Internet Service Provider (ISP) - Competition Between Large And Small Providers

COMPETITION BETWEEN LARGE AND SMALL PROVIDERS

While no one owns the Internet, by 2000 it was clear that much of the infrastructure on which the Internet ran was controlled by a handful of very large corporations. With access to 300,000 miles of fiber and cable, UUNET owned an estimated 30 percent of the Internet's infrastructure. Other major U.S.-based players included AT&T, GTE, Global Crossing, Qwest Communications International, and PSINet. Control of the Internet infrastructure gave companies the power to charge smaller ISPs for peering arrangements and to charge fees for operating network access points (NAPs) where ISPs traded packets with each other. Large national ISPs, such as America Online, were able to negotiate better deals than smaller ISPs from infrastructure providers. According to some analysts, the result has been less competition in the ISP market, higher barriers to entering the ISP market, and more consolidations and mergers. The end result, they say, is fewer choices for users.

Smaller ISPs can be frustrated by a lack of connectivity to high-speed network hubs owned and operated by large ISPs such as UUNET or Qwest. An estimated 30 percent of Internet traffic traveled over UUNET's network. UUNET, Sprint, Cable & Wireless, AT&T, and GTE together controlled about 80 percent of long-distance Internet traffic. When a local or regional ISP cannot connect to a high-speed hub, its Internet traffic is much slower. While smaller ISPs have to pay a fee to access the larger backbone operated by the major ISPs, the backbone owners generally swap traffic among themselves at no charge under peering arrangements.

Smaller regional and local ISPs have been able to compete with national ISPs by offering better service. What they lack in network reach and brand awareness, smaller ISPs make up for by offering a range of value-added services, including Web design and e-commerce services.

Although the ISP market experienced consolidation and was dominated to some extent by large national providers, businesses and consumers could choose from an estimated 7,000 ISPs in 2001. While millions of consumers gained Internet access from well-known portals such as America Online and the Microsoft Network, there was enough demand to support countless smaller local and regional ISPs. Businesses appeared to prefer large national ISPs, some of which operated their own Internet backbone and could thus guarantee a wide reach and high-speed Internet access.