The Emerging Digital Economy
CHAPTER TWO
BUILDING OUT THE INTERNET
Where advances in telecommunications and computing largely occurred side-by-side in the past, today, they converge in the Internet. Soon, virtually all information technology investment will be part of interlinked communications systems, whether internal to a business, between businesses, between individuals and businesses, or individual to individual.
However measured, the Internet is expanding at a very rapid pace.
Table 1.
Growth of Internet Hosts and Domain Names*
Number of Hosts Number of Domains
July 93 1,776 26
July 94 3,212 46
July 95 6,642 120
July 96 12,881 488
July 97 19,540 1,301
* Internet host refers to a computer that is connected to the Internet that has a unique Internet Protocol (IP) address. A domain name represents a record within the Domain Name System.
Source: Network Wizards nw.com
For instance, the number of Americans using the Internet has grown from fewer than 5 million in 1993 to as many as 62 million by 1997.1
UUNET, one of the largest Internet backbone providers, estimates that Internet traffic doubles every 100 days.2
The number of names registered in the domain name system grew from 26,000 in July 1993 to 1.3 million in four years. Over the same period, the number of hosts connected to the Internet expanded from under 1.8 million to over 19.5 million (Table 1).
In January 1995, just over 27,000 top-level commercial (.com) domain names were assigned. Most businesses used them for little more than posting product and company descriptions, store locations, annual reports and information about how to contact corporate headquarters. Two and a half years later, commercial domain names number 764,000.3 Static brochures and bulletin boards are giving way to full-fledged businesses offering financial services, news and information, manufactured goods, and travel and entertainment to individuals and businesses.
To meet this increased demand, consumer electronics companies, media giants, phone companies, computer companies, software firms, satellite builders, cell phone businesses, Internet service providers, television cable companies and, in a few cases, electric utilities, are aggressively investing to build out the Internet.
Hundreds of new firms are starting up around the country to help businesses use the World Wide Web effectively. They design Web sites and advertising banners, create Web-based catalogs, build security tools, create and track direct marketing campaigns, provide consulting services, and develop technology to speed the flow of data and information across the network. Venture capitalists gave just under $12 billion to hundreds of information technology start-ups in 1996 and 1997.4
Table 2.
Time to Download 3.5-Minute Video Clip
Using Different Technologies
Technology Transfer Time
28.8 Kbps modem 46 minutes
128 Kbps ISDN 10 minutes
4 Mbps cable modem 20 seconds
8 Mbps ADSL 10 seconds
10 Mbps cable modem 8 seconds
Source: FCC, CS Docket No. 96-496, 1997; ADSL from Werbach 1997, p. 75.
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Making the Internet Faster and More Accessible
Households typically connect to the Internet through a PC and a telephone line. This method of access means that most households without PCs (just under 60 percent of all U.S. households5) do not have Internet access. It also means that most Internet connections from the home are slow.6 To illustrate the importance of speed, it takes 46 minutes to download a 3.5-minute video using a 28.8 kbps (thousand bits per second) modem, the modem most commonly used by households today (Table 2).
Telephone companies, satellite companies, cable service providers and others are working to create faster Internet connections and expand the means by which users can access the Internet. New technologies such as ADSL (Asynchronous Digital Subscriber Line) enable copper telephone lines to send data at speeds up to 8 million bits per second (mbps). At this speed, that same 3.5 minute video takes 10 seconds to download.7
PC manufacturers and software developers are also taking steps to make home computers cheaper and easier to use.8 Some PCs can now be purchased for less than $1,000 apiece. New network computers are expected to be introduced at prices of a few hundred dollars apiece. At the same time, new and enhanced software programs (for instance, better graphical user interfaces, search tools, and voice recognition technology) will make the PC and the Internet easier to use and thereby able to reach a broader community of consumers.
Soon, many Americans will be using their televisions to access the Internet. Present in nearly every household, TVs are easy to operate and require little or no maintenance. Digital broadcasting services (high-definition television, or HDTV) will be available in the top ten markets by November 1999, and broadcasters are expected to make the transition to digital broadcasting by 2006.9 With digital broadcasting, TV viewers will be able to interact with their televisions and surf the Web, pay bills, plan a weekend trip, or make dinner reservations.
Already, satellite dishes and signals carried over cable television lines enable consumers to receive data from the Internet through their TVs and television programming through their personal computers. At speeds of 10 million bits per second, a household connected to the Internet via a cable modem can download a 3.5-minute video in 8 seconds.10 In most cases today, however, the outgoing communication (the speed at which the Internet receives the commands by the user) is still limited to the fastest modem speeds that copper telephone wires will support.
Two-way cable traffic would be much faster, but only 9 percent of the 103 million cable subscribers in the U.S. and Canada (9 million homes) live in zones where two-way cable connectivity exists. And, only a small number of them111,000have actually subscribed to the service. By 2000, analysts estimate that two-way cable connectivity will be available to 34 million households, of which 1.6 million are expected to subscribe to the service.11 Cable operators are planning to make significant investments in the next few years to upgrade their systems to carry two-way Internet traffic.
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The wait for broadband Internet access to households is measured in years, not decades. Within the next five to ten years, the vast majority of Americans should be able to interact with the Internet from their television sets, watch television on their PCs, and make telephone calls from both devices. These combined services will be brought to homes by satellite, wireless, microwave, television cable and telephone lines, all interconnected in one overall system.
