3
the premise that competition in EFT systems will lead to greater consumer choice and to lower prices from the efficiencies inherent in a competitive marketplace. However, there may be other public interest considerations that require regulation in the depository industry. This may be especially true when attempting to balance the requirements of a stable international system against the desirability of retaining freedom of action for national policies. The issue of regulatory overlap between electronic banking and the FCC is more complex than Mr Nyborg indicates, and needs further consideration. Mar/orle Greene, Senior Consultant, Inter-Bank Research Organization, London, UK 1 Philip S. Nyborg, "Regulatory inhibitions on the development of electronic Viewpoint message systems in the USA', Telecom- munications Policy, Vol 2. No 4.1978. pp 316-326. 2,EFT means more bangs for the corporate buck', Computer Decisions, July 1978. EFT in the United States, Final Report of the National Commission on Electronic Fund Transfers (NCEFT), 28 October 1977. 4international Payments Symposium, sponsored by the United States National Commission on Electronic Fund Transfers, June 1977. Where have all the boundaries gone? Interstate communications in the USA are regulated by the Federal Communications Commission (FCC). The guidelines within which the FCC must operate are set by the CommunicationsAct of 1934, which primarily reflects the technology and industry norms of the late 1920s. There have been dramatic improvements since the second world war in the electronic tedhnology which supports telecommunications. The past decade has brought changes in the price and performance of electronic components, eg Large Scale Integration (LSI), so great as to be a shift in kind and not merely one of degree. The impact of these advances in technology upon the FCC has been to make some of the fundamental distinctions upon which the FCC has based its actions meaningless (eg communications/computers, telephone/telegraph, multi-point/point-to- point, and monopoly/competitlon). Communications common carriage can no longer adequately be distinguished from many other forms of telecom- munications or from non-communications activltites in any substantive technical or economic sense. While it may be possible to develop criteria upon which valid distinctions can be based, these will have to be new ones - the traditional criteria have been eroded by technology. Engineers have already torn down many regulatory, industry, service and other 'fences' which were erected by the CommunicationsAct of ! 934. For many years it has been the consensus that data processing and tele- communications are virtually indistin- guishable from the standpoint of the hardware employed. Data processing machines and com- munications machines have become collections of microprocessors which, before the software is written, differ more by the logo on the cabinet than by contents. Modern communications terminals and networks such as AT&T's Dataspeed 40 and Advanced Communications System (ACS) have editing features (information manipulation) which some consider to be data processing. Modern computing systems incorporate message switching systems (information transfer) which are defined to be communications. However, word processing and electronic mall systems (EMS) and electronic funds transfer systems (EFTS) typically involve significant amounts of information manipulation (data processing) and information transfer (communications). More complicated EMS and EFTS systems may not only entail the editing and forwarding of messages but may also trigger other actions. For example, the processing message which records a sale may generate a shipping order message and an entry to accounts receivable. Further, one can easily conceive of a machine which spends normal working hours composing and routing messages as a communications device and then, after a change in software, does routine accounting in the evening. The FCC is trying to restore some order to this boundary by broadly defining data processing in the Second Computer Inquiry. This act of regulatory forbearance may remove some of the immediate roadblocks to the deployment of enhanced information processing systems, but only time can tell if the new rules can stand up to technical developments, anti-trust, and economic factors. Less well known than the effect of modern electronics on the computer/ communications interface is the influence it has had within acknowledged communications func- tions. It has always been difficult to distinguish a small central office from a large PBX. Today some PBX devices route outgoing calls on to a mixture of private lines, Wide Area Telephone Service (WATS), and Message Transfer Service (MTS) facilities. The PBX selects from among the facilities in such a manner as to minimize the user's total bill. This is important because in a simpler age one could have distinguished a central office (provided by the carrier under a monopoly franchise) from a PBX (provided by any number of vendors competitively) on the basis that only a central office could control the routing of (interfirm) calls. By the same token, the ESS can encroach upon the domain of the PBX, namely intrafirm traffic. Notification of call waiting, call forwarding, and TELECOMMUNICATIONS POLICY June 1979 149

Where have all the boundaries gone?

Embed Size (px)

Citation preview

Page 1: Where have all the boundaries gone?

the premise that competition in EFT systems will lead to greater consumer choice and to lower prices from the efficiencies inherent in a competitive marketplace. However, there may be other public interest considerations that require regulation in the depository industry. This may be especially true when attempting to balance the requirements of a stable international system against the desirability of retaining freedom of action for national

policies. The issue of regulatory overlap between electronic banking and the FCC is more complex than Mr Nyborg indicates, and needs further consideration.

