Phase two of the digital revolution is hard upon us. During the first phase, members of about 35 percent of US households and 17 percent of European ones became active Internet users.¹ During the second, broadband—high-speed Internet access, which delivers applications such as teleconferencing, interactive entertainment, and serious distance learning—will make its way into homes and businesses around the world.

In the United States, two main broadband technologies—Digital Subscriber Line and cable—will usher in the new era. Within four years, one-quarter of the country’s homes and more than 40 percent of its small businesses are likely to be using one of them.² Both technologies rely on wires originally laid down for other purposes. DSL travels over ordinary copper telephone lines, which span the "last mile" from a telephone company’s local service office to the home. Cable runs through coaxial cables, which have delivered pay television to many US homes for at least three decades.

Although both technologies will probably claim meaningful market share eventually, the question of which will take the lead—especially in higher-margin market segments—is of no small concern to the companies that have staked large bets on the outcome. AT&T, for example, spent tens of...