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ISP speed is based in part on latency. In fact, it has an especially huge impact on perceived ISP speed. Latency is the minimum time it takes to perform any network operation, no matter how small. It is partly determined by the distance between one's computer and the ISP server (there are speed of light restrictions, after all). The actual hardware involved at each side of the connection though has a bigger impact. Most consumer hardware tends to have poor latency, and to the person browsing the Web pretty much all the perceived slowness comes from latency.
Most of what makes the Internet slow for people in their day-to-day activities resides in people's own systems, not in their ISP. It's pointless searching for a high-speed ISP if you're connecting to it with a modem over a telephone line. To get a fast Internet experience start with your own hardware. Get a relatively high-speed, low-latency connection to the Internet like cable or DSL, and then ensure your computer is ready for the load. Connect to the modem via an ethernet port, not serial, parallel, or USB. Finally, ensure your computer has enough memory; in most modern computers this is more a bottleneck than speed.
Even if an ISP has plenty of bandwidth for its load and low latency, it can still be slow serving Web pages (or e-mail, or whatever). The reason is that each ISP service is handled by a separate program (called a daemon) and an individual daemon can get overloaded. Each daemon can only handle so many requests per second regardless of bandwidth. Basically in addition to the ISP's global load, there's also individual service load. The number of requests an ISP service can handle per second is based primarily on its server software.
The overall perceived speed of an ISP is determined by four key factors: the ISP bandwidth, the ISP load, server delivery rate, and the latency. Bandwidth is usually pretty constant for a given ISP. Load will vary throughout the day. Server delivery rate is attached to the service being used. Latency is largely determined by how one is connected to the ISP. All four are important. For example, a high speed ISP may score very well in a bandwidth speed test one day but be slow the next day due to a heavy load.
ISPs are often connected to the Internet at large via standard cables called (most frequently) T1 or T3 or (very rarely) T1C, T2, or T4. Each of these cables delivers a certain amount of bandwidth at a particular latency. For a quick comparison, a T1 can move 1.544 Mbps and a T1C 3.152. A T2 delivers 6.312 Mbps. A T3 is capable of 44.736 Mbps and the mighty T4 274.760 Mbps. Compare this with a 56K modem which can only handle 0.056 Mbps.
The bandwidth of an ISP determines how much data it can move. If you think of data as water, an ISP's bandwidth is based on the size of its pipes. The top speed of an ISP is set by its bandwidth, but other factors can affect its actual speed. In particular, load will impact its raw speed and latency will impact its perceived speed. ISP bandwidth is usually measured in Mbps (megabits per second), but is often advertised based on its connection type (T1, T2, T3, T4, etc.)
The load on an ISP will have a direct impact on its speed. If you think of cars as data and street size as ISP bandwidth, load is the amount of traffic in the street. An ISP provider with a light load will be able to serve your data more quickly than one with a heavy load when all other factors are equal. An ISP's load will be mostly determined by the quantity and popularity of its customers. ISPs typically experience their heaviest loads during business hours. Note though that business hours vary around the world, and ISPs with truly international appeal may be under relatively heavy loads all the time.
Since effective ISP speed is based on bandwidth, load (both global and service-based), and latency, it's not the most easy thing to calculate. There is a special ISP technology for performing such measurements; it's basically a stress test. There are different tests for different ISP services. One popular one is called Apache Bench. It is used for measuring an ISP's speed for serving Web pages. Note though that these ISP speed tests are used by ISPs on themselves; using one on an unsuspecting ISP will probably be considered a denial-of-service attack and can potentially get one in legal trouble.