Broadband pricing strategies

Phillippa Biggs and Tim Kelly

Phillippa Biggs is a Market

Analyst and Tim Kelly is the
Head of the Strategy and
Policy Unit, both at the
International
Telecommunications Union,
Geneva.

Abstract
Purpose This article seeks to consider why broadband technologies have been so successful in
reaching such a large number of new users so quickly, and what characteristics of its pricing have made
this possible.
Design/methodology/approach Examines the different pricing strategies available, and their impact
on broadband markets and prices, as well as some of the issues involved in measuring broadband prices.
Findings Pricing strategies have major implications for the future development of telecommunication
markets, as they are dismantling the constructs on which telecommunication services have historically
been priced (namely, distance, time and location). Broadband pricing strategies, especially the growing
trend towards flat-rate pricing, promise to transform the revenue streams and expansion of
communication services in future.
Originality/value The findings, based on analysis of a unique price database across 145 countries,
will be of value to operators and regulators.
Keywords Broadband networks, Pricing
Paper type Research paper

roadband is the technological child of the twenty-first century. At the dawn of the new
millennium, high-speed internet access was mainly limited to users with local area
network connections at their place of work or study. Residential users were mostly
restricted to using dial-up connections. Six years later, more than 200 million households
around the world enjoy internet access at speeds in excess of 256 kbit/s, more than five
times as fast dial-up. In some countries, speeds fifty times faster than dial-up are already
commonplace.

Rarely, if ever, have new networks or services grown as rapidly as fixed-line broadband. This
paper argues that this explosive growth and the development of broadband markets are
strongly affected by operators broadband pricing strategies. Although the service on offer
(primarily internet access to the World Wide Web) is not especially new or revolutionary,
broadband has a number of characteristics that differentiate it from previous technologies:

The article expresses the

opinions of the authors, and
does not necessarily reflect the
views of ITU or its membership.

DOI 10.1108/14636690610707455

broadband connections are typically always on, in the sense that it is no longer
necessary to dial-up first to an Internet Service Provider (ISP);

the marginal costs to operators of greater numbers of users and capacity are close to zero;

broadband connections are often priced on a flat-rate basis, in all-you-can-eat pricing;

where thresholds exist, they are based on data (content), rather than time, although
broadband packages are increasingly free of any cap whatsoever on the maximum
volume of information that can be downloaded or transmitted within a month; and

broadband usage is mostly independent of distance-pricing is constant within a country

and irrespective of the subscribers location or whether the subscriber is interacting with
national or international partners.

VOL. 8 NO. 6 2006, pp. 3-14, Q Emerald Group Publishing Limited, ISSN 1463-6697

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These key characteristics are progressively dismantling the traditional constructs on which
the pricing of telecommunication services has been based, namely:
B

making a call or opening an internet session;

pricing structures based on the time of day/week when a call/session is made;

pricing according to the duration of a call/session; and

pricing according to the distance of the called party.

Furthermore, broadbands higher capacity for information transmission means that it can
substitute for a large number of existing services, from messaging (voice as well as text), to
entertainment (streaming audio and video), file transfer and information retrieval. Thus, the
pricing characteristics of broadband will impact, and may cannibalise, other revenue
streams.
All of this means that operators developing broadband pricing structures not only have a
rare chance to start from scratch in designing their own strategies, but will also significantly
influence the pricing structures of other communication services. This article considers why
broadband technologies have been so successful in reaching such a large number of new
users so quickly, and what characteristics of its pricing have made this possible. It examines
the different pricing strategies available, and their impact on broadband markets and prices,
as well as some of the issues involved in measuring broadband prices.

Growing broadband markets

During 2004, the number of broadband subscribers grew by 60.7 per cent, from 98.9 million
at the end of 2003 to 158.9 million at the end of 2004 (Figure 1, left chart). In 2005, provisional
estimates suggest that the number of subscribers exceeded 200 million. Broadband is now
available in at least 145 economies, including many developing countries throughout Asia
and Latin America (Figure 1, right chart). Interestingly, the rate of growth is accelerating, as
Europe catches up with the early pace-setters in Asia-Pacific and North America. The growth
of broadband markets is being driven by growing consumer demand for multimedia
services, competitive pricing strategies and the higher speeds possible through
infrastructure roll-out.
Definitions differ according to the market, but services are defined by ITU as broadband if
they offer speeds of over 256 kbps in at least one direction. Deutsche Bank (2005) notes that
perceptions of broadband change as higher transfer rates become feasible[1]. The main
infrastructure for residential broadband is upgraded copper local loops, using Digital
Subscriber Line (DSL) technology. However, in some regions of the world other infrastructure
Figure 1 Growth of broadband worldwide

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platforms are widespread, including cable TV, Fibre-To-The-Home (FTTH), satellite and fixed
wireless access. Millions of mobile subscribers also now enjoy speeds for downloading or
uploading files that qualify as broadband. However, mobile applications differ from fixed
line in speed, price structure (mainly still based on per-minute tariffs) and experience, so
they are not considered here.

