Carriers have always loved to meter. They are utilities after all. Of course, then came the Internet, dirt cheap bits, and a generation of consumers brought up on free. Wanting to charge on a piecemeal basis but fearful of consumer outrage on being nickel-and-dimed, the telecom industry has been adopting pricing tiers (see AT&T) as a compromise solution.
With tiers, the meter isn’t running. Instead, customers pay a fixed amount for a given level of service (speed, capacity, quality, etc.) This has traditionally been the arrangement in business telecom—of course, in that world you’re protected by service level agreements that pay out for disruptions, excessive latency, and packet errors.
I was excited to learn about an interesting variation on the pricing tier model that was revealed in a letter from Verizon. In its latest marketing campaign, Verizon promises to lock in a stingy 1 Mbps broadband for its subscribers at $19.99 per month, forever: “...low price you can count on, month after month, year after year.”
I have written that Americans pay more for their broadband speeds than in Europe and Japa. If you’re a subscriber to J:COM, a Japanese service provider, you’ll pay a mere $60 for an outrageous 160Mbps on downloads. That works out to around $2.70 per Mbps. That is a d e a l.
As a long standing unit shopper, it’s simply hard for me to stomach Verizon’s latest pricing gimmick.
It is certainly the case that a lot of casual users access the Internet for email and a quick read through their favorite website, so that $20 would be appealing .
Of course, for casual users there are so many other places (coffee bars, libraries, parks) where one can connect up with free WiFi.
The profits for delivering this kind of limited access must be enormous for Verizon.
Verizon’s guaranteed-for-life prices adds a dash more insult to all this.
In it is plan, you sign up in 2-year increments. And by the way, there’s a $120 early termination fee.
What kind of benefit is there to consumers with the knowledge that they can always shuttle bits across the wire at a fixed price? Verizon makes it seem as if their bit bus is at the mercy of pirates, or an act of God (a bit crop failure?) that may force rates to skyrocket in the coming years.
An economist will tell you that these pricing tiers or “price discrimination” is a good indicator of a less than competitive marketplace.
There’s nothing illegal about discrimination based on price or service (think airline business class seating, student discounts,etc.) But in Internet economics with its vanishing small marginal costs, companies can gain markets buy bundling lots of services and software together.
For $20 per month, you’d expect Verizon to throw in multiple email accounts, a mouse pad, and perhaps even a copy of Microsoft Word.
The only reason to buy into this plan is the worry that Verizon will raise its broadband rates in your area, and you don’t have another competitive service provider to take refuge. Now that makes sense.