The Daily Telegraph is the latest in a long line of media outlets that is predicting a price war in the UK broadband market. The recent Talk Talk announcement is seen by many as the opening salvo in this, with the Sky group via its ownership of Easynet and the UK Online brand to be another large player. Both of these providers are looking to use unbundled connections as a way of cutting their costs in providing a service, but even then with the cost of rolling out their own broadband network the costs in the first few years will be high, but of course in the longer term the payback could make a few years of losses worthwhile.
So why are we being perhaps a bit negative about the prospect of price cuts, surely they are a good thing? It all depends on whether the price cuts are down to real savings in provisioning a service, or are short term (1 to 2 years) loss leaders to build market share. So long as based on real savings, then things should be sustainable, but if the price war is just a marketing/land grab affair, then consumers may find in a couple of years that services become more expensive. This is easily done by rejigging the packages, so that more and more customers have to opt for add-ons to meet their growing needs.
One topic that we will be looking at in the next few weeks and months, is how the UK broadband market is changing, and how the costs to various broadband services are affecting what appears in the retail sector. The signs of how providers have driven down their prices is clear from the large number of providers with fair use policies that range from well defined usage limits to very woolly schemes. What many consumers may not be aware of is that for providers using BT Wholesale IPstream services the wholesale cost has hardly changed now in two years.
The UK broadband market needs to spend some of 2006 considering whether it is pure numbers of users it is chasing, or providing an actual broadband service worthy of comparison with what is on offer in the rest of the world. Chasing a lower and lower price, may kill off prospects for the average user to embrace video downloads, or people will be forced to upgrade to 'gold' style services to support this sort of thing, i.e. price rises by the back door.
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