Start of competition based on speeds

Networking

Yesterday I read about BSNL increasing speeds from 512Kbps to 1Mbps (with caps). Today I came across news in Business Line about Bharti Airtel increasing speed on wireline DSL. This is really good believe me! I am not refering to little bit increase in speeds, but I am refering to start of competition within ISP’s based on speed. Right now it’s Wireless (3G) Vs Wireline (DSL) players, and I am sure very soon we will see competition within wireline Vs wireline players. Competition is always good specially in telecom industry. We can clearly see where we stand now: from 8years of waiting for a telephone connection to 5min of prepaid sim purchase, from 56Kbps at $1/hour to 10GB data at $20 a month. We have came so far, but yet long way to go!

One of key thing to understand here is the fact that wire has enormous amount of capacity (not just fiber but copper too) and this can scale very well as compared to wireless 3G spectrum. Probably we won’t see any huge change (minor will be there for sure) in 3G data pricing for now because of limited spectrum purchased at whooping $12billion and on-going network upgradation costs but wireline broadband market is very different. Wherever wires exists (theoretically) capacity is there and market demand followed by competition will bring that un-lit in real world.

Last week at India Telecom 2011, one of my friend asked me an interesting question with regard to speed. His question was when it doesn’t costs much to Airtel to upgrade DSL speeds from 512kbps to 8Mbps, what really prevents them from doing that?

Well, that’s a common confusion lot of tech people have (who are little bit away from simple economic factors of demand and supply). If you ask - does it really costs Airtel to upgrade speeds from 512kbps to 8Mbps?

Answer: Not much. Really, very negligible cost but the real cost comes from other part where they will loose money from high paying user. Today say for example if Airtel gives 512Kbps for $10/month while 8Mbps for $250/month, and they eventually decide to upgrade speed on 512kbps plan 16 times, what will happen to ultra high speed $250 plan?

Assume they also offer an upgrade to ultra high speed plan user to 20times taking speeds to 160Mbps - how many of users would be really willing to upgrade? Not many, seriously very low. Even though supplying speeds greater then 16Mbps will be technical problem due to DSL limitation. Thus, Airtel is going to loose over $240 or so a month from such a lot of such heavy users who will just downgrade to $10 plan. Now, based on current demand, that loss is not justified by gain in number of users by offering such high speed. Hardly 4-5% users really care for speed, and most of them are using broadband already. Very few people will be in mindset that “I will get connection only when they offer 8Mbps for $10 else I am not going to take even 512Kbps” . This simple economic factor along with few other factors (including technical limitations) force ISP’s to keep speed low on low end plans while offering ultra fast speed to premium users. Only way out for this problem with increase in demand which will also bring competition and I am sure we will see competition within wireline ISP’s taking speeds over 10Mbps for very affordable price within few years.

Following are the things to look forward in broadband domain in 2012
  • Launch of TD LTE - pretty solid wireless broadband from players like RIL Infotel, Bharti Airtel, Aircel, Tikona etc
  • More increase in speeds on wireline broadband with fast provisioning (though last mile unbundle still looks bit far!)
  • More of wireless hot spots from telcos in metro cities
  • Conversion of most of TDM based core infrastructure to IP based
  • Push of IPv6 within Indian backbones, datacenters and core level infrastructure
  • Auction of spectrum for BWA in 700Mhz for efficient LTE networks

It’s the start, long way to go. Again, thumbs up for BSNL & Airtel for starting! :)