Public Policies to Encourage High-Speed Residential Internet Access

Abstract

This paper analyzes inter-firm alliances for providing the home computer user with an innovative new telecommunications service: a high-speed connection to the Internet. After providing an overview of the Internet access provider industry, it discusses the split of competencies needed to deliver this new service, between monopolistic infrastructure (cable and local telephone) companies and entrepreneurial Internet service providers. It finds that the asymmetry in market power between the two partners holds up the diffusion of this innovation, and can best be remedied by more open access to both the subscriber and provider sides of the cable network, along with increased competition in all forms of local communications infrastructure. policy implications of the analysis. While policy issues related to market structure have been discussed in a number of recent studies of the cable and telephone industries, these writings have concentrated on traditional video and telephony services.1 Popular data services such as the Internet and America OnLine have emerged only recently, and the role of local infrastructure networks in providing residential access to these services has not yet received much attention. Presciently, in 1983 Pool discussed the market structural issues for residential data services in general terms.2 This paper builds on and updates his analysis in light of actual data technologies and services that have developed in the intervening 12 years, concluding that more open access to cable networks, on both the subscriber and provider sides of the network, would accelerate the diffusion of high-speed residential Internet access.