Factors affecting broadband pricing

A number of factors affect broadband pricing strategies, depending on the needs of the
market. These include the competitive structure of the market, the degree of regulatory
intervention (especially with regard to Local Loop Unbundling or LLU), the existing
infrastructure of incumbents (including prior investments in ISDN technology), competing
technologies (e.g., cable TV) and indirect competitive pressure from neighbouring
countries[2].
Until relatively recently, many operators believed that ISDN would provide a logical upgrade
path for their network architectures. This would enable them to introduce business users to
premium higher-speed services as a first step. ITU (2003) notes that in some cases, ISPs
and public telecommunication operators with large dial-up Internet customer bases initially
resisted the introduction of broadband services for fear of cannibalizing their customer base
and detracting from their investments in ISDN and profitable high-speed ADSL services to
business users. Such reticence typically only lasted until gains in market share by alternative
service providers (using either cable modems or DSL) began to eat into incumbents existing
customer bases. DSL overtook cable subscribers worldwide in 2001, and has made rapid
gains, as the established PSTN telephone network can serve as the base network for DSL
connections.
In some countries, such as Japan and the Republic of Korea, the public sector has
developed national broadband strategies and invested heavily in infrastructure, in close
cooperation with the private sector. In Korea, the government provided direct subsidies of
more than US$ 1 billion for the construction of a national broadband backbone, while local
broadband access was funded and constructed by the private sector[3]. In other countries,
especially where LLU has proved difficult, one-sided public sector promotion of certain
broadband technologies in preference to others has often been controversial, given
incumbents dominance of the existing PSTN infrastructure[4].
In Korea, the entry of Hanaro into the market forced the incumbent, KT, to reconsider its
investment strategy, formerly focused on ISDN[5]. This was a significant move, as operators
in other countries have been reluctant to introduce ADSL technologies or price them
competitively, for fear of cannibalising their ISDN and leased line offerings. Korean and
Japanese operators took early decisions to back DSL technologies over and above ISDN. In
Japan, ISDN and dial-up subscriber numbers peaked in mid-2002[6] and have
subsequently declined. This is in contrast to the strategies pursued by many European
operators. Deutsche Bank (2005) notes that over half of all ISDN connections remain in
Europe, where ISDN penetration continued to edge up by 2 per cent in Italy, UK, Germany
and France during 2004[7].
The spread of competition through liberalisation, innovation and convergence has led
broadband providers to respond with differentiated pricing strategies based on technology
and speed of connection. Pricing strategy has major implications for the development of
markets in terms of subscriber growth, online behaviour, market transparency and choice of
provider. The emergence of the Republic of Korea as the leading economy in terms of
broadband penetration (Figure 2) has been attributed in large part to competitive pricing
strategies by operators.
What options are available to broadband providers to differentiate their service offerings?
Packages for broadband access may include:
B

an installation fee;

equipment charges (by direct purchase or monthly rental fees);

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Figure 2 Top 15 broadband markets, 2004

monthly access fees (the flat-rate element);

additional thresholds, by megabyte or time limits (the metered element, depending upon
the existence and level of caps for price and time); and

additional service fees may also be levied (e.g. monthly virus scan checks offered by
some providers in Japan for a fee[8]). For instance, some operators charge separately for
internet access or for email accounts as part of the broadband package.

