Price setting is as important art for communications service providers as it is for other retailers. Operating in competitive environments, Internet service providers, for example, want to be able to claim they offer value or price advantages that provide an edge over other providers.  

But there are other issues, including the role of growth in firm strategy. Simply, some ISPs choose rapid growth over profits, while others choose to grow more slowly, when doing so means optimizing profit.

Beyond that, ISPs must take affordability into account in any market. Take the Indian ISP market, for example. If one assumes a price of US$30 as a monthly target price, and if one further assumes a household spends no more than 7 percent of its income on communications, then one might argue less than 2 percent of Indian households could afford to pay that much for Internet access. 


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In such cases, introductory prices must be set at levels that allow most households to buy. But a rational ISP also would want to set prices at additional tiers that provide inducements for some buyers to spend more without depressing overall take rates or “leaving money on the table” by charging less than customers on the more-expensive tiers would otherwise have paid.

In other cases, service providers might take into account other objectives, such as pricing usage in ways that do not unduly encourage users to consume data in casual or frivolous fashion.

Assuming Cablevision Systems (News - Alert) Corp. does not alter its current pricing, new “Optimum Online” pricing shows the tactic of pricing basic access at levels most people have come to see as reasonable while also offering a carrot for users to upgrade to the next level.

New Optimum (News - Alert) Online customers pay $39.95/month for the first year when customers self install the 15 Mbps access service.  But Ultra 50 service, boosting access speeds to 50 Mbps, can be added for only $4.95 more a month.

That relatively slight difference in prices contrasts with the steeper pricing differential of $55 a month for customers who might want to buy the 100 Mbps service.

That price schedule obviously is an inducement for consumers to take the 50 Mbps service.