This week’s announcement that AOL will be discontinuing its dial-up internet access service on September 30 triggered a bout of nostalgia in me—an internet dinosaur who first dialed up to ARPANET in 1980. Most of today’s internet users have never experienced the electronic cacophony as modems performed their ritual handshake, or viewed online interaction as a timebound—and time-rationed—session, competing with voice calling demands. But much of the current online experience has been shaped in part by those early dial-up experiences. Dial-up internet access may be history, but it still lives on in the genetics of our current internet culture.
Take, for instance, the near-universal preference for unmetered access, which eliminates the fear of racking up big bills when users don’t understand the relationship between applications and data volumes. But the original appreciation for unmetered access was due to the pricing of voice calls. ARPANET and AOL dial-up access both required placing a call on the telephone network—the internet call was charged as a normal voice call. If voice calls were charged per minute, then internet calls were too. But in jurisdictions where local calls were unmetered and the Internet Service Provider’s (ISP) computer was in the same local calling zone, then internet access was effectively unmetered. The United States, Canada, New Zealand and Australia (or, the Fab 4) were notable practitioners of unmetered local calling—so when the internet was released from its defense and research environment (ARPANET) to global consumption (via AOL and ISPs) they raced to the front of the Organisation for Economic Co-operation and Development (OECD) statistics race for internet sophistication with more internet accounts per capita, longer times on line, and greater potential to benefit from the internet economy. So great were the uptake and usage differences that the OECD urged policymakers, in places where calls were metered, to replicate the Fab 4.
With end users facing effectively zero marginal costs for each extra minute spent online in unmetered calling areas, the potential for an “always on internet experience” was quickly recognized. But that meant the phone line was not available for voice calling. The solution? Fab 4 telcos pushed discounted second lines to multi-dweller households; this was initially the only way they could increase revenues and profits in the internet boom. Telephone lines per capita boomed.
But so did competition. Competing local access providers paid each other termination rates when a call placed on one network terminated on another. Incumbent operators serving most local subscribers had to pay rivals for dial-up calls to ISPs using the rival’s network. Rivals and ISPs shared the termination bounty in discounted (or even free) internet accounts, increasing internet uptake. But this proved unsustainable for incumbents. In New Zealand, the average time unmetered users spent on internet calls terminating on the rival’s network rapidly exceeded the monthly subscription paid. Either internet calling had to be limited, or subscribers moved quickly to new technologies (such as broadband), which increased revenue instead of draining it. Hence, broadband was marketed by telcos in advance of the applications capable of making use of its features (e.g. video streaming) being developed).
Cue the cable providers: Rivals as telephony service providers, but due to technological and regulatory quirks, capable (in the US, at least) of providing unregulated internet access over their cables—and scale up to faster speeds more cheaply on their existing infrastructure than telcos could at the time. Moreover, cable companies could provide attractive triple play bundles of television, telephone, and internet to attract customers in ways telcos, without content packages, could not. So, cable took an early lead in broadband provision statistics due to the bundles now ubiquitous in broadband marketing. Until streaming technology improved, telcos couldn’t keep up in broadband sales—except in those countries where metered calling prevailed.
As internet usage increased, unmetered calling proved to be a cost barrier to switching to broadband. When low-bandwidth websites accessed via 56 kbps modems dominated internet usage, unmetered users faced a much higher “break-even usage” level than metered users, so the diffusion of telco broadband connections was slower in the Fab 4 countries than in Europe—not because the Fab 4 were backward, but because the efficient substitution point differed. Connection speed—even when not necessary—became a quality signal to encourage faster broadband substitution, something that remains today as Gigabyte-capable connections are sold as status symbols to consumers unlikely to need that level of service given their current application profiles.
AOL, as a leading ISP innovating and challenging incumbent providers—and others like it—has played an important role in internet evolution. While dial-up may become a memory, its legacy will live on for a long time to come.
The post Dial-Up Internet May Be History, but It Still Conditions Our Current Internet Experience appeared first on American Enterprise Institute – AEI.
