Evolving Technologies and Market Structures: Schumpeterian Gales of Creative Destruction and the United Kingdom Internet Service Providers' Market
Javary, Michele, Journal of Economic Issues
In the United States, there are diverging views on the need for intervention in the Internet service provider (ISP) market. Jason Oxman, representing the Federal Communications Commission (FCC) argued that, given the nascent development of the relatively immature ISP market, there is no basis for intervention because of the larger number of entrants to this market (1999). In contrast, Francois Bar et al. suggested that sustained intervention in the market is needed to encourage the evolution of an open internetworking environment that is consistent with economic and social policy (1999). One close observer of the evolution of the communication industry in the United States, Harry Trebing, has demonstrated that many market developments in recent years have been inconsistent with an inadequate standard of protection of the public interest (1995, 1998). He has argued that the emergence of tight oligopolies may mean that societal goals for greater participation in using networks are not met (Trebing 1995; Trebing and Eastabrooks 1995).
In the United Kingdom, a parallel discussion of the case for public intervention in the emergent ISP sector has been underway. The phenomenal growth in the number of firms providing access to the Internet (Durlacher 1999) suggests that rapid technological innovation was producing "creative gales of destruction" (Schumpeter 11942] 1962) with sufficient strength to reduce barriers to market entry and to counteract any tendencies toward the formation or exploitation of oligopolistic market power. A recent study by Michele Javary and Robin Mansell (2002) analyzed the development of ten firms in the U.K. ISP market in the late summer of 1999. The results suggested that while the Internet appears to offer prospects of free entry and open competition, private sector efforts to secure market shares might raise new forms of entry barriers to competitive services.
A number of writers have characterized the Internet as a "spontaneous order." Others have heralded its exotic urban cultures and communities (Castells 2001). This article argues that the rise of the Internet as a mass infrastructure has to be viewed as an industrial and business experience. While the Internet may be "breaking" up the established ways of the "old telecommunications" and offering the opportunity for an open internetworking environment, the consolidation of the Internet access market as the central infrastructure of the "information society" and the "new economy" requires a transition in the sector's existing market, corporate, and institutional governance structures. It requires a shift in the development and deployment of the sector's network technologies and services and a change to the organization of the powers of control over its business processes.
The U.K. ISP dial-up market is a highly dynamic market, easily qualified as a very competitive market at the retail end of the delivery of Internet access products and services to domestic (and small business) users. This market has grown substantially over recent years, experiencing its fastest growth to date from subscribers from lower income groups in 2000-2001. (1) The turnover of market players is exemplary of its present intense evolutionary and "revolutionary" momentum. Successive waves of new entrants, disputes between larger as well as between larger and smaller players, arbitration, consultation and directives issued by the regulator, mergers and acquisitions, and bankruptcies are all included in the daily market, corporate, and institutional activities. However, despite these rapid changes this article aims to show that market developments are characterized by powerful tensions between the pace of change and the forces of contrivance upon change. Institutional, corporate, strategic, and technological tensions unfold within and between this novel market's expansionist thrust and the forces pulling toward "contraction" and consolidation.
This article documents the industrial dynamics and the innovation processes inherent in the fast-emerging dial-up Internet access segment of the new telecommunication sector in the United Kingdom for the period between 1992 and 2002. …