Alan Stone - How America Got On-Line: Politics, Markets, and the Revolution in Telecommunications

Copyright 1997 by M. E. Sharpe, Inc.

All rights reserved. No part of this book may be reproduced in any form without written permission from the publisher, M. E. Sharpe, Inc., 80 Business Park Drive, Armonk, New York 10504.

Library of Congress Cataloging-in-Publication Data

Stone, Alan, 1931
How America got on-line: politics, markets, and the revolution in
telecommunications / by Alan Stone.
p. cm.
Includes bibliographical references and index.
ISBN 1-56324-576-0 (alk. paper).
ISBN 1-56324-577-9 (pbk.: alk. paper)
1. TelecommunicationUnited StatesHistory.
2. EntrepreneurshipUnited StatesHistory. 3. Technological
innovationsEconomic aspectsUnited StatesHistory.
4. Information societyUnited StatesHistory. I. Title.
HE7775.S78 1997
384'.0973-dc21 97-7903
CIP

Printed in the United States of America

The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences Permanence of Paper for Printed Library Materials, ANSI Z 39.48-1984.

BM (c) 10 9 8 7 6 5 4 3 2 1
BM (p) 10 9 8 7 6 5 4 3 2 1

The title of composer John Cage's autobiography, How to Improve the World (You Will Only Make Matters Worse), captures the sentiment of many observers of the telecommunications industry about government control. Throughout the world there has been a movement toward privatization of telecommunications services and the introduction of competition. Where private monopoly prevailed, as in the United States and the most populous provinces of Canada, there has been a clear trend toward the introduction of competition at every level of service and in every equipment sector. As for public ownership, this book joins in its general rejection. The 1989 fall of the Berlin Wall signaled the dismal failure of public ownership as a system of production and distribution. In the West it is difficult to find an example of a publicly owned enterprise that is operated efficiently. The U.S. Postal Corporation is widely viewed as the American model of everything that is wrong with public ownership.

Rejecting public ownership, however, does not mean that government should play no role in shaping market structure or behavior. I eschew any attempt to provide a general theory distinguishing proper and improper governmental intervention throughout the complex modern economy; this book is about the telecommunications industry and its interfaces with other sectors. A historical view of that industry shows that the relationships between government intervention and market structure are complex and that the appropriate relationship has varied over time. There have been circumstances in which private monopolies subject to certain forms of government regulation or subsidy have resulted in excellent market performance. The static measures of such performance include technological progressiveness, relative efficiency of production, and the level of price relative to production costs. And, of course, these aspects can be measured over time. At times when technology is advancing slowly, the service is homogeneous (plain old telephone service), and there are clear scale economies, monopoly