Discounts (e.g. loyalty and renewal discounts or signing-on bonuses), email addresses and
other services may also be offered, including Voice over Internet Protocol (VoIP) or IP
Telephony. Broadband is increasingly being bundled with other elements of the triple play,
including TV channels or minutes of telephone service[9]. Table I summarises the three main
broadband pricing strategies practised by operators (flat-rate or unmetered pricing,
time-based pricing and volume-based pricing), along with their main advantages and
drawbacks.
Unmetered or flat-rate pricing has often driven early, rapid market growth. The high
broadband penetration achieved in the Republic of Korea and Japan was achieved, in part,
through the introduction of infrastructure competition, with new entrants offering higher
speed access at lower prices, forcing incumbents to respond with lower prices. Japanese
and Korean operators pioneered the introduction of flat-rate pricing at competitive rates, that
has developed into so-called broadband price wars, with some of the lowest prices in the
world at below 10 US cents per 100 kbit/s (Table II)[10].
The main advantages of flat-rate or unmetered pricing are that it is easy to understand and
enables direct comparisons between providers, so consumers feel comfortable with it.
There is perceived value for money in all-you-can-eat pricing. From the operators point
of view, good customer relations may be easier to maintain. Flat-rate pricing is easy to sell,
easy to bill and makes for more straightforward financial planning. Bargain basement
pricing has proved successful in building strong initial market share. The development of
so-called triple play networks, in which cable TV is provided alongside internet access
and voice is also facilitated by unmetered pricing.

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Table I Broadband pricing strategies (a summary of the main pricing strategies practised by operators, with advantages
and disadvantages)
Pricing strategy

Advantages

Disadvantages

Examples

1. Flat-rate or unmetered
pricing: customers are billed
a fixed amount, irrespective
of use.

Simple to use and bill

Easy for customers to
understand, so they can make
direct comparisons
Has driven market growth and
proved successful in building
market share early on

Risk of consumption and

network overload remains with
service providers
May harm the long-term
development of the market,
where operators are drained of
resources
Average cost pricing argued to
cross-subsidise heavy users at
the expense of entry-level users

Telecom New Zealands Xtra

Broadband plans at:
www.telecom.co.nz/chm/
0,5123,203071-202469,00.html
Korea Telecom, at:
www.megapass.net/
v_support/prd_lite.php
Hanaro Telecom, at: http://
service.hanaro.com/harafos/lite/
vne_vlite2.asp

2. Time-based pricing:
customers are billed
according to the time spent
online

Customers trust transparent

pricing for easily measurable
access
Uses traditional billing method

Does not represent broadband

in its truest sense of an
always-on connection

Telecom Italias Alice Free offer

www.virgilio.it/
aliceadsl/index.html
www.alice.it/alice/
AT&Ts Worldnet Service Plus
Plan: http://download.att.net/
plans/index.html
Telekom Austria at www.aon.at/

3. Volume-based pricing:
customers are billed
according to the data content
downloaded.

Helps ensure that revenues

match costs
Burden of consumption remains
with consumers
Consumers consume according
to the utility they derive from the
service

Where marginal costs are

negligible, consumer pays
excessive revenues
Argued to hold back market
development by moderating
consumer demand

FastADSL in New Zealand:

www.fastadsl.net.nz/
Telstras ADSL offers at:
www.bigpond.com/
internet-plans/broadband/
adsl/

Source: ITU research

However, the uncertainty and risk in the volume of services that will be consumed remains
with providers. This makes flat-rate pricing appropriate as a mass market approach for
building market share, most suitable for light bandwidth uses such as email and
web-browsing, but suggests that it may be less suitable for maturing markets, as consumers
move into more sophisticated bandwidth-hungry applications. Video on demand of
high-definition television signals, delivered over the internet, could swamp todays networks.
Furthermore, the longer-term consequences of bargain-value pricing may not be so
beneficial for the industry. Industry analysts Ovum found that trends towards offering
cheaper broadband prices can damage the financial viability of broadband service
providers, arguing that prices in Japan and Korea have reached unsustainable levels[11].
Since flat-rate pricing leaves the risks of network overload with operators, it may starve them
of the long-term resources necessary to develop the market.
The popularity of flat-rate pricing is growing, given its strong positive impact on subscriber
base and broadband growth, with other countries following Japans and Koreas example. In
2005, incumbents offered a flat monthly rate as their standard service charge or as an option
in two-thirds of OECD Member States[12]. The OECD notes that although direct
comparisons are difficult (as packages are upgraded or discontinued), there has been a
general trend away from data-limited or capped offers towards unlimited offers, as more
network capacity becomes available. Italy is a good example, where a national broadband
initiative was launched and flat-rate unmetered pricing is promoted as a key element. Over
the last three years, Telecom Italia and the ISP Libero have offered a choice of either flat-rate
and time-based packages to users (Table III). Their unmetered packages offer unlimited
data transfer at 640 kbit/s and 1.2 Mbit/s respectively.
However, packages based on time may not represent broadband in its truest sense, since
broadband is typically defined as an always-on connection. However, time-limited

