CCG Consulting does a nice job highlighting little known obvious facts and framing in a way that make you pay attention. Like the cost of broadband per Megabit – based on use. The chart below comes from a recent post; it shows retail price of various telecom products when compared per megabit of bandwidth used:
They do a good job pointing out that there’s potential for a serious profit margin on some of these products – based on this margin and lack of competition…
The above table also tells the story well for about the profitability of Internet service. The last two numbers show that the cost of residential Internet, on a per megabit of usage is 100 times more expensive than the cost of the Internet backbone (or the price that carriers pay for the raw Internet usage). This is why Comcast and other large cable companies are not upset to be transitioning to becoming mostly ISPs, because residential data is where the profits are.
There is one simple reason that some of these products are so expensive and the profits are so out of line with costs – and that is the lack of competition that we have in the US market where the vast majority of telecom products are sold by oligopoly providers. That lack of competition let’s these companies keep the profits on test messaging, cellular phone service and residential Internet service much higher than is reasonable. It has been shown in the US that in those handful of places where there is competition that prices end up significantly lower.
I think being a rural area exacerbates the situation! First – according to a provider discussion that happened at one of the MN Broadband Task Force meetings this backbone costs varies *greatly* depending on location…
Then providers got down to brass tacks and budgets. Access (Gig) to the backbone in Minneapolis costs a provider 50 cents a month. In Red Wing it’s more like a dollar. In Thief River Falls, it’s $10,000-$20,000 a month. Clearly when wholesale costs vary so much, retail is a different game in remote areas.
Second the lack of competition is also exacerbated in rural areas. Greater overhead, fewer potential customers and increased distance between customers. Make a tough business case.