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Telecommunications Essay, Research Paper


We are in the midst of a global information revolution driven by the convergence and proliferation of information and communication technologies. The telecommunications sector is changing at warp speed, driven by technological innovation that results in new equipment and services, and also by new entrants and alliances between companies with experience in a wide range of information industries from telecommunications to broadcasting to computer hardware and software to publishing. Three major trends are driving these changes:

the rapid introduction of new technologies and services;

the restructuring of the telecommunications sector; and

globalization of economies and of communications.

Together these developments are not only changing the world of telecommunications, but the ways people work, learn, and interact.

The Death of Distance

“The death of distance as a determinant of the cost of communications will probably be the single most important economic force shaping society in the first half of the next century.” The death of distance could have profound implications for both individuals and organizations. The ability to work “anytime, anywhere” allows “road warriors” to work without offices on planes, in hotels, and at client sites, and enables information workers to telecommute from their homes rather than traveling to work. This flexibility can be two-edged for individuals, who can work wherever they choose but may never escape the “virtual workplace.” Organizations may reduce their overhead costs and improve their productivity, but they must also learn how to manage their decentralized work force.

One major technological trend is the extension of “information superhighways” in the form of broadband networks; another is the increasing ubiquity of communications using wireless technologies (that will, however, initially provide access to squirts rather than floods of information). Personal communications networks using microcellular technology will allow people in urban areas not only to talk on pocket-sized telephones, but to transmit and receive data using wireless modems. In rural and developing areas, these services may be available from low earth-orbiting (LEO) satellite systems.

On an international level, the death of distance has profound implications for the globalization of industries and national economies. Rural regions in Europe and North America may lure businesses with their pleasant environment and lower labor costs; however, they are no longer competing only with cities in their own countries. Companies may hire information workers in developing countries where labor is far cheaper, not only for data entry and word processing, but for writing computer programs. Conversely, developing countries now find themselves competing in global markets, where quality and suitability of products may be as important as price.

Global networking: Changing the geography of business

Telecommunications networks now link manufacturers with assembly plants, designers with factories, software engineers with hardware vendors, suppliers with retailers, retailers with customers. No longer is it necessary to have all the expertise in house. Software engineers in Silicon Valley complain that they are laid off while contractors transmit code from Russia and India. Freelance designers can now send clothing patterns directly to an automated garment factory. Customers can order anything from airline tickets to winter clothing online and do their own banking and bill paying electronically.

These trends open opportunities for innovative entrepreneurs around the world. For consumers, they offer more choice and lower prices because there is no overhead cost for sales clerks and order takers. Yet these changes pose threats to traditional businesses as well as to employees. Increasingly, companies that want to compete on price will have to “work smarter” to reduce costs and respond to market changes, while others will have to rethink how to add value to attract customers. High levels of customer service and individualized attention are likely to become more important. As Wells Fargo found, a bank that offers assistance from a human twenty-four hours a day in addition to online electronic banking can attract new customers. And computer vendors that offer free and easy-to-reach customer support may be able to charge a premium, or at least not lose customers to commodity discounters.

More than half the computers in U.S. offices are linked to local area networks (LANs). Increasingly, businesses are also linking into the Internet to reach counterparts in other organizations, specialized databases, and potential customers. Each month, some 2,000 businesses join the more than 20,000 that have already set up “virtual shop” on the Internet.

Federal Express’s 30,000 employees around the world are linked via the Internet to “intranet” sites within the company’s Memphis headquarters; some 12,000 customers a day track their own packages using Federal Express’s Internet Web site, rather than calling a human operator. Ford Motor Company engineers in Asia, Europe and the United States worked together electronically to design the Taurus automobile. Pharmaceutical company Eli Lilly uses information compiled on its intranet sites to schedule clinical trials and submissions for approval of new drugs in countries around the world. Visa International provides an information service called Visa Vue for its 19,000 member banks on an internal Web site.

As electronic security improves, in the form of “firewalls” to prevent unauthorized access to private networks and encryption to protect the privacy of personal and financial data, more companies will use the Internet to sell products and services as well as to link their employees. The Internet opens a global market to the small business and lets low budget nonprofit organizations reach interested parties across the country or the world. While Reuters and Dow Jones are repackaging financial information for electronic subscribers, a startup company in Silicon Valley called QuoteCom is selling financial information over the Internet for as little as $10 per month. The Future Fantasy Bookstore in Palo Alto, California, put its catalog on the Internet and suddenly became a global firm.

