Strong price elasticity of FTTx in Europe

logoround50pixelStrong price elasticity of FTTx in Europe: One Euro down, 400,000 Customers Up.

 

According to a new Quantum-Web tariff analysis the number of fibre broadband subscribers rose from 12.7 million to over 22 million from the fourth quarter of 2009 to the same quarter in 2012 while the average residential fibre broadband tariffs reduced from €59 to €35 in this period. There is strong evidence suggesting high customer sensitivity to the fibre broadband prices in Europe says Qmars Safikhani, Head of analytical Research at research and consultancy firm Quantum-Web. He adds: “We have observed high elasticity of fibre broadband demand of 1.85” meaning that a 1 Euro decline in prices causes an increase of over 400,000 new fibre subscribers in Europe since the fourth quarter of 2009.

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The impact of fibre broadband prices varies for stand-alone and bundled packages.
In our analysis we have classified fibre broadband packages into stand-alone and bundled packages: “Double Play”, “Triple Play” “and Quad Play”. According to our findings (1), the strongest level of price sensitivity has been observed in “Double Play” packages meaning that customers are more welcoming of changes, or decline, of Double Play packages than any other type of bundled packages. Surprisingly, the price elasticity of “Triple Play” packages scored lowest meaning that “Triple Play” packages were the most inelastic fibre broadband packages compared to the other bundled services during this period.

 

According to the results of our analysis there are several factors affecting the Price Elasticity of FTTx Demand in Europe

Availability of substitutes: xDSL, Cable modem in the fixed broadband, 3G and 4G technologies in wireless segment are widely available in Europe as the more possible substitutes.

Availability of FTTx technology: Higher CAPEX for deploying fibre makes the technology quite a luxury product with a low degree of necessity; consequently, fibre broadband tends to show greater elasticity. All broadband technologies initially have a low degree of necessity but become “necessities” after the inflection point on the cumulative demand curve.

Permanent or temporary price change: Promotions on recurring and nonrecurring costs and subsidising roll out of Fibre optic network.

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