Startups trying to provide super-fast internet access have to go up against powerful telecom giants.
Huge spools of fiber optic cables. Image: woodleywonderworks/Flickr
The information economy is only as strong as the infrastructure it's built on, and yet the US is falling perilously behind the rest of the world when it comes to access to affordable high-speed internet of any kind, let alone superfast gigabit internet.
The problem is a lack of competition—the market is dominated by the newly merged Comcast and Time Warner Cable on the wired side and Verizon and AT&T on the wireless side, and those telecom giants have a lot of money and political influence to wield to stymie the competition. It makes it very hard for ISP startups to shake up the market and offer Americans a better alternative, explained Ars Technica, which raised the issue in an article yesterday.
By "better" I mean more reliable service, cheaper prices, and a much faster connection; switching from copper to fiber-optic cables ramps up speeds a hundred times faster—a whole new ballgame for new business, research, and innovation.
So why is the US, inventor of the internet, so slow to join the fiber revolution? For one, it's expensive as hell for ISPs to build out fiber networks, versus providing broadband through existing cable infrastructure, and the telecom giants enjoying a lucrative duopoly in the broadband space have no incentive to disrupt the status quo.
"It's much cheaper to upgrade a cable connection than it is to dig up a copper phone line and replace it with fiber," Susan Crawford, President Obama's former special assistant for tech policy and author of Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age, said in an interview last year. Cable companies snatched up the lion's share of subscriptions at the start of the 2000s, and now startups that want to offer fiber have to steal customers away from the telecom giants—a formidable task.
The overhead to build the fiber cables is extremely high—hundreds of millions for a local network—and startups have to find financiers willing to wait years for a return on their investment. The rule of thumb is a company needs to get 30 percent of the market to switch over to stay in business.
Still, ISP startups are out there. Obviously Google Fiber is leading the charge, using its deep pockets to build out gigabit-speed infrastructure in Kansas City, Austin, Provo, and beyond. There are also regional upstarts: Falcon Broadband in Colorado Springs, Brooklyn Fiber, Monkey Brains in San Francisco, MINET Fiber in Oregon, Wicked Fiber in Lawrence, Kansas, and Sonic.net in California, to name a few.
Most of these companies use a mix of copper and fiber cables to deliver their next-gen internet, to schools, business, and homes. When I talked to the CEO of Sonic, Dane Jasper, he said today’s broadband market is active space, and consumers should check to see off there are alternative providers serving their area.
For its part, Sonic's network is open, neutral, and touts the fact that it protects customers’ online privacy better than the corporate telecom giants—it was given the highest ranking for consumer data protection by the Electronic Freedom Frontier, yet another example of the benefits of greater competition in the broadband market. Sonic's business model has been to deploy copper wires first, because it’s faster to do so, and as it gets more customers and demand grows, build them over with fiber.
Another approach new companies are taking to start out is to target the "last mile," building out infrastructure for communities with no internet access instead of convincing customers to switch from their current plan, Ars reported.
Beyond private enterprises, some forward-thinking local governments are also pushing for better internet, fed up with poor service from incumbent providers and hoping to attract high-tech businesses to their area. But the ISP lobby has successfully passed laws in 20 states that put up barriers to block municipalities from setting up their own networks. The Federal Communications Commission recently expressed interest in stepping in to overturn those laws.
So, what will it take to stop the US from lagging behind the rest of the world in the information age? It's an uphill battle for startup ISPs to bring more competition to the market but it's possible, said Jasper. Part of it is up to consumer demand; as much as people gripe about cable companies, consumers have to "vote with their wallets," he said.
Many others, like Crawford, believe the internet should be regulated as a utility, like electricity or water, and the government needs to step in and regulate access to make sure it’s distributed fairly to all Americans. That issue is even more salient after a federal court recently struck down key provisions of the net neutrality rules keeping the web an even playing field ruling the FCC doesn't have the authority to regulate the internet.
Jasper is optimistic that progress can be made in the private marketplace. Demand for fiber-based networks spawned Verizon FiOS—which doesn’t offer gigabit speeds but is much faster than copper—and more recently, AT&T's GigaPower option in Austin, which tops off at 300 megabits for now, but has gigabit speeds planned for the future. He said competitive pressure from Google and companies like Sonic spurred that infrastructure investment.
Whoever offers the first compelling fiber product will end up being the primary provider in that area, he predicted; other companies will go build somewhere else. "It's a very broad and open field today," Jasper said. "There are a lot of underserved markets to go around in the US."
In other words, there's plenty of room for healthy competition in the market, so long as the corporate heavyweights and their pocket politicians don't make it impossible for new players to get in the game.