Federal Internet Law & Policy
An Educational Project
Dial Up Internet Services Dont be a FOOL; The Law is Not DIY

Derived From: FTC Staff Report 2007 p 98: In the early days of commercial Internet services - that is, the late 1980s - consumer access to the Internet was provided by narrowband, or dial-up, service. Consumers purchased Internet access at speeds of up to 28 (and later 56) Kbps delivered through the same local telephone lines that delivered voice services. Because the telephone lines were analog, narrowband service required not only dial-up access but a modem to translate digital computer data into an analog signal.

Entry into the provision of Internet services through narrowband was not difficult, and the market was characterized by hundreds of small start-up companies. As in many new markets, shares of the leading companies fluctuated rapidly. America Online appeared to be the largest Internet service provider in the narrowband market, with approximately 45 percent of the narrowband market by the third quarter of 2003.451 MSN and Earthlink were the next two largest, with approximately 10 and 8 percent of the market, respectively. Over time, broadband began to supplant narrowband: by the fourth quarter of 2003, broadband accounted for 36 percent of the total Internet access market, and AOL's share of U.S. consumer ISP subscriptions had fallen to 28 percent.452 At the end of 2003, broadband's share of the Internet access market had reached nearly 50 percent in many major geographic areas.453 By 2006, almost 75 percent of U.S. Internet users logged on using a broadband connection.454 See Statistics :: Subscribers & Broadband

Although narrowband is still the service of choice for some subset of consumers, as indicated above, that number is dwindling. This does not mean, however, that the narrowband market has become competitively irrelevant. As an acceptable substitute for broadband for a few consumers, narrowband appears to retain some constraining influence on broadband prices, and presumably that influence would grow (or decline more slowly) if broadband prices were to rise (or quality to erode).455 In this regard, narrowband is like any other supplanted technology whose competitive influence lasts long after the early adopters have turned to the newer alternative. Although we are not able to quantify the impact of this competitive restraint, we note its continued presence.

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Dial up Internet Service Providers were classified as enhanced services (or information services) pursuant to the FCC's Computer Inquiry regulatory regime. This policy, initiated in the 1960s, ensured that computer networks were able to get the telecommunications service they needed in order to thrive and innovate, protected from anticompetitive pressures from telephone monopolies. As local Internet access migrated to broadband services, much of the policy debate surrounded whether the legacy Computer Inquiry policy would apply to the new broadband services.



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