'Free' is a Tough Price to Compete Against

By Gary Kim November 26, 2012

Over the top voice and messaging apps are brutal developments for mobile and fixed network service providers because “free” is a tough price to beat. And at some level, access providers (both mobile and fixed) have to worry that something like that could grow in the high speed access business.

“Free” public Wi-Fi hotspots are one example. FreedomPop provides another example. But price disruption can happen several ways in a market. Firms, such as Google, can dramatically change end user expectations about the nature of access products.

When Google sells symmetrical 1-Gbps for about $70 a month that creates new expectations on the part of consumers about what the “normal” value-price relationship is for fixed high speed access. 

In addition to “free,” “very low cost” and “much higher value” propositions can disrupt buyer expectations in ways that force competitors to react. That is precisely what Google intends by offering 1-Gbps service in Kansas City, Mo. and Kansas City, Kan.

Similar challenges possibly could occur if widespread spectrum sharing were to be authorized, or when “white spaces” spectrum is cleared for commercial use in either the United States or United Kingdom.

Even market entry by one or more new mobile providers (Dish Network, Globalstar, Lightsquared) could add to the pressure, creating an opportunity for more disruptive pricing, in part by increasing supply. Moreover, more providers might try to compete with a “data only” approach that minimizes overhead and operating costs to dramatically lower the retail pricing for mobile broadband.

Nor is the only or even primary danger posed by other service providers. In fact, the most dangerous new potential competitors would seem to be firms that have huge installed customer bases, alternate revenue models, recognizable brand names and plenty of cash. Apple, Google, Microsoft, Amazon, and possibly Facebook come to mind.

In fact, Google and Microsoft are rumored to be actively exploring how to use white spaces spectrum in the United Kingdom market, reportedly to offer free Internet access.

As always, it always is dangerous for a firm to compete with a well-funded challenger intent upon giving away the product that firm sells. The angles are simple enough. Google might provide free Wi-Fi style access for all devices running Android, while Microsoft might try and do the same for users of its devices.

Free is a tough price to compete against.

Regulators in the United States and United Kingdom have been looking at how to enable use of “white spaces” spectrum for at least five years, initially spurred by device and application providers (Microsoft, Google and others) interested in how the spectrum could support in-home content distribution, communication hot spots or rural broadband.

In the U.K. market, stakeholders tend to believe the promising uses of such spectrum are rural broadband, hot spots, in-home broadband and in-home content distribution, Ofcom says.

A sort of interesting twist is that, for reasons of frequency (former TV spectrum), white spaces networks potentially could use a single tower to provide service across a wide area (a whole town or city). That would mean a service provider would not need to build a cellular style network with many towers, but possibly transmit only from a single location to cover a whole town or even city.

Others think unlicensed approaches could support new backhaul links, potentially providing new options for higher bandwidth backhaul at lower costs than is possible at the moment.

Others believe there could be applications in the machine to machine communications business.

In any market where regulators decide to commercialize white spaces systems, it may matter quite a lot how the spectrum is licensed. In other words, unlicensed access might produce one set of contestants, while licensed spectrum access might tend to produce a different set of contestants. Generally speaking, unlicensed approaches are seen to provide a better avenue for new entrants, particularly smaller and independent providers.




Edited by Brooke Neuman

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Cortana/Siri vs. Alexa & The Road To Robotic Post Smartphone Era

By: Rob Enderle    5/3/2016

Last week Microsoft made it clear that Cortana would only work with Microsoft's browser and search products making people question its cross platform …

Read More

Looking For The Next iPod/Echo

By: Rob Enderle    4/29/2016

The Amazon Echo, not the Apple Watch, became the last iPod-like product largely because of a far more accessible price point, a more compelling name, …

Read More

Apple Needs Reset, Not Elon Musk

By: Doug Mohney    4/29/2016

Apple's 13 percent sales decline and subsequent stock price drop this week has lead to the usual crazy talk about how to "fix" the company. Vivek Wadh…

Read More

Is the Apple Bubble Finally Bursting?

By: Andrew Bindelglass    4/28/2016

Over the past 13 years, Apple has been one of the most successful companies in the world of tech, posting sales growths in 51 straight quarters. That …

Read More

Shared-Space Providers (Airbnb) Poised to Beat Ride-Sharers (Uber)

By: Steve Anderson    4/28/2016

Travel may be starting to make a bit of a comeback, as a new report suggests that shared-space providers like Airbnb and WeWork are on the rise.

Read More