Telecommunication Systems 6(1996)301-313 301 User charges for Internet: The New Zealand experience Graeme Guthrie and Michael Carter Department of Economics, University of Canterbury, Private Bag 4800, Christchurch, New Zealand Received March 1995; in final form September 1996 The Internet is, by far, the greatest and most significant achievement in the history of mankind. Harley Hahn, 1994 My guess is that changes involving lnternet will lead to the biggest communications shambles of all time, and a big breakdown will soon cause the network to collapse under the weight of its users .... The problem and the delight of lnternet is that no one is in charge. Gareth Powell, 1994 New Zealand's research and educational network connects to Internet via an expensive trans-Pacific link to FIX-West. Initially subsidized by NASA, the link is now self-fund- ing. The link is managed by a consortium of universities and research institutes, which has instituted a volume based charging regime to recover total operating costs from the participating institutions. Individual sites pursue independent policies for recovering these costs from users, so that Internet users in New Zealand face a variety of pricing regimes. New Zealand therefore provides a useful laboratory for examining the impact of pricing on Internet usage. This paper documents the evolution of New Zealand's Interact pricing scheme and the cost recovery policies utilized by the main sites. The characteristics of the traffic to and from these sites is analyzed. We attempt to assess the impact of pricing regime on demand for Internet services using monthly data on traffic across the international link. Comparisons are drawn with the experience of Australia and Chile. Our results provide some insight into the likely impact of commercialization on the future of Interact. 1. Introduction The above two quotations encapsulate the dilemma posed by Interact. With con- siderable hyperbole, Hahn [4] proclaims the enormous potential of Internet to enable structured global communication between millions of users. Powell [8] alerts us to J.C. Baltzer AG, Science Publishers