[10817] in Commercialization & Privatization of the Internet
Regulating the International Information Infrastructure (III)
daemon@ATHENA.MIT.EDU (SHAW +41 22 730 5338)
Thu Mar 10 19:04:42 1994
Date: 10 Mar 1994 14:33:34 +0100 (CET)
From: SHAW +41 22 730 5338 <ROBERT.SHAW@itu.ch>
To: "com-priv@psi.com" <com-priv@psi.com>
X-Envelope-To: com-priv@psi.com
Thought the com-priv list might be interested in
this speech given today in Paris at the Networked
Economy Conference.
--Bob
Robert Shaw
Information Services Department
International Telecommunication Union
Place des Nations
1211 Geneva 20, Switzerland
shaw@itu.ch
--------------------------------------------------
UNION INTERNATIONALE DES TELECOMMUNICATIONS
INTERNATIONAL TELECOMMUNICATION UNION
UNION INTERNACIONAL DE TELECOMUNICACIONES
Networked Economy Conference Paris, 10 March 1994
REGULATING THE INTERNATIONAL INFORMATION INFRASTRUCTURE
Dr Pekka Tarjanne
Secretary-General
International Telecommunication Union (ITU), Geneva
Synopsis:
New initiatives around the world talk of building an
"information superhighway". Certainly both the
telecommunication sector and the broader information
industry have strong interests in the success of this
venture. But what is the appropriate policy response,
and how can we ensure that this new infrastructure is
truly international?
Biography
Dr. Pekka Johannes Tarjanne took office as Secretary-
General of the International Telecommunication Union
(ITU) on 1 November 1989. From 1977 until his election
in 1989, he was Director-General of Finnish Posts and
Telecommunications and before that, professor of
theoretical physics at the University of Helsinki (1967-
1977), Member of Parliament (1970-1977) and Minister of
Transport and Communications (1972-1975). Dr Tarjanne
has extensive experience in strategic technology planning
and co-operative international activities.
REGULATING THE INTERNATIONAL INFORMATION INFRASTRUCTURE
It has long been recognised that infrastructure
provides, if not the engine, then certainly the wheels of
economic growth. The construction of canals, railways
and roads have provided the impetus for successive cycles
of economic expansion and growing prosperity. As we now
find the global economy struggling through a period of
sluggish growth and high unemployment, it is only natural
that politicians are looking for a new round of
infrastructural investment that will regenerate economic
growth and create new commercial opportunities.
In the United States, the talk is of an "information
superhighway" or a "National Information Infrastructure".
In Europe, there is a desire to create a "European Nervous
System" or to promote a "Euro-ISDN". In Japan,
infrastructural investment is seen as a way of reflating
the economy and improving national competitiveness. New
network initiatives invariably develop first at the local
level, then expand to national and international levels.
The local telephone systems that grew up in the late 19th
Century are now interconnected in the international
public telephone network. It is built around standards
that ensure that any user can contact and exchange
information with virtually everyone of the 600 million
other users. But there is a danger that if these new
policy initiatives focus exclusively on narrow national
commercial priorities, the new infrastructures being
constructed will follow a different evolutionary model to
that of the public telephone network and may not provide
international access or promote universal service. The
theme of this presentation is to consider how policy-
makers should respond to these new initiatives and how we
can work together to build a truly International
Information Infrastructure.
What is an International Information Infrastructure?
As with any concept for a product or service which
does not yet exist, there are several competing
definitions for what the International Information
Infrastructure (the triple I) should be:
* At one level it is seen as a _high performance computer
network_ which will facilitate high speed data access
and retrieval. In this model, the Internet is
sometimes seen as the precursor for the International
Information Infrastructure. If the Internet can be
successfully extended from the academic and scientific
research communities it currently serves to a broader
commercial marketplace, and if this process could be
achieved without losing the openness and innovation
that have been a critical part of the Internet's
success, then perhaps the Internet could form the basis
for a new model of network development.
* An alternative definition is a _multimedia network_
for which the primary use will be for conveying video
datastreams in conjunction with data, text and voice.
According to this vision, many of the potential
applications will be in the entertainment, education
and health care as well as the business market.