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Table II Broadband prices: comparative prices for broadband, top 15 broadband economies, July 2005, ranked by USD
per 100 kbit/s
Economy

Company

Japan
Korea (Rep.)
Taiwan, China
Iceland
Sweden
United States
Germany
Finland
Netherlands
Hong Kong, China
Portugal
Canada
Italy
Macao, China
Belgium
Average
Best practice (top 20%)

Yahoo BB
Hanaro
Chunghwa
Vodafone
Bredbandsbolaget
Comcast
Freenet.de
Sonera
Internet access
Netvigator
Sapo ADSL
Bell
Libero
CyberCTM
Belgacom

Speed kbit/s

Price per month US$

US$ per 100 kbit/s

Change 2004-2005 (%)

51,200
51,200
12,288
6,144
24,000
4,096
6,016
8,192
4,096
6,144
8,128
4,096
4,096
2,048
4,096
13,056
38,229

36.53
40.68
22.40
12.21
60.68
20.00
31.33
60.16
30.08
51.24
76.46
42.05
46.31
23.76
50.14
40.27
33.20

0.07
0.08
0.18
0.20
0.25
0.49
0.52
0.73
0.73
0.83
0.94
1.05
1.16
1.16
1.22
0.64
0.11

18.9
266.1
258.6
295.3
5.3
272.4
281.2
281.7
280.6
21.9
291.1
27.0
264.8
27.2
216.2
246.6
235.2

Note: The top 15 broadband economies correspond to those at year-end 2003. The ranking in this table is by US$ per 100 kbit/s
Source: ITU research, based on data available in the Statistical Annex to the ITU Internet Report 2005: The Internet of Things,
November 2005

Table III ADSL offers in Italy, based on time, downstream speeds and data volumes
Operator

Package

Telecom Italia
Telecom Italia
Telecom Italia
Libero
Libero
Libero

Alice Free
Alice Flat
Alice 4 Mega
Libero Free
Libero Mega
Libero Tutto Incluso all calls within Italy

Speed (down/up)

Monthly price

Monthly
data cap

Installation
charge

640/256 kbit/s
640/256 kbit/s
4,000 kbit/s
1,200/256 kbit/s
12,000/1,024 kbit/s
4,000/256 kbit/s

2 Euro per hour

19.95 Euro
36.95 Euro
1.9 Euro per hour
29.95 Euro
39.95 Euro

Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited

n/a
n/a
n/a
n/a*
n/a*

Notes: *Modem rental costs 3 Euros per month

Source: ITU research and OECD (2005)

packages have limited appeal for consumers and have been largely supplanted by flat-rate
pricing as a key tool of the governments strategy to promote broadband.
Volume-based pricing charge customers on the basis of the data downloaded and have
typically been adopted in countries with high costs of international Internet connectivity.
Examples include Australia, New Zealand and Iceland. Where the marginal costs of added
bandwidth are non-negligible, volume-based pricing helps ensure that revenues match the
cost of services. In Australia, international Internet connectivity has traditionally accounted
for over half the cost of providing broadband access (ITU, 2002). Telstra offers flat-rate
pricing (Table IV), but advocates metered pricing on the basis that average cost pricing
cross-subsidises high bandwidth users at the expense of entry-level users (OECD, 2004).
Telstra argues that volume-based pricing is based on the user-pays model, which prices
services fairly according to the utility and value placed on them by consumers.
However, arguments of economic utility are largely spurious and in practice, volume-based
pricing has generally proved as a deterrent to usage. For instance, in South Africa, where
TELCOM currently applies a 3 Gb price cap, broadband usage is much lower than would be
expected[13]. At the end of 2004, South Africa ranked 83rd in the world for broadband
penetration. By comparison, in the early days of the Internet, South Africa ranked 15th in
penetration of Internet users worldwide in 1995. The greatest advantage of volume-based

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Table IV ADSL offers in Australia: based on data volumes and unmetered packages
Operator

Package

Bigpond Telstra
Bigpond Telstra
Bigpond Telstra
Bigpond Telstra
Bigpond Telstra
Bigpond Telstra
Bigpond Telstra

200 MB ADSL
400 MB ADSL
500 MB ADSL
20 GB ADSL
Unlimited ADSL
Unlimited ADSL
Unlimited ADSL

Speed (down/up)

Monthly price

Monthly data cap

256/64 kbit/s
512/128 kbit/s
1,500/256 kbit/s
1,500/256 kbit/s
256/64 kbit/s
512/128 kbit/s
1,500/256 kbit/s

