Public Policies to Encourage High-Speed Residential Internet Access

This paper analyzes inter-firm alliances forproviding the home computer user with aninnovative new telecommunications service: ahigh-speed connection to the Internet. Afterproviding an overview of the Internet accessprovider industry, it discusses the split ofcompetencies needed to deliver this new service,between monopolistic infrastructure (cable andlocal telephone) companies and entrepreneurialInternet service providers. It finds that theasymmetry in market power between the twopartners holds up the diffusion of this innovation,and can best be remedied by more open access toboth the subscriber and provider sides of thecable network, along with increased competitionin all forms of local communicationsinfrastructure.policy implications of the analysis. While policyissues related to market structure have beendiscussed in a number of recent studies of the cableand telephone industries, these writings haveconcentrated on traditional video and telephonyservices.1 Popular data services such as the Internetand America OnLine have emerged only recently,and the role of local infrastructure networks inproviding residential access to these services hasnot yet received much attention. Presciently, in1983 Pool discussed the market structural issuesfor residential data services in general terms.2 Thispaper builds on and updates his analysis in light ofactual data technologies and services that havedeveloped in the intervening 12 years, concludingthat more open access to cable networks, on boththe subscriber and provider sides of the network,would accelerate the diffusion of high-speedresidential Internet access.