Hopeful signs on the cost vs. consumption curve

Telecom carriers have struggled for years with contradictions between their cost structure and their revenue streams. It has been a big issue in broadband economics, for example: Users pay a flat monthly fee for service, but carriers’ costs go up the more bandwidth those users consume. As I’ve pointed out before, that disconnect could grow much larger in the future. Life would be easier for carriers if their customers would pay more according to what they consume, though how could they ever be convinced to do that?

In small, incremental steps, however, one can see evidence of a gradual shift toward a better alignment between telecom services pricing and bandwidth consumption. Just today, for example, XO Communications is announcing a new pricing structure for its IP services based on the number and capacity of consumed ports rather than the number of services contained therein.

You can also see some signs of similar trends in bundled residential services. As I pointed out this week, the prices attached to triple-play services are becoming more subjective as competition heats up in the space and carriers focus more on retention than acquisition. One way cable providers are already competing without having to drop prices is to offer higher speeds at the same price, Jupiter Research analyst Doug Williams told me. “They could market that as the price per megabit going down,” he said. “Cablevision has 15 and 30 Mb/s Internet services. The price per megabit is in the $2 to $3$ range. For DSL, it’s more like $5 to $6.”

The idea of marketing to consumers based on a “price per megabit” is a positive trend for carriers and may, over longer periods of time, help change the mindset of consumers that has been so problematic for carrier business models thus far.