What started America's IT bonanza? Politicians? Economists? Nope. It was cheap phone calls

Chris Gulker

The story was a familiar one: a large corporation announced a major "downsizing" that would cost thousands of jobs. The citizenry braced for misery.

Newspapers began series highlighting the human toll of vanishing jobs. The evening news was filled with pending doom. People everywhere started to show up early for work and go home late.

But, before the axe had fallen very far, the company suspended the cuts: they needed the workers too badly because they were growing so fast. (It should be noted that the company in question was a telephone company.)

Elsewhere new companies were springing up, others were growing and all were creating new jobs by the thousands. The resulting labour shortage drove wages up as companies competed for scarce workers by offering high pay, profit sharing and other perks. Newspapers had to add pages to carry all the "help wanted" notices.

Fantasyland? Nope ... the United States, circa 1997.

What led to this employment hothouse? Sound political guidance by courageous leaders who put the nation ahead of self-interest? Brilliant economists bucking Wall Street's greed? The thrifty ways of a wise, well-informed populace?

Nope. It was flat-rate phone service, if it was anything.

The deregulation of American phone companies led initially to confused customers, and bloated former telephone monopolies grumbling about the outrage of actually having to serve customers. Phone companies warned that thousands of workers would be turned out if they couldn't keep prices high.

Most consumers equated the phone companies with waiting weeks for service and paying two days' wages once a year to talk to Mom back home.

Upstarts such as Sprint and MCI - telephone companies that were only too happy to serve you if you would sign up for their service - drove prices down and became economic giants in the process.

Prices for local and long-distance calls plunged. Basic monthly phone service fell to about $10 (pounds 6) (from about $25 or higher) and even high- capacity ISDN service came down to about $25 from more than $1,000 in many parts of the US.

Phones are now routinely installed within a few days of being ordered, and even special high-capacity lines often take less than two weeks.

Most significantly, most locales now offer unlimited local phone calls. For customers, it's become cheap and easy to add conveniences like a second phone line for a fax machine or computer.

And why would anybody except the hopelessly nerdy technophile get a phone line for their computer?

Flat-rate local calls meant that people who wanted to hook their computers to online services could do so without surcharges from the phone company. Online services brought everything from fly-fishing tips to financial research within easy reach.

Customers could check up on stock cars or stock prices, the world's great treatises or the world's least trivia; you could read today's news today, or write some of your own and post it for millions to see.

Fighting for customers, rapidly growing online services both expanded and engaged in price wars, resulting in more customers signing up.

Online services meant people could help kids with homework, manage investment portfolios, find recipes and pursue hobbies from home. They could also chat, carry on discussions and e-mail correspondence. Users could delight in finding like-minded folks.

Finally, there was something on in cyberspace and it didn't require a degree in an advanced science to get there.

The home computer became the rage: so much so that home purchases of computers in the US surpassed business computer purchases in 1996. More computers than television sets were sold and the comparison is an apt one: television sales didn't take off until television programming became compelling in the Fifties.

In the meantime, the World Wide Web went from the medium of choice for high-energy particle physicists to Madonna's choice for highly charged media pitches. The Internet arose, and things got really interesting.

By 1996, Cisco, the largest maker of Internet routers, had passed General Motors in market capitalisation, and it wasn't even first on the list (those honours went to computer hardware and software makers Intel and Microsoft).

Hi-tech companies in the US now employ 550,000 workers. Well-paid workers buy things, like homes, ending a decade-long fall in California's property market, and cars, leading to record earnings in Detroit, and yet more jobs for the workers who make these goods.

Is there a moral here for countries like the UK, where high local phone charges probably restrict the growth of the computer and Internet industries?

I'll get back to you on that one ... I gotta go surf the Net right now