electronic technology, corporate strategy, and world transformation

Cover

title: ElectronicTechnology,CorporateStrategy,andWorldTransformation

author: Estabrooks,Maurice.publisher: GreenwoodPublishingGroup

isbn10|asin: 0899309690printisbn13: 9780899309699ebookisbn13: 9780313008504

language: English

subject

Informationtechnology--Economicaspects,Technologiedel'information--AspectÃ¢economique,Informationtechnology--Management,Technologiedel'information--Gestion,Computernetworks,Ordinateurs,RÃ¢eseauxd',Informationnetworks,Information,RÃ¢ese

publicationdate: 1995lcc: HC79.I55E851995ebddc: 658.4/038

Informationtechnology--Economicaspects,Technologiedel'information--AspectÃ

subject:¢economique,Informationtechnology--Management,Technologiedel'information--Gestion,Computernetworks,Ordinateurs,RÃ¢eseauxd',Informationnetworks,Information,RÃ¢ese

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ELECTRONICTECHNOLOGY,CORPORATESTRATEGY,ANDWORLDTRANSFORMATION

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Thispageintentionallyleftblank.

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MauriceEstabrooks

QUORUMBOOKS

Westport,Connecticut•London

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LibraryofCongressCataloging-in-PublicationData

Estabrooks,Maurice.Electronictechnology,corporatestrategy,andworldtransformation/MauriceEstabrooks.p.cm.Includesbibliographicalreferences(p.)andindex.ISBN0-89930-969-0(alk.paper)1.Informationtechnology—Economicaspects.2.Informationtechnology—Management.3.Computernetworks.4.Informationnetworks.5.Businessenterprises—Communicationsystems.6.Strategicplanning.I.Title.HC79.I55E851995658.4'038–dc2094–39336

BritishLibraryCataloguinginPublicationDataisavailable.

Copyright©1995byMauriceEstabrooksAllrightsreserved.Noportionofthisbookmaybereproduced,byanyprocessortechnique,withouttheexpresswrittenconsentofthepublisher.

LibraryofCongressCatalogCardNumber:94–39336

ISBN:0-89930-969-0

Firstpublishedin1995

QuorumBooks,88PostRoadWest,Westport,CT06881

AnimprintofGreenwoodPublishingGroup,Inc.

PrintedintheUnitedStatesofAmerica

ThepaperusedinthisbookcomplieswiththePermanentPaperStandardissuedbytheNationalInformationStandardsOrganization(Z39.48–1984).

1098765432

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InmemoryofLottieMurielEstabrooks

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Contents

Preface ix

1Technology,CorporateStrategy,PublicPolicy,andtheTransformationoftheWorld 1

2TheRoleofElectronicTechnologyintheCreationoftheAdvancedIndustrialSociety 19

3TheMicrochipandtheComputer:TechnologicalUnderpinningsofthePostindustrialSociety 41

4 Growth,Expansion,Convergence,andCreativeDestruction 71

5 NetworkUniverse 103

6 TheIntelligentInfrastructure 133

7 TheIntelligentEconomy 159

8Restructuring,Transforming,andGlobalizingOrganizations,Markets,andEconomicSystems 187

9 WaroftheWorlds 215

10IntotheMillennium 237

SelectedBibliography 251

Index 255

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Preface

Thesubjectofelectronicsuperhighwayshasbeenthefocusofintensemediaattentioninrecentyearsbecauseofthedramaticimpactstheseareexpectedtohaveonpeople,businesses,andthestructureandorganizationofeconomicsociety.Thetruthisthatelectronictechnology,electroniccommunications,andelectronicnetworkshaveplayedaprofoundroleinthedevelopmentofanadvancedindustrialsocietyespeciallyinthepostwarperiod.Infact,theytransformeditintoaninformationandcommunicationssociety.ThisbookprovidesasociotechnicalandeconomichistoryofthistransformationwithspecificemphasisonthemicrochipandcomputerandtelecommunicationsrevolutionsasviewedfromtheSchumpeterianprocessof‘‘creativedestruction.”Thatis,itfocusesonthosedynamicmechanismsandbehavioralelementsofcapitalistsystemsthatresultinthecreationofnewproductionprocesses,newproductsandservices,newmarketsandneworganizationalformsandhowitdestroysothers.Itadvancesthepremisethatthesearenot“ordinary”technologiesinanysenseoftheword.Toappreciatetheirtruesignificance,thesetechnologiesmustbeseenasgenericandfundamentaltothewaybusinesses,theeconomy,andoursocietyarestructuredandorganized,andthewaytheyoperate.

Microelectronicsandcomputerandtelecommunicationstechnologiesaretrulytransformativeinthesensethattheyarecapableofbeingapplieduniversallytoallmannerandvarietyofbusinessandeconomicandsocialactivity.

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Theyarecontributinginthiswaytoatransformationofthebasictechnologicalunderpinningsofeconomicsociety,and,throughthese,theyareinitiatingaprofoundtransformationofthesocioeconomicandinstitutionalfoundationsofthesociety.

Theprincipalthesisisthatcorporationsandindividualsallovertheworld,actingasdesignersanddevelopersandasusersofhardware,software,andsystemsarepushingtheentireenvelopeoftechnologies—whichencompasseseverythingfrommicrochips,computersandopticalfiber,satelliteandwirelesscommunicationssystemstosoftware,workgroup,andmultimediatechnologiesandrobotics—alonganevolutionarycourseandmakingthemconvergeandcoalesceintoasingle“intelligenttechnology.”Thistechnologyisdifferentiatedfromthoseofthepastbyitspowerful,automatic,information-processing,communicationsandartificial“intelligence”capabilities.Itisthesemultifunctionalattributeswhichgivethesetechnologies,incombination,theiruniversalapplicationtoeverykindofbusinessactivityandthroughoutsociety.

ViewedfromaSchumpeterianperspective,allmanufacturersandsuppliersofsoftwareandserviceandbusinessusersareengagedinaprocessofcreativedestructiononagrandscaletoengineer,integrate,andsynthesizeallofthethesetechnologiesintoanewkindofinfrastructurethathasthecapabilitiestomediate,eitherdirectlyorindirectly,allbusinessandeconomicactivity.Theyarecreatingaradicallynew“intelligent,”knowledge-basedinfrastructuretomediatethedesign,development,andproductionofallproducts,equipment,andmachinery,thetradingandexchangeofallgoodsandservices,aswellastheall-importantinformation-processing,communications,anddecision-makingactivitiesthataresointegraltothewayorganizations,economicsystems,andsocietyoperateandarestructured.

Corporationsareusingintelligenttechnologytore-engineerandtransformthenatureofworkandmanagementandthestructureandoperationofbusinessorganizations.Theyarecontributingtoagreatconvergenceofindustrialactivitiesworldwideandthefusionofeconomicsystemsandworldcivilizationintoacohesiveandinteractivewhole.In

theprocess,theyareinitiatingaprofounddecentralizationofdecision-makingandeconomicpowerthroughouttheworldandtheglobalizationofeverything.

ACKNOWLEDGMENTS

IwouldliketothankDr.HarryTrebing,ProfessorEmeritus(economics)atMichiganStateUniversityforhisinvaluableassistanceinbringingthisbooktopublication.IwouldalsoliketoacknowledgethecontributiontoMaxMelynk,aseniorengineerwithmanyyearsofexperienceandexpertiseintelecommunicationsengineering,management,andeconomicmatters,whoeditedtheentiremanuscriptandprovidedhelpfulcommentsandsuggestionstoimproveit.Iwouldliketothankaswellthemanydozensofpersonalfriends,businessac-

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quaintancesanduniversityprofessorswhospentmanyhoursoftheirvaluabletimediscussingthesubjectmatteronnumerousoccasionsoverthepasteightyearsormore.Finally,IwouldliketothankthestaffofStrategy&Intelligencefortheirassistanceinpreparingthemanuscriptforpublication.

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Chapter1Technology,CorporateStrategy,PublicPolicy,andtheTransformationoftheWorld

Whereverwelookintheworldtoday,weseetheunmistakablesignsofsocial,economic,andpoliticalupheavaland,indeed,revolution.Inthetimespanofjustthreeyears,forexample,between1989and1992,adozenormoreeventsoccurredthatfundamentallyalteredthebalanceofmilitary,economic,andpoliticalpowerintheworld.Somehaveevenarguedthattheychangedthecourseofworldhistoryandworldcivilization.Themostnotableoftheseeventswerethedemiseofcommunism,thefalloftheBerlinWall,thebreakupoftheSovietUnion,andtheendofthecoldwar.Theworldisalsowitnessingtheriseofmoredemocratic,market-orientedregimesthroughoutEasternEurope,Africa,SouthAmerica,andSoutheastAsia.EvenChinahasbecomecaughtupinthismaelstrombecauseittoocannolongerinsulateitselffromtheforcesofglobalchange.SouthAfricafreedNelsonMandelaandbegandismantlingapartheidduringthisperiodandhasnowachievedmajorityrule.AndtheIsraeligovernmentandthePalestineLiberationOrganizationsignedanhistoricpeaceaccordin1993endingoverfourdecadesofconflictthatthreatenedtoengulftheworld.Spectacularupheavalssuchasthesearetransformingtheoldpoliticalordereverywhereandholdforthefirsttimeinthiscenturythepossibilityofcreatinganewworldeconomicanddemocraticpoliticalorder.

Westernnationsarealsointhethroesofaneconomicandpoliticalrevolutionoftheirownmaking—arevolutionthathasbeenbroughtaboutbythesame

forcesofliberaldemocracyandcapitalismthatmadethemsogreat.Itisthesetwoforcesincombinationthatarepropellingaprofoundtechnologicaltransformationoftheeconomyandthecreationofaglobal,knowledge-basedserviceseconomy.Theimplicationsofglobalizationshouldnotbeunderestimated.Foritmeansmorethangrowingsocial,economic,andpoliticalinterdependenceamongthenationsoftheworld.InsomecaseslikeEurope,itmeanseconomicintegrationtothepointwherenationaleconomiesarebecomingone.Oneofitsmostsignificantimplicationsisadramaticdeclineintheeconomic,political,andevenculturalpowerandsovereigntyofnationstates—everywhere.Theglobalizationofeconomicactivityissosignificantthatitcallsintoquestiontheconceptofthenation-state,theroleofgovernment,andtheindustrialmodelthathasservedWesternnationsforovertwohundredyears.

Agrowingbodyofsocialscientistsand,indeed,evenbusinessleadersandpoliticiansarguethattheconceptofindustrialsocietyandallthatitstoodforthroughoutthiscenturyandbeforeisalreadyobsolete.Theyarguethatindustrialsocietyhasbeentransformedoverthecourseofthelastquartercenturyormorebyinnovationsintechnology,work,management,andorganization.Wearetoldthatwenowliveinanewpostindustrialageinwhichinformationandknowledge,ratherthanland,labor,andcapital,arethepre-eminentfactorsofproduction.Thisdebateisnotanacademicone.Forithasextremelyimportant,practicalimplicationsforthewayweliveandmakealivingandthewayweorganizeandgovernourselvesasasociety.Oneoftheconsequencesisthatmanyoftheconceptsofindustrialmanagementandorganizationdevelopedthroughoutthiscenturymustberadicallyrevisedordiscardedaltogether.

Certainlynoonecandisagreethatwenowliveinanewtechnoeconomicandknowledge-basedeconomy.Theevidenceiseverywhereaboutus,anditisindeedcompelling.Itisexhibitedbytheriseofthenewbiologicalsciencesofgeneticengineeringandgenetherapyandthenewmaterialsandinformationandcommunicationssciencesthataremovingintothemainstreamofeconomiclife.Byfarthemostdistinguishingfeatureofthe

neweconomyistheubiquitouspresenceofmicrochipsandcomputersandthemillionsofdevices,equipment,machines,andhouseholdproductsthatcontainthem.Microcomputersalsoconstitutethebrainsoftelephoneswitchesandbanking,securitiesandcommoditytradingsystems,aswellastheopticalfiberandsatelliteandradiocommunicationsnetworkswhichtieallofthemtogether.Officesareliterallybeingtransformedintoadistributednetworkofmultimediacomputersandcommunicatingmachinesthatallowpeoplefromallovertheworldtoworktogetherandcommunicate,cooperate,andinteractwithoneanother.State-of-the-artfactoriesaredominatedbyintelligent,programmablerobots,flexiblemanufacturingsystems,andautomatedguidedvehicles.

Anothercharacteristicoftheneweconomicageisthescarcityoffactoryworkers.Manyofthemhavealreadybeenreplacedbyrobotsandvariousintelligentmachinesandnetworks,butthisprocessofsubstitutingmachinesforworkershasnotyetcompletelyrunitscourse.Blue-collaraswellasagrowing

numberofwhite-collarworkers,managers,andexecutivesdreadwhattheyseeastheinevitabledestructionofjobsthatwillbebroughtaboutasthecomputerizationofsocietyspeedstoitsultimateend.

Theneweconomy,aboveall,ischaracterizedbytheultra-rapidpaceoftechnologicalandeconomicandsocialchangeandtheobsolescenceofeverything.Entirebodiesofknowledgehavebecomeorarebecomingoutdatedandobsoleteinshorterandshorterperiodsoftime.Manyofthetechnologies,machines,andideasandevensomeoftheinstitutionsthathaveservedussowellforthegreaterpartofthiscenturyareeitheroutmodedorobsoletealtogether.Andtheskillsofvastnumbersofofficeandfactoryworkersandmanymiddlemanagersarebeingcompletelywrittenoff.Thegreatindustrialcorporationsoftheworldarethemselvesengagedinaprocessofself-destruction,onlytheycallitbysuchnamesasrestructuringandbusinessprocessre-engineering.Theyaredownsizingandsheddingmillionsofworkers,managers,andexecutivesatratesthatareunprecedentedinrecenthistory.Andallindicationspointtothefactthatthereismoretocome.

Butnoteverythinghasbecomeobsolete.Certaincornerstonesofourwaylifeandcertaininstitutionshavecometoplayafarmoredominantroleinourlivesandinoursociety.Takemarkets,forexample.Marketsstillexist,andtheystillcarryouttheirimportantinformation,communications,andtrading,exchange,andresourceallocationfunctions.Theystillservetocoordinateeconomicactivity,andmoneyisstillthegreatmediumofexchangeithasalwaysbeen.Butthatisaboutwherethesimilaritieswiththepastendbecausemoneyandmarketsplaymuchmoreimportantrolesinoursociety,andtheyexertmuchgreaterinfluenceoverthelivesofeveryonethaneverbefore.Themarketsoftodayarealsoglobalinscopeandtheirplayerscomefromallpartsoftheworld.Theyarealsoextremelycompetitiveandefficientbythestandardsofthepast,and,toanincreasingdegree,theyareelectronicinnature.Moneyandinformationandinformation-processing,communications,andtradingandexchangeactivitiesmustbeelectronictooperateattheextremelyhighspeedsandhighvolumestomakeglobalcommercefeasibleandefficient.Andithasbeendevelopmentsintechnology,in

information-processingandcommunicationstechnologies,inparticular,thathavemademanyoftheseinnovationsintheoperationandorganizationofglobalmarketspossibleandmakethemsoefficient.

Informationandcommunicationstechnologieshaveallowedustocreateaninstantworldthatrecognizesnolimitstogeography,time,orinformation-processing,communicationsordecision-makingcapacities,oreconomicorpoliticalboundariesforthatmatter.Anditistheymorethananyothersinglefactorthatarefacilitatingtheintegrationofworldcommerce,exposingnationalmarkets,industries,andcompaniestocompetitionandintroducinggreatinstabilitiesininternationalfinancialmarkets.Itwastheautomationoftheworld’ssecuritiesandoptionstradingsystemsandtheirlinkingtogetherbytelecommunicationsnetworksthattriggeredthegreatstockmarketcrashof1987whentheleadingstockexchangesoftheworldexperiencedtheirbiggestplungein

history.ThesignalsreverberatedbackandforthacrosstheAtlanticandPacificoceansbetweenthestockexchangesinNewYork,London,andTokyo,overtheglobalcomputer-communicationsnetworks.Theseglobalelectronicsecurities,commodities,currency,andfuturestradingsystemsandtheglobaltelecommunicationsnetworkswhichhavemadethempossiblehavebecomemuchmoresophisticatedandpowerfulsincethen.Somewouldarguethatitistheythatarereallyincontrol.Estimatesarethatoveronetrilliondollarsinforeigncurrenciesweretradinghandsintheseelectronicmarketsin1993bytraders,speculators,andinstitutionalinvestorslocatedallovertheworld.Thespeedandvolumesoftheseflowsalreadythreatensthefinancialstabilityoftheworldeconomyandtheyarecontinuingtogrow.

Itwastheworkofspeculators,inparticular,operatingintheseinternationalcurrencymarketsthatsabotagedeffortsbymembersoftheEuropeanCommunitytocreateasinglecurrencymarketin1992and1993.Usingcomplexprogramtradingsoftwarewrittenbysomeofthebrightestmathematicians,physicists,andengineerstheycouldfind,theywereabletopounceontheBritishpound,theItalianlira,andtheFrenchfrancinsuccession,drivingthemdownbelowthepricefloorsestablishedinEuropeancentralbankingsystem.Centralbankslostbillionstryingtosupporttheircurrencieswhilethespeculatorsmadetheirget-awaywithbillionsinprofits.Thelessontheseglobaltradingsystemshavetaughtusandcontinuetoteachusdaybydayisthattraders,speculatorsandinstitutionshavemuchmorepowerthanmostgovernmentsespeciallywhentheyworktogether.Theycandefeattheintentionsofalmostanygovernment,whenthereismoneytobemade,andwhentheyacttogether.Thesecondconclusionisthattheseglobal,information,communications,andfinancial,andtradingandexchangeinfrastructureshavebecomethemeansthroughwhicheconomicpowerandcontrolovertheworldarewieldedandwheremuchoftheworld’swealthischanneledandinvested.Theyhavegivenrisetohugepoolsof“stateless”moneyand‘‘stateless”securities,andtheyhavefacilitatedthecreationof“nomadic”or“stateless”corporations.Anditisthey,asmuchasanyotherfactor,thathaveerodedmuchoftheeconomicpowerof

governmentsandnationstates.

Theseobservationshighlightseveralcriticalpoints.Innovationstakingplaceinthedevelopmentandapplicationofelectronictechnologyareineffectcontributingtothecreationofaglobalelectronicinfrastructure.Thisinfrastructurecompriseshundredsofmillionsofmicrochips,computers,storagedevicesanddisplays,telephoneswitchesandopticalfibers,satellites,andmicrowaveandradiocommunicationstransmissionsystemswhichinterconnectmanufacturers,suppliers,distributors,retailers,banks,stockexchanges,andofficesandhomeseverywhere.Toanincreasingdegree,allarebeingintegratedinavarietyofwayssotheycanoperateasasingleinterdependentglobalentity.Thisevolvingelectronicinformation-processingandcommunicationsinfrastructurealreadyrepresentsthenewmediumforglobalcommunications,and,increasingly,itisevolvingasthebasicmediumfortheglobalsharingofinformationandknowl-

edge,fortradingandexchangingthegoodsandservicesoftheworld,andforinvestingtheworld’swealth.

Thiselectronicinfrastructurealsorepresentsthenewmediumfortheevolutionofanewformofcapitalism—acapitalismthatisnotconfinedbygeographyorlandmassesortonationstates—acapitalismthatiselectronic,optical,andphotonic,and,therefore,instantandglobalaswell.Theneweconomicordercould,indeed,becalled“telecapitalism,”“computer-capitalism,”or“electronic-capitalism.’’And,itisaffectingliterallyeverything.

Thestructureandoperationofbusinessenterprisesandeventhenature,meaning,andconceptoforganizationitselfarealsobeingfundamentallyalteredbyinnovationsinworkandmanagement,andmanyofthesearebeingmadepossiblebytheapplicationofinformationandcommunicationstechnologies.Thenewinfrastructuresthatcompaniesarecreatingarealsoinstantandelectronicandhaveincredibleinformationprocessingandcommunicationscapacities.Andtheyareexpandingbyordersofmagnitudethecapabilitiesoforganizationstoefficientlyproduce,storeandaccess,process,andcommunicateinformation,knowledge,andintellectualproducts,andengageinalmostanykindofactivity.

Corporationsareusingthetechnology,forexample,tocreateandcommunicatecomplexengineeringandarchitecturaldesignsandpublishmaterialsandinteract,shareinformation,makedecisions,coordinatetheiractivitieswithoneanother,andtradeandtransactbusinessthroughouttheglobalmarketplace.Throughcooperativeandcollaborativecomputingandworkgrouptechnologies,hundredsofscientists,engineeringdesignersanddevelopers,andmarketingspecialistsinseparatelocationsaroundtheworldcanworksimultaneouslyonthesamedocument,design,orproblemandpooltheexpertiseandideasofeveryone.Thiswaytheycantakeadvantageofincrediblesynergiesandrealizeproductivityenhancementsthatwerepreviouslyimpossible.Theycanalsooperatethreeconsecutiveshiftsinthethreeprincipleeconomictimezonesoftheworldinanytwenty-four-

hourperiod.Allworkandwork-relatedactivitiesare,infact,becomingmediatedbycomputersandtelecommunicationsnetworksinwayssuchasthese.

Informationandcommunicationstechnologyallowscorporationstocreatenewkindsofinformation-intensive,andknowledge-intensivelearningorganizations.Theycandesignandengineertheirinformation-processingandcommunicationsinfrastructurestodelegatedecisionmakingdownandoutintotheorganizationtoworker-managedteamslocatedaroundthecountryandaroundtheworldinwaysthatenablethemtoachieveoptimumstrategiccompetitiveadvantage.Thenewcorporateinformationinfrastructureholdsthepotentialtoempowerworkersandpeopleeverywhere.Theyarealsobreakingdownthebarriersthatseparatedworkactivitieswithinandbetweencompaniesandfusingthemintoanewinteractivesupraorganizationalmodel.Whatisevolvingisanewformofpostindustrial“telecorporation”thathasaminimumofhierarchyandamaximumofhorizontal,intracompanyandintercompanyflowsofinformation,communications,coordination,anddecision-makingactivities.Theseare

looselystructured,amorphousorganizationswhicharecontinuallychangingandevolvinginresponsetochangesanddemandsplacedonthembycustomers,markets,suppliers,competitors,andgovernmentpolicies.

Thecomputerizationofcorporateorganizationsandthemarketplaceisalsoeliminatingtheboundariesbetweenindustrialactivitiesandcausingpreviouslyseparateindustriesandsectorsoftheeconomytoconvergeandcompetewithoneanother.Thisso-called“convergence”phenomenonissynonymouswiththecollapseofthetechnological,geographical,legalandregulatoryboundariesthatseparatedindustriesintheindustrialage,anditisforcingagreatrestructuringandtransformationontheentireeconomy.Intheseventies,thefocusofconvergencewasonthemergerofcomputers,telecommunications,andofficeandfactorysystems.ItprecipitatedthederegulationofthetelecommunicationsindustryandculminatedintheAmericanTelephone&TelegraphCompanybreakup.Intheeighties,thebankingandfinancialservicessectorbecamethefocusofconvergenceasbanks,brokeragehouses,insurancecompanies,bigretailers,andinformationservicesuppliersbeganusingthetechnologytodemolishtheboundariesthatseparatedtheirindustries.Hereagaintheinstitutionalrepercussionsandimpactsofconvergencehavebeenphenomenal.TheresulthasbeentheobsolescenceofmostofthelegalandregulatoryboundariesthatseparatedtheseindustriesintheUnitedStates,theUnitedKingdom,Canada,andelsewhere.

Theconvergenceofcomputers;telecommunications,consumerelectronics;cabletelevision;andinformation,publishing,broadcasting,andentertainmentindustrieswasthemostnewsworthyeventof1993.Foritinitiatedano-holds-barredstruggleamonggianttelephone,cabletelevision,publishing,motionpicture,andentertainmentcompaniesoperatingcompetitivelyandcooperativelythroughmergersandacquisitionsandjointventuresandstrategicalliancestogainasmuchcontrolaspossibleovertheseevolvingelectronicmarketsandelectronicandphotonicdistributionsystemsintohomesandthroughoutnationalandglobaleconomies.

Theleadersintheseindustriesareattemptingtousetechnologytocreateavarietyofnationalandglobalconglomerateswithstrengthsinasmanyoftheseindustriesaspossible.TheyincludegiantslikeTimeWarnerIncorporated,TeleCommunicationsIncorporated,andNewsCorporationofAustraliathatcontrolhugecabletelevision,broadcasting,entertainment,andpublishingportfolios;telephoneandtelecommunicationscompanieslikeAT&T,BellAtlantic,andBellSouth;andworld-scalemanufacturerslikeGeneralMotors/HughesElectronics,GeneralElectricandIBM;aswellassoftwarecompanieslikeMicrosoftCorporation,AppleComputer,andNovell;andbanks,retailers,andmanyothers.Theseplayersaregamblinghundredsofbillionsofdollarsinanall-outefforttocreateandcontroltheelectronicsuperhighwaysthatwilldelivereverythingimaginableintothehomesofeverynationinthenextdecadeandbeyond.Thesearebutafewexamplesofhowcompaniesareusingcomputers,telecommunications,andtheircapitalandknowledgeresourcestocompeteandcreate

andtakeadvantageoftheopportunitiesintheneweconomy.Theeffectoftheactionsofallofthemtogetherwillbetofurtherrestructureandtransformeconomicactivityinyetanotherdimension.

THEVIRTUALECONOMY

Thedevelopmentandapplicationofmicrochipsandcomputerandtelecommunicationstechnologiesiscontributingtothecreationofastrangeandabstractnewworld.Indeed,thenewlanguageandthenewconceptsthatarebeingusedtodescribethisnewworldhavebeenborrowedfromthecomputerindustry.Wearetoldthatthenewfrontiersofwork,organization,andofeconomicactivityareina“cyberspace,”a‘‘hyperspace,”or“virtualspace,”asithasbeencalled,thatexistsinthespaceinsidecomputers,microchips,andtelecommunicationsnetworks,andthatmanyofusalreadyworkinthisspace,whichisnotconfinedorconstrainedbytheusualphysicalandeconomicrealitiesoftheindustrialage.Scientistsandengineersareactivelybuildingsophisticatedmodelsofrealandimaginarydesigns,concepts,products,andsystemsinthisvirtualspaceandsimulatingtheminacompletelyartificialorvirtualenvironment.Andtheyhavecompletecontrolovereverythingthattakesplaceinthisimaginaryvirtualworld.Thisnewandemergingdomainof“virtualreality”isoneofthemostimportantconsequencesofthemicrochipandcomputerrevolutions.Itisrapidlyevolvingasthefocalpointofthenewfactory,thenewoffice,andthenewworkshopoftheworld.

Virtuallaboratoriesalreadyexistthatoperatewithintheconfinesofthemostadvancedcomputernetworksoftheworld,andtheydonotrecognizenationalboundaries,ortimezones,oranyspatialortemporalbarriersofanykind.Andgrowingnumbersofscientists,engineers,artists,andprogramproducersareoperatinginthisvirtualworkplace,sharingideas,communicatingandcooperatingwithoneanother,andcreatingincrediblycomplexdesignsandprogramcontentandnewknowledgewithtremendousspeedsandefficienciesandwithaminimumexpenditureofenergyandmaterials.Leading-edgecompaniesinthe

UnitedStates,Japan,andEuropeareinvestinghugesumstodevelopapplicationsofvirtualrealitytechnologyinbusiness,entertainment,andeducationandtraining.Scientists,engineers,architects,artists,educators,softwaredevelopers,programproducers,andmanyotherknowledgeworkersallovertheworldareinvolvedinthisefforttocreate“virtualworlds”thatexistinpuresoftwareinside“silicon”chipsincomputers,computernetworks,andtheprivateandpublicinformationinfrastructuresthatarebeingcreated.Theultimateproductoftheireffortswillbethecreationofa“virtualeconomy.”

Advancingtechnologyisindeedalreadygivingrisetoanewformoforganizationwhichhasbeencalledthe“virtualcorporation.”Itisanorganizationthathasnoformalstructureintheusualsense.Itishighlynetworkedandflexibleandinteractive.Itexistsasanetworkwithinandapartofavarietyofother

networks,includingthebiggestoneofall,thatis,thenetworkthatconstitutestheglobalmarketplaceandtheglobaleconomy.

Allofthisservestopointoutthattheinnovationstakingplaceintheapplicationofthemicrochipandcomputerandtelecommunicationstechnologies,aidedandfacilitatedbyinnovationsinworkandorganization,havealreadytransformedmuchoftheworldinwhichweliveandwork,intosomethingnewandstrangeanddifferentfromanythingmostofushaveeverconceivedofinthepast—somethingthatisclosertosciencefictionthanphysicalrealityintermsofitsstructureorganizationandoperation.Andthisdemonstrates,onceagain,theneedtorecognizeandunderstandthescientific,economic,andorganizationalprinciplesandlawsthatnowunderpinthenewkindsofworkandproductionprocesses,aswellasthestructureandbehavioroftheneworganizationsandeconomicsystemsthatareevolving.

Increasingly,wearelivinginavirtualeconomicsystemthatrecognizesnophysical,geographical,temporalororganizationalboundaries.Andtheremaynolongerbeanylimitstothekindsofwealththatwecancreateinthefuturebyexploitingtheneweconomicopportunitiesthatarebeingopenedupbytheapplicationofthesetechnologies.Thefundamentaleconomiclawsoftheevolvingvirtualeconomyrecognizethatthebasicfactorsofproductionarenolongerland,labor,andcapitalorevenenergyandmatteratamorefundamentallevel.Ultimately,theonlyrealfactorsofproductionandtheonlyreallimitstoeconomicgrowthandprosperityareknowledge,creativity,imagination,andintelligence.Andthetechnologiesembodiedinthemicrochipandthecomputerandtelecommunicationsnetworkscouldprovidethemeanstoharnessthesefactorsofproductionforthegoodofmankind.

KNOWLEDGEANDSCIENCEANDTECHNOLOGYASAGENTSOFSOCIALCHANGE,ECONOMICGROWTH,ANDCREATIVEDESTRUCTION

Thislineofargumentbringsusbackonceagaintothesubjectof

knowledge,theprimemoverandprincipalagentofsocialandeconomicchangeinWesternsocieties,anditsdiscoveryandapplication.Knowledgehasalwaysbeenthequintessentialfactorofproductionandofsocialandeconomicchangeanddevelopmentbutseldomhasitsinfluenceonsocietybeenquitesopervasiveasitistoday.Knowledgeisspecialbecauseitknowsnoboundsandliterallynoactionoreconomicactivitycanbeaccomplishedwithoutit.Knowledgehasapplicationtoliterallyeverything.Knowledgeisomniscient.Andoursocietyinvestsenormoussumsinitscreation,recording,communication,andmanagementandapplication,bymaintainingenormouslibrariesinwhichtostoreit,aswellasspendingvastsumsoneducationandtrainingandscientificresearchanddevelopment.Theapplicationofthisknowledgeplaysfundamentalrolesinworkandmanagementandinthecreationandoperationoforganizations,institutions,markets,cultures,andsocietyasawholebecausehumanbeingsareintelligent,

learningcreatures,creators,appliers,andcommunicatorsofknowledge.Everythingwedo,includingallofthesocial,economic,andpoliticalorganizationsandinstitutionswecreate,istheresultoftheknowledgewecreateorlearnoracquirethroughexperience,education,experimentation,anddiscovery.Andthisiswhyitis,indeed,truethatweliveinaknowledgesociety.

Nowondereverythingischangingsorapidly.Allofthechangestakingplaceatthepresenttimearetheresultofthecollectiverevolutionsinwisdomandknowledgeovertheagesandtheirapplicationtoallthings.Andthemoreweinvestinknowledge,thegreaterisitsimpactonsocietyintermsofthespeed,scope,andpervasivenessofchange.Theresultisever-growingmountainsofknowledgeandtheknowledge-intensiveactivitythatarebecomingobsoleteovershorterandshorterperiodsoftime.

Hereagaintheinformation-processingandcommunicationsinfrastructuresthatarebeingcreatedwithinorganizationsandthroughoutsocietyareplayingacriticalroleinthecreationandmanagementofaknowledge-basedsociety.Thecomputerinallofitsmyriadmanifestationsalongwithallofitsvarioussoftwaretoolsandtelecommunicationsnetworksandalloftheprogrammedcontentthattheycontainandarecapableofmediatingareamplifyingourabilitiestocreate,communicate,andapplyallofthesegrowingvolumesofknowledge.Consequently,thesetechnologiestooarethegreatfacilitatorsandthegreatinstigatorsofchange,andallofthemareplayingamostcriticalroleinthecreationofaknowledge-basedsociety.

Allofthisgoestopointoutthatknowledge,inallofitsvariousmanifestations,includingitsembodimentintechnologiesandsocialandeconomicinfrastructures,aswellaseconomicproductionprocessesandorganizationsandinstitutions,areall-importantbecausetheyaresourcesofwealth,powerandcontrolineconomicsociety.Thissearchforandapplicationofknowledge,includingitsmanifestationastechnologiesandorganization,forexample,andthroughthepursuitofinventionanddiscoveryand,therefore,changeitself,areintegraltotheverysocial,

economic,andpoliticalfabricofWesternsocieties.Theyareprogrammedintoourconstitutionsandoursystemsoflearningandlegislationandourlaws,regulations,andpoliticalsystems,andtheyrepresentthebasicelementsofdemocratic,capitalistinstitutions.Democracyandcapitalisminpointoffacttogetherconstituteauniquekindofsocialandeconomicorganizationthatneveris,andperhapsneverwillbe,inastateofequilibrium.

Whenexaminedoverasufficientlylongperiodofatime,ofacenturyormore,andoftenovershorterperiodsoftime,ofadecadeorlessasisthecasetoday,itisclearthatoursocietyisinaconstantstateofdisequilibrium,ofcontinuouschange,growth,andevolution.Controlledchaosormanagedchaos,or,“creativedestruction,”asJosephSchumpeter1describedit,isthebestwayofdescribingthecombinedeffectsofcapitalismanddemocracyonsociety.Anditistoanunderstandingofthesedynamicsandtheinterplaybetweentechnology,capitalismandsocietytowhichtheremainderofthischapterisdevoted.

FROMANINDUSTRIALTOANINTELLIGENTECONOMY

Therealityisthatrapidtechnologicalandeconomicchangeandcreativedestructionhavealwaysbeenessentialtoeconomicgrowthanddevelopmentaswellasthecompetitiveadvantageofcorporationsandofnationsbutneverperhapsmorethantheyaretoday.Overthecenturies,Westernsocietieshavebeentransformedbyliterallyhundredsandthousandsofdistincttechnologicalandorganizationalandeconomicinnovationsanddiscoveriesinaprocessthathasbeenrelativelycontinuousattimes,discontinuousatothertimes,andrelativelystaticoverlongperiodsatothertimes.Certainkindsofknowledge,certainideas,andcertaintechnologieshavehadsuchuniqueandomnipotentattributesthattheirimpactsontheeconomyandonsocietyaresogreatthattheadjective“transformative”istheonlywordtoadequatelydescribethem.Intelligenttechnologyisoneofthesetransformativetechnologies.

Byintelligenttechnology,Imeanthetechnologythatisthefoundationof‘‘thinkingmachines.”Thesearemachinesthathavethecapabilitytocollect,process,store,retrieve,andcommunicateinformationontheirown,automatically,withtremendousspeed,efficiency,andaccuracy,andtoactonthisinformationina“rational,”and“purposeful,”manner,withouthumanintervention.Thisactionandthiscontrolisachievedindirectly,thatis,throughstoredprogramcontrol.

Intelligenttechnologyisamuchmoreadvancedandsophisticatedcontroltechnologythananyprevioustechnology.Theindustrialandinformationsocietiesofthepastdependedonmanual,mechanical,andanaloguetechnologiestofacilitateeconomicproductionprocessesaswellasthoseofcreating,processing,andcommunicatinginformationandknowledgeandmakingdecisions.Theirtechnologicalunderpinningswerebasedonpassive,physical,analoguetechnologies(suchascogs,belts,levers,gears,wheels,hammers,andpistons,forexample)whichhadrelativelylimitedapplication.Theindustrialeconomyalsodependedonphysicalmotionandenormousamountsofenergyandmaterialstooperate.

Bycontrast,theintelligenttechnologiesandintelligentmachinesoftoday

are“active,”digital,programmableentitiesandarecapableofcapturing,producingprocessing,andcommunicatinginformationinallofitsmanyforms,sotheyhaveuniversalapplicationtoallhumansocioeconomicactivity.And,toanincreasingdegree,theyaresolid-statedevices.Thatistosay,theyoperatebysimulatingtherealworldthroughthecontrolandmanipulationofelectronsandphotons.Theyoperate“inside”materialsratherthan“outside,”intheelectronicandopticalorphotonicdomain,2sotheyuseaminimumofenergyandphysicalresourcesandthishasphenomenalimportancetotheeconomyandsocietyinthefuture.

Thenewestuniquefactorofproductionandmanyofthenewcommoditiesoftheevolvingpostindustrialeconomyarecharacterizedbytheirnonmaterial

and,therefore,invisiblesoftwareexistence.Thisisduetotheexistenceofafundamental“dematerialization”and“intellectualization”forcethatseemstounderpinalleconomicactivity,anditispropellingthecurrenttechnologicalandeconomicrevolution.Thisforceissynonymous,firstofall,withthecreationofmachinesintheformofcomputerswithincreasinglypowerfulintelligencecapabilitiesand,second,withtheirminiaturizationintheformofever-smallermicrochipdevicesandtheirincorporationintoallmachineryandequipment.Thissameforceisresultinginthesubstitutionofphysicalproductionprocessesbyinformation,communications,andhumanintellectualprocessesand,finally,thesubstitutionofphysicalproductsbyinvisible,nonmaterial,andnonphysical,software-basedintellectualproducts.Theresultisthereplacementofbulkyelectromechanicalmachinesbyminiature,solid-stateintelligentmachinesandtheriseofanintellectualorsoftwareeconomy.Itisthisintelligenttechnologyanditscapabilitytomediateallsocioeconomicintelligenceactivitiesthatgivetheevolvingpostindustrialeconomyitsuniquecharacteranddifferentiateitfromboththeindustrialandinformationeconomiesofthepast.

Allofthosefactorsandcharacteristicsthatmaketheemergingpostindustrialsocietyuniquearethusderivedfromitstechnologicalunderpinnings,itsbasicmachineryandsocioeconomicinfrastructures,anditscommunicationsmediawhichexhibitever-morepowerfulandsophisticateddegreesofthisautomatic,programmedintelligence.Toonedegreeoranother,thesemachinesandinfrastructuresexhibitagrowingspectrumofintelligentfunctionalityrangingfromrelativelysimpleinformationprocessingandcommunicationscapabilities(i.e.,involvinglogicalandtextmanipulation,forexample)tothemoresophisticatedcapabilitiesofseeing,speaking,andrecognizingspokencommands,shapesandimages,and,ultimately,ofthinking,perhapsinamannerthatmaysomedayputitonaparwiththehumanbrain.Thebasiccommoditiesoftheneweconomicsystemandthenewpostindustrialsocietyareimplementedin,andrepresentedby,software,andthesetogetherwithitsintelligenthardwaremachinesandinfrastructuresrepresentitsnewformofcapitalandwealth.

Byfacilitatingandmediatingitsinformationandcommunicationsactivities,itsbankingandfinancialservices,itsproduction,distribution,andtradingandexchangeactivities,intelligenttechnologyconstitutesthefoundationoftheevolving“twenty-firstcentury”corporationandthe“twenty-firstcentury”economy.Totheextentthatitsunderlyingtechnologicalunderpinningsexhibitthissamedegreeofartificialmachineintelligence,itismorepropertocallthisan‘‘intelligenteconomy”oran“intelligentsociety.”

Tounderstandhowthistransformationofsocietyoccurs,weneedamodelorparadigmthatlinksallofthesecorporate,technological,andorganizationalentitieswithoneanotherandwiththesocial,economic,andinstitutionaldimensionsofsociety,includingthemarketsystem,theeconomy,andsocietyitself.AnditisthedevelopmentofthismodeltowhichIshallnowturnbeginningwiththelinkbetweentechnologyandtheeconomy.

TRANSFORMINGTHETECHNOLOGICALANDECONOMICUNDERPINNINGS

Ofallthefactorsinfluencingeconomicgrowthanddevelopmentandthestructureandorganizationofeconomicsociety,nonehasmoreprofoundimpactsthanscience,technology,andknowledgeandinstitutionsdevotedtotheirdiscovery,application,anddiffusionthroughoutsociety.IntheirbookHowtheWestGrewRich,NathanRosenbergandL.E.Birdzellwrote“Westerneconomicinnovationowesmuchtotheinteractionbetweeneconomicandscientificspheres.UnderlyingthegeometricgrowthinoutputofWesterneconomieshasbeenageometricgrowthinscientificknowledge,linkedtoavarietyofinstitutionsthattransmutethegrowthinscientificknowledgeintogrowthinmaterialwelfare.Thisgrowthofscientificknowledgehasshaped,nurtured,andfuelledWesterneconomicgrowth.Itoffersakeytounderstandingthegrowthprocess.”3

Withinthiscontext,however,itisthecorporationasaninstitutionthatistheprincipalagentofchangeasmuchasanyotherfactor.4Itisthecorporation,afterall,whichbringsallofthefactorsofproductiontogethertosupplytheneedsofsociety.Thecorporationisforcedbycompetitivepressurestouseknowledge,technology,information,people,andorganizationstoachievestrategiccompetitiveadvantageofonekindoranother.Itcandosobyemployingorembodyingtechnologyinitsessentialdesign,development,orproductionprocesses;initsdistribution,marketing,orsalessystems;orinitscommunications,coordination,anddecision-makingprocesses,whichareessentialforthemtooperate.Oritcanusetechnologyinallofthesewaysincombination.Ifitissuccessful,theneveryothercorporationisforcedtoadoptthesesameinnovationsorsufferaninevitablefate.Andtheeconomyadvancestoanotherstageofdevelopmentandevolutionthroughthisstep-by-stepprocess.

Buthowcanthesestrategiesandthesetechnologiesbemadetotransformtheworld?Justhowdocorporationsusetechnologyto

accomplishthisincrediblefeat?Andwhatissospecialaboutintelligenttechnologythatitcanbeusedtotransformtheworldinsuchprofoundways?

Figure1.1illustratestheprinciplethatthetransformationofbusinessandeconomicsocietyisbeingdrivenbythestrategiesofleadingcorporateenterprisesinthecontextofthemarketeconomyaswellasinstitutionsandthepoliciesofgovernmentsandthatitisscience,technology,andknowledgeandtheirdiscoveryandapplicationthatareplayingkeyrolesinpropellingeconomicsocietyforwardintoever-increasingdegreesoftechnologicalandorganizationalcomplexityandsophistication.

Alloftheessentialelementstotheexplanationhavebeendescribedabove.Oneisthatthemicrochipandcomputerandtelecommunicationstechnologiesaretrulyflexible,intelligent,programmabletechnologies.Thatis,theyexhibitawidevarietyofintelligentfunctionalitiesthathave,shallwesay,“universal,”practicalapplicationstoallsocial,economic,andorganizationalactivities.These

Figure1.1

AParadigmfortheTransformationofEconomicSociety

featuresenablecorporationstodesignandapplythesetechnologiestochangethenatureofthegoodsandservicestheyproduceandthewaystheyproduceanddistributethemtoservetheircustomers.Totaketrulyeffectiveadvantageoftheopportunitiesofferedbythistechnology,corporationsareforcedtochangethenatureofwork,management,andtheirorganizationalstructurestobettercompete,thatis,tore-engineerandreinventthemselves.Ultimately,theytransformthebasicinformation-processing,communications,production,distribution,andtradingandexchangesystemsandinfrastructuresofsociety.Intelligenttechnologyincombinationwithcorporatestrategiesandpublicpoliciesultimatelyaffectthewaysocietyisoperatedandorganizedfrombothaneconomic,institutional,andpoliticalperspective.5Technologyevenhasaneffectonourdemandsfornaturalresourcessoitaffectsournaturalenvironmentinprofoundways.

Forallofthemanycomponentpartsandplayersineconomicsociety,includingallofitsindividualsandorganizationsandalloftheactivitiestheyengagein,andallofitsindustriesandsectors,anditssocioeconomicinfrastructures,andthenaturalenvironmentitselfarelinkedtogetherinagreatmatrixofinterdependenciestoformasingleintegratedsystemororganism.Thatistosay,allarepartofanenormousanthropological,cyberneticfeedbackandcontrolsystem.Itisknowledge,

intellectualtechnologies,andinformationandcommunicationstechnologies,inparticular,aswellasorganizationandinstitutionsthatpermeateandbindallofthesetogetherintoonecohesiveentitysothatchangesinanyonecaninducechangesinoneormoreoralloftheothersinachainreaction.6Thesefactorsandforcesinteractinsuchawayastoinfluencethestructure,operation,andorganizationoftheeconomicsocietyasillustratedinFigure1.1.

AlloftheseentitiescanbeseentobeorganizedinahierarchyconsistingofatleastfourcomponentsasillustratedinFigure1.2.Thefirst,thesociopoliticalsystem,servesavitalcontrol,coordination,communications,decision-making,

Figure1.2

TheHierarchialOrganizationofEconomicSociety

TheSociopoliticalSystem

↕

TheEconomicSystem

↕

TheTechnologyPlatform

↕

TheNaturalResourcePlatform

andintelligencepurpose.Byspecifyingtherightsandfreedomsofindividuals,privateorganizations,andgovernments,thepoliticalsystemgiveslegitimacytoalloftheiractivitiesaswellastheorganizationandoperationofsociety.Thesecondlevelinthishierarchyconsistsoftheeconomicsystemsofproductionanddistributionandtradingandexchangewhichservetoprovideforthematerialandnonmaterialwelfareofsociety.AtthebottomofthishierarchyaretwofoundationelementswhichIhavecalledthetechnologyandthenaturalresourceplatforms.Intelligenttechnologyistheproductoftheinteractionamongallfourelements.Ontheotherhand,itisthroughitsimpactsoneachandalloftheseelementsthatintelligenttechnologyisabletotransformsociety.

Thetechnologyplatformembodiesthepracticalapplicationofknowledgeandstate-of-the-artscienceandtechnologydevelopedbysocietytoallmannerofthingstoserveuseful,practical,productiveobjectivesandpursuits.Thisplatformconstitutesthefoundationofthebasicinfrastructuresofeconomicsociety,includingitsproductionanddistributionsystems,itstradingandexchangesystemsanditsinformationandcommunicationssystems.Thetechnologyplatformisoffundamentalimportancebecauseitservestotransformprimarynaturalresourcesintofinishedproducts,includingfood,clothing,andmachineryandequipment.Italsoservesasthemeansformediatingitsinformationandcommunicationsactivities.Toonedegreeoranother,thetechnologyplatformdeterminesthescopeofpossibilitiesforstructuringandorganizingeconomicsociety,forcreatingwealth,andforraisingitsstandardofliving.

Thetechnologicalchangesdescribedinprevioussectionscannowbeseeninthiscontext.Thetechnologyplatformisclearlyundergoingatransformationfromonedominatedbyelectromechanicalmachinery,paper,andtransportationinfrastructurestooneincreasinglydominatedbythecomputer,themicrochipandtelecommunicationsnetworks,software,artificialintelligence,andintellectualcommodities.Adistincttrendisalsotakingplacetowardstheuseofelectronicandopticalorphotonicandoptoelectronictechnologiesandmachineryandequipmentandinfrastructuresbasedonthem.Complementingthischangeisan

equallysignificantchangeinthematerialandbiologicalunderpinningsofsociety.Thenewmaterialsciences,forexample,aremakingitpossibletocreate“artificial,”“smart”materialsthathave‘‘supernatural”properties.Smartma-

terialscanabsorb,convert,store,andconductenergymuchmoreefficientlyandevenlearnandreacttotheirenvironment.Andbiotechnologyandgeneticengineeringaregivingmankindthepowertointerveneinthenaturalbiologicalprocessesbywhichlivingorganismsareengineered.Thismakesitpossibletocreate“artificial”livingorganismsthroughthemanipulationandprogrammingofthegeneticcode.

Thetechnologyplatformdictateswhatiseconomicallyfeasibleandefficienttoproduceinthecontextofsociety’sneeds.Itthusdeterminesthedemandsonthestockofitsnaturalresources.Fundamentalchangesinthetechnologyplatform,therefore,initiatechangesinthedemandsfornaturalresourceswhich,inturn,canhavedramaticeffectsonthenaturalenvironment.TheensembleofnaturalresourcesonwhicheconomicsocietydependsatanyonetimeconstituteswhatIhavecalleditsnaturalresourceplatform.Itconsistsofalloftheprimaryresourcesandrawmaterials,includingores,wood,water,andenergy,andplantsandanimals,includinggrains,fruitsandvegetables,andotherfoodstuffs,aswellasfish,game,andotheranimals.Thetechnologyplatformoftheeconomicsystemofproductionhasevolvedoverthecenturiesfromthatofthepreindustrialagriculturalage,basedontheuseofanimals,includingtheoxandthehorse,andwindandwaterpower,alongwithhumanmuscle,forexample,tothatoftheindustrialage,basedonmechanicalandelectromechanicaltechnologyandtheintensiveuseofenergyandmaterials.Thistechnologyplatformultimatelybecamethebasisofthefactorysystem,whichcametoconstitutethemostvisibleandmostdominatingandinfluentialinstitutionoftheindustrialage.Anditisthistechnologicalplatformthatisnowundergoingdramaticchangestodaytoonethatisenergy-materials-andmanual-laborconservingandthisinturniscreatinganeconomicsystemthatisintellectuallabor-enhancingandintellectualcapital-intensive.

TRANSFORMINGTHESTRUCTURE,ORGANIZATION,ANDOPERATIONOFECONOMICSOCIETY

Thistransformationofthetechnologicalunderpinningsofindustrialsociety,inturn,isprecipitatingatransformationinthestructure,organization,andoperationoftheeconomicsystemitself.Itiscontributingtothecreationofnewindustries,thedestructionofoldindustries,andthetransformationofmostofthosethatremaininonewayoranother.Anditispropellingeconomicactivityintotheinvisibleelectronic,cyberneticdomainofthingswhereallactivitycantakeplaceindependentlyofgeographyandspaceandtimeandevenmaterialandenergyconstraints.Theelectronicsuperhighwaysthatareevolvingtodaythusrepresentapowerfulforceforcoordinating,rationalizing,andrestructuringeconomicactivityonaglobalscale.

Corporateenterprisesthroughouttheworldareusingtechnologyandorganizationtocreateandtakeadvantageofnewbusinessopportunitiesbypenetratingnewgeographicalandproductandservicemarketsineverysectoroftheecon-

omy.Manufacturers,banks,brokerageandinvestmenthouses,andretailersareusingthetechnologytocreateelectronic,information,andcommunicationslinkageswiththeirsuppliersandtheircustomers.Intheseandotherways,intelligenttechnologyrepresentsapowerfulintegratingforcethatisfusingformerlyseparate,competing,andnoncompetingenterprises,industries,andsectorsoftheeconomy.Anditiserasingthedistinctionsandtheboundariesbetweencompaniesandindustriesandsectorsoftheeconomy.

Technologyisalsochangingthefactorsthatdeterminetheefficientsizeandscaleofoperationofcorporateenterprisesandthenatureandnumberofactivitiesinwhichtheycanefficientlyengage.Byaffectingthesizeofcompaniesandthenatureoftheactivitiestheyengagein,itinfluencestherelativeefficiencyofbothmarketsandcorporateorganizationsinmediatingeconomicactivity.Insomecases,theeffectistocomplement,extend,andenhancetheefficiencyofthemarketasthegreatmediatorandallocatorofeconomicresources.Inothercases,however,itseffectistoenhancetheefficiencyandsuperiorityofthecorporationoverthoseofthemarket,therebysubordinatingcompetitivemarketforcesandthemarketitselftothecontrolofprivateenterprises.

Theconsequenceisthatcompetitionisincreasingandpredominatinginsomesectorswhile,inothers,corporationsareinternalizingmoreandmoretransactionsandinsomecaseswhatusedtobeentiremarkets.Inthelattercase,itisresultinginmuchgreaterindustrialconcentration.

Ultimately,allofthesetechnological,organizational,andeconomicoperatingforcesincombinationcreatetheconditionswherebythelegal,regulatory,andinstitutionalstructuresthataredesignedtoadministerandcontrolindustrialactivityatthelevelofthenationaleconomybecomeincompatiblewiththeunderlyingeconomicandtechnologicalrealitiesatthelevelofthecorporation,theindustrialsector,andthemarketplace.Throughtheireffectsontheproduction,distribution,andinformation-processingandcommunicationssystemsofindividualenterprises,theyareprecipitatingaprocessofindustrialrationalizationandrestructuringofalleconomicactivityonbothanationalandaglobalscale.

Theriseofthecomputer-mediatedeconomyinwhichalldesign,production,anddistributionsystemsarebasedoninformation-processingandcommunicationssystemscanalsobelinkedtotherelativedeclineofthetraditionalmanufacturingbase,thatistothephenomenonof“deindustrialization”thatmanynationshavebeenexperiencinginrecentyears.Arelatedphenomenonisthe‘‘hollowingout”ofthemodernmanufacturingcorporation,whichissynonymouswiththetransformationfromhardwaretosoftware,the“outsourcing”ofmanymanufacturingactivitiestonewlyindustrializingcountries,andtheriseofanewinternationaldivisionoflabor.

THEGLOBALECONOMICANDPOLITICALDIMENSION

Theeconomicdynamicsdescribedabovearehavingsomeoftheirmostdramaticimpactsatthepoliticallevel.Theriseofglobalopticalandelectronic

infrastructuresthatefficientlyandinexpensivelymediatetheflowsofinformation,knowledge,andeducationalandentertainmentcontentofallkindsthroughouttheworldarecontributingtothecreationofnear-perfectnationalandglobalmarkets.Theyaremakingitpossibleforindividualstoinvesttheirmoneyandwealth,throughpensionfundsandmutualfunds,forexample,inworldmarketswherethereturnisgreatest.Thesizeoftheseglobalpoolsofcapitalhasexplodedinrecentyearstothepointthattheyareknockingdownthedoorsofentryintoalmosteverydevelopingcountry.Mutualfunds,accordingtoTheWallStreetJournal,haveeventakenoverthefinancingroleofbigbanksandquasi-governmentalinstitutionssuchastheInternationalMonetaryFundandtheWorldBank.Throughtheirimpactsontheglobalflowsofinformation,knowledge,money,andwealth,theseinformationandcommunicationsinfrastructuresareredistributingeconomicandpoliticalpowerandwealththroughouttheworld.Theyaredistributingitawayfromgovernmentsandnationstatestoglobalmarkets,globalcorporations,andglobalinvestorsandspeculators.Atthesametime,newinternationalinstitutionsliketheWorldTradeOrganizationarebeingcreatedtooverseetheimplementationofthenewtradingregimeestablishedundertheGeneralAgreementonTariffsandTradesignedinDecember1993.Warisalsobecomingobsolete.Insomerespects,thetechnologicalandeconomicrevolutionsconstituteoneofthemostpowerfuldemocratizingforcestheworldhaseverseen.

Iwillgosofarastoarguethatthesesametechnologicalandeconomicdynamicshaveplayedaprofounddirectaswellasindirectroleinthedemiseofcommunism.ItiswidelyrecognizedthatthetransborderflowsofWesternradio,television,video,andprintmediaplayedanimportantroleinthefallofcommunism,theconsequencesofwhichcontinuetoreverberatearoundtheworld.GreedandcorruptionhadalsopermeatedtheverycoreofpoliticalpowerintheSovietUnion.Muchofthedecayhasalsobeenlinkedtoitsexcessivelycentralizedandauthoritarianeconomicandpoliticalsystem.TheinstitutionsforgeneratingandharnessingtechnologicalandorganizationalinnovationandchangeintheSovietUnionaswellwereincapableofkeepingpacewiththoseofthe

WestatatimewhenthepaceofchangehadacceleratedtothepointthatmanynationsintheWestwere,themselves,havingtroublekeepingup.TheproductionanddistributionsystemsoftheSovietUnioncontinuedtobebasedonthoseoftheindustrialageofthepastand,hence,wereutterlyobsolete.Itsstate-ownedenterprisesanditsinstitutionshadfailedtomakethetransitiontothenewtechnologicalandintellectualstandardsbasedonmicroelectronics,computers,software,andtelecommunications.Thesystem,ineffect,collapsedunderitsownweight.Itcollapsedbecauseitwasobsolete.

Butcapitalismitselfischangingandadaptingtothetimesandcircumstances.InadditiontoanAmericancapitalism,aEuropeancapitalism,andaJapanesecapitalism,wealreadyhavethemakingsofanEasternEuropeancapitalism,aSouthAmericancapitalism,anAsiancapitalism,andpossiblyevenanAfricancapitalism.Eachhasitsowndistinctivefeatures.Westerncapitalismischanging

aswell.EmployeeownershipschemesareontheriseinmanycapitalistcountriesincludingtheUnitedStates,andthewealthofthecitizensofWesterncountriesintheformofpensionandmutualfunds,forexample,istransformingdevelopingnationsandindeedtheworld.Technologyandcapitalismareprovingtohavethepotentialtoempowerknowledgeworkerseverywhere.PeterDruckerhasreferredtotheneworderas“informationcapitalism.”Ireferredtoitaboveas“electroniccapitalism”andinapreviouspublicationas‘‘programmedcapitalism.”Someeconomistshaveevengonesofarastoconcludethatthe“perennialgalesofcreativedestruction”thatarepoweringthecurrentrevolutionsarealsopoisedtotransformcapitalism,ironically,intoakindofpeople’scapitalism,notentirelyunlikethatwhichKarlMarxforesawoveracenturyago.Ifso,nationseverywhereandcapitalismitselfaretrulypoisedonthethresholdofanewera.

NOTES

1.JosephA.Schumpeter,Capitalism,SocialismandDemocracy(London:AllenandUnwin,1943).

2.GeorgeGilderhascalledthisdomainthe“microcosm.”SeeGeorgeGilder,Microcosm:TheQuantumRevolutioninEconomicsandTechnology(NewYork:SimonandSchuster,1989).

3.

NathanRosenbergandL.E.Birdzell,Jr.,HowtheWestGrewRich:TheEconomicTransformationoftheIndustrialWorld(NewYork:BasicBooks,1986),p.333.RobertSolow,whowontheNobelPrizeineconomicsin1979,providedstatisticalevidenceinthefiftiesthattechnologicalchangecontributedmoretoeconomicgrowththanthesavingsrateorcapitalinvestment.

4.

Foratreatiseontherelationshipbetweencorporatestrategyandindustrialmarketstructure,IhighlyrecommendAlfredChandler,TheInvisibleHand(Cambridge:HarvardUniversityPress,1977)andStrategyandStructure(Cambridge:HarvardUniversityPress,1990).

5.

Foraneconomicanalysisoftherelationshipbetweeninformationtechnologyandtheeconomy,seeNewTechnologiesintheNineties:ASocio-EconomicStrategy(Paris:OrganizationforEconomicCooperationandDevelopment,1988)andTechnologyandtheEconomy:TheKeyRelationships(Paris:OrganizationforEconomicCooperationandDevelopment,1992).

6.

JamesBenigerhasdemonstratedthateconomicrevolutionscanbelinkedtodevelopmentsininformationprocess,communications,andcontroltechnologies.RefertoJamesR.Beniger,TheControlRevolution:TechnologicalandEconomicOriginsoftheInformationSociety(Cambridge:HarvardUniversityPress,1986).

Chapter2TheRoleofElectronicTechnologyintheCreationoftheAdvancedIndustrialSociety

Someofthegreatestorganizationalandsocioeconomicrevolutionsinhistoryoccurredasaresultofinnovationsincommunicationstechnologyandmedia.Theinventionoftheprintingpress,forexample,inthemid-fifteenthcenturybytheGermantypographerJohannGutenberginitiatedtheknowledgerevolutionsinscienceandtechnology,commerce,engineering,law,andpolitics.Indirectly,theprintmediumgaverisetothemarketeconomybasedonpaperandcontributedtotheindustrialrevolution.Thedevelopmentofelectricityinthenineteenthcenturyinitiatedaseriesofotherrevolutionswhichtransformedindustrialsocietyinprofoundways.Itledtoabroadrangeofelectricalandelectromechanicalinventions,includingthelightbulb,thedynamo,theelectricmotorandhundredsofelectricmachinesbasedonit,aswellasthetelegraph,thetelephone,radio,andtelevision.Thesediffusedthroughouttheeconomy,influencingthenatureandlocationofproduction,thestructureandoperationofbusinessorganizations,includingofficesandfactoriesandthemarketplaceitself.1Ultimately,theycametoconstitutethetechnologicalunderpinningsofthehydroelectricandcommunicationsandtransportationinfrastructuresweknowtoday.These,inturn,influencedtheevolutionofthemassproduction,massconsumption,andmasscommunicationssocietyofthetwentiethcentury.

TELEGRAPHYANDTHEFIRSTELECTRONICCOMMUNICATIONSREVOLUTION

Theinventionofthetelegraphinitiatedthefirsttrulyelectroniccommunicationsrevolutionandgaverisetotheageofinstantglobalelectroniccommunications.AlthoughtheBritishteamofWilliamFothergillCookeandSirCharlesWheatstonebuiltandtestedatelegraphin1837,thecreditforinventingapracticaloneandcommercializingitgoestotheAmericanSamuelMorse,apainter,andhispartner,AlfredVail,anengineer.WithVail’sassistance,Morsedevelopedacrudeprototypeofasystemthatrecordedmessagesdirectlyonpaper.Anelectromagneticrelaywasusedtoregeneratethesignalsoverlongdistancestocompensatefordegradation,andanelectromagnetwasusedatthereceivingendtomoveapentorecordthecodedmessageonastripofpaper.TheMorsetelegraphsystemwaspatentedin1840,andoperatorsgraduallyfoundthattheycouldreadthesoundofthepenaseasilyasfromthepaper.Thepenwaseventuallyreplacedbyasounder.

Morsehadconsiderabledifficultyinobtainingfinancialbackingtodemonstratehisinventionbuteventuallyobtaineda$30,000grantfromCongresstobuilda40-miletelegraphlinebetweenWashington,D.C.,andBaltimore.OnMay14,1844,hecompletedthelinkandsucceededinsendinghisfamousmessage,“WhathathGodwrought,”betweenthetwocities.MorsesubsequentlyenlistedthehelpofAmosKendall,aretiredpostmastergeneral,tosetaboutbuildinganationwidetelegraphsystem.Kendallappliedhisknowledgeaboutpostalservicestoaccomplishthistask,raisingmoneytoinvestinlinesconnectingcitieswithdropswithincities.TelegraphcompaniesquicklysproutedupinmajorAmericancitiescateringtotheexplodingdemandforperson-to-personmessagecommunicationsforindividuals,businesses,andgovernments.Beingawrittenmessagecommunicationsmedium,telegraphservicesgrewtorivalthenationalpostalservice,andrailwaycompaniesbecameinvolvedinthebusiness.By1851therewerefiftycompaniesinthetelegraphbusinessintheUnitedStates,mostlicensedunderMorse’spatent.Manyofthemmergedin1856toformtheWestern

UnionCompany.By1857,thesixleadingtelegraphcompaniesintheUnitedStateshadsignedatreatydividingthenationintosixregions,buttheseweresubsequentlymergedintothree,andfinallyintoasinglecompany.TheWesternUnionTelegraphCompanyemergedasthedefactomonopolyprovideroftelegraphservicesintheUnitedStatesspanningthenationcoasttocoastby1861.

By1851,Britainhad4,000milesofinternaltelegraphlines.Inthesameyear,atelegraphlinkwasinauguratedbetweenBritainandFrance.TwounsuccessfulattemptsweremadetolinkBritainandtheUnitedStates,butitwasnotuntil1867thatthefirstsuccessfultransatlantictelegraphcablewaslaid.Itusheredintheeraofinstanttransatlanticcommunications.

Besidesrepresentingasuccessfulcommercialbusinessitself,thetelegraphbecamethebasisofanumberofimportantnewbusinessventures.Oneofthesewasaprintingtelegraphinventedin1855byDavidHughesinwhichmessages

weretypedoutatthetransmittedandreceivingends.Severaldecadeslater,telegraphcompaniesbeganintroducingswitchedteleprinterservices.Theseevolvedintotheworldwidetelexservicesinthemid-twentiethcentury.Telegraphygrewtoplayanimportantroleinthenewspaperindustryandthestockexchanges.ItprovidedtheincentiveforP.J.vonReuterinAachen,Germany,toformhisowncompanyin1849totransmitcommercialintelligenceincludingstockmarketinformationacrossEurope.HisbusinesshassincegrownintothevastReutersglobalinformationandintelligenceempirethatisinvolvedtodayineverythingfromprovidingnewswireservices,corporateandeconomicinformation,andsecurities,foreigncurrency,andotherfinancialinformationservices.Buttodayitreliesondatabasesandaglobalcomputerandcommunicationsnetworktomakeitsservicesavailablethroughouttheworld.

Aquartercenturyafteritsinvention,telegraphservicehadbecomeanessentialservicefornewspapers,journalists,merchants,financiers,stockexchanges,railroads,andbusinessmeninNorthAmerica,Europe,andAsia.Europeangovernmentsusedittokeepintouchwiththeirvastandgrowingcolonialempiresinthelatenineteenthandearlytwentiethcenturies.Bytheturnofthecentury,nearly400milliontelegramswerebeingsentannuallythroughouttheworld.Europewasconnectedby130,000kilometersoftelegraphwireandtheUnitedStatesofAmericaby80,000kilometers.

