And it all boils down to speed.
If FANOC wanted to show a desire for innovation alongside its understandable wish to prevent a Telstra monopoly over faster broadband infrastructure, it could have dropped the idea of differentiating the service by speed.
Remember, FANOC is proposing an access regime. Its network doesn’t cover ISP’s access to the Internet, which (as is the case today) has to be purchased separately. So FANOC doesn’t need to factor-in the likely costs arising from higher downloads at faster speeds — that’s up to the retail ISP. The basic architecture stays the same whatever the speed: fibre to the node, copper to the home. The 24 Mbps customer (FANOC’s “unlimited” option) will communicate over the same copper, aggregated to the same fibre, routed by the same routers as the 1.5 Mbps customer.
It’s hard to believe that the proposed FANOC core network is so sensitive to download speeds that the group is under a commercial imperative to discourage fast downloads.
The problem is that speed differentiation has been embedded in broadband culture for too long.
It would be interesting to know what ISPs really think of speed differentiation: do they use it because they want to, or do they merely reflect the packaging of wholesale ADSL access? Is speed packaging genuinely a fundamental aspect of consumer marketing, or is it just a useless artefact of a bygone era?
Certainly, a lot of thought goes into speed bundles. The business rules can be perverse to the point of malice. Try this, for example: if I cancelled my current broadband account, and signed on with my current ISP as a new customer, I could get as much as 8 Mbps on an ADSL1 service or choose an ADSL2 service going up to 24 Mbps (maximum download speed depending on … you know the rest).
LIMITATIONS: As an existing customer, the only upgrade path I’m offered from a 1.5 Mbps ADSL1 service is directly to ADSL2, even if I don’t particularly want to buy a new modem (and even if I’m at the extreme edge of the coverage of the Petersham exchange, so 24 Mbps speeds aren’t on the cards).
I can understand the ISP wanting to shift me to its own DSLAMs, but that’s an artificial imperative created by today’s industry structure. FANOC wants to change that structure, but it wants to retain what’s arguably the worst aspect of broadband in Australia, the artificial construct that “faster should be more expensive”.
Ross Gittins, the Sydney Morning Herald’s economics editor, has written often and perceptively about differential pricing.
This is the phenomenon of finding ways to extract a little more margin out of a product by getting some people to pay more than others, even when there’s no difference in the fixed costs underneath.
The fixed costs of producing a hardback book, Gittins argues, are little different to the fixed costs of producing a paperback: most of the (often very large) premium is a signal to the buyer. “We know you want to get this book as soon as it’s published, so we will charge you more for the privilege.”
It’s hard to ignore the suspicion that FANOC’s 1.5 Mbps – 6 Mbps – 12 Mbps – “Unlimited” structure is designed to get the more profitable customers to volunteer to pay more. It’s psychology rather than economics.
There is, however, a risk: if FANOC’s price for the fast service is too high, users won’t take the fast service. Instead, they’ll do what they do today: buy a slower service than they want, and spend their evenings carping on Whirlpool forums.
Life goes on…
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CHIRGWIN COMMENT: Broadband speeds relic of a bygone era
In "CHIRGWIN COMMENT: Broadband speeds relic of a bygone era" the author seems to ignore the fact that to provide higher speeds requires higher upstream bandwidth for the ISP and better network infrastructure. AS can be seen at present with the higher bandwidth requirements of BitTorrent and Utube and subscribers increasing use of these services, extra load is being placed on ISPs networks. To maintain reasonable latencies and response times, the ISP has to upgrade their network to provide a competitive standard of service. This requires additional investment and, being a business, this has to be passed on to the consumer off these higher speeds. A basic point overlooked by the author. The alternative is the ridiculous scenario (that is surreptitiously occuring on a micro scale at present) where the ISP allows everyone high speed at the same $ rate but then throttles those who choose to use it!