[ NNSquad ] 2 thoughts (new ideas) on Entry level pricing

[Rahul Tongia <tongia@cmu.edu>]

People talk of entry level pricing. A few thoughts.

1) Entry level pricing is cheapest (or amongst the cheapest) in a place like India.  The list price for DSL (now 1 Mbps) is some 256 Rupees/month, just over $5.  BUT, this is usage capped. Unlimited plans are more expensive. So, if that is the trade-off, that is something worth explicit discussion.  However, folks I've talked to and my own analysis indicate this is not cross-subsidized, esp. at the marginal level.  They don't really make much money on the cheapo DSL, but this also gives them a landline subscriber.  [note, I've seen the incumbent offer $2/month DSL as part of a package, under a special offer]
My old TPRC paper (http://web.si.umich.edu/tprc/papers/2006/592/TPRC06-Tongia-submission%20v2.pdf)
goes into some analysis on how you really can provide DSL for <$10/month in the US, assuming the appropriate local loop copper is there.  Dave Burstein and others have shown how capex is now approaching $50, and we have the famous statement from ?CTO of a major ISP saying uplinking is between $2-3/month, average.  Thus, for the "entry" subscriber, it would be on or below the lower end of the range.  

2) A major issue is whether entry level broadband is just a "lite" version of other ("regular") broadband or is it something different? DSL is especially interesting since other than the well-known distance-bandwidth tradeoff, there is little to physically differential entry and regular DSL. "Regular" DSL can typically go faster than what they offer (my own modem allows me to line test, and I find it capable of 31 Mbps, here in India!). Thus, entry DSL is cheap in part because of marketing reasons, not because of any cross-subsidy.  So, by this analysis even even "regular" (megabit class) DSL is "lite".  

This, to me, speaks volumes of why carriers in the US don't offer really cheap (but still slightly profitable) DSL - they don't want people to understand how much higher the gross margins are for "regular" DSL than entry-level DSL.  

Rahul