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Why There Are So Few ISP Start-Ups In the U.S. 223

Posted by timothy
from the cover-charge-is-so-high dept.
An anonymous reader writes "Despite whispers of growing dissatisfaction among consumers, there are still very few ISP start-ups popping up in communities all over the U.S. There are two main reasons for this: up-front costs and legal obstacles. The first reason discourages anyone who doesn't have Google's investors or the local government financially supporting them from even getting a toe in the business. 'Financial analysts last year estimated that Google had to spend $84 million to build a fiber network that passed 149,000 homes in Kansas City, with the cost per home at $500 to $674.' The second reason will keep any new start-up defending itself in court against frivolous lawsuits incumbent ISP providers have been known to file to bleed the newcomers dry in legal fees. There are also ISP lobbyists working to pass laws that prevent local governments from either entering the ISP market themselves or partnering with private companies to provide ISP alternatives. Given these set-backs and growing dissatisfaction with the status quo, one has to wonder how long before the U.S. recognizes the internet as a utility and passes laws and regulations accordingly."
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Why There Are So Few ISP Start-Ups In the U.S.

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  • by Alioth (221270) <no@spam> on Monday April 07, 2014 @06:27AM (#46682005) Journal

    You could have said the same thing about telephone 100 years ago, too, and the same thing about electricity at around the same time.

    It is increasingly the case where you are excluded from participating in some parts of modern society if you don't have a decent internet connection. For instance, you're not going to be doing any MOOC courses if you don't have an internet connection that's good enough for video. You're not going to be able to find things out as easier as other people if you don't have a decent internet connection, and you can find yourself denied of many opportunities. It's not all about looking at cat photos. The internet has become embedded enough in modern society that you are now often at a disadvantage if you live in the US and don't have it, so just like the telephone became a utility, internet should also become available on a similar basis.

  • by Anonymous Coward on Monday April 07, 2014 @06:39AM (#46682037)

    Nice in theory, but companies have a well-established playbook for getting around anti-monopoly rules. Vertical integration, so that any new business that isn't vertically integrated is immediately at a huge competitive disadvantage. Various forms of vendor lock-in making it inconvenient for people to switch to another provider. Multiple "competing" companies owned by the same parent company.

    It is nice in both theory and practice, if enforced.
    Just look at EU, it isn't like the large companies doesn't already try to work around the rules and regulations. The solution is to say "I don't give a shit about you trying to avoid the laws. Here, have another fine until you have fixed the problem."
    This doesn't happen in the US because the government is working for the large companies and have no intention of fixing the problems.

  • by heypete (60671) <pete@heypete.com> on Monday April 07, 2014 @07:18AM (#46682173) Homepage

    with dozens of satellites in orbit and then no ISP subscription needed, FREE internets for everybody with an internet capable device, smartphone, tablet, laptop, desktop, etc...

    that would make ALL ISPs obsolete

    Who pays for the launches, the satellites and the constant adjustments needed to keep them in proper orbits, the ground stations, and the staff needed to run everything? Those are hardly free.

  • by plopez (54068) on Monday April 07, 2014 @07:32AM (#46682231) Journal

    But companies often float bonds insured by the taxpayer, massively reducing upgrade costs. Besides profitability is no guarantee of service.

  • by plopez (54068) on Monday April 07, 2014 @07:38AM (#46682253) Journal

    Free Market != unregulated market. In fact an unregulated market often becomes a captured market, e.g. monopolies. Too bad most people confuse that.

  • by Anonymous Coward on Monday April 07, 2014 @08:06AM (#46682369)

    Address exhaustion means all new entrants are locked out anyway. To become a major US ISP you would need to control several /8s worth of IPv4 address space. There is no longer enough unallocated space to grant that to a new company. So the only way, regardless of other considerations, to become a big ISP is to buy an existing big ISP.

    As long as you don't hide it from your customers I don't see a problem with providing IPv6 addresses to your customers and perform NAT for accessing IPv4 hosts.
    When you are open about it you give the customer a choice. Either to go with your service with its limitations or with the crappy service of one of the other players.
    Customers who wants to run an IPv4 capable server at home might not be able to enjoy your alternative but if the other services sucks then might opt for renting some server space elsewhere for that.

  • by raymorris (2726007) on Monday April 07, 2014 @08:21AM (#46682447)

    There is no need to imagine what might happen, we've had regulated industries and we know how they work. An example you probably remember is long distance phone service. The government set the cost recovery rate at $0.40/minute USD1980 ($2 / minute in 2014 dollars).

    If you want to ponder about similarly situated ISPs and their upgrade plans, imagine you are on the board. You have two choices:

    a) Issue more stock to raise $80 million and risk your reputation attempting a difficult upgrade, the split get the government-mandated $10 million profit with the new stockholders.

    b) do nothing and have the mandated $10 million profit all to yourself.

    When your profit is set by law, the only rational course of action is to not rock the boat and spend your days on the golf course.

  • by Lumpy (12016) on Monday April 07, 2014 @08:32AM (#46682509) Homepage

    This is a stupid comment.

    They wont spend money because their profits are regulated? are you that stupid? Please explain the huge number of Windmills going up all over the place at $100,000 each. Plus all the backbone upgrades going in. Hell they recently upgraded the local COAL power plant to be a dual fuel Gas/Coal so they can run Natural gas but easily revert to coal if they need to.

    Did you even do ANY googling before you made your horribly uninformed comment? Utilities are spending money on upgrades at a higher rate now than every before in history.

