Cheap DSL will hurt providers: report

dahamsta

Cheap DSL will hurt providers: report
Thursday, July 10 2003
by Ciaran Buckley

A broadband strategy based on cut-rate prices could hurt the commercial viability of broadband providers, a new report says.

Cheap broadband availability, specifically DSL, would trip up broadband providers in the same way that it impeded the viability of dot-com companies, since cheap or free services aren't viable in the long-term, a new report released by consultancy company Ovum says.

The report said that DSL broadband operators around the world are at risk of falling into the same competition trap as Japan and South Korea by basing their marketing strategies on cheap pricing.

Stiff competition among operators in Japan and Korea has led to prices being cut to unsustainable levels. Operators in these countries now have to sell extremely generous service offerings at slashed prices of less than EUR10 per Mbps. This is in contrast to countries such as the US, Germany or France, where the same level of service would cost EUR35, EUR61 and EUR85 per Mbps respectively.

"The cost structure in Asia Pacific may be different from Europe and North America, but it is highly unlikely it can support such price cuts," says Michael Philpott, senior analyst with Ovum. "Sooner or later, Japanese and South Korean operators will have to change their business strategy if they are to survive."

Philpott also warned against giving away advanced DSL broadband services, which could provide valuable revenue streams to providers. "They should remember that offering multiple 'free services' was one of the downfalls of the high-tech bubble," Philpott continued.

But the report notes that as competition in the broadband sector takes hold, operators in other countries are in danger of falling in the price-war trap. In the US, DSL operators are under increasing pressure from cable players and have been dropping their broadband prices and offering free advanced ISP services such as parental control and home networking.

In countries where competition is less of an issue, DSL providers often come under political pressure to provide cheap broadband, the report said. Many countries use their neighbours as their benchmark for the availability of broadband and governments press providers to make cheap broadband widely available. "If government pressure is matched by funding or better regulations then it won't work against the operators," said Philpott speaking to ElectricNews.Net.

The report suggests that operators create a tiered charging structure to prevent the commoditisation of broadband, whereby different tariffs would be created for different types of users.

"Currently 5 percent of broadband users utilise 50 percent of resources," said Philpott. "It would be fairer if tariffs were tiered to take usage into account."

SkepticOne

Fierce competition among providers driving prices down to unsustainable levels.

Shocking.

bizmark

who would of guessed more companys trying to sell to people would cause price,s to go down ?

why didnt we normal people think of that !!!! :rolleyes:

Cabaal

I'm sure Eircom will use this to justify there prices
http://www.enn.ie/news.html?code=9368013

"Currently 5 percent of broadband users utilise 50 percent of resources," said Philpott. "It would be fairer if tariffs were tiered to take usage into account."

I really like that bit...

SkepticOne

Thank god we don't have to worry about competition in Ireland. Sustainable monopolies and high prices are clearly the way forward.

sceptre

Threads merged

Dangger

The consultant's name "Philpott" just about sums it up.

Perhaps even worthy of an entry in the dictionary....


Philpott

1: To protect a monopoly.

Usage: "Blatant philpotting has ensured that Ireland as a country was never to realise the potential broadband connectivity could deliver".

I'm sure some one could do better than mine!

Philip "Philpott" Nolan!

dahamsta

I hate to be the party pooper, but I agree with the report in some respects. Ok, it reeks of venture capitalist "I WANT MY MONOPOLY" bullsh1t, but I personally can't see the pricing on offer in Japan and Korea being sustainable. I'm amazed that there's any margin in it at all.

adam

bizmark

well no ones demanding 10 euro per meg access here

all we want is decent price (30 euro) and no cap for 512kbs surely thats not asking much

SkepticOne

Originally posted by dahamsta
I hate to be the party pooper, but I agree with the report in some respects. Ok, it reeks of venture capitalist "I WANT MY MONOPOLY" bullsh1t, but I personally can't see the pricing on offer in Japan and Korea being sustainable. I'm amazed that there's any margin in it at all.

Should have said that when you posted the thing, so.

I'm not sure you're right either. The price of all aspects of broadband has come down everywhere. Fibre equipment, DSLAMs, bandwidth. All these things have come down in price.

The thing that I object to, though, is the assertion that competition is hurting providers and that therefore this is a bad thing. There should be less competition.

I disagree with this. The market should sort out these problems. Competition is supposed to put pressure on providers. Cable is supposed to compete with DSL. It is not supposed to be easy. It is not supposed to be "sustainable" it is supposed to be dynamic. That is the way markets work.

bizmark

well thats the way other markets work the irish market on the other hand .............:rolleyes:

dahamsta

Originally posted by SkepticOne
Should have said that when you posted the thing, so.