Small businesses with computer expertise can also set up shop as gateways to the Internet for their communities. In eastern Washington state, the Palouse Economic Development Council has established Palouse Net, a World Wide Web server and Internet aggregator for farmers and small businesses in rural Washington and Idaho.

Telecommunications networks are creating a global information workforce, as employers seek the cheapest labor, ranging from clerical work, such as data entry, to software programming and research and development. American Airlines uses key punch operators in Barbados to enter data from its flight coupons, which are then fed by satellite and telephone lines back to American’s central computers in Tulsa, Oklahoma. American reportedly saved $3.5 million on data processing in its first year. Mead Data Central, a provider of data base services, hires overseas workers primarily in Ireland, the Philippines, and South Korea to enter documents in its data bases. There are now at least seventy U.S. data processing firms with overseas facilities.

In the short run, these clerical jobs offer attractive employment opportunities for developing countries, particularly those such as the Commonwealth Caribbean countries and the Philippines with relatively high literacy rates and an English-speaking work force. However, not only do these jobs have the same disadvantages as similar jobs in industrialized countries (low pay, boredom, little chance of advancement, stress from the pressure to reach productivity targets or from computerized monitoring), but they also may be made obsolete by optical scanners and voice recognition technology that can transform hard copy and spoken words into digitized text.

Some countries and enterprises may together be able to use telecommunications to create a competitive advantage at the other end of the information work continuum. India has built software development parks equipped with satellite uplinks, so that foreign high tech companies can hire Indian engineers and programmers at a fraction of the cost of expanding its professional workforce in the United States, and India can retain professionals who might otherwise join its massive brain drain. Just as North American and European laborers complained in the 1980s about the growth of offshore manufacturing, highly skilled information workers in Silicon Valley now fear losing their jobs to lower paid offshore professionals.

As demand for these services grows, users will need access to more bandwidth to speed searches, download software, and transmit video and graphics. Some telecommunications companies, such as AT&T and MCI, are becoming Internet service providers, concluding that the Internet must be viewed as an opportunity rather than a threat. Others fear that the Internet will steal traffic, as users opt for flat rate voice and video transmissions rather than paying for time or bits.

Traditional telephone companies will have to respond to the demand for new and cheaper services as an opportunity rather than a threat if they are to survive. Rather than local monopolies providing telephone services over copper wires, in many countries we may find cable television companies, electric utilities and wireless operators competing with telephone companies to reach the end user, offering a combination of voice, data, and video services.

Toward global information infrastructure (Gill)

These technological and economic trends have led policy makers to call for the construction of “information highways” linking communities and nations. The phenomenal growth of the Internet as an information resource, communications tool, and electronic marketplace has focused attention on the need for national and global “information infrastructure” (NII and GII) to bring the Internet and other forms of electronic communications within reach of people around the world.

The Clinton Administration announced the National Information Infrastructure Initiative (NII) in 1993, calling for joint industry and government efforts to create a seamless and interoperable national broadband infrastructure, an “Information Superhighway” to link all Americans. Vice President Al Gore challenged U.S. industry to connect all of the country’s schools, libraries, hospitals and clinics to the information highway by the year 2000. The Telecommunications Act of 1996 requires discounts for the provision of “advanced services” to schools, health care facilities, and libraries.

Federal and state governments are funding research and pilot projects to spur innovative applications. The High Performance Computing and Communications Program is supporting university research. The National Telecommunications and Information Administration (NTIA) provides funds for telecommunications applications in distance education and health care delivery. The Rural Utilities Service (formerly the Rural Electrification Administration) funds educational and health care projects providing advanced telecommunications technology and services for rural Americans. Many states are offering inducements to the carriers to accelerate the upgrading of their facilities and to provide access to schools and other community locations. State governments are also providing seed money to communities and economic development agencies to help them to plan and initiate projects using telecommunications as a development tool.

The European Commission published a White Paper in 1993 on “Growth, Competitiveness and Employment” that emphasized an urgent need to develop a European-wide information infrastructure to help restore economic growth and competitiveness, open up new markets and create jobs.

