Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 190
Page 190
23
How Do Traditional Legal, Commercial, Social, and Political
Structures, When Confronted with a New Service, React and
Interact?
Maria Farnon
Fletcher School of Law and Diplomacy
Tufts University
Statement of the Problem
It is somewhat ironic that the Internet, which was originally
pioneered for national security reasons in the United States, has
evolved into an international network. In fact, it is the open,
international character of the Internet that is largely responsible
for its growth. Its explosive expansion has been exported from
North America to Europe and Asia, in particular. At the same time,
the Internet poses serious challenges to many traditional
structures at many levels: regulatory, commercial, legal, and
cultural.
Many governments have enthusiastically embraced the introduction
of the Internet without understanding its subversive character. As
new services like the Internet travel to countries where government
intervention in the market is strong, and where the
telecommunications industry remains a state-owned monopoly, these
countries will seek to define the Internet in traditional terms.
The determination to construct a national information
infrastructure (NII) by imposing standards, reserving service
transmission for a monopoly provider, and controlling content
reflects a complete misunderstanding of the Internet model.
This paper evaluates the development of the international
Internet as a case study of how the evolution and diffusion of a
new service are affected by preexisting factors. In other words,
how do traditional legal, commercial, social, and political
structures, when confronted with a new service, react and interact?
Even if the Internet represents an entirely new paradigm of
services technology, it seems clear that domestic governments and
industries will seek to apply a familiar framework, and thus exert
the same control and derive the same benefits that the current
telecommunications system allows. After reviewing the historical
structure of the telecommunications industry, this paper evaluates
the introduction of networking in several geographic regions to
determine how a new service affects the traditional
telecommunications model. The question then becomes, What can be
done to preserve the originality of the Internet as a
decentralized, scalable network on a global basis?
Background
The Old Paradigm: Government Ownership
and Monopoly Service
Telecommunications operators (TOs) have traditionally been
structured as state-owned monopolies for several reasons:
1.
Natural Monopoly. Telephone service has
long been cited as an example of a "natural monopoly,"
characterized by significant ex ante investment (initial fixed
costs) and increasing returns to scale. These factors imply that
the size of the firm must be large to capture economies of scale
and to recoup the initial investment.
OCR for page 191
OCR for page 192
OCR for page 193
OCR for page 194
OCR for page 195
OCR for page 196
OCR for page 197
OCR for page 198
OCR for page 199
OCR for page 200
Representative terms from entire chapter:
latin america
Page 191
2.
Public Good. Government ownership is
explained by the existence of "public goods," where the marginal
cost of providing this good to an additional user is zero, and
where it is difficult or impossible to limit consumption of the
good. Thus, a commercial firm has no incentive to produce this type
of product. An example of a "pure" public good is national defense.
Telephone service, once the network is in place, might also be
considered a public good.
3.
Incomplete Markets. Incomplete markets
occur whenever markets fail to produce a good or service, even
where the cost is less than what people are willing to pay.
Telephone service to rural areas or even to low-volume residential
users could be considered an incomplete market, because firms may
not generate enough business to recoup their investment. Thus,
governments have justified their monopoly of telephone services as
a welfare obligation, with the ultimate goal of providing access to
every citizen, or "universal service."
4.
National Security. Keeping the
communications infrastructure out of foreign ownership and in the
control of the government was long considered vital for protecting
the national security, especially in times of crisis or war.
Though it is overly simplistic to suggest that state ownership
is inherently less efficient than private ownership, because of the
large size of state-owned enterprises (SOEs), they tend to attract
stakeholders who depend on the actions of the firm for benefits.1 The TO, for example, is often the
largest employer in a country. Stakeholders include employees,
suppliers, and the relevant government bureaucracies. Because the
benefits they derive are significant, stakeholders have an
incentive to organize in order to pressure the firm, and through
this organization gain their power. Even though
shareholders—namely the public—are the legal owners of
the firm, they remain too dispersed to organize effectively. The
stakeholders thus assume de facto control of residual rights.
Governments are willing to maintain inefficient SOEs for fear of
antagonizing powerful stakeholders, who are also political
constituents.
