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Why your computer is getting cheaper but your broadband bill isn’t

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At GigaOM, we closely track the world of broadband, and were curious what has happened to the prices of it relative to some other technology-dependent products and services. So using the most recent data from the Bureau of Labor Statistics, we compared the prices of wireline broadband to that of computers, computer software, and wireless cell phones. We also tracked those against the entire Consumer Price Index.

Here’s what we found: While the price of these other technology-driven products and services has continued to fall over the last few years—personal computer prices have dropped over 44 percent in five years—the prices for wireline broadband have mostly been flat.

So why haven’t wireline broadband prices budged in recent years? The high, fixed costs of broadband means that there hasn’t been a big rise in competition among providers, according to Scott Wallsten, Vice President for Research and Senior Fellow at Technology Policy Institute. Indeed, most Americans don’t have more than two options when it comes to wireline broadband providers. (See how many your area has here. )

In the meantime, people who don’t have broadband want it badly and the for those who do have it, it’s become increasingly indispensable. The result is that there hasn’t been much downward pressure on prices.

The last few months did see a very slight drop  in the price of broadband. It’s unclear whether that’s just a temporary blip or beginning to use the high-speed wireless network LTE as a substitute for wireline broadband. (Of course, if it’s the latter and that trend continues, that could drive down the prices for broadband.) “A big, and open, question is whether LTE will begin to compete on the margins with wireline broadband,” says Wallsten.

24 Responses to “Why your computer is getting cheaper but your broadband bill isn’t”

  1. Richard Bennett

    The article has a flawed premise. There is actually no reason to believe that broadband networks have the same cost factors as computers. If they don’t, a comparison of computer prices to network service prices is no more meaningful than a comparison of the price of cabbages and the price of cars.

    Networks require a lot of care and feeding in the form of maintenance of the wire plant, day to day management of DDoS attacks and routing table errors, upgrades to switching centers, manual re-routing, the replacement of DSLAMs and CMTSs, and compliance with DMCA take-downs.

    Computer manufacturers simply operate tech support centers and send out replacement units when failures occur under warranty.

    Moore’s Law ensures that high-end parts are increasingly powerful and low-end parts are cheaper. High-end CPUs cost as much as they ever have, and that’s probably a more meaningful insight. Moore’s Law doesn’t impact the cost of the Comcast truck or the technician who drives it.

    How about a little more analysis and a little less emotion?

  2. Michael Elling

    Networks should benefit from both Moore’s and Metcalfe’s laws. The former implies ~30% improvement annually, while the latter implies a doubling (a geometric progression). Theoretically this implies 50% improvements year over year.

    Open, competitive and horizontally oriented infranets/exchanges in the lower, middle and upper layers would achieve this performance. Getting there is going to be a challenge. We were on our way until 1996 when we passed the well-intentioned but farcical Telecom Act. Then came special access deregulation in 2002 and equal access abnegation in 2004. Bandwidth price/performance has improved only 6-10% on average as we’ve remonopolized the sector(s), even as technology and demand scale point to a 30-50% declines (using 802.11 as a competitive proxy).

    Bandwidth is 20-150x more expensive than it should be depending on where in the Infostack one is. Google Fiber best illustrates this as they approach the model horizontally and price to reflect marginal cost at every layer and boundary point.

  3. peterankerdal

    These are two very different products. There has also been launched completely new types of broadband including fiber and mobile broadband. Maybe a large part of the ISP profits go to the further development of products.

  4. peterankerdal

    These are two very different products. There has also been launched completely new types of broadband including fiber and mobile broadband. Maybe a large part of the ISP profits go to the further development of products…

  5. PrincetonAl

    I would be curious to see the normalization factors involved in accounting for that.

    Its anecdotal … but I am paying slightly more for a much faster connection. I think others probably have similar experiences.

  6. This comparison is apples and oranges.

    Computer electronics are very cheap when mass produced. More expensive CPUs are not more expensive because they cost more to make, but instead because they are produced in lower quantities. Try buying an outdated form of computer memory and see what that costs you.

    Installing a broadband system is mainly labor intensive. And it’s also somewhat labor intensive when the system is upgraded and expanded. That doesn’t get cheaper over time.

