Innovation and competition. When technology is advancing quickly there is more opportunity for innovation. However, the driver of innovation is the search for competitive advantage. To stimulate innovation in communications, we must organize the industry to promote competition and reduce barriers to entry. It should be easier to prove that a new idea is good by deploying it.
Where we are. Today an information service is usually tied to one or two distribution systems: voice calls to telephone wires or cellular spectrum, television to broadcast or cable, books to bookstores or mail. This follows the model of public utilities, which were forced to build specialized distribution systems and hence are regarded as natural monopolies and tend to be vertically integrated.
In contrast, the rest of the US economy is competitive. Firms usually specialize rather than being vertically integrated. In particular, they use a generic and competitive distribution system (retail stores, roads and trucks, UPS, etc.) rather than rolling their own.
Where we want to be. Communications is the distribution system for information, just as roads, trains, and airplanes are for physical goods. To facilitate innovation, communications must become a normal competitive industry, like roads or publishing and unlike today's telephony or cable television. This means that services (a phone call, broadcast TV, a published book) must be decoupled from distribution (telephone wires, broadcast spectrum, or trucks and bookstore shelves). When distribution is separate from services, both are more competitive:
* Many distributors compete to handle every service, rather than just the one or two that are tied to that service.
* A new service doesn't have to develop its own distribution system, and therefore faces lower barriers to entry.
What makes this possible. Digital information is universal. This means that anything can be encoded digitally: text, images, video, sound. This used to be too expensive, but because digital technology keeps getting faster and cheaper it is now cost-effective. Similarly, it is easy and cheap to convert digital information from one form to another. This means that digital information can use a generic rather than a specialized distribution system.
How to get there. The communications industry is heavily regulated today, so progress toward this ideal depends a lot on the regulations. What can be done to speed up the transition and make it smoother?
* Regulate distribution and services separately. In particular:
-- Lease broadcast spectrum competitively without restrictions on how it's used.
-- Allow the cable, telephone, and wireless plants to carry television, voice, data, and other services.
* Control the market power of distribution monopolies (such as the telephone or cable local loop). In particular:
-- Define the monopoly as narrowly as possible, to include only the assets that can't be duplicated. The wired local loop for telephony is such an asset, but telephone switching is not.
-- Require open interconnect at both ends of the monopoly channel, so that all suppliers can buy access at the same price, and any customer can buy equipment (such as a set top box) from any reputable source and connect it to the channel.
-- If a de jure monopoly is granted to stimulate the growth of a new industry, limit it to five or ten years, after which competitors are free to enter the market.
* Spread the transition for today's customers over ten or fifteen years. Sell operators the right to convert existing channels from the current service, but only a few channels each year.
Conference Coordinator
TPRC Inc.
P.O. Box 19203
Washington, DC 20036