Thetelegraphhadanextraordinaryimpactonbusinessinthelatenineteenthandearlytwentiethcenturies.Bymakinginformationavailableinstantlyacrossthemarketsoftheworld,itintegratedlocal,national,andinternationalmarkets,thusdestroyingthemonopolypowerandcontrolthatmanybusinessorganizationshadoverlocalandregionalmarkets.Thetelegraphtransformedthespatialandtemporalorganizationofeconomicactivitythroughouttheworldandcametosynchronizethesocial,economic,andpoliticalactivitiesofeveryoneacrossspaceandtime.Thetelegraph“providedthedecisiveandcumulativebreakoftheidentityofcommunicationsandtransportation,”wroteJamesCarey.Itbecame“amodelofandamechanismforthecontrolofthephysical

movementofthings,specificallyfortherailroad….[It]…broughtadeclineinarbitrage,[thatis,]thebuyingcheapandsellingdearbymovinggoodsaroundinspace…[anditaffected]thepracticalconsciousnessoftimethroughtheconstructionofstandardtimezones.”2

Thetelegraphcomplementedtherailroad,settingoffaneconomicrevolutioninitsownrightinthelate-nineteenthandearly-twentiethcenturies,accordingtotheeconomichistorianAlfredChandler.TherailroadandtelegraphcompanieswerethefirstmodernbusinessenterprisestoappearintheUnitedStates,andtheybecamethemodelforthemodernindustrialcorporation.Theyprovided“thefast,regularanddependabletransportationandcommunicationsservicessoessentialtohighvolumeproductionanddistribution—thehallmarkoflarge,modernmanufacturingormarketingenterprises.”3Thetelegraphbecamestrategicforbusinessestocoordinatetheiroperationsonanever-expandingscalethroughspaceandtimeandenabledthemtoexpandnationallyandtheninter-

nationally.Itinitiatedthefirstofseveralwavesoftechnologicalinnovationsthatresultedintheglobalizationofbusinessandcommunicationsmediainthelatenineteenthandtwentiethcentury.

TELEPHONY:THESECONDELECTRONICCOMMUNICATIONSREVOLUTION

Theinventionofthetelephoneprecipitatedthesecondelectroniccommunicationsrevolutioninthelatenineteenthcentury.Becauseitwasatwo-waymediumandbecauseitcarriedvoice,thetelephoneinitiatedamoresociallyandeconomicallysignificantcommunicationrevolutionthanthetelegraph.Thetelephoneisamarveloftechnicalandengineeringdesignandoperation,anditbecamethefirsttrueuniversal,instant,global,personal,information,andcommunicationsmedium.Today,thetelephonesysteminterconnectshundredsofmillionsofpeoplearoundtheworldandprovidesthemwiththemeanstocommunicateinstantlybyvoice,writtenmessage,computer,andfacsimilewhethertheyareathome,intheoffice,orinacar,atruck,oranairplane.Thetelephonebecameoneofthemostimportantsocialandeconomictechnologiesinhistorybyprovidingamediumforexchangingpersonalandbusinessinformation,coordinatingsocial,economic,andpoliticalactivities,facilitatingdecisionmaking,andsimplykeepingintouch.4And,itdoesthiswithlittleornohumanintervention.

ThetelephonewasinventedbyAlexanderGrahamBell,aScotsman,whoemigratedtoCanadaandsubsequentlymovedtoBostonasateacherofthedeaf.Bellwasabrilliantscientistandinventorinterestedineverythingfromthescienceofspeechandhearingtoflightandcommunications,andduringhislifetime,heevenbuiltahydrofoilthatsetaworldwater-speedrecordin1919thatheldforadecade,aswellasanairplanecalledtheSilverDart.OneofBell’sgreatinterestsinlifewastofindwaystoenablethedeaftohear.WhileinBostoninthemid-1870s,BellwasworkingonwaystoimprovethetelegraphattherequestoftheWesternUnionTelegraphCompany.Workingwithhisassistant,ThomasWatson,inhislaboratoryinBostononJune2,1875,thetwomen

apparentlymadeanimproperconnectioninsettinguptheirequipmentandsucceededintransmittingnotintermittentcurrent,butcontinuouscurrentsothattheyactuallytransmittedsound.Bellbeganperfectingtheapparatustocarrythehumanvoice.

OnFebruary14,1876,BellappliedtotheNewYorkpatentofficeforapatentforthetelephone.Twohourslater,arival,ElishaGray,showedupatthepatentofficetofileapatentforthetelephone.AlthoughBellwasawardedthepatent,itwasnotuntilMarch6,1876,thathesucceededingettingthedevicetotransmitthenow-famouswords:“ComehereWatson,Iwantyou.’’Thiswasthefirstrecordedelectricaltransmissionofthehumanvoice.

Bellwasnotabusinessmanbutahumanitarianandvisionarywhowantedthetelephonetodevelopinadifferentkindofbusinessthanthetelegraph.He

sawthetelephonedevelopingintoabusinessthatwouldenableeveryindividual,home,andbusinesstocommunicatewithoneanotherratherthanonethatservedprimarilybusinesses.InalettertoagroupofBritishinvestors,Bellwrotethatthetelephonewouldenable“amaninonepartofthecountry[to]communicatebywordofmouthwithanotherinadistantplace.”

Insteadofrunningthetelephonebusinesshimself,BellreliedonGardinerHubbard,alawyerandbusinessman(andsubsequentlyhisbusinesspartnerandfather-in-law),tocommercializehisinvention.HubbardtriedsellingtheBellpatentstoWesternUnionforasumof$100,000,butWesternUnionexecutivesbalkedattheideathatanyonewouldeverwanttotalktooneanotherovergreatdistances.WesternUnionwouldsoonregretthisdecision.HubbarddecidedtoproceedbyformingtheBellTelephoneCompanytoconcentrateontheNewYorkbusinessandtheNewEnglandTelephoneCompanytolocatefranchisesinlocalareasthroughoutthecountry.HethenformedNationalBelltoconcentrateonlongdistanceservice.In1878,HubbardhiredTheodoreN.Vail(adistantrelativeofAlfredVail)andmadehimgeneralmanagerofNationalBell.Vailwasauniqueindividualbecauseofhistrainingandexperienceinthecommunicationsbusiness.VailcamefromtheU.S.PostalService,havingrisentogeneralsuperintendentoftheUnitedStatesRailMailService,sohewasveryfamiliarwiththechallengesandthemanagementpracticesofbuildingandoperatinganationalcommunicationsbusiness.ItwasVailwhodevisedastrategytouniteandintegratetheBellcompaniesintooneofthegreatestcorporateenterprisesintheworld,and,whetherheintendeditornot,heturnedBell’svisionofthetelephoneintoaworkingreality.

TelephoneservicedevelopedrapidlyintheUnitedStates.In1878,thefirstexchangewasopenedinNewHaven,Connecticut,withtwenty-onesubscribers.ByJanuary1884,BostonhadbeenlinkedtoNewYork,adistanceof480kilometers.By1900,therewereoveronemilliontelephonesintheUnitedStatesandlocalsystemswerelinkedintonationalsystems,andthetelephonebusinesshadbecomeestablishedinallindustrializedcountries.In1878,thefirsttelephonecompanywas

formedinBritain.TelephoneservicewasadoptedinGermanyasastatemonopolyin1877.InApril1880,NationalBellformedasubsidiarycalledBellCanadatosetupandoperateatelephoneserviceinCanada.In1897,telephoneservicebecameastatemonopolyinBritainandFrance,Italy,Germany,andothercountriesfollowedbyadoptingthesamestatemonopolymodel.

THETRIUMPHOFVAIL,AT&T,ANDTHEBELLSYSTEM

ThetelephonebusinesswasalucrativeoneintheUnitedStatesrightfromthebeginning,anditwasnotlongbeforeitattractedcompetitors,thebiggestandmostformidableofwhichwasWesternUnion.Notlongaftertelephoneservicewasinaugurated,WesternUnionboughttheGraypatents,formedtheAmericanSpeakingTelegraphCompany,andenteredintoanagreementwith

ThomasEdisontosupplyitwithnewtelephonetechnology.ItthenbeganestablishinglocalexchangesinmajorcitiesincompetitionwithBell.By1878,WesternUnionhad56,000telephonesintwenty-sixcitiesandwasdoingitsbesttopreventBellfromexpandingitslocalandlong-distancenetwork.WesternUnionpressuredBelltosellout,butVailrespondedbythreateningtoenterthetelegraphbusiness.Underthethreatofcompetition,WesternUnionbackeddown.In1879,Vailnegotiatedadealwherebythetwocompaniesagreedtodividethemarket.WesternUnionagreedtosellitstelephonebusinessaswellascontroloverthecompetingtelephonepatentstoBellinreturnfor20percentofBell’slicensingfees.Eachcompanyagreedtostayoutoftheother’sbusiness.FreefromcompetitionfromWestern,Vailcouldthenconcentrateonexpandinglong-distancetelephoneserviceandsellinglocalexchangefranchises.HealsoextendedhiscontrolovertheindustrybylicensingothermanufacturerstomakeequipmentforthegrowingBellempire.Thisgeneratedanotherimportantsourceofrevenue,anditassuredBellcontroloverthemanufacturingoftelephoneequipment.

ButVailwasalsoplanningforthetimewhenthepatentsownedbytheNationalBellwouldrunout.In1880,NationalBellbecametheAmericanBellTelephoneCompanyandbeganissuingpermanentlicensestolocalfranchisecompaniespermittingthemtouseallofBell’spatentedequipmentinreturnforsigningoverbetween35and50percentoftheircommonsharestoAmericanBellandagreeingtopaytwentydollarspertelephoneperyear.Inthisway,VailwasabletoensurethatAmericanBellwouldhaveapermanentinterestinasmanylocaloperatingcompaniesaspossibletogetherwithapermanentstreamofrevenuewhenthepatentsexpired.TheselocaloperatingcompanieswouldeventuallybecomesubsidiariesofBell.

Atthesametime,WilliamForbes,AmericanBell’spresident,andVailcontinuedemphasizinghorizontalexpansionandbeganbuildingtheAmericanBellempireverticallybyexpandingintoequipmentmanufacturingandeventuallyintoresearchanddevelopment.VailconvincedWesternUniontosellitsinterestinWesternElectricand,oncethistransactionwasconcluded,hebeganexpandingitscapacity.In

1885,AmericanBellcreatedtheAmericanTelephoneandTelegraphCompany(AT&T)asasubsidiarytoconcentrateondevelopingthelong-distancemarket.Withthecreationofatricorporatestructureengagedinlocalandlong-distanceservicesaswellasmanufacturing,Vailbeganbuildingacompanysopowerfulthatcompetitorswouldfinditimpossibletobeat.AT&T-WesternElectricsetupjointventuresnotonlyinCanadabutinothercountriesaswell.OnewasajointventurewithNipponElectricCompany(NEC)inJapantomanufacturetelephoneequipmentfortheJapanesemarket.

ButcompetitiondidmakegreatinroadsintotheBellempireaftertheBellpatentsexpiredin1894and,somehaveargued,becauseofthedepartureofVailwhoretiredaspresidentofAT&Tinfrustrationoverthewaythebusinesswasbeingrun.Bellexecutives,accordingtoRobertSobelandDavidSicilia,authorsofthebookTheEntrepreneurs,didnotshareVail’svisionofcreatinganational

telephoneutilitythatprovidedthebestpossiblelocalandlong-distanceservice.IndependentshadgrowntoequalthesizeofAT&Tandmanyweregrowingmorerapidly.In1902,J.P.MorgangainedcontrolofAT&TandputVailonitsboardofdirectors.In1907,MorganinvitedVailtocomeoutofretirementattheageofsixty-twotoacceptthepositionaspresidentofAT&T.OneofthechangesVailmadewastochangeAT&TintotheparentcompanywhichownedtheBellpatentsandthestockofthelocalcompanies.Vailalsochangedthephilosophyandthestrategyofthecompany.

Ratherthanmanagingthetelephonebusinessforitscashflowandprofitpotential,Vailsetabouttocreatetheaffordableuniversaltelephoneservice.The1910annualreportofAT&TsetoutVail’svisionforthetelephoneindustryandtherolethatAT&TandtheBellSystemandtheconceptofuniversalserviceshouldplayinit:

TheBellsystemwasfoundedonbroadlinesof“OneSystem,OnePolicy,UniversalService,”ontheideathatnoaggregationofisolatedindependentsystemsnotundercommoncontrol,howeverbuiltorequipped,couldgivethecountrytheservice.Onesystemwithacommonpolicy,commonpurposeandcommonaction;comprehensive,universal,interdependent,intercommunicatinglikethehighwaysystemofthecountry,extendingfromeverydoortoeveryotherdoor,affordingelectricalcommunicationofeverykind,fromeveryoneateveryplacetoeveryoneateveryotherplace.

Vailwasamasterstrategist,andheusedhisexceptionalwitandskilltobuildsuchauniversaltelephonesysteminjustafewdecades,and,intheprocess,hecreatedanindustrialenterprisethatwasabletomonopolizethetelephoneindustryintheUnitedStatesforalmostthree-quartersofacentury.Vail’sstrategywastostrengthenAT&TverticallyandhorizontallyandusethepoweroftheBellTelephoneSystemtosqueezeouttheindependenttelephonecompaniesandforcethemtosellouttoAT&T.Andhecoulduseavarietyofstrategiesandtacticstoachievehispurpose.HecouldrefusetograntlocalindependentsaccesstoAT&T’slong-distancelinesorchargeveryhighfeesforsuch

interconnection.SincecompetitorsdependedonWesternElectricforequipment,hecouldchargethemhighpricesorrefusetosellthemtheequipmentoutright.AT&Talsocontrolledthestandardsbywhichequipmentcouldbeinterconnectedtothenetworksothistoocouldbeusedtoprecludecompetition.Ifallelsefailed,hecouldsimplymoveintothelocalareaandundercuthiscompetitorsinprice.Hecoulduseanyofthesestrategiestoforceindependentstosellout.ThesestrategiestogetherwithVail’semphasisofofferingsuperiorserviceatlowerratesworkedwondersand,withinfiveyears,VailhadsucceededinoutstrippingtheindependentsingrowthandprofitabilityandrestoringtheBellsystemtoitsformerglory.

Vail’sstrategyalsoenabledAT&Ttoextendthecompany’smonopolyintoequipmentmanufacturing.AT&Tevensucceededinpurchasing30percentofitsformerbiggestrival,WesternUnion,in1909,andVailbecamepresidentof

thecompanythefollowingyear.WithWesternUnionunderitswingandthebattleagainstindependentsgoingwell,AT&Tcameunderinvestigationin1912byboththeInterstateCommerceCommissionforitsmonopolypracticesandtheJusticeDepartmentforviolatingthecountry’santitrustlaws.ThiswasjustoneofthemanyattemptsbyaU.S.agencytobreakuptheBellempire,anditfailedinlargepartduetothenegotiatingtacticsofVail.

Vailarguedthatanaffordable,universal,high-qualitytelephoneservicewasinthebestinterestofthenationandthatthetelephonebusinessconstitutedanaturalmonopolyandshouldbeadministeredassuch.Vail’sargumentswonthedayforAT&T,andtheJusticeDepartmentreachedasettlementin1913withAT&TagreeingtodivestitselfofitsstockinWesternUnion,abandoneffortstopurchasemoreindependents,andallowindependentstointerconnectwithitslong-distancenetwork.AT&TwasabletokeepWesternElectricandallofitslocaloperatingcompaniesaswellasthefreedomtotakeoverotherlocalcompanies.Thenaturalmonopolydoctrinewaseffectivelyenshrinedasthepublicinterest.

In1925,anotherelementwasaddedtothegrowingAT&TempireandtheBellTelephoneSystem.Inthatyear,VailmergedtheresearchanddevelopmentstaffofWesternElectricandAT&TtocreateBellTelephoneLaboratorieswiththeresponsibilitytoconductbasicandappliedresearchintonewtelecommunicationstechnologies.Inthedecadesthatfollowed,BellTelephoneLaboratoriesorBTLasitcametobeknown,builtuponeofthemostimpressiverecordsofresearchanddevelopmenteverachievedbyanycompanyintheworld.ManleyIrwinattheWhitmoreSchoolofBusinessinNewHampshire,whoconductedextensiveresearchintothehistoryoftheBellTelephoneSystem,wrote,

BTLthusinstitutionalizedresearch,andthelaboratorybecameessentiallyapatentfactory.Bytheearly1930s,BTLwasproducing6,000patentsayearandenjoyedaportfolioof6,000patentsandlicensesto9,000others.BythestartoftheWorldWarII,thepreeminenceofBellTelephoneLaboratrieswaswellestablished.Fundedbyalicense

contractuponoperatingcompanyrevenues,thebreadthandrangeofBTLmarriedbasicdevelopmenttoappliedproductdevelopment.WesternElectric,AT&T’smanufacturingaffiliate,paidforproductdevelopment,andBell’soperatingcompaniespaidforbasicdevelopment.Inshort,Vailhadconstructedaprocesstosupersedeanevent.Researchwasinstitutionalizedasanongoingendeavor.ItwastobeamodellaterreplicatedbyotherAmericanindustries.5

Overthenexthalfcentury,scientistsandengineersatBellTelephoneLaboratoriesranupanimpressiverecordofinnovationsandinventionsineverybranchofelectronics,includingradio,telecommunications,andcomputers.Themostnotableincludedmicrowaveradio,mobileradio,andcellularradiotelephony,coaxialcable,semiconductortechnologyincludingthetransistor,andopticalfibers,electronicswitching,andcomputersoftware.ScientistsfromBellTelephoneLaboratoriesreceivedmoreNobelPrizesthananyotherorganization

intheworld,anditwasthestrengthofBellTelephoneLaboratoriesthatenabledAT&Ttocontinuedominatingthetelephoneindustryforoverahalfacentury.LikeAT&TandtheBellsystem,BellTelephoneLaboratorieseffectivelybecameanAmericaninstitution.

Telecommunicationssteadilygrewandbecamemoreandmoreimportanttobusinessandthepublicthroughoutthe1920s,anditwasinrecognitionofthisthatCongresspassedtheCommunicationsActof1934.TheactcreatedtheFCC,theFederalCommunicationsCommission,toregulateallfederaltelegraphandtelephonematters.ItcastintostonethefundamentalstructureofthetelephoneindustrythatexistedatthattimewhenAT&Tanditsaffiliatedlocaloperatingcompaniesgenerated94.3percentofalllocalexchangemessages.Italsoinstitutionalizedverticalintegrationintheindustrybyrecognizingthatthemonopolyoverlocalandlong-distanceservicealsoextendedtothemanufactureofequipmentandtheprovisionoffacilities.Theactrecognizedtelephoneserviceasanessentialpublicserviceandanaturalmonopolythatwouldberegulatedasapublicutility.RegulationwouldalsoservetoprotectAT&Tfromcompetition.TheCommunicationsActeffectivelyenshrinedintolegislationthefundamentalpublicpolicygoalofuniversal,affordablepublictelephoneservice.Thispublicpolicygoalhaswithstoodthetestofchangingtimesandcircumstances,anditrepresentsafundamentalpillaroftelecommunicationspolicyandpublicutilityregulationineverynationintheworldtoday.

ThereisabodyofopinionthattheCommunicationsActwastheworkofTheodoreVailbecauseitincorporatedhisvisionofhowthetelephoneandthetelephoneindustryshouldservesocietyandtherolethatAT&TandtheBellsystemshouldplayinit.Itisneverthelessatestimonytotheextraordinarymanagement,leadership,andvisionofTheodoreVail.VailhadachievedwhatBellhadsetouttoachievebutcouldnot—thegoalofcreatingauniversal,national,publictelephoneservicerunbyAT&TandtheBellsystemasamonopoly.

WIRELESSRADIOANDTHETHIRDELECTRONIC

COMMUNICATIONSREVOLUTION

Thethirdelectroniccommunicationsrevolutionwaslaunchedwiththeinventionofradio,orwhatwascalled“wireless”intheearlydays.Wirelesscommunicationsdevelopedfromoneofthemosttheoreticalfieldsofscience.JamesClerkMaxwell,whileworkingwithMichaelFaradaytodevelopandapplytheprinciplesofelectromagneticinduction,hypothesizedtheexistenceofelectricradiationofwhichlight,hededuced,wasbutonemanifestation.AlthoughMaxwelldidnotprovethatthesewavesactuallyexisted,histheorysetoffaraceamongscientiststoprovethattheydid.

ItwastheGermanphysicistHeinrichHertzwhoactuallyprovedthatelectromagneticwavesdidexist,andthisgavehimthedistinctionasthediscovererofradiowaves.In1988,Hertzshowedthatanelectricsparkgeneratedacrosstwo

electrodeswouldinduceasparkintwosimilarelectrodesconnectedbyacoilatadistanceoftwentymeters.Heconcludedthatenergywastransferredbetweenthetwoatthespeedoflightandhecalledthismediumofenergytransfer“electromagneticradiation.’’ItwasinrecognitionofHertz’scontributionstothescienceofelectromagneticradiationthatsuchwaveshavebecomeknownas“hertzianwaves,”andthe“hertz”hasbecomethefundamentalunitforthemeasurementoffrequency.

Anumberofotherscientistscontributedtothedevelopmentofradio.In1988,theFrenchmanEdouardBranlydiscoveredtheradioconductorwhichworkedontheprinciplethatitbecameaconductorofelectricityinthepresenceofanelectromagneticwave.Itwasactuallyareceivingantennae.Branlywasabletodemonstratethatthedevicecoulddetectwavesatadistanceofseveraldozenmeterseventhroughsolidobjectsandcouldevensetoffelectricbellsandtelegraphrelays.In1894,OliverLodge,anEnglishman,introduced“tuning,”animprovementontheideasofBranly.Byadjustingthereceivertothefrequencyofthetransmitter,receptionofthesignalandthequalityofthecommunicationscouldbeimprovedenormously.

IntheUnitedStates,NikolaTeslasuccessfullycarriedoutmuchofthepioneeringworkintheareasofalternatingcurrent,highvoltagetransformers,andthetransmissionofelectricenergybywaves.AnothercontributortothedevelopmentofradiocommunicationswastheRussian,A.S.Popov,whodemonstratedin1895thatalongverticalwiresignificantlyimprovedthereceptionofelectromagneticwaves.Theantennawasthusborn.Thenextyear,hesucceededintransmittingthewords“HeinrichHertz”over250metersusingthefirstradio-electricMorseconnection.Inthesameyear,anItalianaristocratbythenameofGuglielmoMarconisucceededintransmittingaradiosignaladistanceof2400kilometersusingMorsecode.ButMarconihadtogotoEnglandtogainsupportforhisworkfromtheBritishPostOffice(BPO).TheBritishPostOfficewasinterestedintheapplicationofwirelesstopostalservicesbecauseitwasabouttotakeovermostoftheBritishtelephonesystem.In1897,Marconifoundedhisowncompany,whichbecamethenow-

famousMarconiWirelessTelegraphandSignalCompany,intheyear1900.OnDecember12,1901,hesucceededincompletinghisfamouswirelesscommunicationsacrosstheAtlanticbetweenPoldhuinCornwall,England,andSt.John’s,Newfoundland,adistanceof3400kilometers.Inrewardforhiswork,MarconireceivedtheNobelPrizeinphysicsin1909.

Beforethewirelessbecametheimportantformofcommunicationsthatitistoday,anumberofotherinventionsbeyondthatofareceivingantennaehadtotakeplace.OnewasthediscoverybytwoAmericansscientists,DunwoodyandPickard,in1910thatgalena(leadsulphurcrystals)hadpropertiesthatmadeitserveasanaturalfrequencyoscillator.Thisdiscoveryledtotheinventionofthecrystalreceivingsetwhichmadeitpossibleforthousandsofamateurstobuildtheirownwirelesssetssotheycouldreceivethefirstradiobroadcasttransmissions.

Butthemostimportantandlastingcontributionstoradiocommunicationsoccurredasaresultofdevelopmentsinelectricvalvesorcathoderaytubesinthelatenineteenthcentury.Acathoderaytubeworksontheprinciplethatraysorbeamsofelectronsareemittedfromaheatedelectronsourceorcathodeinavacuuminanoutward(radial)direction.Otherelectrodescanbeinsertedinthetubeandusedtocontroltheelectronbeamtocreateaamplifier.In1897,theGermanscientistKarlBraunperfectedthecathoderaytubeorcathoderayoscilloscopewhichleddirectlytodevelopmentsinanumberofkeyareasincludingtelevision.In1909,BraunwasawardedtheNobelPrizeinPhysicsforhispioneeringwork.In1904,JohnAmbroseFleming,professorofelectricalengineeringatLondonUniversity,inventedadiode,theessentialcomponentoftherectifiercircuit,whichwasalsocriticaltothedevelopmentofradiobecauseitconvertedalternatingcurrenttodirectcurrentinradioreceivingsets.Twoyearslater,in1906,theAmericanLeedeForestdiscoveredthatanelectrifiedgridplacedacrossthepathoftheelectronbeaminadiode,thatis,betweenthecathodeandtheanode,hadtheeffectofamplifyingtheelectricalsignalonthegrid.Thetriodeor“Audion,”asdeForestcalledit,madeitpossibletoamplifyincomingradiosignalssotheycouldbeheardwiththenakedear.Theinventionofthetriodesetoffsomeofthemostimportantandlastingdevelopmentsinmodernelectroniccommunications.Oneofthesewastheoscillatorcircuit,whichgeneratedapowerfulradiosignalatagivensetoffrequenciesdependingonthesizeofthevariouscapacitorsandresistorsinthecircuitsoitlednaturallytothedevelopmentofradiobroadcasting.

Cathoderaytubessoonreplacedspark-gapradiotransmittersbecausetheygaveoffabroadspectrumofradiationandcouldbetunedtoanarrowwaveband.Theyalsomadeitpossibletobuildmorepowerfultransmittersandreceiverssosignalscouldbemoreclearlyandloudlyreceived.Headphonescouldthenbereplacedbyloudspeakers,andbyusingamicrophonetomodulatetheamplitudeofthetransmittedwave,audiosoundscouldbetransmittedandreceiveddirectlybetweenindividualsandgroupsoverlongdistances.Thiswasthebasisofradio

asweknowittoday.Theinventionofthetriodebecamenotonlythebasisofradiobutoftelevision,radar,andeventhefirstcomputers.

Technologicaldevelopmentssuchasthesesparkedthefirsttransmissionofthehumanvoicebyradiointheearlytwentiethcentury.OnChristmasevein1906,ReginaldFessenden,operatingfromanexperimentaltransmittingstationatBrantRock,Massachusetts,broadcastaspokenChristmasmessageandplayed“OHolyNight.”MerchantsandAmericannavyshipsatseaoffthecoastwhowereexpectingthedotsanddashesofMorsecodewereastonishedtohearthehumanvoiceandChristmasmusic.In1908,LeedeForestbroadcastphonographmusicfromtheEiffelTowerinParis,andin1919hebroadcastariassungbyEnricoCarusofromNewYork’sMetropolitanOpera.In1915,speechwastransmittedacrosstheAtlanticfromVirginiatoParisforthefirsttime.

DevelopmentsinradiocommunicationsusheredintheeraofcommercialpublicbroadcastingaftertheFirstWorldWar.Forninemonthscommencingon

February23,1920,MarconibroadcastaregularnewsservicefromhistransmitteratChelmsfordinEngland.OnNovember2ofthesameyear,WestinghouseCompanybeganregularradiotransmissionsofmusic,news,andentertainmentonstationKDKAinPittsburgh.

Developmentsinradiospawnednewindustriesincludingarapidlygrowingentertainmentindustry.By1922,therewere600commercialradiobroadcastingstationsandamillionlistenersintheUnitedStatesofAmericaalone.In1924,anestimatedtwentymillionAmericanslistenedtothenationalelectionreturnsfrommorethan400stations.InLondon,thefamous2LOstationcameontheairin1922and,in1927,theBritishBroadcastingCorporationwasfoundedasapubliccorporation.Bythen,Britainhadabouttwomillionradioreceivingsetsinoperation.Inthesameyear,afightbetweenJackDempseyandGeneTunnywasbroadcastallegedlycausingtenfanstodieofexcitement.Between1922and1932,thenumberofradiosetsinAmericaincreasedfromlessthan1percentto60percent,andradiobroadcastingwashavingaprofoundeffectonAmericanlifeandAmericanbusiness.

AT&T,WestinghouseElectricCorporation,GeneralElectric,andRadioCorporationofAmerica(RCA)playedimportantrolesinthedevelopmentofradioinAmericanotonlyasmanufacturersofequipmentbutasbroadcastersaswell.Intheearlyyearsofradio,thesecompaniesenteredintoaseriesofalliancestodividethemarketforequipmentandfacilitiesupamongthemselvesandeachsetupitsownradiostations.WestinghousesetupKDKAinWilkingburg,Pennsylvania,andWTZinNewark,NewJersey.AT&Tsetouttocontroltheradiobusinessfromtheverybeginningthroughthemanypatentsitownedonradioequipment,includingthepatentonthetriodetubewhichitpurchasedfromdeForestin1913.In1921,AT&TestablishedstationWEAFinNewYorkand,in1923,itlinkedsevenradiostationsintoanetwork.AT&Talsocontrolledlong-distancecircuitswhichwererequiredtoformradionetworks,anditbeganusingitscontroloverbothtelephonyandradiotoexcludeotherstationoperators.ItwasintheseearlyyearsthatRCAbeganplayingadominantroleinthedevelopmentnotonlyofradiobroadcasting,butinentertainment,includingmotionpictures,theater,andphonograph

recordingandmusicproductionaswell.Thesedevelopmentsareimportantinretrospectbecausetheyarenotunlikethewaveofmergersandacquisitionandstrategicalliancesthatleadingmanufacturers,networkoperators,andsuppliersofsoftware,contentandservicesareadoptingtodayinanall-outefforttocreateanddominatetheelectronicsuperhighwaysofthefuture.

RCAhasitsoriginsineventsthattookplaceduringtheFirstWorldWaranditsaftermath.Duringthewar,theUnitedStatesgovernmentdeterminedthatitwasinAmerica’snationalinterestthattheBritishdominationofradiothroughtheMarconiWirelessTelegraphandSignalCompanyshouldbebrokenandthatanAmericancompanyshouldbecreatedtocontrolradiofacilities.Soin1917,itseizedtheAmericanassetsofAmericanMarconi(whichMarconicreatedin1899),andthecompanywasrunbytheU.S.Navyuntilitwastakenoverby

aconsortiumconsistingofGeneralElectricandWestinghouseElectric.In1919,AmericanMarconibecametheRadioCorporationofAmerica,orRCA,specializinginthedevelopmentofwirelessradioandwirelesstelephony.AT&TwasexcludedfromtheRCAconsortiumbytheUnitedStatesgovernmentbecauseofitscontroloverboththeradioandtelephoneindustries.Nevertheless,AT&TdidsucceedinpurchasingstockinRCAandRCAbecamepartoftheGeneralElectric,AT&T,WestinghouseallianceunderwhichGEandWestinghouseproducedreceiversandparts,RCAmarketedthem,andAT&Tsoldtransmittersandleasedcircuits.

In1925,theFederalTradeCommissionbeganinvestigatingtherelationshipsbetweenRCA,AT&T,Westinghouse,andGEforpossibletraderestrictionviolations.AT&Twasnotdoingwellinthebroadcastingbusinessatthetimeinpartbecauseitdidnotprovideanyprogramming,butitstransmissionbusinesswasveryprofitable.RCA,ontheotherhand,providedprogramminganditsradiostationsweredoingwell.ItwaspartlyduetothethreatoftheFederalTradeCommission’sinvestigationandpartlytoAT&T’srelativelackofsuccessinradiobroadcastingthatAT&TandRCAcametoanewagreementin1926wherebyAT&TagreedtoabandonthebroadcastingbusinessinreturnforRCA’scommitmenttouseAT&T’slong-distancetransmissionfacilities.AT&T’sWashingtonradiostationwassoldtoRCAalongwithitsWEAFstationinNewYork,whichbecameWNBC,theflagshipfortheNationalBroadcastingCompany(NBC).

DavidSarnoff,RCA’schiefstrategist,subsequentlytransformedRCAintoanintegratedentertainmentcompanytocomplementitsradiobroadcastingandmanufacturingoperations.In1928,hetookRCAintothetheaterbusinesswiththeformationofRadio-Keith-Orpheum(RKO).RCAalsowentintothephonographbusinesswiththepurchaseoftheVictorTalkingMachineCompanyandintophonographproductionthroughanotherofitsmanysubsidiarycompanies.Tothesewereaddedseverallargemusicpublishers,includingLeoFeistandCarlFisherand,subsequently,atalentagencywasstarted.Bythen,RCAhadbecomeanintegratedentertainmentcompanytocomplementitsradiooperations.

SarnoffwasworkingtowardavisionofcreatinganRCAwherebyartistsappearingonRCA’sNationalBroadcastingCompanycouldbeheardonRCAradios;motionpicturesmadebyRKOcouldbeexhibitedatRKOtheatersequippedwithRCAsoundsystems;andmusicalrecordingspublishedbyFeistorFisherforVictorcouldbeplayedonVictrolas.EventheartistsworkingforthesecompaniescouldberepresentedbyanRCAagent.(Inmanyrespects,thegiantconglomeratemergersthataretakingplacetodayintheworldfilmproduction,telecommunications,cabletelevision,broadcastingandpublishingindustriesareare-enactmentofthesesamedynamics.)Theyillustratethedynamicnatureandthesynergismbetweentheinteractionoftechnology,corporatestrategy,andthestructureandorganizationofsociety.

ItwasasaresultoftherapidgrowthofradioanditsimportancetoAmericanbusinessandAmericansocietythattheU.S.CongresspassedtheRadioActin

1927.ItcreatedtheFederalRadioCommissiontoregulatetheindustry.TheColumbiaBroadcastingSystem(CBS)wasformedinthesameyear.In1930,theUnitedStatesgovernmentinitiatedfurtheractionagainsttheso-calledRadioTrust,inpartasaresultofthesuccessofRCAandSarnoff,and,twoyearslater,itforcedGeneralElectricandWestinghousetodivestthemselvesoftheirRCAholdings.Subsequently,CongresspassedtheCommunicationsActof1934whichcreatedtheFCCtooverseeandregulatethetelephoneandradioindustries.

RadioalsoplayedacriticalroleintheSecondWorldWarbothdirectlyasabroadcastmediumaswellasindirectlythroughitseffectsonthedevelopmentofradar.In1935,withawarwithGermanylookingincreasinglylikely,theBritishAirMinistryacceptedaproposalbyRobertWatson-Watttodevelopequipmentthatwoulduseradiosignalstodetectandtrackflyingaircraftinwhatbecameknownas‘‘radar”(anacronymforradiodetectionandranging).Withinweeks,ateamofBritishscientistsledbyWatson-Wattweretrackingaircraftmilesoffshore,andplanswereunderwaytobuildfiveradarstations.Withintwoyears,theradarequipmentwasreducedtothesizeofatwo-footboxsoitcouldbesqueezedintoatwo-engineplane.Airborneradarhadbeendeveloped.RadarwassosuccessfulinthewarthatGermany’stopaceblamedthedefeatoftheLuftwaffeonBritain’s“radar-and-fighter-controlnetwork.”RadarhasbeencreditedwithhavingbeenstrategictowinningtheBattleofBritain.

TELEVISION:THEFOURTHELECTRONICCOMMUNICATIONSREVOLUTION

Untilthemid-twentiethcentury,theonlypracticalmeansofcommunicatingmovingormotionpictureswasbyusingcamerastocaptureimages,storingthemoncelluloidtape,andprojectingthemontoascreeninamovietheater,thatis,throughtheuseofchemical,electrical,andmechanicaltechnologies.ThecommunicationofmovingpicturesbyelectronicmeanswasascientificandtechnologicaldreameventhoughAlexanderGrahamBellproposedanewmeansfor

communicatingimagesusinglightasearlyas1880.Hecalledhisinventionthephotophonebuthewasnotabletodevelopapracticalworkingmodel.Althoughconsiderableexperimentationwasunderwayinthelatenineteenthcentury,itwasnotuntiltheyearsleadinguptotheSecondWorldWarthattelevisionbecamepractical,feasible,andeconomical.ItwasafterWorldWarIIthatthefourthelectroniccommunicationsrevolutionreallytookoffandtelevisionbecametheuniversallypopularandpowerfulmediumthatitistoday.

Theconceptoftelevisioninspiredscientistsandengineersintheearlytwentiethcenturyandinitiatedaracetodevelopaworkingexperimentaldevice.ScientistsinJapan,Russia,Britain,Germany,andtheUnitedStateswereexperimentingwithtelevisioninoneformoranother.ThemostsuccessfulearlytechniquewasbasedonphotomechanicaltechnologydevelopedbytheScottish

inventorJohnLogicBaird.In1929,thenewlycreatedBritishBroadcastingCompany(BBC)licensedBairdtostartaregularpublictelevisionservice.Theventurewasnotsuccessfulbecausetheapparatuswasclumsyandexpensiveandthepicturequalitywaspoor.ItwastakenoverbytheBBCin1932andsubsequentlyabandonedin1937becauseitwasclearlyfarinferiortoanall-electronicsysteminventedbyPhiloFarnsworthandVladimirZworykinintheUnitedStates.

BothFarnsworthandZworykinwereleadingfiguresintheinventionoftelevisionbutZworykinandDavidSarnoffatRCAplayedkeyrolesinitscommercialdevelopment.WhileworkingatWestinghouse,Zworykin,aRussianelectricalengineer,developedtheiconoscope,arudimentarycamerain1923,andthekinescope,ortelevisiontubein1926,thetwobasiccomponentsforcapturinganddisplayingtelevisionsignals.Zworykin’stelevisionworkedontheprinciplethatastreamofelectronsscannedacrosseachofthelight-sensitivedotsofthemosaicinthecamera,creatinganelectronicallycodedsignalwhichwasthentransmitted.Uponreceptionatthetelevisionset,thesignalwasdecodedinthetelevision’spicturetubeandtheoriginalimagewascreatedbymeansofastreamofglowingdotsonthetelevisionscreen.Replenishingorrefreshingthescreenwasdonefasterthantheeyecoulddetectgivingthesensationofamovingpicture.

DavidSarnoffatRCAbecameintriguedwiththepotentialoftelevisionandsubsequentlyhiredZworykintoleadRCA’sefforttodevelopacommercialtelevisionsystem.RCA,AT&T,andGEpouredmillionsintothedevelopmentoftelevision.ButitwasPhiloFarnsworthwhodemonstratedtheworld’sfirstall-electronictelevisionsystemin1928.In1929,RCAdemonstratedtheZworykintelevisionandin1933,RCAmadetheworld’sfirstexperimentaltransmissionofelectronictelevisionfromthetopoftheEmpireStateBuildinginNewYorkwithapictureresolutionof240lines.

BeforeRCAwasabletomanufactureatelevisionsetcommercially,SarnoffhadtoobtainthepatentrightsfromFarnsworth.Oncethesewereacquired,RCAdemonstrateditsfirsttelevisionsetatthe1939–1940New

YorkWorld’sFair.Bythattime,theBritishcompany,ElectricalandMusicalIndustries(EMI),hadproduceditsownversionoftheiconoscopewhichitcalledtheemitron.TheBritishBroadcastingCompanyscrubbedtheBairdsystem,andonNovember2,1936,itbeganoperatingtheworld’sfirstpublic,regulartelevisionservice,basedonanewstandard405-linetransmissionsystem.

NBC,RCA’sbroadcastingsubsidiary,beganitsowntelevisionbroadcastingserviceonApril30,1939,justbeforetheoutbreakoftheSecondWorldWar,butthepicturequalitywasstillpoorandsetswereexpensive.By1942,therewereonly20,000televisionsetsinBritainandhalfthatnumberintheUnitedStates.ThetelevisionrevolutionhadtoawaittheendoftheSecondWorldWar.PublictelevisionserviceresumedinBritaininJuneof1946withanestimated12,000viewers.Withintenyears,thenumberofAmericanfamilieshavingatelevisionsetjumpedfromafractionof1percentto72percent.Viewerswere

watchingsuchclassicsitcomsas“ILoveLucy”and“TheHoneymooners”andpopulargameshowslike“The$64,000Question.”

By1960,anestimatedtenmillionhomesinBritainhadtelevisionsetsandeighty-fivemillionintheUnitedStates.Andabout720millionviewersaroundtheworldwatchedthefirstmoonlandingin1969.By1970,theworldhadaquartermilliontelevisionsets,andtelevisionwashavingamostpowerfulcultural,economic,andpoliticalinfluenceonindustrialsocietiestheworldover.RisingemploymentlevelswererecordedintheproductionoftelevisionequipmentandtelevisionprogramsandinbroadcastservicesthroughoutthefiftiesandintothesixtieswhentheJapanesebeganmakingmoresuccessfulinroadsintelevisionmanufacturing.ColortelevisionwasdevelopedbothbyRCAandCBSinthefifties,andbytheendofthesixties,mostAmericanhomeshadcolortelevisionsets.Bythen,televisionhadtransformedAmericathroughitseffectsonadvertising,news,andentertainment.Itbecameamediumforshapingpublicopinionandanimportantpoliticalforceinitsownright.Itplayedimportantrolesinthebirthofrockmusicandthecivilrightsmovement,intheelectionofJohnF.Kennedyin1960,andincoalescingoppositiontotheVietnamWar.ItalsobecameoneofthemostimportantmeansforexportingAmericanprogramsandAmericanculturearoundtheworld.

THEEXPANDINGNATIONALANDINTERNATIONALTELECOMMUNICATIONINFRASTRUCTURE

Thepostwarperiodwitnessedthespreadoftelephonenetworksintotheruralandremoteregionsofindustrializedcountriesandthelinkingofallofthemintoanationaltelecommunicationsinfrastructure.Atthesametime,thisinfrastructurewascontinuingtoundergotransformationsasaresultofmajorinnovationsinswitchingandtransmissionsystems,manyofwhichweredevelopedbytheBellSystem.

Oneofthebiggesttechnologicalbreakthroughswastheintroductionofautomatic,electromechanicalswitching.Becauseitwasautomatic,itwas

fasterandmoreefficientthanmanualswitching,andittransformedthetelephonebusinessfromanincrediblylabor-intensivetoahighlycapital-intensiveone.Oneoftheresultswasdrasticcutsoftelephoneoperators.Electromechanicalswitchinggraduallygavewaytofullyelectronicswitchinginthesixtiesandseventies,andtheseeventuallytothecomputerizedswitchingsystemsoftodaywiththeirhighlyautomated,softwarefeaturesthatgivethemtheabilitytoprocessvoice,data,andimagecommunications;toroutetrafficoptimallythroughoutthenetwork;andtomonitor,detect,diagnoseandrepairproblemsastheyarise.

Bothlocalandlong-distancecommunicationswerefurtherrevolutionizedasaresultofinnovationsinmultiplexingandmicrowaveradioandcoaxialcabletransmissionsystems.Bothdevelopmentsincreasedtransmissioncapacityandimprovedeconomicsbyordersofmagnitude,resultinginmajorreductionsinthepriceoflong-distancetelephoneserviceandstimulatingacorresponding

increaseinthedemandforservice.Multiplexing,inventedbyBellTelephoneLaboratoriesin1927,wasawayofmodulatinghigherfrequencytransmissionsignalswithlowerfrequencyvoicesignalssothatcopper,forexample,couldcarryseveralvoiceconversationssimultaneously.Thismeantareductionintheuseofcopperandinthecostoflocalandlong-distanceservices.

Thesecondinventionwasmicrowaveradiocommunicationswhich,combinedwithmultiplexing,resultedinfurtherreductionsinthecostoflong-distanceservice.In1947,theBellTelephonesysteminauguratedthefirstcommercialmicrowavelinkbetweenNewYorkandBoston.Itconsistedoftentowersandcarriedbothtelephoneandtelevisionsignals.NewYorkwaslinkedtoSanFranciscoin1948by109microwavetowersallowingthenationtowatchthesigningoftheU.S.-Japanpeacetreatyoncommercialtelevision.Bythe1950s,transcontinentalmicrowavesystemscoveredthenation,routinelyhandling2000ormorevoicechannelsonhopsaveragingtwenty-fivemiles.Hopscouldbeextendedonsomeofthesetoover100miles.Microwavecommunicationschangedtheeconomicsoftelecommunicationsbyanotherorderofmagnitude,increasingtransmissioncapacityparticularlyinlong-distancecommunicationsandtheeconomiesofscaleoftheentiretelephonenetwork.

ThethirdtechnologicalbreakthroughwascoaxialcabledevelopedatBellTelephoneLaboratoriesin1940,anditlaidthefoundationsforthecabletelevisionindustryinthesixtiesandseventies.Becausetheyoperatedefficientlyatveryhighfrequencies,coaxialcablescouldcarrymanyvoiceortelevisionsignalssimultaneouslyusingmultiplexingtechniques,and,becauseanoutershieldprotectedthesignalfrominterference,itcouldcarrybetterqualitysignalsmorereliablyandsecurelythananyothertransmissionsystem.Itwasthesequality,economic,andbroadbandcapabilitiesthatmadecoaxthenaturaltransmissionmediumforthelocaldistributionoftelevisionsignals.Bythelatefifties,coaxialcableswerebeingusedtolinkhomesthatweretoofarfromatelevisiontransmittertoamuchbigger,morepowerful,andexpensivecommunityantennathatpickeduptelevisionsignalsandrelayedthemtohouseholds.Thisgave

birthtocommunityantennatelevisionorCATV,nowthecabletelevisionindustry.By1960,therewereabout640CATVsystemsserving650,000subscribersintheUnitedStates.By1971,thenumberhadexplodedto2,500systemsserving4.9millionsubscribers.6

Aninternationaltelecommunicationsinfrastructurewasalsobeingdevelopedtocomplementandextendthoseatthenationallevel.In1891,EnglandbecamelinkedtotheContinentbysubmarinecables.Butbecauseoftheeffectsofdistanceonthestrengthandqualityoftelephonesignals,NewYorkwasnotlinkedtoSanFranciscountil1915.AradiolinkwasintroducedacrosstheAtlanticin1927,butithadverylimitedcapacityandwassubjecttoatmosphericinterference.Similarradio-telephonelinkswereestablishedwithAustraliaandSouthAmerica.Thefirsttransatlanticradio-telephonelinkwasinstalledbyAT&TbetweentheUnitedStatesandEnglandin1929,andradio-telephonelinkswerealsoestablishedbetweenNorthandSouthAmerica.In1933,Europeanengineers

beganusingmicrowavecommunicationstotransmittelephonesignalsacrosstheEnglishChannel,adistanceofadozenmiles.Butradio-telephonecommunicationswerenotveryreliable,andthequalityofthesignalwasoftenpoorforverylong-distancetransatlanticortransoceaniccommunications.

In1956,thefirsttransatlantictelephonecable,calledTAT-1,cameintoservicelinkingtheUnitedKingdom,Canada,andtheUnitedStates.Itwas3600kilometerslongandhadacapacityofforty-eightvoicechannels.FiftyrepeaterswereinstalledtoenableAmericansandEuropeanstotalkdirectlywithoneanotheracrosstheAtlanticwithoutanyinterference.In1963,anothertransatlanticcablecalledTAT-2wascompleted.Ithadacapacityof138simultaneousvoiceconversationsandlinkedEnglandandtheUnitedStates.Theselinksbecamethevanguardofaseriesofnewtransatlanticandtranspacifictelecommunicationslinksthatexpandedthenumberofvoicecircuitsbetweenthecontinentsoftheworld.Theyplayedacriticalroleinbuildingaglobaltelecommunicationsinfrastructurewhichwouldultimatelybecomplementedbyanetworkofsatelliteandopticalfibersinthesixties,seventies,andeighties.

Bythelatterhalfofthetwentiethcentury,everycountry—developed,developing,andmanylessdeveloped—hadcometodependonitstelecommunicationsinfrastructureinonewayoranotherforitsday-to-dayoperationsbuttheychosedifferentmeansandinstitutionstoorganize,operate,andcontroltheirindustriesandtheirinfrastructures.Telecommunicationshadeitherevolvedintoamonopolyorwassetupasamonopolyineverycountry,buttwomodelshadevolvedtoadminister,manage,andcontroltelecommunicationsundertakings.IntheUnitedStatesandCanada,thecompanieswereprimarilyprivatelyownedbutcontrolledbyapublicregulatoryauthorityorcommission.Inalltheothercountries,telecommunicationundertakingswereowned,managed,andoperatedbynationalgovernments.

IntheUnitedKingdom,France,Germany,andJapan,forexample,telecommunicationsconstitutedastate-ownedandstate-runmonopoly

operatedbytheposts,telephone,andtelegraphcompaniesorPTTs,whichenjoyedamonopolynotonlyontelephoneandtelegraphservicesbutpostalservicesaswell.Insomecountriesthisevenextendedtobankingservices.ItwasthejobofthesePTTstobuildandoperatetheirnation’stelephoneandtelecommunicationsinfrastructure.

OthercountriesalsoadoptedthemodelofverticalintegrationdevelopedbyAT&TintheUnitedStatessothePTTmonopolyalsoextendedintoequipmentmanufacturing.Consequently,therewaslittleornocompetitioneitheratthenationalorinternationallevels.WesternElectricandGeneralTelephoneandElectric(GTE)enjoyedamonopolyonequipmentsupplyincertainpartsoftheUnitedStates,SiemensinGermany,CableandWireless(C&W),PlesseyTelecommunications,andGeneralElectric(GEC)intheUnitedKingdom,CompagnieGénérated’Electricité(CGE)andThompson-CSFinFrance,NorthernElectric(nowNorthernTelecom)inCanada,PhilipsintheNetherlands,L.M.EricssoninSweden,andNipponTelegraphandTelephone(NTT)inJapan.

InternationalTelegraphandTelephone(ITT)hadoperationsinseveralcountriesaswell.

Thestructureofthetelecommunicationsindustry,theownershipoftelephonecompanies,andthelinkagesbetweenthePTTsandmanufacturerswerecharacteristicoftheindustrialage.Thatwasanagewhenindividualnationstateshadagreatdealofautonomyandsovereignty,whennationsweredefinedintermsofgeographyandlandmasses,whentechnologyandeconomicsgavelegitimacytonationalinstitutionsandcontrolovergeographiclandmassesandalloftheeconomicactivitiestakingplacewithinthem.Asweshallseeinlaterchapters,thesehavegivenwaytonewrealitiesmadepossiblebytechnologyandglobalization.

Attheinternationallevel,severalkeyorganizationswerecreatedtocoordinateinternationaltelecommunicationsundertakingsandmaintaincooperationamongnations.OneofthemostimportantwastheInternationalTelecommunicationsUnionorITU,nowaspecialagencyoftheUnitedNations.Formedin1865byasmallgroupofEuropeannations,itsrolewastoassistnationsindefiningandestablishingamodusoperandifortelegraphiccommunicationsextendingacrosstheirborders.Sincethentheorganizationhasgraduallyevolvedtotakeonanincreasinglymorecooperativeroleineveryaspectofinternationaltelecommunicationsdevelopments,includingdevelopingstandardsfortheinterconnectionoffacilitiesandnetworksaswellastheprinciplesforpricinginternationalservicesandsharingrevenuesamongmembercountries.TheroleandstatusoftheInternationalTelecommunicationsUnionisalsorapidlychangingtodayasaresultofrapidtechnologicalchange,globalization,andcompetition.

THEMATURE(GOLDEN)AGEOFINDUSTRIAL-INFORMATIONCAPITALISM

Itwasthediffusionofelectromechanicalandelectronictechnologiesandthedevelopmentofnationalandinternationalelectroniccommunications

infrastructures,alongwithpublicpoliciesandeconomicinstitutions,Iwouldargue,thatplayedcentralrolesincreatingthemature‘‘golden”ageofindustrialcapitalisminthepostwarperiod.Stable,continuouseconomicgrowthcombinedwithpricestabilityandgrowingproductivityandefficiencytoacceleratewealthcreationcharacterizedthisperiod.Between1945and1960,America’sGNPincreasedby52percentandthenation’spercapitaGNProseby19percent.Inthe1960s,GNPclimbed46percentandpercapitaGNPgrewby29percent.By1970,99percentofAmericanhouseholdshadarefrigeratorandatelevisionsetand70percenthadawashingmachine.7Thisgrowthwaspropelledbytheexpandingconsumersocietyandthegrowthofexportmarkets.Industrialsocietyhadalsobecomepermeatedbyvariousphysicalinfrastructures,includingtransportation,communications,hydroelectricandoilandgaspipelines,aswellassofteconomicinfrastructures,likebankingandfinanceandthesetoocontributedtoitsgrowth.Complementingtheseweremassiveinvestmentsineducation,medicine,

andhealthcare.Eachofthesecontributedinitsownwaytoraisingthematerial(andnonmaterial)standardoflivingofthemasses.Butitwasthesynergybetweenallofthesetechnological,economic,andinfrastructureandinstitutionalfactors,Iwouldargue,thatwereresponsibleforraisingthestandardoflivingofordinarypeoplebyordersofmagnitude.

Amassproduction,massconsumptionsociety,however,couldnothavedevelopedwithoutthedevelopmentofmasscommunications.Radio,television,newspapersandmagazines,andadvertisingbroughtinformation,news,andentertainmentandculturalcontenttoaninformation-starvedsociety,buteachplayedfundamentalrolesincreatingamassconsumptionandmassproductionsociety.Oneoftheirmostimportanteffectswasthroughadvertising.InthebookCommunicationsinHistory,WilliamLeiss,StephenKline,andSutJhallywrote,

Thedevelopedphaseofthemarketindustrialsocietyistheconsumersociety….Whatmarketershadrealizedwasthat,withthepopulationasawholehavingfargreaterdiscretionaryincome,leisuretime,andemploymentsecuritythaneverbefore,workwasnolongerthefocusofeverydaylife.Thesphereofconsumptioncouldtakeitsplace.Bylinkingconsumptionthroughelectronicmediatopopularentertainmentandsports,marketersandadvertiserseventuallyfashionedarichlydecoratedsettingforanelaborateplayofmessages,increasinglyinimagisticoriconicform,aboutthewaytohappinessandsocialsuccess.8

Tokeeptheirfactoriesoperatingatmaximumcapacityandefficiency,ineffect,to“movethegoods”cascadingofftheirassemblylines,businesshadtointensifyitssellingefforts,andthismeanttremendousinvestmentandexpendituresonadvertising.Advertisingplayedabigroleincreatingaconsumersocietyintheearlytwentiethcentury.AccordingtoDanielPope,asearlyas1920,“theleadinadvertisinghadpassedtomanufacturersofnationallydistributedbrand-namedgoods…itwasintheformationofthenationalconsumermarketthattheadvertisingindustryasweknowittodaywasbornandnurtured.”9

Industrialsocietyhadchangedinotherways,aswell,inparticular,fromonedominatedbyagricultureandmanufacturingtoonedominatedbyservices,accordingtoHeilbronerandSinger.

In1620everyoneinAmericawasinimmediatetouchwithnature.In182070percentofallworkingpersonswerestillfarmersorfarmemployees.By1900fewerthan40percentwereengagedinagriculture.Todayperhaps3percentofthelaborforceworksinfarming…approximately30percent…laborsinmanufacturingofsomekindandfull70[percent]inservices.10

Anequallynotabledevelopmentintheevolutionoftheindustrialandinformationeconomyandauniquecharacteristicofthematurestageofindustrialcapitalismwasthesupplantingoftheinstitutionofthemarketasthecoordinatorofeconomicactivitybytheprofessionalmanagerandthemultiunitbusiness

enterprise.Inhislandmarkbook,TheInvisibleHand:TheManagerialRevolutioninAmericanBusiness,AlfredChandlerobservedthattheinstitutionofthemarketbecamesupersededbytheinstitutionofmanagerialcapitalism.Chandlerdescribedthistransformationinthefollowingway:

Whatthenewenterprisesdiddowastakeoverfromthemarketthecoordinationandintegrationoftheflowofgoodsandservicesfromtheproductionofrawmaterialsthroughtheseveralprocessesofproductiontothesaletotheultimateconsumer.Wheretheydidso,productionbecameconcentratedinthehandsofafewlargeenterprises.Atfirst,thisoccurredinonlyafewsectorsorindustrieswheretechnologicalinnovationandmarketgrowthcreatedhigh-speedandhigh-volumethroughput.Astechnologybecamemoresophisticatedandasmarketsexpanded,administrativecoordinationreplacedmarketcoordinationinanincreasinglylargeportionoftheeconomy.Bythemiddleofthetwentiethcenturythesalariedmanagersofarelativelysmallnumberoflargemassproducing,largemassretailing,andlargemasstransportingenterprisescoordinatedcurrentflowsofgoodsthroughtheprocessesofproductionanddistributionandallocatedtheresourcestobeusedforfutureproductionanddistributioninmajorsectorsoftheAmericaneconomy.Bythen,themanagerialrevolutioninAmericanbusinesshadbeencarriedout.11

JohnKennethGalbraithacknowledgedinthesixtiesthatanewkindofindustrialstatehadevolvedinstepwithanewkindofindustrialcorporationthathadtakenonamoreimportantcentralplanning,centralcontrol,andstrategicintelligencerole.Inhis1967book,TheNewIndustrialState,hewrote:

Inaneconomywhereorganizedintelligenceisthedecisivefactorofproduction,theselectionoftheintelligencesoorganizedisofcentralimportance….Inthepast,leadershipinbusinessorganizationwasidentifiedwiththeentrepreneur—theindividualwhounitedownershiporcontrolofcapitalwiththecapacityfororganizingtheotherfactorsofproductionforinnovation.Withtheriseofthemoderncorporation,…the

guidingintelligence—thebrain—oftheenterprise…[haspassedto]acollectiveandimperfectlydefinedentity…[whichincludes]seniorofficials,…white-andblue-collarworkers…[and]embracesallwhobringspecializedknowledge,talent,orexperiencetogroupdecisionmaking.IproposetocallthisorganizationtheTechnostructure.12

Wewillseeinsubsequentchaptersthatthesesametechnological,managerial,andeconomicforcesarestillatworktoday,butnowtheyarechangingandtransformingtheworldeconomicsysteminequallysignificantways.Managerialcapitalismandconsumercapitalismhavegoneglobalintheirsearchforcompetitiveadvantage,opportunity,andprofit.

NOTES

1.ForanentrepreneurialperspectiveontheindustrialrevolutionintheUnitedStates,seeRobertSobelandDavidB.Sicilia,TheEntrepreneurs:AnAmericanAdventureStory(Boston:Houghton-MifflinCo.,1986).

2.JamesCarey,“Time,SpaceandtheTelegraph,’’CommunicationsinHistory:Technology,CultureandSociety,ed.DavidCrowleyandPaulHeyer(NewYork:Longman,1991),pp.133–137.

3. AlfredChandler,TheInvisibleHand:TheManagerialRevolutioninAmericanBusiness(Cambridge:HarvardUniversityPress,1977),p.79.

4. IthieldeSolaPool,TheSocialImpactoftheTelephone(Cambridge:MITPress,1977).

5. ManleyRutherfordIrwin,TelecommunicationsAmerica:MarketsWithoutBoundaries(Westport,Conn.:Quorum,1984),pp.18–19.

6. ReportoftheSloanCommissiononCableCommunications,OntheCable:TheTelevisionofAbundance(NewYork:McGraw-Hill,1971),p.30.

7.InWesternEurope,thefigureswereslightlyless.SeeStanleyLebergott,TheAmericanEconomy:Income,Wealth,andWant(Princeton:PrincetonUniversityPress,1976),p.102.

8. WilliamLeiss,StephenKline,andSutJhally,“Advertising,ConsumersandCulture,”inCommunicationsinHistory,p.176.

9. DanielPope,TheMakingofModernAdvertising(NewYork:BasicBooks,1983),pp.30and180.

10.RobertHeilbronerandAaronSinger,TheEconomicTransformationofAmerica:1600tothePresent(NewYork:HarcourtBraceJovanovich,1984),pp.338–339.

11.Chandler,TheInvisibleHand,p.11.

12.JohnKennethGalbraith,TheNewIndustrialState,4thed.(Boston:HoughtonMifflin,1985),pp.73–74.

Chapter3TheMicrochipandtheComputer:TechnologicalUnderpinningsofthePostindustrialSociety

ItwasinthepostwarperiodthatcapitalismbegansewingtheseedsofitsowndestructionintrueSchumpeterianstyle.Foritwasduringtheseyearsthatanewintellectualrevolutionwasincubatinginthemindsofscientistsandengineersinuniversitiesandprivateresearchlaboratoriesthroughouttheworld.Itwouldquicklygrowandspreadtoinitiatethemicrochipandcomputerandtelecommunicationsrevolutionsofthefifties,sixties,andseventies.Thisrevolutionwouldmakeobsoletethevastelectricalandelectromechanicalmachineryandequipmentthatconstitutedthetechnologicalfoundationsofindustrialsociety.Itwouldalsomakeobsoletesomeofitsmostbasicinfrastructuresandmanyofitssocial,economic,andpoliticalinstitutions.Anditwouldtransformwork,management,andorganizationaswellascapitalismitself.

Theintellectualfoundationsofthistechnologicalrevolutionwerelaidbymathematicianswhoappliedscientificprinciplestobuildelectroniccomputingmachines.OneofthesewastheEnglishmathematicianGeorgeBoolewhoseconceptsofBooleanalgebrabecamethebasisofcomputationinthemodern-daydigitalcomputer.Problems,accordingtoBoole,couldbeanalyzedbyrepresentingthemasaseriesofpropositionsorstatementsandsolvedbyperformingaseriesofoperations—AND,NOT,andOR.In1937,ClaudeShannon,amathematicianandengineer,showedhowelectromechanicalcircuitscontainingrelays(orswitches)couldbedesignedbasedonBoole’ssystemsoflogic

toperformmathematicalcalculations,comparisons,andlogicalandconditionalbranchingoperations.Thisiswhythecomputercanbestbeconsideredalogicmachineratherthanacalculatororelectronicmachine.Shannon’spapersetoffaraceinleadingprivateanduniversityinstitutionsthroughouttheworldinthefortiesandfiftiestodevelopthefirstgeneralpurposedigitalcomputerbasedontheprinciplesthatheestablished.

AlanTuring,aBritishmathematician,conceptualizedakindofautomaticcomputer,calledaTuringMachine,inapaperpublishedintheProceedingsoftheLondonMathematicalSocietyin1936.Init,hesetouttheconditionsunderwhichmathematicalproblemscouldbesolvedusingautomaticcomputersandalsodescribedwhatthecomputermightlooklike.Turingshowedthataslongastheproblemcouldberestatedintheformofanalgorithmofcodedinstructionsoraprogram,itcouldbesolvedbyacomputer.Thecomputerwouldreadtheinstructionsonpunchedpapertapebymeansofanopticaldeviceandwriteitsresultsonpunchedpapertape.TuringbecameinvolvedintheBritishWareffortin1943,buildingthefamouscode-breakingcomputercalledtheColossus.ItwastheColossusthatenabledtheBritishtocracktheGermanEnigmacodeandgainaccesstoHitler’swarplansthroughouttheremainderofthewar.Thisdevelopmentwasofsuchstrategicimportancethatitisconsideredbymanytohavebeenasimportantasradar,forexample,incontributingtothedefeatofNaziGermany.

ThenameJohnvonNeumannissynonymouswiththeelectronicdigitalcomputer.VonNeumannwasabrilliantscientistandmathematicianofHungarianoriginwhomadepioneeringcontributionstoeverythingfromquantumphysics,gametheory,andmathematicallogic,toprobabilityandstatistics,andeconomics.Healsolaidthefoundationsofthetheoryofcellularautomatawhichisthebasisofthenewflourishingscienceofartificiallife.Inapaperwrittenin1945,vonNeumannconceivedthedesignofthemodernhigh-speeddigitalcomputerwithmemory.Bystoringbothinstructionsanddatainmemoryinbinaryform,vonNeumannwasabletodesignacomputercapableofoperatingalmostautomaticallyinanunattendedfashionwithaminimumofhumanmanual

interventionandrelativelyindependentofclumsyelectromechanicalmemoryandinputandoutputdevices.And,bymakingitsinternalcomponentsfullyelectronicratherthanelectromechanical,itsspeedwaslimitedonlybythestate-of-the-artelectronics.

InJohnvonNeumann’scomputerdesign,instructionswerefedintothecentralprocessingunit(CPU)frommemoryandexecutedinasequentialmannerthusmakingtheperformanceofthecomputercompletelydependentonthespeedoftheCPU.VonNeumann’sconceptswereregardedassoimportanttothedevelopmentofthemodern-daycomputerthatacomputerthatoperatesinthiswayiscalleda“vonNeumanncomputer.”Fromthatdaytothepresent,scientistshavebeentryingtoovercomethis“vonNeumannbottleneck.”Theyhavemadesignificantprogressbydevelopingwhatareknownasparallelcomputerswhichusetens,hundreds,orthousandsofcentralprocessingunitsop-

eratinginparallelandincooperationwithoneanothertosolvecomplexcomputationalproblems.Thesebecamecommerciallyavailableinthelateeightiesandearlyninetiesandareontheleadingedgeinthedevelopmentofsupercomputerswhicharecapableofoperatingatterabitspeeds,thatis,trillionsofinstructionspersecond.Thesefewbasicprinciplesareallonwhichthemillionsofcomputersthatareusedinoffices,factories,aircraft,automobiles,androbotsthroughouttheworldoperate,andtherearesomewhobelievetothisdaythatnothingfundamentallynewhasbeendevelopedinthedesignofdigitalcomputerssincethevonNeumanncontributionoftheforties.

Theexplosionofknowledgeandscienceandtechnologyafterthewartriggeredanintenseinterestindevelopingcomputersthathadthepowerofthehumanbrain,anditspawnedinparticularthenewfieldofsciencecalledartificialintelligence,thetermusedbyJohnMcCarthyatMassachusettsInstituteofTechnologyin1956.McCarthyandothercomputerscientistssuchasClaudeShannon,AlanTuring,MarvinMinsky,AllenNewall,andHerbertSimon,forexample,triedbuildingartificialintelligencemachinesbywritingcomputerprogramstosimulateinonewayoranothertheinternalworkingofthebrain.ItwaslargelytheworkofEdwardFeigenbaumthatledtothedevelopmentandcommercializationofexpertsystemsintheeighties.

