Willingness to pay for High Speed Broadband

One of the biggest outstanding questions for both the private profitability and social value of the National Broadband Network is how much consumers value high speed. Telstra have found out recently that few people want to pay alot for very fast (100 Mbps) broadband service. Only 200 people signed on to pay $269 per month for that service even when it included local and long-distance calls and Foxtel Premium as well. I wasn’t sure if download limits (100GB) were crimping that.

A new study by Gregory Rosston, Scott Savage and Donald Waldman uses a comprehensive survey to extract consumers’ willingness-to-pay for various aspects of broadband. They demonstrate that households may pay US$98 a month for premium service although this is contingent upon them having experienced poorer service. The good news is that experiencing poorer service actually boosts willingness to pay for better service — that wasn’t a given.

But worrying from a commercial and social point of view was the willingness to pay for speed. Coming from a slow broadband service, consumers would pay $48 per month for a move to something like 100Mbps. But if they already had 2Mbps, they would only pay an extra $3 a month for the extra speed. They would pay more for reliability. (The good news is that experience boosted values on those margins too).

If that is the case, the value of the NBN is somewhat diminished. That said, I always figured that the big benefits were competitive (at least upfront) while the fact that it will take the better part of a decade to build the network is just as well as it may take that time for demand values to improve.

14 thoughts on “Willingness to pay for High Speed Broadband”

  1. “…it will take the better part of a decade to build the network…”

    By which time much faster (and most likely wireless) broadband should be available at much cheaper prices.  Let’s hope it never gets built

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  2. Being able to receive at 100Mbs is not a lot of use if there are no sites that transmit at 100Mbs via a backbone that also supports such speeds.
    This is true for both fixed and mobile broadband.

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  3. I have mixed feelings about the NBN, partly because I don’t fully understand what technologies are expected.  If there is any prospect of wireless technology achieving equivalent speeds in the semi-near future, then it is obviously not worth the investment.  But if there is nothing approaching FTTH in the pipeline, I’m glad the government is considering the investment.  It appears to be a core piece of national infrastructure, which can only be provided by the government.
    However related to the questions of demand, I think this is a chicken-and-egg situation.  No one has ultra high-speed internet, so no services are provided to take advantage of it, therefore no one values it.
    The government is probably not helping its cause by starting the NBN in Tasmania.  The population there is insufficient to jump-start the provision of new services, so there will likely be very low subscription rates.  It would be wiser to start in Sydney and/or Melbourne where many more people can be reached for less money.  Unfortunately rural politics are probably preventing this common-sense approach.

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  4. AAPT has just released a plan, Naked so no line rental, for <$100 that gives unlimited downloads with no on/off peak silliness. TPG has announced it will offer a similar plan. In the light of this, combined with the fact that premium Foxtel is terrible value, I don’t see how it makes sense to sign up to a plan that would let you download your entire quota in less than 3 hours.

    Very high speed broadband qualitatively changes the applicable services feasible over the internet; very high speed broadband with a relatively small download limit only changes how fast you can download your email.

    The value of high speed broadband is in streaming services, no-one these properly in Australia and the NBN will massively increase the market for them. This limited Telstra trial is not indicative of the value of the NBN as a whole.

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  5. It’s all about network effects, isn’t it?  If these are giving rise to market failure, then government intervention may be justified.
     
    But is there market failure?  And can the government intervene effectively?
     

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  6. Folks really need to understand the inherent limitations of wireless data transfer.  FTTH is 100Mb/s, scalable to whatever it needs to be – 10Gb/s, for example, and it is dedicated bandwidth.  Wireless is always shared.  100Mb/s wireless is great, but you’re sharing that 100Mb/s with however many people are using your cell.  And if you think that 100Mb/s shared will do fine, just keep in mind that lots of people were once happy with 256kb/s ISDN lines not that long ago.

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  7. Alister, your point about FTTH being dedicated bandwidth is a good point. However it comes down to the cliched cost-benefit tradeoff given the substance of the blog. (I have absolutely no faith that this government and its bureaucrats can manage and deliver an NBN on-time, at-cost and sufficiently future-proofed. They couldn’t manage a home insulation program…)

    It is cheaper and easier and quicker to increase base station density than run fiber to the home – especially when the commercial providers are unsure of being able to make a return on FTTH infrastructure with respect to consumer WTP. The providers might get a better idea of consumer price points and broadband capacity if they do so.

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  8. ISP/Telcos will be able to offer a 100mbps internet plus telephone package for $35/month–less than the cost of a landline rental! People will jump onto the NBN in droves. australians always have taken up technological advances.
    Telstra prices are sickmaking!
     
    JG, you should talk to some knowledgeable ISP/Telco people.

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  9. Jovial Monk,

    Where is the figure you quoted sourced from? The only numbers I have seen are in the range $200 and sourced from newspaper reports.

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  10. I agree with the chicken and egg idea, of course the demand is not great for high speed internet because services that require it aren’t available in Aus. However we can look to the US and Korea for some of the services that will come our way, and with ‘cloud’ computing looking like the most promising technological concept of the near future the new infrastructure is vital.

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  11. This is all fairly unsurprising – right now there is very little “content” out there that can use that kind of bandwidth.  Unless you’re a video editor that works in HD (or 3D) and works from home, what good is this kind of speed?
    Give it another couple of years for really big HDTV screens to proliferate, maybe even 3DTV, and there’ll be a big demand for bandwidth that can fill those screens in real time.

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  12. I agree with many of the above comments. I’m sure anyone opting for such an expensive package would see the 100gig limit as an concern, given that streaming at lower speeds seems quite acceptable (e.g. iview) and an hour of such a service burns up a substantial amount of a download limit. This, plus the adequate competitors are offering 100+ gig limits for a fraction of the price. An interesting study would be to see whether consumers consider pay TV and broadband as substitute or complementary services. I see them as imperfect substitutes. At this time I think it would be safe to offer unlimited downloads in such circumstances because of  the diminishing marginal utility of both. Mind you its 20 years since I did my BEc.

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  13. Let’s face it, download limits are pretty silly.  If downloads cost the ISP money, why doesn’t it just charge for them at its variable cost.
     
    Would any phone company give you a phone line at a fixed all-in price and then limit the number of hours per month you could spend on the phone?

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  14. I would happily pay for increased speeds (if the rest of the features were similarly balanced eg. downloads)
    Be it:

    realtime video conferencing,
    online gaming,
    media downloads,
    home hosting,
    online/offsite file back up
    subscription streaming services
    TV delivered via IP
    VPN / Telecommuting
    Multiple users (eg. student sharehouse)
    etc, etc…

    I can easily imagine saturating a 100mbs connection.  In fact I bet I could have a good stab at maxing out even faster connections.
    An inability to understand what people would do with connections like this is just a failure of imagination, not a reflection of reality.

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