ISP (Internet Service Provider)

DEFINITION of 'ISP (Internet Service Provider)'

An ISP, or internet service provider, is a company that provides access to the internet and other services to its customers. Depending on the services offered by the internet service provider, it could be considered an information service provider, storage service provider, internet network service provider (INSP), or a combination of the three. 

BREAKING DOWN 'ISP (Internet Service Provider)'

An internet service provider primarily delivers internet access to its customers, though other services may be bundled in. That said, there are segments inside the market. There are the plain access providers that just handle the traffic back and forth between you and the internet as a whole. There are mailbox providers that add in storage for email functions. There are hosing ISPs that have the email side as well as web-hosting services. There are transit ISPs that sell services to other ISPs. There are virtual ISPs which buy services from other ISPs and resell them to customers, acting like an ISP but usually not handling any traffic. And there are even free ISPs that display ads to users while they access the internet for free. 

The History Behind the Rise of Internet Service Providers

Before the advent of modern internet service providers, access to the Internet was limited to those who had an account at a participating university or government agency. When the internet first became available to the general public, most people had dial-up access arranged through their home phone carrier. During the mid-1990s, the number of internet service providers increased to several thousand and the boom was on. As the options for connectivity increased and speeds moved away from slower dial-up connections, the internet economy was born.

Behind all of this was a multi-layered web of connections. Local ISPs sold access to customers, but paid larger ISPs for their own access. These larger ISPs, in turn, paid larger ISPs for access. Eventually, the trail leads to the Tier 1 carriers that can reach every network access point without having to pay for access. These are the companies that own the infrastructure in their region and the company being paid in the end by customers accessing the internet as well as by Tier 2 ISPs that need to access their internet region.

Consumers and businesses are getting used to the idea that they should be able to connect to the Internet from anywhere, whether at home or while sitting in a local coffee shop. In order to deliver connectivity at high speed, companies have to invest in expensive infrastructure that includes fiber optic cables. Because of this high cost of investment, the Tier 1 ISPs often appear like a monopoly in their regions. In the U.S., this appearance of oligopoly rather than monopoly is reinforced by the fact that some of the big ISPs got there using infrastructure they inherited from the original telecom monopoly that was Ma Bell. Others have tried to enter the Tier 1 ISP market and seemingly failed. Alphabet, Google's parent company, was running a division called access to operate Google Fiber, an ambitious project to lay a new network of fiber across the United States, but this plan was scaled back in 2016. Current Tier 1 ISPs continue to invest in infrastructure and they may well be the only players in that market until new technologies that don't depend on fiber in the ground emerge.