TOs in many countries across Europe, Asia, Africa, and Latin
America have clearly attracted strong groups of stakeholders,
including labor unions, equipment suppliers, and the government
agencies that direct the TO. The employees are concerned foremost
with retaining their employment, while the domestic equipment
suppliers often depend on the national TO for the bulk of their
orders. The third stakeholder, the government, also has an interest
in preserving the TO under state ownership. By setting high tariffs
for long-distance use, and subsidizing shorter domestic calls,
politicians garner public support. Furthermore, a profitable TO can
be used to cross-subsidize other operations, such as the postal
service. In essence, the policy of high tariffs for phone usage
constitutes an indirect tax.2
A Changed Consensus
The question is why the consensus that supported the "natural
monopoly" and state ownership of telephone services began to
dissolve in the early 1990s. There are essentially three motivating
factors:
1.
Introduction of digital technology;
2.
Privatization of SOEs around the world; and
3.
Globalization of business.
The most fundamental driver for this trend is the revolution in
digital communications technology. A government monopoly was easy
to justify for a service that was fairly undifferentiated (i.e.,
basic phone calls) and for which demand was relatively inelastic.
Furthermore, the provision of universal service was a legitimate
goal of governments, given that private industry was unwilling to
assume the cost of laying lines to every household. However, since
the 1970s, telephone penetration no longer constitutes a legitimate
measure of the effectiveness of the telephone company. With the
introduction of enhanced services, including voice mail, toll-free
calling, and the establishment of data networks, the diversity and
scope of services have become much more important indicators of
progress.
Page 192
The extraordinary growth of private value-added networks (VANs),
especially within multinational organizations, demonstrates the
failure of the TO system to adjust to technological innovation. The
VAN market is characterized by high product differentiation and
elastic demand, meaning narrow groups of users who demand highly
customized services. It seems clear that in markets where the
product is highly differentiated and demand is more elastic,
government monopolies tend to be less flexible in meeting the
demands of the market because of the constraints imposed by
stakeholders.3 Telecommunications
has assumed a vital role in the competitive advantage of firms, to
the point where pricing and the availability of advanced services
affect location decisions. This presents a fundamental conflict
with the traditional goals of the TO, determined by the
stakeholders, of maximizing revenues through high tariffs, and of
controlling entry to the network and to the equipment procurement
market. Telephone rates set by TOs are often not cost based, but
created according to political pressures for cross-subsidization.
Although some constituencies benefit from these subsidies,
including residential and rural callers, they raise the costs of
doing business and thus harm overall economic efficiency.
In addition to the onset of digital technology, fiscal and
competitive pressures have convinced many governments of the need
to privatize the telecommunications industry. Telecommunications is
now seen as an advanced factor that will determine a nation's
competitive position in the global marketplace. However,
governments have encountered difficulty attempting to deprive TO
employees of their civil servant status, or more drastically, of
their jobs. The political pressures inherent in the privatization
process have often resulted in unhappy compromises that are at odds
with the new services. For example, the ability of the European TOs
to retain their monopoly of voice services even after 1998 will
provoke tensions, especially when the Internet is used to carry
voice.
Finally, changes in the telecommunications industry have
mandated the globalization of companies within the industry. These
changes have taken place at the regulatory level, as well as at the
levels of the customer, the competition, and the industry as a
whole. The consumer who purchases voice, data, and video services
is growing more and more homogeneous across national borders. At
one time, consumers in the developed world demanded more
sophisticated products, whereas consumers in developing nations
strove simply to acquire basic telephone service. However, reliable
communication is now recognized as providing the means to
successful competition across the world, and new technology has
given consumers the opportunity to leapfrog outdated communications
systems to achieve a certain measure of equality. Thus, the
cellular phone is no longer simply a status symbol for the wealthy
but is instead a vital business tool from London to Moscow. The
globalization of many industries provides for synergistic
development: as financial services, for example, become
standardized worldwide, the technology that supports these services
must likewise go global.
The U.S., British, and Japanese companies that underwent
liberalization in the 1980s, and are thus free from political
constraints that bind other TOs, have been much more aggressive in
their international strategies. These firms are seeking to provide
one-stop shopping for all telecommunications services by creating
worldwide, seamless networks. At the same time, these companies
have all realized that no single firm possesses the resources to
offer global services alone. The result has been a host of
alliances, including AT&T-Unisource (the TOs of Holland,
Switzerland, and Sweden), Eunetcom (France Telecom and Deutsche
Telekom), and the British Telecom—MCI joint venture.
