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11 Reflections on the Telecommunications Infrastructure HARVEY BROOKS This chapter raises a set of issues critical to the telecommunications infrastructure by exploring three basic questions: (1) What are the impli- cations of the shift in the United States from a planned telecommunications infrastructure to one driven by market forces and largely dominated by a few large users with highly sophisticated requirements (Borrus et al., 19841? (2) How will the growth of telecommunications and the redistri- bution of "information power" within organizations and among different groups in the population affect human settlements and organizations (Downs, 19851? and (3) How can we best describe and project the evolution of the telecommunications infrastructure (Borrus, 1986; Borrus et al., 1985~? THE MARKET SHIFT Probably the most important environmental factor determining the future evolution of communications infrastructure in the United States is the shift from a regulated monopoly to market-driven competition (Borrus et al., 19841. Whereas the pace and direction of technological innovation were once determined mainly by systems engineering and the goal of expanding channel capacity and decreasing unit costs per bit, they are now driven by the needs and requirements of a few of the largest telecommunications users. The emphasis in the field is shifting from the transmission and switching infrastructure to the increased sophistication of equipment and "value added" on the user's premises (see chapter 101. The new envi- ronment has been described in striking terms by Mayo (1985, p. 231: 249

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250 HARVEY BROOKS For decades electronic technologies have been pulled into the marketplace as fast as humanly possible. Today's technology, however, is so rich that it can do more things than society might find useful. Increasingly, marketing resources are re- quired to sort out innovations, to contain the scope of development, and to focus investment on the applications that will win in the marketplace.... Such a give- and-take relationship between markets and technologists has long operated in low- technology fields such as soaps and toothpaste. Today, there is a similar, rapidly evolving relationship in fields of the highest technology, especially in computers, software, and telecommunications. The question that cannot yet be answered is whether this new, market- driven system will automatically ensure optimization of the infrastructure from a societal standpoint. For example, will the system continue to meet the needs of smaller users, local communities, and the public sector, especially the public sector below the federal and international level? How will this new system affect the original ideal of a universal, affordable service? In a way the Bell System represented an ideal case of the success of a planned economy encapsulated within the free enterprise system. It was much more successful than any true planned economy, perhaps in part because it continually defended itself with free enterprise rhetoric. It was a case in which systems engineering of the whole subeconomy of tele- communications worked well. It produced a single product telephone service without terminal frills that was an ideal target for a planned economy.* This ideal was predicated on the assumption that there were what economists would call large positive externalities associated with the maximum dispersal of customer connections that could not be fully captured in the competitive price chargeable to the individual customer. This positive externality justified some kind of collective subsidy that actually took the form of a cross-subsidy from high-density traffic to low- density traffic, and from sophisticated high value-added services to min- imal basic services. As long as the requirements of large users could essentially be met by simply increasing the number of plain old telephones within the organization, the old system was in a position to satisfy all users with the same basic technology; all the sophistication was built into the public network. But as it became technically possible to provide more and more sophisticated services on the user's premises (value added) outside the public network, the needs of different kinds of users became more and more differentiated, and pressures for a different system of Thor an illuminating exposition of the philosophy and achievements of the "old" Bell system, see Bode (1971).

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TELE COMM UNI CA TI ONS INFRAS TR UCTURE 251 managing the supply of new technology became irresistible (Oettinger, 1984, 1985). The justification for the old telephone system was technical integra- tion that is, the maintenance of the technical integrity of the system as new technology and new user services were incorporated into it. The question has become whether this technical integrity can be maintained in the face of much greater diversity in sources of technology and in user requirements. How can the benefits of technical integration, standards, quality control, and compatibility of different vintages of very long lived and long-depreciation-life equipment be preserved in the new system while realizing the advantages of more experimentation and competition? How can present and potential users be more integrally involved in the planning of new telecommunications systems? Because the service provided by the old system was a basic standard commodity that the network could be optimized to produce at minimum cost, customers were little affected by the technical design of the network except through the cost and reliability of the service they received. The only problem of the network was the actual production of the service; it did not have to be tailored to the specific needs of a variety of customers. A closely related question is the extent to which the new deregulated system will be degraded by the phenomenon of "cream skimming" as high-volume services in dense information corridors are tailored to the needs of large, sophisticated users and the cross-subsidization of services used sparsely by large numbers of people is rigorously eliminated because such services are relatively unprofitable. Will the trickle-down effect of new technology developed for, and delivered to, the most sophisticated and performance-oriented users automatically serve the needs of large numbers of small users? Will a higher rate of innovation in a market- driven system offset the decreased attention to users with less market power? What objective function is in effect maximized by the new market- driven system (i.e., what parameters of the communications system will it tend to optimize), and how will its configuration and performance differ from that of the old regulated system? EFFECTS ON HUMAN SETTLEMENTS AND ORGANIZATIONS Will information power become more concentrated and less accessible to all, or will the abundance of information resources and channel capacity lead to greater equality of access to the power conferred by the control of information? Generally speaking, the various visions put forward in Japan of a future information society anticipate equalization of information power both regionally and among different groups of the population. Such

