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Page 434
52
The Future NII/GII: Views of Interexchange Carriers
Robert S. Powers, MCI Telecommunications
Inc.
Tim Clifford, SPRINT, Government Systems Division
James M. Smith, Competitive Telecommunications Association
Summary
We are not starting a new national information
infrastructure/global information infrastructure (NII/GII) from a
blank page; we are building on an information infrastructure,
corporate structures, regulatory practices, billing practices,
services, and public expectations that already exist. So the
challenge is not so much "what is the ideal world that we would
write down on a blank page?" but rather "how do we get there,
starting with today's realities?" This paper presents views of the
interexchange carrier community, as to the future NII/GII
potentials, the stones we must step on to cross that tricky creek
from "now'' to "then," and the stones we could trip on and end up
all wet. Our principal emphasis is on how to achieve fair and
effective competition, utilizing the regulatory process as
necessary to help us get from "now" to "then," and assuring fair
access to networks and services, for all
Americans—individuals, businesses, governments, educational
institutions, and other entities.
Introductory Assumptions
This paper begins with some postulates upon which we think we
can all agree and then discusses where those postulates lead us,
and how we can actually accomplish the things that our assumptions
imply.
Postulate 1: There already exists a "national/global
information infrastructure." It has existed, in some degree, since
telegraphy became widely implemented. But now we're facing enormous
enhancements: The focus in the past has been largely on the
"communications" aspects of an NII/GII—getting voice or data
(information) from one place to another. The future NII/GII will
broaden to include vast improvements in creation, storage,
searching, and access to information, independent of its location.
To achieve these improvements will require sophisticated
customer-premises equipment and skilled users. The government may
find it appropriate to assist in developing user skills and
providing customers' equipment; but the associated costs must not
be imposed on the telecommunications industry.
Postulate 2: It is economically feasible, in many
instances, for there to be competition in the form of competing
local telecommunications facilities, as well as services. But there
will surely be some locations in which there is only one local
facilities-provider. Furthermore, even if there are multiple local
facilities, there may be only one active facility connection
to a given home or office. In that case, will the multiple
competing providers of services of all kinds have open and fairly
priced access to that same end-link, so that any service provider
can have fair access to customers? Our postulate: Such
bidirectional open access can be achieved by facilities providers'
unbundling their services and providing them for resale on a fair
basis; and effective competition can bring about those results. But
it will be a gradual transition process from regulation of
|
| Front Matter (R1-R14) |
| The National Information Infrastructure and the Earth Sciences: Possibilities and Challenges (1-9) |
| Government Services Information Infrastructure Management (10-17) |
| Cutting the Gordian Knot: Providing the American Public with Advanced Universal Access in a Fully Competitive Marketplace at the Lowest Possible Cost (18-25) |
| The Role of Cable Television in the NII (26-30) |
| Competing Definitions of 'Openness' on the GII (31-37) |
| Communications for People on the Move: A Look into the Future (38-43) |
| Building the NII: Will the Shareholders Come? (And if They Don't, Will Anyone Really Care?) (44-56) |
| The Electronic Universe: Network Delivery of Data, Science, and Discovery (57-66) |
| An SDTV Decoder with HDTV Capability: An All-Format ATV Decoder (67-75) |
| NII and Intelligent Transport Systems (76-84) |
| Post-NSFNET Statistics Collection (85-96) |
| NII Road Map: Residential Broadband (97-100) |
| The NII in the Home: A Consumer Service (101-109) |
| Internetwork Infrastructure Requirements for Virtual Environments (110-122) |
| Electric Utilities and the NII: Issues and Opportunities (123-132) |
| Interoperation, Open Interfaces, and Protocol Architecture (133-144) |
| Service Provider Interoperability and the National Information Infrastructure (145-155) |
| Funding the National Information Infrastructure: Advertising, Subscription, and Usage Charges (156-164) |
| The NII in the Home (165-167) |
| The Evolution of the Analog Set-Top Terminal to a Digital Interactive Home Communications Terminal (168-177) |
| Spread ALOHA Wireless Multiple Access: The Low-Cost Way for Ubiquitous, Tetherless Access to the Information Infrastructure (178-184) |
| Plans for Ubiquitous Broadband Access to the National Information Infrastructure in the Ameritech Region (185-189) |
| How Do Traditional Legal, Commercial, Social, and Political Structures, When Confronted with a New Service, React and Interact? (190-200) |
| The Internet, the World Wide Web, and Open Information Services: How to Build the Global Information Infrastructure (201-204) |
| Organizing the Issues (205-208) |
| The Argument for Universal Access to the Health Care Information Infrastructure: The Particular Needs of Rural Areas, the Poor, and the Underserved (209-216) |
| Toward a National Data Network: Architectural Issues and the Role of Government (217-227) |
| Statement on National Information Infrastucture Issues (228-232) |
| Proposal for an Evaluation of Health Care Applications on the NII (233-236) |
| The Internet - A Model: Thoughts on the Five Year Outlook (237-240) |
| The Economics of Layered Networks (241-247) |
| The Fiber-Optic Challenge of Information Infrastructure (248-255) |
| Cable Television Technology Deployment (256-270) |
| Privacy, Access and Equity, Democracy, and Networked Interactive Media (271-279) |
| As We May Work: An Approach Toward Collaboration on the NII (280-285) |
| The Use of the Social Security Number as the Basis for a National Citizen Identifier (286-291) |
| Estimating the Costs of Telecommunications Regulation (292-303) |
| Residential PC Access: Issues with Bandwidth Availability (304-314) |
| The National Information Infrastructure: A High Performance Computing and Communications Perspective (315-334) |
| Nomadic Computing and Communications (335-341) |
| NII 2000: The Wireless Perspective (342-350) |
| Small Manufacturing Enterprises and the National Information Infrastructure (351-363) |
