Time Warner is trying to test a new tiered broadband pricing system in a city in Texas. This is something new for the broadband customers in USA, though very popular in developing countries. One of the problem that most of the broadband suppliers are facing in USA is the excessive use of internet by a tiny percentage of customers that consume all the bandwidth of the providers. Not only these customers consume high amount of bandwidth, they will also know how to increase the speed or download faster (there are many software available online for free). Till now customers were restricted by the speed of the internet and they could have download any amount of data as much they could in a month.
Let's discuss this new plan from the demand-and-supply perspective in the open and competitive market. (our assumption is that only 5% of the customers use 50% of the bandwidth, refer, so rest of the customers should not much worry about the pricing. Surely, company will need to make sure that the pricing is explained properly to the customers and they should be convinced that normal users will not be affected and will not need to pay higher price. If this does not happen then number of new connection will go down sharply and that will hurt the bottom-line)
Let's discuss this new plan from the demand-and-supply perspective in the open and competitive market. (our assumption is that only 5% of the customers use 50% of the bandwidth, refer, so rest of the customers should not much worry about the pricing. Surely, company will need to make sure that the pricing is explained properly to the customers and they should be convinced that normal users will not be affected and will not need to pay higher price. If this does not happen then number of new connection will go down sharply and that will hurt the bottom-line)
Let's assume that there is equilibrium in the demand-supply and price per connection is at point O. After new pricing system comes into existence, number of customers with high bandwidth uses will also go down because there will be very few customers to pay higher prices when other internet supplier will do for cheaper price. Over the time when more and more high bandwidth uses customers will go to other suppliers they will also increase the price and the supply curve will be shifted to left-up somewhere between ON and a new equilibrium will be generated.
Benefit of using tiered pricing is that some of the users who are using internet excessively because they are subsidised by the other users who use less and pay the same price will be concise about the uses. Only the users who want to use internet more will pay more and continue to use that. But this high pricing model may hurt the entrepreneurs who are planning to launch their web-based services with heavy uses of videos and conferencing. I believe the price difference will not be too much so customers will not stop using internet for video streaming etc.
Benefit of using tiered pricing is that some of the users who are using internet excessively because they are subsidised by the other users who use less and pay the same price will be concise about the uses. Only the users who want to use internet more will pay more and continue to use that. But this high pricing model may hurt the entrepreneurs who are planning to launch their web-based services with heavy uses of videos and conferencing. I believe the price difference will not be too much so customers will not stop using internet for video streaming etc.
No comments:
Post a Comment