Acting on the White Paper’s recommendations, the European Commission called on a high-level group of information industry representatives to produce a report recommending practical measures for implementation. This report, entitled “Europe and the Global Information Society” urged the European Union to trust market forces and private sector initiatives, but noted that spending on education, health and research may have to be retargeted toward new priorities, and a new form of public/private sector partnership would be needed to implement the group’s recommended action plan. It recommended:

Accelerated liberalization of the telecommunications industry;

Identification of the degree of regulation required;

Interconnection of networks and interoperability of services to avoid fragmentation of information infrastructure;

Reduction in tariffs, to bring them in line with those of other advanced industrialized regions;

Review of the standardization process to increase its speed and responsiveness to the market.

In response, the European Commission has set out a detailed work program in four key areas: regulation, applications, social and societal aspects, and the promotion of the information society. The European Union has taken a major step toward liberalization by opening the telecommunications markets of member countries to competition as of January 1998. It also approved $3.8 billion under its Fourth Framework Program to support research and development in communications technologies and development of applications in distance education, health care and other social services.

Canada also has plans to build a network of networks linking Canadian communities, businesses, government agencies and institutions. The Canadian government sees the information highway as a catalyst to help Canadians share information, and to gain an edge in productivity and information industries in global markets. It has identified three key objectives for the Canadian information highway:

To create jobs through innovation and investment;

To reinforce Canadian sovereignty and identity;

To ensure universal access at reasonable cost.

These objectives emphasize cultural as well as economic priorities. Canada’s Information Highway Advisory Council, composed of representatives of communications industries, business users, academics, performers and consumers, takes a distinctively cultural perspective: The Information Highway, in our view, is not so much about information as it is about communication in both its narrowest and broadest senses. It is not a cold and barren highway with exits and entrances that carry traffic, but a series of culturally rich and dynamic intersecting communities. Rather than a highway, it is a personalized village square where people eliminate the barriers of time and distance and interact in a kaleidoscope of different ways.

In Japan, the Nippon Telegraph and Telephone Corporation (NTT) has announced its intent to wire every school, home and office with fiber optic cable by the year 2010. Japan’s Ministry of Posts and Telecommunications (MPT) estimates the cost of building this network to be between $150 billion and $230 billion. The Japanese are also investing in projects and trials to ensure that users will be able to access a wide variety of services. For example, in 1994, the MPT launched a $50 million three-year pilot project to assess the feasibility of integrating telecommunications and broadcast services, such as video on demand, high definition television, videoconferencing, teleshopping and telemedicine through fiber-to-the-home networks.

In 1995, the G-7 nations together embraced the goal of global information infrastructure, and initiated a series of demonstrations and pilot projects using high capacity networks and switching. The APEC (Asia Pacific Economic Conference) nations are also sponsoring projects using telecommunications networks for distance education and training, health care delivery, and economic development. Yet there are still areas in the industrialized G-7 countries with very limited access to telecommunications. APEC members include not only the industrialized economies of Japan, Singapore, the United States, and Canada, but also countries with much greater gaps in their infrastructure, such as China, Thailand, and the Philippines.

Gill: Promise or hype?

Against this background, why all the hyperbole about electronic superhighways? Several themes recur in these information infrastructure initiatives. There are dual assumptions that converging technologies will result in information services with both social and economic benefits, and that both public and private sectors must be engaged to ensure the installation of national broadband networks. Yet these assumptions need to be carefully examined. Each new communication technology has been heralded as offering numerous benefits. Satellites and cable television were to provide the courses taught by the best instructors to students in schools, homes and workplaces. Videoconferencing was to largely eliminate business travel. Telemedicine was to replace referral of patients to specialists. Computers were to replace traditional teaching with more personalized and interactive instruction.

To some extent all of the prophesies have been fulfilled, yet the potential of the technologies is far from fully realized. In many cases, it took institutional change and incentives to innovate in order for these technologies to have much effect. In North America, the more remarkable change is in these incentives rather than the technologies. As school districts face shrinking budgets and new curricular requirements, as spiraling health care budgets are targeted by governments and insurance companies, and as business realizes that people must “work smarter” to compete in a global economy, they find new and compelling reasons to turn to telecommunications and information technologies.

