The Sorry State of Broadband Competition – And How to Deal

In my 12 steps to move a community broadband project to successful completion, I put heavy emphasis on the needs analysis process. You can’t create the network that’s best suited to meet constituents’ needs if you don’t do this particular task well. But part of the assessment involves understanding the provider marketplace. “It sucks!” may seem 100% accurate, but it’s not a particularly complete analysis.

Assessing what communities need requires understanding what options they already have – or don’t have – to meet those needs. At both the national and the local level, getting a detailed picture of existing service providers and their market share, coverage areas, actual speeds and so forth has been difficult, if not impossible. Yet we must soldier on as best we can.

Whether you create a public-private partnership, convince a telecom company or service provider to offer better broadband or build a public network, this is a business venture. Business ventures require market intelligence.

Last week, data services company ID Insight and I released a high-level report on broadband competition in the U.S. It uses critical, but not private, data pulled from Internet transactions to determine service providers’ market share for each of the 50 states and Washington, D.C. Then we did some fancy statistical footwork to create a standard by which we can measure and rank the level of competitiveness between states.

Two good things have come from this exercise. One, there is now some definitive numbers for assessing the competitive landscape and it’s not a pretty picture in many places. I mean, when you have entire states in which 75% – 95% of your broadband service comes from just two providers, the landscape looks pretty bleak. Two, compiling this report is a good opportunity to pass on a few valuable lessons in competitive analysis for communities.

Synopsis of the competition report

Despite some incumbents’ recent statements that there’s robust competition and consumers have plenty of broadband choices, but many of you know from your personal experience this isn’t the case. Now you have numbers to back you up. Some may claim that our report is biased because we only look at 10 competitors in each state. But here’s the ugly state of affairs.

A couple of incumbent-related organizations claim there are as many as 70 or 80 providers of “high-speed” service or Internet  access in some states. If you take the top ten providers of *broadband* (everything but dial up since that’s not broadband), the remaining actual broadband providers combined barely make up 3% – 4%. In quite a few states, just the top three providers own 80% – 90% market share. When you look at data at the county or city level,excluding major metropolitan areas, the picture gets skewed towards even less, not more, competition.

There were several other important observations from the data you may find interesting:

  • There is a strong correlation between income and home value and the level of competiveness in a state. As income and home values show an increase from state to state, the level of competition – as measured by the report – decreases.
  • States with the largest percentage of Internet users and the highest available speed tend to be less competitive.
  • The bulk of broadband stimulus funding did not go to states with the least competitive environments.

You can read the full report here. You definitely should read it if you’re struck by the couple of seemingly counterintuitive findings. Ars technica, GigaOM and Blandin on Broadband have reviews of the report.

Lessons for community broadband planners

Understand the boundaries of your market

We looked at market share at the state level, which has its value, particularly for statewide broadband planning. But you’re likely more concerned about details at the city or county level, and this is good since data here can vary significantly from state statistics. I suggest you also look at data for a cluster of three or four counties.

Since community broadband is a business, you need to be clear on where opportunity exists or doesn’t. One of the lessons many learned from the broadband stimulus process is that it makes sense to join ranks with other communities. They may have an equal or greater need that could increase a network’s financial sustainability. A provider may be in another area that’s a good potential partner. You never know until you look.

Use data to determine allies and competitors

One of the good things about ID Insight’s BroadBand Scout (the technology that collects, massages and managers the millions of Internet usage data points) is that it allows us to see accurate pictures of market strength down to the census tract level. As you see which providers have varying degrees of strength at the county level, be shrewd about who’s a potential competitor and who’s a possible ally.

Don’t think the largest incumbents in your area won’t be competitors because your community currently doesn’t have enough customers to justify their marketing efforts. They’re exactly the ones who will come roaring in like storm troopers just as you’re ready to launch your network, if not sooner.

Conversely, the smaller competitors around 15% – 20% market share range could be valuable allies. The local telco if the community can be a partner with wireless services, or a regional WISP can be partner if the community finds a fiber service provider. Smaller companies want to grow and also fend off competitors. Make this dynamic work for you.

Agree on a standard

Some of the first things we heard as news about our report hit the streets were questions about whether our method was correct for determining whether an area is competitive. We used established statistical analysis, but people are bound to have factors they believe are important for determining competitiveness. Whatever you decide, try to anchor it in sound science, and do get consensus on definitions so everyone’s talking apples and apples.

