UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

1. Telecommunications, the Internet and Transatlantic Growth Differentials
1.1 Telecommunications and the Internet
Technological progress and deregulation plus privatization have stimulated the growth
of the internet which can be used in many ways, including for international and national
telephony based on the internet protocol (IP); voice-over-IP is most interesting
for cable TV firms which thereby could become powerful telecommunications firms,
too. About $ 1 billion was spent in 2000 on voice-over-IP services with some $ 6 billion
expected for 2005 worldwide; an upgraded cable TV network is the basis for
AT&T’s roughly 0.7 million local telephony users which still is less than 1/200 of circuit-switched
lines in the US. However, in the long term IP calls running over a private
data network – instead of low quality public internet networks – could become a fast
growing business in the United States (US) and elsewhere.
The internet in both the US and Europe is rather unregulated at the beginning of
the 21st century, but telecommunications is regulated on both sides of the Atlantic – an
indirect incentive for internet services to expand. To the extent that Internet Service
Providers (ISPs) and end users need access to the fixed-line network, telecommunications
regulations will affect the internet business (WELFENS, 2001a).
Technically, the internet differs from telecommunications; the latter establishes
a dedicated line between two partners, whereas internet traffic consists of data packages
which are split over several lines and recombined at the end so that the recipient
will get the data from the sender. Internet business is largely based on computer networks.
From this perspective the growth of the internet is crucial for the hardware and
software industry. Given the dominance of the US in the hardware and software market,
the developments in the huge US markets are of particular relevance.
Deregulation in the US and Europe
Following the divesture of AT&T in 1984 the US has had competition in long distance
telephony, while the local loop remained in the hand of the newly created “Baby Bells”
which were hived-off the old AT&T (SCHWARTZ, 1997; SPINDLER, 1999). Until
the Telecommunications Act of 1996 cable TV firms and telecommunication operators
were not allowed to compete, but with the digitization of telecommunications and TV
this restriction became obsolete in technical terms. The Telecommunications Act therefore
removed the legal market demarcations; moreover, it allowed long distance companies
to enter the local loop, while regional Bell companies were allowed to enter the
long distance market provided that they had opened the market for local telephony.
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