AsecondapproachwastobuildmachinesbasedontheanaloguecontrolandfeedbackprinciplesdevelopedbyMITscientistandmathematicianNorbertWiener,whofoundedthescienceofcybernetics,theGreekwordforhelmsman,whichWienerdefinedasthescienceof“controlandcommunicationsintheanimalandthemachine.”In1948,WienerandJohnvonNeumanncollaboratedonabookentitledCybernetics:OrControlandCommunicationsintheAnimalandtheMachinewhichdescribedthepossibilitiesandproblemsofbuildingabrainthatcouldtakeoverhumantasks.OtherswhopursuedthisapproachincludedWarrenMcCullochandFrankRosenblatt.RosenblattincorporatedhisideasintoacomputercalledthePerceptronin1956.ItwastheresultofeffortssuchasthesethatJosephEngelbergerandGeorgeDevolfoundedUnimationinthelatefifties.Unimationbecameaworldleaderin

thedevelopmentofrobotsforindustrialuses.

Oncetheconceptualizersandtheoreticianshadlaidthegroundworkforthecomputer,thepracticalmen,primarilytheelectricalandelectronicengineers,followedthembyactuallybuildingthemachinesthatpreviouslyexistedonlyonpaperandinthemindsofaveryfewleadersinthefield.Theywerefollowedbybusinessprofessionalswhohadthemdesignedforpracticalday-to-daycommercializedapplicationsandforprofit.

THEAGEOFEXPERIMENTALMACHINES

Thefortiesandearlyfiftiesareconsideredtheageofexperimentalcomputers.JohnAtanasoffdevelopedmanyoftheprinciplesofthemoderncomputerandisregardedbysomeastheinventorofthedigitalcomputer.HowardAitkenwas

anothercomputerpioneerwhocompletedtheMarkIcomputerin1944atHarvardUniversitywiththefinancialassistanceofIBM.IBMdominatedthebusinessmachineindustryunderitsleaderThomasJ.Watsonwhobecameintentondominatingthecomputerindustryaswell.In1947,IBMunveiledthepowerfulandflexibleSelectiveSequenceElectronicCalculatororSSECbutitdidnothaveamemory.

In1946,J.PresperEckertandJohnMauchlyattheMooreSchoolofElectricalEngineeringattheUniversityofPennsylvaniabuilttheElectronicNumericalIntegratorandComputerorENIAC,thefirstfullyelectronicdigitalcomputerbasedonvacuumtube(valve)technologybutittoodidnothaveamemory.TheENIAChad19,000vacuumtubes,weighedthirtytons,andtookup1500squarefeetoffloorspace.

In1949,aGermaninventorbythenameofKonradZusecompletedtheZ3computer,nowrecognizedasthefirstfullyfunctional,program-controlled,generalpurposedigitalcomputerintheworld.ZusepioneeredsuchinnovationsastheuseofbinaryandfloatingpointdecimalsandanalgorithmiclanguagecalledPlankalkul.ProfessorMauriceWilkesatCambridgeUniversitycompletedthedevelopmentofanelectronicstored-program,general-purposedigitalcomputeralsoin1949.AlanTuringbuilttheACEcomputerattheNationalPhysicalLaboratoryinBritain.Meanwhile,JohnvonNeumannandhisteamattheInstituteofAdvancedStudiesatPrincetonUniversitywereincorporatingvonNeumann’sdesignsintoElectronicDiscreteVariableAutomaticComputer(EDVAC).Completedin1952,itincorporatedamemoryforstoringboththedataandprogramsinmemoryinbinaryordigitalform.Ithad4,000vacuumtubesandover10,000crystaldiodes.

Theageofexperimentalcomputerslastedintothefiftieswhenallofthebasicideasandtechnologicalinventionsbecameavailabletocreatethefirstgenerationofcommercialgeneralpurposecomputers.Conceptssuchasthestoredprogramcontrol,binaryrepresentationofdataandprogramsandtheuseofpunchedcardswerebecomingstandardinthefifties.Electromechanicalandfullyelectronicandmagneticstoragetechnologieswerealsobecomingcommerciallyavailable.Thetriode

becameanaturalmeansoffastswitchinginthecentralprocessingunit.Itwasasignificantimprovementoverelectromechanicalrelaysintermsofspeedandreliability,anditreducedtheswitchingtimefromsecondstomilliseconds.ButtherealcomputerrevolutionhadtowaituntiltheendoftheWorldWarIIwhenamuchfasterandamorereliablesolid-statedeviceknownasthetransistorwasinvented.

THESTRATEGICROLEOFTRANSISTOR/SEMICONDUCTORTECHNOLOGY

Theeffectsofthedigitalcomputeronsocietyhavebeennothingshortofrevolutionary,butthecomputerrevolutionwouldnothaveoccurredwithoutanequallypervasivesemiconductorormicrochiprevolution.Developmentsin

solid-statephysicsandsemiconductortechnologyledtotheinventionofthetransistor,thentheintegratedcircuit,followedbythemicrochipandthemicroprocessorand,eventually,themicrocomputerandpersonalcomputer.Thetransistorandtheintegratedcircuitmust,therefore,rankamongthemostimportantdevelopmentsinhistory,havingpossiblygreatersignificanceandimpactastheinventionoftheprintingpress,thetelephone,theradioandtelevisionset,theinternalcombustionengine,andtheatombomb.1Withoutthesemiconductor,therewouldbenorevolutioninrobotics,satellitecommunications,personalcomputers,andnowordprocessingsystems.TherewouldbenocruisemissileandnosuchthingasStarWars,andtheautomobilewouldnotoperateasefficientlyasitdoestoday.Therewouldbenosuchthingaselectronicbanking,noflexiblemanufacturingrevolution,andnosuchthingasspeechrecognitionorvoicesynthesissystems.

Thetransistor,theintegratedcircuit,andthemicrochiptransformedthecomputer(andallofthemanymachinesanddevicesthatwouldincorporatethem)fromahuge,bulky,slow,material-intensiveandenergy-intensivemachineintoasingleminiaturesolid-statedeviceandintothedomainofelectronsandphotonsoperatinginsidecrystalswhereitcouldoperateunencumberedbythephysicallawsandbarriersofNewtonianphysics.Inthissubatomicworld—thishyperspace—knowledgeandideasandtheoriescanbecreated,simulated,andtesteddynamicallyandstored,manipulated,andcommunicatedthroughoutspaceatornearthespeedoflight.Theonlylong-termlimitsorconstraintsofthisnewmediumareknowledge,imagination,andorganization.Mankindhasonlyjustbeguntoexploreandfeelcomfortableworking(andliving)inthisnew-foundcyberspace,asithascometobeknown.

ThetransistorwasinventedatBellTelephoneLaboratoriesbyagroupofscientistswhoweretryingtodevelopsolid-statedevicestoreplacethebulky,inefficient,andunreliableelectromechanicalrelaysorswitchesintelephones.In1947,WilliamShockley,WalterBraittain,andJohnBardeencameupwithaverycrudedeviceconsistingofasmallpieceof

germaniumwithtwowiresplacedcloselytogether,butithadswitchingandamplificationpropertiesmuchlikethediodeandthetriode.Theycalledthedevicethepointcontacttransistor,andthetriowasawardedtheNobelPrizeinphysicsin1956foritsinvention.Itwassucceededbythejunctiontransistor,amuchimproveddesignoveritspredecessor,butstillmadefromgermanium.

TexasInstrumentsannouncedcommercialproductionrunsofthefirstsilicontransistorsin1954,andbeforetheyearwasout,ithadproducedthefirsttransistorradio.SonyCorporationofJapansubsequentlyproducedtheworld’sfirsthandheldtransistorradio.Siliconquicklyreplacedgermaniumasthecorecomponentintransistorsbecauseitwasmorestableandcheapertoproduce,anditsetoffwhatwenowknowasthetransistorandsemiconductorormicrochiprevolution.Siliconbecamethecriticalingredientinthedevelopmentofmetaloxidesemiconductor(MOS)technologywhichcontinuestobethebasisofthesemiconductorindustrytoday.Butotherkindsofmaterialssuchasgalliumare

beingusedtodaybecauseoftheabilityofgalliumarsenidesemiconductorstoswitchcircuitsmanytimesfasterthanthosemadeofsilicon.Speediscriticalinimage-andsignal-processingapplicationsindefense,industry,andmedicine,forexample,aswellasspeechprocessing.

Thetransistorconstitutedthefoundationforthesecondgenerationofcommercialcomputersinthefifties.Transistorsmeantthatcomputerscouldoperatethousandsoftimesfasterandoperatemuchmorereliablyandefficientlyandusemuchlessenergythanthosethatusedvacuumtubes.Theywerealsothefirstinaseriesofmanycontinuousstepsthatresultedintheminiaturizationofcomputersandcommunicationsequipmentandmadepossiblesuchdevelopmentsasthepersonalcomputer,thecellulartelephoneandthevideocassetterecorder,tonameafewofthemanyhundredsofnewdevicesthatnowincorporatethem.

Thetransistorwasfollowedin1959byanewkindofdevicecontainingseveraltransistorsconnectedbycircuitrywhichbecameknownastheintegratedcircuit,orIC.ThepatentforinventingtheintegratedcircuitissharedbetweenJackKilbyofTexasInstrumentsandRobertNoyceofFairchildSemiconductor.Itbecamethebasisofthethirdgenerationofcomputers.ICdevicesoperateonthesameprinciplesasthetransistoronlytheyhavemanyotherkindsofdiscretecomponentsincludingresistorsandcapacitorsinadditiontotransistors.

MostoftheintegratedcircuitsusedtodayarebasedonMOStechnologyandtheplanartechniqueforproducingthem.Theplanarprocessusesaphotolithographictechniqueconsistingofthreeconsecutiveprocesses—oxidation,photoetching,anddiffusion.2Theseareusedrepeatedlytobuildupintricatepatternsofdiverseconductinglayersthatconstitutethecircuitsofasemiconductorchip.Twootherpromisingtechniques—X-raylithographyandelectron-beamlithography—arecurrentlyunderdevelopmenttomanufacturetheextremelyhighdensitysemiconductorsforthelatetwentiethandearlytwenty-firstcentury.

By1965,manufacturerswereturningoutchipswithtentransistorsin

whatwasknownassmall-scaleintegration(SSI).Between1963and1971,thepriceofintegratedcircuitsfellfromover$30to$1andthenumberofdiscretecomponentsonachipincreasedfromtwenty-fourtosixty-four.By1969,thechallengewastoput1,000circuitsonachip,andby1975,thenumberhadjumpedto32,000.Small-scaleandmedium-scaleintegrationgavewaytolarge-scaleintegration(LSI)andeventuallytoverylarge-scaleintegration(VLSI).

Thedesignandmanufactureofsemiconductorsandtheiroperationandapplicationillustrateboththeintellectualizationanddematerializationprocessesdescribedinchapter1andtheenormoussynergiesthataretheproductofthesedualprocesses.Theengineeringtechniquesusedtodesign,test,andproduceintegratedcircuitsensurethatthegreaterthenumberofdiscretecomponentsthatarefabricatedintoasinglewafer,thelowerarethecostsofproductionandthegreatertheirperformance.Thistranslatesintoenormouseconomiesofscaleintheirproductionandenormoussynergiesintheiroperationandapplications.Thegreaterthedensityofthecircuitry,thegreaterthesavingsinmaterials,

energy,andhumaneffortintheirfabricationand,therefore,lowercostsandthegreatertheefficiency,speed,andfunctionality(andbuilt-inintelligence)intheiroperation.Thesesynergiesareinherentintheintellectualizationanddematerializationprocesses,andtheyarecollapsingmoreandmorematerialsandhardwareintomicrochipsandincreasingthedensity,speed,efficiency,andfunctionalityofmicrochipsandallofthemachinesthatcontainthem.TheeconomiesweredescribedbyRobertNoyceinthefollowingway:

First,theintegratedcircuitcontainsmanyoftheinterconnectionsthatwerepreviouslyrequiredandthatsaveslaborandmaterials.Theinterconnectionsoftheintegratedcircuitsaremuchmorereliablethansolderjointsorconnectors,whichmakesforsavingsinmaintenance.Sinceintegratedcircuitsaremuchsmallerandconsumemuchlesspowerthanthecomponentstheyreplace,theymakesavingspossibleinsuchsupportstructuresascabinetsandracksaswellasinpowertransformersandcoolingfans.Lessintermediatetestingisneededinthecourseofproductionbecausethecorrectfunctioningofthecomplexintegratedcircuitshasalreadybeenensured.Finally,theenduserneedstoprovidelessfloorspace,lessoperatingpowerandlessairconditioningfortheequipment.3

TheprinciplesofwhatIhavecalledtheintellectualizationanddematerializationprocessesareexhibitedinwhathavebeentermedthe“learningcurve”or“experiencecurve’’andMoore’sLaw.Thelearningcurveexpressesarelationshipbetweenthereductioninthecostsofcomponents(andanincreaseintheirfunctionality)inrelationtoproductionoutput.AccordingtoNoyce,fortheelectronicsindustryoftheseventies,thistranslatesintoa28percentdeclineincostswitheachdoublingoftheoutputorexperienceoftheindustryor,equivalently,anannualdeclineincostsofabout25percent.Nootherindustryhasbeenabletomatchthisstandardofperformancerecordconsistentlyoversuchalongperiodoftime.Theselearningcurveeconomicsarestillatworkinthesemiconductortoday.GordonMoore,IntelCorporation’scofounder,postulatedin1960thatchipdensitieswoulddoubleeverytwoyearsbut

hadtorevisethisbecausetechnologicalprogresshadactuallyaccelerated.In1976,heestimatedthatchipdensitieswoulddoubleeveryeighteenmonths.Thismeansaquadruplinginthreeyearsinsteadoffour.Overaperiodofthirtyyears,thisrepresentsanincreaseinchipdensitiesbyafactorofoveronemillion.AccordingtoMoore’sLaw,weshouldanticipatememorieswithcapacitiesof1,000megabitstobecomecommonbytheyear2000.Thisislookinglikeahighlyaccurateforecast.

Theexplosionintheperformance,speed,andfunctionalityofmicrochipsandtheirdecliningcostledquitedirectlytotherevolutionsinmainframecomputers,minicomputers,andmicrocomputersandthesynergiesarebeingexperiencedinever-wideningbusinessandsocioeconomiccircles,firstinthecorporateorganization,thenthemarketplace,andfinallyinnationaleconomiesoftheworld.

SOCIOCULTURALANDINSTITUTIONALSYNERGIES

Anumberofkeysocioculturalandinstitutionalfactorswerealsobehindthecomputerandmicrochiprevolutionsintheearlyyearsandtheycreatedasynergyofadifferentkind—asynergyofcultures—whichcomplementedandreinforcedtheintellectual,scientific,andindustrialproductionsynergies.Onewastheuniquemixofscientific,engineering,andeducationalandindustrialculturesinthestatesofMassachusettsandCalifornia,forexample,wheresomeofthemostadvancedscientificresearchanddevelopmentinstitutionsintheworldwerelocated.TheseincludedtheMassachusettsInstituteofTechnologyinCambridgeaswellasStanfordUniversityinCaliforniaandtheBellTelephoneLaboratorieswherethetransistorwasinvented.Theseculturescreatedaclimatewherescientistsandengineersinuniversitiesandprivateresearchlaboratoriescouldcreateandexperimentwithinnovativeideasandcirculatethatknowledgebetweenuniversitiesandindustry.Manyofthemformedtheirowncompanieswhileothersworkedforformercolleagueswhoprecededthem.TheirindustrialculturewasanessentialpartoftheprocessofinventionandthediffusionofideasandtechnologythroughoutAmericaandthroughouttheworldandmanyofthemmadegreatfortunesforthemselves.Dozensofcountries,includingJapan,France,andBritain,havesincetriedtoreplicateandduplicatethissocioculturalprocessofindustrialinnovation.

ThiswastheagewhenAmericanmilitaryandeconomicpowerwasatitspeak,whenhightechnologywasstrategictoAmerica’smilitaryefforts,anddevelopersandmanufacturerscouldbeguaranteedhundredsofmillionsofdollarsforparticipatinginsuchventuresastheICBMMinutemanprogram,theApollolunarmission,andtheVietnamWar.AccordingtoMichaelBorrusandJohnSysmanoftheBerkeleyRoundtableontheInternationalEconomy,foratimeinthefifties,aboutonehalfoftheresearchbudgetsofIBMandAT&Twerepaidforbydefensecontracts,andfrom1962to1965,militaryandspaceprocurementforintegratedcircuitsaccountedformorethan75percentoftotalindustrysales.4Itwasthisculturalandinstitutionalsettingin

combinationthatenabledAmericatogainaleadershiproleinhightechnologyandmaintainitoverthedecadesuntilthelateeightieswhenothercountries,especiallyJapan,wouldbegintoseriouslychallengethisleadershipinkeysegmentsoftheindustry.

THREEGENERATIONSOFCOMPUTERSANDTHERISEOFIBM

Threegenerationsofcommercialcomputersfollowedthedevelopmentofexperimentalcomputersofthefifties,eachdeliveringgreaterfunctionalityandperformanceinever-smallersizeandoperatingwithever-greaterefficiencyandreliability.Eachtookthecomputerfurtherintotheinvisibledomainofsoftware

andintelligence,andindependentofmaterials,energy,transportation,geographiclocation,andhumanphysicaleffort.

Thefirstcommercialcomputer,calledtheUnivacI,wasbuiltbytheEckertMauchlyCorporation.ThetwomenreceivedacontractfromtheU.S.CensusDepartmenttobuildacomputertoprocesscensusdata,andtheyhadlefttheMooreSchoolattheUniversityofPennsylvaniain1950toformtheirowncompany.ButtheysoonexperiencedashortageofcashandturnedtoRemingtonRandforassistancetocompletetheproject.RemingtonRandboughtthemoutandturnedthecompanyintoitsUnivacdivision.Univacdelivereditsfirstcomputer,theUnivacI,totheCensusDepartmentin1951.Itemployedvacuumtubetechnologytogetherwithanelectrostaticdrummemorysystemandamagnetictapestoragesystemalongwithpapertapeandpunchedcardinputandoutputdevices.TheUnivacIwasaspectacularsuccess.ButIBM,havinglostitslong-standingCensusBureaucontract,immediatelylaunchedanambitiousdevelopmentprogramtocatchupinthecomputerindustry.5Univachadadeterminedandformidablefoeonitshands.IBMdominatedthepunchedcardtabulatingmachineindustry,andThomasWatson,IBM’spresident,resolvedtodominatetheemergingcomputerindustryaswell.

TherewaslittlerealeffectivecompetitioninthecardtabulatingcardmachinemarketandcomputermarketsintheearlyfiftieswithIBMenjoyingabout90percentandRemingtonRandtheremaining10percent.IBM’sdominationwassocompletethattheDepartmentofJusticefiledanantitrustsuitagainstthecompanyin1952chargingitwithmonopolizingthetabulatingmachinebusiness.Thecasewaseventuallywoundupin1956(thesameyearasAT&T’sconsentdecree)withaconsentdecreewithIBMagreeingtosellaswellasleaseitsequipmentandtomakesomeofitspatentsavailabletoRemingtonRand.

ButIBMhadmanystrategicadvantagesthatRemingtonRanddidnothave.Itenjoyedtheadvantagesofverticalintegrationandeconomiesofscaleinresearchanddevelopment,manufacturingandmarketing.Ithadbyfarthebiggestnationalandinternationalinstalledbaseofpunched

cardtabulatingequipmentintheworld,andthiswouldprovetobeatremendousassetinIBM’sefforttodominatethecomputerindustrybothintheUnitedStatesandworldwide.IBMcoulddesignandmanufacturethecardpunchequipmentitneededforitsnewcomputersinfactoriesalreadysetuptoproduceitstabulatingcardmachinesandtouseitsinternationalmarketingandsalesforcetomarketitslinesofcomputersaswell.RemingtonRandhadnoneoftheseadvantages.IBMwasthusabletouseitseconomiesofscaleandscope,itstremendousmarketingmuscle,itsfinancialstrength,anditsprowessintechnologytostrategicadvantageinthefiftiesandsixtiestolaunchgenerationaftergenerationofcomputersthatenabledittoconsolidateitsholdonthecomputerindustryworldwide.

In1953,IBMdeliveredthe701scientificcomputer,andthenextyearitannouncedthe650forthebusinessmarket.The650serieswasanastoundingsuccess.EvenIBMmanagementwasastonished.By1956,whencomputerswerecomingintotheirown,IBMdominatedthemarketwithabout85percent

ofshipments.RemingtonRandontheotherhandhadonlyabout9.7percent.Theboomingmarketforcomputersalsoattractednewentrants.NCRcameintothemarketin1953,Burroughsin1956,andGeneralElectricin1959.In1957,agroupofemployeesincludingWilliamNorrisleftUnivactoformanewcompanycalledControlDataCorporation(CDC)andNorrisbecameitsfirstpresident.CDCbecamealeaderinthemanufactureofextremelyfastlarge-scalescientificcomputers.

Second-generationcomputersbasedontransistorsbecameavailablein1959.MagneticcorememorydevelopedbyJayForresteratMITwasbecomingavailableonmostcomputersbythen.Bystoringbitsofinformationinminiaturemagneticcores,itwaspossibletostoreandretrievedataandprograminstructionselectronicallyextremelyrapidly,efficiently,andreliablyinarandomaccessmanner.Univac,IBM,Burroughs,andControlDataCorporationalllaunchedsecond-generationcomputers.Thetop-of-the-lineIBMcomputerwasthe7000seriescomputers,butIBMbroughtoutsmallerversionscalledthe1401andthe1620computers.NCRandRCAalsolaunchednewcomputers.GeneralElectriclaunchedacompletelysolid-statecomputer.Asaresultofgrowingcompetition,IBM’smarketsharehaddwindledto65.3percentby1965.

Thedevelopmentofthird-generationcomputersrepresentedamilestoneinthehistoryofthecomputerbecauseofitsuseofsemiconductorandmagneticstoragetechnologyanditsinnovativesoftware.Theintroductionofthird-generationcomputerswasmarkedbytheannouncementbyIBMonApril7,1964,ofthenew360seriesinadramaticpublicrelationsexercisewhichincludedsimultaneouspressconferencesinsixty-twoU.S.citiesandfourteencountries.The360wasalsoextremelysuccessfulforIBM,andby1967,itaccountedfornearly50percentofIBM’sinstalledbaseofcomputers.ItalsoincreasedIBM’smarketshareto68percentinspiteofthefactthatitscompetitorsinsomecaseshadmuchmoreinnovativedesigns.

TheControlDataCorporation6600computer,deliveredin1964,hadfifteentimestheperformanceofthefastestalternativecomputeratthe

time,andCDCdominatedthisnicheforoveradecade.CDCalsobecamealeaderinthecomputerservicebureauindustryaswellasapioneerintheapplicationofcomputersineducationwiththedevelopmentofitsPlatoSystem.Burroughswastheleaderinatechniquecalledmultiprocessingwhichenabledseveralcomputerstoworktogetherunderasingleoperatingsystemtoachievemuchhigherdegreesofreliabilityandperformancethananyothermachine.BurroughsalsodevelopedvirtualmemorywhichIBMusedinits360series.GeneralElectricbecametheleaderintime-sharing,andMITchosetheGE635fordevelopingitsspecialtime-sharingoperatingsystem(ProjectMAC).IBMwasforcedbythecompetitiontoincorporatetime-sharinginits360/Model67computer.

ButtheIBM360serieswasinnovativeinitsownwayinspiteofmakinguseofmanyoftheinnovationsdevelopedbyitscompetitors.Oneofitsmostimportantfeatureswasthatitwasbothascientificandacommercialcomputer.Until1964,computermanufacturersdevelopedandmarketedseparatescientific

andcommercialmachines.Bydesigningboththehardwareandsoftwareappropriately,itwaspossibleforthe360seriestobeconfiguredeitherasascientificorcommercialcomputer.Thismadeabigdifferencetoitscostsofproduction.SinceIBMnolongerhadtogothroughthetroubleandexpenseofdesigningandmanufacturingtwocompletelyseparatescientificandcommercialcomputers,itwasabletogainimportanteconomiesofscaleinitsmanufacturingoperationswhichgaveitacompetitiveedgeoveritsrivals.The360seriesalsousedmanynewdevelopmentsandinventionsthatbecamestandardinthecomputerindustryincludingtheuseofthe8-bitbytecharacterrepresentation,9-trackmagnetictapes,andremovable(magnetic)diskpacks.

SOFTWARESYNERGIES:ECONOMICSOFTHETHIRDGENERATION

The360serieswasperhapsmosttypicalofthird-generationcomputers.Theseemployedmedium-scaleintegrationtechnologytoincreasethespeedoftheCPUandthespeedandcapacityofmemory,andthesetogetherwithotherinnovations,especiallysoftwareinnovations,madeotheradvancespossible.Oneofthesewasvirtualmemorywhichtremendouslyimprovedtheeconomicsofcomputers.Virtualmemoryisatechniqueformappingtheveryhighspeedbutsmallmemoryofthecomputerontolowerspeed,high-capacitymagneticdiskstoragedevicestoincreasethroughput.Virtualmemorymadeitpossibleforthecomputertostoremanyprogramsinmemoryatonceandtoscheduleandexecutethemwhenthetimeandresourceswereavailable.Theseandotherinnovationswereinstrumentalincreatingthemultiprogramming,multiuser,on-line,andtime-sharingcomputersystemsthatarecommontoday.

Alloftheseinnovationsincreasedthethroughputandtheefficiencyofthecomputerbutalsoitscomplexity.Butthisalsomeantthattheoperatingsystemwouldhavetotakemuchgreatercontrolovertheoperationoftheentirecomputer,taking,responsibilityforcontrolling,scheduling,andexecutingallinputandoutputaswellasallocatingalloftheequipment

andsoftwareresourcesneededtosatisfyuserdemands.Thecomputerhadtobedesignedtooperatemoreorlessautomaticallywithlittleornooperatorintervention.Mostcomputerstoday,includingthoseusedintelephoneexchanges,automobiles,androbotsandinofficesandfactories,banksandstockexchangesusethesesametechniques.Allofthemderivetheiruniquefeaturesfromthesesameautomaticoperatingsystemcontrolprinciples.

Thethirdgenerationalsowitnessedthefirstbigshiftfromhardwaretosoftware.6Indeed,itwasthecostofdevelopingthesoftwareforitstime-sharingcomputerthatforcedGeneralElectrictoeventuallywithdrawfromthecomputermarket.Softwaredevelopmentwasthemostsignificantcostinbringingthe360tomarket,andittookyearsforIBMtorecoupitsinvestmentinspiteoftheimmediatesuccessofthe360.Itwasdevelopmentsinoperatingsystemssoftwaretosupportvirtualmemory,multiprogrammingandmultiuserapplications,

andon-line,time-sharingandreal-timeprocessinginparticularthatmadethethird-generationcomputerssounique.Butthedevelopmentofhigh-levellanguageswasequallyimportant.Themostimportanthigh-levellanguageswereFORTRAN,developedbyJohnBackuswhileatIBMin1956andusedprimarilyforscientificapplications;COBOL,developedbyGraceHopperandCharlesPhillipsprimarilyforbusinessapplications;andBASIC,developedbyJohnKemenyandThomasKurtzatDartmouthCollegeanddesignedforinteractiveuse.

High-levellanguageswerestrategictothesuccessofthird-generationmachinesandthe360seriesinparticularbecausetheygaveindividualuserstheabilitytoquicklyandeasilywritecustomizedprogramsfortheirownuseand,becausetheseweresupportedbymostmanufacturers,programswrittenintheselanguageswereportableacrossdifferentmakesofcomputers.Thismadeitpossibletocreateportablelibrariesofapplicationssoftwarethatcouldbesharedbycommunitiesofinterestgroupsthroughouttheworldinthesixtiesandseventies.High-levellanguagesthusledtomajorincreasesinprogrammerproductivitywhichmadethecomputeranincreasinglyindispensabletooltoscientists,engineers,andbusinessesthroughoutthesixtiesandseventies.

Itwasalloftheseuniquedevelopmentsinhardware,software,especiallyoperatingsystemssoftwareandhigh-levellanguages,communicationsnetworks,anddatabaseapplications,forexample,andthesynergiesofallofthemincombinationthatcontributedtotheevolutionofthecomputerintoadynamicallyefficientinformation-processing,computationalandresourceallocation,anddecision-makingentitywhichledinturntoitswidespreadadoptioninlarge-andmedium-sizedbusinesses.Operatinginanincreasinglynetwork-intensiveenvironment,thesefeaturesenabledthecomputertodynamicallymanageallofthehardware,software,andinformationresourcesonthecomputerandonthenetworkandtodedicatethesetoeachuserasrequired,andastheybecomeavailableinsuchawaythatitappearsasifeachhadallofitsresourcestohisorheruniqueuse.Thesesamefeaturesalsoenabledeachusertocreate,contributeto,andaccessandshareenormouslibrariesanddatabanksofsoftware,information,engineeringdesigns,

simulationmodels,anddecisionsupportandadministrativeapplicationswitheveryothermemberonthenetwork.Andtheycontributedtothecreationofentirelynewindustries,themostnotableofwhichwerethecommercialcomputerprocessing,databaseanddigitalcommunicationsservicesindustries.Computers,computernetworks,andsoftwareapplicationsthusenabledentirecommunitiesofscientists,engineers,andbusinesspeoplethroughouttheworldtocommunicate,collaborate,andcooperatewithoneanotherandsharetheirownuniquesoftware,information,talents,ideas,andexperience.Thisprocessisstillgoingontodaybutitisdevelopmentsinenterprisewidenetworks,collaborativecomputing,workgrouptechnologies,andmultimediaapplicationsthatpromisetodeliverever-morepowersystemsandintellectualsynergiestoorganizationsandindividuals.

DEVELOPMENTSINSEMICONDUCTORTECHNOLOGYINITIATETHEMINICOMPUTERREVOLUTION

Developmentsinsmall-scaleintegratedcircuitslaunchedtheminicomputerageinthesixties.Minicomputersweresmallerandlesspowerfulbutalsolessexpensivethanmainframecomputers.Theyweredesignedtoappealtosmall-to-medium-sizecorporationswhichcouldnotaffordtopurchaseamainframecomputerordidnothavethevolumeofinformationprocessingtojustifytheexpenseofamainframe.Thekeydistinctionsbetweenminicomputersandmainframesmadethemjustrightforanewmarketofscientificandengineeringuserswaitingeagerlyfortheirdebut.

Theminicomputerrevolutionwaslaunchedin1960whenanewcompany,DigitalEquipmentCorporation(DEC),launchedthePDP-1minicomputer.Itweighed250poundsandhadapricetagof$120,000,afractionoftheweight,size,andpriceofcomputersatthattime.DigitalEquipmentCorporationwasformedthreeyearsearlierbyKenOlsen,agraduatefromMITwhohadworkedwithJayForresteronthedevelopmentofcorememory.UndertheleadershipofOlsenanditschiefdesigner,GordonBell,DECpioneeredmanykeydevelopmentsinminicomputersandwentontobuildsuccessorstothePDP-1.In1968,itannounceditsmostsuccessfulandfamousPDP-8seriesofminicomputerswhichcreatedthemarketnicheforminicomputers.

ThesuccessofDECattractedothernewentrantstotherapidlygrowingminicomputermarket.In1968EdsondeCastro,DEC’schiefdesigner,leftthecompanytoformDataGeneral.Varian,Wang,Interdata,andHewlett-Packardalsobroughtoutminicomputers.Drivenbycompetitionandrapidtechnologicalinnovation,thespeedandperformanceofminicomputersincreasedovertheyearsuntiltheybegantocompetewithsmallmainframecomputersandthedefinitionsandperformancefeaturesthatwereusedtodistinguishmainframecomputersfromminicomputersbecameblurredalongwiththedistinctionsbetweentheircustomersandtheirmarkets.Thegrowingnumberandsuccessofminicomputermakers

putincreasingpressureonthemanufacturersofmainframecomputers,thusacceleratingproductinnovationanddevelopmentthroughouttheentireindustry.

IBM’SINNOVATIONSINCOMPETITIVESTRATEGIESANDTACTICS

Bytheearlyseventies,IBMdominatedmostsegmentsofthecomputerindustryworldwidedespitethetremendouseffortsbythe“sevendwarfs,”asitsmainframecompetitorswerecalled,tomatchorexceeditsperformanceininnovationandmarketing.IBM’ssuccesscouldnotbeattributedtoanysinglestrengthbuttoitsenormoustechnological,financial,marketing,andmanagementstrengthsincombination.Thecompanywasverticallyandhorizontallyintegrated,andithadhugein-houseexpertiseinhardwareandsoftwareaswell

asinmarketingandsales.Itwasalsoaglobalcorporation.IBMwasinfactoneofthefirstcompaniestoactuallysetupresearchanddevelopment,manufacturingandservicesandmarketingarmsinEuropeandAsiaandothercontinents.Oneofitsbiggestassetsbyfarwasitshugeinstalledcustomerbaseworldwide.Anotherwasitscaptivemarketofloyalcustomers.Thecompanyalsohaddeeperpocketsthananyothercomputercompanyderivedfromitsdiverseactivitiessoitcouldaffordtopursuemultipleresearchanddevelopmentstrategieswhileitscompetitorswereforcedtosticktoone.Itwasbigenoughtointernalizemarketriskthatothercompaniescouldnot,anditcouldprotectitselffrommarketuncertaintyandsetthepaceofdevelopmentandcommercializationacrosstheentirespectrumofcomputerproducts.Noothercomputercompanyintheworldcouldmatchit.

Intheirstudyofthecomputerindustry,BarbaraKatzandAlmarinPhillipsidentifiedfourcriticalcharacteristicsthatmanufacturershadtohavetoexcelinthecomputerindustryinthefirsttenyears.Theyincludedtheinvolvementoftopmanagementindecisionmaking,thecoordinationoffinance,marketing,andtechnology,theabilitytoresolveconflictsinthebusinessandtheperceivedimportanceofcommercialsegmentsofthebusiness.IBM,CDC,DEC,andScientificDataSystemsscoredhighonallfourcounts.AllfourattributeswereimportantinthedecisionofIBMtodeveloptheIBM360series.Theauthorsconcluded:

Itisliterallyinconceivablethatthesequenceofdecisionsrelating…[tothescrappingofanentirecomputerdevelopmentafterspendingmanymillionsofdollarsonitinfavorofthenew360series]wouldhavebeenmadeandtheresultswouldhavebeensuccessfulintheabsenceofaverticallyintegratedstructurewithcoordinatedmanagementoftheseveralfunctions.IBMliterally“betthecompany”onits360decision.7

ButmuchofIBM’ssuccesswasalsoduetoitsuniquecorporatestrategywhichitcraftedandappliedlikenoothercompany.AccordingtoGeraldBrock,authorofTheU.S.ComputerIndustry:AStudyofMarketPower,thedominanceofIBMcanbeattributedtoanintegrated,multiprongedstrategywhichincludedleasingitscomputersandrefusingtosellthemto

itscustomersandbundlingitssoftwareandhardwaretogetherwithconsultingandotherservices.TeamsofIBMexpertswouldanalyzethecompleteneedsofitscustomersandadviseonthebestwayofapplyingIBM’scomputertechnologytosolveproblems.ThiswasanimportantwayofstimulatingcustomerdemandsformoreIBMproducts.These,combinedwithsophisticatedpricingstrategies,wereusedtocontroltechnologicalobsolescence,tomakecustomersmoredependentonIBMandpreventthemfromusingequipmentfromothersuppliers.

AllofthesestrategieswerewrappedunderwhatIBMcalledits“uniqueproduct”philosophywhich,accordingtoGeraldBrock,wasderivedfrom“theneedtopreventeasyswitchingbetweenIBManditscompetitorsandtohold

customerswithIBMevenwhencompetitorsappeartohaveasuperiorproduct.”Brockwrote,

IBM’sapproachtodevelopingauniqueproducthasbeentotietogetherconsultinghelp,softwarepackages,education,andhardwareintoasinglepricepackage.[Before1970,]theuserpaidasinglepricebaseduponthehardwareandreceivedalltheothersoftware“free.’’ThischangedthefocusoftheIBMproductfromaspecificpieceofhardwaretoanentirecompany’scapabilitiesandreputationandconsequentlymadeIBM’sproductuniqueinthecomputermarket.8

IBMdevelopedmanyothertacticstocombatcompetition—tacticswhichleadingcompetitorslikeMicrosoftCorporation,forexample,usetoday.Onewasthepracticeofsellingcomputerstouniversitiesandeducationalinstitutionsatdeepdiscountprices.ThiswasawayofinitiatingandeducatingtheyoungergenerationsofstudentsofscienceandbusinesstotheIBMworld,gainingtheirtrustandconfidenceandgroomingandtrainingthemfortheoutsideworldwheretheywouldfeedthegrowingnumberofcompanieswithIBMcomputers.ManyoftheseloyalIBMerswouldeventuallymakedecisionstopurchaseIBMcomputers.Anotherstrategywasthepracticeofannouncing“phantommachines.”Theseweremachinesthatneversawthelightofdaybutwereintendedtoholdontocustomersordelayothersfrompurchasingcompetingmachines.

IBMalsomadevariousattemptstodominatestandardsinthecomputerindustrybutwasnotalwayssuccessful.IttriedunsuccessfullytohaveitsFORTRANstandardadoptedasthenationalstandardinthefifties,andinthesixties,itfailedtohaveits8-bitExtendedBinaryCodedDecimalInternationalCode(EBCDIC)recognizedasthenationalstandard.TheAmericanStandardsassociationadoptedinsteadtheASCII(AmericanStandardCodeforInformationInterchange)codeasthestandardin1968.

Inthelatesixties,IBMbeganfightinganonslaughtofcompetitionfrommanufacturersofplug-compatibleperipheralequipmentanditwasthetargetofanumberofantitrustsuits.In1968,forexample,Memorex,

whichmanufacturedmemorydevices,andTelex,whichmanufactureddiskdrives,launchedantitrustsuitsagainstIBM.Greyhoundinthecomputerservicesbusinesswasanother.

In1969,theDepartmentofJusticefiledanantitrustsuitagainstIBMchargingitwithmonopolizingthegeneralpurposecomputerindustryandseekingtobreakupthecompany.ItcitedIBM’spracticeofbundlingsoftware,hardware,andsupportunderoneprice,itstacticsfordominatingtheeducationalmarket,itspracticeofprematurelyannouncingnewcomputersandthepricingofcomputersinmarketsegmentswherecompetitionwasgreatest,anditspracticeofusingaccumulatedsoftwareandsupporttoprecludecompetitorsfromcustomeraccounts.IBMrespondedin1970byunbundlingthepricesitchargedforprogrammingsupport,educationalservices,andapplicationsprogramsfromitshardware.Unbundling,accordingtoBrock,“dramaticallyreducedcustomerdependenceonIBMconsultantsand…increaseduserindependence.”9

In1973,IBMandCDCsettledoutofcourtanantitrustsuitfiledbyCDC’ssubsidiaryCommercialCreditagainstIBMin1968.Underthesettlement,IBMagreedtosellitsServiceBureauCorporationsubsidiarytoCDCandstayoutoftheservicebureaubusiness.CDCalsoreceiveda$101millioncashsettlement.OneoftheprovisionsofthesettlementwasthatCDCwoulddestroyitscomputerizedindexofIBMdocumentscreatedforitscaseagainstIBM.TheindexofmillionsofIBMdocumentscouldhaveconsiderablystrengthenedtheJusticeDepartment’scaseagainstIBMwhichdraggedonuntil1982whencircumstanceshadchangedconsiderablyandtheDepartmentofJusticewithdrewitscase.

THEFIRSTGREATSHAKEOUTINTHECOMPUTERINDUSTRY

Bytheearlyseventies,theentirecomputerindustrywasundergoingadramaticupheavalasaresultofchangingsemiconductor,mainframe,andmicrocomputertechnologiesandproductmarketsaswellasfiercecompetition,andashakeoutwasinprogress.IBMannouncedthe370seriescomputersasthesuccessortothe360seriesbuttherewasnothingrevolutionaryaboutit,unliketheannouncementofthe360.MOSmemorycompletelyreplacedcorememoryinthe370seriesbecauseitwasfaster,cheaper,smaller,andmoreefficient.Cheaper,faster,highercapacitymagneticdisksandsemiconductormemoryalsobecamestandardonallcomputersintheseventies.Papertapeandpunchedcardsgavewaytosmallmagneticdisksandtapesandeventuallytofloppydisksasthemicrocomputerandpersonalcomputerrevolutionsgainedmomentum.Althoughthe360serieskilledoffmuchofIBM’scompetition,newentrywasalsotakingplace.

In1970,GeneAmdahl,principalarchitectforIBM’s360series,leftIBMtoformhisowncompany,AmdahlComputers.AmdahlwasdissatisfiedwithIBM’sinability(actually,itwasIBM’srefusal)toincorporateLSIlogicinitscomputers.InOctober1971,Amdahlannouncedthefirsthigh-performancelarge-scaleintegratedchip,and,fouryearsand$40millionlater,itshippeditsfirstAmdahl470V/6computer.TheV/6wasfasterand

lessexpensivethanthetop-of-the-lineIBM370,anditchallengedIBM,forcingthegiantcorporationtospeeduptheintroductionofnewproducts.

AmdahlComputerswasoneofthefewcompaniesthatwasabletosuccessfullycompetewithIBMduringthisperiod,anditdidsobybuildingso-calledplug-compatiblemainframecomputers.ThesewerecomputerswhosehardwarewassomuchlikethatofIBMthattheycouldusethesamesoftwareandperipheralequipment.Thisway,theycouldrunallofthesoftwarethatusershadwrittenfortheirIBMcomputers.ThesamecloningtechniqueswouldalsoprovesuccessfulincompetingwithIBMinthepersonalcomputerindustryadecadelater.

Atthesametime,opportunitiesweredevelopingtobuildevenmorepowerful

computers.SeymoreCray,oneoftheoriginalteammemberswholeftUnivactoformCDC,eventuallyleftthecompanyin1972toformhisowncompany,CrayResearch.Craybecameaworldleaderinthedesignandmanufacturingofanewgenerationofsuperfastcomputers,callednaturally“supercomputers.”

ControlData,Univac,Burroughs,Honeywell,RCA,GeneralElectric,andevenXerox,allmembersofthegroupofsevendwarfs,developedthird-generationmachines.Severalofthesewereinnovativeintheirowndesigns.CDClaunchedtheCyber70seriesofveryfastcomputersandBurroughstheIlliacIVcomputer,averyfastparallelprocessingcomputerwhichusedmultipleCPUsbutitwasagenerationormoreaheadofitstime.NoneofthesewasstrongenoughtochallengeIBM’sdominanceofthemainframecomputerindustry.Eventhestrategyofmanufacturingplug-compatiblecomputersfailedtodentIBM’sgrowthormarketshare.MainframemanufacturersalsohadtocontendwithgrowingcompetitionfromtheminicomputermanufacturersledbyDigitalEquipmentaswellasAmdahlComputerswhichproducedmoresuperior,highperformancecomputersthanevenIBMproduced.

Allofthesedevelopmentsincombinationledtoamajorshakeoutinthecomputerindustryintheseventies—ashakeoutthatisstillinprogresstoday.Stillsufferingfromthecostofdevelopingthesoftwareforitstime-sharingcomputersystem,GeneralElectricsolditscomputeroperationstoHoneywellin1970.RCAfailedtowincustomersfromIBMwithitsstrategyofcloningIBMcomputersinitsSpectra70series,andRCAchairman,DavidSarnoff,announcedin1971thatRCAwasleavingthecomputerbusiness.ItsolditscomputerdivisiontoSperryRand/Univac.In1976XeroxwhichhadenteredthecomputerbusinessonlysevenyearsearlierwiththepurchaseofScientificDataSystemssolditssubsidiaryXeroxDataSystemstoHoneywell.EvenAmdahlComputerswassuffering.In1980itsfounder,GeneAmdahl,soldalargeblockofstocktoFujitsuCorporationbutlostcontrolofthecorporationintheprocess.Subsequently,AmdahllefttofoundTrilogyCorporationtodesign,manufacture,andmarketlarge-scale,high-performancemainframecomputers.Severalyearslater,in1986,Burroughsand

SperryagreedtocombinetheirminicomputerandmainframeeffortsandformUnisysCorporation.

THEMICROPROCESSORINITIATESTHEPERSONALCOMPUTERREVOLUTION

Itwasinnovationsinmicroelectronicsandeffortstocrammoreandmorecircuitryandfunctionalityonasinglechipthathasledtooneofthegreatestindustrialtransformationsinhistory.Theseledtothecreationofthemicroprocessorandmicrocomputerintheseventiesandprecipitatedthepersonalcomputerrevolutionintheeighties.ThesewerelandmarkdevelopmentsthatchallengedIBM’sdominanceoverthecomputerindustryandeventuallyforcedittoscrapallofitsoldstrategiesanddeviseentirelynewonestocompeteinthenewandtransformedcomputerindustry.

Thehistoryofthemicrochip,themicroprocessor,andthepersonalcomputer(PC)revolutiongoesbacktothelatefiftiestothePaloAltoareaofCalifornia.10WilliamShockley,feelinghehadoutgrownBellLaboratoriesandwantingtostrikeoutonhisown,decidedtogobacktohishomeinPaloAlto,California,wherehesetuphisowncompany,ShockleySemiconductor,in1955.Shockleyattractedmanybrightyoungmindsbutwasunabletokeepthemhappy.Bank-rolledbyFairchildCamera,awell-knownsupplierofcameraequipment,agroupofthem(subsequentlycalledtheFairchildren)leftShockleytostartuptheirowncompanycalledFairchildSemiconductorin1957.TwoofthemenwhojoinedFairchildSemiconductor,RobertNoyceandGordonMoore,eventuallyleftin1968toformthenow-famousIntelCorporation,whichlaunchedthemicrocomputerrevolutionandownsthepatentstomostofthecomputersthatarebasedontheIBMPC.ThePaloAltoareaofCalifornia,wherealloftheactiontookplace,becameknownas“siliconvalley,”anditisstilltheheartoftheAmericanandtheworldsemiconductorandcomputerindustries.Siliconvalleydevelopeditsownuniquecultureofscientists,venturecapitalists,softwarespecialists,andthemyriadsofotherkindsofbusinessesandbusinessprofessionalthatcatertotheuniqueneedsofthehigh-techworldweliveintoday.Andothercountrieshaveattemptedtocopyitssuccess.

In1971,IntelCorporationannouncedthefirstmicroprocessorcalledtheIntel4004.ItwasdesignedbyateamledbyTedHoffforaJapanesecompanycalledBussicomwhichhadcontractedInteltoproducecomponentsforaprogrammabledesktopcalculator.11Hoffhadtofindsomewayofreducingtheenormousnumberofcomponentsrequiredtosynthesizethecalculator.Tosolvetheproblem,hedesignedageneralpurposemicroprocessorwiththeentireCPUonasinglechip.Theinstructionsformakingitoperateandperformthevariousfunctionswerestoredinaread-onlymemorychip(ROM).Anotherchipwasaddedforinputandoutput.Intelalsoinventedtheerasableprogrammableread-onlymemory(EPROM)whichmadeitpossibletoreusememorybydynamicallyerasingandoverwritingitasrequired.

TheHoffteamhadgivenbirthtothemicroprocessoralthoughnoonerecognizeditforsometime.Itcontained2,300transistorsandhadthecomputationalpoweroftheENIAC.Italsoperformedaswellasthe$300,000IBMmachinesoftheearly1960sanditsCPUmeasuredjustone-eighthinchbyone-sixthinch.IttookHoffandIntelCorporationsometimetorealizethatthevarietyofapplicationsofthemicroprocessorwerelimitlessintheoryandpossiblyinpractice.In1972,IntelCorporationfollowedupwithan8-bitsuccessortothe4004,calledtheIntel8008.Ithad20,000transistors.In1973,NationalSemiconductorlaunchedacircuitboardwithprocessorandmemorychipsforcontrolapplications.In1974,Motorolaannouncedthe6800microprocessor.By1974,IntelhaddevelopedtheIntel8080chip,thefirsttruegeneral-purposemicroprocessor.Acompletecomputerwasnowavailableonasingleprintedcircuitboard.Itwascapableofexecuting290,000instructionsasecondanditbecametheindustrystandardforthe8-bitmarket.In1977,RobertNoycesum-

marizedtheprogressmadeinthedevelopmentofthemicrocomputerinaScientificAmericanarticleonmicroelectronicsinthefollowingway:

Today’smicrocomputer,atacostofperhaps$300hasmorecomputingcapacitythanthefirstlargeelectroniccomputer,ENIAC.Itis20timesfaster,hasalargermemory,isthousandsoftimesmorereliable,consumesthepowerofalightbulbratherthanofalocomotive,occupies1/30,000thevolumeandcosts1/10,000asmuch.Itisavailablebymailorderoratyourlocalhobbyshop.12

In1979,Intelannouncedthe64-kilobitrandomaccessmemory(RAM)chip.Allofthehardwarewasreadyforthepersonalcomputerrevolution.

ThefirstcommerciallyavailablemicrocomputerinkitformwaslaunchedbyacompanycalledMITSin1974.Thenewcomputer,calledtheAltair,namedafterthemythicalplanetintheStarTrekseries,wasadvertisedintheJanuary1975issueofPopularElectronicsfor$350.ItwaspoweredbytheIntel8080chip.Apple,Commodore,andTandybroughtoutready-madecomputersbuiltwiththeirownsoftwareinthenexttwoyears.AppleintroducedtheAppleIcomputer,itsfirstmass-marketcomputer,inApril1976,and,ayearlater,itintroducedtheAppleII.CommodoreannouncedthePersonalExecutiveTerminal(PET)inApril1977andTandy,theTRS-80,inAugustofthesameyear.

Thesewererevolutionarydevelopmentsbecausetheyputindividualsasusersaswellasproducersinsteadoflargecorporationsincontrolofthecomputerrevolution.TheNewScientistsummedupthesignificanceoftheseearlymachinesinthefollowingway:

Until1974,computingwasthepreserveoflargecorporations,hedgedaroundwithrulesandregulationsdesignedtoshareoutanexpensiveresource.TheAltairandmorerefinedmachinessuchastheCommodorePETandtheTandyTRS-80whichfolloweditturnedthatnotiononitshead.Individuals,thosewithatechnicalbentanyway,couldpleasethemselvesabouthowandwheretheyusedacomputer.Inthissensemicrocomputersweresubversive.Theyspawnedanundergroundculture

inCaliforniawithitsownheroes,myths,andshibboleths.Insidersknewtheyhadgottenoneovertheestablishment.UnlikethedevelopmentoftheminicomputercloselyassociatedwiththeAmericanspaceeffortofthe1960sorthemainframewhichgrewoutofwartimeweaponsandcodecrackingresearch,microcomputerdevelopmenttookplaceoutsidethemainstreamofcomputerscience.13

THESTORYOFAPPLECOMPUTER

NohistoryofthepersonalcomputerrevolutioniscompletewithoutatleastabriefdescriptionoftherolethatAppleComputer,oneofthegreatlegendsofsiliconvalley,playedinit.Inthemid-seventies,StevenWozniakandStephenJobs,membersoftheHomebrewComputerClubatHewlett-Packard,thecompanywhereWozniakworked,becameinterestedinbuildingtheirowncomputer.

WozniakdesignedapersonalcomputercalledtheAppleIandsetupshopin1975inhisgaragetoproducethemforsale.ThelocalByteShopagreedtopurchasefiftymachines,andtheduowasinbusiness.In1976,WozniakandJobsformedthenow-famousAppleComputercompanytoproducepersonalcomputersforthecommercialmarket.In1977,AppleComputerbroughtoutanimprovedpersonalcomputercalledtheAppleIIatapriceof$1,298.TheAppleIIalongwiththelaunchingoftheLisacomputerinJanuary1983anditssuccessor,theAppleMacintoshintroducedin1984,ledtoApplebecomingtheundisputedleaderinthepersonalcomputerindustry.TheMacintoshhad128Kofmemoryandaretailpriceof$2,495,anditusedtheMotorola68000microprocessorinsteadofIntel’s8080orsuccessormicroprocessors.Thismachinerevolutionizedthepersonalcomputerindustryandsetthestandardbywhichallpersonalcomputersarejudgedtoday.

IBMLAUNCHESTHEPCREVOLUTION

By1980,IBMwascomingundertremendouspressurefrominsideandoutsidethecompanytodevelopamoreeffectivestrategyfortherapidlygrowingpersonalcomputermarketplace.ButeverythingaboutthenewmarketwasdifferentfromIBM’straditionalmainframeandminicomputerbusinesses.Itsclientbaseconsistedofindividualsprimarily,thatis,programmers,engineers,scientists,financialexperts,andverysmallbusinesses,insteadofcorporateManagementInformationSystems(MIS)people.Itsdistributionchannelsweredifferent.Itscompetitorsweresmallbutveryinnovativeandnimble.IBMdominatednopartofthehardwareandsoftwaresegmentsofthenewmarketlikeitdidinthemainframeindustry.TocatchupwithAppleComputerandtaketheleadquickly,IBMdevisedaradicallydifferentstrategyfromanythatithadeverpreviouslyexecuted.Insteadoftryingtoproduceallofthehardwareandsoftwarein-house,itturnedtooutsidesuppliers.ItchosetopurchasethemicroprocessorfromIntelCorporation,itsoperatingsystem,theprogramminglanguagefromasmallcompanycalledMicrosoftCorporation,anditchoseretailerssuchasComputerLandandSears,Roebucktosellitsmachinestothepublic.Actuallythestrategywasnot

innovativeatallforIBMeffectivelycopiedmuchofAppleComputer’sstrategywhich,afterall,workedverywellforAppleComputer.WhywouldthesamestrategynotworkforIBM?Thestrategydidworkverywellatfirst,butinhindsight,itturnedouttobeoneofthebiggestmistakesinIBM’shistory.InJune1980,IBMsetupthe“AcornProject’’tobringoutadesktoppersonalcomputerinoneyear.

NewYork,August12,1981!IBMissuedapressreleaseannouncing“itssmallest,lowest-pricedcomputersystem—theIBMPersonalComputer…designedforbusiness,school,andhome,theeasy-to-usesystemsellsforaslittleas$1,565.”TheIBMPCcamestandardwith64Kofmemoryandwaspricedat$2,665.ItwaspoweredbytheIntel8088microchiprunningat4.77MHzandan“advancedoperatingsystem”whichIBMcalledPC-DOS,suppliedby

astart-upcompanycalledMicrosoftCorporation.Withthisannouncement,thepersonalcomputerrevolutionwasofficiallylaunched.ThedebutofthePCwaschosenasthe1982“machineoftheyear”byTimeMagazine,anditspictureappearedonthefrontpageoftheJanuary3,1983issue.By1991,morethan125millionPCsorPC-compatiblecomputerswereinoperationaroundtheworld,farmorethananyothercomputerandtheyputthepersonalindustryonaroadthatwouldtransformtheworld.

OthermanufacturersannouncedpersonalcomputersinthesameyearasIBM.Hewlett-PackardandXeroxbroughtouttheirownpersonalcomputers.CommodoreannouncedtheCommodore64,oneofthemostpopularhomecomputersevermade.In1982thefirst32-bitmicrocomputersappearedonthemarketeffectivelymakingitpossibletoputthepowerofamainframecomputerintoadesktoppersonalcomputer.

Thepersonalcomputerrevolutionwasalsoasoftwarerevolution.Severalkeysoftwarepackageswereinstrumentalinmarketingthepersonalcomputerasaproductivity-enhancingdeviceandwinningoverthebusinesscommunityandthepublicgenerallytothemeritsofpersonalcomputing.OneofthesewastheBASICprogramminglanguageforpersonalcomputersdevelopedbyMicrosoft,whichmadeitpossibleforuserstowriteprogramsinhigh-levellanguagesratherthanmachinecode.AnotherwastheCP/M(controlprogramformicroprocessors)operatingsystemdevelopedspecificallyformicrocomputersbyGaryKildallinthelateseventies.CP/Mwasthefirstgeneral-purpose(floppy)disk-basedoperatingsystemfor8-bitmicrocomputers,anditprovidedastandardforbothmanufacturersandsoftwareproducerstocreateabigmarketforpersonalcomputerproducts.

Athirdmajoradvancecamein1979withtheintroductionofaspreadsheetprogramcalledVisiCalcfortheAppleIIbytwoMITgraduates,DanielBricklinandBobFrankston.VisiCalcwasaveryspecialproductataveryspecialtimeforitmadeitpossibleforawholenewcommunityofprofessionaluserswhowerenotprogrammersto

easilycreatetheirownprogramstoperformcomplexmathematicalcalculationsandsimulatevarioushypothesestoaiddecisionmaking.VisiCalcbecameaninstanthitandmadepersonalcomputersindispensabletothebusinessworld.ThedevelopmentofawordprocessingpackagecalledWordStaralsoplayedanimportantroleinthepersonalcomputerrevolutioninitsearlydays.By1983,thepersonalcomputerrevolutionhadbecomeunstoppableandsecond-generationandthird-generationsoftwarewascomingontothemarket.Inthatyear,MichKapor,founderofLotusDevelopmentCorporationreleasedthespreadsheetprogramLotus1–2–3whichquicklybecamethebestsellingPCprogram.

Bythemid-eighties,softwarecompanieswerebeginningtooffermorerobust“integratedsoftware”productswhichincorporatedwordprocessing,spreadsheet,database,graphics,andcommunicationssoftware.LotusDevelopmentCorporationintroducedSymphonyinJuly1984.VicicorpintroducedVision.AppleComputerintroducedAppleworks,andAshton-TateintroducedAll-in-

one.ThenextstageinthepersonalcomputerrevolutionwasdesktoppublishingwhichwaspioneeredbynewandinnovativesoftwareapplicationsfromAppleComputer.Bythelateeighties,thedesktoppublishingrevolutionwasinfullswing.

THECONTRIBUTIONSOFXEROXPARCTOTHECOMPUTERREVOLUTION

Insomerespects,itwasXeroxCorporationindirectlythatmadesomeofthegreatestcontributionstotheearlydevelopmentofthepersonalcomputerinitsnow-famousPaloAltoResearchCenter(PARC)locatedinsiliconvalley.Between1971and1976,Xeroxbankrolledsomeoftheyoungestandbrightestcomputerscientists,engineers,andsoftwaredevelopersitcouldfindandgavethemtheopportunitytodefinethepaperlessoffice-of-the-future.14XeroxPARCpioneeredmanyhardwareandsoftwareinnovationsthatweresubsequentlydevelopedandcommercializedbyothercompanies.Theseincludedchip-makingtechnology,portablecomputing,bit-mappedscreendisplays,laserprinters,drawingtablets,theEthernetlocalareanetwork,mouse-andicon-basedcomputing,desktoppublishingandtypesetting,andWYSIWYG(whatyouseeiswhatyouget)wordprocessing.GraduatesofPARCwentontomakecontributionsintheirownrightandmanycreatedtheirowncompanies.TheyincludedBobMetcalfe,theinventorofEthernetandfounderof3ComCorporation;JohnEllenby,akeydesignerofGrid’sCompassmicrocomputer;andLarryTeslerwhojoinedtheAppleteamin1980todirecttheLisaproject.OthergraduatesfromPARCwenttoMicrosoftCorporation,DEC,andConvergentTechnologiesandmadetheirmarkonthesecompanies.

OneofthegreatestcontributionsofthePARCteamwasthedevelopmentofthegraphicaluserinterface(orGUI,pronounced“gooey,’’ascreen-based,icon-windowingsystem)whichhassincebecomeastandardbywhichallotherpersonalcomputersoftwareanduserinterfacesarejudged.Amongitsmostoutstandingfeaturesareitsuseoficons,graphs,andwindowsonthecomputerscreentoenableuserstosimplyand

easilycommunicateandinteractwiththecomputerina“userfriendly”mannerwithouttheneedforcomplexinstructions,combinationsofkeystrokes,orusermanuals.ThegraphicaluserinterfacedesignedatPARCusediconstorepresentfilesandprograms,pull-downmenustoaccessinstructions,commands,splitscreens,andoverlaywindowstopresentinformationinaneasilyreadableandmanagedmanner.Anotherofitsmostimportantcontributionswastheuseofahandheldmousetorepresentapointersystemforselectinginformationandscrollingandzoominginoninformationdisplayedonthescreen.MostoftheseinnovationswereincorporatedintoApple’sLisaandMacintoshcomputers,andtheywerekeytogivingAppleanditsMacintoshcomputerthesuccesstheyenjoytoday.AllpersonalcomputersandworkstationstodayarebasedontheinnovationsmadebyPARCandApple

Computer,includingMicrosoftWindows,IBM’sPresentationManager,andX-WindowsdevelopedbyMIT.

THERISEOFMICROSOFTCORPORATION

AnotherofthelegendsofthemicrocomputerrevolutionisMicrosoftandWilliamGates,itscofounderwho,likeJobs,wasauniversitydrop-out.WhileatHarvard,GatesbecameenthusiasticabouttheprospectsfortheAltaircomputerwhenitwasannouncedin1975.WiththeassistanceofPaulAllen,hispartner,Gatessetabouttodevelopaninterpreterforthenewcomputer,and,in1975,heandAllenfoundedMicrosoftCorporation.TheresultwasMicrosoftBASIC,whichsubsequentlybecamethefirstuniversalprogramminglanguageforthepersonalcomputer.ButthereallybigbreakforMicrosoftCorporationcamewhenIBMinvitedthecompanytojointlydeveloptheMS/DOSoperatingsystemfortheIBMPC.GateshiredTimPatterson,aprogrammerfromSeattlewhohadwrittenarudimentaryoperatingsystemcalledQ-DOS(forQuickandDirtyOperatingSystem),andadapteditfortheIBMPC;thenMicrosoftwentontoconquertheworld.

MicrosoftalsodevelopedagreatdealofsoftwarefortheAppleMacintoshcomputerwhichundoubtedlycontributedtothesuccessofbothcompanies,anditcontributedtothedevelopmentofIBM’sPresentationManagerwhichIBMbroughttomarketin1989foritsPS/2computer.ThesuccessofMicrosoftmadeGatesthefirstPCbillionaireby1986.By1990,Microsofthadrevenuesof$1.1billionmakingitthebiggestsoftwarecompanyintheworld.Bythen,ithadavirtualmonopolyonDOSoperatingsystemhavingsoldoverfortymillioncopies.

THEPCEMERGESASTHEDOMINANTFORCEINCOMPUTINGANDTHEWORLD

IBM’sPCstrategyworkedwelluntilthemid-eightieswhenitbeganencounteringfiercecompetitionfromclonemakers,anditsshareofthePCmarketwasinsharpdecline.Bythen,theweaknessesofitsPC

strategywerebecomingincreasinglyevident.Byturningtooutsidersforitscriticalhardwareandsoftwarecomponents—toIntelforitsmicroprocessors,Microsoftforitsoperatingsystem,andretailersforitsdistribution—IBMhadcreatedanindustrythatwasforallintentandpurposesbeyonditscontrol.Forthefirsttimeinhistory,by1985,thehottestandhighestgrowthsegmentofthecomputerindustrynolongerneededIBM.

IBMwasbeinghurtinparticularbyclonemanufacturerssuchasTandyandupstartslikeCompaq,foundedinFebruary1982byRodCarrionandtwootherengineersfromTexasInstruments.ThesecompanieswereabletopurchasePCchipsreadilyfromIntel,andtheyweredevelopingmachinesmorerapidlythanIBMandsellingthematalowerprice.Itwasinresponsetoitsdecliningmarket

sharethatIBMintroducedthefasterandmoreadvanced8-bitXTpersonalcomputerin1983.ThenextyearitintroducedamoreadvancedmachinecalledtheAT.TheATusedthenew16-bitIntel286microprocessorandcamewithaharddisk.IBMalsoenteredthehome-computermarketinOctober1983withtheIBMPCjrbutitwasamarketingdisaster.By1985,theXTandATmodelswerebeingclonedbythecompetitionaswell.By1987,thepriceofthepersonalcomputerhaddroppedtolessthan$1,000asaresultofthesepricewars.

CompaqwasanexampleofthecompetitionthatIBMhadtofaceintheeighties.Compaq’sinitialsuccesswasduetoitsluggableIBM-compatiblePC,introducedinNovember1982,butthecompanyfollowedonwithfurtherinnovations,outperformingIBMinthePCmarketbyofferingIBMPCcompatibilitycombinedwithportability,fancygraphics,andbetterperformancethanIBM.Compaq’ssalesexplodedfrom$111millionbytheendofitsfirstyearofoperationin1983toover$1billionin1987,afeatthatnootherstartuphasbeenabletomatch.In1989,Compaq’ssalesexceeded$3billion.ItsmarketsharewasachievedprimarilyattheexpenseofIBM.

ThesuccessoftheclonemanufacturersingainingmarketsharesubsequentlyforcedIBMtoannounceasuccessortothePCinApril1987.CalledthePS/2,thenewpersonalcomputerwasbasedononeofthemostpowerfulnewchipsintheindustry—theIntel386.Thehigh-endmodelcamewithonemegabyteofinternalmemoryandwaspricedat$6,995.Itwasalsofast—operatingataspeedofthreeMIPS(threemillionoperatinginstructionspersecond).Thistime,however,IBMresortedtoastrategythatithadsuccessfullyusedtimeandtimeagaininthemainframebusiness.ItdesigneditsnewcomputeraroundanewproprietaryMicroChannelArchitecture,whichwasintendedinparttocorrectcertaindesigndeficienciesinitsPCbutprimarilytoslowthegrowthofclonemanufacturers.Inthesameyear,IBMandMicrosoftannouncedajointventuretodevelopanewoperatingsystem,calledOS/2,toreplaceMS/DOSfornewcomputers.Itwouldhavemuchmorepowerfulfeatures,includingMac-likegraphicsaswellascommunicationsandnetworkingfeatures.Onthecompetitionfront,AppleComputer

announcedtheMacintoshSEandMacintoshIIcomputersin1987.TheMacIIcamewithonemegabyteofinternalmemoryandwaspricedat$5,498.Thenextyear,AppleintroducedtheMacintoshFXwhichusedtheMotorola68030microchip.