People will also access the Internet away from their homes or offices. Cellular telephones and portable digital assistants (PDAs) have become very sophisticated devices capable of sending faxes, receiving e-mail and electronic pages, and now, accessing the Internet. Industry experts predict that users of cellular phones and digital personal communications devices will more than triple from 77 million to 251 million by 1999.12
Technology already exists to enable many appliances and consumer electronics devices to transmit and receive data. The first products to link home appliances with PCs should become available this year. Entering a simple message into a computer on a desk will be able to turn off the television or pre-heat the oven for dinner. Automobiles with video monitors will receive data from overhead satellites to warn about traffic jams, give directions to the nearest gas station, and deliver the latest news and information.
The U.S. Government's FY 1999 budget calls for $850 million to be invested in high-performance computing and communications. As part of this effort, the budget provides $110 million for the Next Generation Internet Initiative, which will create a research network that is 100 to 1,000 times faster than today's Internet, and invests in R&D for smarter, faster networks that support new applications, such as telemedicine, distance learning and real-time collaboration.
Table 3.
The Race to Build Out the Communications
Infrastructure of the Internet
During the 19th and 20th centuries, governments played a key role in helping build or actively regulate much of the country's transportation, communication and energy infrastructure powering the Industrial Revolution. Although the Internet originated in U.S. Defense Department research, private sector investments will largely drive its future expansion.
Telecommunications: Manufacturers and software companies have been developing new technologies to allow higher-bandwidth communications across the existing copper network infrastructure, including DSL technologies, compression and faster electronic switches. Communications carriers around the world are building out fiber optic networks; technological advancements including optical amplification and new photonic switches make these high-speed networks more powerful and more efficient.
Satellite: Satellite, telecommunications, electronics and aerospace companies plan to spend close to $27 billion to build out a global broadband network in the sky between 1998-2002 to reach most of the two billion people that live in areas around the world where phone service is unavailable.
Cable: Thick cable wires pass more than 90 percent of U.S. households, piping in TV programming at speeds much faster than telephone copper carries voice traffic. Four years ago, many cable companies began to prepare the cable network for two-way Internet traffic, investing in fiber optic cable and set-top boxes to decipher voice, video and data sent in digital form.
Wireless: Over time, wireless networks will be integrated with the Internet. Investments in satellites and repeater stations are now being made at a rapid rate to accomplish this. Cellular phones, pagers and hand-held computers will be able to transmit and receive voice, data and Internet traffic.
Electric utilities: A number of utility companies around the country are beginning to lay thousands of miles of new fiber cable for Internet access at speeds ten times faster than today's high-speed phone connections.
As the number of Internet users grows, accessing the Internet becomes faster and easier to do, and as the number of Internet-enabled devices multiplies, the IT industry's share of the economy can be expected to continue to expand rapidly.
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1.Morgan Stanley estimates 46 million U.S. Internet users in 1997. See: Meeker, Mary and Pearson, Sharon. Morgan Stanley U.S. Investment Research: Internet Retail. Morgan Stanley, May 1997.
CommerceNet Nielsen estimates 62.8 million Web users in the United States and Canada for the six months ending September 1997. Statistics provided by CommerceNet/Nielsen representatives.
IntelliQuest estimates 62 million online in the United States in the 4th quarter 1997. See: IntelliQuest. "Latest IntelliQuest Survey Reports 62 Million American Adults Access the Internet/Online Services." IntelliQuest Press Release. February 4, 1998. intelliquest.com
2.Inktomi Corporation White Paper. 1997. inktomi.com
3.Network Wizards. "Internet Domain Survey." nw.com
4.Price Waterhouse LLP. "Price Waterhouse National Venture Capital Survey: National Edition Top Line Results." Full Years 1995, 1996, Quarterly Results 1997. For purposes of this report, "IT startups" include communications, computers and peripherals, electronics and instrumentation, semiconductors, and software and information firms. pw.com
5. Consumer Electronics Manufacturers Association (CEMA). "U.S. Consumer Electronics Industry Today." June 1997. pp. 50-52. CEMA reports that 40 percent of U.S. households own PCs. A more recent analysis by IDC/Link estimates that the penetration rate has now reached 43 percent.
6.While high-speed optical fiber lines are used for long-distance communications, most U.S. homes connect to these lines via lower-bandwidth copper wire. Integrated Services Digital Network (ISDN) connections have become widely available to households and businesses, but a very small percentage of Internet subscribers use them.
7.Federal Communications Commission (FCC). "Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming." CS Docket No. 96-496. January 2, 1997. pp.58-59. fcc.gov
8.From January 1997 to January 1998, the average selling price of a home PC dropped 30 percent, to $1,169. By Christmas 1998, analysts expect top PC makers to offer $600 machines. At this price, analysts predict that PCs could find their way into 60 percent of U.S. homes by 2002. Source: Burrows, Peter et al. "Cheap PC's." Business Week, March 23, 1998.
9.Shankar, Bhawani. "Digital TV on home run." Telecommunications. December 1997.
10.FCC, CS Docket No. 96-496, 1997, p.58. Because access to the cable network is shared, speeds may be overstated.
11.Estimates provided by Michael Harris, President of Kinetic Strategies, Inc., February 1998. Figures represent latest available projections for year-end 1997 and the year 2000 as of February 1998.
12.Bellcore, Mobile Solutions. bellcore.com
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