Anyone looking for counterintuitive statistics about broadband competition in the United States need search no further than a new report by ID Insight. The study identifies Arkansas as the most competitive state in terms of the number of Internet service providers, followed by North Dakota, South Carolina, Nebraska, California, and Alabama.
Meanwhile, Rhode Island comes up at the bottom of the competitiveness list, preceded by Hawaii, Maryland, Colorado, and Delaware.
Huh? If Arkansas is such a competition paradise, why did the government's National Telecommunications and Information Administration just award over $25 million to that state plus Texas, Kansas, and Oklahoma to build almost 700 miles of fiber-optic lines to "help bridge the technological divide" in 35 communities?
But there you have it, says ID Insight. "We see that the five states with the lowest income have the most competition, while the five states with the highest income have the least competition," the report observes.
Correlations
This head-scratcher of a revelation comes as everyone is debating the role that market competition plays in delivering broadband to consumers. Some argue that many parts of the country receive duopoly ISP service at best, a crucial factor in the United States' low international ranking in broadband penetration. Others contend that there's tons of competition here, especially when it comes to wireless broadband, and we're doing just awesome—even in comparison with Europe.
But this latest report raises an interesting question—to what extent does this factor actually matter when it comes to getting affordable broadband into people's homes?
ID Insight identified a handful of conditions that correlate with competition; these include the state's median home value, median household income, percentage using broadband, average upload speed, and the share using Internet at home. But the report found that some of them have an inverse relationship with competitiveness.
In particular, as income and home values increase in a respective state, the level of ISP competition goes down.
These relationships may appear to be somewhat contrarian, ID Insight concedes, until you take a second look. "In more prosperous states where there are many users, and more wealth, this tended to attract the largest providers," the survey contends. "As infrastructure was enabled and larger providers began to dominate markets, it became increasingly difficult for new entrants to establish themselves."
Arkansas, the study notes, has no overwhelmingly dominant Internet provider. Its biggest carrier commands a 30 percent share of consumers, followed by 19 percent for number two, then 11 percent, 11 percent, 10 percent, 10 percent, 3 percent, 3 percent, 2 percent, and 2 percent for the remaining eight providers.
In contrast, in Rhode Island, one of the nation's wealthiest states, the top ISP enjoys a 78 percent market share. The next three carriers don't even come close: 17 percent, 2 percent, and 1 percent respectively.
Density
You may have noticed that ID Insight didn't identify population density as a clear direct or inverse factor in determining competition. That's because the study couldn't find that relationship. It found largely rural Nebraska to be very competitive, yet New York State, where 50 percent of the population is concentrated in New York City, to be far less so.
But the report's authors, Craig Settles and Adam Elliot, admitted that even they were surprised by the study's principal observation that competition inversely correlates with state wealth.
"We hesitate to draw what could be the obvious conclusion that, if a state's constituents become wealthier, competitiveness in broadband will drop," they conclude. "We take the position that wealth attracted or facilitated (and still does) one or two large providers to come into the area initially and establish market dominance such that their resulting barriers prevented competition from becoming widely established. It very well may be that specifically because less affluent states did not attract one of the largest providers (at least for a while), several smaller regional or local providers were able to establish stronger market positions."
So it may be that policy makers have to come up with a more sophisticated way of thinking about "competitiveness" and its virtues. In poorer, more rural states, having a host of probably cash-poor competitors on the market doesn't necessarily mean better broadband. The Federal Communications Commission's latest report on Internet competition found that only 72 percent of consumers in "competitive" Arkansas had access to 200Kbps or greater cable modem service in 2008.
That's why Settles remains a staunch advocate for municipal high-speed Internet, pointing to beleaguered projects in Minnesota and North Carolina as examples.
"People don't have to look any further than the most muni fiber networks that have started over the past couple of years, Monticello, MN being the most recent," Settles told us. "Once the city survived all of the lawsuits and moved forward with its network, the local incumbent lowered prices."
And in North Carolina, "two cities have moved forward to build fiber networks because that's the only way to not only get cheaper prices than Time Warner, it is the only way the cities can get 100 Mbps for consumers and a gigabit for businesses." But these plans face a tough anti-municipal network bill heading for a vote in the state legislature next month.
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