The various providers of the NII are currently engaged in fierce competitive struggles for control over the NII's audience—individuals in organizations and households. As shown in Table 6, the providers include the (1) owners of the conduit (telephone, cable, cellular, satellite, broadcast TV), (2) makers of information appliances (TVs, telephones, computers and new integrated products), and (3) providers of content (movie studios, television programmers, information services, publishers, education).96
The NII is in a state of transition from the mix of current providers to future ones, and none of the current players know with any certainty what will be successful in the emerging market of the NII's information highway. Consequently, each provider is trying to shape future visions in its own interests, while ensuring it will have a role in the transition in order to learn how the NII is evolving. Through this strategy, each provider hopes to position itself as a player in the future.97 Some of the emerging visions are quite predictable. Conduit provider AT&T, for example, would like to see the information infrastructure provided much like a utility with a single high-bandwidth cable coming to a central box outside each office or home as telephone and utility services currently do. In contrast, a software provider like Microsoft does not care about how many lines come into the workplace or home, but wants to control the distribution of the signals to TV, stereo, telephone, fax, or other end-user devices (International Hearld Tribune, August 1994; USA Today, August 1994; Fortune, August 22, 1994; Piller, 1994).
[Insert Table 6 here.]
Conduit providers are trying to position themselves for end-to-end communication. The long distance telephone companies—AT&T, MCI and Sprint—are trying to get into cable operations so they have a pipeline to homes and businesses—something they currently are prevented from doing on their own by government regulation. The local telephone companies—the Regional Bell Operating Companies and the independents—are trying to get into the cellular business so they can provide long distance services. They are also forming alliances with entertainment companies so they have content to deliver over the networks. At the same time, they are working on compression technologies which will allow them to transmit high speed data and video over existing twisted pair copper wires to the home, enabling new services, such as video on demand, to be available through the existing local telephone network. The cable companies are working with computer hardware and software companies to develop set-top boxes for TVs that will allow multimedia services to be delivered to the home. They also are working on voice over coaxial cable technology that will allow them to offer telephone service to their subscribers. Thus, the various providers are attempting mergers, buyouts, alliances and technological solutions on an unprecedented scale that preserve their options and position them for markets that might take-off. It is expected to result in reorganization of the entire industry and it is unclear who will be winners and losers (International Hearld Tribune, August 1994; USA Today, August 1994; Fortune, August 22, 1994; Piller, 1994).
Content providers of the NII are also jockeying for position, but not to the same extent or in the same way as the owners of the conduit. They want to see the NII built and used. Their main concern is open access to the end consumer, free or low prices, and protection of their intellectual property as it travels through the conduits. Ideally, of course, the content providers would like to gain the kind of monopoly rents that the conduit providers such as the AT&T Bell System once enjoyed in the telephone world. The conduit providers would like to reestablish their monopoly status if possible.
Given that such positions are no longer possible, the primary shakeout in the near term is less about creating new markets than it is about appropriating revenue from existing ones. In many cases, the providers of NII hope to raid other industries' markets. Existing providers are hoping to hold onto their stake in traditional, fragmented delivery arrangements. New entrants are betting that users will chose integrated delivery channels over existing, noninteractive and fragmented ones. The revenue transfers at stake could be large as shown in Table 7. For example, the U.S. cable TV market is $20 billion annually; the video-rental market is $12 billion; catalogue shopping is $55 billion annually; video gaming is $15 billion. These services alone amount to about $103 billion—more than the $82 billion in revenues of all the regional telephone companies in the U.S. (Fortune, August 22, 1994). Other services add to the stakes; for example, on-line information services constitute another $9 billion.
The incentives to move rapidly and aggressively in the era of the NII are primarily in the private sector, and most of the initiative for actual investment is coming from the private sector. Total public sector investment in the Internet, as a point of comparison to the numbers above, has been estimated at less than $2 billion over 20 years. The private sector can therefore be said to dominate the NII action agenda as it creates what it believes will be in demand by the willing and able customers known in the computing trade as users.
[Insert Table 7 here.]
Users of the NII
Business and institutional users Some communities of users can expect to get immediate and solicitous treatment by the providers. For example, business and government users are likely to be served readily because they traditionally represent substantial, concentrated buying power and the prospect of continuing sales with respect to information technology. Similarly, educational institutions have already proven a ready market for some NII services, as with Internet at the higher education level. As enthusiasm for computer-assisted instruction grows and prices for the requisite infrastructure drop, huge investments in NII-like services can be expected. Education expenses already constitute the largest portion of most state budgets in the U.S., and the content providers such as publishers will move rapidly to serve the demands of the educational sector once those demands become sufficiently focused.
Households as users The interests of household users are least likely to be given consistent attention by the providers of NII. Households are highly heterogeneous in their needs and capabilities. They offer disaggregated purchasing power and expectations of intense price competition. Most important, perhaps, they expect technology that is easy to learn and use, but at the same time serves their needs. A recent MacWorld survey (Piller, 1994) indicates that household users are primarily interested in voting, public opinion polls, town-hall meetings, and the capability to do electronic mail with political leaders and other citizens. They want access to reference materials, databases, how-to programs, education courses, and information about government programs and services. In contrast, services that usually lead lists of NII offerings such as video on demand and electronic games are relatively low on the list. This is a troublesome indicator for telephone, cable and other providers that wish to deliver interactive broadband communications that support services like video on demand, video gaming, electronic gambling, electronic shopping, and electronic advertising.
Creating services that households really desire could require huge investments and substantial markets to recoup the costs. Providers hope to raid other industries to speed up market development, but it is quite possible that such raiding will not result in massive shifts because households are already well-invested in and satisfied with traditional services. Shifts to new technology involve not only up-front costs for equipment, but also costs for operations, support and learning. The experience with educational television and computer-aided instruction in the schools illustrates how badly predictions of demand can fail. In both cases, lack of essential resources to develop the content and provide the user-level technology and learning resulted in massive failure of expectations. Private sector firms can be counted on to provide what preserves their position and allows them to make money. Other institutional intervention is likely to be required if specific public goods are desired.