National information infrastructure

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Evolution of Demand

The information superhighway vision has a certain supply-side “build it and they will come” character, but it remains to be seen whether business and household consumers will come, and whether they will bring any money. Critics argue that many of the services planned for the NII have already been tried out on consumers, and the findings show weak demand. Videotext, the video telephone, and pay-per-view television have all been business failures. A recent article in The Economist described The Internet as the biggest network, but not the biggest market in the sense that very few businesses were making any money from it. Based on the experience thus far, several conclusions can be drawn about demand.

First, the NII services that will have the greatest initial demand are those that are already here in one form or another. These include telephone, voice mail, electronic mail, file transfers, teleconferencing, electronic document interchange, on-line data services, and data communications. Services such as video on demand, video gaming, electronic gambling, remote shopping and electronic banking will be slower to develop and will require a long time for payback. Many will payback only after failed ventures are taken over by new owners at a fraction of their costs to build.

Second, the market for new NII services will be greatest in business and government, and secondarily in education and the home. The key business and government applications will be for service delivery, workgroup collaboration, teleconferencing, and access to on-line information. The key home applications aside from those related to work at home have yet to develop. When home computers were first produced in the early eighties it was felt that the household market would take off, but it taken much longer than expected. Empirical studies of computing in the home show that computer use is primarily an extension of work at the office, and very secondarily an extension of work at school. Although the home market now constitutes 40% of total PC sales in the U.S., only 20% of all households have a PC. Thus, the notion that home computing would develop its own unique place in the market has not yet materialized. Instead, computing continues to come into the home incrementally. In the past, entry was primarily through work and school and individual smart appliances. Recently, entry has been stimulated by the Internet, on-line services and multimedia. The vision of a single nerve center providing all services and controlling all appliances, systems and communications in the home has failed to materialize; ubiquitous computing seems to be a more realistic vision for the future. Government can stimulate greater application in society by using the NII as a teaching tool in the classroom, building familiarity with it, and providing government services and information.

Table 8 shows some market estimates for NII services and the actual current market (1995) for similar or related services. One inescapable conclusion from the table, as suggested earlier, is that the markets will not develop rapidly and that growth in one segment will occur in large part by taking markets away from other segments (see also previous argument re Table 7).

[Insert Table 8 here.]

Evolution of the Provider Base

The long history of telecommunications in the US suggests that the providers who control the delivery conduits can exert great control over the use of the infrastructure. However, the old regulatory order that prohibited or limited conduit owners from producing and controlling content will be removed, and it is not clear how the base of providers will evolve. For the near term future, the existing conduit providers are likely to play a powerful role because the conduits that are already in place will be the primary conduits for the near future. The NII is already here in the telephone, cable and computer networks that already exist, and the extension and integration of existing facilities and services "out and down" to the larger world of potential users will be the heart of the NII's growth. Nevertheless, new facilities and services will emerge downstream. The telecommunications, computing, consumer electronics and content interests competing for dominance are many and powerful, and it is difficult to foresee who will be the big winners and losers. Deregulation will permit the TV networks to produce more of their own shows instead of buying them from producers like Disney, Warner and Westinghouse, so these major producer firms are merging with the TV networks to ensure they have distribution outlets for their productions. These, and other attempted mergers and acquisitions, are occurring because technology is changing the shape of the industry in ways that are unpredictable and because telecommunications deregulation is removing barriers to competition. As put by Charles Morris,

“The telephone companies are interested in the Disney-Capital Cities deal because they hope to be the ones who pump entertainment into American homes. Meantime, cable companies, which own a sizable one-way entertainment pump now, are adding capacity to get information back out from the household, which positions them to tread on telephone-company turf. One of the complicated trades in the telecommunications bill is that cable companies can invade local telephone territory, but that telephone companies can offer cable-like services, and that long-distance companies can compete for local service customers. In short, a free-for-all. ...To further complicate the world, digital satellite transmission on high-frequency bandwidths may soon be competitive with the much more expensive hard-wired telephone and cable-television networks. The list of deregulation stake-holders runs on and on.

...The strategy of the [telecommunications] bill is to let as many powerful special interests as possible—TV networks, cable companies, local telephone companies—make as much money as possible in the near term as a payoff for sitting still more or less quietly as they lose their protected territories (Morris, 1995).” [Emphasis added]

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