Mar/orle Greene, Senior Consultant,

Inter-Bank Research Organization, London, UK

1 Philip S. Nyborg, "Regulatory inhibitions on the development of electronic

Viewpoint message systems in the USA', Telecom- munications Policy, Vol 2. No 4.1978. pp 316-326. 2,EFT means more bangs for the corporate buck', Computer Decisions, July 1978. EFT in the United States, Final Report of

the National Commission on Electronic Fund Transfers (NCEFT), 28 October 1977. 4international Payments Symposium, sponsored by the United States National Commission on Electronic Fund Transfers, June 1977.

Where have all the boundaries gone?

Interstate communications in the USA are regulated by the Federal Communications Commission (FCC). The guidelines within which the FCC must operate are set by the CommunicationsAct of 1934, which primarily reflects the technology and industry norms of the late 1920s. There have been dramatic improvements since the second world war in the electronic tedhnology which supports telecommunications. The past decade has brought changes in the price and performance of electronic components, eg Large Scale Integration (LSI), so great as to be a shift in kind and not merely one of degree. The impact of these advances in technology upon the FCC has been to make some of the fundamental distinctions upon which the FCC has based its actions meaningless (eg communications/computers, telephone/telegraph, multi-point/point-to- point, and monopoly/competitlon). Communications common carriage can no longer adequately be distinguished from many other forms of telecom- munications or from non-communications activltites in any substantive technical or economic sense. While it may be possible to develop criteria upon which valid distinctions can be based, these will have to be new ones - the traditional criteria have been eroded by technology.

Engineers have already torn down many regulatory, industry, service and other 'fences' which were erected by the Communications Act of ! 934.

For many years it has been the consensus that data processing and tele- communications are virtually indistin- guishable from the standpoint of the hardware employed. Data processing machines and com- munications machines have become collections of microprocessors which, before the software is written, differ more by the logo on the cabinet than by contents. Modern communications terminals and networks such as AT&T's Dataspeed 40 and Advanced Communications System (ACS) have editing features ( information manipulation) which some consider to be data processing. Modern computing

systems incorporate message switching systems (information transfer) which are defined to be communications. However, word processing and electronic mall systems (EMS) and electronic funds transfer systems (EFTS) typically involve significant amounts of information manipulation (data processing) and information transfer (communications). More complicated EMS and EFTS systems may not only entail the editing and forwarding of messages but may also trigger other actions. For example, the processing message which records a sale may generate a shipping order message and an entry to accounts receivable. Further, one can easily conceive of a machine which spends normal working hours composing and routing messages as a communications

device and then, after a change in software, does routine accounting in the evening.

The FCC is trying to restore some order to this boundary by broadly defining data processing in the Second Computer Inquiry. This act of regulatory forbearance may remove some of the immediate roadblocks to the deployment of enhanced information processing systems, but only time can tell if the new rules can stand up to technical developments, anti-trust, and economic factors.

Less well known than the effect of modern electronics on the computer/ communications interface is the influence it has had within acknowledged communications func- tions. It has always been difficult to distinguish a small central office from a large PBX. Today some PBX devices route outgoing calls on to a mixture of private lines, Wide Area Telephone Service (WATS), and Message Transfer Service (MTS) facilities. The PBX selects from among the facilities in such a manner as to minimize the user's total bill. This is important because in a simpler age one could have distinguished a central office (provided by the carrier under a monopoly franchise) from a PBX (provided by any number of vendors competitively) on the basis that only a central office could control the routing of (interfirm) calls. By the same token, the ESS can encroach upon the domain of the PBX, namely intrafirm traffic. Notification of call waiting, call forwarding, and

T E L E C O M M U N I C A T I O N S P O L I C Y J u n e 1 9 7 9 1 4 9

Page 2: Where have all the boundaries gone?

Viewpoint subaccount billing are all PBX functions easily performed by an ESS central office. From a technical viewpoint, there is no reason why AT&T could not take on work now being done on the user's terminals (computers). The recently proposed ACS does not go this far, but the technology to do so is available.

