Robert W. Crandall
The rise of the internet has been dramatic, Ten years ago there was no internet; the World Wide Web had just been born in a laboratory in Switzerland. The networking of computers was limited to universities, research laboratories, and a few large businesses. As late as 1994, many individuals in the developed economies were still only vaguely aware of the existence of a ubiquitous network through which they could access certain information and send messages. Even by the dawn of the new millennium, only 40 per cent of United States households had internet connections, 1 and the percentage was substantially lower in other Organisation for Economic Co-operation and Development (OECD) countries.
Other countries are now catching up with the United States. Soon, most households in OECD countries will be connected to the internet. But will the internet continue to evolve to reach its full potential, particularly in the developing countries? What are the barriers to the full exploitation of its potential? Clearly, no one knows for sure, but I believe that an economist who is familiar with network industries in general and telecommunications in particular can offer some advice even before the evidence is in on the recent 'deregulatory' movement in telecommunications. The growth of the internet is impossible without telecommunications policies that encourage the development of the required infrastructure and use of that infrastructure.
In this paper, I provide a brief description of the evolution of telecommunications in the past two decades, focusing on the characteristics of modern telecom services that are relevant to the development of the internet: the 'death of distance' and the importance of high-speed communications. I then describe how the continued growth of the internet and the development of e-commerce requires the widespread deployment of high-speed, 'broadband' circuits to households and small businesses. Unfortunately, providing such high-speed internet access with the current infrastructure is neither easy nor inexpensive.
Many countries are considering some form of subsidy to accelerate the deployment of high-speed lines and the exploitation of the network effects from such deployment. In so doing, however, they risk repeating earlier