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Understanding Why Universal Service Obligations May Be Unnecessary: The Private Development of Local Internet Access Markets

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  • Tom Downes
  • Shane Greenstein

Abstract

This study analyzes the geographic spread of commercial Internet Service Providers (ISPs), the leading suppliers of Internet access. The geographic spread of ISPs is a key consideration in U.S. policy for universal access. We examine the Fall of 1998, a time of minimal government subsidy, when inexpensive access was synonymous with a local telephone call to an ISP. Population size and location in a metropolitan statistical area were the single most important determinants of entry, but their effects on national, regional and local firms differed, especially on the margin. The thresholds for entry were remarkably low for local firms. Universal service in less densely-populated areas was largely a function of investment decisions by ISPs with local focus. There was little trace of the early imprint of government subsidies for Internet access at major U.S. universities.

Suggested Citation

  • Tom Downes & Shane Greenstein, 2005. "Understanding Why Universal Service Obligations May Be Unnecessary: The Private Development of Local Internet Access Markets," Discussion Papers Series, Department of Economics, Tufts University 0516, Department of Economics, Tufts University.
    • Handle: RePEc:tuf:tuftec:0516
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    Cited by:

    1. Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), 2012. "Regulation and the Performance of Communication and Information Networks," Books, Edward Elgar Publishing, number 14325.
    2. Chris Forman & Avi Goldfarb & Shane Greenstein, 2009. "The Internet and Local Wages: Convergence or Divergence?," NBER Working Papers 14750, National Bureau of Economic Research, Inc.
    3. Ioannides, Yannis M. & Soetevent, Adriaan R., 2007. "Social networking and individual outcomes beyond the mean field case," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 369-390.
    4. Chris Forman & Avi Goldfarb & Shane Greenstein, 2014. "Information Technology and the Distribution of Inventive Activity," NBER Chapters, in: The Changing Frontier: Rethinking Science and Innovation Policy, pages 169-196, National Bureau of Economic Research, Inc.
    5. Darlene Chisholm & Margaret McMillan & George Norman, 2010. "Product differentiation and film-programming choice: do first-run movie theatres show the same films?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(2), pages 131-145, May.
    6. Huang, Ting Ting & Sun, Bruce Qiang, 2016. "The impact of the Internet on global industry: New evidence of Internet measurement," Research in International Business and Finance, Elsevier, vol. 37(C), pages 93-112.
    7. Gilbert Metcalf & Jongsang Park, 2007. "A comment on the role of prices for excludable public goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(6), pages 685-698, December.
    8. Mack, Elizabeth A. & Grubesic, Tony H., 2009. "Forecasting broadband provision," Information Economics and Policy, Elsevier, vol. 21(4), pages 297-311, November.
    9. Shane Greenstein, 2012. "The Absence of Data for Measuring the Economic Impact of IT in the US," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), Regulation and the Performance of Communication and Information Networks, chapter 15, Edward Elgar Publishing.
    10. Boik, Andre, 2017. "The economics of universal service: An analysis of entry subsidies for high speed broadband," Information Economics and Policy, Elsevier, vol. 40(C), pages 13-20.
    11. Chris Forman & Nicolas van Zeebroeck, 2012. "From Wires to Partners: How the Internet Has Fostered R&D Collaborations Within Firms," Management Science, INFORMS, vol. 58(8), pages 1549-1568, August.
    12. Kolko, Jed, 2006. "Why Should Governments Support Broadband Adoption?," MPRA Paper 3363, University Library of Munich, Germany.
    13. Shane Greenstein, 2008. "Economic Experiments and Neutrality in Internet Access," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 59-109, National Bureau of Economic Research, Inc.
    14. Darlene C. Chisholm & George Norman, 2006. "When to Exit a Product: Evidence from the U. S. Motion-Picture Exhibition Market," American Economic Review, American Economic Association, vol. 96(2), pages 57-61, May.
    15. Greenstein, Shane, 2010. "Innovative Conduct in Computing and Internet Markets," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 477-537, Elsevier.
    16. Shane Greenstein, 2006. "Innovation and the Evolution of Market Structure for Internet Access in the United States," Discussion Papers 05-018, Stanford Institute for Economic Policy Research.
    17. Holt, Lynne & Galligan, Mary, 2013. "Mapping the field: Retrospective of the federal universal service programs," Telecommunications Policy, Elsevier, vol. 37(9), pages 773-793.

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    More about this item

    Keywords

    Internet; Universal service; Geographic diffusion; Telecommunications;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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