Google’s recent acquisition of Webpass shows that the competitive race for consumer broadband services in the US is far from over. In fact, Google’s move beyond organic growth suggests that the race may be ramping up a notch, particularly when the other competitors in the market include Comcast, AT&T, and a larger Charter Communications.
A larger question remains. Will consumers continue to demand, and be willing to pay for, ever faster broadband speeds?
Consumer Perception of Current Broadband Speeds
One of the challenges in selling faster broadband services is consumers don’t necessarily know what “faster” really means. Historically, most consumers have little idea what broadband speed they have in their home, much less how much speed that they actually need. In recent Parks Associates survey results, 43% of U.S. broadband households are unwilling to guess at their broadband speed, even when provided broad ranges as options. An additional 7% claim to subscribe to gigabit-speed services, a figure that seems high when considering the limited availability of such service offerings.
Often, consumers only encounter their broadband speed infrequently, including the time that they choose a broadband package or in instances when they encounter slowdowns or lag in their broadband performance. However, some never note their subscribed broadband speed, particularly those that purchase broadband as part of a larger bundle, did not participate in their household’s selection of a service, or are not tech-savvy enough to perform an online speed test.
Among consumer groups, younger consumers, multiscreen video users, and connected device owners are more likely to claim knowledge of their broadband speed than average consumers. In each case, these groups are more likely to experience their broadband service on a regular basis and to have encountered performance problems that would cause them to seek out that information.
Balancing Speed and Price
Across the US market, operators are aggressively pushing high-speed services, both to cover network investments and to counter competitive offerings. Migrating consumers to these higher speeds involves a three-way dance among the operator, consumers, and competitors. As competitive speeds within a market area increase, operators are faced with a difficult choice—wait for consumers to upgrade to a faster tier (at a higher price) or lift all subscribers in the area to a faster speed at their current price. Waiting for consumers to act allows the operator to enjoy higher revenues but risks churn.
Generally, few households downgrade their broadband service. Only 7% of broadband households that claim their current broadband speed is faster than needed plan to downgrade to a less expensive service. This finding implies that most consumers do not perceive the unused speed and throughput as wasteful despite a belief that their speeds are higher than needed.
As operators define their messaging and broadband product strategies, they must carefully strike a balance between the speed and prices offered in order to attract new subscribers. Over 50% of consumers indicate that their choice of a new provider was impacted by speed/price considerations. Operators need to continuously re-balance their offerings based on competitive offerings available.
At present, faster speeds are resonating with a larger share of consumers than are lower prices in moving consumers to switch providers. While pricing matters, today’s consumers are driven by an increasing reliance on broadband for a variety of communication, functional, and entertainment needs—many of which are throughput intensive. This speed-based churn motivation suggests that current speeds are still not fully addressing consumers’ appetite for more and that demand for increasingly higher speeds will continue.
Managing Consumer Expectations
Among current broadband households, 50 Mbps appears to be an important inflection point for perception of broadband speed. The percentage of consumers that perceive their broadband speed as slower than needed drops sharply for those that claim to receive a service of 50 Mbps or more. At the same time, the percentage of consumers that perceive their broadband speed as faster than needed more than doubles for households with speeds of over 50 Mbps.
Interestingly, surveys show that consumers with very high-speed connections still want faster broadband connections, even when their current speed is well above the average for other broadband households.
As homes become accustomed to regular, robust broadband service and in-home Wi-Fi connections, they become increasingly reliant upon easy access and high-speed performance. The availability and quality of broadband quickly achieves the same level of expectations among consumers as the availability and quality of water or electricity—consumers never want to run out or run low. Excess is perceived as a safety net, just in case the consumer might need to use it. These consumers assess the quality of their broadband service by its performance and the operator by the number of connection problems encountered. Rather than being motivated by the benefits of broadband (which they already appreciate), they are motivated by avoidance of problems.
By Parks Associates’ estimates, half of US broadband households will be smart homes by 2020. 44% of households who do not already own a smart home device plan to purchase one this year. The groundwork is laid for continued growth in 2016 and beyond by increased access to fixed and mobile broadband, the main catalyst for the connected home and consumer-based IoT. Operators hoping to capitalize on this expanding market will face difficult decisions regarding re-pricing and re-positioning of service tiers, keeping a close eye on consumer expectations, and increasing competition.