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How Much Competition Exists Among ISPs

A new report out today from the U.S. Commerce Department's Economics and Statistics Administration (ESA), asks: how many Internet service providers (ISPs) are available to consumers at different levels of download speeds? 

"Competition Among U.S. Broadband Service Providers," examines Internet service options available to households in December 2013, based on data from the Census Bureau and the National Telecommunications and Information Administration, both of which are part of the Commerce Department.  The report, by ESA's David Beede, found that generally, competition exists at slower speeds, but decreases at higher speeds. 

In a press release today, U.S. Commerce Department Chief Economist Sue Helper explained the findings' significance, stating, "This report gives policymakers a deeper understanding of what is occurring in the ISP marketplace. We know that competition typically drives down prices. And we also know that increasingly, higher Internet speeds are required for optimal functionality of popular, high-bandwidth computing applications. As more and more commerce and information move online, we risk widening the digital divide if access to affordable, higher speed Internet doesn't keep pace."

Figure 1: What share of the Population Has a Choice of Multiple Broadband Providers at Various Download Speeds?

At download speeds of 3 megabits per second (Mbps), which  approximates the Federal Communications Commission's current standard for basic broadband service, 98 percent of the U.S. population had a choice of at least two mobile ISPs, and 88 percent had two or more fixed ISPs available to them (See Figure 1).

However, when multiple household members consume video streaming services, music streaming, and online games, 3 Mbps can quickly become inadequate. To understand download speed at 3 Mbps, it takes approximately 2.25 hours to download a 6 gigabyte movie.  The same movie would take only 16 minutes to download at 25 Mbps.

At somewhat higher speeds, such as 10 Mbps, the typical person is able to choose among two fixed ISPs.  At that same speed, they have the option of subscribing to any of three mobile ISPs.  At even higher speeds, however, the number of providers drops off dramatically.  For example, Figure 1 shows that only 37 percent of the population had a choice of two or more providers at speeds of 25 Mbps or greater; only 9 percent had three or more choices.  Moreover, four out of ten Americans did not live where very-high-speed broadband service – 100 Mbps or greater – is available.  Of those with access to broadband at this speed level, only 8 percent had access to two or more providers, and 1 percent had access to three or more.  Only 3 percent of the population had 1 Gbps or greater available, and none had two or more ISPs at that speed.  

Figure 2: What Share of the Population Has a Choice of Multiple Broadband Providers at Various Download Speeds?

The report examines both fixed and mobile providers.  We separate our analysis of these two types of Internet access because some groups consider them to be imperfect substitutes, especially for higher-bandwidth applications.  Mobile providers typically charge high fees if consumers exceed their limit on data usage.  Furthermore, the service is less reliable, and companies have not fully deployed newer generation technologies with higher download speeds and reduced latency.  Finally, mobile service was virtually non-existent at higher download speeds of 25 Mbps or greater (see Figure 2). 

In sum, the report finds that the number of broadband providers from which consumers can choose varies by speed; there are multiple providers of lower speed broadband but this number dwindles at higher speeds.  All else being equal, having fewer competitors at a given speed is likely to drive up prices.  As a result, some consumers will decide not to adopt Internet at all, some will choose a slower speed and some will economize in other ways.

Sue Helper, Chief Economist, U.S. Department of Commerce

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