Thus, investment in technology alone will not likely result in major social benefits. Policymakers in these countries appear aware that public sector stimulus is needed to foster new educational and social service applications; there is widespread belief in the need to fund trials and demonstration projects. Yet seed money for pilot projects may not ensure long term implementation. Schools with International Services Digital Network (ISDN) access will benefit if the services they can access turn out to be cost-effective means of achieving their educational priorities. If the services are perceived as frills, or if there is no budget allocation to buy computers or pay monthly usage charges, connection to the information highway will mean little. Similarly, if insurers will not authorize payment for teleconsultations, or physicians are not authorized to practice beyond their borders, telemedical applications will remain limited. And if prices for connection and usage are beyond the reach of low income and rural residents, small businesses and nonprofit organizations, the much-heralded information society will be very narrowly based.

The U.S. communications industry has adopted the banner of the “information superhighway,” with the assumption that there is an enormous new market in information services. While these applications are generally viewed in the United States strictly in business terms, in other countries cultural impact is also a major concern. Both Canada and the European Union stress the need to use these networks to strengthen their own cultures. Yet, the proliferation of cable- and satellite-delivered channels in Canada and western Europe tells a different story: the demand for content is so great that operators turn to inexpensive sources of content to fill them, and this content is overwhelmingly American.

Another recurring theme is the “we will be left behind” argument. In the late 1980s, U.S. telephone companies sought to convince American policymakers that the United States was at a disadvantage because its citizens did not have Minitels, small computer terminals provided to French households by France Telecom. Yet Americans had much of the functionality of the Minitel through widely available facilities, including telephone access to audiotext services and growing access to personal computers equipped with modems. Today, Canada, the European Union and Japan are all concerned that they will be left behind the United States if they do not implement their own information infrastructures. Notably, the report to the European Union states: “The first countries to enter the information era will be in a position to dictate the course of future developments to the late-comers. But is this really so? It may be that their technology companies will have an advantage if they have a ready market for fast packet technologies, such as Asynchronous Transfer Mode (ATM) servers, set-top boxes, and multiplexers that can also be exported. But the real payoff for users will be from the application of these technologies to access and share information that can contribute to the development of their own societies and the competitiveness of their economies.

Promises and paradoxes

New technologies and services are alluring, but they also present challenges and paradoxes for the telecommunications industry, users and policymakers. Consider the following:

Technological Trojan Horses

New technologies are introducing changes faster than policymakers can respond.

“Callback” services (where calls between countries with high international tariffs are actually reoriginated from a third country with much lower rates such as the United States) are undermining the traditional strategy of monopoly carriers in many developing countries that use high international rates to cross-subsidize domestic rates and generate income that can be invested in domestic infrastructure.

Satellite broadcasting has introduced foreign and commercialized programs in western Europe and in much of Asia, forcing domestic broadcasters to innovate to hold on to their audiences. The Internet, seen by many policymakers as an important tool for their industries to remain competitive, opens the door to unfiltered information that may be considered inappropriate or illegal in their countries.

Competition and Consolidation

While telecommunications services are increasingly being liberalized to attract competitive providers, there is also a growing tendency to consolidate. The result may be only a few major players or consortia in the international environment, as well as a few providers in major domestic markets. These new oligopolies will be able to offer a greater range of services than their predecessors and may make it easier for users looking for “one-stop shopping” to meet their telecommunications needs. The danger, however, is that they will form cartels that will prevent significant competition in price, service, or innovation.

Access and Control

Some governments that see information technology as critical to their economic development strategy are at the same time concerned about the socio-political implications of access. One of the most ironic examples of the simultaneously held goals of modernization and control is Singapore, which is staking its economic future on becoming an “intelligent island.” The Singapore One venture intends to extend optical fiber optics throughout the island, to connect every business, home and school. Yet Singapore has retained tight control over individual access to information. The government applies broadcast content regulations to the Internet, holding Internet service providers accountable for content accessible to their customers. Also, it is illegal for individuals to install satellite antennas, so that Singaporeans cannot watch satellite-transmitted programs from regional satellites, including those uplinked from Singapore’s own industrial parks.