$29.95
$39.95a-$49.95
$69.95a-$79.95
$129.95a-$139.95
$59.95
$69.95a-$79.95
$99.95a-$109.95

200 Mb
400 Mb
500 Mb
20 Gb
10 Gbb
10 Gbb
10 Gbb

Further data

Installation charge

15 cents per Mb
15 cents per Mb
15 cents per Mb
15 cents per Mb
Unlimited
Unlimited
Unlimited

$99 (self)-$419
$99 (self)-$419
$99 (self)-$419
$99 (self)-$419
$99 (self)-$419
$99 (self)-$419
$99 (self)-$419

Notes: aPrice available to existing Telstra customers with a fixed phone, billed for local and long distance calls; bspeeds are slowed to 64
kbps after 10GB
Source: www.bigpond.com/internet-plans/broadband/adsl/, as at 8 March, 2006

pricing for operators is that the uncertainty and risk of consumption remains with the customer,
rather than the operator, which can pro rata bills according to the data volumes transferred.
The drawbacks of volume-tiered strategies include greater complexity in pricing, more
opaque prices and sometimes, even higher prices. The imposition of excess fees for users
who overstep volume thresholds may in fact raise the cost of broadband access for unwary
users or those on inappropriate plans. According to the Australian industry research firm,
Telsyte, while median base plans fell by 23 per cent between February 2004 and February
2005, charges for excess downloads mean that users downloading in excess of caps
actually paid more 4 per cent more for a user consuming 1 Gb at median base plan excess
prices and 19 per cent more for a heavy, unwary user consuming 3 Gb on the same plan[14].
OECD (2004) suggests that the complexity of metered pricing may have contributed to
slower growth in the Australian broadband market, compared to more straightforward
dial-up pricing, as consumers may be more cautious in committing themselves. The fact that
some users do not select appropriate pricing tiers and end up paying excess charges
suggests that pricing structures may not be well understood by users. Although Australia
ranked 7th in the world at the end of 2004 for estimated Internet users per 100 inhabitants, it
stood in 29th place for the same measure for broadband.
The choice of thresholds is important, and directly impacts consumer behaviour and the
development of the market. In some countries, volume thresholds may be set so high as to
make them virtually irrelevant, such that packages are essentially flat-rate (e.g. some ISPs in
the United Kingdom). Elsewhere, in Australia, volume thresholds may also be set comparatively
low and may inhibit the use of the more bandwidth-hungry applications that broadband should
encourage, such as video-streaming and video-conferencing[15]. However, OECD (2004)
notes that the entry of new ISPS and a more competitive environment in Australia have typically
resulted in increases of the speeds and data thresholds for each pricing tier.
Operators face something of a dilemma as to what to do when thresholds are exceeded, in
seeking to recoup costs, while preserving customer relations. Operators have devised
innovative strategies. In Belgium, the incumbent Belgacom sells additional Volume Packs
of 500 Mb (ADSL Light) or 5GB to customers at 5 Euros (for ADSL Go/Plus), leaving the
decision to purchase further data volumes with the customer[16]. Several operators (Telstra
in Australia and Telecom New Zealand) will slow clients connections when they exceed their
monthly data thresholds back to dial-up speeds of 64 kbps, in addition to charging
customers for additional data downloads. To maintain good customer relations, a number of
operators now publish user profiles (e.g. Telstras user profile[17]), user guidelines[18] or
bandwidth calculators, which estimate an appropriate plan according to customers
personal usage[19].
There are a few exceptions where different prices are charged for domestic versus
international traffic, but these are rare. The case of Iceland is well-documented, where
flat-rate pricing is available for domestic web-surfing of home websites, while volume-based
pricing applies to international traffic to defray the costs of more expensive international

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bandwidth and pass some of these onto customers[20]. Most packages offer flat-rate
pricing for domestic traffic, so users can download content or send email to/from other
servers based in Iceland within their fixed monthly fee, with unlimited domestic download.
However, there are caps on foreign downloads using international bandwidth. Most
packages offer only limited data volumes of international traffic, beyond which additional
data transfer is metered due to lack of international cable capacity. A new international
undersea cable is in progress to address this shortage.
In Portugal, Sapo, the Internet subsidiary of Portugal Telecom, reflects the difference
between domestic and international content in both the data limits it imposes, and the prices
for further data beyond these limits. Thresholds for domestic content are ten times higher
than for foreign content from abroad (at 20 Gb and 40 Gb, rather than 2 Gb and 4Gb), while
Sapo charges e0.10/100 Mb for added national content beyond this, compared to e1.50/100
Mb for international content[21]. However, these are rare exceptions, and ISPs in most
countries do not differentiate according to domestic/international content, mainly due to the
difficulties of monitoring and billing mixed web surfing.

