In the mid-20th century, the FCC set the price of long-distance calls, which in turn helped subsidize cheaper service for local phone lines. But that eventually changed. “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.)
Though higher long-distance prices were created through a mix of federal regulation and market dominance by a few companies, there really was a cost for those firms that first set out to crisscross the country with telephone lines. And likewise, Internet infrastructure requires plenty of capital to build, but once it’s in place, several companies actually deliver webpages.
Content delivery networks—third-party systems of local servers that deliver the web to people in close geographic proximity to those servers—have already mitigated much of the cost burden associated with carrying information across great distances. “You can put most, not all, but a substantial majority of content into these mirror servers and eliminate the need for the transmission of long-distance data,” Greenstein told me. For example, Akamai, one of the best-known content delivery networks, is responsible for delivering up to 30 percent of the web’s overall traffic, Reuters reported.
Here’s where things get complicated, though: At the same time as it’s become technologically easier to access data, demand is spiking. And even though the United States is known for having relatively little competition among Internet Service Providers—in many cities, consumers are forced choose between one or two unpopular companies like Comcast or Time Warner—the uptick in mobile wireless access may represent an emerging field of competitors. But that doesn’t mean prices are going to fall sometime soon.
“Long distance went away in part because it was alway as political construct,” Scott Wallsten, an economist and the vice president for research at the Technology Policy Institute. “Within a state line versus across a state line: that part of Internet pricing doesn’t exist, so to that extent, there isn’t that weird regulatory obstacle to overcome. But then: What is an equilibrium price? It’s really hard to say because every year we do more online, which means we’re willing to pay more.”