Regulating the International Information Infrastructure (III)

[David Farber <farber () central cis upenn edu>]

Date: 10 Mar 1994 14:33:34 +0100 (CET)
From: SHAW +41 22 730 5338 <ROBERT.SHAW () itu ch>


Thought the  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.