Gigabit competition upsets cozy pricing equilibrium

by Steve Blum • , , , ,

It will come back up, eventually.

Big incumbents are cranking up the marketing volume on a gigabit services in urban areas with high revenue potential, but there’s very little, if any, gigabit-capable infrastructure actually deployed yet, except for Verizon’s FiOS systems. So pricing for some is still conceptual, and high, while others are already fighting it out on the ground.

Comcast is talking about charging $299 a month and a $1,000 installation fee for its 2 Gbps service. Verizon, on the other hand, is already in the game and offering 100 Mbps for an introductory price of $69 a month (with $150 installation charge). Google is playing around with its pricing too, saying it’ll offer 100 Mbps for $50 a month in Atlanta, when it gets its system built, in addition to its flagship package of $70 a month for a gigabit.

Google’s pricing might be disruptive enough to permanently upset the otherwise inevitable and very comfortable duopoly price equilibrium that cable and telephone companies seek. Even if it isn’t widely available, it gets enough attention to set consumer expectations – it doesn’t take much to build the impression, for example, that charging more than $50 a month for 6 to 10 Mbps, as AT&T does, is a rip off. That can tip the balance enough to set the big incumbents on a scramble for eventual market share rather than short term profit maximisation.

That’s not a long term guarantee of competitive pricing. If Google’s footprint remains limited, market passions will eventually cool, allowing prices to creep back up and costly expansion plans to be trimmed. But where even a little bit of pressure stays on, expect more roll out announcements and eye grabbing offers for high speed broadband service.