| Architecture for an Emergency Lane on the NII: Crisis Information Management (364-373) |
| Aspects of Integrity in the NII (374-377) |
| What the NII Could Be: A User Perspective (378-387) |
| Role of the PC in Emerging Information Infrastructures (388-396) |
| NII Evolution - Technology Deployment Plans, Challenges, and Opportunities: AT&T Perspective (397-404) |
| Enabling Petabyte Computing (405-411) |
| Private Investment and Federal National Information Infrastructure Policy (412-415) |
| Thoughts on Security and the NII (416-421) |
| Trends in Deployments of New Telecommunications Services by Local Exchange Carriers in Support of an Advanced National Information Infrastructure (422-433) |
| The Future NII/GII: Views of Interexchange Carriers (434-446) |
| Technology in the Local Network (447-461) |
| Recognizing What the NII Is, What It Needs, and How to Get It (462-468) |
| Electronic Integrated Product Development as Enabled by a Global Information Environment: A Requirement for Success in the Twenty-first Century (469-478) |
| Interoperability, Standards, and Security: Will the NII Be Based on Market Principles? (479-491) |
| Technology and Cost Models for Connecting K-12 Schools to the National Information Infrastructure (492-510) |
| Geodata Interoperability: A Key NII Requirement (511-520) |
| Electronic Commerce (521-537) |
| Prospects and Prerequisites for Local Telecommunications Competition: Public Policy Issues for the NII (538-545) |
| The Awakening 3.0: PCs, TSBs, or DTMF-TV - Which Is Right for the Next Generation's Public Network? (546-552) |
| Effective Information Transfer for Health Care: Quality versus Quantity (553-559) |
| Integrating Technology with Practice: A Technology-enhanced, Field-based Teacher Preparation Program (560-575) |
| RegNet: An NPR Regulatory Reform Initiative Toward NII/GII Collaboratories (576-604) |
| Electronic Document Interchange and Distribution Based on the Portable Document Format, an Open Interchange Format (605-617) |
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Page 434
52
The Future NII/GII: Views of Interexchange Carriers
Robert S. Powers, MCI Telecommunications
Inc.
Tim Clifford, SPRINT, Government Systems Division
James M. Smith, Competitive Telecommunications Association
Summary
We are not starting a new national information
infrastructure/global information infrastructure (NII/GII) from a
blank page; we are building on an information infrastructure,
corporate structures, regulatory practices, billing practices,
services, and public expectations that already exist. So the
challenge is not so much "what is the ideal world that we would
write down on a blank page?" but rather "how do we get there,
starting with today's realities?" This paper presents views of the
interexchange carrier community, as to the future NII/GII
potentials, the stones we must step on to cross that tricky creek
from "now'' to "then," and the stones we could trip on and end up
all wet. Our principal emphasis is on how to achieve fair and
effective competition, utilizing the regulatory process as
necessary to help us get from "now" to "then," and assuring fair
access to networks and services, for all
Americans—individuals, businesses, governments, educational
institutions, and other entities.
Introductory Assumptions
This paper begins with some postulates upon which we think we
can all agree and then discusses where those postulates lead us,
and how we can actually accomplish the things that our assumptions
imply.
Postulate 1: There already exists a "national/global
information infrastructure." It has existed, in some degree, since
telegraphy became widely implemented. But now we're facing enormous
enhancements: The focus in the past has been largely on the
"communications" aspects of an NII/GII—getting voice or data
(information) from one place to another. The future NII/GII will
broaden to include vast improvements in creation, storage,
searching, and access to information, independent of its location.
To achieve these improvements will require sophisticated
customer-premises equipment and skilled users. The government may
find it appropriate to assist in developing user skills and
providing customers' equipment; but the associated costs must not
be imposed on the telecommunications industry.
Postulate 2: It is economically feasible, in many
instances, for there to be competition in the form of competing
local telecommunications facilities, as well as services. But there
will surely be some locations in which there is only one local
facilities-provider. Furthermore, even if there are multiple local
facilities, there may be only one active facility connection
to a given home or office. In that case, will the multiple
competing providers of services of all kinds have open and fairly
priced access to that same end-link, so that any service provider
can have fair access to customers? Our postulate: Such
bidirectional open access can be achieved by facilities providers'
unbundling their services and providing them for resale on a fair
basis; and effective competition can bring about those results. But
it will be a gradual transition process from regulation of
NOTE: Since the drafting of this paper, Mr.
Clifford has moved to DynCorp, Advanced Technology Services, as
vice president for engineering and technology.
OCR for page 435
Page 435
monopolies to effective market competition, varying in speed of
accomplishment in different locations. The associated gradual
relaxation of regulation must be done carefully, in such a way that
monopolies are freed from regulation in proportion to the reality
of effective competition.
Postulate 3: A fundamental difference between the
information superhighway and certain other widely used facilities
such as the interstate highway system is in the mechanism for
paying for their use. If you pay for something out of the public
purse, and give it away for free or for a flat-rate charge, you
create the potential for enormous waste of that resource if
excessive use of that resource is of some benefit to the users. In
the case of asphalt highways, that turns out not to be much of a
problem: a person can "waste" the resource only by spending time
driving on the roads. But in the case of the NII, one could send
megabyte files to thousands of folks who don't want them, just by
pressing an <ENTER> key, if the service were free. So
Postulate 3 says that although there will be specific instances of
flat-rate billing for services, usage-based billing will be widely
used, to limit wasteful use of the resources and to correlate costs
with benefits.
