The Broadband Bottleneck

While South Korea is racing ahead, price is holding down broadband penetration here, according to Simon Romero in the NY Times:

Only about 15 percent of American households currently subscribe to broadband service – or fast Internet access – despite the fact that 70 percent of households have the technical option of doing so. And analysts do not expect the majority of homes to have broadband access anytime for at least five years.

That means any company, whether America Online or any other Internet business, cannot expect to base a mass-market business on broadband anytime soon.

“We’re working with a model of broadband adoption that is long and steady,
rather than a big revolutionary pop,” said Daryl Schoolar, senior analyst at
the research firm of InStat/MDR.

So far, a crucial limit on demand has been price. Whether provided by the
telephone company or the cable company, broadband costs about $40 to $50 a
month – too steep, evidently, for a large contingent of Internet users who are
not convinced of the value of faster Web connections. And many, presumably, are deterred by horror stories of how difficult it can sometimes be to have
broadband service installed.

To be sure, businesses and many affluent households have adopted broadband at a rapid pace, which is why the total number of subscribers has climbed about 50 percent this year, according to InStat/MDR. And yet, while the number of subscribers is expected to grow, the rate of growth is expected to drop rapidly – to 38 percent next year, 23 percent in 2004 and the teens in 2005.

And so, only about one-third of households are expected to have broadband by
the end of 2006, with the great majority of those subscribing to the service
through cable modems and digital subscriber lines.

“It’s a little less stunning than what we’ve seen elsewhere,” Mr. Schoolar
said.

No one seems concerned about generating volume by pricing broadband popularly in the US yet, as hammered home by AOL’s maintaining its $14.95 add-on fee for broadband access (on top of the $40-50 for broadband itself). The barrier is still too high for most. This is bottling up content which is just too slow and inconvenient when delivered by narrowband. Lower the price and they will come.