Together, the revolution of digital technology, the
privatization of SOEs across industrialized as well as developing
countries, and the internationalization of business have totally
undermined the traditional TO structure. The internationalization
of the Internet can only hasten this trend. The Internet, as a
decentralized, uncontrolled service, stands in direct contradiction
to the centralized, government-controlled model of the old TO
system. The old system includes not only the state enterprises
themselves, but also the entire system of standards setting
(including supranational institutions like the International
Telecommunications Union), a pricing structure distorted by
political considerations, a national body of law that regulates
areas including intellectual property and pornography, and even the
national security of certain countries. Yet in responding to the
challenge of the Internet model, countries often rely on
traditional methods of control that are rendered ineffective by the
new services. In Singapore, for example, Internet users are
encouraged to report seditious or pornographic material to the
Singapore Broadcasting Authority. In the United States, Senator Jim
Exon sponsored the Communications Decency Act in response to
pornographic images available on the Internet. In Europe, the
European Union's (EU) Council of Ministers has agreed on a
directive that limits the transmission of information about
individuals,
Page 193
especially to countries that do not offer adequate protection of
privacy. All of these efforts will be impossible to enforce without
literally pulling the plug on users.
The problem is that many societies remain wedded to traditional
structures that no longer match the new communications services.
The EU has set 1998 as the deadline for the liberalization of the
telecommunications market. The state-owned TOs will face mandated
competition in every are but voice communications. However, new
services like the Internet can integrate voice, data, and images,
rendering old distinctions between basic telephony and value-added
services meaningless. Perpetuating the voice monopoly of the TOs
will significantly hinder the advance of countries that fail to
recognize the advancing convergence of technologies and services.
Though governments should continue to ensure that the majority of
the population receives telephone access, the Internet demonstrates
the foolishness of reserving a small slice of communications
services for a monopoly provider.
Analysis
The Internet has grown far beyond the original vision of a
network connecting research institutions and universities in the
United States. More than 70 countries now have full TCP/IP
connectivity, linking over 30 million users, and about 150
countries have at least e-mail service. About 1 million users are
joining the Internet every month worldwide.4 Governments across the world have
identified international networking as critical to their national
competitiveness, although few seem to actually have considered the
subversive role of the Internet in undermining traditional
political, commercial, and social structures.
Political Issues
As Subcomandante Marcos, the leader of the Zapatista rebellion
in the Chiapas region of Mexico, explained, "What governments
should really fear is a communications expert."5 Though traditional communications
outlets such as radio and television are centralized and often
controlled by the government, the Internet remains decentralized,
diffuse, and nearly impossible to police. Thus, communiqués
from the Zapatistas are transmitted throughout the world via the
Internet. Likewise, during the 1991 coup in Moscow, reformers
trapped inside the Russian Parliament sent out bulletins on the
Internet, which the Voice of America picked up and then transmitted
back to Russia over the radio. Obviously, the most repressive
societies that restrict access to the necessary
hardware—including North Korea and Iraq—will not be
toppled by the information revolution. It is regimes like China and
Singapore that recognize advanced telecommunications as a vital
component of economic development, yet seek to maintain control
over new services, that will face the most serious dilemmas.
Legal Issues
The totally unregulated nature of the Internet has allowed the
diffusion of content that violates not only political controls but
also legal structures. Some of the most public controversies have
surrounded the diffusion of pornographic images on the Internet. In
the United States, Senator Jim Exon sponsored the Communications
Decency Act, which would set fines and jail terms for "lewd,
lascivious, filthy, or indecent" material on the Internet or other
networks. In New Zealand, the primary link to the Internet is
threatened by a new antipornography law.6 U.S. service providers have responded
by increasingly policing their own users. For example, America
Online recently cut off subscribers using the network to transmit
or receive child pornography images and eliminated the online fan
club of the music group Hole.
Other pressing legal issues include the protection of
intellectual property rights and of privacy on the Internet, as
well as censonship more generally. Essentially, the Internet's
tradition of open access and its user-driven content challenge the
traditional methods employed by societies—including copyright
laws and limits on distribution—to restrict access to and use
of controversial or protected information.
Page 194
Standards Setting
Standards setting has long been of critical importance in the
telecommunications industry, even more so as internationalization
has progressed. The interface of various TOs, equipment suppliers,
and users requires some degree of cooperation and uniformity.
Standards for basic telephony services have traditionally been set
by national governments through their ownership of the monopoly TO,
and through cooperative agreements brokered by international
organizations such as the International Telecommunications Union
(ITU). However, the inability of these organizations to keep pace
with the advent of new services has allowed users and other
nontraditional groups to subvert the top-down,
"perfection-oriented" model of standards setting.
