National information infrastructure

Evolution of the Cost and Benefit Structure

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Evolution of the Cost and Benefit Structure

Investment in the NII will be mainly a private affair as will the expansion of existing infrastructure, the provision of new communication modes and the provision of new products and services. Many of the visions of the NII presume the delivery of switched, digital, broadband services to the home at costs affordable to households. The US telecommunications infrastructure is predominantly digital. The backbone is now optical fiber, but the local loop, which is about 80% of the total investment in a network, is still copper. Most Americans can now afford to subscribe to low-capacity switched telephone service (94% of households subscribe to voice service) and high-capacity unswitched video service (over 60% of households subscribe to cable service). However, it is not clear how many households can afford to pay for high-capacity switched services such as frame relay, switched multimegabit digital service (SMDS), asynchronous transfer mode (ATM) services, or circuit-switched services such as T1 or T3 links of the kind required for the NII vision. It has been estimated that it would cost $25 billion and require 15 years to add optical fiber broadband to the home, assuming only one line to each home; in fact, there might be multiple lines to each home, so the cost could be much higher (Lucky, 1995). Private sector investment in information infrastructure is about $50 billion annually (Pepper, 1993) -- about 25 times that of the federal government's annual investment in telecommunications infrastructure of about $2 billion (Baer, 1995:186). It is not clear whether or when switched high-capacity broadband services will be economically feasible for households. If they do not, a major portion of the NII will be little more than a one-way entertainment delivery system in which cable companies, telephone companies, video rental stores and publishers compete for market share (Council of Economic Advisors, 1994).

If the NII is to yield substantial benefits above its costs, it will probably do so through greater U.S. economic competitiveness, ability to meet societal needs in areas such as health care, education, and more effective delivery of public services. Under this assumption, the earlier the deployment of the NII, the greater the payoffs to business and society (Baer, 1995:179). There have been several studies of the likely economic impact of NII in the U.S. The President’s Council of Economic Advisors estimated that the effects of the 1994 legislative proposals would allow the telecommunications and information sector to achieve certain revenue levels earlier than without the package, adding more than $100 billion (1994 dollars) PER YEAR?? to the U.S. gross domestic product over the next decade, and perhaps a net increase of 500,000 new jobs in 1994-1996 (Council of Economic Advisors, 1994). These near term effects, and the fact that they are calculated only through 1996 versus more long term, suggests the political agenda of the Clinton Administration in relation to the 1996 Presidential election. Moreover, as of 1995, there is no real NII program and therefore no economic impact to be realized. The question is not just whether the paybacks from NII investments might occur, but when and how they will occur. A study by the International Telecommunications Union (1994), indicated that video-on-demand (VOD) was unlikely to break even in less than five years and that the revenues might come from very different from country to country as illustrated for Hong Kong and the U.S. in Table 9.

[Insert Table 9 here.]


The NII will evolve within somewhat predictable channels over the next several years. The weakening influence of traditionally powerful government regulatory entities and the turbulence of the market and the rapid pace of technical change might suggest a devolution rather than evolution. However, it is possible to discern of evolutionary pathways such as the Interactive TV model and the Internet model. There is order in the evolution of the NII even though that order has emerged without a clear design.

Despite the weakening influence of government in the US, it is clear that government in the US and elsewhere can play several key roles in the NII, depending on circumstances. In the U.S., government's role has been limited to deregulation, promotion, and protection of individual and property rights. Telecommunications deregulation is nearly settled, but government influence will be required to help resolve issues and problems arising from the new legislation . In some ways the challenges facing the US government are simple because for many years the US has not had a single, central coordinator of issues related to the NII. Coordination has been shared between government and private institutions such as industry associations, business leaders, professional associations, and user groups. Government plays a leadership role in bringing parties together in key areas such as standard-setting, where traditional standard-developer organizations are clearly losing their ability to guide standard setting processes, while new and flexible "consortia" are emerging to fulfill this role. The government also plays a key role in institutional and social learning. Although the NII might be built and maintained by the private sector, government must develop applications on it, and use it. And government must develop the awareness and skills of its population for effective use. Such learning cannot occur overnight, and since much learning will occur as the NII itself evolves, learning will need to be continuous.

We believe most governments will need to play a role in guiding their populations to operate within international business norms and standards. As commerce is increasingly conducted electronically, it might not be possible for nations to hold to their own unique institutions, norms and standards without paying a high price. For example, if a nation’s coordination mechanisms are bureaucratic, cumbersome and slow, it might lose out to nations with focused institutions that can move fast in response to market opportunities. Similarly, if a nation chooses to flaunt intellectual property laws of other nations, it will have to deal with the business culture it has created when it wishes to enforce such laws to aid its own software, entertainment or publishing industries.

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