Atthesametime,anewgenerationofcompanieswasdevelopingthespecializedhigh-performanceRISC-basedworkstationsmarketbyharnessingthegrowingspeedandsophisticationofmicroprocessorsfortheuseofengineers,architects,designers,graphicartists,andpublishers.Reducedinstructionsetcomputers(RISC)usedfewerinstructionsthantraditionalPCsystemswhichwerebasedoncomplexinstructionsetcomputer(CISC)architectures.ThisgaveRISCcomputersaspeedadvantageoverPC-basedcomputers.SunMicrosystemsandApolloComputerwereamongthefirsttointroduceRISCworkstationsinthemid-eighties.TheSun4/100RISC-basedworkstation,introducedin1984,camewith8MBofinternalmemoryandapricetagof$18,900.Itsspeed

was7MIPS,anditusedanewoperatingsystemcalledUNIXwhichwasrapidlybecomingthestandardfortheworkstationmarket.

UNIXwasdevelopedin1969byKennethThompsonatAT&T’sBellTelephoneLaboratoriesandDennisRichiewhoinventedtheprogramminglanguagecalledC.SinceCwasbeingusedbymanymicrocomputermanufacturers,onceUNIXwaswritteninC,ithadthepotentialofbecomingadefactooperatingsystem,andthisisthestrategyAT&Tsettledontoturnitintoauniversaloperatingsystemforallcomputers.CertainfeaturesofUNIX,includingitsmultitaskingandmultiusercapabilities,anditsportabilityacrossmanykindsofcomputerssystemsmadeitadominantplayerintheworkstationandtelecommunicationsmarkets.AT&Tadoptedanonproprietary,opensystemsstrategyasameanstoencouragesupplierstodevelopsoftwarethatwascouldrunonanycomputerthatusedtheUNIXoperatingsystem.

By1988,alloftheleadingcomputermanufacturerswereproducingworkstations,andtheJapaneseweremakinginroadsintotheindustry.Bythen,IBMhadpurchasedaninterestinIntelCorporationwhichwasdesigninganevenmorepowerfulchipcalledtheIntel486whichitintroducedin1989.The486wasdesignedtobringthepoweroftheearly-1980mainframecomputerstopersonalcomputerusersintheearlynineties.Motorolaintroducedthe8030and8040microprocessorstomatchthoseofIntel.

By1990,thepersonalcomputerrevolutionhadhitthehome,stimulatedbydomesticandinternationalcutthroatcompetition,arapidlydecliningprice,andevermoreattractivesoftwareapplications.IBMintroducedthePS/1computerin1990expresslyforthehomemarket.BasedontheIntel286microchip,thePS/1camewithitsownGUI,anintegratedwordprocessing,spreadsheet,andcommunicationssoftwarepackage;abuilt-inmodemtoallowconnectiontoon-linedatabaseservices;andaprogramtoconnectwithProdigy,theIBM-Searscomputerserviceprovidingbanking,shopping,andairlinereservationsservices.ThelowendofthePS/1waspricedunderthemagic$1,000barrier.Inresponse,

AppleComputerintroducedtheAppleClassicinOctober1990attherock-bottompriceof$999.HomeownersbegansnappinguptheseandothercomputersmanufacturedbyCommodoreandAtari,forexample,ingrowingnumbers.MicrosoftlaunchedWindows3.0fortheIBMPCinthefallof1990,anditbecameaninstanthit.Bytheendof1991,MicrosoftwasenjoyingamonopolypositionnotonlyforMS/DOSsoftwarebutwindowingsoftwareforPCsaswell,andithaddisplacedIBMasleaderinthepersonalcomputerindustry.

By1992,thetransformationoftheentirecomputerindustryworldwidewaswellunderwaywithpowerful386,486,68030,and68040microchipsandpersonalcomputerscontainingthem.Thecomputerindustryworldwidehaddevelopedintoa$93billionindustrywithpersonalcomputerhardwareandsoftwareitslargestandfastestgrowingsegment.Literallyeverythingwaschanging—notonlyhardwareandsoftware—buttheleadersaswell.MicrosoftandIntelwerespectacularlysuccessfulin1992.TheirstockssoaredontheNewYorkStockExchange,andtheyweretakingtheleadawayfromIBMasthepace-setterin

thecomputerindustry.IBM’sshareofthePCmarketfellto16.4percentbySeptember1992,andbothIBMandDECwerefightingfortheirlives.KenOlsonwasoustedfromtheheadofDEC,andthecompanywassplitintosmallerunits.IBMannouncedthatitwouldshedafurther25,000staffinadditiontothe40,000ithadshedintheprevioustwoyearsandsplititselfupintothirteenseparatecompanies.

Anewracebeganheatingupintheearlyninetiestodevelopthenextgenerationofmultimediacomputersthatcouldhandlevideoandvoiceaswellasdataandtext.IBM,Apple,andMotorolaannouncedajointventurein1991todevelopthenewgenerationofPowerPCcomputersbasedonIBM’sfastRISC-basedchipdesignsandIBMandAppleoperatingsystemsplatforms.IntelintroducedthePentiumasthesuccessortothe486inMarch1993.MicrosoftannounceditsnewoperatingsystemWindowsNTinMay1993.IBMandAppleannouncedtheirfirstPowerPCcomputersinMarch1994.Thecomputerindustryhadalsoenteredthematuremassmarketstageofitsevolution.MassmarketerslikeDellandPackardBellandgiantretaildistributorsweretakingoverandamassiveshakeoutwasinprogressinthecomputerindustry.Thecenterofgravityoftheindustrywasshiftingdramaticallytoclientserversystems,wirelesscomputers,andpersonalcommunicationsdevices,andmultimediacomputingandelectronicpublishingwerebecomingbiggrowthareas.Andtelecommunicationsandcabletelevisioncompanies,broadcasters,publishers,andentertainmentcompaniesalongwithJapaneseconsumerelectronicscompanieswereenteringintojointventurestodevelopnewmassmarketserviceapplicationsbasedonthenewgenerationsofmicrochipsandpersonalcomputersfortheemergingelectronicsuperhighwaysthatallweretryingtocreate.

COMPUTERTIDE:ACAPSULESUMMARYOFTHEIMPACTSOFTHECOMPUTERANDTHEMICROCHIPONBUSINESSANDSOCIETY

Itisnowwidelyacceptedthatitwasdevelopmentsincomputersandmicrochipsthatsetofftheinformationrevolutionofthesixties,seventies,

andeighties.15Theycreatednewindustries,destroyedoldones,andtransformedothers.Theyalsotransformedthenatureofworkandmanagementandsetoffanorganizationalrevolution.Untilthelateeighties,however,theusesofcomputersinorganizationswereprimarilytechnology-drivenandapplications-drivenwithnomajorimpactonthewaycompanieswereorganizedoroperated.Organizationscustomizedmainframecomputers,minicomputers,andpersonalcomputerstoservethespecializedneedsofindividualdepartmentsandeverylevelofthecorporatehierarchy.

Asthepersonalcomputerrevolutiongainedmomentumintheeighties,localareanetworks(LANs)weredevelopedtointerconnectandintegratethesevariousislandsofautomationthatexistedinorganizations.16LANsgaveindividualsthecapabilitytocommunicatewithoneanother,shareinformation,software,

andsystemsresources,andtoworktogethertomakedecisionsinmyriadsofwaysthatwereneverbeforepossiblewithmainframesandminicomputers.Bytheearlynineties,developmentsinbothcomputersandtelecommunicationswerefacilitatingthecreationofenterprisewidenetworksandfullydistributedcomputingandbringingcomputerandcommunicationspowertoeveryindividualintheorganization.Intheseandotherways,themomentumwasbuildingupandinitiatingtherealrevolution—therevolutioninwork,management,andorganizationthatcompaniesareexperiencingtoday.17

Computerizationhasalsobeenchangingthebasisofcompetitioninmanyindustries,andthisaddedfurthermomentumtotherevolution.18Manycorporationsintheeightiesbegantorealizethatinformationtechnologycouldbeusedasasourceofstrategiccompetitiveadvantage,forexample,togeneratenewproductsandservices,toaddvaluetoexistingproductsandservicesandbuildbarrierstoentryandchangethebalanceofpowerinsupplierrelationships.19Asweshallseeinlaterchapters,computerizationwasalsohavingdramaticeffectsonthestructureofentireindustriesandsectorsoftheeconomy,and,throughitseffectsondevelopmentsinelectroniccommerce,itwasalsochangingthewaymarketsandtheeconomicsystemitselfwereorganizedandoperated.20

CREATINGAN“INFORMATIONECONOMY”

Itwasnotuntiltheearlysixtiesthattheimpactsofthemicrochipandcomputerandcommunicationsrevolutionsweresubjectedtoarigorousandthoroughquantitativeanalysis.TheworkwascarriedoutbyFritzMachlup,aneconomistatPrincetonUniversity,whowasinterestedinquantifyingthegrowingproportionofknowledge-relatedactivitiesintheeconomyandtheircontributiontoeconomicgrowth.Machluppublishedhisresultsin1962inabookentitledTheProductionandDistributionofKnowledgeintheUnitedStates.AccordingtoMachlup’scalculations,theknowledgeeconomyaccountedforroughly29percentofgrossnationalproduct(GNP)and31percentofthenonfarmlaborforceoftheUnited

Statesin1958anditwasgrowingatanaverageannualratedoublethatofGNP.TheDepartmentofCommerceintheUnitedStatesandtheOrganizationforEconomicCooperationandDevelopment(OECD)subsequentlyfundedresearchintotheknowledgeeconomyandcorroboratedtheworkofMachlup.21

Theimpactsoftheinformationrevolutionontheeconomycanbebestsummarizedbythea1989reportbytheOECDentitledInformationTechnologyandNewGrowthOpportunities.Itstated:

InformationTechnology(IT)isarguablythemostpervasivetechnologyofourtime.Itnotonlycomprisesamajor,growingbranchofeconomicactivityinitsownright—abranchwhichhasbeenamajor“driver”ofeconomicgrowthinthepostwarperiod—butalsogeneratesaflowofproductandprocessinnovationinotherbranches.These

encompassbothrationalizing(productivity-enhancing)innovationsandgrowth-promotingoneswhichenablenewtypesofeconomicactivity.Theirimpactspansmanufacturing,servicesandgovernment(includingdefence).Morebroadly,ITenablesstructuralchangestotakeplaceintheeconomy.RapidgrowthinITalterstherelativesizeofindustrialbranches.Improvedcomputationalcapabilitiesallowlargerorganizationalentitiestobemanagedandpermitmanagementtospanmorecomplexportfolios.Improvedcommunicationscapabilitiespermitcentralizedcontrolofmultinationalcorporations.Thus,IThelpsfirmsgrowlarger,morecomplexandtooperateglobally—tendingtounderminethepowerofindividualnation-statesandtoincreasetheneedfornewformsofinternationalorganizationonthesideofthegovernment.Further,thegrowingopportunitiesforinformation-handlinggeneratedbyITpermitsthesetodevelopintoseparateindustrialsectors.Newservicesectorsthusappear,leadingsomeeconomicactivity(classically,thewritingofcomputersoftware)tobereclassifiedfrom“manufacturing”to“services.”22

NOTES

1.Forahistoryofthemicroelectronicsrevolution,seeTomForrester,Ed.,TheMicroelectronicsRevolution:TheCompleteGuidetotheNewTechnologyandItsImpactonSociety(Oxford:BasilBlackwell,1980).

2. WilliamOldam,‘‘TheFabricationofMicroelectronicCircuits,”ScientificAmerican,SpecialIssueonMicroelectronics237,no.3(1977).

3. RobertNoyce,“Microelectronics,”ScientificAmerican,SpecialIssueonMicroelectronics237,no.3(1977),p.67.

4. MichaelBorrusandJohnZysman,“Alliances,Networks,andInternationalCompetition,”Datamation,1June1985,p.18.

5.

IBMhadheldtheU.S.CensusBureaucontractsince1896,throughitspredecessorcompany,theComputing-Tabulating-Recording(CTR)Company.ThomasJ.WatsonbecameCTR’sCEOin1924andchangedits

nametotheInternationalBusinessMachineCorporation.

6. Forangoodoverviewofcomputersoftware,seeScientificAmerican,SpecialIssueonComputerSoftware251,no.3(1984).

7.BarbaraGoodyKatzandAlmarinPhillips,“TheComputerIndustry,”GovernmentandTechnicalChange:ACross-IndustryAnalysis,ed.R.R.Nelson(NewYork:PergamonPress,1982),p.218.

8. GeraldBrock,TheU.S.ComputerIndustry:AStudyofMarketPower(Cambridge:Ballinger,1975),p.98.

9. GeraldBrock,TheU.S.ComputerIndustry,p.99.

10.

Forexcellentdescriptionsofthehistoryofthemicrorevolution,IstronglyrecommendRobertSlater,PortraitsinSilicon(Cambridge:MITPress,1987);andEverettM.RogersandJudithK.Larsen,SiliconValleyFever:GrowthofHigh-TechnologyCulture(NewYork:BasicBooks,1984).

11.

MasatoshiShimaandFedericoGagginalsoplayedkeyrolesindesigningtheIntel4004,theworld’sfirstmicroprocessor,itssuccessor,theIntel8008,aswellastheZilogZ80,themicroprocessorthatpoweredthefirstgenerationofbusinessmicrocomputersworldwide.SeeFedericoFaggin,“TheBirthoftheMicroprocessor,”BYTE,March1992,pp.145–150.BYTEreportedonJuly17,1990,thataftera20-yearbattlewithU.S.

PatentOffice,GilbertHyatt,systemsdesigner,electronicsengineer,andaerospaceconsultant,wasgrantedthepatentfora“SingleChipIntegratedCircuitComputerArchitecture,”givinghimthedistinctionofinventorofthemicroprocessor.See“Micro,Micro,WhoMadetheMicro?”BYTE,January1991.

12.RobertNoyce,“Microelectronics,’’ScientificAmerican,SpecialIssueonMicroelectronics237,no.3,1977.

13.JohnBanks,“TheTen-YearTrekfromAltair,”NewScientist,MicrocomputersinScienceSupplement,18October1984,p.2.

14.“XeroxPark—HeroesoftheMicroRevolution,”Computers&Electronics,September1984,p.76.AlsoaninterviewwithJohnSeelyBrown,Computerworld,17August1992,p.79.

15.ForanassessmentoftheimpactsoftheInformationRevolution,seeTomForrester,High-TechSociety:TheStoryoftheInformationTechnologyRevolution(Cambridge:MITPress,1987).

16.F.WarrenMcFarlanandJamesJ.McKenney,“TheInformationArchipelago—MapsandBridges,”HarvardBusinessReview,September-October1982.

17.

Foradescriptionoftheeffectsofinformationtechnologyonorganizations,seeD.QuinnMills,RebirthoftheCorporation(NewYork:JohnWiley,1991);ShoshanaZuboff,IntheAgeoftheSmartMachine:TheTransformationofWorkandPower(NewYork:BasicBooks,1988).AlsobyPeterDrucker,“TheComingoftheNewOrganization,”HarvardBusinessReview,January-February1988,pp.45–53;RosabethMossKanter,“TheNewManagerialWork,”HarvardBusinessReview,November-December1989,pp.85–92;andRobertH.HayesandRamchandranJaikumar,“Manufacturing’sCrisis:NewTechnologies,ObsoleteOrganizations,”HarvardBusinessReview,September-October1988,pp.77–85.

Thereareatleasttwoclassiccaseswherecorporationshaveused

18.

informationtechnologytocreatestrategiccompetitiveadvantage.OneisthecaseofAmericanHospitalSupplywhichputcomputerterminalsonthedesksofitsclientssotheycouldaccessinformationandorderdrugsautomatically.TheotherexampleisAmericanAirlineswhichdevelopedtheSabreairlinesreservationssystem.Sabrebecamesoimportantthatagentscouldnotdowithoutit,anditestablisheditselfasavirtualmonopolyintheairlinesreservationsindustryintheUnitedStates.Thegovernmenteventuallyhadtostepinandregulatetheindustry.Forotherexamples,refertoF.WarrenMcFarlan,“InformationTechnologyChangestheWayYouCompete,”HarvardBusinessReview,May–June1984,pp.98–103;MichaelE.PorterandVictorE.Miller,“HowInformationGivesYouCompetitiveAdvantage,”HarvardBusinessReview,July-August1985,pp.149–160.

19.

RevolutioninRealTime:ManagingInformationTechnologyinthe1990s(Boston:HarvardUniversityPress,1990);andMichaelS.ScottMorton,ed.,TheCorporationintheNineties:InformationTechnologyandOrganizationalTransformation(NewYork:OxfordUniversityPress,1991).

20.ThomasW.Malone,JoanneYates,andRobertI.Benjamin,“TheLogicofElectronicMarkets:IsYourCompanyReadyforComputer-AidedBuyingandSelling?”HarvardBusinessReview,May-June1989,pp.166–170.

21.

TheDepartmentofCommercefundedamajorprojecttoquantifytheconceptoftheknowledgeeconomy.TheresultswerepublishedinareportbyMarcU.PoratandMichaelR.Rubin,TheInformationEconomy(Washington,D.C.:DepartmentofCommerce,1977).Theauthorsreportedthattheinformationsectorcontributedover46per-

centtoGNPand53percentoftotalnationalincomeoftheUnitedStatesin1967.TheOECDsubsequentlyreplicatedthisworkforitsmembercountries.SeeInformationActivities,ElectronicsandTelecommunicationsTechnologies(Paris:OECD,1981).Thestudiesshowedthattheinformationsectorcontributed29.6percentand32.2percentrespectivelytotheGNPofJapanandAustria,whilethoseoftheUnitedStatesandCanadacontributedrespectively41.1percentand39.9percent.

22.InformationTechnologyandNewGrowthOpportunities,Information,ComputerandCommunicationsPolicyCommittee(Paris:OECD,1989),p.137.

Chapter4Growth,Expansion,Convergence,andCreativeDestruction

Theinformationrevolutionwascomplementedbyinnovationsinsatellitesandcoaxialandmicrowavecommunicationssystemsaswellasdigitalswitchingandtransmissionsystemswhichprecipitatedthetelecommunicationsrevolutionsofthesixtiesandseventies.Together,theseledtothefusionorconvergenceofcomputersandcommunicationstechnologiesandinitiatedtheofficeandfactoryrevolutionsintheseventies.Theyalsosetoffrevolutionsincabletelevision,broadcasting,publishing,andentertainmentaswellasretailingandbankingandfinancialservices.TheforcesofcompetitionandtechnologicalinnovationgrewandgainedmomentumuntiltheybegantotransformthetechnologicalandeconomicunderpinningsofWesternsocietiesandtheyhadfar-reachingstructural,legal,andinstitutionalimplicationsintheregulatedsectorsoftheeconomy,especiallyinthetelecommunications,cabletelevision,broadcasting,andbankingandfinancialservicesindustries.Theinformationandtelecommunicationsrevolutionsalsobecameinextricablylinkedtointernationaltradeinservicesandinternationalcompetitivenessaswellasdeindustrializationandunemployment.Theychallengedtheeconomicandpoliticalsovereigntyofeverynation,forcingthemtomakedramaticchangesintheirindustrialandinformationandtradepoliciestoaccommodateanewworldinformationorderthathademerged.

Bytheendoftheeighties,whensomeofthelegal,institutional,andothercontradictionswereresolved,thetelecommunicationsindustryintheUnited

States,Britain,Japan,andotherindustrializedcountriesweresubstantiallyderegulated.AT&TandtheBellsystemintheUnitedStateswerebrokenup,andsevenregionalholdingcompanieswerecreatedinitsplace.Aprocessofprivatizingstate-ownedenterpriseswasunderwayworldwidewhichisstillgoingontoday.Theworldeconomyandworldsocietyhadbecomeamuchsmallerandinterdependententity.Thischapterwillbrieflydescribethistransformation,beginningwiththeproblemscreatedbydevelopmentsinsatellitecommunicationsandtheinterdependenceofcomputersandtelecommunicationsinthefiftiesandsixtiesandthenewindustrialandeconomicordertheycreated.

SPAWNINGAREVOLUTIONINSATELLITECOMMUNICATIONS

Alongwiththetransistor,themicroprocessor,thelaser,andtheopticalfiber,thecommunicationssatellitemustrateasoneofthemostimportanttechnologicaldevelopmentsinthepostwarperiod.Becauseitcancarrytelephoneandtelevisionsignalsaswellasinformationandnewsandbecauseasinglesatellitecancoveranentirehemisphere,ithaddramaticmilitaryaswellaseconomic,industrial,cultural,andpoliticalimplications.ThesatellitecommunicationsrevolutionbeganwiththelaunchingofSputnikIbytheSovietUnionin1957,anditlaunchedboththeUnitedStatesandtheSovietUnionintoaracetoexploitspaceandspacetechnologyformilitaryaswellascommercialpurposes.InJuly1958,theU.S.CongresspassedtheNationalAeronauticsandSpaceActestablishingNASAasacivilianagencytoleadAmerica’sspacedevelopmentactivities.ButitwastheleadershipoftheUnitedStatesinmicroelectronicsandcomputertechnologythatprovedcriticaltoeventuallysurpassingtheSovietUnioninthedevelopmentofsatellitetechnologyandledtoitslandingamanonthemoonin1969.

Inthelatefifties,theUnitedStatestestedseveralscientificcommunicationssatellitesincludingExplorerI,launchedin1958,andvariousmilitarysatellitesaswellaspassivecommunicationssatellites,includingECHOIandECHOIIwhichsimplyreflectedradiosignals.

(Thosethatfollowedwereactiveinthesensethattheyhadelectronicsonboardtoamplifysignals.)Theageofcommercialsatellitescommunicationsbeganin1962withthelaunchingofTelstarIwhichwasbuiltbyAT&T’sBellLaboratories.Ithadacapacityofonly600two-waytelephonecircuitsbutthatwasplentyinthosedays.Mostimportantly,itprovidedameansforanentirecontinenttocommunicateinstantaneously.

Theseearlycommunicationssatelliteshadaseriousdrawback,however.Becausetheywerecontinuallymovingwithrespecttotheearth,theyprovidedonlyintermittentservice.Onlywhenasatelliteisinastationarypositionwithrespecttotheearthcanitserveasareliablecommunicationsstation.Thisoccurswhenthesatelliteislocatedatadistanceofabout23,000milesor36,000kilometersfromthecenteroftheearthandorbitsitintheplaneoftheequator.Theseso-calledgeostationarysatellitesthusappearstationarywithrespectto

positionsontheearth’ssurface.ItwastheBritishscience-fictionwriterArthurC.Clarkewhoin1945intheJournalWirelessWorldproposedusinggeostationarysatellitesasameansofovercomingtheproblemofintermittentservice.Clarkeconcludedthatthreegeostationarysatellitesappropriatelylocatedaroundtheearthcouldbemadetoservetheentireworldwithinstantcommunications.Eachsatellitewouldbroadcastprogramstoaboutone-thirdoftheplanettherebyprovidingtheentireglobewithinstanttelevisioncoverage.OnesatellitewouldhavetocoverAfricaandEurope,anothertheAmericas,andathirdChinaandOceania.ThetechnicalproblemswereeventuallyovercomebyscientistsandengineersatMITandtheageofthegeosynchronoussatellitebeganin1964withthelaunchingoftheSYNCOMIIIsatellite.Itwasusedforthefirstlivetranspacifictelevisionbroadcastofthe1964OlympicGamesinJapan.

Politicalandcommercialdevelopmentsparalleledtechnologicaldevelopmentsinthesatellitesbusiness.In1962,theFederalCommunicationsActwaspassedgivingtheFCCthepowertoregulatetheoperationofallcommunicationssatellites.TheCommunicationsSatelliteCorporation(Comsat)wascreatedbyaspecialactofCongressin1962andincorporatedin1963.ItbecameAmerica’s“choseninstrument”fordevelopingandoperatingitsnationalsatellitecommunicationsfacilitiesaswellastoservingtheworld.ComsatwasgivenamonopolyonallAmericaninternationalsatellitecommunications,butitsactivitieswererestrictedtoprovidingbulkcircuitstoothercommoncarriersforresalepurposes.Itsfirstsatellite,calledEarlyBird,wasbuiltbyHughesAircraftandlaunchedinApril1965.ItalmostdoubledthenumberofvoicecircuitsacrosstheAtlantic.

AlandmarkagreementwassignedonAugust20,1964,bysevencountriestoestablishaglobalcommercialsatellitesystemcalledtheInternationalTelecommunicationsSatelliteOrganization(Intelsat).Theneworganizationhadamandatetodevelopandoperatesatellitesystemsforprovidinginternationaltelecommunicationsandbroadcastingservices.IntelsattookovertheEarlyBirdsatelliteandrenameditIntelsatI.IntelsatIIwaslaunchedin1967.WiththelaunchingofIntelsatIIIin

1969,satelliteswerestationedovertheAtlantic,andthePacificandIndianoceans,thusmakingArthurC.Clarke’sdreamofglobalsatellitecommunicationsareality.IntelsatIIIeffectivelycreatedthe“globalvillage,”thetermcoinedbyMarshallMcLuhantodescribetheinstantaneous,globalizationeffectsoftelecommunications.OnJuly20,1969,IntelsatbroadcastlivetelevisioncoverageofthemissionofApolloIItotheworld,bringingmovingpicturesofman’sfirststepsonthemoonintothelivingroomsofmillionsofpeoplearoundtheglobe.

Itdidnottakelongforindustrializedcountriestorecognizethatsatelliteshadstrategiceconomicandsocioculturalimplicationsinadditiontodefense.Theseincludeddomesticandinternationalcommunications,remotesensingoftheenvironment,searchandrescue,andweatherforecasting.Forthesereasons,satellitesbecamethefocusoftheindustrialstrategiesoftheEuropeancommunity,Japan,Canada,aswellastheUnitedStates.

WesternEuropeannationsestablishedtheEuropeanSpaceResearchOrganization(ESRO)andtheEuropeanLauncherDevelopmentOrganizationin1964tocoordinateresearchintoanddevelopmentofEurope’saerospaceandtelecommunicationsindustries.In1973,thesetwoorganizationsweremergedtoformtheEuropeanSpaceAgency(ESA)whichhascarriedoutmuchofEurope’sspaceresearchanddevelopmentactivities,includingtheArienelaunchprogram,whichnowaggressivelymarketsitsservicesanddominatesthecommercialspacelaunchingindustryworldwide.In1977,theEuropeanConferenceofPostsandTelecommunicationsAdministrations(CEPT)formedtheEuropeanTelecommunicationsSatelliteOrganization(Eutelsat),modelledonIntelsat,toestablish,operate,andmaintainthespace-segmentsatelliteservicesinEurope.In1969,theJapanesegovernmentcreatedtheNationalSpaceDevelopmentAgency(NASDA),Japan’sequivalentofNASAintheUnitedStatesandESAinEurope.CanadacreatedanewsatellitecommunicationsorganizationcalledTelesatCanadabyaspecialactofParliamentin1969todevelopandoperateasatellitecommunicationssystemtoserveitsnationalneeds.In1972,Telesatlaunchedthefirstworld’sfirstdomesticgeostationarycommunicationssatellite,called“Anik,’’theEskimowordfor“littlebrother.”

Thefirstbigcommercialusersofcommunicationssatellitesweretelephonecompanieswhichusedthemforverylong-distancedomesticandinternationaltelephoneservices.Privatecompanieswithverylargevolumesofnationalandinternationalvoiceandcomputertrafficalsobecamebigusers.Butsatellitesbecamethesubjectofheatednationaldebatesinmanycountriesarisingfromthefactthattheyareanaturalmediumfordistributingnationalandinternationaltelevisionsignalstotheheadendsofcabletelevisioncompaniesfordeliverytothehome.Televisionbroadcastersregardedthemasaseriouscompetitivethreatforthisreason.Butsatelliteswereapotentialthreattocabletelevisioncompaniesaswell.Byincreasingthetransmissionpowerofthesatelliteitself,muchsmaller,inexpensiveearthreceivingdishes(TVROsorreceive-onlyearthstations)couldbemanufactured.Homeownerscould

usethesetoreceivetelevisionsignalsdirectlytherebybypassingestablishedbroadcastersandcabletelevisionoperators.Satellites,therefore,threatenedbothestablishedtelevisionbroadcasterseverywhereintheworldandcabletelevisioncompaniesintheUnitedStatesandCanadawhichwereamongthemostwiredcountriesintheworld.

Butithasbeentheinternational,“transborder”effectsofsatellitesthatcausedsomanyproblemsinthesixtiesandseventiesinspiteofthefactthatmanysocialscientistsandfuturistsperceivedthemashavingthepotentialtounifythenationsoftheworldandcreateabetterworld.Becausetheycarriednews,drama,cultural,commercial,andadvertisinginformationindependentlyofnationalborders,mostgovernmentshaveperceivedcommunicationssatellitesasaseriousthreattotheircultural,economic,andpoliticalsovereigntyovertheyearsandmoststilldotoday.Thebroadcastingoftransmissionsignalsbysatelliteisahighlyregulatedbusinessinalmosteverycountryintheworld.

PROBLEMSCREATEDBYTHEGROWINGINTERDEPENDENCEOFCOMPUTERSANDTELECOMMUNICATIONS

Anothersetofpublicpolicyproblemsaroseinthesixtiesandseventiesasaresultofthegrowinginterdependenceofcomputersandtelecommunications.Earlybatchprocessingsystemswerehighlycapital-intensiveundertakingsthatrequiredhighlyskilledoperatorssotheyweremostcost-effectivelyusedwhenoperatedinahigh-volume,shared-userenvironment.Ademand,therefore,aroseforhigh-qualitydigitaldatacommunicationsfacilitiestointerconnectremotebatchterminalswiththecentralcomputer.Withtheadventoftime-sharinginthesixties,thedemandalsogrewforlowerspeedtelecommunicationsfacilitiesandservicestopermitindividualuserstoaccessmainframecomputersfromremoteterminalsinanon-linefashion.

Notallorganizationscouldaffordtobuyexpensivemainframecomputersorhiretrainedpersonneltorunthemin-house,however.Evenlarge-andmedium-sizebusinessesoftendidnotalwayshavesufficientprocessingcapacitytomeettheirpeakdemandsbutcouldnotjustifybuyinganothercomputer.Itwassituationslikethesethatcreatedanopportunityforcompaniestoestablishthemselvesassuppliersofrawcomputerprocessingpoweraswellasspecializedapplicationssoftwaretomeettheneedsoflarge,medium,andsmallbusinessesonacommercialbasis.CompanieslikeControlData,IBM,GeneralElectric,ElectronicDataSystems(EDS),AutomaticDataProcessing(ADP),Tymshare,andotherssetupcomputerservicebureaustosupplycomputerprocessingservicestobusinesses,universities,andgovernments.Thisnewindustryalsodependedonaccesstoefficientandeconomicaldigitaldatacommunicationsfacilitiesandservicestoreachcustomers.Theirgrowth,profit,andcompetitivenessdependedonit.

Besidesmakingitpossibletosellcomputerprocessingservicescommercially,themainframecomputeralsocreatedopportunitiestosellinformationoutrightthroughtheuseofcomputerizeddatabanks.The

commercialdatabankservicesindustrywascreatedtocatertothedemandsofbusinessesandgovernmentsrequiringaccesstoscientific,economic,financial,anddemographicinformationandreportsaswellasnews.Informationsuchasthisisimportantforconductingresearchanddevelopment,marketresearch,economicforecasting,andinvestmentandpoliticalriskanalysis.EarlysuppliersofdatabankservicesincludedcompaniessuchasMeadCorporation,whichprovidedlegalinformationservicesviaitsLEXISdatabank;Lockheed,whichbeganofferingadatabankservicecalledtheDIALOGin1972;andothers,includingDun&BradstreetinthecorporateinformationbusinessandMedlineinthemedicalinformationservicesbusiness.NewspaperpublisherssuchasTheNewYorkTimesandmanufacturingcompanieslikeTRWalsosetupdatabankserviceoperations.Likethecommercialcomputerservicesbureauindustryandgovernmentsandprivatecompanies,thedatabankindustryreliedontelecommunicationsfacilitiesandthe

regulatedtelephonecompaniestoprovideservicesand,therefore,itsgrowthandprofitability.

Theintroductionofminicomputersintheearlysixtiesalsohadamanifoldimpactonboththecomputerandtelecommunicationsindustries.Minicomputersusheredintheageofdistributedprocessingwhich,morethananyapplicationoruse,dependedonaccesstoefficientdigitaldatacommunicationsservicestoconnectminicomputerandmainframecomputersintoanetwork.Computer-to-computercommunicationsandnetworkingbecameevermoreimportantwiththeevolutionofdistributedprocessingandtheemergenceofthemicrocomputerage.

Itwasthroughamarriageofminicomputersandcommunicationsthatanewkindofdigitalcommunicationsservicewasdevelopedinthesixtiestomeetthegrowingdemandsofthesecomputerservicesbureausanddatabankservicescompaniesaswellasthebusinesscommunityofusersingeneral.Thenewtechnology,calledpacket-switching,usedtime-divisionmultiplexing(TDM)techniquestoenableindividualuserstosharethesametransmissionchannelsonatime-sharingbasisinasimilarwayastheysharetime-sharedcomputers.Becausethefacilitywasshared,itwaslessexpensivetouse,andbecausetheservicewasbasedondigitaltechnology,itsquality,reliability,andsecuritywassuperiortothatofleasedlineanaloguechannelsavailablefromtelephonecompanies.Astheirdatatrafficrequirementsgrew,commercialpacket-switchingservicesprovidedanimportantsourceofefficiencyandproductivityimprovementforagrowingnumberofbusinesses.

Packet-switchingwaspioneeredbytheDefenceResearchProjectsAgency(DARPA).In1969,DARPAfinancedthedevelopmentofanetwork,appropriatelycalledARPANET,totestthefeasibilityandeconomicsofthenewtechnology.ARPANETgrewtoconnecthundredsofuniversitiesandmilitaryestablishmentsacrosstheUnitedStatesandeventuallyoverseasintheseventies,anditsubsequentlycametoconstitutethebackbonefoundationfortheInternet,thenetworkofnetworksthatconnectsmillionsofusersaroundtheworldtoday.Once

packet-switchingprovedtobetechnologicallyfeasibleandeconomicallyattractive,itwascommercializedbycompanieslikeTymnetandTelenetwhichleasedbulktransmissionfacilitiesfromthecarriers.Becauseitcombinedbothcomputersandtelecommunicationsinnewanduniqueways,packet-switchingdefiedthetraditionaldefinitionsoftelecommunicationsservices.Ontheonehand,companiesthatsuppliedtheseservicesconstituteddataprocessingserviceorganizations.Ontheotherhand,theycouldberegardedaslegitimatetelecommunicationscommoncarriers.TelephonecompaniesregardedthesesuppliersasacompetitivethreatandlobbiedtheFCCtocurtailtheirexpansion.TheFCC,ontheotherhand,wasinaquandaryastowhattheyconstitutedundertheCommunicationsActandwhetherornottheactrequiredittoregulatethem.

Microelectronicsandminicomputershadabigimpactonthetelecommunicationsindustryinanotherwayaswell.Manylargecompanieswithagreatdealoftelephonetrafficreliedonprivateleased-linetransmissionfacilitiesandsmall

privatelyownedtelephoneswitchescalledprivatebranchexchanges(PBXs)tomanagetheircorporatetelephonenetworksinsteadofrelyingontheservicesofthetelephonecompanies.Semiconductorandcomputertechnologymadeitfeasibleandeconomicaltobuildcomputerizedswitchescalledprivateautomaticbranchexchanges(orPABXs).Becausethesewerecomputers,theycouldbeprogrammedtoprocessandswitchbothvoiceanddataandtoperformnetworkcontrolandotherfunctions.Bothtelecommunicationsandcomputerequipmentmanufacturersbeganproducingthesenewproductswhichenabledbigcompaniestomakemuchmoreefficientuseofandbettermanagetheircorporatecomputer,telecommunicationsandinformationresources.Theresultwascompetitionbetweenthetelecommunicationsandcomputerindustriesopeneduponyetanotherfront.

THEFIRSTCOMPUTERINQUIRY

Itwasinresponsetogrowingcomplaintsbybusinesses,telephonecompanies,andtheircompetitorsthattheFCClaunchedwhathasbecomeknownasthe“FirstComputerInquiry”(ComputerI)onNovember9,1966,toaddresswhatitcalledthe“regulatoryandpolicyproblemsraisedbytheinterdependenceofcomputertechnology,itsmarketapplications,andcommunicationscommoncarrierservices”(Docket16979).ThebiggestissuebyfarthattheFCChadtodealwithwaswhetherornotthecomputerservicesindustryshouldberegulatedlikethetelecommunicationsservicesindustryorwhetherthetelecommunicationsindustryshouldbederegulatedlikethecomputerindustry.TheFCCtookanintermediatepositionwhen,in1971,fiveyearsafterlaunchingitsproceeding,ittableditsreport.1Thenewpolicyrecognizedtheexistenceof“hybrid”communicationsanddataprocessingservices.Wheremessageswitchingwasofferedasanincidentalfeatureofahybridintegratedserviceofferingwhichisprimarilyofadataprocessingnature,thecommissionruledthattheserviceshouldnotberegulated.However,wheretheservicewasorientedtowardsatisfyingthecommunicationsormessage-switchingrequirementsofthesubscriberanddataprocessingwasincidental,itproposedtoregulate

theentireserviceasacommunicationsservice.

Toguardagainstdiscriminatorypricingandotherkindsofanticompetitivebehaviorandtopreventcommoncarriersfromsubsidizingtheircompetitiveserviceswithrevenuesderivedfromtheirmonopolyservices,thecommissionadopteda‘‘maximumseparation”policywhichrequiredcommunicationscommoncarrierstofurnishdataprocessingservicesthroughaseparatecorporatesubsidiary.TheFCCwouldinvokethisso-called“structuralseparations”policytimeandtimeagaininsubsequentdecisionstoensurefaircompetitioninthesupplyoftelecommunicationsandotherrelatedbutunregulatedservices.

TheFCCbeganapplyingitsnewpublicphilosophyevenbeforeitsfinalreportwassubmitted.Tosatisfythegrowingnumberofbusinesseswantingtoattachnon-BellTelephoneequipmenttothetelephonenetwork,itgaveanewcompany

calledCarterfonepermissiontoattachitsowntelephonesettothetelephonenetworkin1968.In1975,afteralengthypublicinquiry,itruledthatallterminalequipment,frommodems,computerterminals,andPBXstomessagingandansweringdevices,independentofthemanufacturer,couldbeattachedtothetelephonenetworkaslongasitsatisfiedcertaintechnicalstandards.Thecommissionsetuparegistrationprogramtoensurethatallnewequipmentmetthenewstandards.

BREAKINGTHEMONOPOLYONCOMMONCARRIAGE:THESPECIALIZEDCOMMONCARRIER,DOMESTICSATELLITE,ANDVALUE-ADDEDNETWORKDECISIONS

WhiletheFirstComputerInquirywasinprogress,theFCCwasforcedtodealwithissuesrelatingtothewholequestionofcompetitioninthelong-distancemarketamongotherreasonsasaresultofthecommercializationofmicrowavecommunicationstransmissiontechnology.Microwavewasahigh-capacityradio-basedtransmissionsystemthatusedrelaystationsat20-to30-mileintervalsand,therefore,reliedlessonpublicrights-of-waythanwires.ItrepresentedarelativelyinexpensivewayfornewentrantstobreakintoAT&T’slong-distancemonopoly.Inits“Above890Decision”in1959,theFCCallocatedthenecessaryfrequencybandsfortheintroductionofpoint-to-pointmicrowavesystemsandintroducedrulesallowingindividualcompaniestosetupprivatemicrowavecommunicationssystemstosatisfytheirowninternaltransmissionneeds.Broadcastersandbigcompaniesrespondedpositivelytothenewruling,butAT&Tcounteredwithanaggressivestrategyofsegmentingthemarketandintroducingaspecial(Telpak)tariffwhichdiscountedthepriceofleasedprivatelinesbyasmuchas85percent.TheTelpaktariffseffectivelykilledwhathadbecomeathrivingbusiness.

Theeconomicsofmicrowavetechnologyimprovedasaresultofdevelopmentsinmicroelectronicsuntilitwasonlyamatteroftimebeforeseveralstartupcompaniesbecameinterestedinsupplyingintercityservicesonacommoncarrierbasisusingmicrowavetechnology.In

1969,thecommissiongrantedalicensetoMicrowaveCommunicationsIncorporated(MCI)tobeginofferingprivatelineservicesbetweenChicagoandSt.Louisusingthenewestgenerationofmicrowavetransmissionsystems.WilliamMcGowan,whocofoundedMCIin1968withaninvestmentof$50,000,isnowwidelycreditedwithbreakingAT&T’stelephonemonopoly.AT&TfoughttheMCIapplication.Inhisbookonthetelecommunicationsindustry,GeraldBrockwrote,“ItwasoversevenyearsfromtheinitialfilingoftheMCIapplicationsinlate1963tothefinalapprovaloftheapplicationinearly1971.ThechairmanoftheboardofMCItestifiedthatMCIhadspent$10millioninregulatoryandlegalcoststosecureapprovalforitsnetwork.Theestimatedcostfortheactualfacilities…wasunder$2million.”2

MCIsucceededindoingwhatmostpeopleintheindustrythoughtwasimpossible.ItquicklybecameAT&T’sbiggestcompetitorinthelucrativeintercitymarket.Bytheendof1973,anothernewintercitycompetitor,SouthernPacificCommunications,completedacoast-to-coastmicrowavesystem.

By1971,theFCChadcompletedalengthypublicinquiryintothewholeissueofcompetitioninthecommoncarriageindustry.3Thecommissionnotedthatthecomputerrevolutionwasstimulatingagrowingdemandforspecializedcommoncarrierservicesandthatcomputerusersandcomputerprocessingserviceorganizationswererelyingonspecializedtelecommunicationsfacilitiesfortheirday-to-dayoperations,butthatcommoncarrierswerenotsupplyingthefacilitiesandservicesneededtomeettheirdemands.Italsoobservedthatspecializedtelecommunicationsfacilitiesandserviceswerebecomingcrucialtothesocialandeconomicdevelopmentofthenationandthatpublicpolicieswerenecessarytoensuretheirefficientandtimelydevelopment.Itconcludedthatentryintothespecializedcommoncarriersegmentwouldnotjeopardizetheprovisionofuniversalpublictelephoneservices.

Thecommission,therefore,adoptedanewpolicyofencouragingentryintothenewsegmentoftheindustrytherebycreatinganewclassofcommoncarrier,calledtheSpecializedCommonCarriers(SCCs).Tosparenewentrantstheexpenseofaregulatoryproceedingbeforeenteringthenewsegments,itruledthattheestablishedcarriersshouldshouldertheburdenofproofthatsuchentrywouldnotharmtheprovisionofuniversaltelephoneservice.Becausethelocaltelephonenetworkrepresentedthemostseriousimpedimenttothedevelopmentofspecializedcommoncarriersservices,theFCCorderedtheBelloperatingcompanies(BOCs)toprovidespecializedcommoncarrierswithadequatelocalfacilitiesonajustandreasonablebasis.

TheSpecializedCommonCarrierdecisionwasanothermilestoneinthederegulationoftheUnitedStatestelecommunicationsindustry.ItbecamethefoundationuponwhichtheFCCwouldmakeaseriesofdecisionsopeninguptocompetitionvariousspecializedsegmentsofthecommon

carrierindustry.AmongthemweretheDomesticSatelliteServices(DOMSAT)decisionin1972,theValue-AddedNetworks(VAN)decisionin1973,andtheResaleandSharingdecisionin1976.

RapiddevelopmentswerealsotakingplaceinsatellitecommunicationswithadvancesinmicroelectronicsdrivenbyNASA’sgrowingbudgetandthespacerace.SatellitetechnologyhadmaturedtothepointintheearlyseventieswhereanumberofcompanieshadappliedtotheFCCforpermissiontolaunchandoperatesatellitesforprovidingcommercialdomesticcommunicationsservices.InkeepingwithitsrecentlyannouncedSpecializedCommonCarrierphilosophythatcompetitioninthesenewsegmentsdidnotthreatenthemaintenanceofuniversalservice,theFCCopenedthedomesticsatellitecommunicationsbusinesstocompetitionin1972inwhatisknownasits“openskies”orDOMSATdecision.Inthatyear,thecommissionapprovedapplicationstoestablishsatellite

carriagefacilitiesfromWesternUnion,RCA,andSatelliteBusinessSystems(SBS),aconsortiumcomprisingIBM,ComsatGeneral,andAetnaLifeandCasualtyInsuranceCorporation.ButitprohibitedAT&TfromenteringthisnewmarketforaperiodofthreeyearsinordertoallowthenewcarrierstimetoestablishthemselvesintheindustryandpreventAT&Tfromusingitsenormouspowertodominatethenewindustry.

Bytheearlyseventiesaswell,digitaldatacommunicationstechnologyhadreachedthestageofcommercialization.Datranwasthefirstcompanytoenterthemarketwithafullydigitalcommunicationsservicebutthecompanywentbankruptbecauseitcouldnotobtainaccesstothelocaltelephonenetwork.SeveralothernewentrantssubsequentlyappliedtotheFCCforpermissiontosupplypacket-switchingservicesonacommercialbasis.TheCommissionatthattimewasattemptingtochangeitsregulationstoeliminateobstaclesthatmighthamperthedevelopmentofcompetitioninthegrowingmarketfordatacommunicationsservices.Thehighcapital-investmentcostsandtheneedtoobtainthenecessaryrights-of-wayforinstallinglocalandintercitytransmissionfacilitiesinparticularrepresentedmajorbarrierstotheintroductionofsuchservices.

Toovercometheseobstacles,theFCCcreatedanewclassofserviceproviderssupplyingwhatitcalledvalue-addednetworkservices(VANS).Thisnewclassofsupplierwouldleasetransmissionfacilitiesfromthetraditionalcommoncarriersandinterconnecttheircomputers,databanks,terminalandswitchingequipment,anddevelopthenecessarysoftwaretoprovideprocessing,transactions,information,andotherservicestothepublic.Packet-switchingservicewasparticularlyattractivetolow-volumedatacommunicationsusersbecauseitprovidedthemwithanefficient,low-costandhigh-qualitydigitaldatadeliverysystemwhichonlylargecorporationsuntilthencouldafford.Butitwascriticalforsuchgrowingindustriesasthedatabank,computerprocessing,andtransactionsservicesindustries.

TwoofthefirstcompaniestoobtainalicenseundertheFCC’snewVANSpolicywereGraphnetandTelenetin1974.Telenet,aspin-offfromthe

ARPANETproject,becamethefirstcompanyintheworldtooffercommercialpacket-switchingservicesin1975.Subsequently,anothercompanycalledTymnetreceivedpermissiontoofferavalue-addednetworkserviceaswell.

Buttherewerestillproblems,particularlyformediumandsmallcompanieswhichdidnothavethetrafficvolumeorthefinancialmuscletomakefulluseofleasedprivate-linefacilities.Largecompanieswhichdidcouldderiveimportantbenefitsthrougheconomiesofscaleintheirprivatenetworks.Inordertomakethesesamebenefitsavailabletomediumandsmallcompanies,theFCCruledin1976thatcompaniesindividuallyorasagroupcouldleasecommoncarriagefacilitiesfromthecarriersfortheirshared-useandresellexcesscapacityonthefreemarket.Thisso-called“sharingandresale’’decisionwasthecommission’swayoffurtherexpandingthescopeofcompetitionandextendingtheeconomicbenefitsofnewtechnologytosmallercompanies.

BREAKINGTHEMONOPOLYONLONG-DISTANCETELEPHONESERVICE

Inallofitsdecisions,theFCChadtakengreatpainstoprotectpublictelephoneservicefromcompetitioninordertoensureitsintegrityasauniversal,affordableservice,anobligationandanobjectiveitwasresponsibleforundertheCommunicationsAct.Thecommissionrecognizedinits1974SpecializedCommonCarrierdecision,however,thatthelocaltelephonenetworkwasaneffectivebarriertoentrysoitorderedtheBelloperatingcompaniestoprovideSSCswithlocalfacilitiesincludingaccesstothelocaltelephonenetwork.OneofthefirstcompaniestogainaccesswasMCIwhichhadestablishedabeachheadintheintercitymicrowavemarketbythemid-seventiesandwaseagerandreadytoexpandintoothermarkets.Onceithadgainedaccess,itintroducedanewservicein1976,calledExecunet,whichwaspricedonaper-callbasis.Thenewservicewasessentiallyamessagetollserviceand,therefore,competeddirectlywithAT&T’slong-distancetelephoneservice.MCIhadeffectivelypenetratedthepublictelephonemonopolyinviolationoftheFCC’srules.Fearswereexpressedthat,unlesstheFCCforcedMCItoterminateitsservice,localratescouldotherwisebeforcedupbyasmuchas100percentormore.TheFCCdidorderMCItodiscontinuetheservicebutsubsequentlylostanappealscourtdecisionwhichoverturneditsorder.TheSupremeCourtalsoruledinfavorofMCI.SouthernPacificCommunicationsbeganofferingasimilarservicethroughitssubsidiary,calledSprintshortlythereafter.Competitioninlong-distancetelephoneserviceshadbecomea“faitaccompli.”

Butotherfarmorepowerfultechnological,industrial,andpoliticalforceswereatworkalonganincreasinglybroadfronttotransformthetelecommunicationsindustryandnosinglebodyorlegislativeorregulatoryauthoritywasincontrolorcapableofcontrollingeventsanylonger.

THEGLOBALECONOMICIMPLICATIONSOFTHEINFORMATIONREVOLUTION

Everynationwasexperiencingthefalloutfromtheinformationrevolutionintheseventies.Thecapacitiesofinternationalsatelliteandtransoceanictelecommunicationslinkagesweregrowingrapidly.TheIntelsatIV,launchedin1971,hadacapacityof4,000telephonecircuitsandtwotelevisionchannels.TheIntelsatIV–Aseries,launchedin1976,hadacapacityof6,000circuitsandtwotelevisionchannels.Inaddition,thesixthtransatlanticunderseacable(TAT-6)wascompletedin1976.Theseconstitutedacauseofgreatconcernformanygovernmentsbecausetheywerebeingusedtoexportagrowingvarietyofdatabankandcomputer-basedprocessingservicesfromtheUnitedStates.AcomputerprocessingnetworkcalledCYBERNET,forexample,ownedbyControlDataCorporation,operatedinsixEuropeancenters.TheGeneralElectricInformationServicessuppliedservicesinEuropefromtheUnitedStatesbysat-

ellite.Anotheron-linecomputerservice,calledSWITCH,connectedthirtymajorprocessingcenters.Andaworldwideinterbankfinancialtransactions(SWIFT)networkwasinoperationwhichprovidedcomputerprocessingandtelecommunicationstransmissionservicesforits400orsomembercountries.Governmentsperceivedtheseashavingimportanttrade,employment,andeconomicdevelopmentimplicationsformanynations,especiallyinEurope.Iftheirindustrialeconomieswereevolvingintoinformationeconomiesasmanysocialscientistswerepredicting,thefearwastheywouldbecomeincreasinglydominatedbyU.S.companiesthatalreadycontrolledmostofthemanufacturingandinformation-relatedservicesbusinessworldwide.Informationtechnology,therefore,becamestrategictoeverynation.

Developmentsininformationandcommunicationstechnologiesraisedmanyothercultural,economic,andpoliticalconcerns.Directbroadcastsatellites(DBS),forexample,raisedconcernsaboutthedominationoftheworldbyAmericanculture.Earthresourcessatelliteswereanothersourceofconflict.NASAlaunchedtheenvironmentalandmeterologicalsatellite(ERTS)in1966andtheremotesensingsatellitesLandsatIandIIin1972and1973.In1974,theU.S.governmentestablishedtheEarthResourcesObservationSatellite(EROS)datacenterin1974todisseminatethedatafromremote-sensingsatellites.Becauseremote-sensingsatellitescouldbeusedinanundetectablemannertosurveythelandmassesofothercountriesextraterritorially,theywereperceivedtobeavehicleforinvadingandviolatingtheeconomic,legal,andpoliticalsovereigntyofnation-states.LikeDBSandthetransborderflowsofdatathroughcomputernetworks(TBDF),therewerenointernationallawsgoverningremote-sensingsatellites,andmanynationsbeganpressuringinternationalbodiesincludingtheUnitedNationsandUNESCOtodeveloprulestoregulateandcontroltheseinternationalactivities.Satellitesbecamesoimportantthattheyinitiatedaninternationalraceamongdevelopedandless-developednationsfortheirshareofscarceorbitalpositions.

ItwasinresponsetotheseconcernsthateffortsweremadeinanumberofinternationalforaincludingtheUnitedNations,UNESCO,andthe

OECDtoimposerestrictionsonthe“transborderdataflows”ofinformation.Theyalsoculminatedincallsinthelateseventiesforthecreationofa“newworldinformationorder.”4Thepublicationin1980ofthebookTheWorldChallengebytheFrenchjournalistJean-JacquesServan-SchreiberdrewinternationalattentiontothedominationoftheworldinformationeconomybytheUnitedStatesandthethreatitposedtotheworld.5

Alloftheleadingindustrializedcountrieswerechallengedbytheinformationrevolutionintheseventies,andmostdevelopednationalindustrialandinformationandcommunicationspoliciestobetterpreparethemselvesforthecominginformationage.TheJapanesegovernmentrecognizedtheeconomicsignificanceoftheinformationrevolutionasfarbackasthesixties.In1972,itmadepublicareportentitledThePlanforInformationSociety:ANationalGoaltowardtheYear2000(JapanComputerUsageDevelopmentInstitute).Thereportarticu-

latedaclearlong-rangeplanfordevelopingthecountry’sinformationtechnologyandinformationindustriesandturningJapanintoaninformationsociety.Includedinitwerenationalgoalsforthedevelopmentofaworld-scalemanufacturingcapabilityforproducingsemiconductorchipsandofficeandfactoryautomationequipment,includingrobotsaswellasamasseducationprogramtocreateacomputer-literateJapanesesociety.Thestrategyalsocalledforinitiativesforcreatingandupgradingscientificandtechnicaldatabanksandanextensivenetworkoflibraries.Almostadecadelaterin1980,anadvisorycommitteetoMinistryofInternationalTradeandIndustry(MITI)publishedareportinwhichitproposedthatJapanlaunchaten-yearresearchanddevelopmentprogramtodevelopa‘‘FifthGenerationofComputer”basedonknowledgeinformationprocessingsystems(KIPS)concepts.Twoyearslaterin1982,MITIfolloweduponitsproposalbycreatingtheInstituteforNewGenerationComputerTechnology(ICOT)withannualfundingof7billionyenperyear.Theinitiativecreatedasensationinscientific,industryandpoliticalcirclesaroundtheworld.Leadingartificialintelligence(AI)expertsintheUnitedStateswarnedthat“TheFifthGenerationProjectisJapan’sambitiousplantoseizeworldwideleadershipinthecomputerindustry.”6EdwardFeigenbaumandPamalaMcCorduckwarnedthattheinitiative“couldgiveJapantheleadinthisracetobecomeapostindustrialsociety.”7GovernmentsintheUnitedStates,Europe,andothercountriesrespondedtothechallenge.

InformationtechnologybecameacentralfocusofFrance’sindustrialstrategyinthesixtiesunderitspresident,CharlesdeGaulle,whotransformedthecountryintoanationalshowcaseofFrenchtechnology.In1976,PresidentGiscardd’EstaingcommissionedanationalstudytoassesstheeffectsofcomputerizationonFrenchsocietyandhowFranceshouldrespond.Intheirreport,publishedin1978,authorsSimonNoraandAlainMincpredictedthat“masscomputingwilltakehold,becomingasindispensabletosocietyaselectricity.”8Thereportemphasizedthethreatsaswellastheopportunitiesofcomputerizationandtheconvergenceofcomputersandtelecommunications,whichtheauthorscalled“télématique,”or“telematics,”forFrenchindustryandFrench

society.ThereportcalledforatelematicsnetworklinkingallpartsofthecountrywithoneanotherandwithothercountriesandastandardspolicytoenableEuropeanmanufacturersanddatanetworksupplierstocreateanindigenousEuropeanmarketforinformationtechnologyproductsandservices.ItalsoproposedthecreationofanEuropeansatellitesystemtodenytheUnitedStatesamonopolyoverEuropeansatellitecommunicationsandbroadcastingindustriesandaprogramtopromotethedevelopmentandregulationofdatabaseservices.Nationalprogramswerealsoadvocatedforpromotingtheuseofcomputersandtelecommunicationsinschoolsandpreparingteacherstoeducateandtrainthenewgenerationofstudentsfortheinformationsociety.

Britain,WestGermany,andotherEuropeannationsdevelopedsimilarindustrialstrategies.A1978Britishreportcalledforgovernmentactiontopromotethedevelopmentanddiffusionofinformationtechnologythroughawareness

programsandeducationandtrainingprograms.Thereportalsoadvocatedgeneroussupportforresearchanddevelopment,theprovisionofriskcapitaltodevelopersandproducersofinformationtechnologyproductsandservices,aswellasregulationsandstandardstosupporttheseobjectives.Therecommendationsbecamethebasisofa$140millionindustrialstrategytosupportitsmicroelectronicsindustryand$110milliontosupportanapplicationsdevelopmentprogram.FundswerealsoallocatedtosetupanOfficeoftheFutureprogram,aMicroelectronicsApplicationsprogram,andaFifth-GenerationComputersprogramcalled“ALVEY.”TheBritishgovernmentalsocreatedaMinistryofInformationTechnology(IT)tooverseeandmanageitsITprograms,anditdesignatedtheyear1981“InformationTechnologyYear”asabigpublicawarenessexercisetodemonstrateitscommitmenttoIT.

THEINFORMATIONREVOLUTIONCHALLENGESAMERICANINDUSTRIALPOLICY

ThesubjectofindustrialpolicyandthechallengesfacingAmericancompaniesintheinformationagewerereachingaclimaxintheUnitedStatesinthelateseventiesandearlyeightiesasaresultoftheinternationaldebateontransborderdataflowsandtheestablishmentofanewworldinformationorderaswellastheconcernovertheeffectsofthedecliningeconomicpoweroftheUnitedStatesinternationally.ManyAmericanswereconvincedthatthecountrywasbecoming“deindustrialized”andthatgovernmenthadtodosomethingbothtoprotectAmericanindustryaswellasmakeitmorecompetitive.Bythen,internationaltrade,informationtechnology,andnationalsecurityissueshadbecomeinterwovenwithdomesticregulatoryandindustrialpolicyissuesintelecommunications,broadcasting,andbankingandfinancialservices.AllhadbecomestrategictothefutureofAmericaastheleadinginternationaleconomicpower.

Thesubjectsofdeindustrialization,industrialstrategy,andderegulationwerewidelydebatedinthe1975and1979nationalelectionswhichbroughtJimmyCarterandRonaldReagantopower.A1976report

entitledNationalInformationPolicy:AReporttothePresidentoftheUnitedStatesrecommendedthattheUnitedStatesdevelopacomprehensivenationalinformationpolicyandpreparelegislationgoverningthedisseminationofgovernment-heldinformationaswellasprivacyandcopyrightguidelines,andestablishanofficeofinformationpolicyintheWhiteHousetoadviseoninformationpolicyissues.InformationpolicyissueswereatthetopoftheagendaoftheCarteradministration,andinresponse,PresidentCarterreorganizedhisgovernmentbyphasingouttheOfficeofTelecommunicationsPolicy(OTP)in1977.In1978hecreatedtheNationalTelecommunicationsandInformationAdministration(NTIA)intheDepartmentofCommerce.TheNTIAbecameresponsibleforadvisingthepresidentonbothdomesticandinternationalinformationandcommunicationspolicymatters.

AmericanbusinessesandtheU.S.governmentalsobecameincreasinglyalarmedabouttheindustrialeffectsofthenationalindustrialstrategiesofgovernmentsinEuropeandJapan,specificallytheirprotectionistpoliciesandthecreationoftradebarrierstotheimportofAmericangoodsandservices.ThesenationalindustrialpoliciestogetherwiththetargetingofspecificsectorsformassiveinvestmentandsubsidiesprogramswerebeginningtohaveaneffectonAmerica’stradepositionintheworldinformationeconomy.JapanwasbeginningtochallengeAmerica’sdominationparticularlyinthesemiconductorindustry,andafewleadinginformationtechnologyproducts,includingFrance’sMinitelandBritain’sPrestelvideotextservices,werebeginningtoshowupinEuropeandJapanthatwerenotavailableintheUnitedStates,andthisalarmedsomeAmericans.InthelateseventiesagrowingnumberofAmericanacademics,politicians,andbusinessleadersbegancallingforanationalindustrialstrategytocounteractandretaliateagainstthoseofothercountries.

CentraltotheAmericandebateonindustrialpolicyintheearlyeightieswastheconceptof“deindustrialization,”whichbecamesynonymouswiththedecliningcompetitivenessofold-linemanufacturingindustriesandtheconsequentjoblosscausedbymovingplantstooverseaslocationsandforeigncompetitorsenteringthesemarkets.ButsomeAmericanssawanupsideofthechangingeconomicenvironment.TherealstrengthoftheAmericaneconomy,theyasserted,wasinitshigh-technologysector,particularlyinformationtechnologyandservices.Americacouldcontinuebeingthegreatesteconomicpoweronearthaslongasitcontinuedtoinnovateandusehigh-technology,andthis,manyargued,calledforanindustrialstrategythatfocusedonresearchanddevelopment,investment,andtradeandeducationalpolicies.Astheworldeconomymadethetransitionfromonebasedonlow-valueindustrialgoodsandservicestoonebasedonhigh-valueinformationgoodsandservices,thatis,toaninformationandknowledge-basedeconomy,Americawouldhavetodevelopspecificpoliciestoenableittobettercompete,thatis,to“reindustrialize.’’

Reindustrializationmeantdevisingspecificpoliciesfordeclining,or

“sunset,”industriesoftheindustrialage,andotherpoliciesforitsrising,dynamic,high-growth,“sunrise”industriesoftheinformationeconomy.LeadingtheoristsarguedthatspecialindustrialpoliciesandprogramsshouldservetoacceleratethistransitionandtransformationofAmerica’seconomytoaninformationsocietyandfacilitatethenecessaryindustrialrestructuringthatwouldaccompanyit.9Onesetofsupportpoliciesshouldtargetsunriseindustrieswhileanothershouldaddresstheproblemsofdecliningindustrialsectorswhichwouldeventuallybeabandonedtooff-shoreproducingcountries.ButthesubjectofanexplicitindustrialstrategywascutshortbytheelectionofRonaldReaganaspresidentin1979.Reaganadoptedastrongmilitaristicposture,includingtheStarsWarsDefenseInitiative(SDI),whichservedasanegotiatingstrategywiththeSovietUnion,andhealsoacceleratedCarter’spolicyofderegulatingkeysectorsoftheeconomy.

THESECONDCOMPUTERINQUIRYREDEFINESTHEBOUNDARIES

Bythelateseventies,thecomputerrevolutionanditsinterdependenceandintegrationwithtelecommunicationshadreachedanewandmoreadvancedstage.Thedevelopmentofmicroprocessorshadledtothewidespreaduseofdistributedprocessingandpersonalcomputerspromisedtobringprocessingpowertothedesktopsofworkerseverywhere.Bothdevelopmentsfueledgrowingdemandsfordatacommunicationsservicestointerconnecttheirpersonalcomputers,minicomputers,andmainframecomputersbothwithinandbetweencompanies.Atthesametime,computerchipswerebeingintegratedintoeveryconceivabletypeoftelecommunicationsequipment—intotelephoneswitches,PBXs,andintooldandnewvarietiesofterminalequipment.AndbothIBMandAT&Twereinvadingtheterritoryoftheothertocapitalizeonthisconvergence.

IBMannouncedagrowingnumberofnewtelecommunicationsproductsinthemid-to-lateseventiesincludingthePABX3750,anditenteredthetelecommunicationsservicesbusinessin1977throughitspartnershipinSatelliteBusinessSystemstoprovideprivatevoice,data,andvideocommunicationsservicestobusinesscustomers.TheseservicescompeteddirectlywiththoseofferedbyAT&T.Onanotherfront,Xerox,thegiantofficecopiercompany,wasreadyinganewcommunicationsservicecalledXTENwhichcombinedcomputerprocessingandmicrowaveradioandsatellitecommunicationstodistributedocumentsaroundthecountry.AT&Twasalsobusyannouncingnewproductsandservicesforthedatacommunicationsanddataprocessingmarketplace.Throughatechniqueknownasdataundervoice(DUV)AT&TwasabletoadaptitsanaloguenetworktoprovideanationwidedigitaldatacommunicationsservicecalledDataphoneDigitalService(DOS)infiftycitiesby1978.ItalsointroducedtheTransactionNetworkService(TNS)designedespeciallyfortheelectronicfundstransfermarketplace.AnotherAT&Tservice(CCSII)wasdesignedforthevoicestore-and-forwardmarket.AT&Talsobroughttomarketanewterminaldevice

calledtheDataspeed40/4whichembodiedbothdataprocessingaswellascommunicationsfeatures,andin1976itannouncedanewcomputercommunicationsservicecalledAdvanceCommunicationsService(ACS)whichwouldpermitcomputeruserstotalktooneanotherdirectly.Eachoftheseproductsandservicesinvolvedcomputerprocessingand,therefore,violatedtheprovisionsofeitherComputerIortheConsentDecreeof1956,bothofwhichprohibitedthecompanyfromengaginginthemanufactureofcomputerequipmentorsupplyingcompetitivedataprocessingservices.10

In1976,theFCC’sCommonCarrierBureauruledthattheDataspeed40/4wasadataprocessingdeviceand,therefore,notalegaltelecommunicationstariffofferingsoitprohibitedAT&Tfromofferingit.Butthenextyear,afterAT&Tappealedthebureau’sdecision,thecommissionreverseditsowndecision,rulingthatthenewproductwasacommunicationsdevice.Competitorsinthecomputer

industrybecamealarmedatthenewrulingbecauseitwouldenableAT&Ttoextenditspoweracrossthecombinedcomputerandcommunicationssector.ManufacturersandsuppliersofterminalequipmentappealedtoboththeFCCandtheDepartmentofJusticetoprohibittheseoffering.Pressuresweremountingonanumberofotherfrontsformajorchangesinregulatoryandindustrialpolicyinboththetelecommunicationsandthecomputerindustries.BothIBMandAT&Twerethetargetofagrowingnumberofantitrustsuitsaccusingthemofunfairtradepractices.Meanwhile,theDepartmentofJusticewasstillattemptingtobreakupbothIBMandAT&T.PressureswerealsomountingtoderegulatethetelecommunicationsindustryandletAT&Tgohead-to-headagainstIBM.

