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Append Can Standards Help Industry in the United States to Remain Competitive in the International Marketplace? Irwin Dorros WEIY ARE INFORMATION TECHNOLOGY STANI)ARI)S IMPORTANT FOR U.S. COMPETITIVENESS? The creation, transport, and use of information are fundamentally important activities in the emerging service economy. This aspect of the economic future has led many to call the coming era the information age. It is remarkable that only 17 percent of U.S. workers are currently engaged in the manufacturing sector, and the agricultural sector employs just 3 percent. The vast and growing services sector, employing 67 percent of U.S. workers, is home to the emerging "knowledge workers" who are key in providing the services upon which the world economy increasingly depends. These knowledge workers assimilate and manipulate complex data through sophisticated workstations that are networked with other knowledge workers and data banks worldwide. The tools of the knowledge workers in the coming information age will be the ever improving computers and telecommunications devices, the evolution of which results from our increasing use of the technologies of integrated circuits, fiber optics, and software engineering. Those businesses that provide their knowledge workers with the best tools can expect to benefit from the resulting competitive advantage. Twin Dorros. Exective Vice President, Technical Services, Bell Communications Research, Liv- ingston, NJ. 33
34 The telecommunications products and services and global networks used by knowledge workers cannot be thought of as mere conveniences in the pursuit of their work More often they are critical or central components of the products and services their corporations are selling. For example, it is hard to imagine how modern airlines could continue to provide the level of service they do if they had to go without their reservation systems. Likewise, could our modern banking system continue to handle the growing load of far-flung financial transactions without the support of electronic funds transfer networks? And note how important point-of-sale terminals have become to retailers worldwide. All this serves to show that today's senice industry is already depen- dent on information networking. In the future new information services and technologies, which will expand capabilities to provide services faster, less expensively and more reliably, will increase society's dependence on information networking. Just take notice of the effects that local area networks, facsimile machines, and cellular telephones have been having on business practices. And these are just the changes that are most visible to users. Similar revolutionary technological changes that are taking place within the networks will soon bring a host of new capabilities to network users. Innovative people will find ways to derive advantages out of these new technologies. It is true that there are useful, stand-alone tools that do not have to be networked to be of value. One example is the solar-powered calculator. If there is enough light to see the display, calculations can be carried out quickly and accurately. It is inexpensive and it will last indefinitely. But facsimile machines and cellular telephones are different. They are of no value alone. ~ be useful at all, someone (or something) has to be present on the other end of the line. They are even more useful if they are connected to a network because, then a user can selectively interact with many people (or machines). Communications devices become maximally useful when they are connected to a worldwide, ubiquitous, public network. Such a telecommunications network increases the value of every communications device that connects to it. A ubiquitous public telecommunications network is an essential part of the infrastructure of the information. Nations that do not properly develop their infrastructures risk consigning their economies to second-class status. Although individual firms, particularly large, well-financed firms, may be able to rise above the general level of a mediocre telecommunications in- frastructure by installing private networks, the benefits of doing so will not be widely shared throughout the economy. ~ benefit fully from the contri- butions of the smaller and newer firms which historically have contributed more than their proportional share of new products and innovative services to the economy the United States must provide these firms with the same
35 opportunities to participate in the benefits of the information age. They cannot participate fully in the absence of a well-designed infrastructure that provides reliable, efficient telecommunications services that are responsive to their needs. In the United States, the public telecommunications infrastructure is a more diverse and competitive enterprise than anywhere else in the world, relying on the productive efforts of thousands of firms and participants from many segments of industry. These segments include local exchange earners, interexchange carriers, mobile carriers, enhanced service providers, information senice providers, network equipment manufacturers, customer premises equipment manufacturers and myriad users. How can the efforts of so many participants be coordinated? How can so many products and networks be integrated into one smoothly working national network? It would be impossible for such a joint enterprise to succeed without standards. Standards reflect fundamental agreements to which industry participants adhere. They enable each participant in the joint enterprise to contribute to the overall service provided and to benefit from the contributions provided by the others. Standard services provided on a ubiquitous network are much more valuable to users than locally variable and fragmented