Wednesday, June 17, 2009

Reading :: Transforming Global Information and Communication Markets

Transforming Global Information and Communication Markets: The Political Economy of Innovation
By Peter F. Cowhey and Jonathan D. Aronsen with Donald Abelson

Drucker wrote at the end of World War II that massive organizations such as the corporation, which had been nearly nonexistent at the beginning of the 20th century, had become the dominant feature of mid-century life. At about the same time that he made that observation, an information and communications technology (ICT) infrastructure had begun to grow, creating the beginnings of today's global information technology (Cowhey et al. p.1). And that new infrastructure involved a “radically different model for competition and public policy for this infrastructure ... that is far sounder than its predecessor” (p.1). In this book – available in hardback or as a free download – the authors examine that model, discussing the “inflection point” (p.3) that we face today, sorting through policies and policy implications, and making what they consider to be generally optimistic predictions about how ICT policy will develop over the next few years.

The authors define “inflection point” by quoting former Intel chairman Andy Grove: it “'occurs where the old strategic picture dissolves and gives way to the new'” (qtd. p.7). At this inflection point, “ICT technology is becoming both modular and radically cheaper” and at the same time “ubiquitous wired and wireless broadband can meld these ICT capabilities together” into powerful, placeless applications (p.7). “Modularity and broadband mean that convergence of services and equipment will defy traditional market boundaries,” they explain (p.7). Yet public policy has been slow to adapt to this new reality. “This challenge raises the central question we address in this book: How can national and global policies best fulfill the promise of this inflection point in the global ICT infrastructure?” (p.8).

It's an exceedingly important question since, as the authors demonstrate, public policy can have enormous impacts on technologies and thus on the sorts of commercial, civic, and private possibilities they allow (pp.9-10). (That's what drew me to the book, even though I find public policy discussions to be very tough sledding in places, and this book is no exception.) As the authors note, “in today's world many different private interests back different visions of the public interest” (p.10) – and the way the US in particular balances such visions will be crucial, since “we argue that until about 2025 the United States will be able to lead, but not to dictate, the world's choices about future policies” (p.10).

So what changes are involved in this inflection point? First, ICT changes lead to lower entry costs and more competition over smaller market segments: market leaders are less secure and markets themselves can easily change (pp.11-12). Second, “the inflection point breaks ICT out of geographic and functional boxes”; IT can expand horizontally, out of offices, as well as vertically, up and down organizations (p.12).

ICT infrastructures, the authors argue, are inherently political – and its policies and politics are inherently global (p.13). “There are at least four reasons why the domestic governance of ICT infrastructure depends on global arrangements,” they tell us:

  • “network externalities ensure that networks are more valuable when they connect more users” (p.13).

  • “economies of scale still apply in similar ways to the engineering and the economics of networks,” so suppliers have influence on infrastructure across borders (pp.13-14).

  • Because of the features of network economics, “the pricing for connecting domestic networks internationally often displays unusual characteristics that matter to many political stakeholders” (p.14).

  • The public holds government ultimately responsible for the quality of the networked infrastructure, so network performance becomes highly political (p.14).

The US has been and (the authors anticipate) will continue to be pivotal in developing global ICT policy, so in Chapter 2, the authors review the history of ICT in the US. After discussing the development and breakup of Bell, the authors argue that three features of the US political system are relevant to communication policy:

  • division of powers

  • majoritarian electoral system

  • federalism

I won't discuss these in detail, but I'll note that the authors weave these into their analysis as they examine the post-Bell landscape, particularly the delegation of much discretion over telecomm policy to the executive bureaucracy. Some of the resulting choices had real impact. For instance, when the FCC designed the wireless market system, it anticipated 4-6 competitors per market, none dominating a given market; it mandated low wireless-wire interconnection charges. Later, the Democrat-dominated FCC of the Clinton era interpreted the 1996 Telecommunications Act as calling for “strong interconnect obligations for the Bells at long-run incremental costs” (p.37). In an adjacent telecomm industry without a monopoly history, cable television and satellite TV networks fragmented broadcast markets, shrinking mass audiences and leading to a post-2000 restructuring of the content industry (p.40).

Meanwhile, modularity is also impacting ICT development: modular services and modular broadband have led to geographic distribution of infrastructure, services, and sales (p.54). The web browser has become the common interface, while transparent APIs have led to modular, mashed-up content and developer communities (p.60). “Modularity and interoperability of capabilities signal the demise of the utility model that depends on quasi-monopoly or duopoly in major software and service platforms” (p.65). Heterogeneous services mean that service providers agree on interoperability standards, and as a result different services are substitutable – modular – meaning that a market leader can't leverage its lead in neighboring market segments (p.68). The long tail (p.76), the ad-supported “Cheap Revolution” (p.77), and emerging personalized network platforms (p.84) all emerge from these qualities. And the authors argue that “the availability of ample network broadband is indispensible to fulfilling the inflection point's potential” - yet the spread of broadband in the US is “deplorable” (p.89). The authors explore the current situation and the US' leadership in more detail that I care to summarize here – it's good reading, but thick.

Wireless infrastructure is also examined – a tremendously important discussion, since in the US, the number of mobile lines overtook fixed lines in 2002 (p.178), and mobile lines are increasing rapidly across the world. Internet governance also comes in for discussion, with a detailed history and explanation of its current form (Ch.9). And the authors wrap up with a detailed set of summary and conclusions.

My conclusion? The book is thick and jammed with information. As with many policy instructions, it's hard to get through. Yet it's rewarding. If you're interested in ICT policy, or just curious to see how infrastructure might evolve, take a look at the table of contents or index. If you have a serious scholarly or public policy interest in these issues, read it cover to cover.

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