Why? I comment on about one in ten stories I post, if it was any other way I'd hardly get any posted at all. I reserve the right to reserve comment until the thread has delivered momentum! <adam fights teh poweh>

I'm not sure you're right either. The price of all aspects of broadband has come down everywhere. Fibre equipment, DSLAMs, bandwidth. All these things have come down in price.

They have, but even with that and the massive bulk sales we're talking about, the prices the Japanese and Koreans are selling at strike me as crazy. Then again, I'm not a Japanese economist. Well, at least not last time I looked.

The thing that I object to, though, is the assertion that competition is hurting providers and that therefore this is a bad thing.

Damned straight. I'm trying to get money out of people for a wireless operation at the moment, and as soon as they hear that the only way to operate in this sector is to compete they start to whine like a bunch of girls. You'd think they'd have learned their lesson about greed with the dot.bust, but no, they're still roaring idiots to a fault.

adam /holds his tin cup out for donations

nahdoic

It's an interesting read, because it is so completely at the opposite end of the scale to where we're at in Ireland. Actually it's quite a frustrating read. The full press release is titled Ovum on DSL broadband: Manic competition won’t get you anywhere.

The problem they are having, is that Korea and Japan aren't providing profitable services to consumers right now. Instead they are staking their claim on getting a huge market share, and then selling them value added services. It is a dangerous game to play, and like Ovum suggested very similar to the dot com crash.

Thrunet in South Korea is another interesting example. Despite being one of the main providers in the biggest broadband nation in the world, Thrunet recently filed for bankruptcy. Despite its scale, it was simply unable to make money out of broadband. There is danger in assuming that grabbing a sufficient share will be enough.

http://www.ovum.com/go/content/018269.htm

It is so depressing though, they are so far ahead of us. Consumers are getting DSL services below the cost of an efficient operator, and we're getting DSL services at costs several times that of an efficient operator.

MadsL

Instead they are staking their claim on getting a huge market share, and then selling them value added services. It is a dangerous game to play, and like Ovum suggested very similar to the dot com crash.

Isn't this exactly what the mobile phone players are all doing right now?

flav0rflav

This has all happened before in the US where the DSL players all went mad building a customer base and looking to long term profits. eg Covad et al.

Personally I don't have a prob with it, as there are two possible outcomes. They make it work eventually because they have deep pockets and nerves of steel. Or, they go bust, lose a load of corporate venture capital and someone else buys the whole thing for a dollar, with zero debt and a big infrastructure. Roll on the good times, ha ha.

As regards margins for bandwidth. What is the cost diff between 512k and 5 Meg? 10 fold, no way, no how. What about 1 Meg to 100 Meg, well yea, that'll need requipment up grade, but ongoing running cost is still very similar. This is the issue eircom are bringing comreg to court on. Eircom want the total, capital plus running, cost considered, whereas, comreg have taken the line that it should be running costs.

dahamsta

Fat Pipe Dream

Softbank founder Masayoshi Son lost $75 billion in the dotcom crash. His new master plan: superfast, supercheap DSL for the masses.

By Brendan I. Koerner

"My dream is big, OK?"

Coming from a man who used to boast of having a 300-year business plan, that's saying a lot. But Masayoshi Son isn't exaggerating. His latest master plan includes nothing less than the demolition of Japan's telecom industry, and, not incidentally, the revival of his moribund company, Softbank. To get there, he's hawking next-generation, superfast, supercheap DSL to the Japanese masses.

He may no longer be the world's eighth-richest man - Softbank's stock price is down 98 percent from its bubble peak - but Son still moves with an impressive entourage. A cadre of yes-men, crowded around him in a Tokyo conference room, nod anxiously as their diminutive, balding maestro tries to sell me on Softbank's improbable makeover from venture capital washout to broadband pioneer. "We are the first service to have a pure IP-based network," crows Son, his placid face betraying an I-told-you-so smirk. "It is more powerful than anything else that exists around the world."

Softbank has spent close to $2 billion building out a gigabit Ethernet network and leasing copper wire from Japanese telecom giant Nippon Telegraph and Telephone. The result is a service, offered under the Yahoo! BB brand, that provides Internet access to Japanese homes at 12 megabits per second - eight times faster than what Americans are used to - for about $21 a month. Every day, as many as 7,000 new subscribers fire up their plug-and-play DSL modems, making Yahoo! BB the world's fastest-growing broadband service.

So things are looking rosy, right? Not quite. Softbank is spending $250 to acquire every new customer - $50 million per month. Outside Tokyo subway stations, rain or shine, cute teens in white Yahoo! BB mackintosh coats hand out a free modem to anyone who breaks stride. A second-rate baseball team, the Orix Blue Wave, now plays in Yahoo! BB Stadium. Such marketing gambits increase the company's profile but only add to Softbank's staggering $3.9 billion debt.

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