By1977,ithadbecomeclearthattheprovisionsoftheComputerI,whichmadeadistinctionbetweenregulatedandunregulatedcommunicationsanddataprocessingservices,wereobsoleteandunenforceable.Recognizingthis,theFCClaunchedtheSecondComputerInquirytorethinkthewholequestionofwhethertocontinueitspolicyofseparatingthecomputerandcommunicationsindustries.Thecommissionwoundupitsinquiryin1980withareportembodyinganewframeworkforregulatingthetelecommunicationsindustry.11

ComputerIIestablishedanewregulatoryframeworkforthetelecommunicationsindustrybydividingcommoncarriercommunicationsservicesintothreeclasses:“Voice”communicationsservicesrelatedtothetransmissionofthehumanvoiceconstitutedabasiccommunicationsservice.“Basicnonvoice”servicesrelatedtothepuretransmissionofcomputer-relatedinformation.“Enhancednonvoice”servicesreferredtoanyservicewherecomputerprocessingalteredthecontentoftheinformationormessagesoftheuser.Thedecisionalsorecognizedthefutilityofmakingdistinctionsbetweencomputerandcommunicationsequipmentandderegulatedtheterminalequipmentmarket.Topavethewayfortheconvergenceofcomputersandcommunications,ComputerIIallowedregulatedcommoncarrierstoprovidecommunicationsservicesinvolvingsubstantialdataprocessingbutunderstructuralseparationand

otherconditionsthatwouldpreventthemfromusingtheirmonopolypowerunfairly.

AT&TimmediatelyformedanewsubsidiarycalledAmericanBelltoexploitthenewopportunitiesopenedupinthecompetitiveservicesmarket.But,inallowingAT&Ttoenterthesecompetitivemarkets,theFCCdeterminedthatitwasnolongerboundbythe1956ConsentDecree.Ineffect,itrevokedtheprovisionsoftheConsentDecreebutthisgavetheDepartmentofJusticetheammunitionitneededtodemandthebreakupofAT&T.ButotherdevelopmentsweretakingplaceinparallelthatweredramaticallytransformingtheindustrialandregulatorystructureoftheU.S.telecommunicationsindustry.

THENEW(ELECTRONIC)MEDIAREVOLUTION

Developmentsinsatellitesandcabletelevisionandtheconvergenceofcomputersandtelecommunications,inparticular,hadsetoffacabletelevisionand

broadcastingrevolutionbythelateseventies.TheFCC’s1972OpenSkiesdecisiondidwhatmanyeconomistshadpredicted.Itstimulatedinvestment,speededuptechnologicalinnovation,multipliedsatellitecapacity,loweredtransmissioncosts,broughtthepriceofearthstationsdownsignificantly,andstimulateddemandbybusinesses,broadcasters,andcabletelevisioncompanies.Thesedevelopmentstogetherwiththeliberalizationofownershiprestrictionsonearthstationsmadeitpossibletodistributebroadcastingsignalsveryeconomicallytocabletelevisionnetworksacrosstheentirenation.Inaddition,thebroadbandnatureofcoaxialcablemadeitfeasibletocarryasmanyasonehundredchannels.Anothertechnology,knownasmultipointmicrowavedistributionsystems(MMDS),usedomnidirectional,low-powermicrowaveradiotechnology,makingittechnologicallyfeasibletodistributetelevisionsignalstohigh-riseapartmentsandhotels.Interactivecablewasalsobecomingtechnologicallyfeasible.Alloftheseinnovationsfueledthecabletelevisionrevolutionoftheseventies.

TheFCCwasslowlymakingchangesinitsregulationstoaccommodatetheseinnovations.In1972,itissuednewrulesthatallowedcablecompaniestoimportatleasttwodistantsignalsbutitalsorequiredthemtocarrylocalbroadcastsignalsaswell.Thoseinthetop100marketswererequiredtoprovidetwo-waycapabilityandaminimumoftwentychannels.Italsorequiredcompaniestosetasideaccesschannelsfortheuseofthegeneralpublicandforeducationalinstitutionsandlocalgovernments.By1975,over10.8millionhomeowners,orabout16percentofallhouseholds,subscribedtocabletelevisionservices.

Growthofthecabletelevisionindustrywasfurtherstimulatedin1977asaresultoftheFCCauthorizingtheuseoffifteen-foot(4.5-meter)earthstationsinsteadofthe30-foot(9-meter)dishespreviouslyusedfortelevisionreception.Thisreducedthecostofearthstationsfromroughly$100,000tounder$40,000thusmakingsatellitereceptioneconomicallyfeasibleforcablesystemswithmorethan1,000subscribers.Developmentsinbothsatelliteandmicrowavecommunicationsandarelaxationinregulationenabledbroadcasterstoexpandintoregionalandnationalmarkets,significantlyincreasingtheiraudiencesandtheir

advertisingrevenues.Italsoledtotheageofpaytelevision.

ThefirstsuccessfulnationalcabletelevisionprogrammerwasHomeBoxOffice(HBO),asubsidiaryofTimeInc.ofNewYork,whichbegandistributingcurrentHollywoodfilmsandsportseventstolocalcablesystemslocallyandviamicrowavein1973.In1975,HBOlaunchedAmerica’sfirstnationaldeliveryofitsprogrammingserviceonRCA’sSatcomIsatelliteandthecabletelevisionrevolutionwasunderway.By1977,HBOwasbroadcastingto800,000subscribersonmorethan370cablesystems.In1978,Viacom’sShowtimeenteredthepaycablemarketgivingHBOitsfirsttasteofcompetition.Theuseofsatellitesandbroadbandcabletelevisionsystemsledtothedevelopmentofspecialtychannelsor“narrowcasting.’’AccordingtoSatelliteCommunications,amonthlypublicationwhichreportsonsatellitedevelopments,bytheendof1978,eightprogrammersinadditiontoHBOandShowtime,weretransmittingtelevisionsignalsna-

tionallytocableoperators.TheyincludedtheAmericanSatelliteNetwork,theChristianBroadcastingNetwork,FanfareTelevision,MadisonSquareGardenSports,PTLClub,andWoldandTurnerCommunications’WTCG.By1981,thesecondtelevisionrevolutionwaswellunderwaywithclosetotwentymillionhouseholdsor25percentoftheAmericanhomessubscribingtomorethan4,300cablesystemsacrossthecountry.

Thedistributionofbroadcastingsignalsbysatellitealsoledtothedevelopmentof“fourthnetworks”suchasthePublicBroadcastingSystemandNationalPublicRadiowhichbeganusingsatellitesin1978toattractnationalaudiences.OneofthemostsuccessfulwasdevelopedbyTedTurner,owneroftelevisionstationWTCGinAtlanta.In1977TurnertransformedWTCGintoa“superstation”byusingsatellitestodeliverhisprogramsthroughoutthecountry.By1980,over800cabletelevisionstationswerecarryingtheWTCGsignal.Bythistime,Turnerhadalsoaddedanentertainmentchannelofmostlyoldfilms.In1980,headdedthenow-famouscablenewsnetwork(CNN)tohisoperationbroadcastingoutofAtlantaandothersuperstationsdevelopedthroughoutthecountry.12By1981,directbroadcastingsatelliteswerereadyforcommercialuse,andinthatyear,SatelliteTelevisionCorporation,anaffiliateofComsat,wasgivenapprovalbytheFCCtodevelopaserviceforbeamingtotherooftopsofAmericanhomes.

Thegrowingchoiceofprogramsoncableledtoincreasedpenetrationandgreatercompetitionforfranchisesaswellasasearchforagreatervarietyofcontent.Oneofthelargestnationalcabletelevisioncompanies,WarnerCableCorporationofColumbus,Ohio,beganofferingthirtychannelscomprisinglocallyproducedcommunityprogrammingcontent,premiumsports,arts,educationalchannels,andnewmoviesoveraninteractivecablesystem,calledQube,in1977.Qube’sinteractivetechnologyenabledsubscriberstoparticipateinreferenda,quizzes,andgameshows,anditalsoprovidedhomesecurityservicesincludingfire,burglary,andemergencyservices.By1980,WarnerCableCorporationwasthefront-runnerincompetingforcablefranchisesintheUnitedStatesbasedsolelyonitsexperiencewithitsQubeservice.Otherbig

mediaconglomeratesincludingTimeInc.,CoxCommunications,WestinghouseCorporation,TimesMirror,andStorerBroadcastingfoughtforfranchisesthroughouttheeighties.Outsiderswerealsoactive.AmericanExpress,forexample,purchased50percentofWarnerCablein1980.13

Cabletelevisionwasperceivedbymanyashavinganexceptionallybrightfutureinthelateseventiesandearlyeighties.“Egalitarianssawincablethepromiseofabundantchannelswithopenaccessforalltotelevisionaudiences;newmechanismsforparticipatorydemocracywereenvisioned,”wroteauthorBennoSchmidt,Jr.,in1978.‘‘Futuristssawcablesystemsasthefirststeptowardelaboratehomeconsolesthatwoulddeliverthemorningpaper,provideaccesstocomputerinformationbanks,letpeoplevotefromtheirhomesinvasttownmeetings,aswellasprovideaccesstorichlyvaryingentertainmentpossibilities.”14

StartlingdevelopmentsweretakingplaceacrosstheentireinformationandcommunicationslandscapeintheUnitedStatesby1980asaresult,inparticular,ofinnovationsinavarietyofpromisingnewelectronicmediatechnologies.OneofthesewasthevideocassetterecorderintroducedbySonyCorporationin1975.By1980,thevideorevolutionwasunderway,anditwasbeginningtohavenoticeableeffectonbroadcastingandcabletelevision.Othernewmediatechnologiescameintoexistencethroughthemarriageofcomputerandtelecommunicationstechnologies.Oneofthesewasvideotext,whichmadeitpossibletouseordinarytelephone,cabletelevision,andradionetworkstodelivernews;information;andentertainment,games,andeducationalcontenttohomes.Tomany,videotextrepresentednothinglessthananewmasscommunicationsmediumtothehomeandaconduitforprovidinganendlessvarietyofinformation,entertainment,andeducationalcontent.AnditinitiatedaninternationalraceinvolvingthegovernmentsofFrance,Britain,Japan,Canada,andGermanytodevelopanationwidevideotextinformationservice.In1981theFrenchgovernmentbegangivingMinitelterminalstotelephonesubscribersfreeofchargein1981toreplacethetelephonedirectory.IntheUnitedStates,telephonecompanies,broadcasters,andcabletelevisioncompanies,inadditiontobanks,retailers,andpublishersspenttensofmillionsofdollarstocreatemarketsforvideotextinthelateseventiesandearlyeighties.Electronictechnologywasalsomakingitswayintoprintingandpublishing.

Itwasthisexplosioninthedevelopmentanduseofcabletelevision,satellites,pay-television,videotext,videocassetterecorders,andvideodisksandthepromiseofmuchmorethingstocomethatoccupiedtheattentionoftechnologists,socialscientists,industrypeople,andpoliticiansintheearlyeighties.Theriseofnewinformationandcommunicationsmediaandtheconvergenceofprintandaudioandvideotechnologiesledtogrowingdemandsformorefreedomtocreateanddelivergreatervarietiesofcontenttoconsumers.Theconvergenceoftechnologieswasalsoleadingtotheconvergenceofthevariousinformationandcommunicationsindustriesandforcingthemtocompetedirectlywithoneanother.Satellitesprovidedameanstobypass

terrestrialtelephonecompanies,broadcasters,andcabletelevisioncompanies.Videocassetterecordersrepresentedaformofbypassofbroadcastersandcabletelevisioncompanies.Videotextrepresentedaformofbypassofpublishers.Electronicbankingrepresentedameansofbypassingbanks.Ontheotherhand,thisconvergenceofindustriesalsorepresentedmajoropportunitiesforallofthem.Forallofthesereasons,academics,businessprofessionals,andpoliticiansintheUnitedStatesbegancallingforderegulationoftheentirecommunicationssectorinthelateseventiesandearlyeighties.A1981HouseofRepresentativesreport,entitledTelecommunicationsinTransition:TheStatusofCompetitionintheTelecommunicationsIndustry,describedthisinthefollowingway:

Intheinformationindustry,particularlyinitsvideosector,weareinthemidstofatechnologicalrevolutionwhichpromisestrueabundance.Theevolutionofnewformsof

deliverysystemsandnewprogramsupplierspresentstheAmericanpublicwithamomentousopportunity—anopportunitytohaveunfetteredaccesstoabroaddiversityofvideoprogramming.Thisdiversitywillallowtheremovalofaregulatoryschemethathaslongimposedcontentandbehaviouralrulesbasedonatheoryofscarcity.Theseregulationsaredefinitelynosubstituteforthecompetitionanddiversitythatafullycompetitivemarketplaceofabundancecanprovide.Theregulatoryregimeswhichwereestablishedtoconformto[the]compartmentalizedview[ofthepast]arerapidlyapproachingobsolescence.15

THEMODIFIEDFINALJUDGMENTSECURESDIVESTITUREANDTHEBREAKUPOFTHEBELLSYSTEM

NationaleconomicandpoliticaldevelopmentswerereachingaclimaxintheUnitedStatesin1980withtheissuesofindustrialstrategy,tradepolicy,andderegulationatcenterstageofthepoliticaldecision-makingarena.UnderPresidentJimmyCarter,aflurryofbillsweretabledinboththeSenateandCongresstoderegulateacrosstheentirespectrumoftelecommunicationsandbroadcastingservicesandtodoacompleterewriteoftheCommunicationsAct.In1976,apro-BellTelephonegroupintroducedintoCongressabillcalled“TheConsumerCommunicationsReformAct,”dubbedthe“BellBill”becauseitwasallegedlywrittenbyBellattorneys.Thebillwarnedthatcompetitionthreatenedthemaintenanceofuniversalpublictelephoneservicebecauseitwoulddrivelocalratesthroughtheroof,anditproposedturningtheclockbacktotheprederegulationeratopreventthisfromtakingplace.ItwasduringthisperiodthatBelllaunchedoneofitsmostintensivelobbyingcampaignstocombatoppositiontoitsmonopoly,anditspentmillionsinadvertisingandorganizingitsthreemillionshareholderstofightthebillsthatfollowed.

Between1976and1981,anumberofotherbillsweredraftedandintroducedintotheSenateandCongresstoamendorrewritetheCommunicationsActof1934.Allofthemendorsedtheuseoffreemarketsasthemosteffectivemeansofachievingindustrialdevelopmentandtouseregulationinonlythoseareaswheremarketforceswere

deficient.Mostcalledforthederegulationoftelecommunications,broadcasting,andcabletelevision.TheyalsoproposedallowingtelecommunicationscarriersintounregulatedbusinessesundercertainconditionsandseveralsupportedthebreakupofAT&TandtheBellSystemasaprerequisitetoderegulatingthetelecommunicationsbusiness.Finally,onOctober7,1981,Congresspassedthe“TelecommunicationsCompetitionandDeregulatoryActof1981,”whichexplicitlyfavoredfreemarketsandcompetitionasthemostefficientmeansofregulatingtheindustry.Itrecognizedthatascompetitiondeveloped,deregulationwouldensue.Theactalsosetoutseveralprerequisitesforintroducingcompetitionwhilepreservinguniversalservice.

UndertheReaganadministrationandwiththepolicyagendastrictlyfocusingonderegulationandcompetitivenessintheworld,pressurewasmountinginthe

DepartmentofJusticetowindupitsantitrustcasesagainstbothIBMandAT&T.Legislationaffirmedtheimportanceoffreemarkets.ComputerIIhadgivenAT&Tthefreedomtoentercompetitivesegmentsofthecomputer-communicationsmarketbutthe1956ConsentDecreeforbidAT&Tfromenteringcompetitivemarkets.ButAT&Twasalreadyoperatingincompetitivemarkets.TheJusticeDepartmentdemandednothinglessthanthebreakupoftheBellSystem.Onepossibilitywastoseparateitverticallybysplittingoffitsmanufacturingandresearchanddevelopmentarms—WesternElectricandBellTelephoneLaboratories,respectively.Thesecondwasbysplittingthemega-corporationhorizontally,thatis,byseparatingthetwenty-twolocaloperatingcompanies—thesourceoftherealmonopolypower—fromtheparentcompany.TheDepartmentofJusticewasseekingtheformerbutwouldsettleforthelatter.AT&Tconsideredthelattertobeinitsownbestinterest.AtleastthatwayaverticallyintegratedtelephonecompanywouldstillcontinuetoexistintheoldBellSystemtradition,anditwouldmanufactureeverythingfromtelephoneequipmenttocomputersaswellassupplytelephone,digitaldata,andmanyotherkindsofservices.SeparatingitsmanufacturingandresearcharmsfromtheparentcompanycouldhavedestroyedAT&Taltogether.

OnJanuary8,1982,AT&TandtheDepartmentofJusticefinallycametoanhistoricagreementtoreplacethe1956ConsentDecreewithanewconsentdecree.However,thepresidingjudgeoftheCourtinWashington,D.C.JudgeHaroldGreene,orderedAT&TandtheDepartmentofJusticetofiletheirargumentsasarevisedsettlementproposalofthe1956ConsentDecreeratherthanareplacementofit.Hethuscombinedtheantitrustcaseandmodificationsofthe1956ConsentDecreeintoone.Afterhearingsbeforefivecongressionalgroups,JudgeGreeneissuedhisdecisiononAugust24,1982.ItwascalledtheModifiedFinalJudgmentor“MFJ,”anditsecurednothinglessthanabreakupoftheBellSystemthattheDepartmentofJusticehadbeenseekingforalmostacentury.16

TheModifiedFinalJudgmentrepresentsalandmarkdecisioninU.S.

antitrusthistorybecauseitfundamentallyreshapedandrestructuredtheU.S.telephoneindustry.Beforedivestiture,AT&Twasoneofthebiggestcorporationsintheworld,rankingfirstinthelistofthetop500largestcorporationsinAmericaintermsofassetsandnetincomeandsecondinsales.Itserviced146.2billiontelephonesin6,874exchangesbeforedivestitureaccountingformorethan80percentoftheU.S.total.Its1982profitexceeded$7billion,morethananyothercompanyintheworld.WesternElectricaccountedfornearlytwo-thirdsofthetotalmanufacturingsalesoftelecommunicationsequipmentintheUnitedStatesin1982withsalescloseto$13billion.BellLaboratorieshadaresearchanddevelopmentbudgetofover$2billionputtingitinthirdplacebehindGeneralMotorsandFord.

AT&Thadtodivestitselfofitsownershipofthetwenty-twoBelloperatingcompanies(BOCs),thusseveringitsholdonthelocaltelephonecompanies.Italsohadtoseverallagreementswiththelocalcompaniesoveraperiodofyears

butprovidethemwithcertaintechnicalandotherservicesuntiltheywerecapableofprovidingthemthemselves.InreturnforthedivestitureoftheBOCs,AT&TwaspermittedtokeepitsLongLinesDepartment,WesternElectric,andBellTelephoneLaboratories.Asimportantasanyofthese,itwasalsopermittedtoenteranycompetitivesegmentofthetelecommunicationsindustryexceptinformationservicesfromwhichitwasbarredforaperiodofsevenyears.TheMFJeffectivelyfreedAT&TfromtheregulatorystraightjacketthatwasimposedonitbytheFCC’scomputerrulingsaswellasthe1956ConsentDecree.

THECLONINGOFAT&TINTOREGIONALHOLDINGCOMPANIES

TheMFJreorganizedthelocaltelephoneexchangesintomorethan150LocalTransportAreasorLATAswithinwhichtelephoneservicewasprovidedonamonopolybasisbytheBelloperatingcompanies.Thetwenty-twoBOCswerereorganizedintosevenregionalholdingcompanies(RHCs)—BellAtlanticandNYNEXintheEast,AmeritechintheMidwest,SouthwesternBellintheSouthwest,andUSWestCommunicationsandPacificTelesisintheWest.Becauseofthemonopolypowertheyenjoyedoverthelocalexchangenetwork,theywerebarredfrommanufacturingequipmentandprovidinginformation,enhanced,andinterexchangeserviceswheretheymightusetheirmonopolypowerunfairly,andtheyhavebeenlobbyingeversincetohavetheserestrictionslifted.Toensurefairandworkablecompetitionininterexchangetelephoneservices,thelocalexchangecompanieswereobligedunderthe‘‘equalaccess”provisionoftheMFJtoprovideaccesstoallinterexchangecarriers,includingAT&T,Sprint,andMCI,onafairandequitablebasis.

EachRHCrepresentedagiantinitsownrightandsomeweremorethanhalfthesizeofthenewAT&T.Eachownedseveraloftheformertwenty-twoBOCswhichprovidedexchangeandexchangeaccessservicesalongwithanequalshareofacentralserviceorganizationcalledBellCommunicationsResearch,orBellCore,whichperformedresearchfor

thegroup.Throughsubsidiaries,eachbecameinvolvedinsupplyingsuchcompetitiveservicesascellulartelephoneservices,customerpremisesequipment,anddirectoryservices.Butmanydiversifiedfarbeyondthetraditionalboundsofthetelecommunicationsservicesindustryintosuchfieldsasinformation-processing,realestate,cabletelevisionservices,andinventuresabroadthroughjointventuresandacquisitionsasdescribedchapter8.

AT&Twasstilloneofthebiggesttelecommunicationsfirmsintheworld,evenafterdivestiture.Its$34billioninassetsrankeditthefourthlargestintheUnitedStates,behindExxon,GeneralMotors,andMobil.Itemployed385,000people,makingitthesecondlargestemployerinthecountry.WhatwasleftofAT&Twasreorganized:ATTIX(AT&TInterexchange)becamethesuccessortoAT&TLongLinesandincorporatedanewunitcalledAT&TCommunications(ATTCOM).MostoftheoperationsofWesternElectricbecamepartofa

neworganizationcalledAT&TNetworkSystemswhich,alongwithBellLaboratories,AT&TInternational,andAT&TInformationSystems(formerlyAmericanBellandnowATTIS)wereincorporatedintoanewandcompletelyunregulatedoperatingunitcalledAT&TTechnologies.OtherunitsoftheneworganizationincludedAT&TNetworks,ConsumerProducts,GovernmentServices,andInternationalServices.

DivestiturebroughtanendtosomeoftheinconsistenciesandconflictsthatplaguedthetelecommunicationsindustryintheUnitedStatesforoverahalfacentury.ItwentalongwaytowardsfreeingAT&Ttoenableittooperateincompetitivemarketsandinrecognizingthenaturalmonopolypowerofthelocalexchangecarriers.Intime,divestiturealsochangedthepsychologyandthecultureofAT&T,andtheBOCstoamuchlesserextent,makingthemmoreattunetotheneedsoftheircustomersandnewopportunitiesandchallengesoftheinformationage.

ACCELERATINGCONVERGENCEINTHEPOSTDIVESTITUREERA

Thepostdivestitureerasawacontinuedaccelerationintechnologicalinnovationsandcompetitionastheinformationrevolutionenteredanewphase.Technologybecamecommercializedatafasterrateinthesemiconductorandcomputerindustriesbutespeciallyinthetelecommunicationsindustry.17Themicroelectronicsrevolutionchangedthedirectionofboththecomputerandtelecommunicationsindustriesbyusheringintheageofpersonalcomputing,end-usercomputing,anddistributedprocessing,anditcreatedinstantmarketsfornewsoftwareandcommunicationsandinformationservices.Italsocreatedarapidlygrowingmarketforlocalareanetworkstoconnectpersonalcomputerswithoneanotherandwithothercorporateinformationresources,andtheybegantocompetewiththePBXssuppliedbytelecommunicationsmanufacturingcompaniesasthehuboftheevolvingoffice-andfactory-of-the-future.Telecommunicationscarriersacceleratedthedeploymentofthenewgenerationofdigitalswitchesthatcouldprocessandswitchbothvoiceanddatatraffictomeetthedemandsofgrowingnumbersof

businesscomputerusers.Manyofthesedevelopmentsopenedupmarketsforenhancedcommunicationsservicesincludingelectronicbanking,finance,andretailservicesalongwithpublishing,entertainment,andinformationservicestohomesandbusinesses.

Bythemid-eighties,itlookedasiftheshowdownbetweenAT&TandIBM,whichmanyhadbeenanticipatingforadecade,wasabouttotakeplace.IBMhadbecomemoreaggressiveinthetelecommunicationsandofficeequipmentmarketsintheaftermathofthe1982decisionbytheDepartmentofJusticetodropitsthirteen-year-oldantitrustsuit,andAT&TwasfreetoentercomputermarketsasaresultoftheMFJ.BothAT&TandIBMannouncedvalue-addednetworkservice(VANS)offeringsintheearlyeighties.AT&T’sNet1000andIBM’sInformationNetworkweredirectcompetitorstooneanother.Eachcom-

panydesigneditsservicetostrategicallypositionitselffortheexpectedgrowthinnationalandglobalmarketsforcomputerandenhancedcommunicationsserviceswhichrangedfromsoftwaredevelopmentanddatabasemanagementtodatacommunicationsservices,includingelectronicmailandfundstransferservices.

IBMannouncedavarietyofnewcommunicationsproductsforitscomputersbasedonitsproprietarySystemsNetworkArchitecture(SNA),butitalsolaunchedamajordriveintotelecommunicationsequipmentmanufacturingandservices.In1982,itannounceda$300millionagreementwithMotorolaforacellularradioservicecovering250U.S.andPuertoRicancities.IBMalsoenteredthetelecommunicationsequipmentsupplybusinessin1983withthepurchaseof19percentofRolm,amanufacturerofPBXequipment.Thenextyear,itmovedtopurchasetheremainingsharesofRolmandinitiateddevelopmentofthe8750/9750digitalPABXforitslaunchin1987.In1984aswell,IBMincreaseditsshareofSatelliteBusinessSystemsbyacquiringallofthesharesofComsatGeneral.ThenextyearAetnaCasualtyandLifeInsurancewithdrewfromSatelliteBusinessSystemsellingitsinteresttoIBM,whichsubsequentlysolditssharetoMCIinreturnfor16.4percentinterestinMCI.Forawhile,speculationwasrifethatIBMwasabouttouseMCItocompeteheadtoheadwithAT&T.IBMwasalsorespondingtodevelopmentsinthepersonalcomputermarket.ItannouncedaTokenRingLANin1985inresponsetothegrowinguseoftheEthernetLANwhichwassupportedbyaconsortiumofsuppliersincludingXerox,Intel,andDigitalEquipment.

AT&Tenteredthecomputerandofficeequipmentmanufacturingindustriesin1983withtheannouncementthatitwaspurchasing25percentofOlivettifor$253million.In1984,itannounceditsnew3BlineofminicomputersanditsPC6300personalcomputerworkstationalongwithitsStarlanlocalareanetwork.Thefollowingyear,itannounceditsagreementwithseveralcomputermanufacturersinAmericaandEuropetojointlypromoteanddevelopUNIXasthestandardfortheworkstationmarket.AT&TalsoforgedallianceswithToshibainJapan,Lucky-GoldstarinSouthKorea,andcompaniesinTaiwanandSingaporetogain

apresenceintheAsianmarket.In1985,itenteredintoajointventurewithMitsuiandfifteenotherJapanesecompanies,includingSonyandHitachi,todevelopavalue-addednetworkservicefortheenhancedservicesmarketinJapanincompetitionwithajointventurebetweenIBMandMitsubishiCorporation.

IBMbecameincreasinglyactiveininternationalcomputercommunicationsmarketsaswell.It1984,itformedanalliancewithSTET,Italy’sstate-ownedmanufactureroffactoryandtelecommunicationsequipment.In1985,BritishbanksandretailerschoseIBMandBritishTelecomtosetupanationwidepoint-of-saleandfundstransfernetwork.IBMenteredintoajointventurewithJapan’sNipponTelephoneandTelegraph(NTT)inthesameyeartoformanewcompanycalledNipponInformationandCommunicationsCompany(NIC)todevelopthesoftwarethatwouldenableVANsdevelopedbyIBMandJapanesecomputercompaniestocommunicatewithoneanother.InEurope,IBM’snew

serviceofferingsincludedInformationNetworkServicesthatprovidedinformationexchangeservicesformultinationalcompaniesanddatafortradeandtransportationcompanies.ItalsoformedIntercontinentalInformationService(ISS)tolinkIBMvalue-addednetworksintheUnitedStates,Japan,andEurope.

Astheeightiesprogressed,bothAT&TandIBMwereworkingacrossanincreasinglybroadfrontinnewandemergingmarketswithbanks,brokerage,andfinancialservicecompaniestodevelopvalue-addedandenhancedservices.Bothwerecompetinginthegrowingfieldsofinformationprocessing,communications,andofficeautomation.Bothwereworkingontheirownsingle-vendor,“one-stop-shopping”strategyformanufacturingandmarketingtelecommunications,computers,officeautomationsystemsandequipment,andsoftwareandservicesworldwidethroughacquisitions,jointventures,andstrategicalliances.

TELECOMMUNICATIONSANDTHEGLOBALIZATIONOFECONOMICACTIVITY

EverynationwasfeelingthegrowingeconomicimpactsofglobalizationandtheinformationrevolutionalongwiththeeconomicandpoliticalfalloutfromderegulationanddivestitureintheUnitedStatesthroughouttheeighties.Globaltelecommunicationsnetworkswerelinkingcomputersystemsinkeysectorsoftheinternationaleconomyandcreatingaglobalelectronicinfrastructureandaglobalserviceseconomywhichdidnotrecognizeanynationalboundariesorregulatoryjurisdictions.Theseinfrastructureswerehavingsignificantimpactsonthegrowthanddevelopmentoftheservicessectorandinternationaltradeandcompetitiveness.Oneoftheresultswasthatinternationaltradeinserviceswasgrowingmorerapidlythantradeingoods.Tradeinserviceswasalsohighontheagendaofinternationalorganizations,includingtheGATTwhichinitiatedtheUruguayianroundoftradenegotiationsin1985.Andthosecountrieswithmoreliberaltelecommunicationspolicieswereattractinganincreasingproportionofinternationalinvestmentandexperiencingahigherrateofgrowthininternationalservices.Those

countrieswithmorerestrictivepolicies,ontheotherhand,werelosingtheirshareoftheinternationalservicesbusiness.18

ItwasforreasonssuchasthesethatgovernmentsinEurope,Asia,andelsewherecameundermountingpressuretomakedrasticchangesinthewaytheymanagedandadministeredtheirPostal,Telephone,andTelegraphadministrations(PTTs)tomakethembetterservethenationalinterest.BusinessleadersandpoliticiansontheEuropeanandAsiancontinentsdidnotwanttobeleftbehindintheraceintotheinformationage.Thechangesthatbeganinthemid-eightiesinBritainandJapanspreadinabandwagoneffectinlateeightiesandearlyninetiesthroughouteverycontinentascountryaftercountryinAsia,Europe,NorthandSouthAmerica,andeventuallyAfricaadoptedsimilarpolicies.19

THETIDEOFCHANGEINBRITAIN

BritainwasoneofthefirstnationstofollowtheleadestablishedbytheUnitedStatestoderegulatemajorsegmentsofitstelecommunicationsindustrybutnotbefore1979,theyearthatMargaretThatcher,the“IronLady”ofBritishpolitics,ledtheConservativestovictoryovertheLaborPartytobecomethenewprimeminister.ItwasThatcher’sconservativegovernmentthattriedtotransformBritishindustryintotheinformationagethroughtheintroductionofawiderangeofmarket-orientedindustrialandregulatorypolicies.In1981,theBritishParliamentpassedtheTelecommunicationsActwhichsplitBritishTelecomfromtheBritishPostOfficeandgavethesecretaryofstatethepowertolicensenewcarriers.Ayearlater,thesecretaryofstategrantedalicensetoMercuryCommunications,ownedbyCableandWireless,toprovidebasicswitchedtelephoneservicesincompetitionwithBritishTelecom.In1983,Mercurywaspermittedtoexpandintointernationalservices.In1984,theBritishgovernmentintroducednewlegislationtoprivatizeBritishTelecomandcreatetheOfficeofTelecommunications(Oftel)toregulatetheindustryandintroducenewrulestocreateacompetitiveindustryandensurefaircompetition.Newregulationswerealsointroducedthatgovernedtheoperationofenhancedorvalue-addedservices.By1985,therewere688VANsoperatingintheUnitedKingdom.

TheBritishgovernmentfollowedupin1985withthesaleof50.8percentofitsstakeinBritishTelecomtothepublic.TheprivatizationofBritishTelecomwasatremendoussuccessandothercountriesaroundtheworldadoptedvirtuallythesameprivatizationstrategiesfortheirPosts,TelephoneandTelegraphadministrations(PTTs).Thegovernmentsubsequentlyintroducedapackageofnewregulatoryreformandindustrialpoliciestoaccelerateinnovationandinvestmentinitstelecommunicationsindustry.Itintroducedpricecaps,aformofincentiveregulation,forBritishTelecomandtooksomeofthemostaggressivestepsintheworldtoencouragecompetitionbetweenitstelephone,cabletelevision,andwirelesscommunicationsindustries.

JAPAN’SPLANNEDACCOMMODATIONS

EventsinJapanwereacceleratingintheeightiesinparallelwiththoseintheUnitedStatesandBritain.In1982,theJapanesegovernmentmaderevisionstothe1971PublicTelecommunicationsLawtoallowusersgreaterflexibilityintheiruseofleasedlinesconnectedtothepublictelephonenetworkofNTT.In1984,theJapaneseDietpassedtwolawsthattransformedthetelecommunicationsindustryinJapan.Thefirst,calledtheNTTLaw,endedthetotalmonopolythatNTTenjoyedoverdomestictransmissionfacilities.Thesecond,calledtheTelecommunicationsBusinessLaw,substantiallyliberalizedtheJapanesetelecommunicationsmarketplace.ItalsoopenedtheVANmarkettocompetition.TheMinistryofPostsandTelecommunications(MPT)wasgiventhemandate

toprivatizeNTTandsubsequentlyregulateit.Thenewlegislationalsodividedthetelecommunicationsindustryintotwoclasses:thosecompaniesthatsuppliedtransmissionfacilities(ClassI)thatcontinuedtoberegulatedandthosethatprovidedenhancedservice(ClassII)whichwereunregulated.

ThenewlegislationstimulatedaflurryofindustrialactivityintheJapanesetelecommunicationsindustrywithbigcompanieslikeSony,Mitsubishi,Kyocera,andtheJapaneseNationalRailwaysenteringtheintercitymarketandbuildingsatellite,microwave,andopticalfibernetworksincompetitionwithNTT.By1987,morethantenClassIcarrierswereoperatingincompetitionwithNTT.TheyincludedJapanTelecomCompany,TelewayJapanCorporation,andDaini-DendenInc.,whichbegansupplyingpublictelephoneservicesin1986.JapanCommunicationsSatelliteCompanyandSpaceCommunicationsCorporationwereinthebusinessofprovidingnationwidesatellitecommunicationsservices.CompetitionalsocamequicklyintheinternationalmarketdominatedbyKokusaiDenshinDenwaCorporation(KDD)after1985.OneofthenewcompetitorswasaconsortiumcalledInternationalTelecomJapan(ITJ)whichinvolvedMitsubishi,Sumitomo,Mitsui,theBankofTokyo,andMatsushita.Anotherconsortium,InternationalDigitalCommunicationsinvolvedC.Itoh,Toyota,andCableandWirelessofBritain.By1987,theVANsmarketplacehadbecomeafocalpointofintensecompetitiveactivitywithover200companiesoperatingby1987.

In1987,theJapanesegovernmentsold35percentofNTTtothepublicina$62billionpublicofferingmakingitthebiggestprivatesecuritiesofferinginJapanesehistory.Inthefallof1989theTelecommunicationsCouncilofJapan,theadvisorycouncilofJapan’sMPT,fellshortofrecommendingthebreakupofNTT,notonthebasisofantitrustpolicybutonthebasisofnationaltelecommunicationspolicy.

PERCEPTIONSINTHEEUROPEANCOMMUNITYSLOWLYCHANGE

NationsontheEuropeancontinentwerefeelingthepressuresoftechnologicalchangeandglobalcompetitioninthelateeightiesaswell.Ina‘‘greenpaper”issuedin1987,theEuropeanCommissionproposedtheadoptionofanumberofpoliciesforcreatingasingleEuropeanwidemarketplacefortelecommunicationsequipmentandservicesby1992.“Information,exchangeofknowledge,andcommunications,”thereportnoted,“areofvitalimportanceineconomicactivityandinthebalanceofpowerintheworldtoday…[and]telecommunicationsisthemostcriticalareaforinfluencingthe‘nervoussystem’of[thisnew]…society.”20Thereportcalledforfreeandunrestrictedcompetitioninthemanufacturingofequipmentandtheprovisionofallcomputer,value-added,andenhancedtelecommunicationsservicesandrequestedindividualstatesto

beginsettingupappropriateinstitutionstointroducecompetition.InDecember1988,thecommissionissuedrulestoderegulatetheequipmentmanufacturingindustryandthedatatransmission,leased-line,electronicmail,andfinancialdatanetworksby1991.

OnJanuary1,1989,theNetherlandsbecamethefirstnationontheEuropeancontinenttoprivatizeitsPTTandmakewayforcompetitioninlinewiththerecommendationsoftheEuropeanCommission.RoyalPTTNederlandNVwascreatedasaholdingcompanywithfiveprofitcentersincludingthoseprovidingpostalandtelephoneservices.InWestGermany,anewlawwentintoeffectinJuly1989,splittingtheDeutschesBundespostintoseparatepostalandtelecommunicationsorganizations.Allbasictelephonefacilitiesandserviceswouldcontinuetobeownedandoperatedasamonopoly,butallotherfacilitiesandservicesincludingvalue-addedservicesandsatelliteandcellularradioservicesareopentocompetition.In1992,theGermangovernmentannounceditsintentiontoprivatizeDeutschesBundespostTelekom,itsstate-ownedtelecommunicationscompany.InFrance,thegovernmentsplitthepostaldirectoratefromthetelecommunicationsdirectorate,renamingthelatterFranceTelecom,withbothreportingtotheministerofPostal,TelegraphandTelecommunications.In1991theBelgiumgovernmentprivatizeditsPTT,nowcalledBelgacom.TheSwedishTelecom’sboardofdirectorsvotedinearly1991toconvertthegovernment-ownedcarrierintoacorporationonJuly1,1991,andaskedthegovernmenttoconsiderprivatizingthecompanyandlistingitsstockontheexchangeinthefuture.

DEREGULATIONANDPRIVATIZATIONTRANSFORMSTHEWORLDTELECOMMUNICATIONSINDUSTRY

DeregulationandprivatizationpoliciesarebeingpursuedinCanada,LatinAmerica,andAsia.InCanada,theCanadianRadio,TelevisionandTelecommunicationsCommission(CRTC)beganliberalizingtheresaleandsharingofprivate-linefacilitiesin1985.In1987,thefederalgovernmentbegansellingallofitssharesinthecountry’s

telecommunicationscarriers,includingTeleglobeCanada,itsinternationaltelecommunicationscarrier.In1991,thefederalgovernmentannouncedthesaleofits49percentownershipofTelesatCanada,itsdomesticsatellitecommunicationscompany,toAlouetteCommunications,aconsortiumofCanada’smajortelephonecompanies.InJuneof1992,theCRTCopenedtheintercity,long-distancemarkettocompetition.Anew“TelecommunicationsAct”wasalsopassedin1993,andinSeptember1994,theCRTCopenedthelocalexchangetocompetition.

In1990,theNewZealandgovernmentsolditstelephoneutility,TelecomCorporationofNewZealand,toAmeritechandBellAtlanticfor$2.5billion.In1990,theAustraliangovernmentannouncedaseriesofnewpolicyinitiativestorestructureitsdomesticandinternationaltelecommunicationsindustryand

openituptocompetition.Thegovernmentfirstmergeditsdomesticandinternationalcarriers,TelecomAustraliaandtheOverseasTelecommunicationCorporation(OTC),toformasingleintegratedsupplieroffacilitiesandservicescalledAustralianOverseasTelecommunicationsCorporation(AOTC).ItalsolicensedasecondcompetingcarriercalledOptusCommunications,aconsortiumwithBellSouthandCable&Wireless,witheachholdinga24.5percentequity,toinstallandoperatenationalandinternationaltelecommunicationsfacilitiesincompetitionwithAOTC.Next,itsoldAussat,Australia’sdomesticsatellitecompanytoOptusCommunications.OptuswasalsogivenalicensetobuildandoperateasecondcellularnetworkthroughoutAustralia.Accordingtothenewpolicy,theduopolywilllastto1997whenthemarketwillbefurtheropeneduptocompetition.BothOptusandAOTCareregulatedbytheAustralianTelecommunicationsAuthority(AUSTEL)createdin1989tooverseetheintroductionofcompetition.

PrivatizationspreadtoSouthAmericain1990.InNovember,aftersplittingthestate-ownedtelephonecompany,Entel,intotwoparts,theArgentinegovernmentannouncedthesaleof60percentofEntelSouthtoSpain’sTelefonicaand60percentofEntelNorthtoItaly’sSTET(Italtel)andFranceTelecom’sCableetRadio.Inthesameyear,Mexicoannouncedthesaleofa56percentstakeinitsstate-ownedtelephonecompany,TelMex(TelefonosdeMexico)toFranceTelecomalongwithSouthwesternBellandGrupoCarsoS.A.deC.V.,aMexicanmanufacturingandminingcompany,for$1.76billion.TelMexhas$7.4billioninassetsand$2.2billioninrevenuesin1989.InNovember1991,theVenezuelangovernmentannouncedthesaleof40percentofitsstakeinCANTV,thestate-ownedtelephonecompanytoaconsortium,whichincludedGTECorporation,AT&T,andSpain’sTelefonica,for$1.89billion.TheBraziliangovernmenthasalsobecomeincreasinglyactiveinderegulationandprivatization.Itinitiatedplansin1992tosell58percentofTelebras,thegovernment-ownedtelecommunicationsholdingcompany.PrivatizationpolicieswerebeingactivelypursuedinotherpartsofSouthAmerican,inUruguay,Paraguay,andChile,forexample,andinSouthEastAsia,whereMalaysiaandSingaporewereconsideringselling

portionsoftheirtelephoneutilitytoprivateinterests.EasternEuropeancountrieshavealsobecomeveryactiveintheprivatizationoftheirtelecommunicationscarriers.

Countrieseverywherehaveembarkedonthisnewagendainrecognitionofthenewtechnologicalandglobalcompetitiverealitiesandbecausetelecommunicationsinfrastructurehasbecomesoimportanttoeconomicgrowthandcompetitiveness.Telecommunicationspolicyisnowinextricablylinkedtointernationaltradepolicyandinternationalcompetitivenessaswellasdomesticandinternationalbankingandfinancialservicesregulation.Telecommunications,inshort,hasbecomemorethanjustanotherindustry.Ithasbecomeakeyunderpinningandakeyinfrastructurethatiscentraltothesocial,economic,andpoliticalwell-beingofeverynation.Ithasbecomeacriticalpillaroftheevolvingpostindustrialsociety.

NOTES

1.“RegulatoryandPolicyProblemsPresentedbytheInterdependenceofComputerandCommunicationsServicesandFacilities,”28FCC2d291(1970),TentativeDecision;28FCC2d267(1971),FinalDecision.

2. GeraldW.Brock,TheTelecommunicationsIndustry:TheDynamicsofMarketStructure(Cambridge:HarvardUniversityPress,1981),p.213.

3. SpecializedCommonCarrierServices,FirstReportandOrder,29FCC2d870,920(1971).

4.

Theyear1980istheyearthatthe“NewWorldInformationOrder’’receivedthemostinternationalattention.Inthatyear,theInternationalCommissionfortheStudyofCommunicationsProblems,establishedbyUNESCO,publishedtheresultsofitsinvestigationinto“thetotalityoftheproblemsofcommunicationsinmodernsociety.”SeeSeanMacBrideetal.,ManyVoices,OneWorld:CommunicationsandSocietyTodayandTomorrow(Paris:UNESCO,1980).

5. Jean-JacquesServan-Schrieber,TheWorldChallenge(NewYork:SimonandSchuster1980).

6.PatrickH.WinstonandKarenA.Prendergast,eds.,TheAIBusiness:TheCommercialUseofArtificialIntelligence(Cambridge:MITPress,1984),p.288.

7.EdwardA.FeigenbaumandPamalaMcCorduck,TheFifthGeneration:ArtificialIntelligenceandJapan’sComputerChallengetotheWorld(Reading,Mass.:Addison-Wesley,1983),p.21.

8.

SimonNoraandAlainMinc,L’Informatisationdelasociété(Paris:DocumentationFrançaise,1978).TheEnglishversionisentitled:TheComputerizationofSociety:AReporttothePresidentofFrance(Cambridge:MITPress,1980).

9.

ThebooksbyRobertReich,TheNextAmericanFrontier(NewYork:TimesBooks,1983);andJamesBotkin,DanDimancescu,RayStata,andJohnMcClellan,GlobalStakes:TheFutureofHighTechnologyinAmerica(NewYork:Ballinger,1982)calledforanationalindustrialstrategytohelpAmericareindustrializeandmeettheinternationalcompetitionchallenge.

10.

The1956ConsentDecreesettledanantitrustsuitbroughtagainstAT&Tin1949allegingthatWesternElectricmonopolizedthemanufactureandsupplyofcommunicationsequipmentandapparatusinviolationoftheShermanAntitrustAct.TheJusticeDepartmentsoughtthedivestitureofWesternElectricanditsdissolutionintothreecompetingfirms.In1956,AT&TandtheJusticeDepartmentcametoanout-of-courtsettlementinwhichAT&Tagreedtowithdrawandabstainfromenteringcompetitivemarkets,includingcomputermanufacturing.WesternElectricwasprohibitedfromsellingitsequipmentoutsidetheBellTelephoneSystem.BellTelephoneLabswasforcedtomakeitspatentsavailabletoothercompaniesonaroyalty-freebasis.AT&Twasalsoforcedtodivestitselfofallofitsforeignholdings,includingthoseinNorthernElectricinCanada.

11.SecondComputerInquiry,FinalDecision,77FCC2d384(1980),p.8.

12.CNNwasbroadcastingto130countriesby1992.ItmadehistoryinJanuary1991whenitbroadcastlivetelevisionpicturesoftheCoalitionForcesinvasionofIraqtotheworldfrominsideBaghdad.

13.Foradescriptionofthesedevelopments,seeWilsonP.Dizard,TheComingInformationAge:AnOverviewofTechnology(NewYork:Longman,1982),pp.109–114.

14.BennoC.Schmidt,Jr.,“PluralisticProgrammingandRegulationofMassCommunicationsMedia,”inGlenO.Robinson(ed.),CommunicationsforTomorrow(NewYork:Praeger,1978),p.211.

15.U.S.HouseofRepresentatives,TelecommunicationsinTransition:TheStatusofCompetitionintheTelecommunicationsIndustry(Washington,D.C.,November3,1981),p.244.

16.

ModificationofFinalJudgement,UnitedStatesv.WesternElectricCo.Inc.andAmericanTelephoneandTelegraphyCo.,CivilActionno.82–0192(DCCfiledAugust24,1982).ForadescriptionoftheregulatoryandotherdevelopmentssurroundingtheAT&Tdivestiture,seeWalterBolteretal.,TelecommunicationsPolicyforthe1980s:TheTransitiontoCompetition(NewYork:Prentice-Hall,1984);andthebreakupitself,seeSteveColl,TheDealoftheCentury:TheBreakupofAT&T(NewYork:SimonandSchuster,1988).

17.RobertW.CrandellandKennethFlamm,ed.,ChangingtheRules:TechnologicalChange,InternationalCompetition,andRegulationinCommunications(Washington,D.C.:BrookingsInstitution,1989).

18.“Telecommunications:TheGlobalBattle,”BusinessWeekSpecialReport,24October1983,pp.126–132.

19.

ForadescriptionofthechangingtelecommunicationspolicyandregulatoryenvironmentintheOECDcountriesinthelateeighties,seeRobertR.Bruce,JeffreyP.Cunard,andMarkD.Director,FromTelecommunicationstoElectronicServices(London:Butterworths,1986);TheTelecomMosaic:AssemblingtheNewInternationalStructure(London:Butterworths,1988).SeealsoRodneyStevensonetal.,InternationalPerspectivesonTelecommunicationsPolicy(London:JAIPress,1993).

20.

TowardsaDynamicEuropeanEconomy(GreenPaperontheDevelopmentoftheCommonMarketforTelecommunicationsServicesandEquipment),CommissionoftheEuropeanCommunities,Com(87),290final,Brussels,30June1987,EC(1987),p.1.

Chapter5NetworkUniverse

Thepaceoftechnologicalandeconomicchangeacceleratedintheworldinformationeconomythroughouttheeightiesdrivenbygrowinginternationalcompetition,deregulation,privatization,andtheconvergenceofcomputersandcommunications.Anewgenerationofhigh-poweredsatellitesmadeiteconomicallyattractiveforbusinessestouseverysmallandrelativelyinexpensiveearthstationstocommunicateamongtheirgeographicallydispersedoperatingofficesandbranchesinwaysthatwerenotfeasibleoreconomicalbefore.Superefficient,high-capacityopticalfibersweredeployedtocompletelywireupbuildingsandentirecities,spannations,andcrossoceansandcontinents.Andtelephoneandcabletelevisioncompaniesbecameengagedinagreatracetorewiretheirlocaldistributionsystemswithopticalfiberssotheycanbringinteractivetelevisionandinformationandentertainmentservicesondemandtoresidentialsubscribersbeforethedecadeisout.

Technologicalinnovationsalsosetofftheboomincellulartelephonyintheeightieswhichgrewtopenetratemajorurbanareasandexpandintoruralareas.Mobilesatellitescametobeusedtocommunicatewithshipsatseaandwithaircraftandtrucks.Aracealsobegantodeploythenewgenerationsofpersonalcommunications,directbroadcastsatellites,andcellularmicrowavesystemstocompetewiththeservicesofferedbythetelephoneandcabletelevisioncompanies.Andsomebravecompaniesbetliterallybillionsthatnetworksoftens

orhundredsofsatellitescouldbeusedtoprovidetheentireworldcommunitywithaplethoraofnewvoice,video,andinformationservices.Thischapterwilldescribehowcompaniesaredeployingthesetransmissiontechnologiestocreatethebasicelectronictransportinfrastructureoftheevolvingglobalnetworkeconomy.

SATELLITECOMMUNICATIONS:THECONTINUINGREVOLUTION

Thesatellitecommunicationsrevolutionenteredanewphaseintheearlyeightieswiththedeploymentofanewgenerationofcommercialhigh-powered,high-capacitycommunicationssatellitesthatoperatedinthehigh-frequency(14/12GHz)Ku-band.1Thehigherpowermadeitpossibletouseinexpensiveminiatureandmicroearthstationswithdiametersassmallasfivefeet(1.5meters).Thehigherfrequenciespreventedinterferencefromterrestrialmicrowavetransmissionswhichusedthelowerfrequencies.Anotheradvancewastheuseoftime-divisionmultipleaccess(TDMA)whichmadeitpossibleforuserstosharethesamecommunicationschannelssimultaneouslymuchlikeusersdotheoperationofatime-sharingcomputer.Sharinginthiswayhadtheeffectofloweringthecostforindividualusersandindividualapplicationsandexpandingthevarietyofapplications.Asaresultoftheseinnovations,satellitecapacitiesincreased,earthstationsbecamesmallerandcheaper,andsatelliteservices,particularlyintheUnitedStates,becamemoreaffordable,accessible,andcost-effective.

TheFCCintheUnitedStatesinitiatedregulatoryactioninstepwiththeseinnovationsanddevelopments.In1979,itderegulatedreceive-onlyearthstationsandliberalizedthesaleoftranspondersin1982,permittingindividualcompaniestopurchasetranspondersfortheirownuse.In1983,itannouncednewregulationstodecreasetheorbitalspacingbetweensatellitestotwodegrees.Thisconsiderablyexpandedwhatwasuntilthenaninternationallyscarceresourceinfixedsupply.TheFCCalsoadoptedregulationsin1983topermittheuseofsatelliteantennaswithdiametersaslowasfourfeet(1.2meters).In1984,itcompletely

deregulatedComsatearthstations.InSeptember1985,itextendedits‘‘openskies”policiesintotheinternationalmarketplacebygivingfivecompaniesprovisionalauthorizationtoentertheinternationalprivatesatellitecommunicationsmarket.TheywereOrionSatelliteCorporation,InternationalSatelliteIncorporated,RCA,CygnusCorporation,andPanAmericanSatelliteIncorporated(PanAmSat).2Thesedecisionshadastimulativeeffectonthesatellitecommunicationsindustryworldwide.Theycreatedthemarketfornewsatellitebusinessservicesthatusedverysmallearthstationsfortheirinternaloperations.Theyalsoopenedthemarketforthedeliveryofinformationservicesviasatelliteor“datacasting.”

Thegreatestnumberofcommunicationssatellitesintheworldareoperatedfordomesticpurposes.MostareownedandoperatedbyAmericancompanies.

AT&T,RCA,GE,GTE,andSBSbecameactiveinthemarketwithinfiveyearsoftheFCC’s1972Domsatdecision.Butthenumberdwindledintheeightiesthroughmergersandacquisitions,reflectingrapidtechnologicaladvances,highinvestmentcostsaswellasthematuringofthemarketandgrowingcompetition,especiallyfromterrestrialopticalfibercommunicationssystems.In1985,MCIpurchasedSBSfromIBM,ContinentalTelephone(Contel)purchasedAmericanSatelliteCorporation(AMSAT),andGEpurchasedRCAincludingitssubsidiary,RCAAmericomCommunicationsIncorporated.Inthesameyear,HughesCommunications,createdasasubsidiarytoHughesAircraftin1978,purchasedWesternUnion’ssatellitesandseveralofthoseownedbySBS.(GeneralMotorspurchasedHughesAircraftinthesameyear.)GTEbecametheownerofRCAAstronauticsSpacenetsatellitesystem.

By1988,thirty-twoU.S.Domsatswereinoperation.EighteenoperatedintheC-band,tenintheKu-band,andfourwerehybrid,thatis,theyhadtranspondersthatoperatedintheboththeC-bandandKu-bands.Thesewereownedoroperatedbyninecompanies.TheyincludedAlascom(operatingtheAurora1satellite),AT&T(theTelstarseries),Comsat(theComstarseries),GEAmericanCommunications(theGEAmericomandSatcomseriesincludingthosewhichGEpurchasedfromRCA),GTE(theSpacenetandGStarorGeoStarseries),ContelASC(formerlyAmericanSatelliteCorporation),HughesCommunications(Galaxyseries),MCI(SBSformerlyownedbyIBM),andWesternUnion(Westarseries).GTEmergedwithContelin1991.Numerousothercompaniesleasedtranspondercapacityinbulkorownoneormoretransponders.CompetitionisexpectedtoreducethenumberofsatelliteoperatorsintheUnitedStatestofourbigcompanies.TheymostlikelysurvivorsareAT&T,GE,GTE,andHughesCommunications.

OthercountrieshavefollowedtheleadoftheSovietUnion,Canada,andtheUnitedStatesinlaunchingdomesticcommunicationssatellites.TheSovietUnionoperatestheGORIZONTsatellitesandFrancetheTelecomseriessatellites.India,China,Mexico,Brazil,Japan,andAustraliaoperatedomesticsatellitesystemstoservetheirnational,social,andeconomicdevelopmentneeds.TheAussat(Australia),Brazilsat(Brazil),

andMorelos(Mexico)satelliteswerelaunchedin1985.India’ssatellitecommunicationssystem(InSat)wasbuilttoprovideaninexpensivemeansofimprovingtheeducationalstandardsforthemillionsofcitizenslivinginunderservedareas.JapanisservedbytwoJCSatsatelliteslaunchedin1989.Adomesticsatellitecommunicationssystem,calledKopernicus,hasbeendeployedbyGermany.Itisdesignedtodelivervoice,data,andvideoservicesintheKu-bandandKa-bands(20–30GHz).

Manycommunicationssatellitesareoperatedbyregionalgroupswhichusethemonasharedbasis.TheEuropeanCommunitySatellite(ECS)systemwhichprovidessatelliteservicestoEuropeanPTTsisoperatedbyEutelsat.IntersputniksatellitessupplysatelliteservicestothesixteenmembersofIntersputnik,formedin1971bytheformerSovietUnionandEasternEuropeannations.Arabsat,formedin1976,providescommunicationsservicestotwenty-twomembercoun-

triesofArabLeaguethroughtwosatelliteslaunchedin1985.ThePalapasatellitesystemservescountriesinSoutheastAsia(Indonesia).PanAmSatusesitsSimonBolivarsatellitetoprovideregionalCaribbeanandSouthAmericanservicesandisexpandingintointernationalservices.AsiaSat,ownedbyCable&WirelessandChinaInternationalTrustandInvestment,servesSoutheastAsia,includingChina,throughtheAsiaSat1satellitelaunchedin1990.TheAndeancountriesofSouthAmericaareplanningaregionalsatellitesystemcalledASETAtoservetheirjointneeds.

Intelsat,inparticular,hasplayedanimportantroleinusingsatellitecommunicationstechnologytobringtheworldclosertogetherculturally,economically,andpolitically.Accordingtoits1988–89annualreport,whichcommemoratedthecompany’stwenty-fifthanniversary,IntelsatwasprovidingglobalcommunicationsfromthirteensatellitesstationedovertheAtlantic,Pacific,andIndianoceansandservicingmorethan600sitesthrough800ormoreantennasmeasuringbetween3feetand100feet(1and30meters)indiameter.Usingnineofthesesatellites,itprovidedthirty-twotelevisionchannelsofcoverageofthe1988SummerOlympicsinSeoul,SouthKorea,in1988tofiftycountries.Inspiteofitsmonopolyoninternationalpublictelecommunicationsservices,ithashadtofacegrowingcompetitionfromtherapidgrowthofinternationalopticalfibercommunicationsnetworksthattelephonecompaniesbeganlayingundertheAtlantic,Pacific,andIndianoceansinthelateeighties.Ithasalsohadtofendoffcompetitionfromregionalandinternationalsatellitecompanies,includingPanAmSat,forexample,whichprovidesinternationalservicesacrosstheAtlantictotheUnitedKingdomandWestGermanyaswellasChileandPeruandAsiaSatinSoutheastAsiaandOrionSatelliteCorp.,whichprovidesNorthAmericanandEuropeancoverage.Forthesereasons,Intelsathashadtocontinuallyupgradeitsfacilities.TheIntelsatVIseries,whichbeganoperatingin1989,hasacapacityof24,000voicecircuitsandthreetelevisionchannels,andeachofthefiveIntelsatVIIseriessatellites,whichitbeganlaunchingin1992,arecapableofcarrying90,000two-wayvoicecircuits.

DIRECTBROADCASTSATELLITES:THEPROMISEANDTHEDISAPPOINTMENT

Ofallthedevelopmentsintelecommunications,nonehasbeenmorefearedbynations,nationalgovernments,andcabletelevisionandbroadcastingindustriesaroundtheworldthandirectbroadcastsatellites.SincethelaunchingoftheSputnikin1957,CanadaandcountriesinEurope,Asia,andAfricahavefeltseverelythreatenedbythefactthatdirectbroadcastsatellites(DBS)couldbeamsignalsdirectlyintohomesanddestroytheircultureandtheirculturalindustries.Andtheyfoughtvigorouslyininternationalforatoensurethatthisdidnothappen.3ItwasJapan,however,thatmadethemostprogressinthedevelopmentofaDBSsystem,atleastupuntil1990.JapanlaunchedtheBS-2directbroadcastsatellitein1984andasecond,theBS-2B,in1986afterthefirstfailed.

Bytheendof1987,itwasprovidingtwochannelsoftelevisionservicestooverhalf-a-millionhouseholdsusingforty-fivecm.(18in.)dishesmakingitthefirstcountryintheworldtoprovideaDBSserviceonacommercialbasis.JapanhasbeenusingDBSsatellitesasameansofpromotingtheuseofitshigh-definitiontelevision(HDTV)system.

EuropeangovernmentsacceleratedtheirplansforintroducingDBSservicesinthelateeighties.In1986,theBritishIndependentBroadcastingAuthority(IBA)selectedaconsortiumofBritain’sbigmediacompanies,calledtheBritishSatelliteBroadcasting(BSB),tooperateahigh-poweredDBSsystem.TheBritishBroadcastingCorporationwasamemberoftheconsortium.Itschiefrival,SkyChannel,ownedbyRupertMurdoch’sNewsInternationalandoperatingsince1982,wasdevelopingaDBSserviceusingEurope’smedium-poweredAstra1satellitesystem.In1990,afterspendinginexcessofabilliondollarscompetingwithoneanother,BSBandSkyTelevisionagreedtomergetoformBskyB.GermanylaunchedthefirstofitstwoTV-SATDBSsatellitesin1987andFrancelauncheditsTDF-1DBSsatellite,in1988.TheEuropeansatelliteconsortiumSociétéEuropéennedesSatelliteslaunchedthefirstAstraDBSsatellitein1990andasecondin1991.BothweredesignedtobroadcastdirectlytoEuropeanaudiences.Bythefallof1992,theAstrasatelliteswerebeamingtwenty-ninechannels,carryingnews,entertainment,andspecialtyprogramstoEuropeanhomes.TheyincludedEurosport,SatelliteJukebox,CNNInternational,andTVAsia.BSkyBhadbecomeoneofEurope’sleadingsatellitepayTVcompanieswith1.5millionpayingsubscribersandanestimated1millionotherswhowerereceivingthesignalsillegally.ItsmostpopularchannelswereSkyMoviesPlus,SkySports,andSkyNews.ADBSsystem,calledTele-X,isunderdevelopmentbytheNordiccommunityofSweden,Norway,andFinland.

DBSsystemsarealsounderdevelopmentinothercountries,includingChina,forexample.SatellitebroadcastinghasbeenslowtodevelopinAsiabecausemostcountriesregardthereceptionofforeignbroadcastsignalsasaformofculturalimperialismsotheyhaveerectedbarrierstokeepthemout.Malaysia,forexample,haseffectivelybannedsatellite

broadcasting.ChinapassedaproclamationinOctober1993banningthepossessionofsatellitedishes.HongKongrestrictstelevisionviewingtoCantoneselanguagebroadcastsignals.Forthesereasons,StarTelevision,thejointventurebetweenHongKong’sHutchisonWhampoaandHongKong’sMr.LiKa-shing,whichbeganbroadcastingtoAsianaudiencesin1991overtheAsiaSat1satellitesystemfailedtodevelopitstargetmarket.Itwassuccessful,however,indevelopingamarketinIndia,Taiwan,andIsraelwhichwerealsocoveredbythefootprintofthesatellite.

DBSdevelopmentsintheUnitedStateslaggedthoseinothercountries.In1982,theFCCawardedconstructionpermitstonineoftwenty-onecompaniesthathadappliedforpermissiontoprovideDBSservice.Inspiteofthis,nonewereoperationalfiveyearsoreventenyearslater.Atleasttwodevelopmentschangedthingsintheearlynineties.Onewasadvancesinsatellitetechnologywhichmadeitpossibletoreducethesizeofreceivingdishtothatofanapkin

andbringitspricetounder$1,000.Thesecondwasthedevelopmentofdigitalvideocompression(DVC)4whichmakesitpossibletoprovideasmanyas150channelsormoreoverasinglesatellite(orcabletelevision)systemanditpromisestousherinthe500channelera.

GM/HughesElectronicsalongwiththeUnitedStatesSatelliteBroadcastingConsortium,ParamountPictures,andtheDisneyChanneldeployedthesenewtechnologiestolaunchAmerica’sfirstDBSservice.OnMay17,1994,DirecTVbeganbroadcasting150channelsofprogramstoapotentialaudienceoffortymillionAmericanhomesequippedwith18-inchreceivingdishes.Fortyofthesewerecablechannelswhilefortytofiftywerepay-per-viewmoviechannels.Hugheshasestimatedthattheventurewillgenerate$1billionannuallybytheyear2000.ItisDBSsystemslikeDirecTVthatCanadianbroadcastersandcabletelevisioncompaniesaremostfearfulofbecauseoftheeffecttheycouldhaveontheirindustryinthenineties.ThisiswhytheCanadianbroadcastingandcabletelevisionindustriesrefertothemas“deathstars.”OneofthefirstbroadcasterstotakeadvantageoftheopportunitytolaunchaserviceviaDirecTV,however,wasCanada’spubliclyownedbroadcaster,theCanadianBroadcastingCorporation(CBC).

CompetitiontoDBSintheUnitedStates,however,hasbeencomingfromterrestrialcablecompanies,whicharealsousingDVCtechnologytomultiplythecapacityoftheirsystems.TimeWarner,nowoneofthebiggestmediaconglomeratesintheworld,begandelivering150channelsoftelevisioncontentto3,000subscribersintheNewYorkboroughofQueensin1992.Theservice,calledQuantum,providedseventy-fivechannelsofconventionalprogrammingwithadditionalchannelsdedicatedtodeliveringpay-per-viewmoviesbeginningeverythirtyminutes.CanadiancabletelevisioncompaniesandCanada’sdomesticsatellitecompany,TelesatCanada,areusingdigitalvideocompressiontechnologyasameanstolaunchtheirownDBSservicetoprotectthemselvesagainstU.S.deathstarsin1995.Thisisanotherexampleofthebig-stakespokergamethatcabletelevisionandDBS

companiesalongwithtelephoneandradiocommunicationscompanieshavebecomeengagedintodeterminewhowillwintherighttoprovidethehundredsofchannelsthathomeownersaroundtheworldcouldwantinthefuture.Althoughitisstilltoosoontopredict,awidelyheldviewexistsintheindustrythatDBSserviceswilldevelopbutserveahighlyspecializednichemarketfordeliveringperhapsmanytensorperhapshundredsofpay-per-viewprogrammingservicestoruralandurbanhouseholdsbythelatenineties.