* A third definition is as a medium for _interactive
television_, in which it is the intelligent television
set rather than the home computer or the videophone
which is the main communication channel. The battle
for the television set-top is likely to be every bit as
dynamic as the battle for the desktop over the coming
years as different technological solutions are proposed
to help consumers cope with a rich diet of new
television channels, video-on-demand, home shopping and
other services. Teenagers playing video games could be
using the network alongside multinational corporations
holding video-conferences
It is not surprising that these three visions of what the
International Information Infrastructure should become
come from different parts of the information industry as
it currently exists: the computer industry, the
telecommunications industry and the broadcasting
industry. But the beauty of modern technology is that a
single network of networks can, in theory, accommodate
each of these different applications. There are certain
common elements to each definition:
* The network will be _digital_. The process of
digitisation began in the computer industry, it is
already well-advanced in the telecommunication industry
and it is now spreading to the broadcasting sector. As
the three sectors converge, it will become increasingly
difficult, and unnecessary, to distinguish between the
different parts of the bit business. Information
should, in theory, be able to flow from any source to
any destination providing the network is digital.
* The obstacle of _scarcity_, which has shaped the network
architectures and history of the information industry
to date, will be largely overcome, at least in the
industrialised nations. Data compression technologies,
the development of high capacity fibre-based networks,
and the use of digital transmission is eroding capacity
constraints. Until now, scarcity has dictated the
number of TV channels that can be transmitted, the
capacity of the spectrum to accommodate mobile
communication users and the rate at which new
telecommunication users can be added to the network.
As these constraints disappear, attention will shift to
demand stimulation rather than demand management. This
will require fresh approaches to the way these services
are tariffed.
* The new services offered will be _personal_. This
implies that the basic user will be the individual
rather than the residential unit or the work unit.
This process happened in the computer sector with the
arrival of Personal Computers; it is happening in the
telecommunications sector with the development of
personal mobile communications and portable numbering;
it will happen in the broadcasting sector as individual
viewing -- on video, through video-on-demand, through
specialised channels -- increasingly supersedes
programme schedules.
These three characteristics portend a very different
public network from that which currently exists and one
in which few, if any, services will be provided on a
monopoly basis.
The target which the different actors are aiming at
is to gain an increasing share of the work and leisure
time and the disposable income of individual consumers.
Currently, the average telephone is in use for less than
four minutes per day. The problem which the public
telecommunication operators (PTOs) face is that those
four minutes are generating less and less revenue as
prices are cut in response to competition and regulation.
Fortunately for the PTOs, consumers are making more long
distance and international calls and the costs of
providing the service are falling, so that the PTOs are
currently cash rich. But the PTOs can no longer rely
upon network expansion to provide future revenue streams;
there are not enough new subscribers to add to the
network in the industrialised countries. Instead they
must deepen the market by trying to persuade consumers to
spend more time using telecommunication-based
applications. In addition to increasing the four minutes
per day consumers spend on the telephone, PTOs are
seeking a share of the three hours or more per day
consumers spend watching television or shopping.
Regulatory principles
The driving forces behind network evolution are
technological change and innovative corporate strategies.
But regulatory policy will also be important in shaping
the future direction of the International Information
Infrastructure. Policy-makers do not have the capability
to _create_ the International Information Infrastructure --
that is the role of the private sector -- but they do
have the capacity to give it _shape_. In this sense the
position of the regulator is somewhat ambiguous. The
regulator needs to create the right environment to
encourage investment and to achieve certain public
interest goals, but at the same time the regulator needs
to avoid pre-judging those decisions which should rightly
be taken by the marketplace and should avoid
overburdening entrepreneurial firms with obligations or
red-tape.
Some would argue that the State should play the
leading role in investing in the future network.
Certainly, in most countries, the State has been
instrumental in paying for existing infrastructures such
as the railways and the highways. But the
telecommunications industry is different. It is
currently one of the most profitable industries in the
world, in contrast to other parts of the infrastructure
industry such as the airlines, the railways, or the
automobile manufacturing sector. Furthermore, there is
no shortage of potential venture capital. For the State
to invest in new telecommunications networks would divert
money away from other, arguably more needy, causes such
as healthcare or education. While the State has
sometimes been successful in its interventions, such as
here in France where the Government underwrote investment
in _Minitel_, nevertheless the record of the State as an
innovator in network development is generally poor. The
State should create the right conditions for investment
but should not, itself, lead the investment.
