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When we talk about the monthly cost of home internet, we usually focus on how

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annoyingly expensive it is. But another odd aspect about internet prices is how much they can vary

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from place to place, even inside the same country. It's generally weird that you need to pay around

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$100 a month for internet service in Minneapolis that is roughly the same quality as internet service

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you can get for just $60 a month in Fort Worth, Texas. The reason most commonly cited for

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high internet prices is lack of competition between internet service providers or ISPs.

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And that's not wrong, but it's worth unpacking why that is. And no, the answer isn't just

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because they're dicks. They are, but that's not the whole story. The basic problem with the

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free market approach to broadband internet service is that it's actually incredibly hard for new

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competitors to join the market and potentially financially ruinous even to try. Similar to

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water pipes, electrical wires, and rail lines, internet cables are both expensive to install and

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basically useless until you create an extensive network of them. This creates an extremely high

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upfront cost that a private company will typically only take on if there's a near absolute guarantee

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that they'll be able to recoup their investment and more. This often results in what economists call

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a natural monopoly. These are usually relatively small markets where the barrier to entry and

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startup costs are so high that once a single service provider establishes itself, no other

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competitor will even bother to try. Though in larger markets, this is more likely to result in

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a duopoly or oligopoly with a small number of large stable players who mostly stay out of each

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other's way. You might think of the entire United States as a pretty big market, but because each

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company needs to lay infrastructure into every single little community, each contiguous urban

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area is effectively its own isolated market. Therefore, many of us only have a choice between

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one or two ISPs, pretty much for the same reason that everyone else has only one choice for their

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water utility. There's only one set of pipes leading to the house. What determines whether a

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particular region winds up with one, two, or three ISPs is a combination of geography, population

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density, and local regulations. The harder it is to install and replace cables and other infrastructure,

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the more customers you need to absorb the fixed cost of installation. This can be a big problem

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for countries with large, sparsely populated rural areas like Canada, the United States,

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and Australia, but it's also a problem for places with lots of rivers, deserts, and mountains

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like Canada, the United States, and Australia. It's exactly these kinds of high infrastructure

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costs that could make satellite internet a potential game changer for many rural markets

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if it became significantly cheaper in the near future. In the meantime, however, shooting

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satellites into space is still relatively expensive. For now, the places globally where

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broadband is both extremely fast and relatively cheap typically have extremely dense urban populations

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and little or no rural population such as Hong Kong and Singapore must be nice. Of course,

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just because Monopoly is natural does not mean there's no funny business involved,

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and it doesn't mean there's no way to fix it. The problem with natural monopolies is that

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they make the free market not act like a free market. They discourage rather than encourage

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competition because when actually competing is expensive and hard, it's much easier to succeed

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through lobbying and bullying small competitors. In order for a small ISP to grow, it will need

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to get any number of government permits, all of which can be tweaked to make them harder than

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necessary to acquire. Plus, the small company will typically need to be able to build enough

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infrastructure to actually appeal to some customers. In the meantime, they might need to rent access

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to some of their larger competitors' infrastructure and bandwidth, something which those competitors

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might not be willing to do unless compelled by the law. Most countries do require this kind of

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cooperation for just this reason. Theoretically, these small companies could eventually hit a

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tipping point and compete completely independently, but long, long before they hit that point,

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they'll hit a different tipping point where the smartest thing to do is to sell themselves

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to the biggest competitor. In a natural monopoly scenario, the incentive of the primary players

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is to gradually gobble up all small companies and eventually merge into one massive company

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so they can make bigger margins and stop investing so much in infrastructure. In this situation,

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antitrust action and legislative prevention of further mergers are likely the only option to

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restore competition. Regulation is messy, and that's why it makes everybody either bored or angry.

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Here again, Canada is a good example. We have both ineffective antitrust regulators and

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high regulatory barriers to entry. While most of the country has abominable internet prices due

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to astronomical infrastructure costs, Ontario and Quebec, the most populous provinces, have

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worse prices than the next two most populous provinces, British Columbia and Alberta, due

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to greater consolidation among ISPs. So is the answer here even more government involvement?

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Some telecom industries are fully nationalized and run either directly by the government or by a

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semi-independent public corporation, while other countries heavily subsidize building infrastructure

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as a way of getting past the initial barrier of upfront investment. While this probably doesn't

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reduce the overall cost of the infrastructure, it can at least encourage faster development

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by spreading out risk across the entire tax base of the populous, rather than concentrating it into

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a single company with a relatively small pool of customers. An interesting American example is that

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of Chattanooga, Tennessee, which is very fun to say, and has some of the cheapest and fastest

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internet speeds in the United States. And it was the first US community to adopt Gigabyte speed

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internet back in 2010. Chattanooga, I'll never get sick of that, businesses can even get 25 Gigabyte

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internet as of 2022, though it is understandably pricey. In this case, the Chattanooga Electric

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Power Board is the city-owned ISP and operates essentially like a normal local utility company.

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Some governments even take the middle-of-the-road approach of creating a public corporation

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without a monopoly so that it can provide a consistent competitor to private companies

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in the same market, such as SaskTel, the public corporation created by the Canadian province

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of Saskatchewan. You've heard of it. For context, this is the very rough Canadian equivalent of

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Montana or one of the Dakotas. Despite its large area and low population density, many Saskatchewan

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residents have access to cheaper, faster internet than what's available in large dense population

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centers like Vancouver. But if you hate big government exactly as much as you hate big

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corporations, there is always the option of a telecommunications cooperative where the ISP

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is collectively owned by the customers. While they can vary a lot in size, some are quite small.

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Telecom co-ops are found throughout the United States and around the world, often in rural

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areas that are typically neglected by traditional telecom companies and ISPs. Not only can this

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be a way of providing cheaper, higher-quality telephone and internet services in smaller

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markets, it can sometimes be the difference between decent internet access and no access at all.

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No matter what we wind up doing, this problem of varying prices across regions

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is not something that's going to get better on its own. It's going to require concerted effort,

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cooperation and investment to change the incentives that led us here. But that change

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is possible. Thanks for watching guys. If you liked this video, why not learn more about how

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the internet works by checking out our video on top-level domains? Surprisingly, very interesting.