Future evolution of pricing strategies

In some countries, operators have offered a combination of all three strategies. For example,
DSL subscribers to Austrias incumbent operator, Telekom, can choose time, data transfer or
flat-rate pricing options. This enables operators to differentiate between the needs of
different segments of their customer base and to distinguish heavy-bandwidth customers
from entry-level customers. Heavy-bandwidth customers can potentially become
high-margin customers, if they can be made to pay for these services accordingly.
Otherwise, heavy-users risk remaining the loss-leaders and subsidised segment of the
market. It therefore makes sense for operators to distinguish between types of customer, and
devise an appropriate strategy.
Operators are also adopting strategies focusing on customer relationships, rather than the
narrow relationship of speed and price. In France, France Telecom rewards new and existing
customers who take on longer-term two year contracts with discounts. This makes
commercial sense, as it locks in revenues over a longer planning horizon and rewards
loyalty. Broadband packages may also become increasingly adapted to customers
lifestyles and needs. The introduction of tiered services is set to evolve into dynamic pricing
packages tailored to users profiles, for gamers, window-shoppers, chatterers and
music-lovers. Increasingly, DSL providers are positioning themselves in the triple play
market of bundled voice, data and video communications offerings.
Ultimately, however, the pricing strategies followed by different players and the prices they
offer depend on the market structure. In the United States, cable operators exert
considerable influence, due to their established cable infrastructure. US. TV cable operators
were among the first to open up their networks to voice and data as well as TV, once the
regulatory framework allowed this. Cable subscribers still outnumbered DSL subscribers at
the end of 2004 in the United States, but this was unusual. Indeed, the United States is home
to almost half of all cable broadband connections worldwide. US-based DSL providers have
therefore focused on promotional discounts and customised tiered services to attract
customers away from cable and build market share. It has been widely observed that cable
providers have been reluctant to engage in price wars, and have instead responded by
increasing bandwidth[22] and standard download speeds[23]. The United States gives one
demonstration of how cable modem can emerge as a serious competitor to DSL.
In Belgium, strong competition between DSL and cable also exists and has resulted in DSL
baseline speeds of 3 Mbit/s on offer for relatively low prices. The intensity of competition
depends in part, however, on the services offered by cable companies. In those countries
where cable companies offer telephony, the OECD (2004) finds that cable companies
generally also offer dial-up services and have been reluctant to respond with cable modem
services at a competitive speed (128 kbps) and price, for fear of cannibalizing their own
subscriber base. In Canada, cable companies mostly do not offer telephony services and
have been forthcoming in offering a competitively-priced 128 kbit/s service at prices

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comparable to those for dial-up (OECD, 2004). (However, this does not qualify as
broadband, by most definitions).
In Japan, competition has been intensifying through innovation, with local IP networks and
fibre-optic access networks gaining a foothold. Although DSL remains the platform of
choice, there has been a significant increase in the number of subscribers choosing
Fibre-To-The-Home (FTTH), and all-in-one service whereby voice, video and data are
transmitted to the home over a fibre optic network offering speeds of up to 100 Mbit/s, and
Very high-bit rate DSL (VDSL)[24].
In the United Kingdom, Carphone Warehouse has announced that it will be offering free
lifetime broadband to customers who sign up for their telephone service (Talk Talk),
although service availability will depend on location. Meanwhile, Wanadoo in the
Netherlands (www.wanadoo.nl/producten/) is offering bundled offers of ADSL at 20
Mbit/s, combined with telephone and mobile for 32.45 Euros a month, although subscribers
still pay a fee to the incumbent for use of the KPN line.
What is the overall impact of the move towards flat-rate pricing, the growth of competition
and the effect of innovation on broadband prices? The final section considers the impact of
these different pricing strategies on worldwide trends in broadband prices.

