Competition and the Internet

I like white button mushrooms. They are a favorite in omelets, salads and all sorts of things. Six years ago we were living on North Carolina’s Crystal Coast which is roughly defined as the area from the White Oak River in Swansboro to Town of Beaufort. It is a very unique area because most of the year there are less than 70,000 people in residence but for six to twelve weeks during the summer, the population more than doubles. In order to feed all those people staying in rental homes, the area has an abundance of grocery stores.

Yet for our first eleven years on the coast, button mushrooms remained relatively expensive. Whether you went to Harris-Teeter, Lowes, Publix, IGA, or Piggly Wiggly, button mushrooms seemed priced higher than I expected.

Then almost simultaneously Aldi and Lidl opened stores in the area. Instead of paying $2 to $3 a box for mushrooms, you could get a box for ninety-nine cents. It was a welcome change which I expected to go away, but it didn’t and to this day, white button mushrooms are more competitively priced than were before Aldi and Lidl came to town.

Studies show that less than ten percent of households in the United are not connected to the Internet. However, a larger portion of those connected people in effect only have one provider that delivers anything close to the speeds needed in our wired world. Usually those with only one option find their Internet is more expensive than what can be found in areas with competition.

Much like my expensive button mushrooms, it doesn’t really matter if you have five grocery stores in your community if they all charge similarly high prices. What it took to get the price of mushrooms down was a different kind of grocery store with a different pricing model.

There are a number of factors which affect competition for Internet services. Much like the grocery stores that all sold mushrooms at a similar price, Internet Service Providers (ISPs) often set their pricing to be very close to other ISPs. Some providers even charge people with slow Internet the same as people getting faster Internet. That is the classic definition of tier flattening.

Fiber Internet connectivity is the gold standard for home Internet. In general national providers are competitive with their fiber pricing. Competition for new fiber customers is fierce right now with some great offers and pricing that is unlikely to stay that low without competition.

It is really a golden age for faster Internet because fiber is more widely available in more neighborhoods and there are more fiber providers. Fiber Internet service providers have figured out that very few fiber customers change providers once they get on fiber. The reason for this is two fold. One is that fiber Internet is so much better than other copper-based or wireless Internet services that few will ever go back to slower cable, DSL, or wireless. The second reason is very few areas have a choice of two fiber service providers.

In most communities, the ISPs have a captive audience—a local monopoly. It is very difficult for a second (competitive) provider to make a business case to build a second fiber network in community where there is already an ISP offering fiber Internet. According to a recent study only 12% of homes have access to two fiber providers.

Unlike copper-based cable and DSL Internet, a fiber network can easily carry several competing Internet services. Cable and DSL are like a two lane road.  They can only handle a limited amount of traffic. Fiber is like a superhighway with unlimited lanes. You can have multiple service providers offering services over the network—this is known as the “open access” business model.  

We have built networks that have six service providers offering service from a single fiber network. Service providers can focus on delivering differentiated services without the immense capital costs of constructing a second (or third) fiber network. In this scenario, one party owns the network—it can be a local government, a nonprofit, or a for profit company. Service providers can each sell their own services, Internet packages, and offer their own pricing on the single high performance fiber “road.”

Amazon, UPS, and USPS do not each build a road so they can deliver packages; the government builds roads and all public and private businesses use the one shared road system to deliver goods and services.

Until recently, most Internet Service Providers have resisted this “shared network” model because they prefer having monopoly control over customers and pricing—that is, they do not want to compete.

Currently, some state and Federal grant money is being channeled directly to ISPs, which enables them to expand their monopoly network to more customers. A better solution is to use state and Federal funding to build open access networks. Some local and regional governments have embraced this model and have a long track record of success. And there are now ISPs that recognize open access networks as a business opportunity.

Modern fiber Internet networks are easy to build and to operate. Local and regional government that adopt the open access model create private sector jobs and business opportunities, and help keep the cost of Internet affordable for businesses and residents.

Design Nine has been a pioneer in assisting with the development of open access networks. Visit our website Designnine.com for info or send me an email: dsobotta at designnine.com or dsobotta at wideopennetworks.us .

 ¹TIER FLATTENING: AT&T and Verizon Home Customers Pay a High Price for Slow InternetJuly 31, 2018- National Digital Inclusion Alliance – by Bill Callahan and Angela Siefer

²Fiber Broadband Association Reports North America Hit Highest Annual FTTH Growth Record- Fiber Broadband Association -December 11, 2023