The success of the Internet centers on its structure as an
eminently flexible, open architecture, which has allowed its
evolution to be determined largely by the users themselves. Bodies
like the ITU have grown increasingly irrelevant with the
introduction of new services such as the Internet, and have seen
their turf eroded by new organizations that do not necessarily have
official government sanction. For example, the Massachusetts
Institute of Technology (MIT) and the European Laboratory for
Particle Physics (CERN) announced in July 1994 that the two
institutions will work together to further develop and standardize
the World Wide Web (WWW).7 Likewise,
countries such as Denmark and Singapore, which are aiming to become
the networking hubs for their respective regions, are seizing the
initiative to establish the regional standard. As Peter Lorentz
Nielsen of the Danish Ministry of Research commented, "We can't
wait for Brussels to act."8
The problem of compatibility obviously arises when systems such
as UNIX and EDI meet, but users who become dependent on
networking—from students to home shoppers to small and large
businesses—will increasingly demand interoperability. The
Internet offers the possibility of entirely user-driven services
and technologies. Thus, despite the recent pronouncements of the
Group of Seven (G7), governments may ultimately have little to say
about the Internet or other new services. The debate over
integrating the tangle of supranational standards institutions
(ITU, CCIT, ITSC, and so on) may therefore be moot as well. The
internationalization of data networks from the Fidonet to the
Internet demonstrates above all the importance of open, flexible
architectures that can be adapted to regional demands and
constraints. Centralized standards setting makes as little sense as
centralized network control.
Regional Studies
Asia
Although the Internet is growing at a phenomenal rate in Asia,
three critical components are lacking: legal and social structures,
and software interfaces. Furthermore, dictatorships (China) or
merely repressive regimes (Singapore) will undertake significant
political risks by introducing networks that have international
reach and that are impossible to perfectly monitor. In addition,
the dominance of English on the international Internet provokes
charges of "linguistic imperialism" that might "weaken indigenous
languages and colonize the minds of the Asians."9 Nevertheless, within east Asia only
Laos and Burma currently remain without any form of Internet
access.
Hong Kong
Although Hong Kong's Supernet is the oldest and main provider of
access lines on the territory, eight other access providers have
appeared since late 1994. In a classic example of the threat the
Internet poses for traditional TOs, the Hong Kong
Telecommunications Authority raided and closed down seven
commercial access providers to the Internet in March 1995 for
operating without a license. The companies claim that providing
access to the Internet falls outside of current regulations.10
Page 195
Singapore
Singapore leads Asia in building digital networks to support an
information infrastructure, and is clearly aiming to serve as the
hub for the rest of the region. Despite Singapore's rapid advance,
the government is attempting to police the Internet by encouraging
users to report any criminal or antisocial behavior to other users
as well as to the Singapore Broadcasting Authority, a government
agency. As George Yeo, the minister for information and the arts in
Singapore, admitted, ''SBA cannot police on its own without the
support and cooperation of the members of the Singapore cyberspace
community."11 Nevertheless, the
Telecommunications Authority of Singapore plans to issue licenses
for two more access providers for the Internet in addition to
Singapore Telecom, which is currently the sole provider of Internet
access throug Singnet.
China
China's leaders have quickly realized that the explosive
economic development of the country can only be sustained by a
modern telecommunications infrastructure. As a result, the Chinese
government has been forced to introduce limited competition and to
welcome foreign investment. This is especially significant for a
country ruled by an authoritarian regime, where communications have
long been defined as a national security issue. In June 1994, China
broke up the telephone monopoly, which resulted in the formation of
several new companies. Liantong Communications was formed in July
1994 by the cities of Shanghai, Beijing, and Tianjin as the
country's second operator. The People's Liberation Army established
Ji Tong Communications as another new carrier. Despite the urgent
need for capital, however, foreigners have so far been banned from
actually owning and operating networks, although they have been
allowed to invest in the production of telecommunications
equipment. Foreign companies are thus forbidden to take any equity
stake in telephone networks.
China has one of the lowest telephone penetration rates in the
world, with only three lines available for every 100 people.12 The government plans to lay about 15
million lines per year until it reaches 100 million lines by the
end of the century. However, China's leaders have not restricted
their vision to basic voice communications, but also plan to
leapfrog to the latest technologies through the so-called "Golden
Projects." The Golden Projects include three separate
initiatives:
1.
