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Nildram Talks - Broadband Price War
By: MarkJ - 15 March, 2005 (12:51 PM)

Nildram's general manager, Sean Stephenson, has written an article explaining their ISP's position and perspective on the current broadband price war circling the industry. We've published it in its entirety for those that have an hour of reading time to spare =).

The broadband price war – the changing face of Internet service provision

As broadband Internet services become more heavily commoditised, prices are tumbling. In the last month, AOL, Plusnet, Virgin, Freedom2surf, as well as ourselves and our sister company PIPEX, have dropped their prices – but where will it end? While for many, a price war is viewed as being good news for the consumer – after all, everyone likes to pay less for a service – there are implications for ISPs.

According to Ofcom, 40,000 people a week are signing up to broadband, while 35 per cent of the 3 million dial-up users are expected to switch to broadband this year. Apart from low prices, a number of factors are driving this growth. These include the popularity of iTunes and a host of other legitimate music download services; the advent of Voice of Internet Protocol (VoIP), offering customers free, or at least extraordinarily cheap, telephone calls; and the enormous success of online computer games.

There’s no sign that broadband prices will stop falling either. The combination of the growth of ‘Pay as You Go’ pricing and ISPs upgrading customers to higher bandwidths for the same price mean that customers will continue to get more for their money.

Broadband Britain has arrived

According to research from analyst Ovum, the UK has become the most "extensive broadband market" in the G7 group, ahead of Canada, Japan, the US, Germany, France and Italy. Does this mean that we’ll see broadband prices of £5 per month in the next few months? Probably not. Although most ISPs, including ourselves, are shaving prices off their core services to the £15-16 per month mark, the typical approach is offering more bandwidth for similar or lower prices for customers.

We’ve just announced that we’ll be migrating all of our customers over to a 2Mbps circuit from July this year, paving the way for more bandwidth hungry applications such as VoIP and video streaming. Since we introduced our Voice services in December, over 20 per cent of Nildram Broadband orders are now bundled with voice, and VoIP is becoming just as popular.

Price sensitive

Customers are becoming more price and quality conscious and willing to change supplier if their existing service provider doesn’t fit their needs. A recent PC Pro survey of over 2,000 readers found that 17 per cent of users changed suppliers in 2004, with 16 per cent on the verge of switching.

The results of the PC Pro survey are a clear sign of a maturing ISP market. The situation is analogous to the recent developments in the mobile phone and banking and credit card markets that have changed business models from land grab to customer retention. At Nildram, we endorse the increasing confidence that customers are demonstrating by moving suppliers if they’re not getting the right service for them. Along with a handful of suppliers, Nildram has been a net gainer from this sea-change, and we expect this trend to continue as suppliers concentrate on customer retention and service provisioning.

Managing heavy usage

With VoIP and other volume hungry applications becoming more popular, the way in which ISPs manage demand is set to become a key challenge in coming months. Nildram has addressed this through a fair usage policy, which allows non-pay as you go non-business users up to 50GB per month, offering extra bandwidth for sale at 99p per GB. To give you an idea of how much 50GB of data is, it would be equivalent to watching an average broadband video stream (300kbps) for around 11 hours a day, every day of the month – so we feel that this gives users plenty of headroom. Some other ISPs have taken a more heavy-handed approach, expelling "broadband hogs" or shifting them on to special "bad boy pipes".

Over the next year we’ll see the roll out of the much anticipated 8MB circuits. Clearly this is paving the way for IPTV, again raising issues about usage management. While many service provider’s PR engines have kicked into overdrive, the reality is that BT have yet to announce full details, although a trial is expected from July. The answers here probably lie in a change in pricing model between service providers, content providers and consumers.

It’ll be interesting to see how the rest of the industry deals with the capping issue. When NTL set its cap at 1GB per day in 2003, there was outrage from many of their users, some of which banded together and formed a pressure group against the move. However, the vast majority of our customer base utilise less than 50 GB per month – less than one per cent would be affected by our own fair usage policy - and the feedback we’ve had so far has, almost without exception, been positive.

Most customers understand the benefits of a clear and fair usage policy, but we’ll have to wait and see how the rest of the industry reacts. Whatever happens, one thing is for sure: while prices will continue to fall, the days of completely unlimited no-holds-barred bandwidth are numbered.


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