Research Policy 31 (2002) 1035–1052 Universal access and local internet markets in the US Tom Downes a,* , Shane Greenstein b,1 a Department of Economics, Tufts University, Medford, MA 02155, USA b Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208-2013, USA Received 1 July 1998; received in revised form 29 March 2001; accepted 15 July 2001 Abstract Concern over the potential need to redefine universal service to account for Internet-related services motivates this study of the geographic spread of commercial Internet service providers (ISPs), the leading suppliers of Internet access in the US. The paper characterizes the location of 40,000 access points, local phone numbers offered by commercial ISPs, in the Fall of 1997. Markets differ widely in their structure, from competitive to unserved. Over 92% of the US population has easy access to a competitive commercial Internet access market, while approximately 4.5% of the US population has costly access. © 2002 Elsevier Science B.V. All rights reserved. Keywords: Internet; Universal service; Geographic diffusion; Telecommunications 1. Motivation Governments frequently revisit the principle of universal service, making it an enduring issue in com- munications policy. In past eras this goal motivated policies which subsidized the operation of the tele- phone network in low-density areas. In recent decades the same concerns motivated policies to eliminate large disparities in the rate of adoption of digital com- munication technology within the public-switched telephone network (Cherry and Wildman, 1999). Policy makers in the new information economy face similar issues in a different guise. The burgeon- ing literature discussing the “digital divide” (see, e.g. National Telecommunications and Information Administration, 1999) has prompted many analysts to anticipate a need to redefine universal service goals * Corresponding author. Tel.: +1-617-627-2687. E-mail addresses: thomas.downes@tufts.edu (T. Downes), s-greenstein1@nwu.edu (S. Greenstein). 1 Tel.: +1-847-467-5672. to account for Internet-related services. 2 In fact, these issues are already on the policy agenda. For example, the 1996 Telecommunications Act contains provisions to collect funds to finance the diffusion of Internet access to public institutions, such as schools and libraries. The result is the E-rate, currently a US$ 2.25 billion federal program administered by the Federal Communications Commission (FCC). Using revenues generated from charges levied on users of long-distance services, the Universal Service Administrative Company reimburses firms providing telecommunications services, Internet access, and internal connections to eligible schools and libraries. 2 A complete bibliography is impossible. For some recent stud- ies, see US Advisory Council on the National Information Infras- tructure (1996), National Academy of Engineering (1995), National Telecommunications and Information Administration (1995), In- formation Infrastructure Task Force (1993, 1994), Drake (1995), Kalil (1995), Kahin (1991), Kahin and Keller (1995), National Research Council (1996), Teske (1995), Compaine and Weinraub (1997), Mueller (1997), and Werbach (1997). 0048-7333/02/$ – see front matter © 2002 Elsevier Science B.V. All rights reserved. PII:S0048-7333(01)00177-9