Golden Bridge: the backbone for data,
voice, and image transmission;
2.
Golden Card: a national credit card
transaction system; and
3.
Golden Gate: a paperless trading system to
support offices, financial institutions, and foreign trade.
To accomplish the Golden Projects, the Chinese government has
called for overall planning, joint construction, unified standards,
and a combination of public and special information networks.13 China will concentrate its
investment in three main areas: digital switching equipment, fiber
optic cable networks, and expanding the mobile phone networks.14 The Chinese Ministry of Electronics
Industry assigned the Golden Bridge project to Ji Tong
Communications company, which will construct a nationwide
information network using satellites and fiber optic cables.
Although many major cities have already built local data networks,
the Golden Bridge will ultimately link 500 cities and more than
12,000 information sources, including large enterprises,
institutions, and government offices. Ji Tong has entered an
alliance with the China National Space Industry Administration, as
well as with IBM, to support construction. Ji Tong has established
the Shanghai Jinquiao Network Engineering Company—together
with Shanghai Pushi Electronics Company and two university and
scientific institutions—to begin building the Golden Bridge in
Shanghai. The Jinquiao Network Engineering Company will be
responsible for designing, building, and maintaining a system that
is to link the State Council, provincial capitals, more than 400
cities, and over 1,000 large enterprises throughout the country.15
However, the reality of the communications culture in China
remains in conflict with the stated goals of the Golden Bridge. At
present, information centers for the central government's 55
ministries store 75 percent of all official information in China
but are not interconnected and keep almost all of their information
secret. According to a report in Economic Information Daily
in November 1994, only about 6 percent of all official
Page 196
information is allowed to publicly circulate. Partly as a result
of the continuing perception of information as proprietary, only
300 of the country's 600 data banks are in fact operational, and
fewer than 60 of these offer public access.16 Thus, most of the software and
equipment that China has introduced from abroad to support the
information infrastructure remains useless. Economic Information
Daily pointed out that 90 percent of the 100,000 electronic
mailboxes imported from the United States in 1992 remain idle.
Essentially, the premise of the Golden Bridge remains questionable
within a regime whose attitude toward information is ambivalent at
best, and where institutional jealousies regarding data prevent its
diffusion even among government offices. There are signs, however,
that this is slowly changing. For example, China's central bank
released current money supply figures in 1994 for the first time
since the communist takeover.17
Europe
At the moment, about 1 million computers in Western Europe are
connected to the Internet. However, the development of
international networks in Europe has been hampered by the
perpetuation of the state-owned, monopoly TO structure. As a
result, movement toward a European Information Infrastructure has
been mostly controlled by the state telecommunications companies
(telcos), and thus fragmented along national lines. For example,
while Britain offers the most liberal telecommunications market,
where even cable television operators are allowed to offer voice
services, not only does France Telecom continue to maintain a total
monopoly over voice communications, but the French government has
also failed to propose any framework for privatization. In Italy
and Spain the basic telephone system itself requires significant
investment.
In addition, concerns about U.S. cultural dominance, which have
pervaded EU legislation on media and film, have entered the
discussion on the Internet. France is especially resistant to
opening the country to international networks that might threaten
local culture and language.18
(Ironically, Internet traffic is growing at a monthly rate of 15
percent in France.19) EU
Commissioner Edith Cresson of France has proposed a 0.5 percent
telecommunications tax to subsidize European content for online
services. Jacques Santer named the erosion of cultural diversity as
the number one risk of the technological revolution in the opening
speech of the G7 Conference on the Information Society.20
Finally, European governments disagree among themselves as to
what information belongs online—Scandinavia's tradition of
open government contrasts with the more secretive British
structure.21 Partial elements of an
information infrastructure already exist in Europe in the form of
national academic and commercial networks, but Europe still lacks
guidelines for coordinated regional development. Denmark is
determined to establish itself as the network leader in Europe,
with the goal of bringing all government offices, hospitals,
schools, businesses, and research institutions online by the year
2000 in the "InfoSociety 2000" project. As the first mover in
Europe, Denmark also hopes to create the standards for the whole
continent. According to the Danish proposal, all government
agencies would go online first, creating a large body of users to
drive costs down before introducing the network to the general
population. Yet Denmark has not addressed the monopoly position of
the state-owned TO, TeleDanmark, which was only partially
privatized in 1994. Furthermore, InfoSociety 2000 reveals a statist
approach to telecommunications development that is seriously
misplaced in a world where the private sector continually pushes
innovation and creates its own standards.
