Communication Solutions

Broadband Choices Tend to Be Rational, No Matter What Experts Say

By Gary Kim, Contributing Editor

People often buy products, or use those products in ways not originally intended. People also sometimes buy products experts think they should not buy. Consider the matter of broadband access. Virtually all studies suggest that fixed line access “works better” than terrestrial wireless, mobile broadband or satellite broadband, whether the measure is peak throughput or latency. 

But all the evidence suggests that people continue to buy mobile broadband and satellite access services. In fact, there is evidence from the United Kingdom that significant numbers of people in the U.K. market buy mobile broadband access in place of fixed access, even though the mobile service has limitations, compared to fixed access. 

One has to assume consumers are illogical, or that they mostly are buying products based on overall utility, and that value is not defined by top download speed or even latency.

That is not to say a consumer with access to a reasonable cable modem, telephone company digital subscriber line or fiber connection will buy a satellite service instead. Nor is it the case that a consumer able to buy fourth generation mobile broadband or even third generation mobile broadband would choose to use those instead of a fixed line connection. 

In most cases, consumers will buy the fixed line connection. But in the U.K. market it also appears that seven percent of consumers report they do use mobile broadband connections as a substitute for fixed service, according to Ofcom. In the U.S. market, it likewise is the case that consumers buy satellite broadband when they do not have other alternatives.

The point is that it is not “irrational” for consumers to buy mobile or satellite services, despite the faster speeds and lower latency of fixed services, when the total value provided is higher. In the case of satellite, the decision quite frequently is driven by the fact that satellite broadband is the replacement for dial-up Internet access, not a substitute for a cable modem or telco access service. That’s a rational choice.

Likewise, some consumers, especially younger users in single-person households, or younger users who travel frequently, might find that mobile broadband offers a better value proposition than buying fixed access, with no personal or mobile broadband. The key issue, in such cases, is that mobile broadband works well enough to displace either fixed access with no mobile option, or paying for both a mobile broadband and a fixed connection. 

The U.S. Connect America Fund represents billions of dollars worth of support for broadband suppliers in un-served and under-served rural areas. As you would expect, potential suppliers are going to fight over those funds, including the matter of eligibility. One clear fight is between some fixed line providers on one hand and wireless providers of several types, including satellite providers, mobile providers and fixed wireless providers as well. But there also is contention between fixed line providers. See http://satellite.tmcnet.com/topics/satellite/articles/179250-satellite-broadband-gets-contentious.htm.

A position paper released by the Rural Mobile & Broadband Alliance, for example, blasts the very notion that satellite can provide broadband services. Satellite services compares unfavorably with fixed network service in terms of latency, maximum bandwidth and price per megabit. See http://www.rumbausa.net/whitepapers/. Those are fair observations. 

The RuMBA white paper quotes the “frequently asked questions” HughesNet itself distributes, which cautions users that:
1. Virtual Private Networks do not work well over satellite....HughesNet TechnicalSupport does not provide help with...problems associated with VPN clients.21
2. Time-sensitive applications...such as...real-time equities trading are notrecommended with HughesNet.
3. The HughesNet Home Service plan is not recommended for heavy downloading.
4. Voice over IP doesn’t work well on a residential Hughes system with satellite.
5. If you intend to watch videos you may exceed your download threshold. 

Latency is an issue with satellite connections, and some would note that mobile broadband latency is worse than fixed line connections as well. But Ofcom says “our research finds that seven percent of U.K. households used mobile broadband as their only Internet connections, compared to just three percent of households in the first quarter of 2009.”

More importantly, “with fixed-broadband levelling off at around 65 percent, it appearsthat the growth in overall household broadband take-up is now being driven by households getting online for the first time via mobile broadband.” See http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2010/Mobile_BB_performance.pdf.

 The point is that consumers generally are quite rational, and buy services based on a range of considerations (such as total cost of ownership) that include speed, quality of experience and other values as well. For some users, a technically-inferior service can still represent the best combination of value.

To be sure, it is likely that satellite broadband access customers are comparing satellite broadband to dial-up, since fixed network access is not an option. Mobile broadband users probably are making different decisions, comparing total cost of ownership for a single “use everywhere” mobile broadband service to the cost of buying a fixed and a mobile connection.

What users want to do with their broadband experiences obviously makes a difference. Heavy video streamers who have a choice are better served by a fixed connection. So are five-person families. 

But most users do not stream especially high amounts of video, and for those users a mobile connection might make more sense than buying both a fixed and a mobile connection. 

People are rational, generally speaking, when spending their own money. Nor is it irrational to suggest that although high-capacity fixed line networks are desirable for the vast majority of locations, there are some one or two percent of very-remote locations where satellite might be the best choice, in terms of investment cost and speed to deployment.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

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