SPAWNINGTHEVSATREVOLUTION

OneofthebigbreakthroughsinsatellitecommunicationsintheeightieswasaservicedevelopedforthecommercialbusinessmarketcalledVSAT,theacronymforverysmallapertureterminalsthatmeasureapproximately1.2meters(fourfeet)indiameter.Theseearthstationsaremuchsmaller,lessbulky,and,

therefore,moreportable,mobile,andlessexpensivetopurchaseandoperatethantheirpredecessors.Theyarecapableofcarryingawidevarietyofvideo,data,andvoicetrafficinanintegratedandeconomicallyefficientfashion.IBMwasoneoftheearlydevelopersofVSATtechnologywhichitusedasthebackboneofitsinteractivesatelliteeducationnetworkforprovidingavarietyoftwo-wayinteractiveaudioandfull-colorvideocommunicationsservicesintheearlyeightiesovertheSBSsatellites.HughesalongwithAT&T,GTE,andContelCommunicationsnowdominatesthecommercialVSATindustryintheUnitedStates.Businessesbeganusingtheseservicesintheeightiestoconductlivepresentationsandholdmeetingsbyteleconferencingviasatellite.

RetailershavebeenintheforefrontinusingVSATnetworksandservices.Wal-Mart,forexample,wasoneofthefirstretailerstobeginusingaVSATnetworkin1985toconnectmorethan750ofitsstoresnationwide.Today,itsnationalVSATnetworkprovidesthefoundationofalogisticalsupportsystemthatnootherretailercanmatch.5Sears,RoebuckhadalsobuiltanationwideVSATnetworkby1988whichitusedtoallowregionalofficesofitsSearsMerchandisingGrouptoholdvarioustypesofmeetingsandconferenceswithSearsHeadquartersinChicago.By1991,ithadexpandeditsnetworktoforty-threetwo-wayand850one-wayterminalswhichitusedtoholdmeetingsandconferencesandmakeproductdebuts.OneofthebiggestVSATusersintheworldisChryslerCorporationwhich,by1990,hadbuiltanetworkofmorethan6,000,two-wayKu-bandearthstationsfortransmittinglivesalesmessages,serviceupdates,technicalinformation,andpressconferencestoitsdealershipsacrosstheUnitedStates.AppleComputer,AT&T,ComputerLand,Hewlett-Packard,GeneralMotors,TandemComputers,UnitedAirlines,andOccidentalPetroleumalsobecamebigusersofsatellitetelevisioninthelateeighties.Knight-Ridder,AssociatedPress,DowJones,andtheU.S.WeatherServiceuseVSATfacilitiesforbroadcastingnews,weather,andfinancial,economic,andotherkindsofinformationtotheircustomers.TheHospitalSatelliteNetworkandtheAmericanHospitalAssociationuseVSATfacilitiestobroadcasttelevisionprogramstoa

majorityofhospitalsthroughouttheUnitedStates.AndtheAutomotiveSatelliteTelecommunicationsNetworkprovidesautomobiledealerswithcoursesandprogramsforsales,marketing,andmanagementpersonnel.VSATsarealsobeingusedtobroadcaststereomusicandaudioprogramsincludingbackgroundmusictoretaildrugandgrocerystores.

InternationalVSAT(IVSAT)serviceshavebecomeaboomingbusinessinmorerecentyearswithhundredsoffinancialinstitutions,hotelchains,andmanufacturingandretailingcompanieslikeHolidayInnWorldwide,VisaInternational,andVolkswagenAGusingthemtolinktheirglobaloperationswithoneanotherandwiththeirheadquarters.AT&T,MCI,andUnisourcearemajorsuppliersofIVSATservices.IntelsatalsoprovidesIVSATservicesthroughIBS,itsIntelsatBusinessServicespackageofservices.

Butsatellitecommunicationscompaniesarehavingtoinnovateandmovefasterandinsmarterwaystostayaheadofterrestrialcompetitorsbydeveloping

andholdingontonichemarkets.SuccessorstoVSAT,calledUSATandTSAT,forexample,allowthemtodothat.6USATistheacronymforultra-smallapertureterminalswhicharesatellitesystemsthatuseterminalswithadiameteroflessthan.5metersandcostaslittleas$450–$1,000.Thesecanservesmallbusinessesaswellashomesforbroadcastreceivingdishes,andtheyarebeginningtocompetewithcoaxialandopticalfibercables(witnessDirecTV)fordeliveringpaytelevisionanddatacommunicationstothehome.TSAT,theacronymforT-carriersmall-apertureterminalswithadiameterof2.4meters,isdesignedtocarryprivatebusinesstelecommunicationstrafficat1.544megabitspersecondandcanbeusedforvoice,data,andvideotransmission.Asdescribedbelowandinthenextchapter,suppliersaredevelopingothernewandinnovativeapplicationsofcommunicationssatellitesincludingglobalmobiletelephoneservice,electronicmail,andmessagecommunicationsaswellasnavigationandpositioningservices.

THEREVOLUTIONINCELLULARCOMMUNICATIONS

Theforcesoftechnologicalinnovation,globalcompetition,andcreativedestructionopenedasecondfrontintheeighties,catapultingavarietyofnewwireless(radio)communicationsservicestocenter-stageoftheongoingtelecommunicationsrevolution.Itbeganwiththeinaugurationofmobileradiointheseventiesandcellulartelephoneinthemid-eightiesandhassincebeenexpandedbydevelopmentsinmobilesatellite,packetradio,andavarietyofcordlessandotherpersonalcommunicationsservices.Thesepromisegreatchangeslaterinthisdecadebecausetheyhavethetechnologicalandeconomicpotentialtoprovidehomes;individuals;andcars,trucks,ships,andaircraftwithinexpensive,high-qualityvoice,facsimile,dataandimage,andevenvideocommunications.Bymakingitpossibleforpeopletokeepincontactwithoneanotherandwithcomputersanddatabanksaswellasvehiclesbyvoice,message,andmailandtoexchangeinformationwherevertheyareintheworld,developmentsinradiocommunicationsarecreatinga“mobilesociety”—asocietycontinuallyonthemoveandcontinuallyincontactwithpeople,computers,organizations,andevents

wherevertheyaretakingplaceintheworld.Theyaremakingitpossibletocreatemobileofficesandamobileworkforce.

TheprinciplesofcellularradiowereconceivedatBellTelephoneLaboratoriesin1947,butusershadtowaitoverthreedecadesuntilmicroelectronicsandcomputerswitchingtechnologiesbecameavailableintheseventiesandeightiessothatlargenumbersofsubscriberscouldenjoyitssuperiorqualityandeconomics.AT&TwasoneofthefirstcompaniestobecomeactiveinfieldtrialstotestthetechnicalandeconomicfeasibilityofthenewservicebeginninginChicagoin1977.Respondingtogrowingnumbersofapplicationsanduserdemandsinthelateseventies,theFCCdevelopedoperatingrulesforthenewindustryin1981.Toensurethatmarketforceswouldpredominate,theFCCdecidedtoissuelicensestotwooperatorsineachterritory—onetothelocal

telephonecompanyandonetoacompetitor.Developmentshavetakenplacesorapidlysincethenthatfewplayershavebeenabletokeepupwiththeexplodingdemandforserviceswhichhasbeenfueledby,amongotherfactors,therapidlydecliningcostsofhandsets.Growthwassorapidinsomeofthebigurbancentersinthelateeightiesandearlyninetiesthattheirsystemsbecamesaturatedwithinmonthsofmakinghugeinvestmentsinplantandequipmenttoincreasetheircapacities.

By1989,thenumberofcellularsubscribersintheUnitedStateshadtopped3.4millionandwasgrowingbetween30–40percentannually.Bythen,themajorplayerswereattemptingtobuildnationwidenetworksthroughmergersandacquisitions.McCawCellularwastheundisputedleaderintheacquisitionsgame.Havingbuiltupasubstantialpresenceinsmallurbanareas,McCawCellularsucceededinpurchasingLinBroadcastinginlate1989for$7billion.LinBroadcastinghadfranchisesinfiveofthetoptencitiesoftheUnitedStates,includingNewYork,LosAngeles,andDallas.ThisacquisitionputMcCawontheroadtobecomingthelargestsupplierofcellularservices.Thecellularindustrycontinuedtochalkuprecordgrowthratesreachingrevenuesof$10billionin1992.Bythen,ithadbeguntotakeonstrategicimportancefortheentiretelecommunicationsindustry,notonlybecauseofrapidgrowthofdemandforvoiceservice,butbecauseitrepresentsaneasyandrelativelyinexpensivemeansofcompletelybypassingthenetworksofthelocaltelephonecompanies.Italsobecameattractivetointerexchangecarriersbecauseitofferedthemameanstoavoidpayingaccesschargestothelocaltelephonecompanies.

BothSprintandAT&TmadestrategicmovesintheU.S.cellularindustryin1992.Inthatyear,Sprintpaid$2.5billionforCentel,oneofthebiggestcompaniesintheindustry.InNovember,AT&Tannouncedthepurchaseofa33percentstakeinMcCawfor$3.8billion.Ayearlater,inAugust1993,AT&TandMcCawcametoanhistoricagreementwherebyAT&TwouldpurchaseallofthesharesofMcCawfor$12.6billion,thusmakingitthelargestcellularoperatorintheUnitedStates.TheacquisitionisperceivedbymanytobestrategictothefutureofAT&TaswellasMcCawandthetelephoneandcellularindustries.ForAT&T,the

acquisitionoffersaquickandinexpensivewaytogetbackintothelocaltelephonebusinesswithoutviolatingtheprovisionsoftheMFJ.ButMcCawwillalsoplayakeyroleinAT&T’sstrategicplantoprovideanykindofcommunicationsservices“anywhereandanytime.”Likeotherplayers,AT&Tseesamassivemigrationfromwiretowirelesscommunicationsinthisdecade,anditwantstoplayaleadingrole.

Cellularcarriershavebeenswitchingtodigitaltechnologyasquicklyaspossibletomeettheexplosivegrowthindemandandforotherstrategicreasons.Digitalcellularisattractivebecauseitpromisestolowertheinvestmentcostpersubscriberanddecreasethecostofmakingacall.Italsomakescommunicationsmoresecureandenablesprivateandenablecarrierstoprovidemuchbetterqualityandmorereliableservices.Finally,digitaltechnologyenablessupplierstoprovidenewservicessuchasdatabaseaccess,facsimile,andelectronicmail

aswellasothervoiceandnonvoicecommunicationsserviceswherethegrowthindemandisexpectedtobeespeciallyrapidinthenineties.Thebiggestproblemwithdigitalcellularisthattherearetwocompetingstandards.Thefirstandmostwidelyused,TDMA(time-divisionmultipleaccess),increasescapacitiesbyafactorofthreetoseven.Thecompetingtechnology,calledcodedivisionmultipleaccess(CDMA),canmultiplythecapacitiesbyafactorofuptotwenty.AlthoughitismoreexpensivetoinstallthanTDMA,CDMA’shighercapacitieshasbeenattractingmoreandmoreoperatorsintheUnitedStatesandAsia.

RegionalandnationalcellularoperatorsinNorthAmericaarealsocollaboratingandlinkingupattheinternationalleveltocreatea“seamless”nationwideandcontinentwidecellularnetwork.InFebruary1992,McCawandSouthwesternBellannouncedapartnershipcalledCellularOnetocreatea“seamless’’nationalcellularnetwork.InFebruary1993,fifteenU.S.andCanadianwire-linecarrierswithcellularfranchises,includingsixofthesevenregionalholdingcompanies,announcedthattheywerebandingtogethertocreateaNorthAmericanbrandandserviceidentitycalledMobiLink,withtheobjectiveofproviding“seamless”cellularroamingonanationwideandNorthAmerica-widebasis.FurtherintegrationoftheNorthAmericanmarketincludingMexicoaswellaspossiblySouthAmericanmarketscanbeexpectedinthemonthsandtheyearsahead.

CREATINGAPERSONALCOMMUNICATIONSREVOLUTION

Cellulartelephonehasbeengenerallyperceivedasabusinessserviceratherthanaserviceforindividualorpersonaluse,primarilybecauseofitsexpense.Otherkindsofwirelessradiocommunicationsservicesforhomeusearecurrentlyunderdevelopment.Theseincludecordlesstelephonesandpersonalcommunicationssystems(PCS),whichmanybelievearesuperiortocellulartelephoneinthelongrunintermsoftechnologyandeconomics.PCSsystemsusesmallercellsizes,typicallycoveringseveralblocks,operateatmuchhigherfrequencies,uselower

powerreceivers,andarelessexpensivetousethantheservicesofferedbythecellulartelephonecompanies.Theyalsohavegreatertrafficcapacitiesthancellularnetworksandaresubjecttolesscongestion.PCSservicesareexpectedtoeventuallycompeteonacostbasiswithordinarywire-basedtelephoneservice.Forthesereasons,telephone,cabletelevisionaswellasothercompaniesincludingmanufacturingconcernshavebeenpositioningthemselvesforwhatmanybelievewillbeamassmarketinthelatenineties.ThemostseriousproblemwithPCS,however,hasbeentheavailabilityofsufficientspectrumbutthishasnotprohibiteddevelopmentsfromtakingplaceatabreath-takingpacearoundtheworld.Butnationalandinternationalbodiesaretakingstepstoresolvethespectrumproblem.

In1992,membersoftheITU’sWorldAdministrativeRadioConference(WARC)votedtoallocatefrequenciesinthe1.7to1.9gigahertzbandforthe

provisionofPCSservices.TheFCChasgivenPCSaveryhighpriorityonitsnationalindustrialcompetitiveagenda.InJanuary1993,itallocatedthe2-GHzbandfor“emerging”wirelesstechnologies,includingPCS.InSeptember1993,itannounceditwouldsetaside160MHzofspectrumspecificallyforPCS.7Thiswillmakeitpossibletoaccommodateuptosevencompetitorsineachregion.Bylate1993,over200companieshadbeengrantedexperimentalPCSlicenses.Telephonecompaniesandmostofthebigcabletelevisioncompanies,includingTimeWarner,CoxCablevision,TCI,andComcastarewellrepresentedinthesefieldtrials.ThescrambleisalreadyunderwaytobuildnationwidePCSnetworks.In1994,BellAtlantic,forexample,announcedtheformationofaconsortiumtobuildanationwidePCSnetwork.

THEGLOBALCELLULARANDPCSSCENE

Therevolutioninwirelesscommunicationshasbecomeaglobalphenomenonwithindustrialized,newlyindustrializing,anddevelopingcountriesimplementingorplanningtoimplementcellularand/orPCSservices.TheEuropeanCommissionhasestablisheditspan-Europeancellularradioprogram(GSM)asthecenterpieceofitsplanstoharmonizetheradiocommunicationsactivitiesamongitsmemberstatesbydevelopingasingledigitalmobiletelephonenetworkforthewholeofEurope.Anequallyimportantobjectiveistore-establishEuropeancommunicationscompaniesasworld-classmanufacturers.TheEuropeanGSMsystemisoneofthemosttechnicallyadvancedintheworldintermsofitscapacity,speed,efficiency,andthescopeofservicesthatitcanprovide.EvennonmemberScandinavian,EasternEuropean,andsomeAsiancountriesareadoptingtheGSMstandard.

InBritain,theDepartmentofTradeandIndustry(DTI)hasbeenoneofthemostproactivepromotersofwirelesscommunicationstechnology,primarilyasameansofbuildinglocalandnationwidenetworksthatwillcompetewiththoseofMercuryandBritishTelecom.LiketheUnitedStates,Britainissuedcellularlicensestotwocompaniesineachservicearea—onetoCellnet,inwhichBritishTelecomhasa60percentstake

andtheothertoVodafone.Vodafonenowofferscellularservicesnationwide,anditisactiveinoveradozencellulardevelopmentsthroughouttheworld.Britain’sDepartmentofIndustryalsoissuedlicensestothreecompaniesin1990todevelopandoperatepersonalcommunicationsnetworks.MercuryPersonalCommunications,ajointventurebetweenCable&WirelessandUSWestCommunicationsbecame,inSeptember1993,thefirsttoofferacommercialPCSservice.Inearly1993,theDepartmentofIndustryissuedradiolicensestothreecompaniesincludingVodafoneandIonicatooperateradio-basedtelephoneservicesonanationalbasis.Ionicaexpectstobeinbusinessinearly1995.Allareexpectedtocompletelybypassthelocalwirelinenetworksoftelephonecompaniesbutinterconnectwiththeirswitches.MercuryPersonalCommunicationsalsoplanstoreachanationwidepenetrationof90percentbytheendofthedecade.OthercountriesinEuropearealsoactively

promotingthedevelopmentofPCSservices.Germany,forexample,inauguratedaPCSserviceinlate1993operatedbyBellSouth,Vodafone,Veba,andThyssen.

CountriesinEasternEurope—inRussia,Hungary,andPoland,forexample—inSoutheastAsia,inHongKong,China,SouthKorea,Singapore,andinMexicoandSouthAmericaarebuildingorplanningtobuildandoperatecellularandPCSnetworksasamatterofhighnationalpriority.Buttheyaregoingaboutitinaradicallydifferentmannerthaninthepast.Togainaccesstothetechnologyandpromoteforeigninvestment,mosthaveadoptedapolicyofissuinglicensestoforeigncarriers.EuropeanandAmericancarriers,especiallyregionalholdingcompanies,areamongthebiggestwinnersinthisbigsell-offoflicenses.PacTel,thewirelesssubsidiaryofPacificTelesis,isinpartnershipwithcellularoperationsinGermany,Portugal,Japan,Sweden,andBelgium.BellAtlanticowns42percentofIsacell,Mexico’ssecondlargestcellularcompany.InHungary,WestelRadiotelefon,ajointventurebetweenUSWestCommunicationsandMatav,thestate-ownedHungarianPTT,isexpectedtohaveanationwidecellularnetworkinoperationbytheendof1994.SomeofthemostrapiddevelopmentsareinMexico,China,India,andotherdevelopingcountrieswhereradiotechnologyholdsthepromiseoflaunchingthemintothetwenty-firstcenturyevenbeforeitarrives.

THEMOBILEDATA,MESSAGING,ANDPAGINGCOMMUNICATIONSREVOLUTION

Therapiddevelopmentofwirelesstechnologyalongwiththespreadofpersonallaptopcomputerswithwirelesscommunicationscapabilitiesisalsospawningamobiledatacommunicationsrevolution,andmanufacturersandcellulartelephonecompaniesaregearinguptocatertoamobiledatacommunicationsmarketboomwhich,bysomeestimates,couldreachbetween$8to10billionbytheendofthedecade.Mobiledatacommunicationsservicesappealtocompanieswithlargesalesforcesorfieldservicetechniciansorotherkindsofoperations,suchasairlines,realtors,banks,couriers,andwholesalersandretailersin

additiontoinsuranceclaimsadjustersandtravelingexecutives,forexample,whoarealwaysonthemovebutneedinstantaneousaccesstoinformationand,therefore,databases.Personalcomputerswithwirelesscommunicationscapabilitiesofferanaturalsolutionforcompaniesandevenindividualswiththeseproblems.

FederalExpresswasoneofthefirstcompaniestoexploitthepotentialofwirelessdatacommunicationsforprivatepurposes.In1977,itbuiltawirelessnetworktotieallofitsoffices,planes,andcourierstoitscomputersinMemphissoitcouldcaptureinformationoneverypackageandtraceitfromthetimeitwaspickeduptothetimeofitsdelivery.Thetechnologywascriticaltoenablingthecompanytoguaranteenext-daydeliveryaroundtheworld.Itwasonlyamatteroftimebeforeothersuppliersbeganofferingamobiledatacommuni-

cationsserviceonacommercialbasis.RamMobile,ajointventurebetweenRamBroadcastingInc.andL.M.Ericsson,wasoneofthefirstcompaniestodosoin1989.InJanuary1990,IBMandMotorolaannouncedajointventuretoprovidecommercialmobiledatacommunicationsservicesnationwide.Theservice,calledtheAdvancedRadioDataInformationService,orArdis,combinedIBM’sprivatepacketradiodatacommunicationssystemandMotorola’sinternationalshared-useradionetwork.Theserviceallowsuserstoenterorders,querydatabases,andtransmitmessagesviatheArdisnetworkthroughtwo-way,wireless,handhelddataterminals.Inthefallof1992,RamMobileannouncedanationalwirelesscommercialelectronicmailserviceoveritsnationwidepacketradionetwork.Bylate1993,theservicewasavailableinover6,000citiesandtowns.Ardisbecameavailablein8,000citiesinfiftystatesin1994.

AllofthemajormobileradiocompanieshavebeengearinguptocatertotheboomingmarketformobiledatacommunicationsserviceswhichmanyexpectwillbecreatedbythewidespreaduseofpersonalcomputersandcommunicationsdevicessuchasthoseproducedbyApple,IBMandothersinthelatterpartofthenineties.McCawplanstohaveitspacketdatacommunicationsserviceavailablein100citiesbytheendof1994.MotorolahasopenedupitsArdisnetworktocellularvendors,andIBMandeightcellularcarriersarecollaboratingtodevelopacommonstandardfortransmittingdataovercellularnetworks.Notwantingtobeleftbehind,BellSouthpurchased49.9percentofRamMobilein1992.Packet-switchedcellularnetworksarealsounderdevelopmentinBritain(Cognito),Japan(CityMedia),France(TelecomMobileData),andGermany(TelecomDatex-P).Withinafewyears,datacommunicationsuserswillbeabletoroamanywhereinNorthAmericaandEuropeandeventuallyaroundtheworldwithouthavingtoworryaboutwheretheyare.

THEMOBILESATELLITEREVOLUTIONCOMPLEMENTSTHELANDMOBILECOMMUNICATIONSREVOLUTION

Developmentsinmobilesatellitetechnologyareaddingconsiderablemomentumtothetelecommunicationsrevolutionthatisunderway,reflectingthefactthatsatelliteshaveabasicnaturaladvantageoverterrestrialsystemsespeciallyforglobal,mobilecommunicationsserviceapplications.Inotherrespects,theyarebothcomplementingandcompetingwiththeterrestrialcellulartelephoneandthePCSrevolution.Satellitesystemsthatprovidecommunicationsservicesforshipsatsea(so-calledMaritimeMobileSatelliteServicesorMMSS),foraircraft(AeronauticalMobileSatelliteServicesorAMSS)aswellasfortrucksandcarsontheground(LandMobileSatelliteServicesorLMSS)havebeenunderdevelopmentforanumberofyears,andvoice,data,message,facsimile,andevenvideocommunicationscannowbedeliveredviasatellitetoallthreeusergroups.Becauseoftheirattractiveeconomics,flexibility,andeaseofuse,especiallyinahighlydynamicmobileenvironmentwherepeople,vehicles,and

machinesarealwaysonthemove,satellitetechnologyandsatelliteservicesaredrivingmanyoftherecentdevelopmentsinmobilecommunications.

MobilesatellitecommunicationshaditsbeginningsintheWARCConferenceof1971whenfrequencieswereallocatedformobilesatelliteservices.In1973,theInternationalMaritimeOrganization,aspecialagencyoftheUnitedNations,beganhostingaseriesofconferencestodiscussthecreationofaninternationalmobilesatellitesystem.In1976,delegatesfromfortycountriesagreedtoestablishaninternationalbodytomanagecommercialmaritimecommunicationsviasatellite.In1979,membercountriessignedanagreementestablishingtheInternationalMaritimeSatelliteOrganization(Inmarsat)toprovideinternational,two-waymobiletelecommunicationsservices.Inmarsatbeganprovidingmobilecommunicationsservicesin1982tocommercialandprivatevesselsovertheAtlantic,Pacific,andIndianoceansusingtranspondersleasedfromComsatGeneral’sMarisatsatellites,launchedin1976.By1989InmarsatwasprovidingmaritimesatellitecommunicationsservicesusingIntelsatV,ESA’sMarecsandComsatGeneral’sMarisatsatellitesto9,000mostlysea-baseduserssuchasshipsandrigsatsea.By1990,thecompanywasprovidingservicetoanyshipatseaalmosteverywhereintheworldaslongasithadaregisteredidentificationnumber.

Mobilesatelliteservicesbeganbecomingavailabletoaeronauticalusersinthelateeightieswhenseveralconsortiabeganfield-testingsatellitecommunicationsservicesbetweenaircraftandgroundlocationsusingInmarsatsatellites.BritishAirwaysbeganacommercialtrialofasatellite-basedtelephoneservicecalledSkyphoneinFebruary1989whichenabledpassengerstomakedirect-dialtelephonecallstoalmostanywhereintheworldfor$9.50perminute.In1989,aconsortiumconsistingofSITA,theinternationalcooperativeof355airlines,andTeleglobeCanada,FranceTelecom,andAustralia’sOTC,agreedtoinvest$60milliontodevelopanaeronauticalmobilesatelliteserviceforcommercialoperationin1990.Today,airlinepassengerscanphoneanywhereintheworldfromanaircraftsolongastheyhadacreditcardusingtheservicesofSkyphone,GTEAirfone,SITA,orComsat

Corporation,forexample,andtheycancommunicateviatheirlaptopcomputerswithterrestrialdatabasesandelectronicmailnetworksaroundtheworld.Pilotsandairtrafficcontrollerscancommunicatewithoneanotherbetterthroughmobilesatellitecommunications,andbetterinformationcanbeprovided,forexample,ontheprecisepositionsofaircraft,thusimprovingthesafetyofairtravel.And,throughHughesCommunications’WorldLink,theworld’sfirstcabletelevisionsysteminthesky,launchedin1993,theycanaccessawholerangeofentertainment,shopping,leisure,communications,andtouristinformationservices.

LandMobileSatelliteServicesarealsounderrapiddevelopmenttoprovidemobilecommunicationsservicesonacontinentwidebasis,notonlyforurbanareasbutforruralandremoteareasaswell.In1985,twelvecompaniesappliedtotheFCCtoconstructnationwidemobilesatellitesystemsforvoiceservices.In1987,theFCCconcludedthatasinglesystemwouldbestservethepublic

interest.In1988,agroupofsevencompanies,includingHughesCommunications,McCawSpaceTechnologies,MobileSatelliteCorporation,SkylinkCorporation,andTransitCommunications,formedtheAmericanMobileSatelliteConsortium(AMSC)toprovidelandmobileandaeronauticalandmaritimemobilecommunicationsservicesthroughoutNorthAmericaandincooperationwithTelesatMobileInternational(TMI)ontheCanadianside.By1996theAMSC-TMIpartnershopetoprovidebusinesses,vehicles,andindividualsthroughoutNorthAmericawithtwo-waymobilevoice,data,andmessagecommunicationsservicesthatweresopopularintheDickTracycomicstripinthesixties.

Anumberofinternationalconsortiaarealsobettingbillionstodesignandoperateanewgenerationofcommunicationssatellitesinlowearthorbit(calledLEOSATs)tosupplymobiletelephoneservicesforpersonalusesonaglobalbasis.InJune1990,Motorolaannouncedplanstoinvestupto$2.2billiontodevelopa“seamlessworldwidetelephonesystem”bytheendofthedecade.Thesystem,calledIridium,willinvolveasmanyassixty-sixlow-orbitsatellitesdesignedtoextendcellularservicetoremoteU.S.andoverseaslocations.Thesatellitesareexpectedtoworktogetherasadigitallyswitchedcommunicationssysteminspacetorelayvoice,data,facsimile,andpagingsignalsanywhereintheworld.Iridiumisexpectedtobecomeoperationalin1998.BecausetheproposedsystemcouldbypassthenetworksofthePTTs,Motorolahadtomakeconcessionstomanygovernmentstogetthefrequenciesitwanted.Itpassedamajorhurdlein1992whenmembersofWARCvotedtoallocatethespectrumitaskedfortotransmitsignalsonthesamefrequenciesworldwide.OtherconsortiahavebeenformedtocompetewithIridium.LoralandQualcomm,forexample,haveproposedasystemofforty-eightsatellitescalledGlobestarfora1997launch.TRWhasproposedatwelve-satelliteglobalsystemcalledOdysseyfor1997.Atleastsevenotherglobalsystems,includingEllipso,Aries,Orbcomm,andLEOSAT,arealsointheplanningstages.Aneighth,Teledesic,backedbybothWilliamGatesandCraigMcCaw,planstoinvest$9billioninsophisticatedstarwarstechnologytocreateawebof840satellitesthat

willprovideglobalvoice,video,andmultimediaservices.Almostallofsystemsaredesignedtoprovidecommunicationsanywhereintheworld.

Inmarsathasbeenexpandingitsmobilesatelliteservicestoprovideimprovedservicesforitsmaritimecustomersaswellasforaeronauticalandland-baseduserstofendoffgrowingcompetitionfromotherglobalandregionalmobilesatellitecommunicationssystems.InOctober1990,itlaunchedthefirstofanewgenerationofsatellites(InmarsatII)andasecondinMarch1991whicharecapableofprovidingtelephone,telex,electronicmail,facsimile,anddataservicesforships,aircraft,andlandmobileusers.Oneoftheseprovidesatelephonygroupcallforsimultaneousfacsimiletransmissiontogroupsofshipstoinformthemofmattersofcommoninterest,suchasweatherchartsandnews-letters.Inmarsathasalsodevelopedatwelve-inchdiameterportableterminalwiththecapabilityofprovidingtwo-waydatamessagingandemergency-alertservices.Itisalsoattemptingtopre-emptcompetitionfromIridiumbybuilding

itsownglobalsatellitecommunicationssystem.Inthefallof1992,Inmarsatannouncedplanstoinvestbetween$1.5and$2.5billiontobuildaninternationalsatellitesystemtoenableconsumersaroundtheworldincludingthoseinremoteareastocommunicatewithoneanotherthroughhandheldterminals.

GLOBALRADIOPOSITIONINGANDNAVIGATIONSATELLITESERVICES

Mobilesatellitecommunicationscompanieshavealsobeendevelopingnewkindsofservicesfornavigation,positiondetermination,andlocationpurposesforland,maritime,andaeronauticaluses.Suchservices,calledradiodeterminationsatelliteservices(RDSS)areusedfortrackingthemovementoftrucks,trains,ships,andairplanesaswellasprovidingcommunicationstoandfromtheirheadquarters.Truckingcompanies,forexample,canusetheseservicestoreducerepairandmaintenancetime,cutcosts,andincreasetheefficiencyoftheirfleetmanagementoperations.CompaniescanalsouseRDSSforsafetyandsecuritypurposes.GeostarCorporation,formedin1982,wasoneofthefirstcompaniestooperateamobilesatellitecommunicationssystem.By1988,itwasprovidingservicesforradiolocation,positiondetermination,andnavigationaswellasforcollisionavoidance,voicemessaging,anddatabaseaccess.InNovember1989,itannouncedRDSScapabilitiesaboardGTESpacenetCorporation’sGSTARIIIsatellite,allowingcompaniestoautomaticallytrackandreportlocationsoftrucks,trains,ships,andairplanesanywhereintheWesternHemisphere,fromtheArcticCircletothemiddleofSouthAmerica.Anothercompany,Omninet,beganprovidingRDSSservicesinMay1988.Athird,calledQualcomm,wasprovidingmobilesatelliteservicesin1989toitscustomersthrough5,000Ku-bandantennas,aboutelevenincheswideandfourincheshighatacostofabout$4,000each.InmarsatbeganofferingRDSSservicesoveritsInmarsatsatellitein1990.

ThemotherofallRDSSsystems,however,istheGlobalPositioningSystem(GPS)orNavstar,asystemoftwentyfoursatellitesdevelopedby

theU.S.DepartmentofDefense,whichprovides24-hour,all-weathercoverage.8Signalsfromthesatellitesaresufficienttopinpointthepositionofthereceiverwithinsixteenmeters.Byaddingotherinformationfromastationaryreceiver,accuraciestocentimeterscanbeachieved.GPSproveditselfinthePersianGulfWarinJanuary1991whensoldierswereabletoaccuratelydeterminetheirpositionatalltimes.Sinceusersdonotneedcostlyandspecializednavigationsystems,thebenefitsofGPScanbequitesubstantial.Thenumberandvarietyofcivilianuserorganizationsispotentiallyunlimited.Truckingcompaniescanusethemtodispatchtheirfleetsfasterandmoreefficiently.Airportpersonnelandpilotscanusetheinformationformoreaccuratepositioningofaircraftandforautomatedlandingsinbadweatherconditions.Otherimportantusesincludeprecisesurveying,geologicalstudies,andsynchronizingglobaldigitalcommunications.

TheEasternBlock’sGlobalNavigationSatelliteSystem(GLONASS)alsoprovidesGPSservices.IridiumandLoral-Qualcomm’sGlobalstarsystemarealsoplanningtoofferpositioningserviceswhentheirsystemsbecomeoperationallaterinthenineties.TheEuropeanSpaceAgency(ESA)istestingamobiledatacommunicationssatellitesystemcalledProdatonitsMarecssatellite,andFrance’snationalspaceagencyCentreNationald’étudesspatiales(CNES)hasestablishedacompanycalledLocstartodevelopaEuropeanradiodeterminationsatellitesystem.

GPSdevicesbeganappearingasmass-marketconsumeritemsasearlyas1992,theyearthatSonyCorporationintroducedthePyxisGPSsystem,pricedat$1,195.MotorolaintroducedtheTraxiratapriceof$1,295inthesameyear.Thesedevicescanbeconnectedtolaptopcomputersenablinguserstowatchtheprogressonamapwhichscrollsonthescreen.Panasonic’shandheldKX-G5500canusetheinformationtocalculatethedistancefromanotherpositionaswellasthenecessarybearingandspeedtogetthere.InJanuary1994,SonyandGeneralMotorsannouncednavigationsystemsforinstallationinautomobiles.AllofthebigautomobilecompaniesplantoofferGPSsystemsasoptionsontheircarsinthefuture.

OPTICALFIBERCOMMUNICATIONS:SUPERSONICTRANSPORTSYSTEMSOFTHETWENTY-FIRSTCENTURY’SINTELLIGENTSOCIETY

Anotherkindoftelecommunicationsrevolutionhasbeenunderwaysincetheearlyeightiesasaresultofdevelopmentsinopticalfibertechnology,anditiscomplementingandcompetingwiththerevolutionsinMSAT,VSAT,DBS,andcellulartelephoneandPCSservices.Opticalfibersarethenewspace-agetransmissionsystemsthatcompaniesareusingtowireupofficesandfactorieseverywhereandcreateanewopticalnetworkworkenvironment.Theyarepenetratingbuildingsandcoreurbanareasandentirecountriesandcontinentsandarewellontheirwaytowiringuptheentireworldcommunity.Overthenextdecadeandbeyond,opticalfibertechnologypromisestocompletelyoverhaulthe

world’scentury-oldtelephonesystemaswellascabletelevisionsystems.Itwillbringsuchtwenty-firstcenturyservicesashigh-definitiontelevision,interactivetelevision,video-on-demandservices,videoteleconferencing,andtele-banking,teleshopping,tele-education,andteleworkingservicesintothelivingroomsinhomesofmostnations,eventhoughitcouldcosthundredsofbillionsofdollars.

Opticalfibersfirstbecamedeployedbytelephonecompaniesintheirhigh-densitylong-distancenationalandinternationalnetworksaswellasbybusinessesintheirlocalareanetworksforwiringupbuildingsfordata,voice,andvideocommunications.Atthesametime,theyopenedupwindowsofopportunityfornewcompaniestoentertherapidlygrowingandhighlylucrativelocalandlong-distancetelecommunicationsbusinessinspiteoftheformidablepres-

enceofestablishedtelephonecompaniesandlong-distanceandinternationalcarriers.IntheUnitedStates,Japan,andBritain,dozensofcompaniesbeganinstallingopticalfibernetworksintheeightiesalonganykindofright-of-waytheycouldfindwithinandbetweenmajorcities—alongrailwaysandhighwaysandalongoreveninsideabandonedoilorgaspipelines.Railway,hydroelectric,andoilandgaspipelinecompaniesalsogotintotheactsincetheyhadreadyaccesstothenecessarylocal,regional,andnationalrights-of-way.Anumberofcompaniesalsobeganusingopticalfiberstowireupsomeofthebiggestmetropolitanareasintheworldtoservetheprivatenetworkingneedsofbigcorporations.Today,opticalfibershavebecomeoneofseveralkeystrategictechnologiesfortelephoneandcabletelevisioncompaniesintheirracetocreateanddominatethebroadbandmultimediainfrastructureofthetwenty-firstcentury.

BUILDINGNATIONWIDEOPTICALNETWORKS

AT&Tsuccessfullyfield-testedopticalfibersatspeedsof44.7megabitspersecondinAtlantain1976,andtestsweresubsequentlycarriedoutbyGTEandITT.OneofthefirstopticalfiberlinkswaslaidbetweenNewYorkandWashington,D.C.,soonafterAT&TandeightBelloperatingcompaniesreceivedFCCapprovalin1981.InNovember1984,AT&Tannouncedplanstobuilda10,000-mile(1.7billioncircuitmile)nationwideopticalfibernetwork.Sprintcompleteda23,000-milenationwideopticalfibernetworkin1986.By1988,bothAT&TandMCIhadcompletedtheirnationwideinstallations.UnitedTelecommunicationsalsobuilta23,000-mile(1.2billioncircuitmile)nationalnetwork.Railwaycompanies,takingadvantageoftheirvaluableregionalandnationalrights-of-way,alsojoinedin.Fibertrak,ajointventurebetweenNorfolkSouthernCorporationandSantaFeSouthernPacific,builtan8,000-mile(2.4billioncircuitmile)networkoverSouthernPacific’srailrights-of-way.Othernationalopticalfibernetworksalongwithregionalnetworkswerealsoconstructed.SouthernNewEnglandTelephoneCompanyandCSXCorporationformedajointventurecalledLightnetwhichbuiltanational5,000-milenetwork.Regionalopticalfibernetworkswerealsobuiltby

WilliamsTelecommunications,Southernet,Litel,Microtel,andConsolidatedNetworkwhichformedanationalconsortiumcalledtheNationalTelecommunicationsNetwork.By1989,however,theindustrywasbesetbyenormousovercapacityandapricewarensuedcausingpricesoflong-distancetelecommunicationsservicestoplummet.Mergersandconsolidationsintheindustryfollowed.

NationwideopticalfibernetworksweredeployedthroughouttheeightiesasahighnationalpriorityinCanada,Japan,France,Germany,andtheUnitedKingdomandthroughoutAsiancountries.InJapan,companieslikeJapanTelecomCompanyandTelewayJapanCorporationbuiltnationwideopticalfibernetworksincompetitionwithNTT.InCanada,Stentor,theorganizationthatrepresentsCanada’smajortelephonecompanies,completedoneofthelongest

fiberopticinstallationsintheworld,inMarch1990.The7,000-kilometernetwork,whichextendedfromtheAtlantictoPacificoceanatacostof$750million,crossedpeatbogsincentralCanada,cutthroughthesolidrocksandswampsoftheCanadianshield,windedupanddownthreemountainrangesbetweenAlbertaandBritishColumbia,andcrossedriversandstreamsintheRockiesover200times.Unitel,Stentor’scompetitor,completeditscoast-to-coastopticalfibernetworkinthesameyear.InJune,1993,Stentorcompletedasecond6,500-kilometercoast-to-coastopticalfiberanddigitalmicrowavelink.

OneofthemostambitiousnationalopticalfiberprogramswasannouncedbyNTT,Japan’snationalcarrier,in1990.Inthatyear,itrevealedplanstoinvest$250billiontolinkallpartsofthecountrywithopticalfiberstocreateanationwidebroadbandinfrastructurebytheyear2015.TheEuropeanCommunityisalsoinvestingheavilyinopticalfibernetworksonacontinentalbasis,andcountriesthroughoutAsia,especiallySingapore,HongKong,Malaysia,andThailand,arecarryingoutambitiousplanstobuildopticalfibersnationwide.

TIS,T3S,OSIS,ANDOS24S:SUPERSONICTRANSPORTSYSTEMSOFTHEINFORMATIONAGE

OpticalfibersspawnedthebusinesscommunicationsrevolutionintheeightiesbymakingitpossibleforFortune500companiestoleaseorowntheinformation-ageequivalentofatwo-,four-,orevenaneight-lanesuperhighwayoverwhichtheycanmixandtransmitvoice,data,andvideocommunications.Thebasicunitofthesedigitaltransmissionsystems,calledaT-CarrierT1,wasintroducedintotheintercitynetworkbyAT&Tbackin1962.Theseoperateataspeedof1.544megabitspersecond(Mbps)andhaveacapacityoftwenty-four,64kilobitsperseconddigitalvoicecircuits.Twenty-eightT1channelscanbemultiplexedintoahighercapacityT3channelwhichoperatesataspeedof45Mbpsandhasthecapacityofonefullbroadcastqualitytelevisionchannel.Butthesearebecomingobsoletebecauseopticalfiberscancarrymuchmoretrafficatmuchhigherspeeds.Thenewstandardforopticalfibersis

calledSONET,theacronymforsynchronousopticalnetwork.SONETspeedsbeginat51.84Mbps(calledOC-1)andproceedinequalincrementstoOC-12(622.08Mbps)andOC-48(2.49gigabitspersecondofGbps),andsoon.Theseare3,000timesfasterandhave30,000timesthecapacityoftheirpredecessors.SupplierslikeAT&TandNorthernTelecomadvertisetheirfiberproductsashaving“self-healing”capabilities,thatis,theyarecapableofrestoringthemselvesinmillisecondsthusmakingthemsecureandinvulnerabletopowerfailuresorotherproblems.

Opticalfibersarenowbringinghigh-speed,high-capacitydigitaltransmissionsystemswithintherangeofaffordabilityofanincreasingnumberofcompanies.GeneralMotors,GeneralElectric,AmericanExpress,andCiticorp,forexample,andpublicutilities,universities,andgovernmentsatalllevelsoftenhavesufficientlylargevolumesofinformationandcommunicationstraffictojustifyleasingT3andSONETfacilitieseitherlocally,nationally,orinternationally.And

moreandmoreFortunecompanieshavebeen,orwillbe,turningtosystemssuchasthesetosatisfytheirgrowingcommunicationsnetworkrequirementsinthenineties.

TELEPORTS,METROPOLITANAREANETWORKS,ANDTHEWIREDCITY

BigurbancentersintheUnitedStatesandaroundtheworldalsoborethebruntoftheopticalfiberrevolutionintheeightiesasanewclassoftelecommunicationssupplier,calledcompetitiveaccessproviders(CAPs),beganinstallinghigh-capacitydigital,opticalfibernetworksinthecoreareastointerconnectlargecompaniessuchasbanksandfinancialservicecompanieswithlong-distancecarriersortiethelocalofficesoflong-distancecarriersintotheirnationalnetworks.9Theseso-calledmetropolitanareanetworks(MANs)werecreatedbylayingcablesundercitystreetsorstringingthemovertelephoneandelectricutilitypolesorthroughsubways,coaltunnels,andalongrailwayandhighwayrights-of-way.CAPoperatorstypicallyprovidevoicegradelinesandhigh-speeddigitalT1,T3,andSONETfacilities,oftenatareductionoverthoseofferedbythetelephonecompanies.Mostofferlittleornovalue-addedorprotocolconversionservices.Long-distancecompaniesandlargefinancialservicecompaniesbecamebigusersofmetropolitanareanetworksintheeightieswhichtheyusedtotietheirlocalofficestogetherandconnecttonationalandinternationalcarriers.

Metropolitanareanetworksbecamesynonymouswiththeinternationalindustrialcompetitivenessofmanybigcityadministrationsaroundtheworldintheeighties.ThefirstMANoperatorwasTeleportCommunicationsInc.,whichwasformedin1983asajointventurebetweenMerrillLynch,WesternUnion,andtheNewYorkPortAuthority.CityauthoritiesinNewYork,SanFrancisco,LosAngeles,Chicago,Amsterdam,Tokyo,andLondon,forexample,andeventhoseinsomenewlyindustrializingcountriesjumpedontothebandwagon,andtheytoobeganinstallingopticalfibernetworksatafranticpacefortheirbiggesttelecommunicationsusersandinterconnectingandintegratingthesewith

othernationalandglobalcitycentersbynationalandinternationalsatellite,microwave,andopticalfiberfacilities.Fromthem,accesstothemostadvancedtelecommunicationsnetworkintheworldbecameawayofattractingbusinessfromothercenters.

InadditiontoNewYork,MerrillLynchTeleportTechnologies,thearmofMerrillLynchwhichownedteleportsoperations,wasoperatingteleportsinBoston,Chicago(whereregulatorsdesignateditapubliccommoncarrier),SanFrancisco,LosAngeles,andHoustonby1989.MetropolitanFiberSystems(MFS),itsmaincompetitor,hadsetupoperationsinChicago,Boston,Baltimore,Minneapolis,andPhiladelphiaandwasconstructingfacilitiesinHouston,LosAngeles,andSanFrancisco.AccordingtoTelecommunicationsReports,theweeklynewsservicecoveringnationalandinternationaltelecommunicationsde-

velopments,atotalof2,456buildingsin116citiesspreadacrossforty-fivestateswereservedbytwenty-onecompetitiveaccessprovidersin1993.TeleportCommunicationshadoperationsintwelvemetropolitancentersandMFSinfourteen.OthersincludedInstitutionalCommunicationsinWashington,D.C.,PhiladelphiaFiberOptic,Inter-MediaCommunicationsinFlorida,NewEnglandDigitalDistributionInc.,EasternTelelogicinPennsylvania,andDiginetInc.inChicagoandMilwaukee.

TelephonecompanieshavealsobecomeveryactiveinbuildingandtestingSONET-basedfiberringsinmajorcitiesintheUnitedStatesandevencabletelevisioncompanieswereshowingincreasinginterestingettingintothebusinessaswellby1993.InJanuary1994,MCIannouncedtheformationofanewsubsidiary,MCIMetro,witha$2billionbudgettobuildcompetitiveaccessnetworksintwentymajormetropolitanareasbytheendof1996.Asweshallseebelow,CAPs,cabletelevisionoperators,andtelephonecompaniesarenowengagedinafiercebattleforcontrolofthelocaldistributionnetwork.

GLOBALOPTICALFIBERHIGHWAYS

Internationaltelecommunicationscarriers,ledbythebigthree—AT&T,BritishTelecomInternational(BTI),andKokusaiDenshinDenwaCorporation(KDD)ofJapan—havebeenleadingthechargetorewiretheglobe,orratherto‘‘fiberize”itbydeployingthetechnologytoexpandthecapacitiesoftheirAtlanticandPacificlinksbyordersofmagnitudeandtointerconnectthesewithotherregionalnetworks.Thefirstfullyopticaltransatlanticlink,calledTAT-8,wasinauguratedonDecember14,1989.Ithadacapacityof40,000telephonecalls.InMarch1992,TAT-9wasinauguratedintoservicelinkingtheUnitedStates,Canada,theUnitedKingdom,andFrance.Ithadacapacityof50,000circuits.Sixmonthslater,TAT-10wasbroughtintoservicelinkingtheUnitedStateswithGermanyandtheNetherlands.TAT-11subsequentlycameintoserviceinSeptember1993,linkingtheUnitedStates,UnitedKingdom,andFrance.Bothsystemshavecapacitiesof80,000simultaneoustelephonecalls,

doublethatofTAT-8.TheselinksinterconnectwithopticalcablenetworksintheMediterraneanSeaandtheBalticSeawhichconnectwiththoseinItaly,Greece,Turkey,Israel,andtheScandinavianandEasternEuropeancountries.

WorkisinprogresswaytolayTAT-12andTAT-13cablesacrosstheAtlanticOceanaswell.Thesewillhavesignificantlyhighertransmissioncapacities(fivegigabitspersecondor500,000calls,tentimesthatofTAT-9)whichisachievedbyusingopticalratherthanelectronicamplifiers.InterconnectingwiththesewillbetheColumbusopticalcablenetwork,linkingtheUnitedStates,Spain,andMexico,andtheCANTAT-3cable,linkingCanadaandtheUnitedStateswithDenmark,Germany,andEasternEuropeancountriesviatheBalticSea.

OpticalfiberlinkshavealsobeenproliferatingacrossthePacific.OnApril24,1989,thefirsttranspacificopticalfibercablecalledTPC-3wasplacedinto

servicelinkingtheUnitedStatesandJapan.Costing$700millionandwithacapacityof40,000telephonecalls,thecablestretched8,271milesfromCaliforniatoJapanviaHawaiiandGuam.NosoonerwasitbroughtintoservicewhenaconsortiumofthirtyinternationalcarriersannouncedconstructionofasecondopticalfibercabletolinktheUnitedStatesdirectlytoJapan.TPC-4cameintoservicein1992withacapacityof75,000telephonecalls.Anotheropticalfiberlink,calledtheH-J-KCableSystem,linkingHongKong,Japan,andKorea,cameonstreamin1990.ItconnectswiththeHawaii-4/Trans-pacific-3cablesystem.AT&TandKDDaremajorpartnersinthesesystemsaswell.

InMay1991,PacificTelecomCableInc.andtheJapaneseconsortium,InternationalDigitalCommunications,begancommercialserviceonthe5,200-mileNorthPacificCable(NPC)linkingtheUnitedStatestoJapan.AspurcablelinkingOregontoAlaskawasannouncedamonthlater.TheAustralianTelecommunicationsCommissionandtheNewZealandPostOfficecompletedthe30,000kilometer(TASMAN-2)opticalfibercablesystemlinkingAustraliaandNewZealandtoNorthAmericain1993andplantocompletealinkwithAsiaby1995.Workisalsoinprogresstoconstructanewhigh-capacity(TPC-5)cableacrossthePacificby1995.ItwillusethesameopticaltechnologyasTAT-12andTAT-13.

Privatetransoceanicopticalfibercableswerealsobeinglaid.In1988,aconsortiumofcompaniesincludingBritain’sCableandWirelessandSprintbeganlayinganopticalfibercablesystemacrosstheAtlantic.Inthefallof1989,theworld’sfirstprivatelyownedtransatlantictelecommunicationscablecalledPTAT-1wasinauguratedintocommercialservice.Thenewfacility,calledGLOBALFON,hassincebeenexpandedtoofferotherservicesincludingintegratedvoice,facsimile,data,andvideoteleconferencingandotherservices.

OpticalnetworksarealsoproliferatingthroughoutEasternEuropeandAfrica.IntheformerSovietUnion,theMinistryofPostsandTelecommunicationsandaconsortiumofinternationalcarriers(includingUSWest,KDD,STET,BritishTelecom,Australia’sAOTC,andDeutschesBundespostTelekomareconstructingthetrans-Sovietfibercable.The

trans-Europeanlink(TEL)connectingGermany,Poland,Hungary,andCzechoslovakiawasinauguratedinJanuary1994.OpticalnetworksarealsoproliferatingthroughoutAfrica.InAugust1992,the3,280kilometerEurAfricafiberopticcablesystemwentintoservicelinkingFrance,Portugal,Morocco,andtheislandofMadeira.ItinterconnectswithSAT-2forhandlingservicetoSouthAmericaandbecamelinkedintotheColumbus-2systemin1994.

TELCO-CATVCONVERGENCE:TECHNOLOGYDEMOLISHESTHEBOUNDARIESBETWEENTELECOMMUNICATIONSANDCABLETELEVISION

Opticalfibershavethegreatadvantagethattheycancarrymanyhundredsofhigh-qualityvideosignalsandvoice,data,andinformationservicesinaneffi-

cientandeconomicalmanner.Forthesereasons,theysetoffaracebetweentelephoneandcabletelevisioncompaniesinthelateeightiesandearlyninetiestocreateelectronicsuperhighwaysthatwouldreachintothehomesofanentirenationandopenupvastneweconomicopportunities.Visionariesandfuturistssawtheseleadingtothecreationofnewgenerationsofsmarthomeappliances,forexample,thatcombinedthefunctionsoftelevision,computers,facsimilemachines,andtelephonesandofbeingcapableofprovidinghomebanking,electronicmail,picturetelephone,andcustomizedtelevisionchannelsinadditiontoelectronicinformationservicesrangingfromhomeshoppingtothedeliveryofentirenewspaperselectronically.

Manyobstaclesstoodinthewayofrealizingthisvision.Extremelyhighinvestmentcostsandthequestionofwhatkindofserviceshouseholdswantedandhowmuchtheywerewillingtopayforthemwerebutafewoftheveryseriousimpedimentstorealizingthesegoals.Oneofthemostseriousobstaclesforthemwasregulatory.IntheUnitedStates,forexample,legislationpassedin1970bannedthecross-ownershipbetweenthetelephoneandcabletelevisioncompanies,andtheCableCommunicationsPolicyAct,passedin1984,establishedforthefirsttimeanationalpolicyforcabletelevision.TheActfreedcableoperatorsfromrateregulationandfromhavingtoprovideaccesschannelsforpublic,educational,andgovernmentuse.Italsoprohibitedlocaltelephonecompanies(andbroadcastingstations)fromowningcablesystemsinsidetheirhometerritory.Bytheendoftheeighties,over90percentofAmericanhomessubscribedtotelephoneservicebutonlyabout50percentsubscribedtocabletelevisionserviceeventhoughcablepassedabout80percentofAmericanhomes.Bythen,opticalfibershadformedthebackboneofthelong-distancetelephonenetwork,andtelephonecompaniesbecameintentoninstallingthemintotheirlocaldistributionsystemsdirectlytothehome.TheythenbeganpressuringtheFCCandCongresstoscrapthelegislationandtheregulationsthatbannedthemfromofferingcabletelevisionservices.Bythelateeighties,alloftheBelloperatingcompaniesintheUnitedStateshadbecomeengagedinfiber-to-the-home(FTTH)trialstotesttheeconomicandmarketpotentialof

integratedtelephoneandcabletelevisionservicesindozensofAmericancommunities.AmongthemostnotablewereHuntersCreek,Florida;Perryopolis,Pennsylvania;andCerritos,California.SimilarfieldtrialswerelaunchedinBritain,Japan,Canada,andelsewhere.

Theyears1991and1992provedtobelandmarkyearsforthetelephone,cabletelevision,andbroadcastingindustriesaswellastheinformationandentertainmentindustriesintheUnitedStatesintermsofregulatoryandpoliticaldevelopments.InOctober1991,afederalappealscourtabolishedtheorderprohibitingtelephonecompaniesfromprovidinginformationservices.10Congressalsovotedtoreimposelocalrateregulationoncabletelevisioncompaniesinordertocurbsoaringsubscriptionfeesinthesameyear,andtheFCCruledthatbroadcasters,whichweresufferingfromacontinuingdeclineinviewers,couldbuyintocabletelevisionoperationsandviceversa.Finally,inJuly1992,theFCCagreedtoallowtelephonecompaniestooffervideo-dialservicesto

businesses,thatis,tooffertheirnetworkstoindependentprogrammersonacommoncarrierbasisandsellswitchingandgatewayservices,billing,andotherenhancedfunctions.11Allofthesedecisionsheightenedthedramaandtheseeminglyinevitableclashbetweentelephoneandcabletelevisioncompanies.

By1992,telephonecompanieshadcompletedtheirfieldtrialevaluationsandbecameconvincedthatthedeploymentoffiberalmosttothehome—thatis,tothecurb(FTTC)orthepedestal,whichservedbetweenfourtoeighthomes—madegoodeconomicsense,basedonthecostanddemandconsiderationsandthekindsofservicesthesesystemscouldcarryaswellasthefactthatthesesystemscouldbeupgradedtocarryadditionalbroadbandservices.Inthatyear,thefirstlarge-scaledeploymentofFTTCsystemswereannounced.Inthefallof1992,Ameritechawardedcontractstotallingjustunder$1billionfor“next-generationdigitalloopcarrier”systemsforinstallationinareaswithhighapplicationserviceneedssuchasbusinessanddenseresidentialareas.Itisplanningtoprovide2.5millioncustomersinIndiana,Ohio,Michigan,Illinois,andWisconsinwithaccesstoopticalfibersandanother2.5millionwithaccessondemandby1995.WithindaysofAmeritech’sannouncement,BellSouthplacedasimilarorderandwiththistheracetocreatetheopticaldigitalnetworkofthefuturewasunderway.InJanuary1993,NYNEXannouncedthatitwouldbeginawardingcontractsfor400,000fiberlines,andUSWestunveiledplanstobuildamass-marketvideonetworkcombiningfiber,copper,andcoaxialcable.PacificBellannouncedplansinAprilofthesameyeartodeployanintegratedbroadbandnetworktoreachhalfofitsresidentialandbusinesssubscriberswithintenyearsandserveallcustomersbytheyear2015.

Cabletelevisioncompanieshavebeenrespondingtotheacceleratingpaceofcompetitionandtechnologicaldevelopmentsbydeployingopticalfibersaswellasdigitalvideocompressionwhichenablesthemtodeliverasmanyas150channelsoverordinarycoaxialcablesystems.TimeWarner,thelargestcabletelevisionoperatorintheUnitedStates,beganoperatingthe150-channelQuantumserviceinQueens,NewYork,inlate

1991andwasbuildingafarmoreambitiousinteractive,multimediasysteminOrlando,Florida,toprovidetelevision,data,andtelephoneservices.Itsbiggestrival,TCI(Tele-CommunicationsInc.),thelargestcableoperatorintheUnitedStateswith20percentofthesubscribersnationwide,hasalsobeenhatchingambitiousplans.OnApril12,1993,itannouncedthatitwasembarkingona$2billionprogramofinvestmentsinopticalfibersusingDVCtechnologytocreatean“informationsuperhighway”in400citiesacrosstheUnitedStatesby1996.Then,inMarch1993,TimeWarnerannouncedplanstobuilditsown“electronicsuperhighway”toAmericanhomestoenablethemtoreceivevideos,newspapers,andeducationalcontentwithinminutesoforderingthemandeducateandentertainthemselvesathome,shopforfurnitureandclothingfromhome,aswellasplayvideogameswithothersonthenetwork.

Allofthebigcabletelevisioncompaniesbeganenteringintostrategicalliancesandjointventureswithtelephonecompaniesoutsidetheirownterritory

in1993todeveloptheinformationandentertainmentsupermarketsofthefuture.OnMay17,1993,TimeWarnerannouncedthatithadsolda25.5percentstakeinitsTimeWarnerEntertainmentdivisiontoUSWestInc.for$2.5billion.ToshibaCorporation,TimeWarnerCableGroup,WarnerBrothers,andHomeBoxOfficearealsoinvolvedinthisventurewhichplanstoofferafullcomplementofbroadband,interactivevoice,video,andinformationservicesinabouttwodozenmetropolitanareasby1998.BigdealswereannouncedbetweenBellAtlanticandTCIaswellasSouthwesternBell,andCoxCableCommunications,butthesewererevokedwithinweeksaftertheFCCorderedcablecompaniestolowertheirrates.Otherregionalholdingcompaniesaregoingitalone.PacificBell,forexample,announcedplansinNovember1993toinvest$16billiontodeployahybridfiberandcoaxtransmissionoverthenextsevenyearstobringvideo-on-demandandotherservicestofivemillionhouseholdsinCaliforniabytheendofthedecade.

Cabletelevisioncompaniesarenowtalkingabout500channeltelevisionasbeingthestandardinthenearfutureandeventuallyasmanyas1,000channeltelevisioninthehome—allmadepossiblebydevelopmentsindigitalvideocompressionandopticalfibers.Evena5,000channeltelevisionuniversehasbeenbandiedabout.Stunningdevelopmentslikethesehaveraisedbothhopesandfearsaboutthefutureofthecabletelevisionindustry.Optimistsrevelabouttheopportunitiespresentedandtheseeminglyunlimitedscopeofchoiceofprogrammingservicesthathomeownerswillbeabletoaccessinthefuture.Pessimistspointoutthattheproliferationofchannelswillfrustrateandbewilderconsumers,fragmenttheindustry,driveawayadvertisers,andeventuallydestroytheindustryaltogether.12

ButdramatictechnologicaladvanceshavealsobeentakingplacetofurtherspeedupthepaceofchangeandexpandthescopeofcompetitionandchoiceinthelocalservicesmarketplaceintheUnitedStates.By1993,forexample,advancesinparticularso-calledasymmetricaldigitalsubscriberlinetechnology(ADSL)madeittechnologicallyfeasibleandeconomicallyattractivetodeliverasmanyas

fourvideochannelsandhigh-speeddigitaldataservicesinadditiontovoicetothehomeoverthetwistedcoppernetworksofthetelephonecompanies.Telephonecompaniesbegandeployingthenewtechnologyinfieldtrialsinthesameyeartotestthemarketsforthesenewservices.NorthernTelecomandthesevenregionalholdingcompaniesunveiledasysteminNovember1992togivehomeownersvideo-on-demandoverordinarytelephonelinesusingaVCR-likecontroldevicebytheendof1994.AT&Tisalsoactivelytestingnewtechnologytodelivervideoservicesondemandviaboththetelephoneandcabletelevisionnetworks.Butthecompetitiondoesnotstophere.Newtechnologynowmakesitfeasibleforcabletelevisionoperatorstooffertelephoneserviceovertheirnetworksatacostofbetween$200and$300persubscriber,andoperatorsintheUnitedStates,Britain,andCanadahavebeguninstallingthetechnologyandofferingtheservice.

Anotheralternativelocalbroadbanddistributionsystem,developedbyacom-

panycalledCellularVisionTechnologiesandTelecommunicationsintheUnitedStates,isalsointheracetodevelopthepremierlocalbroadbanddistributionsystemofthefuture.Dubbedbysomeasaformofwirelesscabletelevision,itoperatesmuchlikecellulartelephonebutinthe28GHzfrequencybandandiscapableofdeliveringdozensoftelevisionchannelstohomesandbusinesses.Becauseitdoesnotemploywires,itpromisestoinvolvelesscapitalinvestmentandoperatingexpense,anditcanbedeployedmuchmorerapidly.BellAtlanticisdeployingthenewtechnologytoprovidecabletelevisionservicesintheNewYorkareaby1995.

Institutionalandregulatorydevelopmentshavebeentakingplaceinparallelwithtechnologicaldevelopmentsasthecompetitionheatsup.InAugust1993,aU.S.AppealsCourtissuedalandmarkrulingthatthestatutoryprohibitionbarringtelephonecompaniesfromprovidingvideoprogrammingdirectlytosubscribersintheirserviceareawasunconstitutional.Andweekslater,inSeptember1993,theFCCruledthatlocalexchangecarrierscouldprovidewirelesscabletelevisionserviceswithintheiroperatingterritories.Thesedecisionscouldpavethewayforhead-to-headcompetitionbetweenthetelephoneandcabletelevisionoperators.Ontheotherhand,theycouldleadtophonecompaniesacquiringcabletelevisionsystemsorjointventuresbetweenthetwoindustries.

THEBATTLEFORCONTROLOFTHELOCALDISTRIBUTIONSYSTEMOFTHEFUTUREISUNDERWAY

BothcabletelevisionoperatorsandtelephonecompaniesintheUnitedStatesandothercountriesarelookingatotherwaystostrengthentheirpositionforwhatisrapidlybecomingabattlegroundforcontroloverthelocaldistributionnetworkoftheninetiesandbeyond.Thisnetwork,manybelieve,willconsistofinterconnectednetworkscomprisingnotonlycabletelevisionandtelephonenetworksbutcellular,personalcommunications,andmicrowaveandsatellitenetworks,aswell.CablecompanieslikeTimeWarner,CoxCableCommunications,ComcastCorp.,andTCI,for

example,havebeenpositioningthemselvesforwhatmanyconsiderwillbehighlylucrativemarketsforpersonalcommunicationsserviceswheretheywillcompetedirectlywiththetelephonecompanies.CoxEnterprises,whichisheavilyintobroadcasting,cabletelevisionandnewspapers,wassuccessfulingainingexperimentalPCSlicensesinSanDiegoandNewYorkin1991whereitisusingitscablenetworkstorelaysignalsbetweencells.ComcastisintoPCS,cellular,opticalfibernetworks,andfleetdispatchservices.AT&TisnowafullparticipantandcompetitorinthisbattleforcontrolofthelocaldistributionnetworksthroughMcCawCellular.MCIisanother.InJuly1993,MCIannouncedtheformationofaconsortiumof150cabletelevision,telephone,andpublishingcompaniestobuildan$8billionnetworktocover75percentofthenation.Meanwhile,theRBOCshavebeenmountingavigorouscampaignforpermissiontoenterthelong-distancemarket.

CabletelevisioncompaniesarealsoattemptingtotakeadvantageoftheopportunitiesinthecorporatemarketbyteamingupwithcompetitiveaccessproviderssuchasTeleportCommunicationsInc.andMetropolitanFiberSystemswhichhavethetechnicalandmanagerialknow-howtobuildandoperatesophisticatedT1,T3,andSONET-basedtelecommunicationsnetworkswhichmoreandmorebigbusinessesaredemanding.CAPsuppliersgotabigboostintheircompetitivebattlewiththetelephonecompaniesin1989whentheNewYorkPublicServiceCommissiongaveNewYorkTelephoneninetydaystounbundleitsservicesandgivebusinesscustomersseparatepricesforlinksandportsallowingthemtobuyfromanycarrier.In1992,CoxEnterprisesandTCImadeajointbidtopurchaseallofTeleportCommunications.ThefortunesofCAPsuppliersandcabletelevisioncompaniesfurtherimprovedasaresultoftwodecisionsoftheFCCinSeptember1992andAugust1993whicheffectivelyremovedallbarrierstoCAPsofferingswitchingaswellastransmissionfunctions.Thesedecisionsareexpectedtoopenthedoortoa“robustnetworkofnetworks”inwhichtheswitchednetworksofLECs(localexchangecarriers)andothersinterconnectwiththeLEC’sswitchedaccessservicesaswellascompetewiththem.

