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Report: Poorest States Rank Highest in Broadband Competition

Steven Titch
April 27, 2010, 12:00pm

Low-income states have a much higher degree of facilities-based competition than wealthier ones, according to a new report from ID Insight, a consulting firm that provides authentication, verification and fraud prevention solutions to financial services companies, credit issuers, retailers, online merchants and broadband providers. The results, which surprised even its two authors, Adam Eliot and municipal broadband advocate Craig Settles, turns on its head the notions that only consumers wealthy markets are seeing the benefits of broadband competition and that Internet service providers have abandoned low-income rural areas as too costly to serve. One policy consequence already, the report says, is that most of the $7.2 billion broadband stimulus awarded so far has been directed to states and regions where there is robust competition and no shortage of service. The report determined Arkansas as the most competitive state in terms of number of broadband ISPs, followed by North Dakota, South Carolina and Nebraska. After that, California, Alabama, Missouri, Indiana, Texas and Kentucky round out the top ten. The least competitive state in terms of broadband is Rhode Island. Yet when the government started to dole out stimulus money to foster broadband growth and competition, where did it send dollars? Here's blogger Mathew Lasar at Ars Technica:

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.

The report goes on to challenge much of the conventional wisdom about U.S. broadband deployment, and suggests that far more complex factors are at work than simply income and geography. The report also is a particularly timely addition to the debate because of the FCC"s sweeping national plan to expand the availability of broadband, on which a number of proceedings have already started. Throughout the plan, there is a given assumption that the broadband gap is largely in the states and regions that the ID Insight report finds well-served. Here's more of Lasar's reporting:

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.

Throughout the muni broadband debate, co-author Settles has been a realist and has avoided much of the blind zeal that affects public broadband supporters. He has done much to alert cities as to the cost and technology traps that lurk that can derail muni projects. He admits surprise at the reports findings, yet nonetheless believes they make the case for more government-supported broadband, stating that large, deep-pocketed service providers are leaving small markets to be served by smaller, less capitalized ISPs. But that same point could be used to support the argument that the market is functional, that private investment goes where opportunity is. The big takeaway, however, is that the new research seriously challenges the oft-repeated claim of market failure in rural broadband.



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