Two brontosauruses are refreshing themselves at the local watering hole. One is obviously distraught and the other asks, “What’s wrong?”
The first one, now sitting down and staring at the water says, “I hate change. Why can’t things just stay the same?”
As it turned out, dinosaurs had good reason to be concerned about change. It certainly didn’t work out so well for them.
In our lives there is constant change, too. And, certainly, this is lamented at watering holes everywhere.
Buried in the avalanche of stories about rising gasoline prices was the news of a big change: The global fiber-optic communications lines are at last filling up. Prices charged to transmit data, voice and video information are stabilizing, after dropping steeply for more than a decade.
Economics sometimes works in mysterious ways. When the tech and dot-com bubble burst, investors lost billions. People who had put their savings, pension and retirement hopes into the high performance technology stocks suddenly found that their investments were worthless. Their money was gone.
A lot of the money did, in fact, disappear but not all of it. An amazing amount of investor dollars actually went into the ground and under the ocean waters in the form of fiber-optic cable. The tech bubble, nourished by a dreamscape of Internet-based fantasies, had conjured up a feverish demand for communications capacity. Analysts created forecasts of communications bandwidth usage that led companies, large and small, to install fiber-optic cable everywhere.
Unfortunately for investors, the bonanza that the analysts predicted never materialized. Most of the fiber-optic cable laid for intercity connections in the United States and the submarine cable laid to connect cities around the globe just sat there unused.
There were two economic results of this. The first was financial pain, sometimes to the point of disaster, for many telecommunications companies. The second was that broadband communications became very close to a “free good.” The supply of broadband communications channels was so large compared to the demand that prices went into free-fall. In just three years, for example, the cost of a broadband channel connecting Lost Angeles with Tokyo declined to one-sixth of what it had been.
The principal beneficiary of essentially “free” broadband communications was the Internet. The happy combination of technology and economics allowed the introduction of graphics and video to the Internet world. Today, for example, we think nothing of taking some pictures and sending them instantly to friends living in Texas or New Zealand, or posting video content on our own Web site.
It is not just the technology that we have come to take for granted but also the economics. There is, in effect, no charge for sending an e-mail message, even one laden with graphics. There is no charge for transmitting a high-definition x-ray photograph halfway around the world so that a more competitively priced radiologist can analyze it.
The availability of nearly-free broadband communications channels has allowed ordinary Internet users to get relatively low-cost access to high-speed connections. In addition to simply speeding things up, this meant that video could be transmitted with almost the same ease as still photographs.
This will mean big changes for the entertainment industry, among others. It is already possible to download movies and television programming for personal use. What this will mean for the movie theater business and to the motion picture industry in general isn’t certain. Nor can we tell what effect the change will have on our society, which is already undergoing a significant decline in the volume of social contact.
All of these revolutionary changes were built on the rubble of the dot-com bust. In fact, without the colossally wasteful investment of the tech bubble, the Internet we enjoy today would not exist. We would still be imprisoned by copper-wire connections and per-minute charges.
Because there is still a lot of cable out there that is unlit – the industry term for fiber-optic cable not hooked up to transmission equipment – it is likely that prices won’t rise immediately. But costs will stabilize at a level just high enough to keep the communications companies from going under.
That price level will not change the current economic structure of the Internet, in which broadband communications costs are so low as to be nearly invisible to most users. This has encouraged users’ belief that the Internet is, and should remain, somehow free in every respect; free of the gravitational constraints imposed by economics, government, or, in some minds, by intellectual property rights.
In some respects the Internet is very close to that free situation now, but it will not last forever, and economics will gradually reshape things to its own liking. As the distraught brontosaurus discovered, everything changes.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.
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