Technology | Media | Telecommunications

Tuesday, August 10, 2010

Why Residential Broadband in U.S. Should Cost Less

According the the latest market study by Point Topic, there's a pattern of broadband access cross-subsidization across most parts of the world.

"Residential broadband is apparently being subsidized by businesses almost everywhere in the world -- the exception is North America," says Oliver Johnson, CEO of Point Topic.

Internet Service Providers (ISPs) in most markets are charging households considerably less than businesses for Internet access. This is a mechanism to cope with competitive pressure and gain residential subscriber market share.

"There are a number of differences of course. Business tariffs often are less contended than residential ones and come with better help desk services and guarantees of up-time but surprisingly not generally faster," continues Johnson.

Add to this the exchange rates, the relative buying power of a dollar in a particular market and so on and it's a very complex picture. As a simple exercise however we can examine the relative ratios of the average of 2000 residential and business tariffs in different regions of the world.

"By looking at just standalone tariffs, those without a VoIP or IPTV service, we can assume that between markets we are comparing similar products overall -- that is to say just the bandwidth," says Johnson.

In North America (USA and Canada) a business will pay 2.38 times as much for a DSL connection as a household. This compares to a multiple of 4.23 on average in the Rest of the World (RoW).

In North America a business will pay 1.13 times as much as a household for FTTx and 1.89 times as much for a cable service. In the RoW a business will on average pay 6.47 times as much for FTTx and for cable the multiple is 1.93 times.

The result is that households in the U.S. and Canada will typically pay between 10 and 20 percent more for their broadband service than their counterparts in other regions of the world.

The gap is at least partly due to the differential in residential and business tariffs. North American operators are extracting a better ARPU from their household services while sacrificing some revenue from companies.

"This approach may be more robust in the medium to long term but it's also an opportunity. Where there actually is competition in the North American region there is room for price cuts for residential customers and a gain in market share for the operators that are prepared to take the plunge," concludes Johnson.