Determinants of the diffusion of U.S. digital telecommunications

This paper examines the diffusion of digital switches from 1983 to 1996. It expands upon the existing literature by extending the data available back an additional six years and by adding independent companies such as Frontier, SNET and Cincinnati Bell. The data (graciously provided by DataQuest) indicate that the early period of adoption, which previous papers have been unable to examine due to lack of data, is significantly different than the later period of adoption. In the early period the installed base and the ability of larger networks to internalize more of the total benefits are the primary determinants of adoption, while the distribution of population becomes important in the later period as firms finish building out their densest areas. Overall, independents adopted earlier than the RBOCs, although this difference appears to be driven by the fact that independents were still using primarily electromechanical switches in 1983, while RBOCs had already invested heavily in analog technology. The data suggest that new technologies such as internet telephony will be adopted most rapidly by newly built networks such as Qwest and Level 3.