Trends in broadband pricing

In its methodology for the measurement of broadband prices, ITU samples price packages
from broadband providers in all economies where broadband is offered every year. The
broadband price database was begun in 2003 and complements other prices collected for
dial-up Internet access, mobile communications and fixed lines, among others. When
sampling prices, ITU examines different providers in the market and takes prices from
several, including those which are the most competitive and/or have the largest market
share. In its annual ITU Internet Reports[25] series, ITU reports two prices:
1. Entry-level prices, typically for low-speed services. These generally correspond to the
lowest monthly price at which broadband is available to residential subscribers.
2. The lowest sampled cost per 100 kbit/s. This usually corresponds to a much higher
speed offering.
ITU has chosen to report the lowest cost of average monthly price per 100 kbit/s as the key
long-term indicator of price to performance for a sample of the different packages on offer in
each country. These refer to residential packages available to consumers, but where these
are not available, they may refer to business packages (mostly in developing countries,
where broadband may only be available through commercial or leased lines). Installation
fees and costs of equipment are important, but since these are one-off costs, they are not
included in the measurement of ongoing costs to consumers in monthly fees.
Where caps exist, ITU takes the package that approximates to 100 hours worth of access
per month or 1 Gigabyte of data downloaded per month, to ensure that packages are
broadly comparable. (A strictly accurate comparison would require sampling of several
different baskets based on established standard user profiles, but standard user profiles are
difficult to define).
Direct comparisons over time are difficult, since packages are upgraded each year, and
may be discontinued. Typically, subscribers are enjoying upgrades in speed, without further
price increases. In Switzerland, the basic service offering by Bluewin (a subsidiary of
Swisscom) was upgraded from 256 to 512 kbit/s in late 2004 and will be upgraded again to 2
Mbit/s in March 2006. During both upgrades, the price was held constant at CHF 49 per
month (USD 38). Telecom New Zealand has announced similar upgrades in speed, at no
extra cost for existing customers, for April 2006.
In order to indicate prices trends over time, ITU has calculated the average of all countries
for which data are available from 2003-2005, and which are directly comparable. In some
developing countries where DSL or cable modem service is not yet available, expensive

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leased lines are sometimes classed as broadband access, usually for the business market.
This artificially increases the average price. The median speed is therefore used, as this is
less influenced by outliers. A general reduction in price is observable. On average,
broadband prices are falling and indeed, for the 76 economies that established broadband
markets as early as 2003, the median price has halved from $11.27 per 100 kbit/s in 2003 to
$5.35 per 100 kbit/s per month in 2005 (Figure 3, left scale).
Speeds have also increased[26]. The average download speed across the 76 countries for
which data are available over 2003-2005 has risen from 1.3 Mbit/s in 2003 to 4.1 Mbit/s in
2005[27] (Figure 3, right scale). Although these maximum download speeds may not in
practice be available all the time (due to network conditions and congestion), they have
increased steadily over time (Figure 4). Two years ago, only providers in Japan and the
Figure 3 Trends in price and speed (trends in average broadband prices and speeds, by
lowest sampled cost, for 76 countries with data available, 2003-2005)

Figure 4 Growth in speeds (trends in maximum broadband speed available, by number of

countries, 2003-2005)

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Republic of Korea had popular offerings in excess of 4 Mbit/s, using DSL or cable modems.
By 2005, providers in 20 countries had publicly available offerings at speeds over 4 Mbit/s
(Figure 4).
This article has considered the role of pricing strategies in driving the growth of broadband
markets, and considered the different strategies available to operators, and their
advantages and drawbacks. Pricing strategies have major implications for the future
development of telecommunication markets, as they are dismantling the constructs on
which telecommunication services have historically been priced (namely, distance, time and
location). Broadband pricing strategies, especially the growing trend towards flat-rate
pricing, promise to transform the revenue streams and expansion of communication
services in future. Now, more than ever, operators decisions will shape the future of the
market.