Postulate 4: As often stated by federal representatives,
the NII/GII will be built by private-sector investments, not by
governments. That clearly does not exclude governments from
building facilities for their own use when specific needs cannot be
met by private-sector providers, or from exercising their
regulatory power to assure fair competition and to achieve other
public interest goals, or from having their purchasing power
influence the direction and speed of development and
implementation. The purchasing power of the top 10 to 15 federal
agencies is comparable to that of the Fortune 500 companies, so
that power can surely influence the marketplace. But governments
won't build the basic infrastructure.
Postulate 5: There are, however, public-interest goals
that governments must participate in achieving. Aside from relaxing
current laws and regulations that prevent competition in networks
and services, we postulate that a major governmental role will be
in assuring implementation of what we prefer to think of as the
"successor to universal service." The successor to universal
service could take either of two quite different forms, or some
combination of the two. It could mean simply equitable access,
meaning that the NII should be sufficiently ubiquitous that anyone
can have access to the network at equitable rates and at some
accessible location. Or it could be an advanced universal service,
which would enable qualified persons or entities to use selected
services available via the NII. In either case, any subsidy
should be targeted to the needs of end users, not to specific
providers. All providers must be able to compete for the end user
with equal access to the subsidy funds or vouchers.
In whatever combination evolves, the mechanisms for funding and
distributing the subsidy pool will be different from today's
mechanisms, with multiple network and service providers being
involved instead of today's situation with monopoly providers of
networks and services. The mechanisms for creating any subsidy
pools that may be required must be fair and equitable to all of the
contributors to those pools. Contributors could be network and
service providers, but could also be governments, using income from
some form of taxes. Clearly, some level of regulation will be
required during the transition from today's "universal service" to
tomorrow's version of that concept.
Postulate 6: The anticipated vast increase in use of the
GII for personal and business purposes offers potential for
enormous compromises of security (of both personal and business
confidential information), personal privacy, and protection of
intellectual property, unless preventive measures are implemented.
And since people don't want their privacy invaded and businesses
simply cannot afford to have their proprietary information exposed
to others, people and businesses will adopt encryption and/or other
mechanisms to prevent such intrusions and exposures. Government and
law enforcement agencies must recognize that reality and must not
unduly restrict the use and worldwide trade of encryption
technologies.
The Vision: What is the NII/GII?
We begin with a high-level description of what we are expecting
will evolve and then discuss what must be done to get there. One of
the most concise definitions of an NII/GII is found in the 1994
report Putting the Information Infrastructure to Work, from
the National Institute of Standards and Technology, "the facilities
and services that enable efficient creation and diffusion of useful
information."
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The concept of NII/GII obviously encompasses a "network of
networks," including telephone networks, cable TV nets; the
Internet; satellites; and wireless-access networks, domestic and
foreign. We also suggest that the broad concept of NII/GII includes
not just these basic networks, but also the end equipment, the
information resources, and the human beings that interact with the
equipment, networks, services, and resources.
The GII should and, we believe, will provide at least the
following high-level functions:
•
Person-to-person "virtual
proximity"—that is, the ability of individuals to
communicate with each other independent of location.
•
Access to both one-way and two-way
communication channels, narrowband or broadband as required, on
demand.
•
Multiple mechanisms for such access, depending
on location. In high-density areas there will be nonradiating
channels (glass or metallic) as well as wireless access to allow
for personal mobility. Lower-density locations will gravitate more
to wireless access, since wireless will be less costly than wires
or fibers in those low-density areas. And the areas of very low
density will have access to both low- and high-capacity services by
means of satellites. (That's not to imply that satellites will be
used only in low-density areas.)
•
New mechanisms for protecting the privacy of
individuals and the security of financial and other
transactions. These mechanisms will surely include encryption,
and also new mechanisms for transmitting or obtaining information
anonymously.
•
Highly reliable physical and logical
networks. Network providers are already implementing
circular-path networks, rapid restoration capabilities, and even
arrangements to use networks of their competitors for enhanced
reliability. The marketplace demands such actions, when the entire
operation of more and more business depends on the availability of
real-time communication among themselves, with suppliers, and with
customers.
•
Access to vast amounts of information, with the
ability to search those treasure troves for specific
information, enabling new services such as automotive
navigation, location of the nearest gas station, and many others.
That information access, and associated services, will further
support fundamental societal changes such as telecommuting,
telemedicine, enhanced education opportunities, and others. Indeed,
the success of a GII might well be measured by the proliferation of
new services and their effects on society. Today's "carriers" have
opportunities to provide easy access to such services, if not the
services themselves.
•
Global interoperability. It is not yet
true, and probably never will be, that precisely the same
equipment, radio spectrum, and operational protocols are used in
every location around the globe. But it is true—and the
pressures to make it true are constantly increasing—that
gateway mechanisms to achieve transparency from the user's point of
view are being and will be implemented, both domestically and
globally. We do note, however, that technical feasibility is not
the only barrier to be overcome: business arrangements among
competitors, to achieve compatibility, are not always easy to
achieve. But such arrangements are in the long-term interests of
those competitors, and we believe they are achievable.
•
Billing mechanisms that reflect the cost of
providing both the network services and the information services to
which the users have access. Especially when the cost of
usage-based billing is for some reason significant when compared
with the cost of the actual service, flat-rate billing mechanisms
or even free services may be provided. Asphalt highways provide an
example here: the cost—and the nuisance factor—of billing
for every entry and exit and every ton-mile of use of roads is so
great that we've found other ways to pay for the facilities, in
such a way that does not invite excessive waste of those
facilities.