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252 lIARVEY BROOKS visions picture the information society as a force for democratization and participation (National Institute for Research Advancement, 19851. In the West the view tends to be more in the direction of information power giving an advantage to large organizations and to a few urban commu- nications and transportation hubs with world-scale access. Most advocates of the Third World see information technology, and particularly telecom- munications, as widening the gap between the industrialized countries and the Third World in such a way that the industrialized countries will greatly increase their power to dictate to the Third World and arrange the world economy to their own advantage. Others foresee this effect not only be- tween the First and the Third Worlds but also between regions and cities within the industrial countries. Which view is likely to be more correct? To what extent is there a choice, and how can that choice be influenced (United Nations Centre for Science and Technology for Development, 1986; Society for International Development, 19854? What will be the effect of modern telecommunications on the future configuration of a city? Will it make possible more dispersion to the suburbs and even to the countryside, or is face-to-face contact still suf- ficiently important that its advantages will not soon be replaced by so- phisticated telecommunications? What is the prospect for the diffusion of person-to-person video communications? What external factors are likely to influence that prospect? Why did the Picturephone prove to be a tech- nical success and a market failure (Bode, 19711? What will be the influence of telecommunications on the comparative advantage among different kinds of urban centers? Will telecommunica- tions, possibly in combination with air transport, reinforce the hierarchy among urban centers ranging from world-scale economic and communi- cations nerve centers to local niche cities, or will the abundance of in- formation channels make possible many more centers with approximately equal connectedness to the world economy? The Japanese have attempted some answers to these questions: they see the new information society as decreasing the relative importance of such centers as Tokyo and Osaka, pointing to the characteristics of communications technologies that tend to make the cost of communication almost independent of distance (Na- tional Institute for Research Advancement' 19851.* In fact, Japan has systematically linked its plans for regional devel ~One source of information in this area is the proceedings of the International Symposium on the Impact of New Communication Technologies on Local Government (1984) held at the U.S. Department of State, Washington, D.C., from December 3-5, 1984. See also Urban Innovation Abroad (1985). The symposium addressed different approaches taken in Japan, the Federal Republic of Germany, and the United States.

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TELECOMMUNICATIONS INFRASTRUCTURE 253 opment to telecommunications technology, actually building experimental cities (that were going to be built anyway) incorporating all the latest telecommunications technologies in such a way that their usefulness can be tested. An example is Minato Mirai 21, a new city for 190,000 residents near Yokohama. According to the summary of the 1984 International Symposium on the Impact of New Communication Technologies on Local Government, the new city "will be a resort showplace and will feature wide-band communications systems, videotext, and interactive systems." This development is all part of the Japanese ambition to become a model "information society" in the next century (Urban Innovation Abroad, 19851. The tone is optimistic, and the thrust is toward integrated exper- iments to test advanced concepts in operation in new cities.* By contrast, the study of a series of small-scale demonstration proj- ects in the Federal Republic of Germany places greater emphasis on their economic, political, and social effects than on their technological effects. The approach being developed by the Bundespost seems to be one of caution and indeed technological pessimism, although, as re- ported in Urban Innovation Abroad (1985), "local governments in Germany are actively pushing their federal and state level counterparts for more active experimentation and deployment of telecom technol- ogies," seeing "the technologies as helping to create a more democratic society where citizens have access to information from a variety of sources." Thus, there is a second thrust in the German approach em- phasizing local influence in shaping the future of telecommunications technology in that country. The dominant feature of the U. S . approach is diversity and heterogeneity under the guiding influence of the market. The Urban Innovation Abroad summary of the international symposium stated: As a result of their experiences to date with telecommunications, the U.S. par- ticipants talked less about grand schemes for how the technologies would change their organizations and communities, and instead focused on the need to develop a set of skills for planning, managing, and evaluating their use of telecommun- ications in each of the three local government roles consumer, broker, and sustainer of local democracy. An avoidance of the "big picture" seems to pervade the U.S. approach. The U.S. group, mainly represented by local officials, described telecom- munications as *See National Institute for Research Advancement (1985), pp. 93-99, for a discussion of such concepts as Teleutopia, teleports, and the relation of telecommunications to regional development and regional disparities in access to information.