DevelopmentshavebeenacceleratinginEurope,especiallyinBritain,whichhascompletelyeliminatedallofthelegalbarriersprohibitingcabletelevisioncompaniesfromofferingtelephoneservicesandprovideslong-termincentivesforcabletelevisionoperatorstosupplytelephoneservices.Britainhasalsorelaxeditsrulesonforeignownership,andcompanieslikeNYNEXCorp.,South-westernBellCorp.,TCI,andVidéotronofCanadaareactiveintheU.K.market.By1992,U.K.cablecompanieshadinvestedover1billionsterlinginBritain’scabletelevisionnetworks,giving1,750,000homesaccesstobroadbandservices.Plansareinplacetoinvest5billionsterlinginthesenetworksbefore1998.ByJune1993,theUnitedKingdomhadmorethan170,000cabletelephonelines,accordingtotheU.K.CableTelevisionAssociation.Thatis,theyofferedbothtelephoneandcabletelevisionservices.EastLondonTelecommunications,nowcontrolledbyBellCanadaEnterprises,began

offeringcombinedtelevisionandtelephoneservicesintheLondonboroughofRedbridgein1993.AndVidéotron,anotherCanadiancabletelevisionoperatorinBritain,obtainedalicensetooffertelephoneserviceoveritscoaxialdistributionsystemin1994.BritishTelcomispreparingtooffervideo-on-demandoveritstelephonelinesafterreceivingpermissionfromtheIndependentTelevisionCommissioninSeptember1993.

DevelopmentsareacceleratingontheContinent.BelgiumisthemostcablednationinEuropewith88percentofallhouseholdspluggedintocabletelevisionnetworksin1993.InWestGermany,wherecablesubscribershipreached33percentin1992,theDeutscheTelekomhascommitteditselftoopticalfiber.In1993,itcommissionedfourcontractorstoinstallFITL(fiber-in-the-loop)systemstoserve230,000businessesandhouseholdsinthirtysevenurbansitesintheformerEastGermany.Itexpectstoserveapproximately1.2millionhouseholdsby1995.

THEEXPLOSIONANDCONVERGENCEOFCOMPETINGANDCOMPLEMENTARYDELIVERYSYSTEMSANDTHEEVOLUTIONOFTHENETWORKECONOMY

Thegreatclashbetweenthecabletelevisionandtelephoneandradioandsatellitecommunicationcompanieswhichmanyhavebeenpredictingfordecadeshasfinallyarrived.Thisbattle,whichwillbefoughtthroughouttheremainderofthisdecadeandintothenextcentury,couldhaveanenormousimpactnotonlyonthetelecommunicationsandcabletelevisionindustries,butonalmosteveryotherindustryaswell.Technologyisrunningrampantovertheentireinformationandcommunicationslandscape,changingthetechnologicalandeconomicunderpinningsoftheindustryaswellasthenatureandqualityofservicesdelivered,whilecreatingnewanddifferentwaystodeliverinformation,communications,andentertainmentandretailandfinancialservicestohomesandbusinesses.Competitionandtechnologicalinnovationareacceleratingtheconvergencenotonlyofcomputers,telecommunications,cabletelevision,andbroadcastingbutofpublishing,bankingandfinancialservicesaswellasretailingandprovidingnewsourcesofcompetitionforallofthem.

Atthesametime,allnetworksarebecomingincreasinglyinterconnectedandintegratedwithoneanother,andcompetitionandcooperationaregrowingonanintramodalandintermodalbasis.Opticalfibersarecompetingwiththecopperdistributionsystemsofthetelephonecompaniesandthecoaxialcablesystemsofthecabletelevisioncompaniesforbringingbroadbandservicestohomesandforcingtelephoneandcabletelevisioncompaniestocompeteforthedeliveryofvoice,data,andvideotothehome.Satellitesarecompetingwitheachoftheseforthedeliveryoftelevision,telephone,anddataservices.Ontheotherhand,satellitescomplementthesebyservingasbackupforallterrestrialdeliverysystems.Wirelesscabletelevisionanddirectbroadcastsatellitesarecompetingwithcoaxialcableandopticalfibersfordeliveringbroadbandservicestothehome.Satellitesarealsocompetingwithcellularradioformobilevoice,data,message,andpaging

servicesaswellascomplementingtheminunderservedareas.Cellularradiosystemsarecompetingwithwirelinesystemsoftelephonecompanieswhilecomplementingtheminotherrespects.Cellularisalsocompetingwithandcomplementingradio-pagingservicesandradio-determinationsatelliteservices.Whatisemergingisanetworkofheterogeneousnetworksthatcompeteandcomplementoneanothertosupplyalloftheinformationandcommunicationsneedsofindividuals,homes,andbusinesses.

Thisisthenightmarefacinggovernmentsandregulatorycommissionsandthegrowingnumberofcompaniesinthisrapidlygrowingandchangingbusinessinthenineties.Theoutcomewillhaveaprofoundeffectontheevolutionofpostindustrialsocietyinthetwenty-firstcentury.Convergenceandcreativedestructionareacceleratingacrossallsegmentsoftherapidlyexpandinginformationandcommunicationseconomy,affectingnotonlythecomputer,telecommunications,cabletelevision,andbroadcastingindustriesbuttheinfor-

mation,publishing,banking,securities,andretail,insurance,realestate,andentertainmentindustriesaswell.Theseareallkeypiecesofagigantictechnologicalandeconomicandpoliticaljigsawpuzzlethatisgettingmorecomplicatedeveryyear.Everyonewillbeaffectedbytheoutcome.

NOTES

1. First-generationcommunicationssatellitesoperatedinthe8/6gigahertz(GHz)orC-band.

2. DavidRees,SatelliteCommunications:TheFirstQuarterCenturyofService(NewYork:JohnWiley,1990).

3.

Canadaisfamiliarwiththespill-overeffectsofinternationalcommunicationssatellitesandtheirimplicationsfornationalsovereigntybetterthananyothernation.ForanoverviewoftheexperienceofCanadaandEuropeancountries,seeHeatherHudson,CommunicationsSatellites:TheirDevelopmentandImpact(NewYork:FreePress,1990).

4.

Digitalvideocompressionisaninformation-processingtechniqueimplementedinsoftwarethatmakesitpossibletocompresstelevisionsignalsbyafactorofanywherefromthreetoeightortenormore,dependingonthecontent,beforethesignalistransmittedtothesatelliteandtodecompressitwithaspecialdeviceonceitisreceivedinthehome.

5. ‘‘Wal-Mart:WhatMakesItSoSuccessful,”GlobeandMail,18January1994,p.B6.

6. GeorgeA.Codding,TheFutureofSatelliteCommunications(SanFrancisco:WestviewPress,1990).

7.UndertheFCC’snewrules,cellularcompaniesareabletoapplyforlicensesoutsidetheirexistingserviceareaswheretheyservelessthan10percentofthepopulation.

8.

WorkontheNavstarsystembeganin1978whentennationssignedamemorandumofunderstandingpledgingcooperationtodevelopthesystemforinternationaluse.Thesystembecamefullyoperationalin1993whenthelastofthetwenty-foursatelliteswasputintoorbit.Eachsatellitecontainsfouratomicclocksthatbroadcasttimedataandotherinformationidentifyingitselfanddescribingitspath.Receiversonthegroundusetheinformationtocalculatetheirlocation.Formoreinformation,referto“WhoKnowsWhereYouAre?TheSatelliteKnows,”BusinessWeek,10February1992,pp.120–121.ForahistoryofNavstar/GPS,see“TheGlobalPositioningSystem,”IEEESpectrum,December1993,pp.36–46.

9.

Formoreinformationontelecommunicationsandurbandevelopment,seeWilliamDuttonetal.,WiredCities:ShapingtheFutureofCommunications(NewYork:G.K.Hall,1987),and“ReinventingNewYork:CompetingintheNextCentury’sGlobalEconomy”byHughO’NeillandMitchellL.Moss,UrbanResearchCenter,RobertWagnerGraduateSchoolofPublicServices,NewYorkUniversity,1991.

10.

UnderpressurefromtheU.S.CourtofAppeals,JudgeGreeneagreedtolifttheMFJrestrictionsonRBOCentryintoinformationservicesundercertainconditionsonJuly25,1991.AfederalappealscourtsubsequentlyabolishedtheprohibitionaltogetherinOctober.See“CourtLetsBabyBellsBranchOut,”NewYorkTimes,8October1991,p.D1.

11.Butitlimitedtheownershipofvideoprogrammersoflocalexchangecarriersto5percentandreassertedtheprohibitionoftelephonecompanyownershipofcabletelevisioncompaniesintheirservingareas.

12.

MarkStarowicz,oneofthemoreinsightfulexecutivesattheCanadianBroadcastingCorporationinToronto,statedinaspeechgiveninNewYorkinApril1993thatthecoming1,000channeluniversewillresultinthe“completereorderingoftheconsumermarketplace,thetransformationofretailinganddistributionasweknowit…[andthecreationof]asortoftelevisualmall…[thatwill]reorderthepoliticalworld…[andmake]thepoliticallandscape…morevulnerabletodemagogicandcharismaticleaders,…[andfiercelychallenge]thenationstate’scapacitytodefineitsagenda.”

Chapter6TheIntelligentInfrastructure

Theopticalfiberandsatelliteandradiocommunicationnetworksthatcarriersandnationsaroundtheworldarebuildingrepresentoneofseveralkeytechnoeconomicdevelopmentsthatarecontributingtoaradicalrestructuringandtransformationofindustrialsociety.Complementingthesearetheongoingmicrochipandcomputerrevolutionsandthemarriageofcomputersandtelecommunications,inparticular,whicharehavingequallydramaticimpactsonallsectorsoftheeconomy.Thismarriageorfusioninvolvestheincorporationofinformation-processing,storageandretrievalandintelligencefeaturesintoeverythingfromtelephoneandtelevisionsetstoofficeandfactoryequipmentandtheirintegrationandinterworkingwithpersonalcomputers,engineeringworkstations,andpersonal,mobile,communicationsdevicesthroughadvancedtelephone,cabletelevision,satellite,cellulartelephone,andpersonalcommunicationsnetworks.Thesearebeingintegratedinvaryingdegreeswithon-linedatabanksandbanking,securitiestrading,andreservationssystems.Thefusionofallofthesehardwaredevices,systems,andnetworkstogetherwithappropriateoperatingsystemsandapplicationssoftwareintoanintelligentinformationandcommunicationsinfrastructurecouldbeoneofthemostimportantdevelopmentsinthehistoryofcivilization.1

Mostoftheleading-edgedevelopmentstakingplaceinthetelecommunicationsaswellasthecomputerindustriestodayinfactinvolvetheincorporation

ofintelligenceinoneformoranotherintonetworks.Allofthenewcustomserviceofferingsthattelephonecompaniesnowprovidearemadepossiblethroughtheintelligencefeaturesofthenewgenerationsofdigitalswitcheswhichtelephonecompaniesbeganinstallingintheeighties.2Intelligenttechnologyisalsocriticaltosuchdevelopmentsasdigitalvideocompression,high-definitiontelevision,interactivetelevision,video-on-demand,videoteleconferencing,andbroadbandmultimedianetworks.Thisincorporationofintelligenceintoallequipmentandallnetworksinturnisdrivingtheconvergenceofthecomputer,telecommunications,cabletelevision,broadcasting,entertainment,banking,andeducationandentertainmentindustries.Theimplicationisthatintelligentnetworkshavebecomestrategictoallservicesandallindustriesnowandinthefuture.

However,thequestionofwhetherthisintelligenceshouldresideinthenetworksofthetelephone,cabletelevision,orothertelecommunicationscompaniesorinthenetworksofthird-partysuppliers,likeinformationandcomputerservicecompaniesorbankingandfinancialservicescompanies,forexample,orinthecomputersystems,terminalequipment,andnetworksofprivatecompanieshasalwaysbeen,andcontinuestobe,anextremelyimportantandcontroversialpublicpolicyandcorporatepolicyissue.Theissueisimportanttobankingandfinancialandretailservicescompaniesaswellasthoseinthepublishing,databank,advertising,andbroadcastingindustries,sincetheywillincreasinglyrelyonintelligentnetworksinthefuturetoprovideservicestothepublic.Infact,theoperationandorganizationoftheevolvingintelligenteconomywilldependonwherethisintelligenceresides,whatfunctionsandfunctionalitiesitperforms,andhowmuchaccessandcontrolusers,telephonecompanies,andthirdpartiesexerciseoverit.

Sinceallorganizationswillbeincorporatingintelligenceintheirownnetworksinthefutureandsincethesemustinterworkwithoneanotherandwithpublicnetworks,itisbecomingdifficultifnotimpossibletomakeaclearandconsistentdistinctionbetweenthenetworksandnetworkfunctionalitiesandoperationsofcorporateusers,telephonecompanies,

telecommunicationscarriers,aswellasthoseofinformation,banking,financial,retailandothers,includingpostalservicesuppliers.

Thedistinctionsandboundarylinesamongalltheseindustrieshavebeenerodingandevaporatingforadecadeormore,andtheycanbeexpectedtofurthererodeandeventuallydisappearinthenextdecadeandbeyond.Bythen,anentirelynewindustrialorganizationandanewinstitutionalstructurewillhaveevolvedastheresultoftheinteractionofintelligenttechnology,corporatestrategy,andcompetitivemarketforces.Forallofthesereasons,themarriageorconvergenceofcomputersandtelecommunicationsistakingonincreasingimportancetoeverycompanyandeverysectoroftheeconomy.Butitisparticularlyimportanttoregulatoryandantitrustauthoritiesand,therefore,togovernmentsbecauseoftheenormousmonopolypowerthatthiscontrolover

information,communications,andbankingandfinancialnetworksandcontentwillallowsomecompaniestogainandwieldinthefuture.

THEINTERNETASFORERUNNEROFTHEADVANCEDINTELLIGENTINFORMATION-COMMUNICATIONSINFRASTRUCTUREOFTHEFUTURE

PerhapsthebestexampleofanintelligentnetworkinfrastructureandonethatcouldserveasaportentofthingstocomeistheInternet,thenamegiventothesupernetofcomputernetworkswhichhadgrowntocomprisemorethan9,000interlockingnetworks,750,000hostcomputers,andasmanyas20millionusersinover102countriesbytheendof1993.3TheInternetisalreadybyfarthebiggestcomputernetworkintheworld,butthenumberofusersanditstrafficvolumesarecontinuingtogrowexponentially.Infact,atthe1994rateofgrowthofaccounts(20percentpermonth),thenumberofuserscouldreachwelloveronebillionbytheyear2000accordingtoforecasters.

TheInternetismanythingstomanypeople,whichprobablyexplainsitsexplosivegrowthinrecentyearsintermsofthenumberofnetworksandusersthatareaccessiblethroughitaswellasthegrowthintheamountandvarietyofcontentaccessiblethroughit.Oneofitsmostpopularapplicationsiselectronicmailbecauseitpermitsusersineverypartoftheworldtocommunicateinstantaneouslywithoneanother.Userscanalsodistributedocumentsandengageinconferencesandmeetings.TheInternetalsoallowsuserstoaccessscientificdatabasesmaintainedbytheU.S.GeologicalSurvey,DepartmentofEnergy,andtheNationalOceanicandAtmosphericAdministration.Userscanaccesssoftwaredatabases,interactiveentertainmentcontent,andobtainweatherinformation,includingdigitalphotographsofweatherpatternstakenfromsatellites.TheycanalsoaccesscommercialdatabasepublisherslikeDIALOGandMeadDataCentralandexchangeelectronicmailwithusersonthenetworksofMCI,AT&T,CompuServe,AmericaOnline,andProdigy.Internetusersbeganaddingaudioandvideocontenttotheirnetworksin1993sothatmillionsofusersaccessandretrievelectures

andvideoclipsondemandviatheirPCs.

TheriseofFreeNetsrepresentsanotherexampleofthepotentialofintelligentnetworksorinformationnetworkstotransformtheworld.FreeNetsarecommunity-basedcomputernetworksthatareprovidedfreeofchargetotheresidentsofthecommunity,hencetheuseoftheword“free.”Carriers,computerservicesuppliers,equipmentmanufacturers,schoolboards,andfederal,provincialand/orstate,andmunicipalgovernmentstypicallyprovidethefundingforthesetooperate.By1994,FreeNetswereinoperationinseveraldozenlocationsaroundtheworld,mostlyintheUnitedStates,butinothercitiessuchasOttawaandVictoriainCanadaaswellascitiesinFinlandandRussia.LiketheInternet,theFreeNetsgiveresidentsofacommunityaccesstoelectronicmailanddatabankinformationoncommunityevents,entertainment,weather,andeducationcontent,andengageindiscussions,andparticipateinconferencesandprovide

accesstotheInternet.ItisthelikesoftheInternetandtheFreeNetsthatcouldevolveintoanewsocioeconomicinstitutioninthefuture.

THESTRATEGICIMPORTANCEOFINTELLIGENCEINPUBLICANDPRIVATENETWORKS

Asdescribedinchapter4,intelligenttechnologyhasplayedastrategicroleinparticularintheconvergencebattlebetweenthetelecommunicationsandcomputerindustriesinthepastthreedecadesormore.Localtelephonecompanies,long-distancecarriers,andequipmentmanufacturershavebeenincorporatingasmuchintelligenceaspossibleintotheirpublicnetworksasamatterofstrategytoenablethemtoextendtheircontrolovertransmissionandswitchingintotheevolvingmarketsfornetworkmanagementandenhancedcommunicationsservices.Thecomputerandofficeequipmentindustries,ontheotherhand,ledbyIBM,havedesignedasmuchintelligenceandnetworkfunctionalityaspossibleintoalloftheirequipmentandsystemssincetheearlyseventiestoenablethemtoprotecttheirmarketsandsupplythesesamenewservices.

Eachindustryhasenjoyedcertainstrategicadvantagesandeachhashadadisadvantageinareaswheretheotherhasbeenstrong.IBM,forexample,hasthebiggestinstalledbaseofcomputersystemsworldwideanddominatedthecomputerbusiness,atleastuntilrecently.Italsouseditsproprietarysystemsnetworkarchitecture(SNA)anditssystemsapplicationsarchitecture(SAA)andotherstandardstoprotectthiscaptivemarketandmaximizetheflowsofrevenuesfromitsnewproducts.Thetelephonecompanies,ontheotherhand,haveownedandoperatedbyfarthebiggestcaptivebaseofcommunicationsequipmentintheworld.Nothingcanmatchthepublictelephonenetworkintermsofitssheersize,universalaccessibility,complexity,dependability,reliability,simplicity-of-use,andguaranteedprofitability.Telephonecompaniesworldwidehavealsobeenthemostactiveparticipantsininternationalstandards-makingbodiessuchastheITUandtheInternationalStandardsOrganization,forexample,inestablishinganinternational

opensysteminterconnect(OSI)standardthatallequipmentmanufacturersandcarrierscanadheretosotheycanmarkettheirproductsworldwide.

Regulatoryandpolicy-makingauthoritiesinmostcountrieshavebeenmakingeveryefforttoensurethatthetelephonenetworkevolvestomeettheneedsofallusersbyensuringthatallsuppliersofserviceshaveunrestrictedaccesstothenetwork.TheFCC,forexample,hasadoptedanopennetworkarchitecture(ONA)philosophysothatallsupplierscaninterconnecttheirequipmentandsupplytheirservicesoverthepublicnetworkinthefuture.Ithasorderedregionalholdingcompanies(RHCs)tounbundlenetworkaccesselementsandofferthesetoeveryoneatmarketprices,thus,alloftheRHCsnowsupplytheseunbundledfeaturesataprice.GovernmentsinEuropeandAsiahaveadoptedsimilarsafeguards.

TELEPHONECOMPANIESCREATETHE“INTELLIGENTTELEPHONEINFRASTRUCTURE”

Asexplainedabove,telephonecompanies,havebeenbusyincorporatingasmuchintelligenceaspossibleintheirswitchingandtransmissionnetworkssotheycanprovidejustaboutanykindofvoice,information,andvideoserviceondemand.Thefundamentalbuildingblockofthenewtelephonenetworkisanexpensivepieceofequipmentcalledthecentralofficeswitch,orCO.Itspurposeistoperformtheall-importantfunctionofswitchingandinterconnectingsubscriberlinesforcompletingtelephonecalls.ThelatestgenerationofCOsystemssuchasAT&T’sAESSandNorthernTelecom’sDigitalmultiplexswitches(DMS)areessentiallydigitalcomputers(hence,theconceptofdigitalCO).Thismeansthattheyarecapableofprovidingallofthefunctionalityofcomputers,includingthecapabilitytoprocessinformationintheformofdigitaldataandofvoice,images,messages,andevenvideoaswell,andtostoreandretrieveandmanipulatethemaccordingtoprogrammedinstructions.COsystemsalsoserveanall-importantnetworkcontrolfunction.Besidesswitchinglines,theyassignanddedicatecircuitsamongusers,controlaccesstothenetworkandperformfunctionsthatensurenetworksecurityandreliabilityandfacilitatenetworkmonitoringandrepair.Theyarethuscapableofachievingmuchhigherlevelsofnetworkefficiencyandperformancethantheirnonintelligentpredecessors.

Centralofficeswitchesarealsocapableofprovidingawidevarietyofotherservicesincludingcallaccounting,billing,andrelatedmanagementinformationservicesaswellasdirectoryinformationservicesthattelephonecompaniescanmarkettotheircustomers.Andtheycanbeusedtoprovideautomaticcalldistributionservicesandautomaticansweringserviceforcompaniesinthebusinessofprovidingtravel,creditcard,reservations,retail,andtelemarketingservices.COsystemscanalsobeprogrammedtoautomaticallyforwardincomingcallstospecificindividualsorgroupsofindividualsandeliminatetheneedforhumanoperators.Otherservicesincludeelectronicvoicemail,message,andimagecommunications.Digitalswitchesalsoprovideaccessto

publicorprivatedatabases,includingdirectoryandyellowpagesinformationservices,andtheycanprovideaccesstospecializedprocessors,suchasspeechrecognitionandsynthesisandvoiceresponsesystems,forexample.AT&T’sCONVERSANTVoiceInformationSystem,forexample,introducedin1992,recognizesandrespondstothehumanvoice.AT&Tusesitssystemtohandlelong-distancecalls,eventhosecollectedandbilledtothirdparties,aswellasinthoseinvolvingcreditcardtransactions,checkingbankbalances,andplacingcatalogueorders.Othercarriers,includingSprint,MCI,BritishTelecom,andBellCanada,alsomakeextensiveuseofspeechsynthesisandrecognitionsystems.

TherealbrainsandthecentralnervoussystemofthenewgenerationoftelephonesystemisasophisticatedcontrolandintelligencesystemcalledSignalingSystemNumber7(SS7).Thisisasuperfast,super-reliable,high-performance

computerprocessingandcommunicationssystemsuperimposedupon,butintegratedinto,thetraditionaltelephonenetworkforthepurposeofefficientlyandoptimallycontrollingandmanagingtheentirenetworkandgivingitthecapabilitytoprovideallmannerandvarietyofservicesinthefuture.Thesystemisconnectedtoallofthecentralofficesandswitchingsystemsinthetelephonenetworkbyafastpacket-switchednetworkthatservestocontrolandcoordinatetheiroperationsinanintegratedfashionlikeagiantcomputersystem.Thiscomputerized,software-basedsystemiscriticaltothenewtelephoneandtelecommunicationssystemsoperatingtodayandinthefuture.Implementationhasnotbeenwithoutitsproblems,however.AsinglesoftwareglitchinAT&T’sSS7systemonJanuary15,1990,causedthecollapseofthecompany’snationwidenetwork.Itledtoanine-hourservicedisruptionanddeprivedmillionsofAmericansoftelephoneservice.

TheSS7systemfunctionsfromacomputerdatabasecontainingrelevantinformationaboutalloftheresourcesavailableonthenetworkandallnetworksubscribers,includingtheserviceswhicheachhascontractedfor,togetherwithalogofactivitiesofeachandthedemandseachismakingonthenetwork.Itschiefpurposeistoprovidesubscriberswiththenetworkresourcestheyneedtocommunicate.Theinformationisusedtoexercisecontrolovertheentiretelephonenetworkinsuchawaythateachuserissuppliedwiththeresourcesthatheorsheneedswhenheorsheneedsthem,withthehighestpossiblelevelofefficiency,servicequality,andtimeliness.Thisnewsystemmakesitfeasibleandattractivetosupplymanyotherkindsofservicesthatwerepreviouslyimpossibleortooexpensivetoprovide.Telecommunicationscompanies,forexample,areusingintelligenttechnologytobringnationwide800(toll-free)and900(billedonaper-callbasis)servicestothepublicalongwithon-lineinformationanddatabaseservicesincludingdirectoryservices,andtheywouldliketoseethisnetworkinfrastructureevolveinthefuturetobecometheuniversalmediumforprovidingretailtransactionsandbankingandsecuritiesservices.Theseandmanyotherkindsofservicesaremadepossiblethroughtheservicesofthedatabasequeryfacilityandthecapabilityofthesystemtoshareintelligenceamongswitches,

databases,andintelligentperipheralsonthenetwork.

Thenewtelephonesystemseffectivelyoperatelikeagiganticdistributed,time-shared,information-processing,andcommunicationssystemtoprovideawholeclassofcustomlocalaccessservices(CLASS)whichcanbetailoredtomeettheneedsofthemostdiscriminatingtelephonesubscriber.Theseservicesincludecallforwardinginwhichanindividualcanhavehisorhercallsforwardedtoanotherlocationsuchasanotherofficeortoone’shome.Call-backfeaturesinstructthetelephonesystemtoautomaticallysetupacallatalatertimewhenthelineisfree.Subscribersarealsoabletoparkacalltemporarily,redialanumberautomatically,orsetupaconferencecallbyhimselforherself.Otherfunctionsandcapabilitiesincludeincomingcallidentificationsothatsubscriberscanseethenumberofthecallingpartydisplayedonasmallscreeninthetelephoneset.Callscreeningandcallblockinggivesubscriberstheability

tobettercontrol,select,andmanageincomingcalls.Prioritycallinganddistinctiveringingalongwithelectronicdirectoryservices,electronicmailandmessageservices,andvoicemailareotherfeatures.Theseareonlyafewofthenewcustomlocalaccessservicesbeingengineeredintothenewtelephonesystemthatareaccessed,managed,andservicedautomaticallybytheintelligenttechnologybeingincorporatedintothetelephonesystem.

Telephonecompanieshaveacceleratedtheireffortstobringtheseandotherservicestomarketbecausetheyseethisasimportanttotheirgrowthandprofit.Buttheyhaveothermoreambitiousandstrategicreasonsfordeployingthenewintelligenttelephonetechnologyasweshallseebelow.Oneoftheseistheprovisionofintegratedservicesdigitalnetworks.Anotherissoftware-definedorvirtualtelecommunicationsnetworksservices.Intelligencetechnologyisalsocriticaltobringingon-streamthenewbroadband,multimediaservicesthatwilldominatethenewtelecommunicationsenvironmentinthelatenineties.Italsoprovidesthefoundationforprovidinguniversal,personal,portablenumberingsothateverypersoncanbeaccessibleanywhereintheworldthroughauniquetelephonenumber.

THEINTEGRATEDSERVICEDIGITALNETWORKS

Telephonecompaniesaroundtheworldhavealsobeendeployingintelligenttechnologyforthepastdecadeormoretocreateanewtechnologyplatform,calledISDN,theacronymforintegratedservicesdigitalnetwork.Asthenameimplies,itwasconceivedbytelephonecompaniesasameansofbuildingauniversallyaccessibletransportfacilitycapableofsupplyingtheentirerangeofservicesfromvoiceanddatacommunicationstomessage,image,andultimatelyvideoservices,includingteleconferencing,forallbusinessesandresidentialsubscribers.Itthusconstitutesasingle-vendorstrategy.Thatis,ithasbeendesignedasanall-in-onesolutiontosatisfyallthecommunicationsneedsofmostbusinesscustomersandhouseholdsubscribersinthefuture.ButISDNhasbeenslowtocatchondueinlargeparttothefactthatithasbeen

primarilytechnology-drivenratherthanmarket-drivenbythetelephonecompanies.ThemomentumtoadoptISDNneverthelesshasbeendeveloping.

ManygovernmentsoutsideNorthAmericaviewinvestmentsinISDNasanessentialelementintheirfutureeconomicgrowth.Insomecountries,ISDNisbeingdeployedasapublicserviceofferingandaninvestmentininfrastructure.NTT,forexample,beganprovidingpublicISDNservicenationwideinJapanin1992.GermanyisalsodeployingISDNasanationalinfrastructure.InFrance,ISDN,orNumeris,istheresultofalong-termnationalprogramthatbeganintheearlyseventiestomodernizethenation’stelephoneandtelecommunicationssystem.FranceTelecomachievednationwideISDNcoveragein1990togetherwithinternationallinkageswiththeUnitedStates,Belgium,Japan,andGermany.Othercountriesareacceleratingtheroll-outofISDNasamatterofnationalindustrialpolicy.TherepublicsofKoreaandSingapore,whichhavemade

telecommunicationsthecenterpieceoftheirdevelopmentplans,arepushingISDNasameansofplayingabiggerroleintheworldeconomy.Singapore,forexample,wantstopositionitselfasamajorglobaltelecommunicationshubinthePacific.

ISDNhasbeenslowtodevelopintheUnitedStateswhereitisbeingdeployedasacorporatenetworkservice.ItwasnotuntilJuly15,1991,forexample,thatSouthwesternBell,BellSouth,Sprint,andBellCommunicationsResearchsucceededincompletingthe“nation’sfirstcross-country,all-publicnetwork,integratedservicesdigitalnetworkcall.”SomeheadwayisbeingmadeinmakingISDNavailablenationally.AT&T,forexample,achievedISDNaccessibilitynationwidebytheendof1994.SomepublicutilityauthoritiesintheUnitedStatesaretakingamoreconstructiveapproachtoISDN.Inthewinterof1992,forexample,theMassachusettsDepartmentofPublicUtilitiesdeterminedthatNewEnglandTelephone’sISDNbasicserviceisa‘‘basic,monopolyservice.”SomeareoptimisticthatISDNwillbedeployedasamatterofnationalpriorityundertheClintonadministration,whichhasputheavyemphasisoninvestmentsineconomicinfrastructuretopropelAmerica’seconomyintothenextcentury.

PRIVATENETWORKSCHALLENGETHEPUBLICNETWORKSERVICESOFFERINGSOFTHECOMMONCARRIERS

Someofthestiffestcompetitiontothedeploymentofintelligenttechnologybytelephonecompaniesandtelecommunicationscarriersbegancomingfromtheirbiggestcorporatecustomersinthelateeighties.ThiswasatimewhenanewgenerationofPBXs,LANs,anddigitalmultiplexerscameontothemarketthatenabledbusinessestocreate,operate,andmanagetheirownprivatenetworks.ManylargebusinessesbeganrelyingonthisequipmenttogetherwithleasedT1andT3facilitiesforaccessingthegrowingvolumeofinformationstoredincentralizedmainframecomputersandfornetworkingpersonalcomputersandpowerfulworkstationsinapplicationsinvolvingcomputer-aideddesign

andhigh-resolutiongraphicsandimagecommunications.Videoteleconferencingwasalsobecomingattractivetobusinessesbecauseitpromisedtocutthecostsoftravel.Thistoodemandshigh-speeddigitaltransmissionfacilities.

Manylargebanks,brokeragecompaniesaswellasmanufacturersandretailersbeganusingPBXsintheeightiesasthehuborcontrolcentertoprovideconnectivitybetweenin-housevoiceanddatacommunicationsnetworksaswellasaccesstopublicnetworkfacilitiesandservices.SuchcompaniestypicallyleasedT1andT3facilitiesfromthelocaltelephonecompany,long-distancecarrierslikeAT&T,Sprint,MCI,orcompetitiveaccessproviderslikeTeleportCommunicationstointerconnecttheirPBXsinmultiplelocationstocreatecompanywidenetworksthattheycouldoperateontheirown.Some,likeGeneralMotors,GeneralElectric,AmericanExpress,BoeingCorporation,andCiticorp,

forexample,andpublicutilities,universities,andgovernmentsoftenhavesufficientlylargevolumesofcommunicationstrafficthattheycanevenjustifyinstallingoneormorecentralofficesystemsontheirpremises.4Untilrecently,thesewerereservedfortelephonecompaniesbecausetheyhadthetrafficvolumestojustifythemonaneconomicbasis.

Theglobalizationofbusinesswasalsowellunderwayintheeighties,andmoreandmorecompanies,feelingthegrowingheatofglobalcompetition,werelookingforwaysofusingtheirgrowinginvestmentsinsystemsandnetworkstocutcostsandrealizestrategiccompetitiveadvantages.Privatenetworkingprovidedthemwithameanstotietogetherandintegratetheirfar-flungofficesandtheirworkers,computersystems,andotherresourcesandintegratetheirdisparatevoice,data,video,andimageandgraphicsapplicationsontoasinglefacility.ItalsoenabledthemtobypassthestrictregulationsandhightariffsofmanyPTTadministrations.Privatenetworkingbecomeattractiveformanybusinessesfortheseandotherreasons.

Fortelephonecompaniesandpubliccarriers,however,privatenetworkingmeantthelossofsomeoftheirbiggestrevenueandprofit-producingcustomers.Thisthreatpromptedleadingtelecommunicationsmanufacturersandcarrierstouseintelligenttechnologyinyetanotherstrategicfashiontoretainandregainthesebusinesscustomers.OnewaywaswithastrategyofincorporatingintotheirCOsystemsanalmostendlessvarietyofintelligencefeaturesandfunctionalityforenduserswhicharecalled“centrexservices.”Telephonecompanies,forexample,canprovidealloftheservicestoacompanythatPBXsprovide,andtheycanalsoemulateLANservicesviatheintelligentcapabilitieslocatedintheCOswitch.TheycanalsoprovideLANservices,forexample,throughaserviceofferingcalledcentrex-LAN,aswellasISDNservices,throughcentrex-ISDN.Centrexservicescan,therefore,beusedbycompaniestodesign,create,andmanagetheirprivatenetworksusingpublicnetworkfacilitiesinsuchawaythattheyemulateorsimulateallofthefunctionalityofPBXsandprivatenetworks.

VIRTUAL(INTELLIGENT)TELECOMMUNICATIONSNETWORKS

Telecommunicationscarriersusedintelligenttechnologyinyetanotherstrategicmannertocreateanewspecialclassoftelecommunicationsfacilitiesandserviceofferingscalledsoftware-definedtelecommunicationsnetworks(SDTNsorSTNs)alsoknownasvirtualprivatetelecommunicationsnetworks(VPNsorVTNs).Thesemakestrategicuseofthecapabilitiesofintelligentcentralofficesystems,tandemswitches,SS7systems,andT1andT3digitaltransmissionsystemstogetherwithhigh-speeddigitalmultiplexerstotailorandcustomizethecarrier’snetworktomeetthedistinctiveneedsofindividualcorporations.

Genericvirtualtelecommunicationsnetworksderivetheirstrategicadvantagesfromtheinformation-processingandcontrolfeaturesofintelligentnetworktech-

nology,specificallyitsabilitytoemulateandsimulateaprivatenetworkinmuchthesamewayasvirtualmemoryisachievedinthecomputer.Thesesoftwarecontrolfeaturesaredesignedinsuchawaythatitappearsasifeachorganizationhasanetworkwithunlimitedvoice,data,andvideoswitchingandtransmissioncapabilitiesdedicatedtoitsownuse.Virtualnetworkingcapabilitiesarebasedonthefactthatcustomerlocations,trafficpatterns,androutingrestrictionsandscreeningfunctionsarealldefinedinsoftwareandcan,therefore,bechangeddynamicallybyanoperatorfromacommandpostonthecompany’spremisesorthepremisesofacarrierorwhateverpartyisprovidingtheservice.Thisenablesthetelecommunicationscarriertoseparatethewayitactuallymanagesandroutestrafficoverthenetworkfromthewaytheircustomersperceiveandusethenetwork.Intelligentnetworksgivecarriersthecapabilitytocreatealargenumberofvirtualprivatenetworksaspartofthesamesharedtelecommunicationsfacilitysothateachofthemhasallthefeaturesofthemostadvanced,dedicatedprivatenetworkbutatafractionofthecost,sinceallofthecustomerssharethecommoncostsofbuildingandoperatingthenetwork.

Carriershavealsodesignedtheirvirtualprivatenetworkofferingsinsuchawaythatusercompaniescangainaccesstothecontrolfeaturesofthebasicswitchingandtransmissionfacilitiessotheycandesignandconfigureanationalorinternationalprivate-linenetworkasiftheyownedit.Corporatecontrolcan,forexample,beexercisedeitherfromacorporatepremisesthroughthePBXorthroughthecentraloffice.Acompanycan,forexample,dynamicallyreconfigureitsvirtualprivatenetworkfromitsPBX,monitoritsoperation,andmanageandcontrolitsownaccountingandbillingoperations.Specialsoftwarefeaturesalsoenableindividualcompaniestocreatetheirownuniquenumberingplan.VTNsareconducivetoveryflexiblearrangementssotheybenefitbothcarriersandtheircustomers.Customerscanhavetheoptionofusingtheirownequipmentandoperatingstafforthoseoftheirsupplier.VTNsthuskeeplargecustomersonthepublicnetworkwhileenablingthemtogaintheadvantagesofaprivatenetworkwhichtheycanmanage,configure,andcontrolastheylike.

AllthreebiginterexchangecarriersintheUnitedStatesannouncedvirtualnetworksservicesin1988,andtheracewasontosellthenewservicenationallyandinternationally.AT&TannouncedwithgreatfanfarethatithadsignedupFordMotorCompany,E.I.duPont,andGeneralElectrictoitssoftware-definednetwork(VTN)service.Fordconvertedtwenty-eightinternaldatanetworksandonevoicenetworkintoasinglenationwideintegrateddigitalnetworkwithT1accessinallofitslocations.GeneralElectricsignedafive-year,$300millioncontractforanall-digital,intelligentnetworktointegrateallofitsvoiceanddatatrafficforits100,000ormoreemployeesatmorethan1,000locationsontoAT&T’sT1backbonenetwork.MCIannouncedthatitsignedupcustomersforitsVnetvirtualnetworkserviceofferingandU.S.SprintforitsVirtualPrivateNetworkingService.

AllthreecarrierstooktheirvirtualtelecommunicationsofferingsintotheinternationalmarketplaceandsignedupmultinationalcompanieslikeGeneral

Electric,Citicorp,andMerrillLynch,forexample.GeneralElectricannouncedcontractsinthespringof1989withAT&T,BritishTelecom,andFranceTelecomtobuildaworldwideprivatenetworktoprovideintegratedvoice,data,andvideocommunicationsservicestoitsemployeesinitsofficesintheUnitedStates,France,theNetherlands,Belgium,WestGermany,Switzerland,Italy,Ireland,andSpain.Thenetworkwasexpandedin1990toconnecttotheFarEast,Australia,theMiddleEast,andSouthAmerica.GEclaimedthenetworkenabledittobecomemorecompetitivebyallowingittoexchangeinformationfaster,tomakequickerdecisions,andreducetheneedforoverseastravel.MerrillLynchawardedafive-year,$150millioncontractinJune1989toMCItolinkitscomputersandvoicesystemswith730brokeragehousesinthirty-threenations.Citicorpannounceda$46.5millioncontracttoAT&TforitsVirtualTelecommunicationsNetworkServiceandasimilar$80millioncontractwithMCItoprovide“globalvoiceanddatatelecommunicationsservices”forits3,000locationsinninety-twocountries.

Virtualprivatenetworktechnologyhasbeendeployedinmanyothercountries,includingCanada,France,Germany,Japan,andSingapore,forexample.Cable&Wirelesscompletedits“globalhighway”ofcableslinkingEurope,NorthAmerica,andthePacificRiminMay1991.Itadvertisesthatitsglobalvirtualprivatenetwork(GVPN)offersend-to-endvoice,data,andimagecommunicationsservicesateveryregionoftheworld.Oneofitscustomers,Esso,beganusingGVPNtolink139sitesintheUnitedStatesandtheUnitedKingdomin1993.Virtualnetworkfacilitiesnowconstitutearapidlygrowingsegmentofthenationalandglobaltelecommunicationsindustry.By1993,overtwentycountrieswerebeingserved.Theynowprovideanessentialfacilityformanylargecorporationstooperateandcompeteglobally.

Itisinthecorporateenvironment,however,wheremuchofthedemandforhigh-speedfacilitiesisbeinggeneratedandwheretheconvergenceofcomputersandcommunicationsandthedevelopmentofintelligentnetworksarehavingsomeoftheirgreatestandmostprofoundimpacts.Itisheretoowheremanyofthereallybiginnovationsandsomeofthemostimportantdecisionsarebeingmadeabouthowbesttodesign,

build,andmanageintelligentnetworksandmaximizetheireconomic,organizational,andothercompetitiveadvantages.Thedevelopmentofenterprisewidenetworksinparticularrepresentsoneofthemostimportantforcesthatisdrivingthecreationofanintelligentcorporatenetworkinfrastructureatthepresenttime,andthisiscomplementingthedevelopmentofpublicintelligentnetworksinfrastructures.

THEEVOLUTIONOFENTERPRISEWIDENETWORKS

ThecorporatecomputerenvironmentunderwentdramaticchangesinthelateeightiesandearlyninetiesasaresultoftheintroductionofnewgenerationsofpersonalcomputersandofficeandfactorysystemsbasedonIntel’s80386and80486andMotorola’s68030and68040microchips.Thismeantthatcomputer

powercouldbeeconomicallydistributedwhereveritwasneededsoaneedarosetotiepersonalcomputersandworkstationstogetherwithoneanotherandwithminicomputersandmainframessotheycouldcommunicateandinterworkandshareresources.Italsoledtosomethingcalled“client-server”computing,whichinvolvesdedicatingcomputerstospecializedfunctionsonthenetworkaswellasthedevelopmentofenterprisewidenetworkstointerconnectallofthecomputerswithinacorporationtogetherwherevertheywerelocatedgeographically.Theendresultisthecreationofanintelligentcorporatenetworkinfrastructurethatistransformingthenatureofworkandmanagementandthecultureandstructureofcorporationseverywhere.

Agenericlocalareanetwork(LAN)foralargecompanyisillustratedinFigure6.1.ItspurposeistoconnectIBMPCs,AppleMacs,andSunworkstations,forexample,withoneanothersotheycancommunicateandshareresources.Sooneoftheirmostimportantpurposesistoovercomeincompatibilitybetweenallofthesedevices.LANsalsointerconnectthesewithspecializedresourcessuchashigh-volume,high-speed,laserprinters,massstoragesystems,databasesystems,anddocumentmanagementsystemsaswellasminicomputersandmainframecomputersdedicatedtocomputation-intensivemodelingandsimulationapplicationssuchasthoseusedbyscientistsandengineers.ThebestknownandmostwidelyusedLANistheEthernetLAN,designedanddevelopedin1980byaconsortiumofvendorsincludingXerox,DEC,Datapoint,andIntel.IBM’sTokenRingLANandDatapoint’sARCnetarethemajorcompetitorsofEthernet.MacintoshcomputerscommunicatethroughApple’sAppleTalkLAN.AT&T’sLANproductiscalledStarlan.LANsnowmakeuseofallofthetraditionalcopperandcoaxialcabletransmissionmediaaswellasopticalfiberandwirelessradiomedia.EarlygenerationsofLANstransmitdatainthelowmegabitranges.EthernetLANs,forexample,whicharebasedoncoaxialcable,communicateatspeedsofuptotenMbpswhileTokenRingLANstransmitatspeedsofbetweenfourandsixteenMbps.ButthenewLANproductscomingontothemarketinthemid-ninetiesarecapableofveryhighmegabitspeeds.

ThestandardforopticalfiberiscalledFiberDistributedDataInterface(FDDI)whichoperatesataspeedof100Mbps.Beingfiber-based,FDDI-basedLANshaveallofthespecialfeaturesofopticalfiber,includingbroadbandcapabilities,noiseimmunity,lowsignaldegradation,easeofupgrading,lightweight,andsmallsize.Thesefeaturesaregainingimportanceforagrowingvarietyofbroadbandapplicationsespeciallycommunicationswithorbetweenmainframesorservingasthebackbonetransmissionsystemsforinterconnectingmultiplelow-speedLANs,forcomputer-aideddesign,manufacturing,andengineering(CAD/CAM/CAE)applicationsinthefactoryandforradiologyandotheradvancedmedicalapplicationsinhospitals,medicallabs,anddoctors’offices,forexample.BroadbandLANsarealsogaininginpopularityforapplicationsinvolvingvoiceandvideoteleconferencingandmultimedia.BoththeTokenRingandEthernetLANsarebeingupgradedtohandlenewbroadbandapplicationssuchasthese.Forexample,thenewEthernetstandard,calledfast-Ethernet,hasaspeedof100

Figure6.1

ALAN/WAN/EnterprisewideNetworkEnvironment

Mbps.IBMisalsoupgradingitsTokenRingLANtohandlebroadbandmultimediaapplications.Butnewtechnologyisalsomakingitpossibletodeliveropticalfiberspeedsof100Mbpsovershieldedcopperpairs.Thisso-calledCDDItechnology(copperdistributeddatainterface)holdsconsiderablepromiseoverFDDIbecausethetransmissionmediaisveryinexpensiveanddoesnotinvolvespecialoptoelectronicequipmenttoconvertbetweenelectronicandopticalsignals.WirelessLANsarealsogaininginpopularity.5

LANscanbeinterconnectedwithoneanotherinavarietyofwaystoformwideareanetworksandenterprisewidenetworksthatenablemanyhundredsorthousandsofuserslocatedinasinglebuildingorseveralbuildingsinthesameareaorspreadthroughoutametropolitanareaoracrossthecountryoracrosstheworldtocommunicatewithoneanotherandshareinformationresources.OrganizationsinterconnectLANsontheirownpremisesbyhubs,routers,andbridges.Suppliersarebuildingmoreintelligenceandhigherperformanceintothesedevicestoprovidethemwithgreaterprocessing,communications,andswitchingcapabilities.LANscommunicatewithoneanotheroverlongdistancesbyfacilitiesandservicesofferedbylocaltelephonecompanies,interexchangecarriers,competitiveaccessproviderssuchasTeleportCommunicationsandMetropolitanFiberSystems,forexample,andbyvalue-addednetworksuppliers,suchasTelenet.CorporationscaninterconnecttheirLANs,forexample,byprivatelinesorswitcheddigitalservices,bypacket-switchedservices,orbyintegratedservicedigitalnetwork(ISDN)services.

ThespreadofpersonalcomputersandLANshasineffecttransformedthecorporatecomputingenvironmentintoadistributedinformationprocessing,communications,andintelligencesystem.Intelligenceofonekindoranotherisbeingbuiltintoalldevicesattachedtothenetworksotheycanperformspecializedtasksandcommunicatewithoneanother.Thenetworkoperatingsystemisthecentralresourceforcontrollingandmanagingtheentirenetwork,alloftheresourcesattachedtoitandaccessiblethroughitandforensuringthattheappropriateprocessing

andcommunicationshardwaredevices,softwareandinformationresourcesaremadeavailabletoeachandeveryuseronthenetworkwhentheyarerequired.Itthusservestoensurethatthenetworkandalloftheresourcesattachedtoitareusedmostefficientlyandthatusersaregiventhebestpossiblequalityofservice.TheleadingnetworkoperatingsystemisNovell’sNetWareproduct.Runners-upincludeBanyanCorporation’sVirtualNetworkingSystem(VINES),IBM’sLANServer,andMicrosoft’sLANManager.

THE“CLIENT/SERVER’’MODELOFCORPORATECOMPUTINGINTHENINETIES

Toanincreasingdegree,thepredominantarchitectureforcomputernetworkingintheninetiesincorporateswhatiscalledinthetechnicaljargona“client-server”philosophy,asshowninFigure6.2.Thisinvolvesdelegatingresponsibilitiesforspecializedtaskssuchasnumbercrunching,database,andcommunications,in-

Figure6.2

AClient-ServerArchitecture

cludingelectronicmail,forexample,tospecializedcomputingdevices,calledservers,thepurposeofwhichistoserviceindividualPCsandworkstations,or“clients.”“Aclient-serverenvironment,”accordingtoDatamation,“providesstandardizedservicessuchasdataandfilemanagement,printservicesorcommunicationsinterfaces…[overanetwork]andalsorunslocalapplicationsprograms…[assigning]toeachcomputingelementthetasksforwhichitisbestsuited.Italsoallowsuserstoaccessprogramsanddatatransparently,withouthavingtoknowwherethenetworkresourcesreside,eitherphysicallyorlogically.”6Whenauser,forexample,initiatesarequestforinformationonaspecifictopic,arequestisautomaticallysentoutoverthenetworkandtheinformationreturnedcanbefrommanydatabanks.Becauseofthewaytheyaredesignedandthewaytheydistributeprocessingloads,client-serversystemssignificantlycutdownoncommunicationstraffic,thuscontributingoveralltoamoreefficientoperationalsystem.Becauseclientsandserverscanbeaddedordeletedfromthenetworkwithoutdisruptingothersonthenetwork,modificationsaremuchsimplerandeasiertomake.Theyarealsomuchlessvulnerabletoproblemsarisinginanypartofthenetwork.

Client-serversystemsalsosignificantlyenhanceuserproductivitybymakingextensiveuseofapplicationsprograminterfaces(APIs).Thesearesoftwareinterfaceswhichallowuserstowriteindividualprogramstoaccessanduseinformationresourcesonthenetwork,suchasprinters,databases,andelectronicmailfacilities,withouthavingtoworryabouttechnicaldetailsorprograminstructions.AppropriateinstructionsarebuiltintoAPIssotheyareexecutedwhenusersinvokethemintheirprogramsoraccessthemwithaclickofthemouse.

IBM,Microsoft,Novell,Apple,andalmosteveryothersupplieraredesigningAPIsintotheiroperatingsystemsandsoftwareprogramsforthisreason.

Client-serversystemsareimportantbecausetheyofferamuchmoreeconomicalandoperationallyefficientalternativetothehighlycentralizedmainframecomputerenvironmentofthepast,andtheyenablecorporationstoreducetheirextremedependencyonhighlycentralizedmainframecomputersandminicomputers.ThenewLAN-client-serverenvironmentoftheninetieshasextremelypowerfulresourcesonthenetworkdedicatedtosuchactivitiesasnumbercrunching,recordsmanagement,anddatabaseintensiveapplicationswhich,untilrecently,couldonlybeeconomicallyhandledbymainframecomputersorlargeminicomputers.Accordingtoagrowingnumberofindustryobservers,theseresourceswillbecomeavailableonclient-serversystemsintheninetiesatafractionofthepriceofthoseachievedfrommainframes.Meanwhile,mainframecomputerandminicomputermanufacturershavemadesurethattheyarenotfrozenoutofthisnewinformationprocessingenvironment.

IBMandDEC,forexample,havedesignedalloftheirnewcomputerproductlinestoservethenewclient-servermarketofthenineties.IBM’sstrategicvisionistomakeitsmainframecomputersfunctionasmammothcorporateserversorcentrallibrariesorrepositoriesforstoringandaccessingallkindsofinformationintheformoftext,numbers,digitizedvoiceandimages,andevenvideocontent.Localareanetworksandclient-serversystemsarethusshapinguptoplayastrategicroleintheevolutionofafullyintegratedandfullyfunctionalcorporateresource-sharinginformationandintelligenceinfrastructureintheninetiesandbeyond.

THESYNERGIESOFNETWORKINGANDWORKGROUPTECHNOLOGIES

Thenetworkingofcomputerstogetherwithclient-serversystemsis

criticalforthefuturebecauseitwillalloworganizationstorealizetheeconomicsofresource-sharingandultimatelythestrategicandoperationalsynergiesthatcanonlybederivedfromsharingalloftheinformationandintellectualresourcesoftheentireorganization.Sinceenterprisewidenetworksprovidetheconnectivitynecessarytomakeallcorporateunitsinteract,interwork,andshareresources,theyhavethepotentialofenablingallindividualsintheorganizationtocooperateandcollaborateasneverbeforeandtooperateasasingleenterpriseunit,unencumberedbydistance,timezonesorhierarchies,peopleorpolitics,and,asimportantly,byproblemsrelatingtoinaccessibleinformation.Byenablingeveryoneintheorganizationtoaccessanduseinformationandcommunicationssystemsandsoftwareandinformationresources,bymakinginformationresourcesavailabletoallworkerswhenandwhereitisrequiredandintheformatrequiredandbyprovidingameansforallworkerstointeractandcommunicatewithoneanotherandcooperateandcoordinatetheiractivities,enterprisewidenetworkingismakingtrueresource-sharingpossible.Inalloftheseways,the

newLAN-client-serverenvironmentiscontributingtoamoreefficientinformation-processinganddecision-makingorganizationandultimatelyamoreefficienteconomicsystem.Properlymanaged,thenewinfrastructuresarecapableofdeliveringenormousbutpracticaloperationalsynergiesandeconomicbenefits.Forthesereasons,theyarestrategictosurvival,competitiveness,andprofitabilityinthenewage.

Thesesynergiesandeconomicbenefitsarenowheremoreevidentthaninthegrowingvarietyof“workgroup”or“groupware’’applicationswhichnowconstitutetheleading-edgeofcomputerapplicationssoftware.Groupwaresoftware,forexample,permitsuserstointeractwithoneanotherinsimplebutsophisticatedwaysoverthenetworkthroughelectronicmail,gainaccesstoeachothers’agendasandmeetingschedules,setupmeetingsandengageingroupconferences,andqueryoneanother’sdatabasesinsituationsinvolvingcooperativeandcollaborativecomputingapplicationssuchasengineeringdesign,customerservices,reportwriting,andsoon.Thisisresultinginmajorincreasesinproductivity,anditholdsthepotentialofcreatingconsiderablestrategiccompetitiveandoperationaladvantages.ThefirstsuccessfulgroupwareproductwasLotusNotesintroducedin1991byLotusDevelopmentCorp.ItwasinresponsetoitsspectacularsuccessthatMicrosoftintroducedWindowsforWorkgroupsinthefallof1992.Itofferspeer-to-peerfile,printer,andclipboardsharing,E-mailcapabilities,groupschedulingandchattingfunctions,andsimplenetwork-monitoringtools.GroupwareisthefocusofmanyofthenewproductofferingsofNovellandIBMaswell.Moresophisticatedgroupwareapplicationsinvolvevideoconferencing,collaborativecomputing,andcooperativedocumentandengineeringdesignapplications,whichwillbediscussedinthenextchapter.

THECORPORATEINFORMATIONINFRASTRUCTUREOFTHEFUTURE

Theenterprisewidenetworkwillevolveintoamoreadvancedandrobustcorporateintelligentinfrastructurethroughouttheninetiesasthestate-of-

the-artcontinuallyshiftstoworkgroupandmultimediaapplicationsinvolvingthesharingandcommunicationsofvariousmixturesofvoice,text,graphs,image,andvideocontentamongindividuals.Multimediawillincreasinglycometodominateofficeautomationapplicationsinvolvingrecordsmanagementaswellasdocumentcreation,storage,retrieval,anddistribution.CD-ROMswithbothreadandwritecapabilitieswillbecomeanincreasinglycost-effectivestoragemediumforapplicationsinvolvingthestorageandretrievalofelectronicbusinessforms,documents,images,andeventuallyvideocontent.Innovationsinmultimediatechnologywillpropeldevelopmentsinelectronicrecordsmanagementandworkgroupapplicationssuchaselectronicmail,computer-aideddesign,videoteleconferencing,anddatabaseapplications.Thesewilldrivemanykindsofapplicationsinbusiness,government,scientificresearchanddevelopment,andineducation,training,medicine,andhealthcare.Specialvoicemessaging,facsim-

ileanddocument,imageandvideoserversare,therefore,likelytobecomecommonintheenterprisenetworkingenvironmentofthefutureincorporatingthesedevelopments.MultimediaapplicationswillalsocreatedemandsforbroadbandLANsforcarryingvoice,image,graphics,andvideocommunicationstraffic.

Someoftheproductsthathaveresultedfromtheenormousinvestmentsinresearchintoartificialintelligence,suchasexpertsystems,neuralnetworks,chaostheory,andfuzzylogicwillundoubtedlybecomeincorporatedintomanystandardbusinessapplications,especiallyinthebanking,brokerage,andsecuritiesindustries,aswellasmanufacturing,medicine,andhealthcareindustriesforanalyzingcomplexproblemsthatinvolvelargearraysofdatathatarenoteasilyprocessedbytraditionalmethods.Voiceandspeechrecognitionandvoicesynthesistechnologiescanbeexpectedtoenterthemainstreambytheendofthedecadeaswell.Thesewillbecomeincorporatedintosophisticatedmultimediainterfaceswhichwillmakecomputersandtelecommunicationssystemsmorefriendlyandeasiertouse.Allofthesedevelopmentswillfiltertheirwayintopublicuseincludingthehomeandthetelecommunicationsmarketplace.

IBM,Apple,Microsoft,Intelandotherleadingsuppliershavebeendevelopingthehardwareandsoftwareplatformsforthenewgenerationofmassmarketcomputerstounleashthepoweroftheseapplications.IntelledoffonMarch22,1993,whenitannouncedthatithadbegunshippingitspentiumchipassuccessortothe486chip.InMarch1994,bothIBMandAppleintroducedthefirstpersonalcomputersbasedonthenewPowerPCchip,thekeyproductoftheir1991alliancewithMotorola.ThisisthefirstRISC-basedchipdesignedformassmarkets.Thebattletodevelopanewsoftwareplatformisalsounderway.InJuly1993,MicrosoftannounceditsnewWindowsNToperatingsystem,boastingitspre-emptivemultitaskingandmultithreadingcapabilities,itsportabilityacrossvarioushardwareplatforms,anditsbuilt-inpeer-to-peernetworkingcapabilities.7IBMhasbeenaggressivelypromotingitsOS/2operatingsystemincompetitionwithMicrosoft’sChicago(Windows4.0)

operatingsystemasthesuccessortoMicrosoft’sDOS-basedWindowssystem.Applehasalsobroughtanewoperatingsystem,System7.5,tomarketforitsnewPowerPC-baselineofcomputers.NeXtComputershasenteredintoallianceswithSunMicrosystemsamongotherstopromoteitsoperatingsystemwhichhasbuilt-inmultimediacapabilities.IBM,SunMicrosystemsNovell,andotherleadingsuppliersofUNIXoperatingsystemsannouncedtheformationofaconsortiumallowingthemtoworktogethertostandardizeonasingleUNIXoperatingsystemtocounterathreatofWindowsNT.

ThisnewgenerationofPCshasmultiuser,multitasking,andelectronicmailandcommunicationscapabilitiesbuiltinlikemostworkstationswhichusetheUNIXoperatingsystem.Theyarealsocapableofhandlingdigitalsignalprocessingapplicationsandintegratevoice,graphics,image,andvideocommunicationsapplicationsintoasinglesystem.Andtheywillalsomakeextensiveuseofobject-orientedprogrammingsoftwarewhichpromisestosignificantlysimplifyprogrammingandenhancetheproductivityofprogrammers.8Finally,they

willincreasinglydependonreliablespeechrecognitionandsynthesiscapabilities.

Manyofthemostpromisingcomputerapplicationswillrequirethemostadvancedfeaturesthatthisnewgenerationofcomputersandoperatingsystemshavetooffer.Applicationsinvolvingmultimedia,videoconferencing,andworkgroupsoftwaretogetherwithCADandmedicalimaging,forexample,willrequireveryhigh-speed,high-qualitytelecommunicationsservices,andthis,inturn,hasaccelerateddevelopmentsinbroadbandswitchingandtransmissionsystems.Atleastfourtechnologiesarevyingforthemultibilliondollarmarketsthattheseapplicationsareexpectedtocreateintheninetiesandbeyond.Theseareframerelay,switchedmultimegabitdigitalservices(SMDS),asynchronoustransfermode(ATM),andbroadbandISDN(BISDN).Framerelayisamoreadvanced,efficient,high-speedversionofthepacket-switchingtechnologythatcameoutoftheARPANETintheseventies.Localtelephonecompanies,interexchange,andinternationalcarriershavebeendeployingframerelayfacilitiesforseveralyearsbecauseitisamatureandproventechnologyandbecauseitisinexpensive.SMDSandATMarewhatarecalledintheindustrycell-basedtransportsystems.ATMisthehigh-speed,fiber-basednetworkingprotocolthatoperatesbydividingmultimediatransmissionsintosmall,fixed-lengthcellsandsendingthemofftotheirdestinationwheretheyarereassembled.9SMDSisacompetingtechnologywhichtheBellOperatingCompanieshavedevelopedontheirowntomeetthedemandsofbroadbandcommunicationsapplicationsinthefuture.

Althoughnoneofthesearewithoutinherentdisadvantages,itiswidelybelievedthatATMwilldominatedevelopmentsinadvanced,intelligent,networksinthisdecadeandbeyondbecauseitisviewedashavingtheflexibilitytoefficientlyintegrateallexistingandfutureswitchingandtransmissionfacilitiesandservices.Thisisofconsiderableimportanceintheheterogeneous,internetworkingworldthatisemerginginwhichcircuit-switchedandpacket-switchednetworksandISDNandframerelaynetworkswillhavetoco-existwithoneanotherinpublicnetworksand

withinthesameorganization.ATMisexpectedtoprovidethisinternetworkingconnectivitywhileprovidingasmoothmigrationandtransitionpathtotheintelligentbroadbandnetworkofthefuture.DevelopmentsinATMaswellasenterprisewidenetworksandopticalfiberandcoppertransmissionsystemsareexpectedtobringbroadbandservicestothedesksoflargecorporationsinthelargeurbanareaspossiblybytheyear2000.

CREATINGTHEINTELLIGENTMULTIMEDIAINFRASTRUCTURE

Meanwhile,telephonecompanies,softwaredevelopers,cabletelevision,broadcasting,motionpictureandentertainment,andpublishingcompaniesalongwithmanufacturersofmicrochip,computerandtelecommunications,andconsumerelectronicequipmenthavebeengearinguptocreatethepublicintelligent

multimedianetworkinfrastructureofthefuture.Althoughtheplayingfieldisintenselycompetitive,allofthemajorplayershavebecomeengagedinavarietyofstrategicalliancesandjointventuresasameansofdevelopingthenewmarkets.Inthelastchapter,wesawhowcabletelevisionandtelephonecompanieshaveteameduptocreatethebroadbandnetworkinfrastructurestothehome.BothcabletelevisionandtelephonecompanieshavealsobeguninstallingATMequipmentintheirnetworkssotheycanprovidemultimediaservices.Anumberofcomputerequipmentmanufacturershavealsodesignedvideoserversandhaveteamedupwithcabletelevisionandtelephonecompaniestoofferavarietyofservicestothehomeincludinghomeshoppingandvideoondemand.NCube,forexample,whichisaleadingsupplierofsupercomputers,hasturneditsexpertiseintobuildingvideoservers.OracleCorporationhasdevelopedaninteractivemediaserverwhichusesNcube’sserverthatiscapableofprovidingCDqualitysoundandfullmotionpicturequalityvideo.AT&Talsohasavideoserveronthemarket.

Severalotherconsortiaarealsodevelopingablackboxthatattachestothetelevisionsetthatturnsitintoatwo-waymultimediasystem.AT&TandSiliconGraphics,IBMandBellAtlantic,aswellasDigitalEquipment,Intel,andMicrosoftareinjointventurestodevelopthese.OthercompanieslikeZenithCorporationalreadyhavehomecomputersonthemarketwithabuilt-incabletelevisioninterfacewhichallowshomeownerstoaccessdatabases.Gamesmanufacturers—Nintendo,Sega,Atari,andCommodorealongwithacompanycalled3DOwhichispartlyownedbyAT&T—aretryingtocrackthehomemarketwith32-bitand64-bitgamemachines.Sony,Toshiba,Panasonic,Philips,andotherconsumerelectronicscompaniesarealsointherunning.

LeadingsoftwaredeveloperslikeMicrosoft,Novell,Lotus,andApplehavealsoforgedallianceswithtelephonecompaniesandequipmentmanufacturerstohavetheirsoftwareproductsandtheirstandardsincorporatedintothetelephonenetworkandeveryotherkindofdevicepossibleinthehome,theoffice,andthefactory.Thisway,theyhopetotransformthetelephonenetworkintoatrueintelligentinformation

infrastructurethroughwhichtheycancontrolheatingandlightingandotherkindsofequipmentintheoffice,thefactory,andthehome.Microsoft,forexample,hasdevelopedasuiteofsoftwareproductscalled“Microsoft-at-Work”whichallowstelephones,computers,andofficeequipmenttointerworkandinteractinaseamlessenvironmentandaccessadvancedfeaturesofMicrosoft’sproducts.Thecompanycompletedagreementsin1993withoversixtyequipmentmanufacturersandtelephoneservicesupplierstoimplementitssoftwareintheirnewproducts.

NovellandLotusaremovingtheirnetworkingstandardsintothepublicnetworkaswell.In1993,NovellsignedanagreementwithAT&TtoimplementitsNetwarestandardsintoAT&T’sswitchessothatcomputersandtelephonescaninterworkaswell.NovellhasalsoredesigneditsnetworkoperatingsystemtodeliverNetWare-basedservicesoverthe“broadbandinformationhighways”thatareunderdevelopment.Itsstandardswillbeincorporatedintofactoryma-

chinery,refrigerationandcookingequipment,point-of-salesystems,facsimilemachines,copiers,andotherofficeequipment,aswellasfastfoodchainsandenvironmentandsecuritiessystems.LotusandAT&Talsoannouncedadealin1994todeployanationalNotesPublicservernetwork.AppleComputerisalsoworkingwithmanufacturersandtelephonecompaniestohaveitssoftwarearchitecturesincorporatedintotheirproducts.Alloftheseallianceswillresultinthecreationofnewintelligentandinteractivearchitecturesofeverykindofmachineanddevice,possiblybeforethedecadeisout.

ServicessuchasE-mail,voicemail,facsimile,anddatabaseaccessaswellasaccesstotheInternetareamongthemostimportanttargetsofmanyofthesejointventures.Anotherismultimediaapplicationsincludingteleconferencing.AT&Tbecamethefirstmanufacturertodebutapersonal(analogue)videotelephoneinJanuary1992.Agrowingnumberofmanufacturers,however,haveintroducedpersonalvideoteleconferencingsystemsbasedontheMacintoshandPCcomputerplatforms.Intel,IBM,NorthernTelecom,andtheBellcore,forexample,areamongthese.OneofthefirstonthemarketwasNorthernTelecom’sVISITsystem,forexample,whichiscapableofdeliveringawiderangeofmultimediaapplications,includingvideoconferencing,overbothMacintoshandIBMPCcomputers.Italsoallowsuserstosharecomputerscreensandcomputerfilesandmanagevoiceandfacsimilecommunications.TheseapplicationsareexpectedtogetabigboostnowthatthePowerPC-basedcomputersareonthemarket.AdvancedPC-chipdesignswithdigitalvideoandsignalprocessingcapabilitiescouldbecomethecentralprocessorofadevicethatcouldserveastheentertainment-communicationscenterofthehome-of-the-future.Publishers,informationservicesuppliers,anddatabankserviceorganizationsareworkingwithcomputerserviceandtelephoneandcabletelevisioncompaniestoprovideelectronicnewspapersviatheelectronichighwaysintheyearstocome.