services are. Missing standards or conflicting standards represent an industry's fail- ure to reach those necessary fundamental agreements. Such failures prevent any but the very brave or very foolhardy firms or consumers from investing in a new technology, and they retard the development of affordable and valuable products and services for years. The growth of the home video- cassette recorder market was slowed for years by just such a failure to standardize. It is fortunate that the telecommunications industry has a long history of recognizing the centrality of standards in achieving global communica- tions by interconnecting the networks of independent nations. On May 17, 1865, 20 countries signed the first International Telegraph Convention and established the International Telegraph Union (ITU) (which was later renamed the International Telecommunication Union). In 1988, the In- ternational Telegraph and Telephone Consultative Committee (LICIT of the ITU adopted or reaffirmed almost 1,600 telecommunications standards. And the CCI11 is just one of the international bodies generating standards for the information age. The International Organization for Standardiza- tion (ISO) is another major body. The most important standards from this increasing flow are interface standards and end-to-end performance standards. Interface standards rep- resent agreements on all the characteristics (including electrical, optical, and protocol parameters) needed to enable equipment from one network provider to connect to and work with equipment from another network
36 provider to complete a telecommunications link. End-to-end performance standards represent agreements on the allocations of the allowable per- formance degradations that each network provider must meet between its interfaces to other providers to guarantee that end-to-end performance will be acceptable. These two classes of standards are required by all industry participants in order to enable them to work together to provide service. They are established in public, open forums where all stakeholders have a chance to participate. There are classes of standards other than interface and performance standards that are also important, but they are driven more by the individ- ual business interests of industry participants than by network compatibility. These internal standards, of the sort required to control costs and service levels in any large business, include network configuration standards. eauiD- ment standards, and service standards. Network configuration standards enable engineers of competing net- works to design their networks using different piece parts in different ways to meet identical interface standards. Equipment standards ensure piece part interchangeability within a network configuration. Both have an impact on an equipment supplier's ability to achieve manufacturing economy of scale. Service standards affect the cost of network implementations, service differentiation, and customer expectations. None of these three classes of standards have to be agreed upon on an industrywide basis; they are set internally in competing businesses or private networks. Standards, interface standards, and end-to-end performance standards, in particular, are such powerful tools for forging industry cooperation that companies in the telecommunications industry, telecommunications users, and government policymakers alike invest high hopes in them, expecting the standards-making process to further many business and social goals. Interface and end-to-end standards are expected to increase competition by providing a set of rules and a level playing field. Market entry by smaller companies, which might otherwise be precluded, is thus encouraged, and the serving of small market areas by niche suppliers becomes attractive. Such standards are expected to encourage innovation by network providers and equipment manufactures. When network interfaces are clearly defined, network providers can innovate confidently between the interfaces and manufacturers can design equipment compatible with the interfaces, with assurance that their innovative designs will work with other equipment and the network. Such standards are expected to allow economies of scale in manufac- turing and implementation. Such standards are expected to provide timely solutions for delivering desired functionality in response to the demands of the marketplace. These ~ - - -a - -~---r
37 standards can provide the linkage between a market pull that demand new services and a technology push that provides new capabilities. Such standards are expected to facilitate the stability of markets because suppliers and consumers are usually more willing to invest in standardized products. And finally, such standards are expected to ensure compatibility among equipment suppliers' products, information providers, and networks. Users should be able to employ products from different suppliers and know that they will work with the network and with each other. These expectations provide major challenges for the telecommunica- tions standards process. Next we examine how well today's process is achieving these benefits. IS U.S. STANDARDS MAKING MEETING U.S. NEEDS? The U.S. telecommunications industry relies on a national system of voluntary standards making forums. The system works in accordance with principles established by the American National Standards Institute (ANSI). These principles include openness, due process, and balance of conflicting interests; and they ensure that every participant gets a fair hearing in the process. They also ensure that every participant has maximum opportunity to pursue his or her objectives, even if those objectives are personal and narrow. These objectives may or may not include an interest in developing the best set of standards for the good of the U.S. economy. When