Abstract
Pending changes to Internet (substantially expanded capacity, possible commercialization) suggest that the basis of pricing network services be carefully reviewed. Using the standard of economic efficiency, this paper concludes that:
Moving Internet to a fully price-based system with a user subsidy (rather than a producer subsidy) will unambiguously increase the efficiency of use of our nation's scarce research resources. This may require a transition phase to acclimate users to the new regime. This transition phase should be short and have a strictly determined end-point, known to all in advance.
Prices from primary providers of Internet to mid-level networks and to research institutions will likely be capacity-based rather than usage-based, as that is how costs are incurred. Prices that end users face from their institutions will vary significantly (i) among institutions, (ii) among user groups (students vs. administrative staff vs. assistant professors vs. full professors), and (iii) among services.
Continued government subsidy should be tightly focused on (i) new user groups (if any) and (ii) new products and services unfamiliar to existing users (e.g., that take advantage of the new high-capacity backbone). The existing subsidy to experienced users should be phased out in favor of programs of training, development of user-friendly software, and targeted introductory pricing.
Page