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254 HARVEY BROOKS a complex web involving technology they knew little about, private sector vendors who have done little to earn the trust of public officials, an intergovernmental system that is oriented to deregulation despite the expressed concern of local officials, intraorganizational concerns over how telecommunications will affect jobs and responsibilities, and a citizenry that, for the most part, seems only to want basic transmissions and diverse entertainment services at low cost. (Urban Innovation Abroad, 1985, pp. 4-5) What can be said about the effect of information technologies on the nature and structure of organizations? Will the ease with which the center of an organization can monitor and control its far-flung activities tend to reinforce bureaucratic, hierarchical structures with a high degree of func- tional specialization? Or will it lead to the creation of horizontal, and relatively flat, networklike organizations with quasi-autonomous nodes capable of coordinating their activities horizontally through instant access to a common data base and to each other, either directly or by updating their input to the common data base? In other words, will information technology increase the capacity of a few big brains to control the activities of more and more people, or will it increase the capacity of many "little brains" to concert and coordinate their activities in a way that is equivalent to, but much more effective than, one big brain that cannot keep everything at the forefront of attention continuously, no matter how sophisticated the information terminal (Brooks and Schneider, 19851? Different countries have different attitudes toward this problem. The Japanese characteristically take an optimistic view and have adopted an aggressive attitude toward the creation of planned sophisticated networks in the expectation that they will lead to democratization of access to information services and a reduction in social differences arising from such differential access (National Institute for Research Advancement, 19851. Will modern information- and communications-intensive manufacturing and office technologies make possible dispersed, flexible specialization of the kind envisioned by Piore and Sabel in The Second Industrial Divide (19841? Flexible specialization in their view means that modern comput- erized manufacturing systems can be profitable with much shorter pro- duction runs and can produce a larger variety of products with the same capital equipment, thus making it possible to respond much more rapidly and economically to changes in customer requirements and in the demand mix for products. Flexible manufacturing has in fact advanced much fur- ther in the manufacture of electronic, telecommunications, and computer equipment than it has in metalworking industries (Borrus et al., 19841. Furthermore, flexible manufacturing, combined with telecommunications, makes possible a much higher degree of decentralization and smaller plants

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TELECOMMUNICATIONS INFRASTRUCTURE 255 than in the past. If so, how will this affect the division of labor between the industrialized and the developing worlds? Will the trend toward smaller economic units promote the decentralization of labor-intensive components of an integrated production process to areas where the cost of labor is low, or will the trend toward just-in-time inventory management and the closer integration of design, production, and marketing tend to drive com- panies to repatriate economic activities that had previously been dispersed to take advantage of low labor costs (United Nations Centre for Science and Technology for Development, 1986; Society for International De- velopment, 19851? As the fractional labor content of both goods and service production becomes so small that labor costs are no longer a major consideration in relation to inventory costs and the use of capital, will the attraction of cheap labor disappear? MEANINGFUL MEASUREMENT AND PROJECTION What are the most meaningful measures of the volume of telecom- munications services when the service increasingly consists of value added by terminal equipment on the customer's premises rather than the flow of bits between customers? Is it possible to analyze the future volume of information services in a way that parallels Marchetti's (see chapter 7) and Nakicenovic's (see chapter 8) analyses of the level of activity of various transportation modes? In telecommunications, is it possible to project a saturation such as Marchetti and Nakicenovic have projected for air transport at about twice the present annual passenger-kilometer volume? Can we foresee developments in telecommunications technology analo- gous to the Mach ~ aircraft in air transport that could generate a new pulse of exponential telecommunications growth? Would a breakthrough in soft- ware production-a change from the labor-intensive art that it is today to a mass-producible technology be a possible source for such a pulse? What new functions for information technology could such a breakthrough make possible? Within the telecommunications system, to what extent is there regular substitution of one mode for another? Historical experience may suggest that substitution is less likely than some kind of ecological symbiosis among old and new systems. It is unlikely, then, to be a question of wires, cables, and so forth being superseded by satellites or of satellites being superseded by optical fibers. The question is how these technologies will fit together in an optimal system. What are the factors that govern this optimization, and how can government-mandated rate structures influence the future mix among different communications modes?

