Volume 12, No. 2
April 2000

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Videotex, the Internet, and Innovation in France and the United States

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Videotex, the Internet, and Innovation
in France and the United States

Editor's note: Political and institutional dynamics generate important components of the contexts for the histories of technology. Comparative analyses, such as the following essay by Amy L. Fletcher, often provide the most effective means by which to highlight those contexts and their impacts on technological developments.

The emergence of the Internet as a technology for global communications has a particular resonance in France, the first country to develop a widespread online services system. The following essay considers how and why French videotex ultimately lost to the Internet, and what this reveals about the relationship between states, markets, and innovation.

The French path to videotex began in the late 1960s. The emerging consensus among academics and governments was that industrial economies based on manufacturing were slowly giving way to economies based on information and services. France was woefully unprepared for the Information Age. The immediate problem was the deplorable state of the telephone network, which was the worst among the major industrialized powers at that time. In 1970, for instance, approximately 87 percent of American homes had a telephone, compared to only 15 percent in France (United States Department of Commerce).

However, the state had the resources and the legitimacy to solve the problem. The French dirigiste tradition (which dates to Louis XIV) relies on centralized government planning and the use of "grands projets" to promote economic and social change. This tradition, when combined with the fact that the government owned and operated the French telephone network, meant that President Giscard d'Estaing could put the full weight of the state behind modernizing it.

The Computerization of Society, a report written by influential bureaucrats Simon Nora and Alain Minc in response to a presidential request, became a bestseller in France in the early 1970s. It linked the country's immediate technological weaknesses to long-term political, economic, and cultural vulnerability. The Nora-Minc report followed the release of Jean Jacques Servan-Schreiber's "Le Difi americain," and both were explicit about the likely preeminence of the United States in the global information economy. For French policy elites, the decision to create an online services network was an essential component of their commitment to bringing France into the Information Age as quickly as possible. Minitel (so named for the terminals through which consumers could connect to videotex providers and services) was a quintessential "grand projet" and extended logically from a massive upgrading of the French telephone network.

French scientists at the Centre National d'Útudes des TÚlÚcommunications (CNET) laboratories developed the technology. France TÚlÚcom, the national telephone operator, handled customer access to online services. It billed customers for their time online on their monthly telephone statement, then transferred the payments, less a fee, to the content providers. In order to kick start consumer use, the government gave away Minitel terminals, on the assumption that the real revenue stream would be in services. By the late 1980s, Minitel was available in approximately 25 percent of French households, almost every French post office, and most large businesses. Thus, long before the Internet became a buzzword, France had an online services industry, as well as a population generally comfortable with online communication, shopping, and research.

In contrast, videotex did not generate much enthusiasm in the United States. The answer to this puzzle lies in the complex nature of American telecommunications policy. In contrast to the French state-led approach, U. S. telecommunications policy developed along a path of policy fragmentation and a preference for market-based strategies. Ultimately, based on the premise that the telecommunications network was a capital-intensive natural monopoly, the United States settled on a combination of private ownership and federal regulation as codified in the Communications Act of 1934. Regulation of local service remained largely the prerogative of state public utilities commissions, in keeping with the American emphasis on divided government and diffusion of regulatory authority.

The pluralist nature of the American political system, however, ensured that various groups repeatedly would challenge the 1934 compromise. Over the next fifty years, technological developments and legal initiatives by upstarts, such as MCI, undermined the logic of regulated private monopoly. The most important policy shift occurred with the 1984 divestiture of AT&T, which mandated long-distance competition and created seven regional Bell operating companies. The resulting consent decree also prohibited the regional Bells from entering the online services industry until 1991.

This delay quashed the U.S. videotex industry. Videotex required a supply push strategy from either government or companies with deep pockets. Even after the Baby Bells were allowed into the online services industry, none of them were willing to stick with the technology long enough to build a customer base. By the early 1990s, online service companies, such as CompuServe and Prodigy (which are in the same technological "family" as Minitel), were in serious financial trouble, and the small videotex trials conducted by Southwestern Bell and U.S. West were terminated.

