Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As you are aware, Google has been entering select markets with its Google Fiber service that competes directly with our high-speed data and video services.

As you are aware, Google has been entering select markets with its Google Fiber service that competes directly with our high-speed data and video services. Even though its market penetration has been moderate, Google has deep pockets and excellent brand awareness. As a result, we are paying close attention to markets that it is entering. Within the last year, we completed our own fiber upgrade in the area at a cost of a little over $550 million. We are able to provide our high-speed data and video, and have a large number of bundled customers for our products. Unfortunately, many of them have been with us for a while and are no longer under any contract to remain with us. With Google's entry (along with existing competition), we may need to reduce our prices. The Austin service area for our services includes 340,000 households. Currently, in neighborhoods where Google competes, we provide bundled services that average $120 per household per month. In addition to monthly costs associated with the $550 million (which is being amortized over 15 years at 6.0 percent), agreements with program providers stipulate that we pay them $41.50 per subscriber per month. In addition, we have maintenance, service, and billing costs of $9.20 per subscriber. I am concerned that increased competition will lead to a price war, and that prices may get to unprofitable levels. If things turn really bad, we may need an exit strategy from this market. How low should we be willing to go with our prices before it makes sense to exit the Austin market?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Accounting

Authors: Tracie Miller Nobles, Brenda Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo Ann Johnston, Peter R. Norwood

11th Canadian Edition Volume 2

0135359783, 978-0135359785

More Books

Students also viewed these Accounting questions

Question

Explain the importance of intersectionality in sampling.

Answered: 1 week ago

Question

2. What do the others in the network want to achieve?

Answered: 1 week ago

Question

1. What do I want to achieve?

Answered: 1 week ago