•
New mechanisms for protection of intellectual
property rights, and new assumptions as to what those rights
actually are. This is one of the most difficult characteristics
to achieve, since once information is transferred electronically,
it is virtually impossible to prevent the recipient from passing it
along to others. It's cheaper to buy a second copy of a
conventional book than to produce a hard copy of it, so the author
gets paid twice, by the two purchasers. But if each of us can send
the electronic book to dozens of friends just by pushing an
<ENTER> key, then how can an author be assured of being
compensated in proportion to the distribution of his or her
writing? And even if we postulate such a far-out suggestion as to
say that the network could or should detect the transmission of
copyrighted material, how could the network do that if the
transmission were encrypted? We suspect that (1) hard-copy books
will continue to be in demand, for the foreseeable future, but that
(2) the
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basic concept of protection of intellectual
property, when that property is available electronically, will
evolve in an unpredictable fashion over time, and that (3)
protection mechanisms will more and more be confined to commercial
use of intellectual property, rather than simply forbidding the
copying of such information.
The Role of Interexchange
Carriers
Today's Role
Today, the basic role of interexchange carriers (IXCs) is
carriage of narrowband and wideband transmissions over "large"
distances, where the difference between "large" and "small"
distance is defined by regulators and lawmakers, and the term
"large distances'' certainly includes global delivery.
In addition to simply providing those services and dramatically
lowering their costs to users as a result of competition, IXCs have
been instrumental in the development and implementation of new
telecommunication technologies and services. These include
implementation of digital transmission techniques, single-mode
optical fiber, synchronous digital techniques, and "intelligent
network" services such as "800" service, which not only provides
for the called party to pay, but also allows for such flexible
services as time-of-day routing and routing on the basis of the
location of the caller. The Internet backbone is, of course, an
example of a major IXC role. This is not simply to brag about past
achievements, but to point out that IXCs have competed in the past
and will continue to compete in the future with each other and with
other telecommunications entities. In that process, they will push
development and implementation of new technologies and services as
hard and as fast as they can.
Tomorrow's Roles
In tomorrow's GII, the terms "long-distance carrier" (LEC) and
"interexchange carrier" will become less used. Yes, there will be
companies that concentrate more on building and selling local
services, and companies that concentrate more on transcontinental
and global networks. And both of those types of companies will
provide at least some of their services using network capacities
leased from the other types of companies. But the customer/user
will hardly care about the details of what network is used; the
user will care about the nature, availability, reliability, and
price of the services provided.
As the conventional boundaries between local and long distance
companies eventually disappear in the eyes of consumers, it will
become the strategy of many retail providers to offer end-to-end
services that ignore this traditional distinction. The critical
element is the introduction of "wholesale" local exchange services
that long distance companies can resell as part of their end-to-end
packages. Wholesale long distance products are already available
for local telephone companies to resell in combination with their
local services to provide end-to-end service (to the extent that
such resale is not currently restricted by the Modified Final
Judgement). With a limited number of local networks expected to
develop, it is especially important that a comparable wholesale
local service be introduced to foster competitive diversity.
But that's the long view. How do we get there from here? How do
today's IXCs play in that game? Here are our basic views:
•
There is room for a large number of specialized
IXCs in this country obviously—hundreds exist now. Only a
limited number do now and will in the future provide nationwide
facilities-based networks and services; a vastly larger number can
and will provide various services using those facilities.
•
Current IXCs will dramatically increase their
emphasis on end-to-end services, intelligent-network services,
information services, transaction processing services, and global
coverage. They will also take on the role as "hosts" to various
information services that they do not actually create, but do
deliver to end users.
•
As IXCs increase their emphasis on global
end-to-end services, they will require more and more wideband
capabilities in the "last-mile" links, to match the high capacities
they already have in their long-distance networks but that are now
generally missing in those last-mile links. The demand for data and
video services—
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often requiring higher bit-rates than
voice—is growing rapidly and is expected to continue to do so.
It is critical that the most efficient providers of these services
be the ones that survive in the marketplace. To achieve this goal,
it is important to prevent cross-subsidy of these services by LEC's
still-monopoly local voice services.
•
As the emphasis changes from simply distance to
access to information, today's IXCs will surely move to providing
more and more information-related services, rather than just
transport. That does not imply that present IXCs will put libraries
and catalog marketers out of business. But IXCs are in an ideal
position to assist users in gaining access to information services
independent of location of those services. Already, we see
competing provision of nationwide telephone-number information
services, for example. Why would it be a surprise to see today's
IXCs beginning to offer information-based services as helping
people find information that they want in government databases? Or
helping medical practitioners to locate other medical practitioners
that may know something they suddenly need to know about an obscure
disease? Or assisting schools and universities in finding just the
right other school or classroom in which the same problems, issues,
or history lessons are being addressed?
•
And as more and more business is conducted by
means of electronic cash of various forms—credit cards, debit
cards, "smart cards" with built-in computing power—who would
be surprised to see today's IXCs providing secure, private,
reliable, and real-time transaction information? For example, an
IXC could provide the validation of the gas station customer's
smart card; assure the customer that the gas station's card
acceptance device is telling the truth about how much money is
getting withdrawn from the customer's bank; and transmit the
resulting information from the gas station to the gas station's
bank, the customer's bank, and any intermediate parties that have
any fiduciary responsibility. The carrier might even offer some
functionality in terms of real-time execution of monetary exchange
rates, even though the banks have the final fiduciary
responsibility.
Architecture
A discussion of architecture is of course closely linked to the
above discussion of the future role of today's IXCs. They will
clearly have a key role in developing and employing tomorrow's
network architecture; however, it may differ from today's.
Network Intelligence
The requirements of such services as "find me anywhere,
anytime," sophisticated and flexible billing services, call routing
dependent on time or day, store and forward, messaging, and others
that we have yet to imagine will clearly require more and more
sophisticated network intelligence and functionality. IXCs have
already made great progress in these areas in the last decade or
so; but the demands of video/multimedia services and increasing
demands for flexibility and value-added features will require
considerable expansion of "intelligent network" functionality.
