL sales.

This is a price war that will be played out among the average user of “garden variety broadband services,” as the WSJ calls it. My guess is these are the folks using what Comcast cites as the average 2 GB or 3 GB per month, rather than those of you taking the 250 GB challenge in response to the caps some cable companies are implementing on their user base. In Time Warner’s case, the caps will likely benefit from price wars as a way to sign up customers under the new capped plans for lower prices. I noticed Verizon’s offer also contains an early termination fee. Both of which mean that in this price war, some consumers will lose.

image courtesy of Verizon

7 Responses to “Broadband Price Wars Could Hurt Consumers”

  1. David,

    You’re right that the post deals with the reality that competition is not thriving in the broadband market, but the post SHOULD deal with the de facto reason why that’s the case: the impossibility of entering a market. A small village near where I live has 2 wired broadband providers and 3 wireless ones (WiFi on tall towers) and the competition IS excellent for consumers. One of the WiFi providers even allows people to piggyback on for free, albeit at ridiculously slow speeds (but fine for those who can’t afford even their $20/month plan).

    The big difficulty in my state (Illinois) is that the state and local governments both offer resistance to competition. At the state level, the telecom unions are very aggressive in reducing competition, and at the local level, coop fees paid by the consumer back to the town is very enticing to keep competition out.

    When I verbally accosted my own “representative” at the local level, his actual words, on the record, were “We’re doing it to keep the quality of service high.” As if I’m stupid enough to think that’s the case. Imagine if they regulated only one grocery store to exist, or only one car repair shop, or one gas station. Ouch.

  2. Doesn’t “image courtesy of” usually mean that you procured rights to the image or that the image is licensed for your reuse? Is reusing advertising images covered under fair use?

    Just curious…

  3. Impatient

    Om is exhibiting here an unbelievably condescending attitude toward consumers, as if they are helpless, pathetic little waifs who need hand-holding from technocrats. Why in the world should a low-usage guy help pay for high-usage people? If he can save money by accepting a cap, why is this a bad thing?

    I’ll tell you why this is a bad thing for Om: more people with caps means fewer visitors to his Internet TV sites.

  4. Dada, you are quite right that consumers get hurt because of the lack of competition, which is due to their representatives, which is due to their voting.

    This post deals with the reality that there is very little competition in most major marketplaces but I can’t feel bad for anyone who is enticed into capped services at lower prices – buyer beware still holds.

    Is it going to hurt the average person? Highly doubtful. Will hurt consumers who actually pay attention to the fine print? No, unless there is a lack of competition (which is too common).

    Unfortunately, people vote based on party affiliation, not based on the actual issues. If it was up to me, every single person who has allowed competition to be reduced deserves to get voted out, period.

  5. I just love these inane posts and comments by people in the industry that forget the most basic truths of any market: supply and demand.

    More competition is good for consumers. Less regulations are good for consumers.

    Guess what hurts consumers the most? No, not big bad corporations, but the very towns and villages they live in. When your town decides to only allow one or two broadband providers in the market, YOU get hurt.

    Comcast placing a cap on bandwidth means nothing, except if they’re the only game in town. The only reason Comcast or AT&T or anyone else has no competition is because of your elected officials who decide to restrict the market.

    Price wars effect quality of service. If people (consumers) want lower prices, the manufacturers of a product or service will find the level of service the consumer is willing to pay for the price they desire.

    The big issue of a restricted market or a monopolization market has only one blame: your local and state governments that make it this way.

    Let Comcast lower prices by placing caps. Let the broadband providers sell different tiers of service for different needs. But if there is no competition, because of strict regulations based on the law, only then will the consumer suffer. Otherwise, the consumer will get exactly what they want at the price they need, by whatever competitor is willing to sell at that level/price.