Indeed, other areas in which the data processing and communicat ion industries are merging may soon become evident. In the data processing industry there is an acrimonious history of charges of predatory practices based upon engineering designs which assign various functions to main frame, and others to peripheral, devices. If terminal devices are subject to competition and central office-provided substitutes are bundled with the monopoly franchise, one may expect the same issues to be raised in telecommunications.

Te l ephone / t e l eg raph

The separation of the industry into the two monopolistic segments of telephone and telegraph with competition restricted to private line services predates regulation. Western Union's and the Bell System's historical concentration on different markets stems from settlement of their disputes over telephone patents, z This specialization has continued to the present day, and indeed was strengthened when the FCC forced AT&T to sell its TWX service to Western Union. This customary boundary is threatened because data communications encompasses both.

The threat stems not so much from new issues, but from a respect for old concerns and a new-found ability to act on them. Firms are using encryption to secure the privacy of their communication. The essence of the process is to convert from voice to data, transmit the data and then reconvert it. Furthermore, a desire for privacy is not the only reason to convert voice to data. If some degradation in voice fidelity is allowable, it can also be offered at reduced cost. This cost reduction and the increase in capability of modern electronic components have made the use of linear speech encoding economic- ally attractive. Using this technique, fewer data need to be transmitted per

conversation, thus allowing more conversations per circuit. Furthermore, recent work by the Advanced Research Projects Agency (ARFA) has proven the feasibility of packet switched voice. Where we have seen alternate voice/data usage on a circuit in the past, we may see interleaved voice/data in the future, thus further eroding the boundary between voice and data. This is independent of and in addition to carrier shifts of voice traffic and digital transmission.

The data-telegram distinction has fared no better. Some have suggested that there never was a distinction between data and telegraph traffic. They view all non-voice traffic as record traffic and all record traffic as telegraph. A comparison of the developing electronic mail market, facsimile and word processing traffic to telegraphy suggests that the telegram is simply a primitive form of electronic mail. Proposed electronic funds transfer systems are simply up-to-date versions of the existing teletype system which links banks together. If there was any doubt that the telegram was just another form of data communication, it was laid to rest by the public's use of data processing machines to prepare, address, and automatically enter Mailgram into Western Union's network.

Mul t i -po in t /po ln t - to -po in t

It would seem that the boundary between broadcasting and common carriage would be impervious to change. Broadcasters send out signals for all, while carriers go to considerable lengths to prevent signals from going to any other than the designated recipient. That distinction remains true. In the recent past, however, the end distribution facilities did not overlap. Telephone companies offered two-way voice services over copper pairs while broadcasters used over-the-air spectrum. Use of common facilities will bring up substantial pubfic interest issues which have lain dormant ever since the Bell System withdrew from radio broadcasting. Fibre optic systems are being considered for local distribution plant in urban areas. Coaxial cable has been suggested for local distribution in rural areas. Efficient

resource usage suggests that there should not be two wideband systems running into a home- one for telephone and one for CATV. Similarly, large amounts of spectrum should not be devoted to broadcasting if the local loop is TV-capable, since these are badly needed for mobile services in urban areas. Furthermore, rural areas may no longer be willing to pay taxes to support TV translators or support CATV if coaxial cable is used to provide the telephone backbone.

Technology is not only taking telephone companies into the preserve of broadcasters; it is also taking broadcasters into common carriage. Some CATV firms have found customers who want to use CATV cable for wideband data transmission or for two-way common carrier video links. Picturephone ® systems are often cited as a classic mistake of the Bell System. It may be that 'premature' might be a better description, considering the growing applications for two-way video in social service delivery to remote locations, eg tele-education and teiemedicine, and for business conferences.

Radio is not immune to the blurring of roles and missions. High quality audio could easily become one of the products offered over a wideband local loop. Thus, telephone companies have the technical capability of offering FM. Likewise, broadcasters are capable of distributing private messages via sub- carrier. Finally, we may yet see packet- radio used for what have traditionally been wire-line functions such as alarm service and remote metering.

Another development which will tend to merge the two areas is the use of satellites: the use of receive-only earth stations to distribute programming to the local broadcaster for re-broadcast calls for rather expensive earth stations. The direct broadcast satellite, however, is another matter. When antennas cost only a few hundred dollars, it becomes reasonable to discuss the merits of a nationwide station to deliver TV to remote areas. Because a space platform could hold both common carrier and broadcast transponders, the services would be produced simultaneously, which would merge the two at the cost level. This would cause a regulatory

1 5 0 T E L E C O M M U N I C A T I O N S P O L I C Y J u n e 1 9 7 9

Page 3: Where have all the boundaries gone?

merger, because where costs are confounded policies cannot be separated.