There is no doubt that such functionality will be implemented. And
when it is implemented in any bottleneck portion of the network,
all providers must have access to that monopoly functionality.
Long-Distance Transport
The architecture for tomorrow's long distance transport will not
be all that different from today's, from a functional point of
view. Clearly it will have even more capacity than today's already
high-capacity two-way high-quality digital networks. Network
protection and restoration capabilities will be enhanced. Newer
multiplexing technologies such as SONET, and packet technologies
such as frame relay and ATM, will be employed to provide ever
faster and easier ways to insert and pick off individual
transmissions from high-bit-rate bulk transmissions and to increase
reliability and lower costs for certain services. And mechanisms to
protect the privacy and security of users' information will surely
be widely incorporated into the networks.
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Some have asked whether the interexchange networks will have the
transmission capacity that will be needed, if data traffic
continues to grow at an exponential rate. Data traffic could, it is
said, be equal to the volume of today's voice traffic in a few
years, requiring a doubling of total network capacity. It is our
view that capacity simply is not a problem in the long-distance
networks, although it clearly is a problem in the "last mile."
Long-distance networks are already almost entirely optical fiber.
The capacity of a given pair of those fibers has been doubling
roughly every three years since 1983, based only on changes in
electronic and photonic equipment attached to the fiber, not
changes in the buried fiber itself. The bit-rates that can be
shipped through a given fiber, using a given optical wavelength,
have increased as follows, with an even bigger leap expected in
1996:
Year
Rate (megabits per second)
1983
405
1986
810
1988
1,800
1993
2,400
1996
9,600 (expected)
2000
40,000 (expected)
Further, wave division multiplexing (WDM) is becoming practical,
so that a given fiber can carry two or eventually even four or more
signals, each transporting the 9,600 (or more) megabits per second.
So as early as 1996 or 1997, using four-window WDM, it could be
feasible for a given fiber pair to carry 38,400 megabits per
second, compared to the 405 megabits per second available as
recently as 1983. In terms of the conventional
64-kilobit-per-second circuits, the ratios are not quite the same
because of overheads and other technical factors, but the result is
just as impressive: a fiber pair in 1996 or 1997 could be carrying
616,096 circuits, compared with 6,048 circuits that that same glass
could carry in 1983—an increase by a factor of almost 102!
Capacity is simply not a problem, in the long-distance network, for
the foreseeable future.
Last-mile Connections
Clearly, today's IXCs are moving toward providing end-to-end
services. The reasons for this include the desire of many
customers—large and small—to deal with a single service
provider, and the need for uniform protocols and services, end to
end. The move to end-to-end services is also driven by the interest
of both IXCs and their customers in cutting the costs of the
last-mile links, which are now such a large portion of the costs of
providing long-distance telecommunications and are priced
significantly higher than actual costs. IXCs pay access charges to
LECs, on a per-minute-of-use basis, for calls delivered or
originated by the LECs. Those access charges amount to
approximately 45 percent of the gross revenues of IXCs. Various
estimates made by LECs indicate that the actual cost of local
access is about a penny a minute or less. But the access charge for
interexchange carriers is three (or more) cents per minute at each
end of the link. Competition will help eliminate these excess
non-cost-based access charges now imposed on IXCs and, finally, on
end users.
There are two potential mechanisms for cutting those last-mile
costs—and they are not mutually exclusive. One is for
regulators to require that the access charges be cost based. The
second is the introduction of effective competition in the local
networks, which cannot develop if the new entrants are forced to
pay a non-cost-based access charge to keep the existing monopolist
whole. It should also be noted that there is potentially a
structural barrier that could dilute the effectiveness of access
competition: Obviously, the "access business" of the interexchange
carrier must go to whichever network the customer has selected to
provide its "last-mile" connection. An IXC's leverage to bargain
for lower access prices would be limited by the IXC's ability to
influence the subscriber's choice of local network provider.
Therefore, until and unless either regulation or effective local
competition causes the local network providers to offer open
interconnection to all interexchange service providers, on
efficient and competitively priced local networks, there could
still be limitations to the ability of every service provider to
reach every end user, with fair access costs. Because we expect
that these local network providers will also be offering their own
line of retail local and long-distance services, it is not clear
that these network owners will have a great deal of interest in
reducing their rivals' costs. Until such time as true
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competition removes such barriers, regulation will be needed to
assure that access to the end user by unaffiliated retail providers
is fully available and priced fairly. One possible regulatory
approach is to require that new entrants provide equal access to
last-mile links, with rates capped at the rates of the incumbent
provider.
We further note that simply the introduction of competition in
local networks will not be fully effective in bringing down the
last-mile costs if existing LECs maintain a dominant position in
service provision and are allowed to continue charging
non-cost-based rates for carrying services that originate or
terminate on competitors' networks. And even if the new entrants
build networks that are significantly more efficient and less
costly than existing LECs' networks, those reduced costs cannot be
fully passed through to end users if the LEC networks remain
inefficient and those inefficiency costs are passed through to
those new-entrant networks when the dominant LECs provide the
last-mile carriage. Existing LECS will have minimal motivation to
become more efficient and lower their actual carriage costs as long
as they hold the dominant market share so that they can charge
their smaller competitors the LECs' full last-mile costs.
