How Is Skinny Broadband Profitable?

Bill on 03/12/2021 - 02:38
Last edited 03/12/2021 - 02:40

I was reading this article https://www.nzherald.co.nz/business/nzs-biggest-data-hogs-re…

and when I was reading this part "Specifically, a new monthly fibre plan would offer download speed of just 40Mbps and upload speed of just 10Mbps - or barely faster than VDSL, the fastest form of copper line - for a wholesale price of $39 per month (as long as retailers pledge to see it for no more than $63)."

I remember seeing this earlier as a competitor to fixed wireless but I just realised.

I was thinking if skinny's base 100/20 > 300/100 is 6 months free, it would be $39 per month ($78/2). Since this is a higher version it will definitely be more than the wholesale price of $39. These costs paid by skinny to chorus should be fixed, and would be higher than $39 per month, yet they sell it to us for $39 per month. I can't imagine even with the customers who stay behind, how they are able to make a profit, as it seems to me they lose money for every person that leaves in a year. I am a bit confused, does anyone know the wholesale price of the other plans?

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  • CheapAzChips on 03/12/2021 - 07:31

    The answer is: probably they don't make money on those new customers in the first 12 months. But if they can attract enough customers and retain them past 12 months they will ultimately be in the black.

    I also suspect that their game plan is to offer all these customers a fixed wireless plan after 12 months for less than $78 if they sign in for another 12 months. Fixed wireless is good for ISPs as they cut out Chorus clipping the ticket so margins are higher. Also, the cost of delivering the service can be subsidised by the mobile plans they offer. With 5G rolling out they are gearing up to deliver huge amounts of bandwidth over wireless in urban areas.

    I suspect Chorus is in panic mode right about now as they no longer hold the monopoly on last-mile high speed internet connections.

    • Bill on 03/12/2021 - 12:42

      What I am currently seeing is not that they don't make money, it's that they lose money for each person that only stays for 1 year. Due to the actual wholesale price they pay to chorus being higher than they charge. Then also factor in 6 months free of fibre ultra then changing to fibre 300 they pay even more to chorus in the first 6 months.

      I don't believe they are betting on changing fibre customers to fixed wireless. Since they already offer that option, a large majority of people who want fixed wireless are already on it, and the large majority of people on fibre are not going to switch. If they were trying to push fixed fibre they should have offered 6 months free of that as well.

      https://sp.chorus.co.nz/product-update/2019-consumersme-fibr…
      I went through a couple of websites and they were all jargon except for this one

      It outlines that fibre max is $56 and

      "We are proposing that $42.50 is the appropriate price for the 30/10 and $46 for the 100/20 Fibre plans from 1 July 2019."

      calculations are

      current price of skinny

      30/10 speed = $73/2= $36.5 over a year

      300/100 speed = $78/2= $39 over a year

      ultra = $98/2 = $49 over a year

      whole sale price of chorus

      30/10 = $42.5

      300/100 = $46

      ultra = $56

      the difference in price is $6 for 30/10 and $7 for others.

      $7*12= $84

      And that's only if they don't downgrade at 6 months

      also the modem for $10 they have to lose some money on that as well

  • bigcheese on 03/12/2021 - 08:03
    +1

    I think a lot of people just don't change broadband providers once they are signed up.
    Whether it's too lazy to change or just don't realise how easy it is to change, after the first 12 months I'm sure they make plenty of money.

    • Bill on 03/12/2021 - 12:47

      Yes, I agree, but even their full price is still very competitive to other providers, so they would not be making any more than any other provider.

      • bigcheese on 03/12/2021 - 12:57

        Maybe just absorbed by their parent company Spark.
        No idea though.

      • Alan6984 on 03/12/2021 - 13:24

        Pile it high and sell it cheap model I would have to guess.

        They may also believe that their target market is less likely to shop around and change supplier at the end of the 12 months, so they will retain more customers than average, and make up in volume what they lose in margin.

        Of course, they might be wrong - maybe their model won't work in the longer term.

        • Alan6984 on 03/12/2021 - 14:11

          Also, I am not with Skinny, so not certain on this, but I think I read somewhere (maybe here!) that Skinny absolutely require to you to use their modem. If so, their support costs will be lower than other ISPs as it will be much simpler on their end, especially if they can completely control the modem in place, wipe it, restore to their settings etc.

          • Wakrak on 04/12/2021 - 01:19

            @Alan6984: You can use other modems but you’ll receive zero support. Connected a Netcomm N18ACV and it worked straight away (I came over from Slingshot).

            • Alan6984 on 04/12/2021 - 09:19

              @Wakrak: Fair enough - same as many other ISPs I guess.

              Thanks for clarifying.

              Alan.

    • huffboy on 03/12/2021 - 13:49

      agree. most I know people don't play the switching game or at least don't actively play it (if someone pushes a great new deal in their face, they move - if not they will not actively look for a deal)

  • Foodie on 04/12/2021 - 00:12

    An attempt to gain customer contact details / retain customers after the fact.
    If customers have a good experience they might refer their friends and family?
    Spark is probably able to offset some costs in worst case.

  • felixfurtak on 04/12/2021 - 10:05

    The 6 month free offer is ending 8th December. It's probably a push to just get more customers. There could be many reasons for doing this, but the cynic in me says the CEO has a bonus linked to recruiting X more customers by the end of the year.

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