Spectrum, formerly operating under the brand name Time Warner Cable, is one of the most popular cable and internet services company in America. As is with most satellite internet providers they provide fast internet connections but their rates are steep. There are several reasons why Spectrum's internet plans come at a premium.
Infrastructure and Technology Costs
Spectrum is a cable internet service provider, and the company needs to have fiber coaxial cables in the entire region it operates in. This encompasses fiber optic cable installations, node and amplifier linkages, powering nodes and linking the entire structure to individual homes respectively. These networks are highly expensive to implement and need constant investment to sustain the increasing traffic bandwidth. This last area of investment can be considered as more indirect, but its impact is clearly felt by the consumer in the form of the infrastructure costs passed on by Spectrum.
This is especially evident where competition is not felt due to the absence of strong competitors in some areas.
This may be a limitation compared to telephone and satellite internet providers who can offer service nearly anywhere they need not actually hook into a home, Spectrum can offer cable internet only in the areas that they have physically strung cable. Due to the high cost of cabling, there are no competitor driven overlays in many suburbs and rural areas. When there is no other provider in the vicinity, Spectrum is free to implement higher prices because consumers do not have another choice. However, in more urban and developed areas they normally experience neck to neck competition with other fiber optic internet service providers such as the Verizon Fios.
Bundling Discounts
The company offers promotions that encourage Spectrum Customer Service to take bundles for example TV, Internet and home telephone services. An individual internet plan is typically $20-$30 higher per month if one gets it separately from the telecommunications provider’s bundled offer. They use bundling and manage to lock the customers in a particular package and charge higher for internet only. This way they are in a position to generate more revenues from each customer than if they offer the products and services separately.
Service and Speed-Based Pricing
Spectrum internet services are categorized in a package system according to the speed offered. The most fundamental package of this service offers 100 Mbps downloading speed at $49.99 per month. For 200 Mbps costs $69.99/month, for 400 Mbps costs $89.99/month, while for gigabit internet connection costs $109.99/month. While this is somewhat related to the speed, the pricing scale is not perfectly proportional to the speed; you pay more per Mbps as the speed goes up. This means that consumers who require a faster internet speed will have to subscribe to the service at a higher rate.
This is mainly exhibited through promotional discounts and price hikes.
Spectrum is especially famous for its trick of providing comparatively cheap prices for the first year to attract customers and then raising the prices by $20 and more after the first year, which can be six months or a year maximum. The regular rates of existing customers are comparatively higher than those who switch between providers. They take advantage of consumer inertia because the majority will not cancel their subscription due to the inconvenience of changing service providers. They can expand the revenues by putting up the prices now and then.
Customer service and support costs are also among the major factors that may affect the performance of a firm.
Having customer support centers in the US, where people can call to schedule the installation or ask a question, or report a problem 24/7 is costly. The company like Spectrum attracts millions of customers and this result in very humongous cost of support. These expenses are eventually reflected in the higher monthly tariffs on the consumer’s side of the value chain. Outsourcing support overseas could be cheaper but has to do so on the backs of service quality.
Profit-Seeking Company
The key argument of the for-profit corporation like Spectrum is to provide shareholders with returns. They have millions of customers who pay monthly fees which make them produce good operating cash flows. Some of it goes toward improving the networks while the rest and more go to parent company Charter Communications. The focus on shareholders to keep their returns high makes them ensure that internet prices are maintained high through occasional increases.
Altogether, Spectrum takes advantage of its dominance in a number of areas by charging a premium price that reflects the company’s technological and infrastructure investments, benefits from a bundling strategy that locks in customers, seeks greater margins from higher internet speeds, and generates revenues for its shareholders. Currently, Spectrum lacks local competition in many areas and the costs require extensive construction of these highly reliable hybrid fiber-coaxial networks; hence its high prices compared to competitors should not be expected to budge. Customers who wish to have broadband connections beyond 100 Mbps, therefore, have to contend with these premiums.
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