  • Re:falling behind (Score:2, Insightful)

    by tmosley (996283) on Monday April 07, 2014 @08:32AM (#46682515)
    The invisible hand was cut off ages ago. You think the US has a free market? You're nuts, mate. The last vestiges of it disappeared decades ago. The US is full on fascist now, and is going into the same terminal decline that marks all fascist societies. Starving times are coming, just like they came to Spain.
  • by faedle (114018) on Monday April 07, 2014 @08:49AM (#46682619) Homepage Journal

    My small city of around 200K just had one big wireless player (who also happened to be the cable company) announce they are leaving the market (and selling the spectrum licenses to one of the big guys) and the other three I know of buy their bandwidth from.. well, that same cable company and/or the local telephone company. There's no other place to ultimately buy bandwidth: there are three companies that transport and transit: the big regional telephone company, the local cable company, and Facebook. Everybody else is buying and selling Internet from the big guys.

    I can't talk about the health of the small wireless ISPs here, but if you sit down and do the math, they are likely just barely making a profit. This may be why the local cable company has exited the wireless ISP market. (I live in an area with a small urban center surrounded by miles of farms and ranches, the cable company's strategy was to use the wireless to extend their range to these rural subscribers and infill in the few areas their cable network didn't cover). And this small cable company had the first LTE network on in the state, so they had a hell of a head start.

    That's pretty much the picture in most places: the little guys are very little and increasingly getting smaller, and the big guys are only getting bigger.

  • Re:falling behind (Score:3, Insightful)

    by PopeRatzo (965947) on Monday April 07, 2014 @09:17AM (#46682801) Homepage Journal

    The invisible hand was cut off ages ago.

    There never was such a thing to begin with. It was a fiction created by plutocrats to give moral cover for avarice. "It's not me, it's just the market!"

    Attempting to create a moral framework for greed is one of mankind's oldest hobbies.

  • by Karmashock (2415832) on Monday April 07, 2014 @09:31AM (#46682907)

    The government shouldn't run any utility.

    Beyond anything else its a threat to our very freedoms.

    I don't want the government in control of water, power, food, or the internet.

    All of that is just leverage. Something they can put over you to make you comply.

    You have rights? Where does it say they have to give you water or road access or electrical power etc? It doesn't... which means if you don't play ball they can cut those things off and you have no legal redress.

    Its how the federal government keeps getting more and more power over state politics. States not playing ball? Offer a federal spending package... to help with education or medical care or anything. What it is doesn't matter... the dollar figure is all that matters. And if the states want that money they have to play ball. Comply with federal rule 23 subsection 4 part L of law whatever the hell. And if you don't the money doesn't come. And if the money doesn't come you'll still pay because its a federal tax and all your citizens are going to pay it whether the state gets the money or not.

    Leverage.

    You like being in debt?

    You like having a knife against your throat?

    You like being told what to do?

    You like having a chain around your neck?

    Well... about that... if you don't want a chain around your neck maybe you shouldn't sit there and beg to have the nice man snap it on... what do you think?

  • by raymorris (2726007) on Monday April 07, 2014 @09:38AM (#46682961)

    The simplest case is that they aren't required to upgrade. The slightly less simple case is that, like with phone service prior to 1984, regulators set upgrade targets based on information provided by the companies. In the first step, the second case is exactly like the first: a rational actor will blow smoke at regulators trying very hard to avoid significant upgrades (because further investment in upgrades by definition reduces their ROI in a defined-profit model).

    When it becomes clear that some upgrade will be needed, the same calculations apply to the marginal cost of different upgrade options. The difference between a $10 million upgrade to the copper vs. a $80 million switch to fiber is $70 million, and far more risk. As above, the extra $70 million and extra risk is a bad thing for the company, so they should fight to only do the $10 million upgrade. In other words, choosing between a $10 million upgrade and a $80 million upgrade is exactly the same as choosing between no upgrade and a $70 million upgrade: a non-stupid company will spend as little as possible, and risk as little as possible, because either way the get the government-mandated profit. Look at the history of (minimal) AT&T service upgrades during the decades they were fully regulated.

    Contrast this with removing the government mandated monopoly, in which case a $80 million upgrade will allow the ISP to offer service with 10 times the speed of their competition, resulting profits increasing by $180 million.

    Further, consider these two sets of choices:
    Compete.net has $80 million to spend on upgrades. They can either spend $80 million on fiber, or $65 million on fresh copper.
    If they buy fresh copper, outages will be reduced, increasing profit by 2%. If they buy fiber, service will be WAY better, increasing profit by 50%. Acme should of course spend the money on fiber.

    Regulated.net must spend $80 million on upgrades. They can either spend that $80 million buying fresh copper or spend it on fiber.If they buy fresh copper, profits are unaffected. If they buy fiber, profits are unaffected. If they buy $65M worth of copper from the CEO's bother-in-law for $80M, there's an extra $15M profit to the company run by the brother-in-law, to be shared with the family.

    Regulated.net doesn't CARE that they've wasted millions of dollars by essentially giving it away to friends and relatives - their profit is the same either way. In Compete.net tried the same thing, shareholders would be in an uproar and their CEO would soon be sharing a jail cell with Bernie.

  • Already paid for (Score:4, Insightful)

    by witherstaff (713820) on Monday April 07, 2014 @09:59AM (#46683151) Homepage
    We've already paid for high speed internet using the existing infrastructure. The telcos and cable cos have to get the permission of various entities from state and federal agencies, sometimes they got huge tax breaks to improvements. New Jersey was supposed to have fiber to the home of everyone by 2010 if I recall. currently it's up to 300 billion that taxpayers have paid and hasn't been delivered [newnetworks.com]. We want better internet speed start calling your congress critters and ask them where our money has gone.

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