Monopoly]competition As mentioned above, after AT&T and Western Union's patent dispute settlement, the industry evolved into a monopoly segment (public switched services) and a competitive segment (private line). The most recent proposal of the industry to the US Congress follows this segmentation, as does the FCC's authorization of specialized common carriage for private line only. In the Execunet case the courts have stated that the FCC cannot maintain this market division without supporting public interest findings. Even if the FCC makes such a finding, it has taken other actions which present a long run threat to this boundary. The FCC has declared data transmission to be private line and has authorized switched data. Some of the specialized carriers already offer packet or circuit switched data services. AT&T has received authority to operate a circuit switched data service and has applied for permission to offer packet switching. These data services can be used for voice. Although the presence of these switched data services may not destroy the voice monopoly, the threat of entry will make it difficult to use monopoly power for cross-subsidization purposes.

Another well established mono- poly/competition boundary is that between local distribution (monopoly) and intercity transmission (competitive). As long as local telephone companies have a monopoly over final distribution

of telecommunications, a solution always will exist to the issue of subsidization of local exchange rates by intercity traffic. Once a specialized carrier can avoid connection with the local telephone company, however, it may be able to avoid paying an access fee to the local telephone company. Indeed, the advent of powerful satellites which operate in the gigahertz range has given rise to small roof-mounted earth stations which could eliminate the need for local distribution.

Conclusions Where have all the boundaries gone? The engineers stole them - every one. Data processing technology and the strong demands of data processing users for improved communications have eroded the traditional guideposts of communica t ions regulat ion. Congress is, of course, in the process of drafting new legislation to reflect today's technology. This will make the lawyer's job easier. It may even make the engineer's job easier. But new legislation may be of no help to the regulatory economist. In the past 'cost' has been the primary determinate of rate. However, when the same set of equipment produces multiple products, the cost of individual products tends to be subject to dispute. For the purposes of setting rates the FCC has developed some general principles to allocate the total costs to the several services. While imperfect, these principles should work fairly well for a fixed menu of services. Their application to an ever-changing list of services, however, is much more difficult.

Viewpoint

If the new Congressional guidelines call for regulation of only a few generic classes of services, the more serious problems of cost allocation will be tractable, and it will be possible to develop firm data requirements. On the other hand, if a wide ranging and volati le menu of services is encompassed within regula tory boundaries, the supporting data will have to be equally varied and complex. Instead of being called upon simply to produce pages and pages of cost studies, carriers will have to maintain a considerable inventory of accounting data and a data indexing system which are sufficiently flexible to permit a timely and thorough examination of service costs.

Finally, one may conclude that there is an unresolvable conflict between the need for flexibility in regulatory boundaries to accommodate tech- nological evolution, and the need for precision in definition of regulatory boundaries for purposes of regulatory oversight.

James C. Crinerwith Walter G. Bolter,

Federal Communications Commission, 3

Washington DC, USA

1 This article was originally presented in Birmingham, AL, USA, at the National Telecommunications Conference, 4-6 December 1978. 2 Kurt Borchardt, Structure and Performance of the US Communications Industry, Harvard University, Boston, 1970, p24. The opinions expressed in this article are

those of the authors and do not neces- sarily reflect those of the Federal Communications Commission.

Making office automation work The increasing proliferation of electronic media and sophisticated communications virtually ensures that we wil l be inundated with a sea o f information. Management of that information - processing, storing, retrieving, and transmitting i t - wil l be our most formidable challenge. The office, as the hub o f an organization, is where decisions and policies are made. The office must facilitate information f low throughout the organization; and the means to perform this task efficiently lie in automation - automation which takes into consideration the people-orientation of the office.

Now, and increasingly over the next decade, the office will be an automation target: of vendors trying to sell their

solutions, of users trying to expedite procedures and efficiency while reducing overhead costs, and of

consultants proselytizing the concept and peddling advice. Although these participants' motivations may differ, they are linked by economic considerations that catalyze a mutual interest in developing ways to 'make office automation work'. Indeed, many observers believe that the office represents the major market of the future. It has already attracted a great deal of attention. But one of the major difficulties in talking about office

T E L E C O M M U N I C A T I O N S P O L I C Y J u n e 1 9 7 9 1 5 1