the United States carries its standards ideas to international standards-making bodies, it is not surprising that the foreign participants in those forums have little motivation to do what's best for the U.S. economy. However, the representatives from other nations seem to be more aware than are the U.S. representatives of the strategic economic impacts of standards, and they have honed their national and international standards-making skills to further their own ends. The restructuring of the U.S. telecommunications industry in 1984 created many new interfaces and led directly to the formation of Committee T1 of the Exchange Carriers Standards Association. By many measures, Committee T1 has been a success and has provided a critical forum for open discussion in a trying time. Committee T1 has been leading the world on several important standards-making efforts, including work on synchronous optical networks (SONET) and broadband technology. But it is now becoming clear that the fragmented U.S. telecommunications infrastructure, which is really not a network but a conglomeration of networks, is adversely affecting U.S. competitiveness internationally, and our inability to set appropriate standards rapidly enough is a major cause. The context in which our standards are being made has been changing
38 rapidly. Standards making is undergoing rapid growth and technology is the driver. Telecommunications technology has increased our options; there are now many more desirable communications services that are technically possible than can be ubiquitously deployed. No one firm can any longer efficiently supply all the equipment and provide all the services. Around the world, the large public networks are also beginning to be divided into parts, which must now be made to work together at new interfaces. Such changes are similar to those in the United States. Private networks are also growing in number, because they are the most rapid way to deliver the benefits of new technology to a large closed set of users. Enhanced service providers and information providers are multiplying as users begin to appreciate the value of new capabilities. New interfaces are created where these private networks connect to the public networks or to each other. As a result, there are a growing number of stakeholders in the standards-making process. They each have their own ideas and goals, and so they are participating in the standards developing forums. This leads to growth in standards developing activity, measured by number of participants, number of working groups, number of standards contributions, or any other relevant measure. And this increased activity is occurring at a time of the emergence of powerful national and regional standards making bodies, like Committee T1 in the United States in 1984, Telecommuni- cations Technology Committee (ARC) in Japan in 1985, the European Telecommunications Standards Institute (ETSI) in Europe in 1988, and Telecommunication Technology Association (11A) in South Korea in 1989. These regional bodies carefully choose regional standards from the set of standards options approved by the international bodies and resolve regional issues before debating them in the international arena. As the number of industry interfaces grows, the importance of interface and end-to-end performance standards grows. It becomes riskier for firms to commit capital without knowing what the other working stakeholders intend to do. And so, increasingly, standards are being set earlier in the process of introducing a new seIvice or product. I. N. Knight, chairman of Committee T1, said: "When I first became involved with standards in 1974, every standard was selected from existing technology. Now, at times, the work that we do goes hand in hand with the work in the laboratories." The standards developing process is now a public laboratory for the telecommunications industry's forward-looking work. The United States cannot afford to underemphasize the strategic importance of this work The growing importance of standards and the fact that standards- making is now a state-of-the-art rather than an after-the-fact process de- mand a different standards-making skill set than that which was used in the
40 we will not succeed at it without unified national policy direction. We have not yet decided as a nation how we want our networks to grow or what our goals are for our information age telecommunications infrastructure. WHAT STEPS CAN BE TAKEN TO IMPROVE U.S. INFORMATION TECHNOLOGY STANDARDS MAKING AND SO STRENGTHEN U.S. INDUSTRY? First, a telecommunications technologist might be forgiven for saying that the United States does not have a national industrial policy. How- ever, this would be wrong. The United States does have an industrial policy; it is just not attuned to the technological complexities and global competitiveness of today's world. One major component of our national industrial policy is our antitrust policy. It is mired in the fiction that the United States is an isolated, island economy. This is clearly not the case. Idday, our businesses are competing in a world economy. The man- ufacturing industries, the apparel industry, and the consumer electronics industry all have had to face this reality. Now it is the turn of the service in- dustries to face offshore competition. We can no longer ignore the inroads of global competition in the U.S. realty market, advertising, newspapers and publishing, retailing, and banking. We need an industrial policy that recognizes that some types of cooper- ation among competing firms in the same industry are absolutely necessary when competing in the global economy. Our antitrust policy chills that cooperation. In order to avoid the risk of unbounded antitrust liability, U.S. firms go to extremes to avoid coordinated activities or structure them elaborately to