However, the parallel development of the Internet means that the comparison between U.S. and French videotex is not a straightforward story of a chaotic regulation versus effective state planning. Just as Minitel began in the labs of the French government during the late 1960s, the Internet began as a project funded and administered by the Pentagon's Advanced Research Projects Agency (ARPA). ARPANET, the 1969 prototype, connected only four computers, but the implications of the research were clearly extraordinary. The Pentagon, naturally, emphasized security applications first and research implications second. Unlike the French case, widespread consumer applications were never relevant to the initial project.

The policy logic behind the Internet was essentially the same as that for the interstate highway system. Because the project was conducted under Pentagon auspices, government involvement and the use of taxpayer money could be justified easily. Any commercial spin-offs from the project would be a bonus, just as the interstate highways facilitated the growth of roadside diners, hotels, and gas stations, but civilian access was not the essential goal. Defense contractors were among the first to use the new technology, followed by elite public and private universities. By the mid 1980s, however, ARPANET funding was exhausted. In 1987, a coalition of Michigan universities (MERIT) signed a cooperative agreement with the National Science Foundation (NSF) to set up and administer the Internet backbone. Using the language and standards first developed for the military, the network consisted of several supercomputer sites and high-speed connections.

Private industry now began to view the Internet with interest. As in the French case, the American government provided the initial push by developing the technology. As first defense contractors, then academics, students, and nonprofits, went online, a pool of very attractive customers emerged at approximately the same time that the federal government was ready to divest ARPANET. Moreover, by 1993, the phrase "World Wide Web" entered popular consciousness. Unlike earlier search functions such as Gopher, the Web was engaging and relatively simple to use (and incidentally had been developed in a government-funded laboratory in Switzerland). The Internet gradually transitioned from the defense sector to the educational sector then to the private sector.

What policy lessons can be gleaned from this look at videotex? Perhaps the most important is that, despite all the Silicon Valley careers started in someone's garage, American capitalism is much more sophisticated than the modern mythology of the lone Internet entrepreneur. The role of the government in promoting innovation, especially in communications, is crucial. Both the United States and France deliberately used the state to accelerate the transition to the Information Age. The significant differences had to do with how each defined "national security," and thus justified the use of public funds, as well as how each approached the transition to the private sector.

In France, the government broadly defined its goals in terms of economic and military security, as well as the notion that videotex could play a role in diluting the global influence of the United States. However, while the initial technology was extremely innovative, the centralizing nature of the dirigiste strategy resulted in stagnation. Once the system was running, there was very little "value added" in terms of faster access and spin-off innovations. Each generation of Minitel terminal was slightly better than the last, but (by definition) there was no French equivalent of Silicon Valley, and thus the benefits of dynamic private sector competition were not realized.

The very "Frenchness" of Minitel also stifled videotex exports. All of the major Western European governments experimented with the technology in the 1970s. However, it was difficult to persuade European customers to buy a product that their national governments had rejected, above and beyond the problems posed by competing network standards and language barriers. In the United States, despite massive advertising efforts by France Telecom in selected major cities, the difficulty of making American PCs "Minitel ready," combined with the fact that the majority of the content was in French, negated the possibility of succeeding in the American market. By not adjusting its centralized strategy, especially by refusing to consider the logical market consequences of not translating French content, France precipitated a downward spiral of technological obsolescence.

In the U.S., conversely, technology policy is most often a subset of military policy, and national security is defined and justified in terms of power politics. During the Cold War, only an organization such as ARPA would have had the resources and the legitimacy to sustain a long-term commitment to developing a communications network. However, while willing and able to use the Department of Defense in technological research and development, the United States insists on moving to the free market for consumer access to goods and services.

It is critical, on the one hand, to recognize and document the significant role of the government (and taxpayer money) in creating the Internet, particularly given the relentless media hype about turbo-capitalism and 21-year-old Internet billionaires. However, it is just as important to recognize that private companies are now responsible for many of the most exciting new innovations, particularly in e-commerce and data protection. This comparison of Minitel and the Internet therefore suggests that successful innovation policy does not require a stark choice between state and market, but instead a flexible and careful calibration of the limits and possibilities of both.

Amy L. Fletcher is a lecturer in political science at the University of Canterbury, Christchurch, New Zealand.