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AT&T Mulls Surcharge for High DSL Use – TheStreet.com

AT&T Mulls Surcharge for High DSL Use – TheStreet.com

AT&T spokesman Michael Coe says that given the trends the company is seeing, a form of usage-based pricing for those customers who have abnormally high usage patterns is "inevitable." "Usage-based pricing is one way to deal fairly with Internet usage, which is very uneven among broadband users," he says.

This is actually very positive. More ARPU for bandwidth = more capex. Same ARPU, no extra capex.

Discussion

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  1. Andrew

    “More ARPU for bandwidth = more capex. Same ARPU, no extra capex.” sounds logical, but doesn’t correspond to what I’m seeing. Fear of competition seems to me to be the overwhelming driver of capex, not modest incremental revenue possibilities.

    So I raise my now standard question: what’s the evidence for this? Do AT&T price rises lead to higher broadband capex?

    I can think of many reasons this is unlikely, beginning with the likelihood that higher prices will reduce demand for services. There is a very small market for high-priced bandwidth, so the bandwidth required after the increase is more likely to go down.

    I would guess that AT&T would scale their capex not to revenue but to required bandwidth for the service.

    Among the datapoints I have is that the most significant round of broadband prices increases was in 2001, after the CLECs were crippled and mostly died. Over the next two years, AT&T capex was cut in half, and their broadband buildout (Project Pronto) ws all but stopped dead for four years.

    This was a time that much else was going on, of course, and doesn’t prove anything. But I think it’s highly unlikely that AT&T rasing prices will have more than a minimal effect on their capital spending, especially because the capex for higher bandwidth availability is very small. The extra routers/switches required don’t add up to very much.

    The heavy expense is ditchdigging, and I believe AT&T’s Lightspeed plans are set for the next 3-4 years and will be little changed by modest incremental revenue.

    If you have time, try plugging in some numbers for revenue from bandwidth charges, router etc. purchases, and investment. I suspect you’ll see a very small increase in capex likely (especially if higher prices reduce bandwidth demand.)

    Which doesn’t mean higher AT&T prices wouldn’t raise AT&T profits, especially if Time Warner does similar and people have no good alternative. As broadband becomes a “necessity” for many, price elasticity declines and hence duopolists both raising prices increases their profits.

    Which I think is what this is about, and to protect the video from over the top.

    Let me know if you see something different.

    db

    Posted by Dave Burstein | June 16, 2008, 10:01 PM