The concern that Europe will be left behind as the United States
roars ahead on the information superhighway prompted the creation
of an EU task force led by Martin Bangemann, the German Minister of
Economic Affairs. The task force consists of 20 politicians and the
heads of major European communications and computer firms. The task
force reported their findings to the European Council of Ministers
in May 1994, beginning their statement with an affirmation of
"market mechanisms as the motive power to carry us into the
Information Age. It means developing a common regulatory approach
to bring forth a competitive Europe-wide market for information
services. It does not mean more public money, financial assistance,
subsidies, or protectionism."22
Nevertheless, there remains a wide gap between these words and the
reality of telecommunications development in Europe. In contrast
with the haphazard and anarchic evolution of the Internet in the
United States, the process in Europe aims to be much more
deliberative and top-down. As Horst Nasko, Vice Chairman at Siemens
Nixdorf, stated "In the U.S. they seem to shoot first and aim
later. … What we are
Page 197
trying to do is aim first and shoot when we are sure about what
to do."23 This sentiment obviously
contradicts the decentralized character of the Internet that has
been so critical to its widespread acceptance.
Africa
An underdeveloped telecommunications structure continues to
hamper Africa's access to all levels of service. Overall, charges
remain much higher and line quality much worse than elsewhere.
Besides the lack of infrastructure, the legal model of most
national TOs forbids third-party traffic, making the commercial
provision of online services impossible. Nevertheless, led by
nongovernmental organizations (NGOs) such as the South African
Development Community (SADC), as well as by commercial entities,
some progress has occurred. The SADC's Early Warning Unit gathers
advance data on the food supply situation from each of the 10
member countries as well as from international agencies to provide
advance notice of impending food shortages.24 The SADC employs the Magonet node
through Harare, and converts to Fidonet nodes as they become
available to communicate with various institutions via e-mail.
Rascal Datacom is currently working with Barclays Bank to establish
an Overseas Banking Retail Network (OBRN), which will provide
e-mail service to 11 African countries, the Middle East, the
Caribbean, and the United Kingdom. The initial phase of the
projects is centered in Nairobi and is based on a combined LAN and
X.25 solution. Ethernet LANs provide connectivity between users in
major sites, whereas users across broader regions will apply more
flexible solutions appropriate to local user requirements and
available services and technologies.25 By employing solutions that match
local needs and infrastructure, both the OBRN project and the SADC
Early Warning system demonstrate that online connectivity is
possible and highly useful even in regions that have missed the
traditional route to telecommunications development.
Another route to establishing connectivity in less developed
areas is the galvanizing force of a "local leader." For example, an
individual in South Africa has connected the country's research and
academic Internet backbone to similar institutions in Botswana,
Lesotho, Mauritius, Mozambique, Namibia, Swaziland, Zambia, and
Zimbabwe.
Latin America
As in Africa, local telecommunications infrastructure remains an
obstacle to high-speed international links. Although international
operators like MCI and AT&T offer service, coverage is not
total, forcing users to employ the local TO The "last-mile problem"
becomes especially acute for communications outside of metropolitan
areas. Many multinationals in Latin America have thus opted to
create private VANs. Eastman Kodak, for example, relies on a
private X.25 data network that links to its Rochester, New
York-based computing center and to other host mainframes in Mexico
and Brazil. Kodak opted for the X.25 network because of its ability
to operate on bad wiring.26 As
companies in Africa and Latin America create their own networking
solutions, this sometimes allows the local population to piggyback
on private carriers. For example, investment by Banco Pacifico has
encouraged the diffusion of Internet connectivity in Ecuador.27 However, tight control by the
government on international traffic can limit this option. Thus,
the Internet remains fairly underdeveloped in Latin America.
Forecast and Recommendations
The International Internet versus
Local Networks
Many multinational corporations have already established
proprietary value-added networks (VANs) to carry vital data among
far-flung subsidiaries, suppliers, and customers. Likewise,
industry groups in various countries have created their own
networks to promote information sharing. An example of the latter
is Electronic Data Interchange (EDI) in Europe. EDI was invented by
the retailing and automobile industries as a "business
Page 198
process and not a technology."28
The essential characteristics of the Internet as a global,
scalable, decentralized network that delivers information at cost
stands in contrast to the highly centralized, planned, and focused
nature of these local business networks.29 Nevertheless, both services are
similar in that they are user- rather than vendor-driven.