Even if the State does not pay for the network, it
still has an important role to play. The following
principles should guide its action:
* The principle of _internationalism_. It is commonplace
to acknowledge that the world is shrinking and that the
inter-dependence of nations is growing. The flow of
information is the driving force behind this process of
globalisation. Any new network that is not built, from
the outset, with the intention of interconnection with
similar networks in other countries will quickly become
a constraint to growth. For this reason, policy-makers
should strive to ensure that national initiatives are
harmonised and co-ordinated at the regional and
international level. The ITU has traditionally played
the role of technical standardisation and defining
principles for interconnection and revenue sharing.
The rise of conflicting industrial policy interests in
North America, Europe and Japan has made this role more
difficult, but no less important.
* The principle of _universalism_. The development of the
telephone network has been guided by the desire to
achieve universal service. This implies uniform
geographical coverage, service quality and pricing, and
service provision offered on a non-discriminatory
basis. It also implies a cross-subsidy between
different classes of users, between urban and rural
areas, and between business and residential
subscribers. In its recent policy statement, the
United States administration has stressed the need to
avoid creating a society of information haves and have-
nots and has urged carriers to ensure network access to
schools and hospitals. It will probably be necessary
to develop mechanisms whereby the cost of providing
network access to non-commercial or uneconomic users is
shared between the different firms competing in the
market. At a global level, it should not be forgotten
that some two-thirds of households worldwide still have
no access to basic telephony. Investment in advanced
networks in the industrialised nations needs to be
reconciled with investment in basic networks in the
developing countries.
* The principle of _regulatory symmetry_. Historically
there have been at least three regulatory traditions in
the information industry: publishing, common carriage
and broadcasting. In some countries, regulations have
been designed to create boundaries between industries
by placing constraints on cross-ownership and cross-
sectoral service provision. There may justification
for retaining certain restrictions, for instance where
one firm or a group of firms have a dominant market
position which is restricting the development of
competition. But for the most part these regulatory
barriers are now largely artificial and can be
dismantled. Thus the barriers which prevent cable TV
companies and telephone operators from entering each
others markets should be reviewed, as has been proposed
in the United States. Similarly, regulators should
take every step to ensure that mobile communications
companies are able to compete with, as well as
interconnect with, fixed-link operators.
* The principle of _regulatory independence_. In countries
where the regulator is under-resourced or inadequately
funded, it is all too easy for the regulator to be
captured by narrow sectoral or commercial interests.
This can happen as easily in the industrialised
countries as in the developing world and it can be done
by legitimate means -- by lobbying, by sponsoring
favourable studies, by constant recourse to the courts
to slow down progress -- as well as by non-legitimate
means. Regulatory capture invariably produces results
which are against the public interest, which are
economically sub-optimal, and which can be narrowly
protectionist. In order to avoid regulatory capture,
it is important the regulator be properly funded.
Ironically this probably means that the industry
itself, rather than the State, should pay for the
regulatory process,. But this should be done in an
open, transparent and shared way, not by hidden
transactions.
* The principle of _open access_. One of the main reasons
why information technology is perceived to be a
_technology of freedom_, to borrow the phrase of Sola
Pool, is because of the tradition of open and non-
discriminatory access to public networks. In a
democratic and pluralistic society, these values should
be cherished. In the coming era of high capacity
networks, it will be possible for multiple service
providers to share the same network in much the same
way that multiple television channels are provided over
the same cable. In traditional telephone networks, the
network and the service have been virtually
indivisible. But technological change is permitting
the _unbundling_ of the network from the services it
supports. While the virtually infinite capacity of
today's fibre-based networks might make dual network
provision uneconomic, it will make multiple service
provision by multiple service providers highly
attractive.
These five principles -- internationalism, universalism,
regulatory symmetry, regulatory independence and open
access -- are becoming the cornerstone of international
regulation. At the ITU, we are fortunate that our
founders had the foresight to create a single body with
interests in both telecommunication and broadcasting.
Consequently, all the current discussion of convergence
is yesterday's news at the ITU. But the founders of the
Union could never have foreseen the capacities of the
modern communication network. Nor could they have
anticipated the emergence of global players and global
services which is raising new challenges for regulators.
The role of the regulator is to make sure that the door
is open to innovation and market-making while making sure
that it is not closed to international co-operation and
universality.
