National information infrastructure

Supply-driven versus demand-driven

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Supply-driven versus demand-driven

The consumer has been noticeably absent from the NII debate in Japan. The assumption seems to be “if we build it, they (the consumers) will come,” and the talk is almost exclusively of the economic benefits accruing to the producers, the influence gained by Japanese ministries, and so on, rather than of any demonstrable consumer demand. This is far from the standard view of the “marketing concept” which focuses on customer needs (for a comprehensive review, see Kohli and Jaworski, 1990).

Of course, nominal consumer desires are postulated, with video-on-demand and long-distance medical imaging being the ubiquitous examples. But these are prototypical needs, placeholders used to advance the discussion of the technology until a real reason can be found. Market tests — both in the 1980s and more recently — have been failures (Kageki, 1994), but plans are proceeding ahead anyway, despite a notable lack of consumer enthusiasm (Sato, 1994).

This problem is not unique to the Japanese debate. In the U.S., Iacono and Kling (1995) argue that “technological utopianism” has been used to sell the NII concept, and Kling adds that the same Information Infrastructure Task Force reports closely studied by the Japanese were seriously flawed:

They were superficial in particular points, particularly in failing to examine why some of these experiments had not expanded and why some of them were not widely adopted. It was simply assumed that new information technologies would be the catalyst for expansion. (Interview, May 24, 1995)

Instead of consumer uses, King and Kraemer (1995) predict near-term market demand will center on businesses even though public rhetoric has centered on servicing individual consumers. Moreover, they argue that firms will be merely taking away each others markets rather than creating new markets.

Such an approach is symptomatic of technology-driven rather than market-driven thinking. The sharing of chest X-rays with specialists 200 kilometers away could be done by

extending existing high-speed trunk lines to a few hundred hospitals, without the expense of

building the information superhighway to the front door of each of 60 million households. And postulating an interest in video-on-demand ignores the ready availability of an established, much lower-tech alternative: the corner video store. (The presumed advantages of video-on-demand over the corner video store include availability but not price: forecasts all assume consumers will pay significantly more for the marginal convenience.) Such an absence of market-driven thinking does not bode well for the huge unanswered question of the NII: the cost of wiring each of those 60 million households by the target date of 2010.

Beyond the technological impacts, a few Japanese have also considered the potential social impact of a NII. Kumon, the executive director of the Tokyo-based Center for Global Communications, predicted that in addition to spawning a “third industrial revolution” (a phrase he attributes to George Gilder), the developing information infrastructure will also spawn a social revolution, creating a new class of network-aware citizens, or “netizen”:

Just as during the 17th, 18th, and 19th centuries bourgeois citizens wanted to take part in their societies, [netizens] will demand something different from mass democracy in the 20th century. They will demand a freedom of informational activities — just as the original bourgeoisie demanded freedom of business activities as against the chartered monopolies of their time. . . .

The netizens want to have much greater freedom in terms of sending out information and having access to information. . . . Today, broadcasting is monopolized, chartered to a chosen few of society. Netizens are demanding that anyone should have access (Interview, August 30, 1994).

Meanwhile, Sawa (1994) of Kyoto University argues that “the multimedia-oriented information society will succeed only when individualism is respected” and predicted failure for MPT plans unless education and other social reforms are made.

While precursors to today’s NII have been discussed since joho-ka came into fashion in the early 1970s, such social revolutions do not appear to be among the stated goals of big business and the bureaucracy, which have been leading the NII debate. And few in the NII debate (including Kumon) expect the outcome of NII will be the transformation of Japan into a “consumer economy,” as is so often postulated by American economists.

Bureaucratic rivalry

Given the central role of the Japanese bureaucracy in the nation’s economic miracle over the past 50 years, it is not surprising that business and the media eagerly await each new glimpse into the plans of the unelected officialdom. But despite its spectacular successes with Japan’s auto and electronics industries, and efforts to assert leadership (see MITI, 1994), MITI seems consigned to play a consultative — if not subordinate — role in developing Japan’s digital communications industries.