In terms of standards, the Internet assigns arbitrary addresses,
while EDI employs an X.400 messaging system, in which addresses are
logical and hierarchically structured. Searches on the Internet
require a good deal of time and luck, but searches on local
networks are usually constructed to be both dependable and
repeatable. Furthermore, the services offered on business-oriented
VANs are carefully planned to meet specifically defined information
needs. Mike Holderness, writing in The Guardian, called
these local VANs the "Outernet" and views the emerging information
infrastructure as a battle between the Internet and the Outernet
models.
The Internet has succeeded precisely because it is not tightly
controlled to deliver specific bits, but instead offers whatever
the users themselves see fit to make available. By definition, this
structure cannot adopt a standard to offer 100 percent reliability.
In contrast, the Outernet perpetuates the hierarchical,
"one-to-many" communication model of traditional media.30 Thus, the question is whether the
Internet can succeed as a model for an international network, given
the concerns of national governments over issues of control, or
whether the Outernet model will succeed instead.
Leaders versus Followers
Besides the less developed countries (LDCs), even the member
nations of the EU are worried that the United States is beating
them in the race to construct an information superhighway. South
African Deputy President Thabo Mbeki reminded the Group of Seven
(G7) meeting in March 1995 that Manhattan offers more telephone
lines than all of sub-Saharan Africa. Politicians warn that the
digital revolution will divide societies and nations between the
information-rich and information-poor. This pervasive sense of some
countries gaining a lead in the information revolution is somewhat
misplaced. Though the dearth of actual hardware obviously limits
the ability of a country to connect to international networks, once
connectivity is established, even the economically poor immediately
become information-rich.
The question remains, If the global information infrastructure
will be constructed by blending national information
infrastructures, what of the countries that lack the resources to
develop this infrastructure? The extent of network services has
been directly related to overall economic development.
In many developing countries, connectivity is available only
through a Fidonet link to a few PCs. In contrast, for most of the
industrialized world, building a national backbone is now a top
priority. For many of these countries—including Australia,
Chile, Japan, South Africa, and Switzerland—this has resulted
from the creation of research and academic networks.31 Nevertheless, the Fidonet, which is
based on a simple protocol, has provided even the poorest countries
with a networking tool to store messages and check for transmission
errors. Furthermore, the Fidonet enables users to evade the local
TO by allowing messages to be polled from a site outside of the
country.
As mentioned in the "Regional Studies" section above, often a
country will act as a local leader within a region, such as
Singapore in Southeast Asia, Costa Rica in Central America, or
South Africa in southern Africa. As demand and experience increase,
the connections may evolve from Fidonet to UUCP to IP.32
Obstacles to the International
Internet
Despite the clear intention of the industrialized world to
foster the building of national backbones, and the gradual
diffusion of connectivity in many developing countries, the
traditional TO structure, as well as the resulting legal and
commercial models this structure fosters, remains a serious
obstacle to a truly international Internet. Although technical
difficulties can be overcome with resources from institutions such
as the World Bank, NGOs, and governments themselves, the
traditional mindset of control over the communications
infrastructure and services is more difficult to displace. As
discussed in the "Background" section of this paper,
Page 199
governments have long justified their ownership of the
telecommunications operator on the basis of national security
reasons and also derive significant political and revenue benefits
from this ownership. Although this structure has been seriously
undermined in the United States, the European Union, and parts of
Asia, it remains strong elsewhere.
Conclusion
Ideally, an international network like the Internet should
provide a protocol that is easily adapted to a wide variety of
infrastructure development stages, and offer services that can be
tailored to respect the cultural, legal, and regulatory norms of
every country. However, the model that the Internet has provided
demonstrates that an international network will, by definition,
still act to undermine many traditional structures that have
evolved around the old TO system. Rather than seeking to impose old
standards of behavior and control on the Internet, governments can
best encourage the development of national information
infrastructures by eliminating the inherent conflicts that exist
between the new services and the domestic organization of
telecommunications. This means introducing competition into all
levels of service and allowing the market to drive pricing and
standards.
Notes
1. This discussion in drawn specifically
from a lecture by Professor Aaron Tornell of Harvard University, 1
March 1994, and more generally from his course, "Privatization"
(Economics 1470, Spring 1994). I am grateful to Professor Tornell
for providing the methodological framework for analyzing the
structure of an SOE.
