A corollary of the statement “Time is Money” is that things that cause time to be consumed are money as well – distance is related to time through velocity and information is related to time in the same way through bandwidth. Velocity is a crucial factor in determining the cost of exchanging physical goods and bandwidth is similarly crucial in determining in the cost of exchanging information. In both cases speed costs. The changing relationships between time, distance, information, and money are at the heart of today’s globalization trends.
The cost of a 3-minute transatlantic phone call is an interesting metric since it fixes distance and the amount of information. The graph above comes from a presentation on Globalization by the World Bank. It clearly shows that the cost of a 3-minute call between New York and London has been decaying exponentially over 6 decades. In fact this metric has a half-life of about a decade.
But the graph does not show the impact of these changes. The following before-and-after diagrams come from >Telegeography [via Matt Jones]. Both diagrams show the cost of a one minute phone call from the US. These diagrams literally replace distance with cost and graphically show how the world is “shrinking” from a cost of information exchange perspective.
Cost of a 1-Minute Call from the US 1994
Cost of a 1-Minute Call from the US 1998
An interesting fact that is not immediately apparent from these diagrams is that the 10-year half-life of transatlantic call costs, that remained steady for 6 decades, has collapsed in the last decade. Between 1990 and 1996 the cost of a 3-minute call from New York to London fell from about $3.50 to $0.30, which is an order of magnitude fall in half a decade. It seems that cell phones, deregulation, and the rise of the Internet have well-and-truly shattered the old pricing paradigm.