Pressure on DSL broadband operators to cut prices could lead to the introduction of unsustainably cheap service offerings, according to analysts at Ovum.
The consulting group warns that US and European DSL operators could fall into the same competition trap that has been experienced in Japan and South Korea, where prices for broadband access services have been beaten down to bargain basement levels. Instead, it says, they should try to achieve scale and market share while safeguarding the potential additional revenues from advanced DSL broadband services.
“Manic competition has driven operators in Japan and Korea to cut prices to unsustainable levels. They now have to sell extremely generous service offerings at slashed prices of less than â‚Ź10 per megabit (Mbit). In contrast, the cheapest available package in the US, Germany or France would cost â‚Ź35, â‚Ź61 or â‚Ź85 per Mbit respectively,” says the report.
There are a number of pressures on DSL operators which may lead to a reduction in prices. In the US, competition from cable companies – which also offer broadband services – is fierce. Also, many DSL business plans are built on a premiss of scale and achieving this scale is difficult without enticing a mass market with low prices, notes Ovum.
Another pressure is partly political. Many countries, particularly in Europe, are bench-marking their progress towards broadband adoption with each other. As a result there is often pressure on operators, particularly the telecoms incumbents, to bring down prices and help stimulate growth.
As a result of these factors, not only are prices dropping, but incentives such as free advanced ISP services (parental control for example) and home networking are also being offered, notably in the US.
“With value-added broadband services still nascent it’s trial and error for DSL broadband operators all over the world at the moment,” says senior analyst Michael Philpott.
“They should remember that offering multiple ‘free services’ was one of the downfalls of the high-tech bubble. Such advanced services were supposed to be the first of the value-add proposition that would allow DSL operators to generate additional revenues. This is hard to do when they are offered for free.”