2. Dutch, Raymond M. 1991. Privatizing
the Economy, Telecommunications Policy in Comparative
Perspective. University of Michigan Press, Ann Arbor, Mich., p.
141.
3. Dutch, Raymond M. 1991. Privatizing
the Economy, Telecommunications Policy in Comparative
Perspective. University of Michigan Press, Ann Arbor, Mich.,
pp. 144–145.
4. OECD Observer, February 1995;
and Goodman, S.E., L.I. Press, S.R. Ruth, and A.M. Rutkowski. 1994.
"The Global Diffusion of the Internet," Communications of the
ACM, Vol. 8, August, p. 27.
5. Watson, Russell, John Barry,
Christopher Dickey, and Tim Padgett. 1995. "When Words Are the Best
Weapon," Newsweek, February 27, p. 36.
6. Lever, Rob. 1995. "Battle Lines Drawn
in Debate on Smut in Cyberspace," Agence France Presse,
March 29.
7. Isa, Margaret. 1994. "MIT, European Lab
to Work on World Computer Network," Boston Globe, July 8, p.
62.
8. Neuffer, Elizabeth. 1995. "Europe's
Tiny Cyberpower," Boston Globe, March 27, p. 1.
9. Dixit, Kunda. 1944. "Communication:
Traffic Jams on Superhighway," Inter Press Service, August
8.
10. Liden, Jon. 1995. "Internet: Asia's
Latest Boom Industry," International Herald Tribune, March
8.
11. Richardson, Michael. 1995. "Singapore
to Police Information Superhighway," International Herald
Tribune, March 9.
12. Ramsay, Laura. 1995. "China Sees Great
Leap Forward in Telecommunications Ability," Financial Post,
April 1, p. 30.
13. Yu'an, Zhang. 1994. "China: Country
Embracing Information Revolution," China Daily, October
7.
14. Murray, Geoffrey. 1995. "China Sets
Priorities for Massive Telecom Investment," Japan Economic
Newswire, March 31.
15. Wei, Li. 1994. "China: Company's
Creation Marks 1st Step Towards Network," Shanghai Star,
October 18.
16. Chandra, Rajiv. 1994.
"China-Communications: Dial 'S' for Secrecy," Inter Press
Service, November 28.
17. Murray, Geoffrey. 1995. "China Sets
Priorities for Massive Telecom Investment," Japan Economic
Newswire, March 31.
18. Neuffer, Elizabeth. 1995. "Europe's
Tiny Cyberpower," Boston Globe, March 27, p. 1.
19. Monthly Report on Europe. 1995.
"European Union: On-line Data Service to Shed Some Light on the
EU," Vol. 127, March 23.
Page 200
20. RAPID. 1995. "Opening Address
by Jacques Santer at the G7 Conference on the Information Society,"
February 24.
21. Neuffer, Elizabeth. 1995. "Europe's
Tiny Cyberpower," Boston Globe, March 27, p. 1.
22. Brasier, Mary. 1994. "European
Business: Race for Knowledge on Super-highway," The Daily
Telegraph, July 25.
23. Tate, Paul. 1995. "Putting Their Heads
Together—Europe's Top Execs Take on Info Highway Challenge,"
Information Week, April 11, p. 26.
24. African Economic Digest. 1995.
"Africa and the Information Superhighway," January 30.
25. African Economic Digest. 1995.
"Africa and the Information Superhighway," January 30.
26. Lamonica, Martin. 1995. "Latin
American Telecom Remains in State of Flux," Network World,
March 13, p. 37.
27. Goodman, S.E., L.I. Press, S.R. Ruth,
and A.M. Rutkowski. 1994. "The Global Diffusion of the Internet,"
Communications of the ACM, Vol. 8 (August), p. 27.
28. Computing. 1995. "EDI-Market
Growth," January 26.
29. Holderness, Mike. 1995. "Networks:
When Two Cultures Collide," The Guardian, February 2, p.
4.
30. Holderness, Mike. 1995. "Networks:
When Two Cultures Collide," The Guardian, February 2, p.
4.
31. Goodman, S.E., L.I. Press, S.R. Ruth,
and A.M. Rutkowski. 1994. "The Global Diffusion of the Internet,"
Communications of the ACM, Vol. 8 (August), p. 27.
32. Goodman, S.E., L.I. Press, S.R. Ruth,
and A.M. Rutkowski. 1994. "The Global Diffusion of the Internet,"
Communications of the ACM, Vol. 8 (August), p. 27.
