The largest, market-leading ISPs in the U.S. stand to lose some $2 billion per month in subscriber revenues as the U.S. Internet market opens up to more competition, according to a report from broadband research provider Point Topic aimed at gauging the impact that increased competition would have on U.S. broadband.
U.S. broadband penetration lags countries with much lower levels of per capita income despite being the capitol of digital technology and the world’s largest Internet companies. The U.S. isn’t the world’s largest broadband market (on a purchasing power basis China is) or the most competitive, Point Topic highlights in a press release.
Point Topic believes competition in the U.S. broadband market is poised to heat up considerably, citing recent statements by the FCC and President Obama regarding a lack of competition. Consumers often have “fewer service providers with less tariff choice and at higher prices than they would like,” Point Topic says.
Encouraging municipal broadband deployment and requiring broadband providers to allow other potential providers to purchase connectivity on their networks would be a “major step in stimulating competition,” the researchers said.
Analyzing model broadband rates using data from its Global Broadband Statistics and Broadband Operators and Tariffs services, Point Topic determined high, medium and low monthly broadband tariff levels of $299.99, $69.48 and $14.99/ month, respectively, in the U.S. In China the corresponding average price levels are $110.49, $47.72 and $22.72 for China, Point Topic says.
Point Topic estimates that U.S. service providers generate around $5.3 billion per month in subscription revenue, “but with the relatively high penetration of the market there is little ‘new’ money to go for” – unlike in China, which has more room for market growth.
Gauging the Impact of Broadband Competition
In order to gain a sense of what would happen should the U.S. broadband market be opened up to more competition, Point Topic substituted U.K. monthly residential broadband prices for U.S. prices and assumed that about 10% of all subscribers buy service in the highest tariff, 20% on the middle tariff and 70% on the lowest rung. The company based those percentages on what it has measured in the U.K. market.
That analysis is what yielded researchers’ estimated $2 billion drop in monthly residential broadband subscription revenues for U.S. providers in a more competitive market.
Commenting on the results, Point Topic stated: “Whether the industry in the US could bear this is questionable but it seems, at the moment, likely that some version of increased competition will drive prices down in the next five years.
“Missing out on subscription revenue makes it difficult for the supplier companies. Decreasing revenues are particularly hard to handle when a sector has adjusted to super-normal profits which certainly seems to be the case in the U.S.”