A Brief History of the Internet
Generally, I am not too old unless you ask my niece. I remember when we didn't have the internet, and in my niece's mind, it was a source of wonder. They thought I must be from ancient times. They asked me how I could survive without the internet. In their minds, the concept of no internet was like a science fiction tale that couldn't possibly happen, and the thought of not having internet access made them fearful.
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I got hooked on computers when Oregon Trail was first released. Back then, if you wanted your computer to be useful, you had to manually code all your applications in BASIC or endure the tedious process of "blipping" sounds at it. The only alternative to typing hundreds of lines of code was to load pre-recorded cassette tapes with a series of "beeps," whistles, and instructions for your computer to follow when played back.
You know, those pre-recorded "beep" sounds were EXACTLY what the internet sounded like when I first heard it. No, it's not a typing mistake. I heard the internet before I actually saw it. So much so that I still believe my cable internet is fake because it's always so quiet. No, I didn't hear the internet because I'm some kind of internet whisperer. We ALL heard the internet before we actually used it. Its arrival was heralded by a series of high-pitched screeches and digital buzzing that came through your telephone line. That's how we knew the internet was coming.
In the past, we didn't really have internet service providers (ISPs). We would just call each other on the phone, and our computers would buzz and chirp at each other. This communication was called a "handshake." It sounds strange, but that's how you connected your computer to the "internet" back then. The problem was, you had to be technically minded (know about UNIX) to know how to do it in a time when technicians weren't really a thing yet. For a while, geeks were the only people on the internet. Geeks, spies, the military, and universities were the early users of the internet.
The early internet was very simple, with single machines communicating with each other through telephone lines. The telephone companies initially didn't even know this type of internet traffic was passing through their networks, although they quickly caught on. Before there were ISPs, you had to have an account at a university or government institution to connect to the internet. But in the early 1990s, the internet started to accept commercial traffic, and there was an agreement with commercial internet users that they had to respect the protocol of free data peering. This meant that if they wanted their traffic to pass through the "bits of the internet" of other organizations, they had to accept other people's traffic through their own bits of the internet based on the principles of modern net neutrality.
In 1994, the National Science Foundation took over the internet and assigned four private companies—WorldCom, Pacific Bell, Sprint, and Ameritech—to be the first ISPs to build strategically placed public access points in San Francisco, Washington DC, Chicago, and New Jersey.
As internet traffic increased over time, those public access points became congested, and the large telecommunications companies started building their own internet backbones, consisting of faster private access points. Initially, the larger, dominant backbone providers respected the peering protocol and engaged in peering agreements with smaller ISPs, meaning they would exchange internet traffic for free. This condition changed when UUNET, Sprint, and AT&T in 1997 violated the peering agreements and started charging smaller ISPs if they wanted access to their networks. This marked the beginning of the first net neutrality battle.
In the early days of the ISP industry, there were hundreds of commercial internet providers in the United States. According to PC Magazine at the time, the average monthly connection cost per account was around $17.50, with an additional $3-4 per hour for connection time. Even back then, these prices were quite high, and staying connected to the internet for long periods could quickly increase your phone bill.
There wasn't much fun to be had on the internet at that time. It was still mostly geeks, businesspeople, universities, and governments using it. For many people, using the internet didn't make sense, especially because you still had to connect using a command line or exclusive graphical user interface. Internet browsers and HTML to build web pages hadn't been widely developed yet, and IBM/Microsoft were still in the process of incorporating internet technology into their operating systems and hardware.
EARLY ISP INDUSTRY HISTORY
A lot of things happened rapidly, and the ISP market heated up throughout 1995 in the US, becoming highly competitive. The dominant ISPs at the time were Netcom and UUNET, each with annual revenues of around $40-50 million. This data gives you an idea of the market size back then. While Netcom was leading the way by introducing the world's first flat-rate internet pricing for the US consumer market, they also signed up business and corporate customers. It wasn't just these two that were working hard to build the internet in its early days. There were also interexchange carriers, or large telecommunications providers, such as AT&T and MCI, as well as thousands of smaller regional ISPs.
The ISP market in its early days was highly fragmented, filled with different types of companies that all innovated and developed the internet in different ways to serve various user needs. At that time, internet users, both business and consumers, wanted two very different things. Consumers wanted cheap access above all else; they were tired of paying exorbitant fees to use the internet every month. Meanwhile, businesses were more focused on reliability and speed.
EXPLOSION OF GROWTH AND DECLINE
By early 1996, the number of ISPs had increased from around 1,400 to about 3,000 ISPs in 1997, literally an explosion of competition in the market. By 1998, it was estimated that there were 4,500 ISPs in North America. Many of them were small businesses that served consumers and businesses in local markets. They survived by reselling internet services from larger ISPs.