Some argue that the access charge income, over and above actual
cost, is used to support "universal service." However, studies
indicate that the excess access charges—over and above actual
cost—are far greater than what is needed to support universal
service. A study by Monson and Rohlfs
1 concludes that IXCs and other ratepayers are charged about
$20 billion per year over and above the actual costs of providing
the access services needed. And a study by Hatfield Associates 2 estimates that the actual subsidy
that LECs need to support universal service is $3.9 billion. The
excess income goes to support LEC network inefficiencies, domestic
and foreign investments by LECs, and other LEC activities in which
neither IXCs nor the public at large have interests.
Our bottom line suggestion here is that competition in the local
communications market—which will include not only today's LECs
and IXCs but also today's cable TV companies and perhaps local
utility companies that have access to rights-of-way—could go
even further toward providing low-cost access than does the current
subsidy by means of access fees. But to achieve that goal will
require some mechanisms for motivating existing dominant LECs to
improve their network efficiencies and lower their costs and
therefore their access charges.
Numbering Plans
Numbering plans will clearly change dramatically in the future,
as individuals demand multiple numbers for their own individual use
and as the population grows. Already, the use of 10-digit numbers
is required for more and more local calls, as both overlays and
geographic splits are implemented because of exhaustion of numbers
in a given area code. The demand for nongeographic
"find-me-anywhere" numbers, and for separate numbers for home
phones, wireless phones, office phones, fax machines, and other
special services, will surely make our grandkids gawk when we tell
them we used to be able to make phone calls with only 7 digits!
(Some of us remember using only 4 or 5 digits, but never
mind.…)
New Services
Enhanced "Phone Calls"
Personal Numbers
There's debate about whether everyone will want a "personal
number for life," so that the same number will ring her or his
phone as long as she or he is around. For example, there's some
benefit in a West Coaster knowing that 703 is in Virginia, and it
might not be polite to ring that number at 10:00 PM Pacific Time. A
geo-independent number would not give the caller such a hint. But
clearly there's a market for such geographically independent and
permanent numbers. The IXCs, responding to their competitive market
environment, have put in place intelligent network capabilities
nationwide and therefore are likely to be in the forefront of
making such a service practical.
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"Find-Me-Anywhere" Service
"Find-me-anywhere" service may or may not be tied to the
"number-for-life" idea. The number for life may or may not be set
up to follow the called party wherever s/he tells it to, on a
real-time basis. But clearly such a tie could be executed and would
be popular. For the same reasons as above, today's IXCs are in a
fine position to pioneer such service, as they are now doing.
Messaging Services
We already have messaging services, in the form of remotely
reachable answering machines as well as services that can be
provided by both local and long-distance carriers. As more and more
people use the personal number and find-me-anywhere services, there
will be more and more need to cut off such access when people go to
bed at night, say, six time zones away from where their callers
expect them to be. So we expect messaging services to grow rapidly
in popularity, for this as well as other obvious reasons of
convenience and reachability. There will be services offering
messages of limited length (short-message services) as well as the
ability to leave longer messages.
Multimedia Services
Aside from whatever multimedia services today's IXCs themselves
provide, it is likely that one of their future roles will be in
providing transparent interfaces between other service suppliers
and end users, when the users and the service suppliers use
different equipment or protocols for storage or transport. Also,
IXCs will provide billing and security services associated with
multimedia services for which they themselves are not the
originating providers.
Digital Services
Do users care whether the connection network they are using is
analog or digital, voice or "data"? No, they just want to talk, or
have their screen filled with pictures or thought-provoking words
or good graphic diagrams. It is the network providers and spectrum
managers and equipment builders and capacity-theorists like Claude
Shannon that notice and care about the differences. But in
practice, there are clearly lots of differences, in terms of
efficient use of network and spectrum capacities, flexible
services, accuracy of data to be passed from one place to another,
and ability to protect privacy. And since the entire IXC network is
going digital anyway, for technical and cost and quality reasons,
whether the transmission is voice or data, the result has huge
benefits in terms of cost, speed, and reliability of the data
transmissions that will be so important in tomorrow's global
economy and lifestyle.
In this case, one could argue that there is no special role for
IXCs compared to local providers, since we are all going digital in
the end and will therefore eventually be able to provide the needed
speed and reliability. But from the practical point of view there
is indeed a major role for today's IXCs, and that is back to the
point of providing competition and therefore much faster progress
in building the digital high-bit-rate, last-mile networks that will
be so important to customers who need the features that can be
provided with broadband two-way digital networks.
Financial and Other Transaction
Processing
The United States led the world in implementation of credit
cards and debit cards, to replace paper cash and checks in many
financial transactions. But now, Europe is clearly ahead of the
United States in its implementation of smart-card technology and
services, to take advantage of the enormous capability and
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flexibility of cards with computer chips built in. We are not at
all out of the running—we do know about computer chips, and
there is growing interest here. But at the moment European entities
are in the lead in the implementation of smart-card technologies.
IXCs will surely not be the only players in this game; but they do
have an enormous opportunity to incorporate smart-card technology
into many of their service offerings, and thereby bring the United
States back into a leadership role in this new technology and
service platform.
New Billing Mechanisms
Billing, as has been hinted at above, will be an interesting
issue in the future GII. We are rapidly learning—with the help
of smart cards and other technologies—how to reliably
establish that someone who wants to use a service is indeed the
person she or he claims to be and will pay the bill when it comes.
But we do have the fascinating challenge of learning how to bill
proportionately to either the use or the value of "bursty" digital
bit-streams. If a user is hooked up to the network for an hour and
hits the <ENTER> key only once, does she or he get billed for
1 hour? Or for sending the 100 or the 100,000 packets that resulted
from the touch of the <ENTER> key? Obviously, the provider
does not bill separately for each packet, the way it writes a
separate line on today's bill for each phone call. Is there a way
to make some kind of average or statistical count of the number of
packets or bits that flow to or from a given user and bill on that
basis? Of course there is. The question is how it will be done to
be understandable and fair to both the user and the provider, and
how it can be confirmed by either party. Again, this will not be
the role of long-distance carriers alone but will evolve on the
basis of trials by all the carriers competing in both local and
global services.