Cable television networks offer the advantage of controlling access so that network operators can charge for reception. In Singapore and China, another perceived advantage of cable is that information its citizens receive can be monitored. Another technology with paradoxical capabilities to expand and control choice is video compression. Using video compression, programmers can pack many television signals on a single satellite transponder, enabling television viewers to choose from hundreds of digitally compressed channels. Yet video compression also provides a cost-effective means for program distributors to precensor programs by editing different versions for different countries, then compressing and encrypting them for distribution on regional satellites. Viewers in each country will be able to see only the programs their governments have approved.

Universal Service as a Moving Target

New technologies and services are forcing policymakers to rethink their goals of universality. In both industrialized and developing regions, universal service has become a moving target, as policymakers must adjust their goals to make new services more accessible. For example, the U.S. Telecommunications Act of 1996 redefines universal service to include access to schools, libraries and health care facilities, and to include not only “basic” telephone service but also “advanced services,” a term whose definition will evolve over time.

Closing the gap

The World Bank estimates that investment in telecommunications in the developing world must double to meet the growing demand for telecommunications services. In spite of accelerated investment in many developing regions during the past decade, the vast majority of people living in developing countries still lack access to basic telecommunications. Yet there is cause for optimism. New technologies offer the possibility of technological leapfrogging, e.g., to reach end users through wireless local loops or small satellite terminals rather than stringing wire and cable. Digital transmission and switching are increasing reliability and lowering cost, as well as making it possible for subscribers in developing countries to use electronic mail and voice messaging, and to access the Internet.

The newly industrializing economies of eastern Europe, Asia, and Latin America are starting to close the gap. Their growing economies appear promising to the telecommunications industry and to investors who are looking for new markets. Most of these countries are also taking steps to encourage investment by privatizing their operators, providing investment incentives, and/or introducing competition.

Information gaps show least signs of shrinking in the poorest countries, two-thirds of which have less than one telephone line per 100 inhabitants. Telecommunications is not a panacea for countries with populations near the subsistence level as well as urgent demands on foreign exchange for food, fuel and medicine. Yet, as these countries develop market economies and seek to take maximum advantage of scarce expertise, they will need to invest in telecommunications. Of course, these regions are less attractive to investors than more prosperous economies; in general, they have also been the most reluctant to reduce their governments’ role as monopoly operator. Their networks are also the least efficient, in terms of reliability and the number of lines per telecommunications employee. Restructuring their telecommunications sectors to improve productivity and encourage investment will be necessary if they are to begin to close the gap.

New gaps?

As investment in telecommunications infrastructure increases, the gap between information haves and have nots may become based on price and choice, rather than technology. Countries that continue to favor telecommunications monopolies, or seek to control access to information, may limit user access even where technology is available. In most of Europe, access to the Internet is much more expensive than in North America. As one commentator states: “Digital Europe has many medieval features: road tolls and extortion-like taxes, witch hunts, an oppressed citizenry, and powers-that-be in feudal towers.” Access is much less affordable in many developing countries. Even professionals in many African countries cannot afford to use telecommunications services.

China may be the world’s largest market for telecommunications, but the government is reluctant to allow access to information from abroad. Although credited with introducing market reforms in the Chinese economy, Deng Xiaoping voiced his ambivalence about opening China’s doors to the world: “When the door opens, some flies are bound to come in.” Government attempts to control access include banning satellite antennas, blocking access to Internet sites, and impeding access to the Internet itself and to other means of electronic communication.

Clever users will inevitably find means to bypass these roadblocks, as shown by dissidents’ use of facsimile and electronic mail during the Tiananmen Square uprising in China, the proliferation of satellite antennas in countries where they are officially banned, and the widespread availability of supposedly illegal callback services that undercut international tariffs. Yet these strategies are likely to be limited to an elite few with the technical know-how or political connections to end-run the regulations. Only where governments recognize that suffocation is worse than a few flies will the gaps really disappear.

Remaining barriers

New technologies have eliminated distance for the international finance industry, which trades not only around the world but around the clock; for employees who collaborate on projects across time zones; for “footloose” businesses that operate from rural communities; and for students and researchers who can search libraries and databases beyond their borders. Yet in many parts of the world, to paraphrase Mark Twain, “the news of its death has been greatly exaggerated. ” Some people may live hours or days from the nearest telephone. Others have facilities available but cannot afford to use them. Still others may not know how to use these new tools to find the information they need, or how to reorganize their work to take advantage of the information available to them. These barriers must also be eliminated if distance is truly to disappear.

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