avoid any perception of unlawful conduct. While unlawful conduct must be avoided, there are coordinated business activities which not only are lawful but that are also critically necessary to creating a robust telecommunications infrastructure. Other nations have shown that there are important economic gains to be made with a national industrial policy that encourages the degree of coordination required to achieve significant efficiencies. Such a policy stimulates investment in new products and services. U.S. firms are at a competitive disadvantage compared with those from countries that are not hobbled by an inhospitable legal environment. So, one prescription is the development of a national policy in favor of cooperation where it is warranted. The U.S. government should lead the way in support of the nation's industrial competitiveness. The current U.S. antitrust climate stifles such cooperation in formulating standards princi- ples and in implementing existing standards. Our standards-making process would benefit from government incentives and encouragement for greater
41 industry cooperation, rather than threats of treble damages. Although ANSI-accredited standards bodies do manage to work cooperatively, it is a slow process and there need to be positive incentives to cooperation in de- veloping standards and implementation activities following their adoption. An era of industry coordination would support the growth of one of the most important tools needed for the health of our telecommunications infrastructure: an overall systems approach. In the U.S. telecommunica- tions industry today, fragmented as it is, no one is in a position to adopt the systems integrator's viewpoint. Every supplier and network provider is in command of a narrow slice of the national network. Without positive incen- tives for industry cooperation, it is difficult to work toward the overall good of that network. The local exchange companies have great difficulty coor- dinating with the interexchange earners. The hundreds of interexchange carriers do not even have a unified industry association within which to work out a common view. The Reline carriers and the wireless carriers are each evolving independently. Without applying a systems view, it is improbable that services will work in similar ways on the different networks or that they will work at all on calls that transverse multiple networks. A systems approach, operating through an efficient, open industlywide stan- dards process, could lead to the formulation of interfaces and end-to-end architectures designed for overall low cost, flexibility of applications, the potential for increased functionality in the future, and a level playing field for suppliers. Of course, with or without change in U.S. government policy, there is much more that can be done to derive value from the standards-making process as it exists today. Every stakeholder should realize that standards are too important a factor in the future industrial health of the country to leave them entirely in the hands of the professional standards experts. Each firm's top management should understand current standards issues and make sure that the positions being taken on the firm's behalf are in the firm's interestslong term as well as short term. Strategic concerns should be factored in, including cooperation for the good of the U.S. economy. Each firm's top management should be assured that the experts it sends to standards deliberations are the best qualified to participate in the process. Admittedly, the role is a difficult one to fill, requiring diplomacy as well as expertise in the details of leading-edge technology. Experienced people who have managed projects in the past and have the requisite technical and political skills are what is needed. A broad-based view of overall corporate and national goals is essential. Each firm's top management should insist that the standards forums be run in an open manner structured to achieve group consensus efficiently. The forums should be led by the most competent and qualified participants,
42 not just the "good old guys." Attention should be limited to the most important standards those that are needed to provide end-to-end services and to ensure successful working at subindustry interfaces. Work on other issues should be avoided; such work is expensive, and time-consuming and distracts from more important tasks. The appropriate work of the forums should be managed: prioritized, scheduled, and sequenced. As the number of standards-making bodies grows, a special problem that needs to be avoided is the duplication of work in parallel and overlap- ping standards-making bodies. We should all help to channel each issue to the correct single forum. Forum overlap has gained international attention, and an Interregional Telecommunications Standards Conference among representatives of CCITT, Europe's ETSI, Japan's TTC, and Committee T1, scheduled for February 1990, has been called to explore cooperative ac- tivities in the area of telecommunications standards. In particular, speeding up the standards developing process is a goal. These prescriptions, that we develop a national antitrust policy that supports cooperation where it is needed, that we adopt a national systems approach, and that we pay strategic attention to standards-making and bet- ter manage the standards developing process, would go far in helping U.S. industry to remain competitive in the international marketplace. The most important thing to remember is that the telecommunications infrastructure we have today will be almost completely replaced in 20 years. Our task is to decide what we should build in its place. Our challenge is to regard and plan for this infrastructure as a significant asset to this country's economic welfare and avoid the lures of short-term expediency and quick profit.