The Successor to "Universal Service":
Access to the Network
As suggested in Postulate 5, above, the current concept of
"universal service," in the sense of having essentially everyone be
reachable by phone, will surely evolve as technologies and new
markets and services evolve. There is no public interest in
everyone's having access to every single "service" that the NII/GII
will provide, any more than there is a public interest in
everyone's driving a Rolls Royce. Clearly it is in the public
interest for everyone to have at least some access to the GII, just
as it is in the public interest for all of us to have access to
streets and roads and telephones. But with the dramatic expansion
of the types of services that will arise on the GII, we must learn
to be more specific about who gets subsidized for use of what
services, and how that cross-subsidy can be managed in a
competitive structure. This seems clearly to be a case where all
the service providers, as well as consumers and the public at
large, have a deep interest in designing and executing mechanisms
to provide "equitable access" and/or "advanced universal service"
in a way that gives all of us the benefits of achieving those
societal goals, as they may eventually be defined. Today's IXCs are
as anxious as anyone to have the networks and services provided in
such a way that students, workers, and all others have access to
the GII, although there will clearly be services for which a
subsidy to users is totally inappropriate. But we do insist that
the contributions to any cross-subsidies that are required must be
managed in such a way that the purchasers of any given service or
network access are not unfairly required to subsidize some other
unrelated service or access. A cross-service subsidy system would
not only unfairly tax the users of a particular service; it could
even prevent the provision of some desirable service or prevent the
survival of a potentially valuable service or network provider.
Fraud Prevention
Fraud was not too great a problem when each subscriber was
permanently connected by hard wires to a given port on a given
switch, so that it could reliably be established what subscriber
made what phone calls. But as the cellular industry has
dramatically demonstrated, once the subscriber is no longer so
readily identified, fraud skyrockets. Now, however, based
principally on smart-card technology but also potentially making
use of other technologies such as fingerprints, voiceprints, and
other biometrics, we know very reliable ways to uniquely
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identify the person or entity utilizing the network or network
services. The big question here is not whether fraud can be
effectively prevented, but rather what balance we should settle
upon, between fraud prevention and the customer's convenience and
privacy. We—the IXCs as well as wireless and other service
providers—will have to gain some experience in order to reach
this balance. But there is no doubt that a balance appropriate to
both customers and the business world can be reached.
Regulatory Issues
In a marketplace situation truly like Adam Smith's, there would
be essentially no need for regulation of telecommunications
services. But that is not where we now sit. During the transition
from monopoly telecommunications markets to effective competition,
a new regulatory framework is needed. That framework must
simultaneously grant the incumbent LECs the flexibility to respond
to competition in an appropriate fashion and at the same
time protect consumers and potential competitors from
anticompetitive abuse of the LECs' substantial remaining monopoly
power. We must move incrementally from the monopoly-based
assumptions and regulations with which we have lived for many
decades to as close to the free-market situation as we can
practically get. The goals to be achieved include the
following:
•
A fair chance for all providers,
•
Equitable access,
•
Spectrum management,
•
Elimination of restrictions on who offers what
services, and
•
International regulations.
Why can't the marketplace settle these issues? Let us look at
them one at a time.
A Fair Chance for All Providers
After living in a local monopoly environment for many decades,
and building local infrastructure with many billions of dollars,
and establishing rights of way that are difficult and expensive to
duplicate, there is no way to simply drop all local regulation and
declare that everybody has a fair chance at the market. One of Adam
Smith's postulates to describe a "market" was that there should be
easy (equitable) entry and exit from the market. Over the long
term, that could be accomplished in local telecommunications,
especially with the opportunities provided by wireless transport.
But it cannot be done as quickly and easily as renting a building
and starting a new restaurant. So we do have a challenge here, to
provide a fair chance for all providers, at least for the
foreseeable future, under a regulatory framework that simulates
competitive marketplace conditions.
The existing local bottlenecks not only give the LECs potential
leverage in providing local services; they also provide significant
unwarranted leverage to regional Bell operating companies (RBOCs)
in provision of long-distance services, if RBOCs are permitted to
provide long-distance services before those bottlenecks are
effectively eliminated. At least in the short run, those local
bottlenecks will continue to exist. Indeed, there may be some
network functions for which competition is infeasible for the
indefinite future.
Equitable Access
Equitable access—one of the successors to "universal
service"—has been discussed above. But clearly it must be in
this list also, as it will require some form of industry and public
agreement as to what is required and how to achieve it in a manner
that is fair and equitable to all players—providers and
customers alike. That agreement could either be by "regulation," in
the usual sense of having it imposed by government, or it could be
by mutual agreement among the parties to the process. It remains to
be seen what balance of these two approaches will succeed in this
case, which is more complex than was the case with plain black
phones. A major
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challenge will be to achieve a reasonable level of access for
essentially everyone, without having to provide such a high level
of subsidy that valuable services are priced out of the market and
multiple providers cannot survive in that market.
An equally important aspect of equitable access is, of course,
access by competitors to bottleneck functionalities, whether those
bottlenecks are owned by other competitors or by entities that are
not direct competitors but that have the ability to favor some
competitors over others by means of their bottleneck
functionalities.
