A highway that delivers both telephone and video services is not allowed under current U.S. laws. Economists and historians can argue the pros and cons of whether granting regulated monopolies was a good idea back in 1934, but today there is a general agreement that the rules should be changed. As of mid-1995, however, policy makers haven’t been able to agree on exactly when or in what ways. Billions of dollars are at stake and lawmakers have found it easy to get lost in the complicated details of how competition should start. The problem is to figure out how to move from the old system to a new one while keeping most of the participants happy. This dilemma is the reason telecommunications reform has been in limbo for years. Congress was embroiled much of the summer of 1995 in a debate, not about whether the telecommunications industry should be deregulated, but rather about how it should be deregulated. I hope that by the time you read this, the information highway will be legal in the United States!
Outside the United States, matters are complicated by the fact that in many countries the regulated monopolies have been agencies owned by the government itself. They were called PTTs because they managed postal, telephone, and telegraph services. In some countries the PTT is being allowed to go ahead and develop the highway, but when government organizations are involved, things often move slowly. I think the pace of investment and deregulation worldwide will increase in the next ten years because politicians are recognizing that this issue is critical if their countries are to remain competitive in the long term. In many election campaigns candidates’ platform planks will include policies that will allow their country to lead in the creation of the highway. The political use of these issues will make them more visible, which will help clear various international roadblocks.
Countries like the United States and Canada, where a high percentage of homes have cable television, are at an advantage because the competition between cable companies and phone companies will accelerate the pace of investment in the highway infrastructure. Great Britain, however, is the farthest along in actually using a single network to provide both television and cable services. The cable companies there were allowed to offer phone service in 1990. Foreign companies, primarily U.S. phone and cable companies, made major investments in fiber infrastructure in the United Kingdom. British consumers now can choose to get telephone service from their cable TV company. This competition has forced British Telecom to improve its rates and services.
If we look back in ten years, I think we’ll see a clear correlation between the amount of telecommunications reform in each country and the state of its information economy. Few investors will want to put money into places that don’t have great communications infrastructures. There are so many politicians and lobbyists involved in creating new regulations in so many countries, I’m sure the entire spectrum of different regulatory schemes will be tried. The “right” solution will vary somewhat in different countries.
One area it’s clear government should stay out of is compatibility. Some have suggested that governments set standards for networks, to guarantee that they interoperate. In 1994, legislation was put before a subcommittee in the U.S. House of Representatives calling for all set-top boxes to be made so they would be compatible. This sounded like a great idea to those who drafted the legislation. It would ensure that if Aunt Bessie invested in a set-top box, she could be confident it would work if she moved to another part of the country.
Compatibility is important. It makes the consumer-electronics and personal-computer businesses thrive. When the PC industry was new, many machines came and went. The Altair 8800 was superseded by the Apple I. Then came the Apple II, the original IBM PC, the Apple Macintosh, IBM PC AT, 386 and 486 PCs, Power Macintoshes, and Pentium PCs. Each of these machines was somewhat compatible with the others. For instance, all were able to share plain-text files. But there was also a lot of incompatibility because each successive computer generation showcased fundamental breakthroughs the older systems didn’t support.
Compatibility with prior machines is a great virtue in some cases. Both PC-compatibles and the Apple Macintosh provide some backwards compatibility. However, they are incompatible with each other. And at the time the PC was introduced, it was not compatible with IBM’s prior machines. Likewise, the Mac was incompatible with Apple’s earlier machines. In the world of computing, technology is so dynamic that any company should be able to come out with whatever new product it wants and let the market decide if it has made the right set of trade-offs. Because the set-top box is in every sense a computer, it stands to reason it will follow the same pattern of rapid innovation that has driven the PC industry. In fact, the set-top box will be sold to a far more uncertain market than the PC was, so the case for letting it be market driven is even stronger. It would be foolish to impose the constraint of government-dictated design on an unfinished invention.
The original set-top box compatibility legislation in the United States ultimately died in Congress in 1994, but related issues arose in 1995, and I expect that similar efforts will be made in other countries. It seems easy to legislate reasonable-sounding constraints, but if we don’t watch out, those constraints could strangle the market.
The highway will develop at a different pace in different communities and in different countries. When I travel abroad, the foreign press often asks how many years behind the developments in the United States their country is. It’s a difficult question. The advantages that the United States has are the size of the market, the popularity of the personal computer in American homes, and the way the phone and cable companies will compete with each other for current and future revenues. Of the various technologies that will be part of building the highway, U.S.-based companies are leaders in almost every one: microprocessors, software, entertainment, personal computers, set-top boxes, and network-switching equipment. The only significant exceptions are display technology and memory chips.
Other countries have advantages of their own. In Singapore, the population density and political focus on infrastructure makes it certain that this nation will be a leader. A decision by the Singaporean government to make something happen means quite a bit in this unique country. The highway infrastructure is already under construction. Every developer will soon be required to provide every new house or apartment with a broadband cable in the same way he is required by law to provide lines for water, gas, electricity, and telephone. When I visited with Lee Kuan Yew, the seventy-two-year-old senior minister who was the political head of Singapore from 1959 to 1990, I was extremely impressed with his understanding of the opportunity and his belief that it is a top priority to move ahead at full speed. He views it as imperative that his small country continue to be a premier location in Asia for high-value jobs. I was quite blunt in asking Mr. Lee if he understood that the Singaporean government would be giving up the tight control over information it exercises today as a way of ensuring shared values that tend to keep societal problems in check. He said Singapore recognizes that in the future it will have to rely on methods other than censorship to maintain a culture that sacrifices some Western-style freedom in exchange for a strong sense of community.