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.

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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.

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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.

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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.

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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.

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