The Internet and other Networks: Utilization Rates and their Implications

Abstract:     
Costs of communications networks are determined by the maximal capacities of those networks. On the other hand, the traffic those networks carry depends on how heavily those networks are used. Hence utilization rates and utilization patterns determine the costs of providing services, and therefore are crucial in understanding the economics of communications networks.

A comparison of utilization rates and costs of various networks helps disprove many popular myths about the Internet. Although packet networks are often extolled for the efficiency of their transport, it often costs more to send data over internal corporate networks than using modems on the switched voice network. Packet networks are growing explosively not because they utilize underlying transport capacity more efficiently, but because they provide much greater flexibility in offering new services.

Study of utilization patterns shows there are large opportunities for increasing the efficiency of data transport and making the Internet less expensive and more useful. On the other hand, many popular techniques, such as some Quality of Service measures and ATM, are likely to be of limited usefulness.

JEL Classifications: L96

Working Paper Series