Question:
My friend is buying a new cable internet modem so he can quit leasing one from the cable provider. We both currently have DOCSIS 3.0 modems which support speeds up to 400 Mbps. We both currently subscribe to internet service of less than 200 Mbps, so we're not even using the full capability of the modems now.Currently, DOCSIS 3.1 modems are widely-used as they support speeds up to 2 Gbps (5 times the bandwidth of the 3.0 standard). Of course they cost more. In the real-world situation my friend faces, should he pay $117 for the 3.0 modem or $149 for the 3.1 modem?
My argument for 3.1 is this: Modems last a long time. About 7 years ago, I had subscribed to faster internet service and was only receiving about 1/3 the bandwidth I was paying for. I learned that I needed a modem that supported the faster speed. After research, I learned I needed a 3.0 modem (the current standard at the time). I bought the new modem and instantly experienced the significantly faster internet I was paying for. I've had my current modem for seven years (and I'll upgrade to 3.1 if I ever subscribe to gigabit service). Even at a life expectancy of 7 years the difference is 38 cents per month.
In many regions, gigabit internet is becoming standard. In the next several years, I anticipate that gigabit will be the default service offered by providers. If you have a 3.0 modem, you effectively will only be able to harness up to 40% of the capacity you're subscribed to.
His argument for 3.0 modem is this: He's had 75 Mbps internet service for years now and he's fine. He lives alone (38 year old male). He claims he is certain he won't partner with anyone. He says he will never need more than 400 Mbps anyways. If he ends up with gigabit service and can only use 40% of it, it won't matter.
Answer:
Individual consumers have different preferences and information, which guide those individuals to choose what is best for themselves. Your friend seems quite determined that he will not use faster internet even if gigabit service were to be made available. In that case, your friend’s choice to buy the cheaper modem is easy to understand. More interestingly, let’s suppose despite your friend's claim that he ends up wanting to use faster gigabit service and buying the more expensive modem several years later. His decision to buy the cheaper modem today would be rational if the benefit of buying the cheaper model today were greater than the cost: he would save $32 today in return for spending $139 later (if he can sell his cheaper modem later, then he would not have to spend as much as $139). By this logic, it appears that your friend is heavily discounting future money. Or it could be that your friend is skeptical that the gigabit service will be made available anytime soon, which would require less discounting of future money to explain his choice. Or it could be that your friend anticipates better modems will be on the market once gigabit service becomes available. We do not know if any of these explanations are true for your friend, but he would be making the best decision given his preference and information.
