Talk Talk highlights ongoing struggle to monetise superfast broadband
UK telco Talk Talk has revealed it plans to charge no more for its gigabit broadband service in the UK (initially available in the city of York) than it does for its traditional broadband offer. Good news for consumers, but for ISPs hoping that fibre would offer a route to returning to high average revenues per customer, this is clearly a worrying sign. In a price-sensitive and competitive retail market, customer acquisition takes first place – particularly for players like Talk Talk, which have been under heavy pressure for a number of years. The move also points to the utility-like role of broadband. When most households in a developed market have a home broadband service, upsell of mobile, TV and other bundled services is increasingly the route to making money from a fixed offer.
Competition at retail level is obviously a positive thing for a market, but a lack of competition at network level ensures that regulators will have to keep a close eye on costs to guarantee that consumers (and altnet ISPs) are getting a fair deal. With the exception of cable companies which own their own networks, ISP next-gen offers are largely wholesale versions of the incumbent’s VDSL or fibre services. Build-outs of proprietary networks (such as the one being rolled out by Talk Talk, Sky and CityFibre) by alt-nets are few and far between. And this is unsurprising. Intense price pressure reduces the incentives for building new, faster networks.
On the surface therefore, radical pricing moves such as Talk Talk's look like they will bring a whole new level of competition to the market, but the risk is that they discourage further investment by altnet ISPs in costly next-gen infrastructure deployment. Ironically, the beneficiaries could well be the incumbent telcos tasked by the authorities with ensuring universal next-generation broadband coverage.
Ultimately, the solution to the ARPU and investment problem is likely to be found not in providing ever-faster speeds, but in finding a real use for such speeds – beyond marketing. Until then, a gigabit per second connection is worth no more to a consumer than 50 megabit per second service.