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Cheap modems heat up broadband race

Cheap modems heat up broadband race

An influx of cheap ADSL modems onto the market is set to shake up the broadband market this Christmas, but incumbent modem and router vendors doubt that cheaper hardware will benefit the IT channel.

Last week, broadband consumer website, Whirlpool, reported that distributor PC Range was soon to introduce a Billion 4-port ADSL router into the market, priced at just $99.

PC Range director, Raaj Menon, said the nearest competing product was priced in the $169-$199 range.

Menon claims that the Whirlpool leak caused a flood of some 1300 pre-orders for the Billion product within a few days.

The key to such a low price point, Menon speculated, was that PC Range and Billion did not “artificially inflate” the margins available to the IT channel for the product.

“Dealers pay around $70, so the margin is only 10 to 20 points,” he said. “We choose to be different to our competitors in terms of how we price our products. We set an RRP, an attractive price, and work backwards from there. What is the point of inflated margins if the product won’t sell?”

Menon claims also that low-price modems may give smaller ISPs a shot at competing on price with their larger peers (whom they often buy their connectivity from). By bundling cheaper ADSL modems, their plans can become more competitive.

“I feel that the timing is right,” he said. “The larger ISPs will lock people in to a bundle that includes a modem, but other ISPs are offering connectivity separately. The more intelligent people out there can see the huge difference in price.”

But Menon’s competitors disagree with the premise that cheaper devices will provide more opportunities to the reseller channel. David Stewart, managing director of modem manufacturer NetComm, a major supplier to Australian ISPs, does not see the likes of Billion as a threat.

“I don’t even see Billion as a player,” he said.

Stewart said that internet service providers were the first in the industry to benefit from the broadband boom, and resellers only made their mark later by up-selling customers with more advanced devices.

“I’m not so sure cheap devices are big news for the reseller channel,” he said. “Normally the CPE [modem] is bundled with the ISP’s offering. The carriers in particular tend to offer the basic modems, those that don’t cost too much but will meet the first-time user’s needs, as the ISP subsidises the cost of those modems in their plans.”

The opportunity for resellers, Stewart suggested, was in selling better modems for those users who found the basic devices bundled with their plans were insufficient for their needs. These devices might include routers for households with multiple computers, devices with enhanced security features or wireless connectivity.

“For the reseller it is not about the initial sale, it’s about the up-sell,' he said. "It’s the french fries."

For more on this story, see this week's issue of ARN.


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