IN THE LOOP: A matter of time

Mon, 06/30/2008 - 8:10pm
Thomas G. Robinson, Executive Vice President, CBG Communications Inc.

It’s often said that more, better, faster is the American way. This attitude is part of the push, for example, to bring fiber-to-the-home for carriers like Verizon and ultra high-speed broadband over wide swaths of cable system spectrum for Thomas G. Robinsonproviders like Comcast. The problem with these efforts, though, is that they bring more capability to those that already have access to fast communications.

The real “more” comes from those that provide broadband features throughout, such as South Korea, which has the highest broadband penetration in the world at 93 percent. The real “faster and better” can be found in countries like Japan, where customers are provided the highest average speeds at the lowest average costs in the world.

When confronted with these types of comparisons, the push back you get from broadband providers is typically centered on return on investment (ROI). In other words, if you want more, better and faster, there has to be a way of provisioning it so that the return meets an acceptable level in a reasonable timeframe. This time factor is really the crux of the issue, since the ability to reach an acceptable level will change over time as the area changes. For instance, an area with low density will increase in population with new development over time, and then in turn, the residents who move in will be younger and more tech-savvy (and high-speed broadband users).

Accordingly, this is an issue where public policy advocates and service providers often diverge on how to best leap frog the current environment to ensure that broadband availability and adoption can hit the heights that it has in Japan and South Korea. A big part of this debate is centered on bringing broadband to rural America, where availability and usage rates lag far behind suburban and urban areas. One element of the argument that you hear from providers is that even if broadband is provided, that the take rates would be lower, so the ROI equation is still not workable. The thought goes like this: “higher costs are incurred to bring new services; there is a smaller population to serve; this results in a higher cost per home, which in turn results in higher service rates; since there is a lower than average income in rural areas, this in part leads to less uptake by rural residents, which then leads back to a lower than acceptable ROI.” The counter to this, though, is that studies show that across demographic groups, where broadband is valued, the price elasticity is high (rate dissatisfaction may also be high, but broadband is still purchased grudgingly).

To help settle the debate, it is important to study the price/value relationship related to broadband and see what effect it truly has on penetration rates. You find some interesting characteristics when you look at this. For example, about 10 percent of the population will take broadband, almost regardless of the price. These are typically early adopters that must always have the latest and greatest. These will be the first, for example, to sign up for a service like Comcast’s 50/5 Mbps high-speed broadband.

On the other end of the spectrum, you have those who are not necessarily Luddites, but they do put broadband and other technologies in the least valued category. Typically, these are not households with children, but surprisingly, this group includes some with high levels of education and income.

Broadband penetration in this country currently stands at an average of 57 percent. If you add in the 10 percent of those that most likely will never adopt broadband, that leaves a gap of 33 percent. A fair portion of these people will adopt if broadband can be provided at reasonable rates, as is seen with DSL or cable modem services that finally become available in a small city or town. There is also another part of the “gap group” that will adopt once they are able to afford a computer device.

For a number of people, though, the issue of adoption revolves solely around understanding the value of the Internet and/or applications on the Internet that only broadband can reliably deliver (such as streaming video). Research indicates that instilling such value is an educational issue and a question of time. For example, seniors that do not initially value the Internet find, over time, by outreach, observation and education, that the Internet may have great value to them (e.g., bringing medical information, information about support systems, closer ties to relatives, etc).

Once the Internet is adopted (through the same process, but because basic value has already been instilled, the leap to the next level is quicker), then broadband will be adopted. Accordingly, over time this 33 percent in “broadband limbo” will be whittled down, until the total broadband penetration conceivably begins to reach the types of levels that have been obtained in Korea and Japan.

Doubters typically chime in that those countries have incredibly dense metropolitan areas with young, tech-savvy populations. But they also have big chunks of rural areas with traditional, aging populations, yet again their broadband availability and adoption rates are significantly higher than those in the U.S.

It is notable that whenever there has been a critical need of national concern, such as bringing telephone service decades ago to everyone, or making sure that everyone had access to television, the original thrust of cable TV, diverse interests have come together to make it happen. It’s both time, and well worth the time it will take, to make it happen for broadband.



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