  7. Lack of competition is why prices haven’t dropped… its not like their providing commodities.. their providing a virtual product basically, with fixed cost for years, and least with equipment and lines, while their whole sale price drops… Another words, if they were upgrading all the time, equipment, I can understand the fixed cost, but I’ve had to contend with pretty much the same lousy internet speeds for freaking years and years where I live. Literally, no joke, no exaggeration. I live in the middle of the US, close to the eastern states…

    Kinda in the south kinda not. Anyways, I’ve heard about fiber for years and the cost associated with it. If I could have fiber service.. like for 50 dollars a month, and I got like 50/50MBPS and I had to pay 2500 dollars or sign a 5 year contract with the companie, I’d do either to get better internet service/speeds/latency resolved. I’d do it tomorrow. And 2500 hundred dollars is a lot of money, but hell for the 25 years+ I’ll live where I do, it would be worth it.. These companies must not even be thinking 10 years long term investment. Its garbage.

    Also I have TimeWarnerCable, they bought out newwave who was my provider, a decent company honestly, compared to charter who owned the cable lines before them….

  8. Christopher Mitchell

    Many of the community broadband networks have not increased their prices for broadband. Why should they when the price of delivering a bit keeps dropping every year? It is a lack of choices that keeps prices high, pure and simple.

  9. Matthew Butch

    “The high, fixed costs of broadband means that there hasn’t been a big rise in competition among providers”

    Which is because of local government approved monopolies on cable service. Maybe if we got rid of that we could have some actual competition.

  10. When you see what provides and charges, and you consider that they’re buying wholesale from AT&T to do it (at what must yield a profit to both firms), you realize that this is about restrained competition, not high fixed costs.

  11. My 15/5 FiOS went from $50 to $65, so I dropped them. Luckily we have two other cable companies to choose from and I went with the one selling Docsis 2.0 technology at 25/2 for $30/mo. I guess that’s how it’s supposed to work, but Verizon was just crazy that they raised the lowest tier. I even asked them to talk numbers but they wouldn’t.

  12. Mark Holoubek

    A sequel to my earlier comment. Rogers, the main cable modem internet provider in Canada, recently bragged how they were speeding up most subscribers access dramatically at no cost to consumers. When people went on Rogers official forums to say “thanks for solving a problem few people complained about, but what about our cap limits?”, Rogers was tellingly silent. They DID increase cap limits quite modestly early this year, but even then by only 20%.

  13. Michael W. Perry

    In Seattle, the problem is crony capitalism. In my neighborhood, Comcast has no effective competition for broadband, so prices are high and almost every week I get multiple, wasteful flyers from Comcast trying to get me to sign up for a more expensive plan.

    Meanwhile, just a few miles north of me and just outside Seattle city limits, Verizon is offering fiber broadband that could give Comcast some healthy competition. But, as one Verizon employee told me, that isn’t going to happen. Comcast and Seattle’s politicians have a cozy little relationship that nothing is going to disturb.

    What passes for a city council in Seattle would rather spend its time banning plastic shopping bags than addressing anything serious. And worst of all, it seems impossible to get Seattle voters to notice this sort of thing. They’d rather hang around Starbucks, sipping their lattes and chatting about trivia.

    I fight the Comcast monopoly by having the cheapest, slowest connection they have and still cramming the same amount of data through it.

  14. Mark Holoubek

    Canadians have it much worse. We have draconially low cap limits. Many subscribers actually make do with 60 GB or less a month and wonder why services like Netflix, iTunes and online app purchasing drives them over their limit!

  15. Peter Drier

    Normalize for download speeds, and it’s definitely dropped.. Yes the providers are investing a lot, and prices are staying flat.. but I have a 75/35 connection now.. I had a 5/.5 connection 5 years ago.. similar price

    • Rani Molla

      Peter and Alamgir, the BLS normalizes its price index to account for speed, so the index should reflect the increase in speeds we’ve seen. However, the BLS doesn’t give its exact methodology, so it’s hard to tell how accurate the normalization is.

    • Compared to memory or storage prices, it hasn’t dropped as much. The providers are investing a lot in absolute terms, but relatively speaking, it’s not much. ATT & VZ have halted the expansion of their fiber, and don’t plan on offering it to those who don’t have it, so here I am, 3500 feet from the CO, and all I can get is 7 mbps. For $149/mo.

      It’s called lack of competition. I wish they would sell their land-line business, instead of milking their customers.