Transporting data wholesale across the Internet has come down in cost dramatically since 1998. At one point, Internet transit prices were at $1,200 per Mbps, but in 2013 the prices were at $1.57 per Mbps. Fifteen years is a long time in the technology world, so these numbers may not seem overly unexpected. However, predictions for 2014 place the price at $0.94 per Mbps and at $0.63 Mbps in 2015. At these low prices, you might expect Internet service providers (ISPs) to be struggling to come out ahead, yet they are flourishing and reporting record profits.
The Fight to Survive — or Just Greed?
According to DrPeering.net, content distribution networks (CDNs) and ISPs should be reevaluating their business models or consider getting out of the business. The current low rates for buying data wholesale should have been damaging the bottom line for many companies for the past couple of years, but they’ve kept going strong. Although the cost of data is low, the Federal Communications Commission (FCC) reports that the United States charges more per Mbps than other Internet-strong countries. There are a few reasons that these companies don’t fold — lack of competition and add-ons are the biggest — but they may be teetering on a thin ledge.
ISPs can afford to take a small loss, if necessary, if they attach a money-making add-on. Bundle packages are a great example of this. In some cases, a customer can pay almost as much for just Internet service as they would for a cable, Internet, and phone bundle. Home phones are not that popular anymore — most people have cell phones — and cable television has taken a hit because people can watch their favorite shows online, but a bundle package attracts customers to these products. You can guarantee that cable companies are not actually losing money on their Internet-only packages, but they are not getting the profit percentage they prefer.
The Lack of Competition
Competition helps to keep prices low. According to the FCC’s 2011 report, two-thirds of America’s population is located in areas where there is only one ISP that provides at least a 10 Mbps broadband speed. The worst of it is that these numbers have not changed much in the past three years. Cable companies are buying each other out, but not expanding into each other’s zones.
Google Fiber may bring new competition as it expands across the country, but expansion is a slow process, and it will take years before it actually can compete against the major players.
The cost of data is not that expensive, but companies can charge whatever they want to their customers. In the next decade, there will be strong changes that will affect every ISP. With these changes should come lower pricing and better options for the consumer.
Photo credit: Flickr/r2hox[cf]skyword_tracking_tag[/cf]