As the market started to consolidate in the late '90s, these small operators began merging with telephone companies to stay in business and provide their customers with a single source of internet and telephone connections. Then you had larger ISPs that grew through acquisitions, with Earthlink being one of the largest, serving about 320,000 customers. They rapidly acquired smaller ISPs and merged them into a single entity called Earthlink Network, allowing the smaller ISPs to maintain their brand and identity in their respective markets while having their billing handled by Earthlink, including payment to the ISPs for new customers and providing materials like startup CDs and marketing. At that time, Earthlink was truly a large ISP, but it looked like thousands of small ISPs, and many went bankrupt due to the highly competitive climate.
INDUSTRY CONSOLIDATION
As with any rapidly growing industry, some players and fragmented markets started to gradually consolidate. Telephone companies and backbone providers began merging and acquiring each other. Among them, long-distance operator Worldcom acquired MFS, the parent company of UUNET, for $12 billion, building the second-largest internet backbone in the US. The largest regional telephone provider in the US, GTE Corp (alias General Telephone & Electric Corporation), purchased BBN Corp, a backbone provider, for $616 million. These amounts of money were astronomical at the time
THE EMERGENCE OF E-COMMERCE
In the late 1990s, the e-commerce industry experienced rapid growth, and businesses became interested in collaborating with ISPs that could provide audiences and reach. The old peering protocol regained popularity as ISPs established peering arrangements with their competitors, allowing them to share traffic and expand their respective internet backbone networks. Customers became more focused on network access, reliability, performance, and capacity.
THE REMARKABLE "NOUGHTIES" DECADE
By 2000, the ISP market looked drastically different from just five years prior. The top four national ISPs for businesses were Earthlink, PSInet, Mindspring, and UUNET. In the consumer market, several different ISPs competed for dominance, including Excite@Home, Microsoft Network, Prodigy Communications, and America Online (AOL), which ranked in the top four as ISPs for consumers. At that time, AOL was the largest player with around 20 million subscribers (thanks to their generosity in distributing startup CDs nationwide for a decade). Earthlink followed in second place with 4.7 million subscribers, while Microsoft and Prodigy held third and fourth place, respectively, with 5 million and 3 million subscribers each. By the early 2000s, there were millions of regular online users worldwide for the first time ever.
ISP WARS
As competition intensified during the "noughties" period, the ISP wars commenced, featuring fierce competition between large and small ISPs, often dominated by backbone providers who truly owned the infrastructure to run the internet. While no one actually owned the internet, a small group of very large companies controlled the internet infrastructure, giving them the power to impose taxes on smaller ISPs for network access and charge them for operating network access points where ISPs traded traffic. Larger ISPs like AOL were able to negotiate better deals than smaller players. With higher barriers to entry, increased consolidation, mergers, and bankruptcies, competition in the market decreased.
The end result of the ISP wars in the "noughties" period was fewer choices for internet users, both consumers and businesses. However, despite the dominance of larger players in the ISP market, consumers and businesses could still choose from around 7,000 ISPs in 2002. There was still a significant market share to be shared, with consumers favoring smaller regional ISPs that offered value-added services like web design and e-commerce to compete with larger ISPs, which provided widespread, faster, and more reliable internet access.
THE PRESENT
Now, let's try to imagine a time when, depending on your region, you could choose from hundreds of potential ISPs. In 2020, the consumer broadband market effectively became a duopoly in some parts of the US, controlled by two major ISPs that had their own internet backbones: Comcast and AT&T. Consumer internet speeds remained low in some areas due to this situation, even though their users paid some of the highest internet access fees in the country.
AT&T's merger with Time Warner in 2016 merely consolidated the giant ownership they already had in the US internet market, representing one of a series of deals that further consolidated control of the internet into fewer hands. In 2015, Comcast had to abandon its $45 billion bid for Time Warner after the FCC opposed the merger, citing concerns that it would give ISPs "too much control" over what Americans did and watched online.
In 2016, the FCC approved the merger of Charter Communications with Time Warner, creating the second-largest broadband provider in the US with control over 70% of the high-speed internet market. Shortly after, the FCC gave the green light to the AT&T and Time Warner merger valued at $85 billion. Additionally, let's not forget Verizon's $4 billion acquisition of AOL and its $130 billion purchase of the majority stake in Verizon Wireless from Vodafone to establish the largest wireless internet provider in the US.
WHAT DOES THIS MEAN FOR YOU?
In short, it means higher prices and fewer choices for end-users, as businesses and consumers struggle to negotiate better rates with ISPs that dominate the US internet market. This leads to high internet bills in California alone, where, depending on your location, prices can vary by up to 50% among two-thirds of Los Angeles residents who are sometimes served by only one ISP. Weak competition results in high prices and provides little pressure on ISPs to improve networks to deliver faster internet and better services. In LA County, for example, fiber-based services (which offer faster internet than DSL or cable) are available in less than a quarter of census blocks. In contrast, in countries like France, internet users have at least six service providers with near 100% coverage through fast fiber optic connections.
If you're a business or consumer internet user stuck in one of these non-competitive areas, then you're unlucky and are expected to accept it—at least until Google Fiber decides to move to your city, which may not happen anytime soon. You truly have no choice and are forced to pay higher bills for low-quality internet services.