Don’t get distracted by un-related details

We easily could have gone off and lived in the weeds of numerous factors that possibly impact competitiveness. DON’T DO IT! Identify main elements such as terrain, age, income and marketing budget that may have affected market share in your area. Stay focused on those, but don’t spaz on the minor stuff you may never be able to prove.

5 Responses

  1. Community broadband is, alas, not a business. Community networks have never been sustainable and certainly do not make money. What’s more, they compete with local for-profit businesses and cost the community jobs. They shouldn’t be encouraged.

    • In my third paragraph, I try to be as clear as can be that my definition of community broadband means *any* network in which the community (local government, constituent groups, utilities) are the driving force to bring some sort of broadband to their community. That means the community can hire a company to run a network, they can entice a provider to bring services, they can create a private-public partnership, and yes, one option is that the community can run it.

      These are all business ventures. You can argue that one approach is “more” of a business than others, and that’s fair. But to me “community” broadband means the community has a big say in what their services look like regardless of who runs the business vs. having a company come in and dictate what broadband communities get.

    • Wow, this is absolutely untrue. There is a large and growing number of community broadband projects that have proven themselves to be sustainable (and by community broadband, I do mean municipal ownership either alone or in partnership with private providers). Just because governmental entities are non-profit does not mean that they are not economically viable. Many community networks, particularly those affiliated with municipal utilities, are absolutely run as sophisticated businesses with all of the detailed planning and considerations that that entails, with the added pressure of immediate, local accountability. Nor is it true that they cost the community jobs. To the contrary, they are an economic engine for the entire community. Further, in almost all instances municipal systems are only undertaken where the existing providers are either unwilling or unable to provide true broadband capabilities throughout the community. Moreover, in almost all instances community broadband projects work with and partner with multiple private entities at every stage.

      Braintree, MA; Glasgow, KY; Muscatine, Iowa and Tacoma, WA to name just a few, have been providing cable and broadband since the mid 1990s. This demonstrates a level of sustainability that far exceeds almost all of the private sector competitive entrants that were launched during the same time period.

      In terms of fiber systems, again municipal systems have proven to be just as viable as private systems (and this is after enduring myriad incumbent legal challenges and anticompetitive practices). According to the Fiber to the Home Council, there were 44 publicly-owned and operated fiber-to-the-home (FTTH) systems operating as of April 2008. Systems that had been providing service for one to four years had average take rates of 54% percent nationwide, which was much higher than the 35% average take rates of major private-sector fiber systems. http://tinyurl.com/cnt7no

      There is perhaps no better example of what a motivated and dedicated community can do, if it has the proper leadership, foresight and perseverance than that of Bristol, Virginia. At the turn of the century Bristol, was facing severe economic recession in all of its bedrock industries at the same time – tobacco, textiles, coal mining, and agriculture. In 2001, Bristol began to build a state-of-the-art FTTH system. Now, Bristol’s FTTH system serves more than 65% of the area’s residents and businesses, and it has attracted hundreds of new high-paying jobs. For example, it is anticipated that that two new employers attracted in part by Bristol’s broadband will bring up to 1500 high-paying jobs. These jobs are creating new revenues that circulate around and around the local economy, generating new wealth, increasing property values, enhancing local tax revenues, and enriching the community’s quality of life. Bristol also has a future-proof asset that can serve the community well for decades to come.

      I don’t mean to suggest that community broadband is a panacea, nor that it will work or should be undertaken in every community. But it should at least be an option for local communities.

    • In the case of broadband business, just like other natural monopolies, the opposite is true. Profits extracted from these businesses take away funds that can be put back into network expansion, improvements, and related jobs and salaries. Stockholders are not earning a paycheck, thus they can’t be considered “employed.” If any organization type is creating more jobs, it’s the community organizations.

      The notion that the profit motive is the only one that create jobs is a false tautology. You should revisit your assumptions.

  2. The issue with the public/private relationship and the culture in which they are immersed is perhaps the biggest obstacle on the project management side. Decentralized decision making and antiquated thought processes within the technology groups serve to hinder more than help Broadband expansion.

    If the states intervened to facilitate the wide spread adoption, it would then make it more difficult for the small consortiums to compete, due to state contracts. As a pure technology consideration, it is a no-brainer to want to be a part of the process, it will just be interesting to see if a large intermediary will manifest itself to weed through the red tape. The FCC??

    I would love to see that data trail you’ve outlined as well.

    Cheers,

    Andrew Yinger

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