20 July 2009

Is Slow Broadband Less Expensive To Provide?

Qwest Communications is offering faster broadband service in select cities (including Denver) for a premium price. It appears that putting in the physical network of lines that make this possible, called VDSL2, cost Qwest a considerable sum of money.

My question is simple. Once you upgrade the network, does it still cost Qwest less money to provide a low speed broadband connection than it does to provide a high speed broadband connection, or is the surcharge of a high speed connection simply a form of price discrimination -- charging extra to people who are willing to pay more for a service that costs nothing more to provide?

I'm not necessarily saying that this is wrong. If there is no additional variable cost to providing improved service, then the surcharge for high speed broadband is simply the moral equivalent of the surcharge for a brand name drug over a generic drug, for example, or for that matter, just about any royalty for intellectual property.

Indeed, unlike intellectual property, Qwest's action was motivated in large part by competition with the cable companies as broadband access providers, something that is a close substitute in product, and hence a strong basis for price competition. Also, unlike intellectual property, the barriers to entry of competitors (including the original entry into the market of their cable television competitor) is very high (at least until wide area wireless broadband and/or cell phone based broadband become more widespread and profitable).

Does anyone out there understand the technology well enough to know? Also, does anyone out there have any quantitative sense of what proportion of broadband users run up against the connection speed? I have a sense that it is increasing as video downloads are becoming more common.


Dave Barnes said...

"Once you upgrade the network, does it still cost Qwest less money to provide a low speed broadband connection than it does to provide a high speed broadband connection"


Andrew Oh-Willeke said...


Dave Barnes said...


You did not ask the right question. Never ask a close-ended question when you want an open-ended answer.


BSR said...

I wonder what Denver neighborhoods that's available in? I checked my address (other side of the park from you, Andrew) and they still only have 3 Mbps download offered.

I gave up on DSL just over a year ago as I am apparently just too far from the C.O. to support high-speed DSL. It regularly lost sync and dropped our service.

I've been MUCH happier with Comcast since then. It's just a voice/internet package -- no TV, but I nearly quadrupled my download speeds over the DSL connection.

My spouse telecommutes a good deal to her office, and it's made that experience much more useable with the greater speed. I game online frequently, and have a much better gaming experience as well at this speed. Best of all, I think the service has dropped only once in the last year. I reset the modem and it's been fine since.

Even if Qwest were offering 40Mbps, I would wait for Comcast to upgrade to the 50Mbps....I don't want to go back to DSL again.