Spectrum Management
The management of radio spectrum is one instance in which we
believe Adam Smith would agree that there is no practical
marketplace. Mr. Smith wisely postulated that in a proper
marketplace both the buyer and the seller must be able to
understand what they are buying and selling. The radio spectrum is
just too complex to be clearly defined in a market situation. I can
buy a shirt from you, and we know who owns what. You can buy an
acre of land from me, and we can draw clear lines around it. Those
are simple two- or three-dimensional objects, which we can clearly
define. But how many dimensions does the radio spectrum have? One
dimension of frequency; three dimensions of space; one dimension of
time, which could be measured in days, weeks, hours, or
nanoseconds; one dimension of power; a few (not clear how many)
dimensions of modulation technique. We could argue all day about
how to count the number of dimensions, or variables, that it takes
to describe the radio spectrum. But it is clear that in general the
spectrum is too complex an object to be readily handled in a
marketplace, especially since it is not easy to establish who might
be illegitimately using some piece of it at a given moment.
Therefore, we must continue to have some governmental management
of spectrum use. There are some specific cases, as has been
recently demonstrated in the case of personal communication service
license auctions, where a marketplace can be created. But even
there, it was not "spectrum" that was being bought and sold in the
marketplace. The process was first to create radio licenses, using
the conventional engineering and policy process; then the spectrum
managers determined that there was no significant public interest
in who (among the qualified applicants) held the licenses; and only
after that determination was made could the spectrum manager in
good faith put those licenses (not the "spectrum") up for bids.
Surely, future spectrum managers could broaden the specifications
of particular licenses, so that the license-holders could have more
flexibility in the services provided. But the basic
spectrum-management process must be maintained.
International Regulations
As we develop into a truly global economy, with global
transactions taking place by the millions every hour, we have more
and more need for global interoperability of telecommunications
systems—not necessarily globally identical systems, but surely
systems that can readily talk to each other. The current problems
associated with the new wireless communications systems are a fine
example. The global system for mobile communications standards are
being implemented in most of the nations of the world. If they were
implemented everywhere, a person could carry a smart
card—called a subscriber identity module (SIM) in this
particular case—wherever she or he went, rent a phone at the
airport if the wireless frequencies happened to be different from
those at home, insert the SIM into the phone, and have access to
the same account and many or all of the services available at home.
But right now there is no certainty that such interoperability will
be achieved in the United States.
The question is, Should there be international regulations to
impose standards that would enforce full interoperability? We
believe the answer is no, at least in the case of equipment,
although international standards are certainly appropriate in
certain instances of spectrum management. We suggest that it is up
to the providers to decide whether to adopt voluntary standards and
be compatible, or bet on some allegedly better technology, and
either win or lose in the marketplace. In any case, it seems highly
unlikely that the world is ready right now to have an international
standards or regulatory body make mandatory equipment standards and
enforce them across
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national borders. There is a clear need for some level of
international spectrum management, but not such a clear need and
practicality for international regulation of the details of how
internal telecommunications issues are resolved within nations.
Government Roles
The federal government's role as a regulator and spectrum
manager has been addressed in the above section. But in addition to
the issues mentioned above, we must recognize that the federal
government does have a significant potential influence as a major
purchaser of telecommunication services. That purchasing power
could be used—intentionally or not—to influence the
direction and speed of development of the NII. We urge the federal
agencies to be conscious of this potential, but we insist that the
specific needs of specific agencies must not be distorted in order
to fit into some effort to use that purchasing power to influence
network development.
Another major step that must be taken by the federal government,
to affect not only telecommunications but also many other aspects
of U.S. business and its global competitiveness, is to relax or
eliminate the current restrictions on export of encryption hardware
and software. Encryption technology already exists globally, and so
the current restrictions have little or no long-term effect on
national security but have a major effect on U.S. manufacturers and
NII/GII participants.
We also recognize major concerns with the roles of state and
local governments. There are major potential barriers in that
domain just because of the structure of local regulation. There
are, for example, over 30,000 local franchising agencies in the
United States, which exercise some control over cable TV systems.
Obviously, such a structure could give rise to major problems of
compatibility and implementation, for networks and services that
will be far more complex than today's cable television.
The Next 5 to 7 Years?
It is our position that how far we can advance toward the
long-term NII/GII goals in the next 5 to 7 years is primarily
dependent on how well we do at the incremental process of
implementing competition in the local telecommunications
marketplace. If we do start implementing that competition quickly,
at the state and local levels as well as at the federal level, then
we can expect several fundamental changes within that time
period:
•
We will have fiber to the neighborhoods, in many
areas of many cities, but surely not ubiquitously.
•
That fiber will provide high-capacity local
access, to match the already high and increasingly higher bit-rates
and capacities that exist in the long distance networks.
•
When and if local competition becomes real, there
will no longer be a requirement for the restrictions of the
Modified Final Judgment, in manufacturing, information services,
and long-distance services by RBOCs.
•
As the services offered on those networks become
clearer, and their importance to various segments of the education
and health care and other communities as well as the general public
becomes clearer, we will be able to better define what we mean by
"equitable access" to the NII/GII. And with that better definition,
and the cooperation of all providers in creating and funding a pool
to provide support for those who need it, we feel confident that we
will be able to achieve equitable access without imposing undue
burdens on ratepayers and service providers.
The ultimate NII will take longer than 7 years. We will not have
a fiber to every single home and office in 7 years. But we are
confident that, with proper leadership and cooperation at all
levels of government and in the laws and regulation, we can move so
far toward those goals that we would want never to return to the
situation of 1995.
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Notes
1. Monson, Calvin S., and Jeffrey H.
Rohlfs. 1993. "The $20 Billion Impact of Local Competition in
Telecommunications," United States Telephone Association (USTA),
Washington, D.C., July.
2. Hatfield Associates Inc. 1994. "The
Cost of Basic Universal Service," Hatfield Associates Inc.,
Boulder, Colo., July.
Representative terms from entire chapter:
universal service
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