Albert P. Halprin, a partner in the law firm of Halprin, Temple and Goodman, praised the Clinton Administration's vision for the NII. The Administration's goals have met with almost universal enthusiasm. Yet, he added, there are tensions: a state-of-the-art network that spurs economic growth versus a universal network accessible to everyone; competition versus possible economies of scale or scope; an inherently private system versus the Administration's commitment to expedite applications in education and health care; new entrants versus established players; and the traditional view of a network as a clear pipe defined by common-carrier obligations versus the desire for a vibrant, interactive, user-friendly network.
Decker Anstrom, acting president of the National Cable Television Association, said that the cable industry anticipates multiple providers and networks, including a fully competitive local telecommunications market with at least two wires leading into the home. Competition in both the local exchange and the cable television market will benefit consumers, as the long-distance market has demonstrated. Anstrom hopes to see legislation based on a competitive two-wire model enacted by the end of 1994.
With modest expenditures, Anstrom said, the cable infrastructure can deliver virtually all the services talked about for the NII. Cable passes more than 95 percent of homes, with a broadband last-mile-in-place to 65 percent of those homes. With investments in the $20 billion to $30 billion range, the network could be made fully interactive. Cable thus provides the most efficient investment for bringing the NII to the home.
Anstrom offered several policy recommendations. First, regulators should open the local telephone loop to competition from cable. All but three states have imposed substantial legal and regulatory barriers; the federal government should step in and eliminate them. Second, telephone companies should be permitted to compete with cable in providing multichannel television. Regulators should tread carefully, however, given the telephone companies' immensity and their access to capital. Third, it is particularly critical that flexibility be the guiding principle. Creators must have access to the system, but the cable industry hopes that access can be attained without the common-carrier framework that has dominated in a one-wire world. Regulatory flexibility is also important in joint ventures and mergers, especially in markets whose economics do not support two broadband facilities.
Royce J. Holland, president and chief operating officer of MFS Communications, Inc., stated that a world-class NII is as essential to economic development today as the railroads were a century ago. Telecommunications services can be a strategic weapon in gaining a competitive edge in the marketplace. Although the "long-haul routes" of the information highway have a large capacity, he explained, the "access ramps" do not. Telcos, with a monopoly in the local exchange, have had no competitive incentive to upgrade the access ramps.
Who will pay for improving the access ramps? Public funding is not a serious option, Holland said. Scarce tax dollars can best be spent providing training and equipment to schools and clinics.
One option is ratepayer funding. Telcos advocate that, in exchange for deregulated earnings and service rates indexed to the cost of living, they will invest in the access ramps. But, said Holland, the result would be essentially taxpayer funding; the dollars would come out of the taxpayer/ratepayer's pocket. In addition, deregulated earnings would let the telcos dominate the local exchange, not only in telephone service but also in cable television and other services. Regulation should not shift from earnings to price until the telcos face full competition for all services, which will eliminate the danger of cross-subsidies.
Another funding option, Holland said, would be to unlock the power of the market. Under this approach, policymakers would remove barriers to entry and allow multiple providers to build the infrastructure, with private investors supplying the funds and taking the risks. It is difficult for regulators to stay ahead of the technology. The New York Public Service Commission for example, has outpaced the FCC in this regard by mandating interconnection, which allows competing networks to access phone numbers. As a consequence, New York City has the finest communications in the world, all financed by private capital.
Along with removing barriers to entry, Holland added, government should reform the universal service system. In today's system, local exchange carriers do not subsidize needy customers; rather, they collect and distribute subsidies, which are not targeted precisely to those in need. Under a better approach, contained in a recent FCC filing from Holland's company, all players would contribute funds, which a neutral administrator would then allocate to the neediest customers.
Kenneth R. Kay, executive director of the Computer Systems Policy Project, spoke on behalf of chief executive officers of 13 major computer system companies. Though computer industry leaders are delighted with the interest shown in the NII, he said, they fear that communications issues are smothering other issues and that the NII is being used to repackage old communications concerns. After all, communications is only one of the four components that constitute the NII; the others are computing, information, and human.
Kay said that the government should focus on health care and education applications, and on the dissemination of government information that can help the public recognize the social benefits of the NII, not the "food fight" over the wire. These uses, unlike entertainment applications, will not flourish without government encouragement. Therefore, he stated, the government should use its bully pulpit to develop and implement applications.
In the effort to address issues of economic and social access, Kay hoped that physical and technological access issues would not receive short shrift. Interoperability and openness are crucial, he said. Networks must be able to relate to one another and to all appliances, and users must be providers also, regardless of network structure. These issues have policy implications. For instance, interoperability and openness ease competition; with those capabilities, we need not worry as much about how much market share a single company captures. Government should not mandate interoperability and openness, he said, but should encourage them.
Robert W. Lucky, vice president of applied research at Bellcore, dissented from several points made by previous speakers. First, he said, two-way video to the home is not necessarily essential. Its viability depends on what uses emerge and at what cost. Second, universal access is a lofty but expensive goal. Would the Internet have thrived if people had presumed from the start that universal access would be required? Third, all information bits are not created equal. Delayed output of bits will not impede the delivery of text, but it will impede the delivery of video. In addition, the price for transmitting a bit depends on its type. This disparity seems inescapable, because video transmission requires many more bits than voice or text transmission. If a system charges video rates for voice bits, voice transmission will be free; if it charges voice rates for video bits, video transmission will be prohibitively expensive.
Lucky speculated that the Internet may tend to undermine the existing telecommunications infrastructure. Sending faxes by Internet is now much cheaper than sending them by telephone, and the Internet will someday support voice telephony as well. As the Internet continues to expand, we will have to consider the fairness of this cost disparity.
Lucky noted that part of the disparity results from the location of switches and other expensive devices--the "smarts" of telecommunications. They are part of the telephone system (and thus are reflected in phone rates), but they are not part of the Internet system; with the Internet, most of the switching equipment exists in the user's computer. Imposing equipment costs on users has worked for industry and academia, but it may not appeal to mass users.
Lucky said that he had reached two discouraging conclusions. First, the cost of communication has almost nothing to do with technology. Communication is a service business, with costs stemming from such people-oriented activities as marketing, maintenance, and billing. Second, price has almost nothing to do with cost, and far more to do with policy.
Allan H. Weis, president and chief operating officer of the company that runs the backbone of the Internet, Advanced Network and Services, Inc. (ANS), stated that the Internet comprises 16,000 networks in 137 countries. It has succeeded for several reasons: it has been a high-performance network infrastructure, probably the best available at any given time; it has had a rich set of protocols for applications, which has led to the creation of a new market in information; and it has met customers' desire for vendor independence, as all vendors have supported it. The fastest growing segments are time-dependent applications. The other category that is increasing rapidly includes new emerging technologies, such as multimedia.
There are potholes everywhere, Weis said. No single organization can have responsibility; government must create an environment for cooperation. One problem, Weis said, is the network's potential liability for copyright infringement and obscenity. The network lacks the capacity to inspect the information it carries, but it also lacks the legal protections accorded common carriers. He called for legislation to eliminate this problem.