Notes
1. Deutsche Bank (2005), Broadband: Europe needs more than DSL, available at:
www.dbresearch.com
2. Competition includes competition between an incumbent and new entrants, but also competition
between technologies with a degree of substitutability, e.g. Digital Subscriber Line (DSL) technology
and ISDN or DSL and cable. In liberalised markets, competition may also arise between incumbents
and foreign incumbents. In converged industries, telecom companies may compete with media
content players. Competition may be more perceived than real: in some markets, the mere threat of
competitive entry is sufficient to influence operators behaviour.
3. ITU (2003), ITU Internet Reports 2003: The Birth of Broadband, available at: www.itu.int/osg/spu/
publications/sales/birthofbroadband/index.html. The Republic of Korea also channelled the
revenues gained from auction of 3G mobile licences into ICT training programmes.
4. For example, the German Association of Telecom Service Providers has criticized government
programmes to spread DSL as subsidising old monopolistic structures. See Grutzner (2005),
VATM press release, 7 April, 2005.
5. See ITU (2003): Broadband Korea: Internet Case Study, at: www.itu.int/ITU-D/ict/cs/korea/
material/CS_KOR.pdf
6. ITU (2003): Promoting Broadband: The Case of Japan, at: www.itu.int/osg/spu/ni/
promotebroadband/casestudies/japan.pdf
7. Deutsche Bank (2005), Broadband: Europe needs more than DSL, available at:
www.dbresearch.com
8. www.itu.int/osg/spu/ni/promotebroadband/casestudies/japan.pdf
9. In the Republic of Korea, fixed-line operators offer wireless LAN services to subscribers, to compete
with mobile operators offering internet access.
10. Interestingly, mobile operators in Japan are also pioneering the use of flat-rate (unmetered) tariffs for
3G mobile services.
11. Broadband price war threatens provider survival, available at: www.ovum.com and
www.e-consultancy.com/newsfeatures/151770/broadband-price
-war-threatens-provider-survival.html
12. OECD (2005), OECD Communications Outlook 2005, available at: www.oecd.org/document/15/
0,2340,en_2649_201185_35269391_1_1_1_1,00.html
13. See user criticism, for instance at: http://myblogs.co.za/?p 59
14. www.telsyte.com.au/releases/telsyte-bb-price-wars-apr-05-pr.htm, available at 23 November, 2005.
15. The OECD (2005) notes, however, that in Australia, some services from the incumbents own servers
are not counted towards these limits. OECD (2005), OECD Communications Outlook 2005,
available at: www.oecd.org/document/15/0,2340,en_2649_201185_35269391_1_1_1_1,00.html
16. www.belgacom.be/private/hbsres/jsp/dynamic/option.jsp?dcrName hbs_volume_pack
17. www.bigpond.com/internet-plans/broadband/adsl/

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18. See Telecom New Zealands Monthly High Speed Allowance Explained guidelines as to data
usage at: www.telecom.co.nz/chm/0,5123,202915-202570,00.html
19. See, for example, BTs bandwidth calculator and usage guidelines, link available at: www.bt.com/
broadband/bb_info.jsp?obsNoSee=Y&vStore=1322&obsPage=%2fbroadband%2fbb_info.
jsp%3ftargetSection%3dpackages&obsType=LINK&obsOID=89065&targetSection=prod_
page_2000R_G
20. ITU (2003): Promoting Broadband: The Case of Iceland, available at: www.itu.int/osg/spu/ni/
promotebroadband/casestudies/iceland.pdf.OECD (2004), Benchmarking Broadband also
notes this distinctive feature of Icelands pricing strategy, available at: www.oecd.org/dataoecd/
58/17/32143101.pdf
21. See Sapos terms and conditions of ADSL access at http://adsl.sapo.pt/prodtarif.html
22. See, for example, http://telephonyonline.com/mag/telecom_dsl_cable_broadband/, 31 January
2005.
23. www.xchangemag.com/articles/4a1consumer1.html/ 10 January 2004.
24. www.itu.int/osg/spu/ni/promotebroadband/casestudies/japan.pdf
25. The ITU Internet Reports series has been published since 1997. The seventh edition, The
Internet of Things, was published in November 2005 and is available at: www.itu.int/
internetofthings. It contains broadband price data current in August 2005.
26. Advertised speeds are maximum speeds, but these are not always available, due to network
congestion or signal attenuation. Connections are often asymmetrical, with more downstream
capacity offered than upstream capacity in Asymmetric Digital Subscriber Line (ADSL)
technologies. Other factors to be considered beyond simple speed include quality of service,
latency, routing and backbone load, but data are not always available for these.
27. Although OECD (2005) uses a different methodology focusing on OECD member states, it reports
similar findings, with an average increase in downstream speed offered of 514 kbit/s among the
OECD member states, as well as an average reduction in price of USD 9.42 from 2002 to 2004 (USD
17 at purchasing power parity).

About the authors

Phillippa Biggs works in the Strategy and Policy Unit of the International Telecommunication
Union, the UN specialized agency for telecommunications based in Geneva.
Tim Kelly also works in the Strategy and Policy Unit of the International Telecommunication
Union in Geneva. In addition, he is a visiting scholar at Hong Kong University of Science and
Technology (HKUST). Tim Kelly is the corresponding author and can be contacted at:
tim.kelly@itu.int

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