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256 HARVEY BROOKS CONCLUSION The telecommunications infrastructure presents a different problem from that of the rest of the infrastructure picture discussed in this book. A theme in current debates is the decay of infrastructures and the general lack of investment in and adoption of technological innovations that could increase their productivity. This theme is by and large not valid for the commu- nications infrastructure. Here, investment appears to be adequate to the major needs, technological innovation is proceeding at a breathtaking pace, and new technologies are adopted rapidly. Indeed, the problem is that the life cycle of telecommunications technologies is shortening, and the pro- liferation of new technical opportunities is outfacing the ability of society to choose among them and to plan a coherent structure. The main problem for the United States is whether the new reliance on the market to determine the direction of innovation and infrastructure investment in telecommun- ications will serve the public interest more effectively than the old system of regulated monopoly, systems engineering, and technical integration. That question may apply particularly to the "public goods" aspect of the telecommunications infrastructure. It is too early to tell how the new national experiment in telecommunications will come out. REFERENCES Bode, H. W. 1971. Synergy: Technical Integration and Technological Innovation in the Bell System. Murray Hill, N.J.: Bell Laboratories. Borrus, M. 1986. Japanese telecommunications: reforms and trade implications. California Management Review 28(3):43-61. Borrus, M., F. Bar, and I. Warde (with J. Millstein and P. Cogee). 1984. The Impacts of Divestiture and Deregulation: Infrastructural Changes, Manufacturing Transition, and Competition in the U.S. Telecommunications Industries. Berkeley Roundtable on the International Economy project for the U.S. Congress Office of Technology Assessment. Berkeley: University of California Press. Borrus, M., F. Bar, P. Cogez, A. B. Thoresen, I. Warde, and A. Yoshikawa. 1985. Telecommunications Development in Comparative Perspective: The New Telecommun- ications in Europe, Japan, and the U.S. Berkeley Roundtable on the International Econ- omy. Berkeley: University of California Press. Brooks, H., and L. Schneider (with K. Oshima). 1985. Potential impact of new manufac- turing technology on employment and work in industrial and developing countries. Harvard University, Cambridge, Mass. Mimeograph. Downs, A. 1985. Living with advanced telecommunications. Society 23(3):26-34. International Symposium on the Impact of New Communication Technologies on Local Government. 1984. Papers. Washington, D.C. Mayo, J. S. 1985. The evolution of information technologies. Pp. 7-33 in Information Technologies and Social Transformation, B. R. Guile, ed. Washington, D.C.: National Academy Press.

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TELECOMMUNICA TIONS Il!iFRASTR UCTURE 257 National Institute for Research Advancement. 1985. Comprehensive Study of Microelec- tronics 1985. Tokyo: NIRA. Oettinger, A. G. 1984. The information evolution: Building blocks and bursting bundles. May draft. Program on Information Resources Policy, Harvard University, Cambridge, Mass. Oettinger, A. G. 1985. The abundant and versatile digital way. June draft. Program on Information Resources Policy, Harvard University, Cambridge, Mass. Piore, M. J., and C. F. Sabel. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. Society for International Development. 1985. Informatics: Is there a choice? Development 1. United Nations Centre for Science and Technology for Development. 1986. New Infor- mation Technologies and Development. Advanced Technology Alert System Bulletin 3(June). Urban Innovation Abroad. 1985. Impacts of new telecommunications technologies on local governments in Europe, Japan and the U.S. explored in international symposium. Urban Innovation Abroad (April):4-5.