Time Warner CFO Claims Customers Don't Want Gigabit Speeds

Seriously?

This is the argument from Time Warner's CFO against competing with Google or rolling out gigabit connectivity in other markets? I can only assume she's toeing the company line to deflect customer criticism and government scrutiny. Anybody with a sense of economics knows there are threshold price points above which the average customer won't go for a given product or service.1 If TWC pricing is anything like Comcast pricing the same $70/mo that gets you gigabit fiber in KC will only get you 10 - 20 Mb/s. So of course there's no demand.

Price Matters

Google appear to have done their research and determined the average2 US consumer's threshold price point for premium internet service is $70/mo. The difference between Google and the cable companies is Google want you to have lots of bandwidth at that price. The more pages you download, the more YouTube videos you watch, the more music and movies you rent or buy the more money Google make.

It's About the Business Model

Not so with cable companies. They're business model is all about artificial scarcity. The less they deliver at a threshold-price point the less they have to invest in infrastructure and the more profit they make. Their pricing model also enables them to hit the age-old telecom sweet spot: charging more to businesses. Need 50 Mb/s? That'll be a cool $199/mo. Want 100 Mb/s? $369/mo.

For residential it's worse. Want movies, music and other content that doesn't apply to your cap? Buy it from us.

Conclusion

Yeah, there's no demand for gigabit internet from customers but it has nothing to do with satisfaction. It has everything to do with price.

For the Record

I'd pay $70/mo for gigabit fiber and gladly pay the one-time $300 build-out fee.

Footnotes


  1. Vendors can cross threshold price points but not without the risk of losing customers. There does come a point at which you can no longer raise prices without losing so many customers as to make the next increase unprofitable.

  2. Average in this context is probably skewed a bit towards geeks but I'll bet a lot of folks would jump at the chance to get a gigabit internet connection for $70/mo. That doesn't take into account the number who'd jump at the chance to get the free tier for a one time fee of $300? Either way, Google have hit the sweet spot for a great many Americans.