These days I travel by plane a lot, but I didn’t travel much in the pre-deregulation (before 1978) glory days of airlines. My parents, relatives and neighbors rarely flew, mostly because air travel was very expensive.At the same time, most people felt that flying was a good experience, where people dressed up, seats were spacious and meals were included.

With deregulation came much lower fares, and along with that reduction the frills went away. If you fly coach class today there are no meals, the seats are small and close together, the flights are crowded, and everyone (staff and passengers) is less friendly than in the regulated period.

You might think that with the lowered level of service that air travel would be falling off. Instead, it has jumped to record levels. Many people say they want “the best,” but the actual demand for quality is elastic, which means that how much quality is required depends heavily on what it costs.

People enjoy meals and spacious seats, but not so much that they will pay for first class. However, they may be willing to pay somewhat more for enhanced offerings such as premium coach. In most cases people choose to pay less and gripe.

Likewise, audiophiles point out that the ubiquitous MP3 format for music is much poorer in quality that other forms. However, it has the advantage of supporting relatively small file sizes, and less expensive storage media. In the early days of portable music players this meant the difference between having hundreds versus thousands of songs. Lower quality meant a lower priced player and more music.

How Does All of This Apply to Telecom Services?

The advent of the web and cloud infrastructure has enabled the creation of innovative new platforms and services. It has also highlighted that same elasticity of demand for quality. Skype made international calling very affordable, even though its initial quality was somewhat sketchy. The rapid growth of Skype demonstrates that consumers will make the tradeoff in quality versus cost. At the same time, the quality of Skype has improved to the point that it can be better than that of landline calls.

Another telecom example is virtual private networks (VPNs). In the old days, VPNs were implemented by service providers as a closed overlay on their private backbone network, usually separated from their public networks. However, the availability of low-cost high-speed public internet connections has enabled a new generation of VPN solutions that eschew expensive private connections in favor of sending encrypted packets over the public internet. The speed and delay are not as good as for the traditional service-provider VPNs, but the cost is much lower. In many cases, the quality is good enough.

The movement of customers from traditional voice and network products to “good enough” services that are free or cheap has put a squeeze on the top line revenue for service providers. At the same time, the demand for bandwidth is increasing the cost of the network. What are the service providers going to do?

Cut Costs for Good Enough Quality

One answer is to emulate the airlines — start offering more services that are lower in cost, but also lower in quality. There are limits to this approach, such as statutory requirements related to emergency services (which is one reason Skype has studiously avoided such services). However, consumers have shown that there is plenty of demand for services that are slower and less reliable than what they used to buy. Service providers will find ways to deliver new services at a lower cost, and subscribers will accept that the quality will also be lower.

Steve Saunders of Light Reading has some interesting thoughts on this topic here.

Don’t Worry – Services Will Improve (Eventually)

The airlines are starting to figure out how to give consumers more options for quality, and how to deliver better quality at every level. Likewise, Skype and public internet services have improved dramatically over the years. We can expect that new low-cost, best-effort services will see improvements over time. In the short term, they will get worse before they get better, so be prepared to suffer through some temporary setbacks with low-cost services.