MITI’s problem is, in fact, summed up by the two words, “digital” and “communications.” Regulation of industries in digital technology (i.e., computers) is under MITI’s authority — except when they involve communications, which are governed by MPT. As Murakami put it: “In the past, industrial policy was masterminded by MITI. Now you have to think about the Ministry of Post and Telecommunications” (Interview, August 29, 1994). MITI’s emphasis on developing “multimedia software” (software being a traditional MITI purview) is one way to assure a continuing role in the debate.

In addition to MITI and MPT, other ministries and agencies have offered their “visions” of an information society, each competing for support from public and private opinion leaders50. Similarly, various ministries have demonstration projects for the city of the future: MITI calls them “new media communities,” whereas MPT sponsors “teletopias,” and the Ministry of Agriculture has its own “greentopias”51.

Various ministries are also sponsoring competing private or quasi-private nationwide fiber optic communications networks. MPT, of course, has strong ties to Nihon Telephone and Telegraph (NTT). Among the three new common carriers (NCC’s) that are NTT’s long-distance competitors, MPT favors DDI (Daini Denden Inc., or “2nd phone company”), co-founded by a former NTT executive52,the Ministry of Construction favors Teleway, whose lines are buried alongside of the ministry’s national highways, and the Ministry of Transportation has backed Japan Telecom, a spin-off of Japan Railways, which built its fiber optic lines along JR tracks — much as Sprint used the track of the Southern Pacific Railroad in the U.S. Meanwhile, MITI favors various regional carriers tied to MITI-regulated electric power companies, such as Tokyo Electric Power (TEPCO) affiliate TTNet. Even the Ministry of Health is getting into the picture with a 3-year pilot project to lay fiber optic cables through water pipes (“Optical-Fiber Study” 1995).

Such diffusion of interests has its price. As several authors (see for example Watanabe, 1994; Yamanashi, 1995) have noted, many Japanese feel that these turf wars jeopardize the nation’s multimedia future. Nonetheless, the jockeying for influence — primarily the rivalry between MITI and MPT — permeates the NII debate. The recent clash between these two ministries has reopened the “VAN wars” of the early 1980s, in which they fought for jurisdiction over Value-Added-Networks that provide on-line information and digital communication services, the fore-runner of today’s commercial Internet providers.

In 1981, MPT proposed tough regulations for the new VAN providers, which, Johnson (1989) argues was successfully opposed by MITI on grounds that it regulated both computer-based communications and also international trade. In 1982, regulation of many small and medium-sized VANs were liberalized, but MPT’s revised 1983 proposal sought to tightly regulate large service providers, banning foreign ownership of both telecommunications systems owners (such as long distance carriers) and those VAN companies that provided international service. Aided by the Keidanren, MPT won Diet approval in 1984 for digital telecom regulation — but with less control over foreign entrants — and the net result was a liberalization of the VANs to permit competition for NTT (Yamada, 1992). But, several scholars (Johnson, 1989; Vogel, 1996) argue that it also led to a net increase in regulatory power for MPT.

As in the earlier turf battle, MPT is again holding the high cards. In the final analysis, it is hard to see how a national information infrastructure that replaces analog voice circuits to each home with digital data circuits could be considered anything but a telecommunications, and thus MPT, affair. If it wins major control, MPT will guide both the nature of the network itself, as well as the specifications for the equipment to be manufactured for use in homes, offices and switching stations throughout the nation. For this reason, reports from MPT and its allies, such as the Telecommunications Council, offer the clearest glimpse into the future of Japan’s NII.

Despite liberalization, MPT’s continuing bias toward regulation will continue to impede the diffusion of network services. For example, as a legacy of the 1981-1984 VAN wars, MPT requires a Special Type II license for those VAN resellers who provide international service, but an easier Type II license for domestic-only VANs. This meant that, according to NTT figures, only about 70% of the Internet sites in Japan in May 1994 were licensed for international E-mail (Goto, 1994): since one E-mail addressing system is used worldwide, the distinction is primarily a regulatory one rather than a technical one. A VAN provider can apply for a domestic license and provide international service (as happened in 1993), but that firm risks losing access to all circuits from a MPT-regulated carrier if MPT discovers the subterfuge. By contrast, no state or federal permits are required to provide worldwide E-mail services in the U.S., and by mid-1993, service providers began to sprout up weekly.

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