When Will the Internet be Cheaper?

Long distance telephone calls used to be expensive, per minute expenses; today long-distance calling barely exists. Not technically, and not culturally. Could the same happen for Internet access charges?

“It's a very natural question to ask, but the metaphor fails for a number of reasons,” said Shane Greenstein, a professor of business administration at the Harvard Business School. “First, in telephony, the Federal Communications Commission of the United States had direct regulatory authority over long-distance prices. There is nothing equivalent for the Internet today for long-distance data transmission [in the United States].” “It was a couple things that made the price of long distance go down,” said Gerald Faulhaber, a professor emeritus at Wharton who served as the FCC’s chief economist in the early 2000s.

“It was bringing competition to long distance. But the other part of it was we began to stop the concept of regulating long-distance prices. We said, ‘Okay, you can charge what you want.’ What happened then was, in response to competition, long-distance rates went down.” What people sometimes forget, though, is that as long-distance prices fell, the price for local calls went up. (Then, of course, people abandoned landlines for cellphones, only complicating the economic picture—a paradigm shift the FCC didn’t fully grasp when it ditched long-distance regulation.)