Arkansas is the Most Competitive BroadBand State. Huh?
Yesterday, we launch our most recent research report proclaiming that Arkansas topped our list as the most competitive state in terms of broadband internet. Likewise, Rhode Island took up the last spot. Here is a link to the release and the accompanying research report.
As most in the broadband community know, the debate around competition and competitive markers is heating up. The FCC is deeply interested as are the providers as should all consumers. After all, as Americans we believe in a free market economy and vibrant competition.
That is why we felt compelled to take a deep look at this issue with respect to what the data tells us. We spent over 4 months analyzing the data and having many late night skull sessions discussion the findings and maybe more importantly “what constitutes competition?”
In the few hours that have transpired since launching this report into the cyber world, we have already received a lot of feedback – some good, some bad. I welcome all feedback as it is a very worthy debate and makes us think.
As you look at competition, I would say most have gravitated towards a definition that says “Competition is present when consumers have multiple choices”. One recent publication came out and said that 95% of all U.S. housholds have access to at least 4 broadband choices. The conclusion is that for the most part we are competitive.
For us, as we discussed, we began to question that definition. For example, in the Twin Cities, it is very well known that Comcast is to premier cable provider while Qwest is the dominant DSL provider. When you look a layer deeper, you will see some other providers present – but are they really competitive? You certainly never hear of them on the commercials and my mailbox is not being bombarded by direct mail ads to sign up for Hickory Tech. I know there are wireless and satellite services probably, but I am sure most do not think about that.
In addition – things like pricing, speed, customer service definitely impact competition. With that being said, we adopted the most standard definition of Competition. Of course, we can find on Wikipedia. And here it is:
In economics, perfect competition occurs in markets in which no participant has market power. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Nonetheless, the concept of perfect competition can serve as a useful benchmark against which to measure real life, imperfectly competitive markets.
I think that most could at least look at that definition and say it is logical. In fact – it is the standard in economics. After much head scratching – we went with the standard. From a data stand-point, this then says that the most competitive states are the ones where markets powers are not present and multiple viable competitors are present.
To come up with our metric, we basically said the following. In a Perfect Competitive Market, the top providers would have equal market share. To determine that Perfect State, we assumed the following:
– We looked at the top 10 providers in each state.
– We then said it was Perfect if all top 10 providers had 10% market share each.
– We then measured each state’s actual market share for the top providers against perfect.
The more that a states actual market share drifted away from Perfect – the lower they ranked. The more they resembled the Perfect Market conditions described above the higher they ranked.
After this measurement and ranking process, we can then look at the data. And when we do, the rankings begin to make sense. For example in Arkansas, there are 6 providers that have greater than 10% market share. However, we observe that in Rhode Island the top 2 providers command 95% of the market and the rest are in low single digits.
If you accept that definition of competitive markets, then it becomes very interesting to analyze the characteristics of states that rank high and those that rank low. In doing so – we observed some startling observations.
First of all, we saw a very definitive trend that showed that as the average income and home values increased for a state, that competition went down. Likewise, as the percent of people using the internet increased, competition went down.
Stepping back and thinking about that raised some very interesting thoughts. In short – the most lucrative markets tend to have fewer large market players. This seems to make sense to me. Eg. you tend to see Qwest in certain markets and Verizon in certain markets, but not a lot of overlap. Why? I am not a network infrastructure expert, but it would seem that as a particular provider comes into a market and builds out their infrastructure over a number of years that is difficult from someone to come in and do the same thing in a much shorter amount of time.
To me – this is where it gets really interesting. Broadband is infrastructure much like it was with roads, schools, airlines, telephone, etc.. And it appears that we are heading down the same path with broadband. Today, we see only a handful of airlines. However – every time I fly, I know that I at least have choices and can go to Expedia to see where I can get the best price. Likewise, with phone, I now have reasonable choices such as cell phones, VOIP, local phone companies, etc…
But what about broadband? If we are truly moving to 100 mgbps or 1 gbps of speed, and the only way this can be delivered is Fiber, and we think back to the competition debate above, it makes me wonder. Will we have choices in the years to come or will we be creating even less competitive markets? I am not sure, but I sure am curious.