ISPs are spending less on their networks as they make more money off them

How much money do the nation's biggest Internet providers invest in upgrading their networks every year?

The answer can affect how reliable your connections are, what kind of speeds you get and the amount you pay for service each month. And with all the debate about big telecom mergers, net neutrality and the future of broadband, capital expenditures — or the resources companies sink into their networks — offer an important source of insight into how it all works.

It turns out that, as a percentage of the money they pull in, ISPs have generally spent less on infrastructure over time — from a high of 37 percent of revenue in some cases to a low of around 12 percent more recently.


The data, compiled from public filings by Harvard scholar Susan Crawford and telecom analyst Mitchell Shapiro, includes over a decade of information about how ISPs have allocated their resources.

Before you jump to any conclusions about these companies, though, remember that the turn of the millennium was precisely when a lot of modern Internet cabling was being rolled out.

"Comcast’s capex to revenue ratio climbed as high as 37 percent in 2001, following very large-scale acquisitions, a relatively large proportion of which required substantial network upgrades," Shapiro wrote in a report accompanying the data, adding that in 2000 many ISPs were transitioning to a model known as hybrid fiber coaxial (basically using a mix of fiber and copper to make up a network).

Because establishing a network involves steep upfront costs but comparatively low costs thereafter, every dollar an ISP makes from you off your monthly bill is effectively profit, which helps explain the large gap between the early years in the chart and the later years.

Here's another chart — this one showing the actual dollar amounts ISPs have spent in the last dozen years.


A company can use its network profits in dramatically different ways. Although like all ISPs AT&T's spending has fallen from its aughties peak, it has also plowed more money into its network each year since 2007. That blue spike you see in the middle of the chart coincides with a massive expansion in AT&T's broadband offering, U-verse; between 2006 and 2008, AT&T connected nearly 30 cities to its U-verse networks. While U-verse still only serves about a quarter of the country, AT&T has been spending aggressively to build it out.

Network technology has come a long way since the 2000s. Fiber optics seem to be the connection method of choice for the future: Fiber supports a tremendous amount of bandwidth and the signals don't degrade nearly as easily as on traditional copper cables. (A quick caveat: Don't count copper-based DSL technology out just yet.) Some companies are building out fiber directly to the home. But not all; fiber is expensive.

The question now is whether ISP spending will rise again to meet the new demand.

 

Have more to say about this topic? We take your questions every week in our weekly livechat, Switchback, Fridays at 11 a.m. ET. The comment box is open, so submit your questions now.

Brian Fung covers technology for The Washington Post.
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