Theproductofalloftheseallianceswilllikelybetheintegrationofcomputers,telephones,andtelevisionsetstothepointthattheywillbecomeindistinguishablefromoneanother.Thismayhappenbytheend

ofthedecade.Thetelephoneandthetelevisionsetwillcometoresembleacomputerthatwilltakeonthefunctionalityofboththetelephoneandthetelevisionset.Allwillhavebuilt-inmultimediacapabilitiesofonekindoranother.Alsobeforethisdecadeisout,mosthomecomputerswilllikelybecapableofaccessingboththecabletelevisionandtelephonenetworks,displayinglivetelevisiontransmissions,accessing,retrieving,andplayingaudioandvideoproductionsondemand,aswellasperformingtheusualtelephonevoicemediation.Theculminationofthisconvergencewillbethecreationofanadvanced,intelligent,multimediainformationandcommunicationsinfrastructure.Althoughitisnotpossibleatthisearlystagetodescribeindetailwhatthisinfrastructurewilllooklike,intermsofitsspecifichardware,software,andnetworkarchitectures,itispossibletoprovideaconceptualviewofitandwhatsomeofitscapabilitiesmightbe.

CONCEPTUALVIEWOFTHEINTELLIGENTTELECOMMUNICATIONSINFRASTRUCTURE

Theintelligentmultimediatelecommunicationsinfrastructureofthefuturewillinalllikelihoodrepresentatrueconvergenceandintegrationofallofthevarioustransmission,switching,andmicrochip,computerandsoftwaretechnologies,andsystemsapplicationsandservicesdescribedabove.Itwillconsistofnetworksofcompetingandcooperativenetworksthatinterconnectandinterworkwithoneanotherinvaryingdegrees.Thisinfrastructurewillcomprisesatellitenetworks,telephonenetworks,cellularnetworks,broadbandwirelessnetworks,personalcommunicationsnetworks,andotherkindsofhybridnetworksthatinnovatorswilldreamup.Anditwilleventuallyinterconnectandextendthroughoutallpartsofsociety,connectinghomes,offices,libraries,educationalinstitutions,medicalclinics,banksandfinancialservicecompanies,retailers,andevengovernmentagencies.Itwillalsoconnectwithaircraftinflight,andcars,trucks,andshipsatsea,andpeopleonthemovewherevertheymightbe.Sinceallofthesenetworkinfrastructureswillmakeintensiveuseofdigitalcomputertechnology,theywillbecapableofdoingallofthemanyhundredsandthousandsofthingsthatcomputerscando,fromintegratedvoice,image,andvideocommunicationstospeechsynthesisandvoicerecognition.Thatis,theywillhavetruemultimediacapabilitiesbuiltintothem.

Theintelligentbroadbandtelecommunicationsinfrastructureoftomorrowcouldoffercorporations,households,andindividualsanywhereaccesstoanalmostunlimitedvarietyofservices,includingelectronicmailanddocumentdistribution,homeshopping,educational,news,andnewsanalysesservices.Itcouldmakevastmultimedialibrariesavailabletothemassesallowingthemtoaccess,select,andreceiveanexpandingselectionofcontentextendingfromhigh-definitiontelevisionandfullmotionpicturestoliveentertainmentprogramssuchasbroadcastsfromtheMetropolitanOperaondemand.Individualsandfamiliescouldultimatelyhavethecapabilitiesthatlargebusinesseshavetodaytoconductvideoconferencingsessionsfromonelocationinanynationto

anyother.Theadvancedintelligentcommunicationsinfrastructurecouldeliminatemanyofthephysical,geographical,andeconomicbarriersforworkingathome,anditcouldmakeworkingathomeproductiveendeavorthatcouldinturnenhancethecompetitivenessofnations.Theseandotherapplicationscould,therefore,havedramaticimplicationsfortravel,transportation,energy,andtheenvironment,aswellasforthewholeconceptofworkandorganizationandthelocationofeconomicactivity.

Thepossibilityandpotentialbenefitsderivedfromhundredsandmillionsofindividuals,homes,andbusinessesinteractingthroughouttheworldonaone-to-one,one-to-many,ormany-to-manybasisopensgreatopportunitiesforlearning,education,entertainment,culturalexchange,worlddevelopment,andhumanunderstanding.Thesearejustsomeofthepotentialsofbroadbandintelligentmultimediatelecommunicationstechnology,andthisiswhygovernmentsper-

ceiveinvestmentsinadvancedtelecommunicationsinfrastructurestobecrucialtoeconomicgrowthandcompetitiveness.Forthesereasons,theyareperceivedbyindustry,futurists,andgovernmentsthroughouttheworldtobegrandeconomicenablersthatwillpropelsocialandeconomicdevelopmentwellintothenextcentury.

Figure6.3illustratestheintelligent,multimediainformationandcommunicationsinfrastructureofthefuture.Thisinfrastructurewillcompriseanetworkoftelephone,cabletelevision,opticalfiber,radio,satelliteandmicrowavetransmissionnetworkwhichinterconnectandinterworkwithoneanother.Itwillprovidemultimediavoice,data,image,andvideoservices,alongwithelectronicmail,documentcommunicationsandvideoconferencingservicesviacombinationsofcircuit-switched,packet-switched,andISDNfacilitiesaswellasbythemoreadvancedSMDS,ATM,andBISDNfacilities.Alloftheheterogeneouscomputing,switchingandtransmissionfacilitiesthatarebeingdeployedtodayandwilldeploythroughoutthisdecadewillevolvetoconstitutetheessentialinfrastructureforeveryorganizationandeveryindustryandeverysectoroftheeconomy.

NOTES

1.Foranin-depthanalysisofthepoliticaleconomyofintelligentnetworks,refertoRobinMansell,TheNewTelecommunications:APoliticalEconomyofNetworkEvolution(London:SagePublications,1993).

2.

Bell-NorthernResearch,theresearcharmofNorthernTelecom,hasestimatedthatasmuchof90percentofitsinvestmentsinresearchanddevelopmentintotelephoneswitchesaresoftwarerelated.ThecompanyboaststhatthesoftwareforitsDMSswitchhasmorethan19millionlinesofcode.Bycomparison,theprogramneededtolaunch,operate,andtrackNASA’sspaceshuttlehas3.6millionlinesofcode.

3.ForahistoryofArpanetandInternet,seeJeffreyA.Hart,RobertR.Reed,andFrançoisBar,“TheBuildingoftheInternet,”TelecommunicationsPolicy,November1992,pp.666–689.

4.

BoeingCorporation,forexample,whichhasbeenaleaderinbuildingandoperatingitsownprivatenetwork,operatesoneofthelargestprivate(ISDN)networksintheworld.In1993,itsnetworkcomprisedabackboneoffiveofAT&T’sbiggest(#5ESS)centralofficeswitchesand95,000lines,anditlinked160,000peopleintheUnitedStates,Japan,andEurope.

5.

WirelessLANsalsomadetheirdebutinthecorporatecommunicationsenvironmentintheearlynineties.MotorolaannouncedawirelessLAN(Altair)offeringinthefallof1990.NCRalsoannouncedawirelessLANcalledWaveLAN.Likeallwirelessapplications,thesecouldhaveapromisingfuturebecausetheyprovideuserswiththemobilitythatwire-basedLANscannotprovide,andtheyalsohaveeconomicadvantagessincetheyrequirelittleornoinvestmentininfrastructure.Forthesereasons,theycouldhaveabigimpactontheinformationprocessingenvironmentandonorganizationsinthenineties.

6.“WhereClient/ServerFits”and“DefiningClient/Server,’’Datamation,15July1991.pp.36–38.

Figure6.3

TheUniversal,Intelligent,Multimedia,CommunicationsInfrastructureoftheFuture

7.

Pre-emptivemultitaskingallocatestimeslicestoeachtasksothatnoneholdsuptheothers.Thusitisalsodemocratic.Multithreadingallowsaprogramtoexecutedifferentinstructionssimultaneouslymakingtaskslikedatabasesearchesfasterandmoreefficient.

8.

Object-orientedprogrammingmakesuseofprewrittensoftwareprogramswhicharerepresentedonthecomputerscreenintheformofobjects.Theseobjectshavevariousattributessothatprogrammerscansimplylinkthemtogetheronthecomputerscreentoaccomplishaparticulartaskinsteadofwritingprograms.Foradescriptionoftheprinciplesandprosandconsofobject-orientedprogramming,seeComputerWorld,14June1993,pp.107–118.

9.

ATMtechnologyisbasedoncellswhicharefifty-threebytesinsize.Thefixedlengthmakesitpossibletomangenetworktrafficsoastoguaranteethatagiventransmissiongetsthroughinatimerequiredfortheapplicationwhilethefixedlengthandsmallpacketsizeprovidesflexibilityforallocatingbandwidthamongdifferentdevices.

Chapter7TheIntelligentEconomy

Intelligentmachinesandintelligentinfrastructuresarespreadingthroughoutallorganizationsandallsectorsoftheeconomy.Theyareinitiatingatransformationofindustrialsocietyonascaleoftheindustrialrevolutionthatbeganovertwocenturiesagobutonatimescaleofseveraldecadesratherthanacenturyormore.Andeveryindustryandeverysectorisbeingaffectedinonewayoranother.Butthetransformationofseveralkeysectors,Iwouldargue,isleadingtothetransformationoftheeconomicsystemitself.Theseincludetheinformationandcommunicationsandbankingandfinancialservicessectors,whichconstitutewhatIrefertoasthe“centralintelligence”segmentorbrainoftheeconomy.Thesesectorsareresponsibleformediatingtheproduction,collection,processing,andcommunicationsofinformation,money,securities,andwealth,aswellastheessentialtransactions,accounting,paymentandsettlementprocessingactivitieswhichareintegraltotheoperationofthemarketeconomy.Theythusplayacriticalcontrol,coordination,andstabilizationroleintheorganizationandoperationofdemocracyandeconomicsystem.Iarguethatitisthroughitseffectsonthiscentralintelligenceandcontrolsystemthatintelligenttechnologyisinitiatingatransformationoftheeconomicsystemitselfasdescribedinthisandsubsequentchapters.Iwilldescribetheimpactofintelligenttechnology,sectorbysector,beginningwithitseffectsonthesecentralcontrolorintelligencesectors.

THERISEOFTHENEWMEDIA

Oneofthemostvisiblesignsofanewpostindustrialageandaportentofthingstocomeistheemergenceofthenewmediatechnologiesthatcouldinitiateoneofthemostpowerfulsocialandeconomictransformationsinthehistoryofmankindinjustamatterofyears.Thenewmediaissynonymouswiththeriseofmultimediacomputingandcommunicationsintheworkplace,theclassroom,andthehome,aswellasintheatersandotherplacesofentertainment.Theentryofdigital,interactivetelevision,high-definitiontelevisionandofdigitalphotography,computeranimation,and,ofcourse,virtualrealityintothemainstreamofsocialandeconomiclifeisalsoindicativeofthenewmediarevolution.EventheInternetandtheelectronicsuperhighwaysandinformationinfrastructuresthatcompaniesandnationsaroundtheworldarebuildingrepresentintegralcomponentsofthisnewmediarevolution.

Thetruthisthatthenewmediaisallofthese.Thecentralcommonelementofallofthenewmediatechnologies,however,isthecomputer,allthatitstandsfor,allthatcontainsit,andallthatiscontainedinit,connectedtoit,andcontrolledandmediatedbyit.Thecomputeristheintelligentengineorbrainofallofthenewinformationandcommunicationsmediadevices,whetheritbemultimediatelephoneandtelevisionsets,intelligentnetworks,ortheintelligentsuperhighwayitself.Infact,allofthedevicesandsystemsnowandinthefuture,whichprovidetheessentialinterfacebetweenmachinesandpeople,mustqualifyascomponentsofthenewmedia.Thecomputerhas,inpointoffact,becomethebrainandtheessentialinfrastructureoftheneweconomy,andthisiswhyitispropertosaythatitistransformingtheindustrialandinformationsocietyofthepastintoanintelligent,multimediasociety.

THERISEOFELECTRONIC,MULTIMEDIAPUBLISHING

Thecorecomponentofthenewintelligenteconomyistheelectronicpublishingindustryofwhichtheoldestandbestknownsegmentisthe

on-linedatabankindustry.ThebiggestmembersofthiseliteclubofsuppliersincludethelikesofReuters,DowJones,McGraw-Hill,andDun&Bradstreet.Theydependontheircomputer-communicationsinfrastructurestoproduce,collect,distribute,andmarketenormousvolumesofbusiness,economic,financial,demographic,andscientificandtechnicalinformationelectronicallytotheirclientsaroundtheworld.CompanieslikeCompuServe,Prodigy,andAmericaOnline,forexample,provideindividualsandprofessionalsattheofficeandathomewithaccesstoeverythingfromnewsreports,weatherforecasts,andstockmarketquotationstotravelreservations,shopping,andnewspapers.

Figure7.1illustrateshowmultimediahasevolvedfromdevelopmentsindataprocessing,wordprocessing,andelectronicpublishingandnowincorporatesdevelopmentsincomputergraphics,computersimulation,computeranimation,imageprocessing,digitalphotography,speechsynthesisandrecognition,com-

Figure7.1

TheNewMultimediaTechnologies

putergeneratedmusicandsynthesizedsounds,teleconferencing,artificialintelligence,andvirtualreality.

Theelectronicpublishingindustryisbeingexpandedandtransformedbytheentryofthecomputerindustryintothemassmarketstageofitsevolutionandtheriseofmultimediacomputerswhichiscontributingtothecreationofamultimediapublishingindustry.AsecondfactoristheresultofdevelopmentsintechnologythatarecatapultingCD-ROMs(orsimplyCDs)intobecomingauniversalmediumforthestorageanddistributionofmultimediacontent.ElectronicpublishinghasalsobeengivenabigboostbythegrowthandspreadoftheInternetandthecommunitiesofprivateandpublicnetworksattachedtoit.Developmentssuchasthesearecreatingmassmarketsforallkindsofpersonal,professional,andbusinesselectronicinformation,someofwhichalreadyexistandsomeofwhichhaveyettobeproduced.

Theelectronicpublishingindustrywashitbywhatisequivalenttoatsunamiin1993.Thatwastheyearinwhichalloftheseforcescametogether,andleadingpublisherstookoffinsearchofmassmarketsfortheirproductsandservices.Forthemostpart,theirstrategiesinvolvedmakingaswideavarietyofinformationservicesaspossibleavailableelectronically,intheformoftext,images,andevenvideoclippings,andusingspecialsoftwaretoenableuserstopersonalizetheseservicestosuittheirindividualinterestsandtastes.Somecompanieshaveincorporatedbulletinboardandelectronicmailservicesintotheirofferings.Butbecausefewpublishershadthetechnicalknow-howorthedeliverysystemstomarketthisinformationelectronically,mostoftheseinvolvedstrategicalliancesbetweennewspaperpublishers,on-linedatabanksuppliers,cabletelevisioncompanies,andtelephonecompanies.

CoxEnterprisesInc.andProdigyServicesCo.wereamongthefirsttoannouncetheirintentions.Coxhasextensiveholdingsincabletelevision,anditownsnewspapersinseventeencitiesintheUnitedStates.Prodigyisoneofthebiggestmassmarketersofon-lineservicesintheUnitedStates.InJuly1993,thetwocompaniesannouncedajointventureto

marketaninteractiveelectronicnewspaperservicetolocalpublishers.Theserviceincludedabulletinboard,adatabaseofprintstories,expandedcoverageofarticles,directories,andeducationalservices.Prodigyisalsopursuingallianceswithotherpublishers,includingTimesMirrorofLosAngeles,whichownsextensivenewspaperholdingsandcabletelevisionfranchisesinthirteenstates.TheregionalBelloperatingcompanieshavealsoenteredthemarketinjointventureswithpublishers.InJune1993,forexample,BellSouthEnterprisesandCoxannouncedplanstoformajointventuretoprovideelectronicinformationservicesbasedonnewspapersandclassifiedandyellow-pagesadvertisements.Specialsoftwareletsuserscustomizetheserviceforthemselves.Threemonthslater,twelvemorenewspapercompaniesjoinedthealliance.

TimeInc.,nowpartoftheTimeWarnerempire,beganofferinganelectronicversionofTimeMagazineinSeptember1993viaAmericaOnline.Itallowsreaderstoprovidecommentsandaddmaterialviaanelectronicbulletinboard.

Inthesamemonth,DowJones,oneofthelargestsuppliersofreal-timeelectronicnewsintheworld,introducedadigitalversionofTheWallStreetJournal,calledTWSJPersonalEdition.InNovember1993,theWashingtonPostannouncedthecreationofanewsubsidiary,DigitalInkCo.,toproducenewsandinformationproductsfordistributionbyfacsimile,computer,andtelephone.Itsfirstproduct,anonlineversionoftheWashingtonPost,becameavailableinJuly1994.ThenewcompanyusestheresourcesofthesubsidiariesoftheWashingtonPostincludingNewsweekanditsbroadcastingandcabletelevisionanddatabaseservices.Itsproductscombinetext,graphics,photos,movingpictures,music,andsoundsandmakesthemaccessiblebycomputers,cabletelevision,portablecomputers,telephones,andwirelessdevices.Itprovidesinteractivecommunicationsservices.

Knight-Ridder,TimesMirror,andHearstCorporationalongwithIBMandMIT’sMediaLabarealsoinvolvedinaninternationalconsortiumtodevelopfullyelectronicnewspapersinvolvingtext,audio,andvideofordeliverydirectlytohomesandofficesviaordinarytelephonelines,cabletelevision,orcellularorpersonalwirelesscommunications.1Knight-Ridderhasdesignedwhatitcallsan“electronicnewspapertablet”whichiscapableofreceivinganewspaperelectronicallyviatelephoneorbywirelesstransmissionandstoringitsothatapersoncanreadandbrowsethroughitsequentiallyorrandomlylikeonewouldanewspaper.Thedevice,whichisavailableinblackandwhitebuteventuallywillbeincolor,willalsobecapableofreceiving,storing,andplayingbackaudioandvideonewsclippings.Knight-Ridderintendstohaveafullyelectronicmultimedianewspaperbytheendof1995.Itiseasytoseewhycomputers,databanks,electronicpublishingsystems,electronicnewspapers,andtelecommunicationsnetworkshavenowbecomeanintegralpartoftheworld’snewmassinformationandpublishinginfrastructure.

MULTIMEDIACDs,E-BOOKS,PDAs,ANDSOON

Oneofthebiggestpromisesofthenewmediaandthestrongest

indicationyetofitsstayingpoweristhecompactdiskorCD.TheCDhasallofthecharacteristicstomakeitamassmediumforthestorage,distribution,andcommunicationsofawidevarietyofinformationcontent.Itsunderlyingdigitaltechnologyanditshigh-capacitystorageandrandom-accesscapabilitiesmakeitthepreferredmediumforstoringanddistributingnotonlytext,statistics,andgraphs,butintegratedvoice,images,andvideocontent.CDtechnologyisalsointeractivesoitcanbepersonalizedtosuitindividualtastesandlevelsofability,interest,andeducation.Thisiswhyitisontheleadingedgeofmultimediadevelopmentsinentertainment,games,education,andtrainingaswellasbookpublishingandvideoproductions.

ExecutivesatAppleComputerfeltsostronglyaboutthepotentialoftheCDasauniversalpublishingmediumin1991thattheydecidedtocallthecompany’snewpersonallaptopcomputerthePowerBook.Hewlett-Packardcallsits

laptopcomputertheOmnibook,andIBMcallsitssuccessfullaptoptheThinkPad.SonyintroducedaWalkman-likedevicein1992whichcameequippedwithaCDforstoringmultimediaprogramsandascreenfordisplayingitscontent.AccordingtoDataquest,afirmthatmonitorstheindustry,multimediahadbecomethemostrapidlygrowingsegmentofthepersonalcomputerindustryin1994withnearly20percentoftheworld’s122milliondesktoppersonalcomputersbeingequippedwithCDdrives.

TheCDhasalsofacilitatedthecreationofathrivingmarketforwhathavebecomeknownaselectronicbooksorE-books.Thesecarryawidevarietyoffancymultimediacontentrangingfromtext,images,pictures,andvideo-to-voice,music,andnaturalandartificialsounds.Andagrowingnumberofpublishersaswellasasurprisingnumberofothernonpublishingcompanieshavebegunproducingcontentforthem.CompanieslikeSoftBooksCorporationofCalifornia,forexample,arecreatinganentirelineofelectronicbooks.BothIBMandMicrosofthavemadebigcommitmentstothemultimediapublishingindustry.Oneofthebiggesthitsin1994wasMicrosoftBookshelf,whichconsistsofsevenreferenceworksincludingtheConciseColumbiaEncyclopediaandRoget’sThesaurus.AnotherisMammals:AMultimediaEncyclopediaproducedbyNationalGeographicandIBM.OthersincludeGreatLiterature,whichcontains1,896illustratedliteraryworkssuchasHomer’sOdyssey,theOxfordEnglishDictionarySecondEdition,andStreetAtlasUSA,whichcontainsstreetmapsoftheUnitedStates.

Mostofthebigpublishersofencyclopediasnowproduceelectronicversionsoftheirproducts.ComptondistributesitsInteractiveEncyclopediaviaCDaswellasthroughProdigyandAmericaOnline.GrolierhasestablishedasubsidiarycalledGrolierElectronicPublishingwhichmakesitsAcademicAmericaavailableviaCDaswellasviaCompuServeandAmericaOnline.Thethirty-two-volumeEncyclopediaBritannicaisalsoavailableonCDaswellasviatheInternet.EncyclopediaBritannicaannouncedonFebruary8,1994,thatitwascreatinganewsubsidiarycalledBritannicaOnlinetomarketitsencyclopediaproductsavailableelectronicallytouniversitiesandlibraries

viatheInternet.TheserviceusesahypertextsoftwareprogramcalledMosaictoallowuserstobrowsethroughthedatabaseatrandom.

Nodiscussionofthenewmediawouldbecompletewithoutreferencetothenewgenerationofpersonal,pen-basedcomputerswhichhavebuilt-inhandwritingrecognitioncapabilitiesinadditiontotheusualinformationprocessingandcommunicationscapabilities.Theserepresentthefirstofawholenewclassofpersonalhandheldcomputer-communicationsdeviceswhichApplepresident,JohnSculley,referredtoin1992aspersonaldigitalassistantsor(PDAs).Inadditiontoservingaspersonalorganizersandappointmentschedulers,thesealsohavewirelesscommunicationscapabilitiesbuiltinsotheycancommunicatebyfacsimile,electronicmail,andvoiceandarecapableofaccessingstockmarketprices,airlineschedules,andpersonalcomputersathomeorintheoffice.

Manybelievethatthesenewdeviceswillusherinaneweraof‘‘socialcomputing.”

PDAsmadetheirdebutin1993whenAppleannounceditslong-awaitedNewton.Sincethen,allofthebigworldcomputerandhomeelectronicsmanufacturershavebroughtouttheirownmodels.EOCorporation,nowasubsidiaryofAT&T,introducedamuchlargerPDAwithbuilt-incellularcommunicationscapabilitiesinthesameyearasApple.ItsPDAispoweredbyaspecialchipdesignedandproducedbyAT&Tcalledthe“Hobbit,”whichsupportshand-writingrecognition,information-processing,andwirelesscommunicationscapabilities.IBM’sPDA,called“Simon,”combinesacellularphone,facsimilemachine,pager,andpersonalorganizerinaneighteen-ounceunitwitharetailpriceof$900in1994.Itlookslikeatelephonebutisactuallyacomputer.Ithasitsownicon-based,touchscreen,anddialpadandiscapableofoperatingasapen-basednotepad,anE-maildevice,anappointmentscheduler,andcalculator.BellNorthernResearch,theresearcharmofNorthernTelecom,hasdesignedadevice,dubbed“theOrbiter,”whichlookslikethecommunicationsdeviceusedbyCaptainKirkaboardtheStarshipEnterprise.Ithasthefeaturesofawirelessphone,pager,voicemailbox,faxmachine,calleridentificationsystem,andapost-itnotessystem.

Hereagain,mostofthemajorplayersarecooperatingtobringtheirproductstomarket.Oneofthesepartnerships,calledGeneralMagic,wasfoundedin1991byApple,Sony,andMotorola.AT&T,Matsushita,andPhilipsElectronicssubsequentlyjoinedin1993.GeneralMagicdevelopedtheTelescriptprogrammingandcommunicationslanguageandcommunicationsprotocolthatApplehaslicensedtoothermanufacturers.GeneralMagichasalsodevelopedanobject-orientedoperatingsystemcalledMagicCommunicationsApplicationsPlatform,whichithaslicensedtoSony,Motorola,andPhilipsElectronics.Equipmentmanufacturers,informationservicessuppliers,andsoftwareandentertainmentcompaniesareincorporatingthesenewstandardsintheirnewproductsandservices.

In1994IBM,Motorola,andAT&Tbeganrollingout“intelligent”

messagingsystemstolinkwirelessandwire-basednetworks,includingcellularphones,PDAs,andE-mailnetworks,together.AT&T’sPersonalLinkserviceemploystheservicesofanintelligent“agent”thatallowsuserstoprogramittobrowseelectronicnewsservicestofindinformation.Itisalsocapableoftrackingdownindividualsanddeliveringamessage.IBM’sservice,calledInTouch,whichisdesignedforcorporateusers,andMotorola’sMobileNetworksIntegrationservicehavesimilarfeatures.

Asweshallseebelow,anumberofsoftwareandhardwaremanufacturersarealsoworkingonanotherkindofPDA,whichusesminiaturecomputers,wirelessradio,andgeographicalinformationsystemsasamassinformationprocessingandcommunicationsmediumfornavigationpurposes.

COMPUTERANIMATIONANDTHETRANSFORMATIONOFMOTIONPICTURESANDTELEVISION

Itisinthetelevision,advertising,andmotionpictureproductionindustries,however,wherecomputertechnologyishavingsomeofitsmostvisibleandlastingimpacts.Computertechnologyhas,infact,createdanewsubcultureofhigh-techproducersandspecialeffectsprofessionalswhodoeverythingontheircomputerscreens.Andagrowingnumberofartists,animators,cartoonists,andadvertisersaswellastelevisionandfilmproducersindeedareturningtothenewmediumofthecomputerandspecialapplicationsinvolvingcomputersimulationandanimation,3-Dcomputergraphicsandhyper-realisticcomputerimagery,andinformationvisualizationtogetherwithmusicandsoundsynthesisfornewsourcesofinspiration,creativity,andflexibility.

Onehastolooknofurtherthanthetelevisionsettowitnesstheireffectsoncommercialadvertising.Artistsusethelatestgenerationof3-Dgraphicssoftwaretocapturethroughsimulationandanimationsomeofthemostsubtlefacialexpressionsandmovementsofthebodyandtomanipulatetheminthecomputerandonthescreenwithhyper-realisticeffects.Computer-generatedcharactersanimatedonatelevisionscreencanmoveandtalkanddanceandsinglikerealpeopledoontelevision.Animalscanbemadetohavehumancharacteristics,andhumanscanbemadetohaveanimalandsurrealisticcharacteristics.Inanimatethingsliketreesandtablesandchairscantakeonhuman-likeformsandtalkandinteract,butinmorecontrolled,creativeanddynamicwaysthanthehand-drawinganimationtechniquesofthepast.Anyrealorunrealentitycanbeanimatedinthiswayusingthesuperrealismoftoday’scomputertechnology.

IndustrialLightandMagic(ILM),adivisionofLucasFilmsIncorporated,isaworldleaderinusingcomputertechnologyasanewmediumforcreatingmotionpictures.Usingoneofthemostsophisticatedcomputergraphicssoftwarepackagesonthemarket,fromAliasResearchinToronto,andaspecialgraphicscomputermadebySiliconGraphicsin

California,thecompanycreatedthegiantwaterworminthefilm,TheAbyss,forwhichitreceivedanAcademyAwardin1989.SpecialcomputergraphicssoftwarewasalsousedtocreatetheliquidmetaltransformationofthecyborginTerminatorII(throughatechniquecalled“morphing”)aswellasscenesinthemoviesBeautyandBeast,Aladdin,andLawnmowerMan.Computergraphicswascrucialtobringingtolifethe100-million-year-oldbrachiosaurusnibblingleavesandthetyrannosaurusrexchasingaJeepinthe1993moviehitJurassicPark.CompanieslikeILM,AliasResearch,Softimage,nowownedbyMicrosoft,andWavefrontofCaliforniaaretransformingthefilmindustryandHollywoodinwayssuchasthese.Photo-editingandtape-editingcanalsobedoneentirelyinsoftwareonworkstations.

Producersarenowlookingforwardtothedaywhenasingleartistwillbeabletousetechnologytoproduceafeature-lengthfilmcompletewithsetsandactorsnoneofwhichreallyexistsorusethefacialimagesofdeadactorslikeHumphreyBogarttomakethemactoutscenestheyneverdidorcoulddoin

reallife.LittlewonderthatspecialeffectsmasterslikeGeneWarren,Jr.,inchargeofsomeofthemostdramaticscenesinTerminatorIandotherbigmoviehits,believethatcomputergraphicsrepresentsthebiggestinnovationintelevisionsinceitsbeginning.

Onotherfronts,variousconsortiaofcompaniesaroundtheworldarerushingtobringhigh-definitiontelevision(HDTV),digitaltelevision,interactivetelevision,anddigitalaudiobroadcastingtomarketinthecomingdecade.Photographywillbecomeincreasinglycomputerizedintheninetiesaswell.Magneticandopticaldiskswillreplacefilminstillcamerasascomputers,digitalcameras,andelectronicdisplaysevolvetobecometheprimarymediumforphotography.Kodak’sphotoCDtechnology,introducedin1992,whichenablesprintshopstotransfercolorphotosfromnegativestoCDs,representsthefirstgenerationofthenewtechnology.Fullydigitalstillcamerasanddigitalmoviecamerasareevolvinginparalleldevelopments.Computertechnologyintheformofsynthesizedmusicandsoundswillcometodominatethemusicandentertainmentindustriesinthefutureinthesamewaythatitdominatesfilmandvideoproductions.

VIRTUALREALITY:SIMULATINGREALITYINSOFTWAREINSIDEACOMPUTER

Ofalltheinnovationsthathavebeenmadepossiblebydevelopmentsinintelligenttechnology,noneisquitesobizarreaswellasexcitingas“virtualreality”or“artificialreality.’’Virtualrealityorvirtualtechnology(VRorVT),usesthemostsophisticatedthree-dimensionalgraphicssoftware,computeranimation,simulation,andnaturalandartificialsightandsoundtogetherwithrealpeopleandmovingimagestosimulatereality,texture,action,andinteractioningrowingdegreesofdetailandrealness.Thenewtechnologyenablesindividualstoobtainadynamicrepresentation,visualization,orvirtualfacsimileoftherealworldonatelevisiondisplayscreen,togetherwithappropriateaudiblenaturalandartificialsoundsincludingmusicandspokenwords,andtointeractwiththisvirtualcreationvisuallyandmanuallywiththehandsthrougha“dataglove,”for

example,andthroughsoundsandspokenwordsinsuchawaythat,fromthepointofviewofoursenses,itrepresentsandapproximatesrealitywithvaryingdegreesofprecision.Buttheapplicationofvirtualtechnologygoesfarbeyondthevisualandaudiodimensions.

Bycouplingthehumanbodytothecomputerbytransducers,virtualtechnologycanenableanindividualtobecomepartofandtofeelwhatisbeingsimulatedwithmultiplesenses,thatis,to“experience”virtualrealityinmultipledimensionsandtointeractwiththemediumandcontrolwhatistakingplaceinrealorcompressedtime.Inthisway,theindividualcanbecomeanobserveroranactiveparticipantinthecomputeranimationandsimulationexercise.

AgrowingnumberofcompaniesintheUnitedStates,Japan,andEurope—

manywithlucrativegrantsfromtheirgovernments—areactivelydevelopingvirtualtechnologyproductsandservicesforwhatcouldbeabigmarketinthefuture.WorkinginconjunctionwithVTpioneerssuchasPaloAlto-basedTelepresenceInc.,MCAInc.,nowasubsidiaryofMatsushitaofJapan,openedexperimentaltheatersin1992inLosAngelesandTokyo.ThesetheaterswereequippedwiththemostmodernVTor“telepresence”technology.InFebruary1994,SegaEnterprisesInc.,ofLosAngeles,openedaVTthemeparkinOsaka,Japan,andplanstohaveatotaloffiftybuiltby1997.InJune1994,MatsushitaannouncedthatitwillopenvirtualrealitytheatersinJapan,Europe,andtheUnitedStates.TelepresencealongwithotherVTpioneershascarvedoutanicheasa“virtualrealityintegrator”tocustomizevirtualenvironmentsforspecificbusiness,scientific,andentertainmentapplications.AnotherapplicationbeingdesignedforMatsushitawillallowconsumerstobrowseforproductsina‘‘virtualshowroom.”Stillanotherapplicationallowsusersto“enter”adatabasetobrowse,select,andorganizeinformationwithhisorherhandorbody.Complementedbyadvancesinacousticmodelingorvirtualacoustics,whichisdesignedtosimulatesoundsfromanydirection,virtualtechnologyissettingthestageforthedevelopmentofapplicationsinarchitecture,education,andentertainment.

VTalsohasveryimportantmanufacturingandmilitaryandaerospaceapplications.NASAisinterestedinusingVTasamuchlessexpensive,safer,andmorerapidmeansofexploringspace.TheVirtualPlanetaryExploration(VPE)systematNASAAmesisbeingdesignedtoallowastronautstoexploreandconquerthesolarsystemwithoutleavingthecomfortoftheearth.Usinginformationcollectedthroughtheeyesandearsofrobotslocatedonthesurfaceofaplanetandfromorbitingsatellites,NASAcomputerswillbeabletocreateartificialorvirtualfacsimilesoftheplanet’senvironment.Scientists,students,andordinarypeoplewillbeabletomakesimulatedvoyagestotheplanet,takeastrollonitssurface,andexaminethecontentofthesurfacewiththeirhandsorexploreinterestingrockformationsandevenpenetratethesurfaceoftheplanet.Onotherfronts,scientistsaroundtheworldareinvolvedina

varietyofprojectsaimedatdevelopingvirtuallaboratoriesinsidetheircomputerstoenablethemtoresearchandexplore,throughinformationvisualizationtechniques,problemsinmeteorology,weatherforecasting,astronomy,andnuclearphysics.Artistsareexploringitspotentialasanewmediumforcreativityandexpression.

VTtechnologyisbecomingavailabletothemillionsofownersofpersonalcomputersaroundtheworld.IBMannouncedavirtualrealitysoftwarepackagecalledVRToolkitinthespringof1993thatenablesprofessionalusers,suchasengineers,medicaldoctors,andsalespeopletodeveloppracticalvirtualrealityapplicationsprogramsfortheirworkstations.AndAutodeskIncorporated,producerofAutoCAD,themostpopularengineeringdraftingprogramforpersonalcomputers,announcedtheCyberspaceDevelopmentKitinthespringof1993.Itenablesengineerstoaddnaturalpropertiessuchasgravity,friction,andsoontoAutoCADobjectsandenableengineerstoseewheelsturning,beams

bendingandbreaking,andfluidsflowingoverawing,forexample.Usingvideogogglesandadataglove,engineersarenowabletomanipulatecomputer-aideddesignsin3D.Virtualreality,artificialreality,andvirtualtechnologythusrepresentstheultimateinman-machineinteraction.Itisgivingnewmeaningtotheword“experience.”Anditisgivingrisetoaradicallynewinformationandcommunicationsmediumthatcouldfurthertransformtherealityofwork,entertainment,education,andlearninginthetwenty-firstcentury.

THEEVOLVINGBANKINGANDFINANCIALSERVICESINFRASTRUCTURE

Thebankingandfinancialservicessectorrepresentsanotherstrategicinformationprocessingandcommunicationsintensivesectorthatisalsoontheleadingedgeofthebusinessandeconomicrevolutionbeingbroughtaboutbyintelligenttechnology.Aglobalintelligentbankingandfinancialservicesinfrastructureisunderdevelopmenttocomplementtheintelligentinformationandcommunicationsinfrastructures,andthetwoarecontributingtothecreationofacomputer-based,globalmarketplaceforthetradingandexchangeofallmannerofwealth,capital,andfinancialinstrumentsaswellasgoodsandservices.Computerizationhasreducedmoneytoaseriesofdigitalelectronicorphotonicpulsesthattravelaroundtheworldatornearthespeedoflightoveratelephonewire,asatellitechannel,orafiberopticcable.2Ithasincreasedthecapitalintensityandeconomiesofscaleandscopeofbankingandfinancialoperationsandreducedtransactionscostsbyordersofmagnitude.Computerizationhasreachedthepointwhereitisnotonlyeconomicallyattractivetoautomatetheentirebankingandsecuritiesandcommoditiestradingprocessesaroundtheworldbutithasalsomadeitanabsolutenecessityforcompetitivereasons.

Automatedtellermachines(ATMs)andretailpoint-of-sale(POS)terminalsareamongthemostvisiblesignsofthebankingandfinancialservicesrevolutionbuttheseareonlyapartoftheenormouslyhugeandhiddennationalandinternationalelectronicmoneyandpayments

infrastructurethatcomputerizationhasenabledinstitutionstocreate.ATMstypicallyoperateinanetworkenvironmentandserveasbranchesofmostbanksandfinancialinstitutions,andtheycomplementandsubstituteforthetraditionalbranchesthatarebuiltoftimber,mortar,andbrickandstaffedwithpeople.ThevarietyofservicesthatATMsarecapableofprovidingiscontinuingtogrowbeyondtheusualdeposit,withdrawal,andbillpaymentfeaturesandnowincludeawidevarietyofcashandinvestmentmanagementservices.

Computerizationhasalsobroughtwithitavarietyofnewelectronicmediawhichcomplementandsubstituteforthemediumofpapermoney,anditismakingitpossibletocreateacompletelyelectronicmoney-mediatedsociety.Thenewsubstitutesforpapermoneyincludethemagneticstrip“credit”cardanditsmuchmoresophisticateddescendants,theso-called“debitcard”and“smartcard,”whicharecompetingwithoneanother.Debitcardspermitin-

dividualstoinstantlyandautomaticallydebittheirbankaccountswhentheymakeapurchaseataretailstorethroughtheuseofdirectcommunicationslinksbetweenretailoutletsandbankinginstitutions.BankshavebeenaggressivelypromotingdebitcardtechnologytocompeteagainstnonbanksandnonfinancialinstitutionsthathaveusedcomputersandothertechnologiestoenterthebankingbusinessandnowofferawholerangeoffinancialservicesthroughATMandPOSsystemsaswellascreditcards,forexample.

Thesmartcardisindicativeofwhatmayeventuallybeinstoreforeveryone.Typically,itresemblesacreditcardinsizebuthasamicrocomputerwithmemoryanddisplayembeddedinitsdesignwhichmakesitcapableofstoring,retrieving,andprocessingmedical,financial,andotherkindsofpersonalinformation.ThesmartcardannouncedbyAT&TandNCRinlate1992evenhasvoice-recognitioncapabilitiesbuiltin,soitcanidentifytheuserofthecardbycomparinghisorhervoicewithaprerecordedvoiceprintstoredinmemory.Thus,ithasthecapabilitytoserveasasecurityandidentificationcardinadditiontoamediumforpurchasingtheatertickets,lifeinsurance,andsoon,fromavendingmachine.Sinceitcanalsostoreandretrievepersonal,financial,andmedicalinformation,itcouldalsohaveimportantmedicalimplications.SmartcardsaregainingwidespreadpopularityinEuropeandAsiaaswellasNorthAmerica.Astheelectronicmediationofmoneycontinuestogrowandgainmomentuminthefuture,thedebitcardandthesmartcardwillprobablymakebothmoneyandchecksobsoleteintheyearstocome.

Electronicbankinginfrastructureshavefundamentallychangedthewaymoneyismanagedbyfinancialinstitutions,corporations,andindividuals.Computer-communicationsnetworkstiethousandsofATMstogetherintonetworksandconnectthemwithbankbranchesandcorporateheadquartersandinterconnectthemwithotherbanksandfinancialinstitutionsandpaymentsettlementsystemsaroundtheworld.High-speed,high-capacitycomputer-communicationsnetworkssuchasSWIFT,CHIPS,andFEDWIREalsoconnectbankingandfinancialinstitutionsaroundtheworldwithoneanotherandwiththeircentral

bankingauthorities.Itisthroughhighlysecureprivatecomputernetworkssuchasthesethatcentralbanksareabletomonitor,control,andstabilizetheenormousvolumesandflowsofglobalfundsonwhichthehealthoftheglobaleconomynowdepends.Byeffectivelyconstitutingagiganticglobalcomputerizedswitchingsystemforalloftheusesofmoney,thesesophisticatednetworksofcomputersandcommunicationssystemspermitmoneytobeaccessibleandusedjustaboutanywhereintheworldatanytimeofthedayornight.Allofthecomputersandtelecommunicationssystemsthataredeployedinthebankingandfinancialservicessectorworldwidenowconstituteaglobalfinancialinfrastructureinitsownright.

Thenextlogicalstepinthisprocessisgivingthehundredsofmillionsofindividualsthroughouttheworldon-lineaccesstotheseinfrastructuressotheycandotheirbanking,makepayments,andinvesttheirmoneyandcapitalanywhereintheworldfromtheirhome,theircar,theiroffice,oronthebeach.This

ispreciselywhatmanybankingandfinancialservicescompaniesalongwithtelephonecompanies,retailers,andon-lineserviceprovidersarenowtryingtoachieve.Whenthishappens,thetechnoeconomicprocessthatwasinitiatedbytheinventionofthetransistorandthecomputeralmostfivedecadesagowillbecompletebuttheimplicationsforbusinessandsocietywillbefar-reaching.

COMPUTER-BASEDGLOBALEXCHANGEANDTRADINGINFRASTRUCTURES

Computerizationandthetelecommunicationsrevolutionarecontributingtothetransformationofindustrialsocietynotonlythroughtheireffectsoninformationandcommunicationsmediaandmoney,butonthesecurities,commodities,andinvestmentindustriesaswell,andthewaycapitalandwealtharecreated,investedandtradedandexchangedaroundtheworld.Innovationsintechnologyandtheprovisionoffinancialserviceshavedramaticallyloweredtransactionscostsinthesecurities,brokerage,investment,andcommoditiesandfuturestradingeconomybyordersofmagnitude.Thisincludesnotonlythecostsofproducing,accessing,processing,andcommunicatinginformation,butthecostsofinitiating,executing,andexpeditingthetradingandexchangeandpaymentsandsettlementsprocesses.Amongotherthings,thishasmadeiteconomicallyattractivetoinventdozensupondozensofnew“derivative’’instrumentstotrade,suchasoptionsandfuturescontracts,stockindexfutures,andoptionsonfuturescontracts,forexample,andmanymorenewerandlesserknowninstrumentssuchasswapsthatonlyhighlytrainedspecialistsunderstand.Itwasinstabilitiesinthisevolvingglobalcomputerizedfinancialinfrastructurethattriggeredthe22.6percentdropintheNewYorkStockExchangeinOctober26,1987,whichsentshockwavesthroughoutalloftheregionsoftheworldandprecipitatedrecorddeclinesinLondon,Tokyo,Paris,Frankfurt,Singapore,HongKong,andSydney.3Computerizationcanalsobelinkedtothephenomenaofderegulation,securitization,disintermediation,andglobalizationwhichhavetransformedthebankingandfinancialservicessectorinrecentyears.4

Computernetworkshavealsomadeitpossibletosignificantlyexpandthegeographicaloperationsofallexchangesthusmakingthemmoreuniversallyaccessibleforpeopleandorganizationseverywhere.Computerizationhasalsoenabledexchangestoexpandintomanykindsofnewservicesincludinginformationserviceswhichtheyhavealwayshadbutcouldnoteconomicallyaccess,process,package,andmarketuntilnow.

Thebasictechnologicalinfrastructureisalreadyinplacetoenableanycompany,financialinstitution,orgovernmenttointeractandinvestcapitalandtradeandtransactbusinessanywhereintheworld—automatically.Databanksofinformationaccessibleon-linebyglobaltelecommunicationsnetworksalreadyprovidetradersandspeculatorswiththeessentialrawandprocessedinformationfromallovertheworldtomakethispossible.Sophisticatedartificialintelligencesoftwareenablesthemtosimulatecomplexportfolioinsuranceandarbitrage

strategiesinvolvingoptions,futures,andindexfuturesonsecurities,commodities,andforeigncurrencies.Traderscanaccessandplaycomputer-basedsecurities,commodity,andcurrencymarketsthroughouttheworldusingeitherprimaryandderivativeinstrumentsorbothagainstoneanotherindifferentmarkets.Specialistscanmaketradesonpublicorprivatenetworksatanyhourofthedayornightinanytradingzoneintheworld,simplybypostinga“forsale”signononeofthegrowingnumberofelectronicbulletinboardsthathavebeensetupforthispurpose.

Severalbrokeragecompanieshaveevenbeenexperimentingwithneuralnetworksandpattern-recognitiontechniquesasawayofimprovinginvestmentstrategies.Someresearchersclaimthatthesetechnologiescouldeventuallyenableasinglecompanytocontrolandevendictatethelevelofinternationalcurrencies.5

TheforerunnerofthestockexchangeofthefuturecouldbesystemslikeInstinct,ownedbyReutersPLC;Quotron,ownedbyCiticorp;andGlobex,thefullyautomatedelectronicsystem,developedbyReutersfortheChicagoMercantileExchangeandtheChicagoBoardofTrade.GlobexwascreatedtoenableChicagotobettercompeteanddominatethemarketforround-the-clockandround-the-worldtradinginoptionsandfuturescontracts.TheservicecameonstreaminJune1992,afterfiveyearsofdevelopment.ByMarch1993,itwasgivingtradersinChicago,NewYork,London,andParisaccesstothethreemajorworldmarketsfortradingleadingoptionsandfuturescontractsfromasinglecomputerscreen.ReutersisexpandingGlobextohandletheentirerangeoffinancialinstrumentsincludingbondsandequities.

Fullyautomated,globaltradingsystemslikeGlobexcouldeventuallyinflictseriousdamageonthetraditionalexchanges,liketheNewYorkStockExchangewhichhascontinuedtomaintainitsphysicaltradingfloors,itsfloorspecialists,anditsopen-crytradingsystem,inspiteofthelossoftradingvolumetothemoreautomatedexchanges.Manyintheindustrynowrecognizethatitwillbeonlyamatterofperhapsanotherdecadeuntiltheautomationandglobalizationoftheentiresecurities

industrywillresultinthedemiseandultimateabandonmentofthephysicaltradingfloorsaltogether.ThishasalreadytakenplaceinLondonandToronto.6Similaractiononthepartofotherexchangescouldresultinthecreationofanetworkoflocal,national,andglobalcomputer-basedtradingsystemscapableoftradinganyandeverykindoffinancialinstrument,perhapsbytheyear2000.Thisinfrastructurewillfurthercentralizeanddecentralizeandredistributeeconomicactivitythroughouttheworld,anditwilltransformpapercapitalismandthenation-stateintoaformofglobalelectroniccapitalism.

ELECTRONICDATAINTERCHANGEANDELECTRONICCOMMERCE

Itisintheautomationoftheinformationandtransactionsprocessingandcommunicationsactivitiesassociatedwiththetradingandexchangeofgoodsandservices,knownaselectronicdatainterchange(EDI)wherecomputersand

communicationssystemsalsopromisetohavealastingeconomicbenefitonthemarketplaceandonthetransformationoftheeconomicsystemasawhole.EDIreferstotheuseofthecomputer(andtelecommunicationsnetworks)ratherthanpaperasthemediumforfacilitatingthetradingandexchangeofallgoodsandservices.Alloftheinformationassociatedwiththeprocurement,payment,anddeliveryofgoodsandservices,includingorderformsandcustoms,insuranceandtransportationforms,andinvoicesandbillsoflading,forexample,whenpreparedonacomputer,canbetransmittedelectronicallybetweencompaniesinsecondsoverthenetworksofEDIservicesupplierssuchasIBM,AT&T,GeneralElectric,ArthurAndersen,andElectronicDataSystems.EDIcutsdownandeliminateslabor-intensiveandpaper-intensiveactivitiesassociatedwiththecreation,storage,retrieval,processing,andtransportationofpaperdocuments.Italsoeliminatesduplicationofeffortinthedatainputandconversionprocess,cutsdownonerrorsmadeinkeyingindata,andspeedsuptheprocessingofinformation,therebycontributingtoamuchmoreefficient,timely,andfunctionalorder-processing,payment,inventorycontrol,anddeliverysystem.

Bymakingtherequiredinformationreadilyavailableandaccessibleinelectronicform,EDIenablespurchasers,suppliers,shippers,insurancecompanies,andcustomsofficestoaccessandshareacommondatabaseofinformationallowingeachtoinputandmanageinformationrelatingtoitsownfunction.Purchasersandsuppliersandtransportationcompaniescaninstantlymonitorthewhereaboutsoftheircargoandreducetheincidenceoflostorstolengoods.Shipperscanmakemoreeffectiveandefficientuseoftheirfleetthroughbettertransport,scheduling,routing,andloadingofgoods.EDIalsoimprovestheefficiencyofcustomsclearanceactivities,therebyfacilitatingtradeingoodsandservicesacrossinternationalborders.

EDIisimportantaswellbecauseitcomplementsavarietyofothercomputer-andcommunications-basedservices,ofwhichjust-in-time(JIT)inventorycontrolsystems,pioneeredbytheJapaneseandnowincommonpracticethroughouttheworld,alongwithelectronicfundstransferservices(EFTS)andelectronicmailandmessageservices

(EMMS),areamongthemostimportant.Thesenewservicesarebecomingincreasinglyimportanttoallcompaniesandallindustries.Sincethemid-eighties,forexample,EDIhasbecomeaprerequisitetodoingbusinessintheautomobileindustry.GeneralMotorsandtheFordMotorCompany,forexample,decidedthenthattheywouldnotdealwithsupplierswhodonotuseEDI,anditsadoptionhasspreadthroughouttheindustry.Asglobalcompetitionheatsup,timedelaysbecomemorecriticalindeterminingsuccess.CompaniesarebeingforcedtolooktonewtechnologyandservicessuchasEDItoimprovetheirproductivityaswellasprovidebetterservicetotheircustomers.

THENEWMANUFACTURINGINFRASTRUCTURE

Manufacturershaveagrowingarrayofintelligentproductionandmanagementsystemsresourcesattheirdisposaltospeedupandimprovethequalityandefficiencyoftheirproductionprocessesandeventotransformthenatureof

theequipment,machinery,andgoodsandservicestheyproduceandthemannerinwhichtheyproducethem.Themostimportantoftheseresourcesrangefromcomputer-aideddesign(CAD)andcomputer-aidedmanufacturing(CAM),computer-integratedmanufacturing(CIM),androboticstomanufacturingresourceplanning(MRP)andjust-in-timeinventorycontrol.Thesealongwithotherssuchasworkgrouptechnologiesarecompletelytransformingmanufacturingcompaniestheworldover.

CADsystemsgiveengineersthecapabilitytocreatesophisticatednewproductdesignsinthreedimensionsinsidethecomputerandtotesttheminacompletelycomputer-simulatedenvironment.TypicalcompanieslikeXerox,Motorola,DigitalEquipment,andFordMotorCompanypioneeredtheuseofCADforso-called“paperlessdesign”techniquestoenableengineerstodesignandoptimizeindividualcomponentsandsubsystemsontheircomputerscreens,thenbringallofthesubsystemstogetherandsimulatetheoperationoftheentiresystem.Themostsophisticatedpaperlessdesignsystemsenablegroupsofengineerstoworksemi-independentlyandsemiautonomouslyontheirownsubsystemdesignsattheirownlocationandintheirowncountryatthesametimewithoutgettingineachother’swayandtospecializeinthedesignofthosecomponentsandsubsystemsinwhichtheyaremostproficient.Thesehaveenormousadvantagesovertheoldpaper-baseddesignsintermsofproductivity,efficiency,quality,andtime-andcost-savings.Likeallcomputer-basedapplications,iteliminatesthetemporal,geographicalandphysicalbarriersthattraditionallypreventmultiplegroupsfromparticipatinginthedesignprocesses.

Manufacturerscanalsouse3-DCADinconjunctionwithstereo-lithographytoreplacetheoldmanualmethodsofmoldingandmodelinginwoodorclay.7Thistechniqueusesthecomputerasthedesigntoolandcomputer-controlledlasertobuilduplayerafterlayerofthemodel.Becausethedesigniscreatedwiththeaidofthecomputer,itcutsdownonpaperandflaws,anditfacilitatesredesignandremodelinginminutes.It,therefore,cutswastewhileimprovingtheproductdesignandcan

shrinkthemodelingprocessfromweeksoryearstodays.CADalsofacilitatestheintroductionofso-called“concurrentengineering”andworkgroupengineeringsystemsprinciples.Byallowingmarketingandfinancestaffandevenoutsidesuppliersandbuyerstoparticipateinthedesignprocessalongwithengineers,CADallowsworkgroupstoexperimentwithwaysandmeanstoreduceweightandeliminatecomponentsaltogetherandtomakelast-minutechangesandevenmajorredesignsbeforethefinaldesigngoesintoproduction.Companiescanalsousethesamesubsystemdesignsorvariationsofthemforothercurrentandfutureproducts.Theeconomicpayoffisnotonlyfasterdesignsandbetterqualityproductsbutlowerenergy,materials,design,production,andmaintenancecosts.

TheBoeing777,unveiledbyBoeingCorporationonApril9,1994,wasthefirstjetlinerdesignedentirelyusingconcurrentengineeringandpaperlessdesigntechniques.ItwasdesignedbyengineeringteamsatthecompanieslocationsinSeattle,Wichita,andPhiladelphiaintheUnitedStatesaswellasteamsatMit-

subishiCorporation,Fuji,andKawasakifactoriesinJapanandotherslocatedinItaly,Australia,Canada,andFrance.EachteamworkedseparatelyonthedesignofaparticularsectionoftheaircraftsuchasthewingsectionorthelandingsystemandfuselageusingadvancedCAD/CAMsoftware,workstations,andcommunicationsnetworkstobringthevariousmodelcomponentstogetherandsimulatetheiroperation.Boeingestimatedthatthesenewdesigntechniquessaveditasmuchas20percentofthe$4to$5billioncostofdevelopingtheaircraftandcutseveralyearsofftheprojectschedule.

TheFordMotorCompanyhasusedsimilartechniquestotransformitssevendesignstudiosscatteredallovertheworldintoasingleglobalorganizationwithimpressiveresultsintermsofstrategiccompetitivenessaccordingtoFortune.8Fordengineerstypicallybegintheprocessofdesigninganautomobilewithasketchwhichistransformedbycomputersintoacomplexmathematicalmodelofthevehicle’ssurface.Thisimageisenhancedthroughtheuseofphotorealismtechniquessothattheimagebecomestransformedintoaglossycolorfulfacsimileofanautomobile.Ford’sglobaltelecommunicationsnetworkallowsdesignersinitssevenstudiosaroundtheworldtoworkin‘‘virtualco-locations”withspecialistsinmarketingandengineering,forexample.Thenetworkalsoallowscomputerstoexchangedatawithawidearrayofdesigntoolsatthevariouslocations.Thecomputerscangeneratethecodesforcontrollingmillingmachinesthatcreatestyrofoamorclaymock-upsofthevehicles,forexample.Computersalsotranslatethedesignsintodataforsimulatingaerodynamicconditionsandforproducingindividualcomponents.Thepay-offs,accordingtoFord,aresubstantialcostsavings,morerapidandbetterdesigns,andhigherproductivityandreturnoninvestment.

ManufacturingresourcesplanningorMRPisanothercomputer-basedresourcethatcompaniesusetobettermanageinventory,streamlineandimprovetheefficiencyoftheiroperations,andimprovecustomerservice.MRPprovidesimportantinformationtoenablemanagerstodeterminewhattoproduce,howmuchtoproduce,andwhentoproduceitaswell

ashowmuchinventoryisavailableandhowmuchinventorymustbeorderedtomeetthedemand.Italsotellsmanagerswhichresourcesarelikelytoconstrainproductionschedules,assiststheminmeetingschedulesandinstructsthemwhereandwhentodeliverthegoods.Factoryautomationreachesoneofitshighestlevelsofsophisticationwhentheoperationsofanentireplantarebroughtunderthecontrolofasinglecomputersysteminwhatisreferredtoascomputer-integratedmanufacturingorCIM.Themastercomputerschedulestheoperationsoftheentireplantincludingallequipment,inventory,andpersonnelandprovidesthemeanstocoordinateallofitsactivitiestoensurethatcustomizedgoodscanbeproducedonscheduleinthemostefficientway.

Second-generationMRPsystems,whichcompaniesarenowimplementing,takethisonestepfurthertotheenterprisewidelevel.MRPIIgivesmanagerstheabilitytoviewandmanagetheproductionactivitiesofallofthedivisionsofamultidivisionalmanufacturingorganizationfromasinglecentralizedpoint,

enablingthemtooptimizetheiroperationstoachievemaximumprofitability,efficiency,timeliness,andcustomersatisfaction.Italsoallowsthemtoconcentratemosteffectivelyalloftheresourcesoftheirworldwideproductionfacilitiestoservetheneedsofindividualcustomerswhichalsohaveworldwideoperatingunits.

ToachievethestrategicandoperationalcompetitiveadvantagesthatEDI,JIT,MRP,andotheradvancedmanufacturingsystemshavetooffer,manufacturershavetodesign,implement,andusetheirelectronicinfrastructuresaccordingly.Typically,thismeansmakingelectronicconnectionswiththeirsuppliersusingsatellite,opticalfiber,microwave,andtelephonenetworkssotheycancoordinateandscheduledeliveriesandcontrolinventories.Computerandcommunicationsnetworksalsoconnectthemforwardwiththeirdistributors,dealers,andagentsenablingthemtokeepincontactwiththeircustomersandthemarketplacebythehourandbytheminuteofeveryworkingday.Systemsandnetworkssuchasthesenowinterconnecthundredsandthousandsofmanufacturersandservicesuppliersthroughouttheworldsothatwhenafinalsaleismade,ittriggersaseriesoforders,messages,andcommandsthatcascadebackwardthroughalongchainofcommandintoothersuppliersandthroughouttheentiremanufacturingsector.Thisinformationcascadesfurtherbackthroughouttheresourcesandservicessectorsandultimatelybackintothemanufacturingsector,triggeringfurthereconomicactivityinallofthem.Inthisway,advancedcomputerandcommunicationsinfrastructuresarefacilitatingtheintegrationofallmanufacturingandrelatedservicesandresourcessectorsintoonebiginterdependentworldsystem.

Thedreamoffuturistsistobuildafullyautomatedandcomputerizedfactorysystem.Thismaybejustaroundthecorner.Europe,Japan,andtheUnitedStateshaveprogramsinplacetodevelopmanufacturingtechnologyforthetwenty-firstcenturythatwilltakefullandcompleteadvantageofallofthepotentialsofintelligenttechnology.In1990,Japanproposedaten-year,$16billionprogramtopoolinternationalresourcesfromindustry,university,andgovernmentinthemajorindustrializedcountries,developaworldwidestandardforfuturefactoryautomation,

andintegratefactorytechnologiesfromthevariouscountriestocreatean“intelligentmanufacturingsystem.”TheUnitedStatesandEuropehavedevelopedtheirownadvancedmanufacturingtechnologyprograms.America’s“twenty-firstcenturymanufacturingenterprisestrategy,”designedbyfifteenU.S.executivesinthesummerof1991,“envisionsnimblecarmakersthatwilltakeanorder,thenbuildanddelivercustom-made,defect-freecarsinonlythreedays.”9Themanufacturingsystemsinthenextcenturywilltakemaximumadvantageofcomputer-basedsystemsincludingCAD/CAM,CIM,MRP,JIT,EDI,andsatellitesandopticalfibernetworks,aswellasothertechnologies,includingvirtualreality,toachievemaximumefficiency,flexibility,andcustomizationalongwithhighqualityandupgradabilityinallaspectsoftheproductionprocess.

OVERLAYINGANDAUGMENTINGTHETRANSPORTATIONINFRASTRUCTURE

Itwasinnovationsintransportationtechnologythatprecipitatedthedevelopmentoftherailway,highway,andairlineinfrastructuresthroughoutthiscenturyandbroughttheworldcommunityclosertogether,integratingitphysically,economically,politically,andculturally.Today,itisadvancesincomputersandtelecommunicationsthataretransformingthetransportationsector.Aglobalintelligencenetworkisbeingcreatedtooverlaythetransportationsystemsandnetworksoftheworld,linkingshipsandaircraft,trainsandtruckswithcentralofficesacrossthecontinents.Globalpositioningsystems(GPS),radiodeterminationsatellitesystems,andmobilesatellitesystemsarebeginningtolinkthemtogetherandinterconnectthemwithterrestrialradiocommunicationsandcellulartelephonenetworksandeventelephonenetworks.Thesearebeinglinkedtocomputersystemsthatautomaticallymonitorandcontrolthemovementofgoods,machinery,equipment,andpeople.Electronicnavigationandlandingsystemsareimprovingthesafety,reliability,andefficiencyoftheairlinesindustry.State-of-the-artelectronicchartingsystemsalsoprovideshipswithdigitizedmapsshowingshippingchannels,waterdepths,obstructions,buoysandlights,forexample.Thesemapscanbeoverlaidwithinformationobtainedfromtheship’sradarsotheskippercanseeataglancethepositionofhisshipandallothersinthevicinity.Alarmsautomaticallywarnwhenashipentersshallowwaterorisonacollisioncourse.

Truckingandtaxicompaniesareusingdigitalcomputercommunicationstechnologytoenablethemtokeepintouchbyvoice,data,facsimile,andevenvideocommunicationssotheycanbettercoordinatetheiractivitiesandimprovecustomerservices.Companiesinthecourierbusinessdependasmuchonadvancedcomputerandcommunicationssystemsastheydotheirfleetofaircrafttoenablethemtokeeptrackofeverypieceofthemillionsofparcels,letters,andreportstheypickupeachdayfornextdaydelivery.Thepostalserviceadministrationsaroundtheworldarealsoadoptingthissametechnologytoenablethemtobetter

compete.

Leadinginternationalairlineandtelecommunicationscompaniesareinvestingtensofmillionsofdollarstocreateanadvancedelectronicinformationandcommunicationsinfrastructuretoenablepassengerswherevertheyarelocatedintheworldtocommunicateviatelephone,laptopcomputer,E-mail,andvideoconferencinglinkswiththoseontheground.Theworld’sairlinesarealreadyservedbythreecomputerizedreservationssystems.TheAmericanAirlines’Semi-AutomatedResearchEnvironment(SABRE)systemisusedbytravelagentsinmorethansixty-fourcountriesandmorethanfiftyairlinesaroundtheworld.ItsmainrivalsareCovia,nowinajointventurewithseveralEuropeanairlinesthatoperatetheGalileoreservationssystemandMozartwhichisoperatedbyanotherconsortiumofworldairlines.Automatedreservationssystemshavenowspreadtohotelandmotelchainsandtheircapabilitieshavebeen

expandedtoprovideavarietyofotherservices,includingtheatertickets,carrentals,andinsurance,forexample.Allofthemtogetherprovidetheessentialinformationandcommunicationsinfrastructuretoimprovetheefficiencyoftheworld’sairlines,hotel,motel,andentertainmentindustries.

AutomobilecompaniesandfederalandstategovernmentsintheUnitedStatesandothercountriesarejustbeginningtotapthepotentialofadvancedcomputerandcommunicationssystemstoimprovetheefficiency,safety,andconvenienceoftheirhighwaysystems.TheIntermodalSurfaceTransportationActof1991authorizedtheexpenditureof$659millioninfederalfundsoverfiveyearstodevelop“intelligentvehicularhighwaysystems”(IVHS).TheIVHSprogramenvisionsafuturewhenallcarswillbeequippedwithcomputersandvideoscreensandcomputerizedmapsofthemajorhighwaysystemsandothernavigationaids.Roadsensorsandcamerasalongthehighwayswillmonitortrafficflow.IVHSsystemspromisetoprovidedriverswithinformationonhighwayandweatherconditionsandtrafficflowandalertthembyvoiceorcomputeroftrafficcongestion,trafficaccidents,androadpile-upsandadvisethemoftakingalternatetrouble-freeroutes.Automatictollboothsalongmajorhighwayswillenablegovernmentstocollectfeeswithouttheneedfordriverstostop.Systemssuchasthesecouldsignificantlyreducehighwaycongestion,cutpollution,andconservevaluableenergyresources,whileimprovingtheefficiencyofthehighwayssystemsofmajorcitiesandimprovingdriversafetyandsatisfaction.GovernmentsinJapan,Canada,andtheEuropeanCommunityaredevelopingsimilarprograms.Allofthebigmanufacturersareinvolvedintheseprograms.

THEGEOGRAPHICALINFORMATIONINFRASTRUCTURE

Awidevarietyofhigh-techdevelopmentssuchasthoseidentifiedaboveareevolvingandconvergingtocreateaworldwideelectronicnavigationinfrastructure.Arapidlygrowinggeographicalinformationsystems(GIS)industryisalreadyinexistence.Itcaterstothemanyneedsofawide

varietyofcompaniesandgovernments,inadditiontotheautomobileandtruckingindustries,forexample.TheGISindustryconvertsmapsandotherinformationintodigitalformanddevelopsandsellscomputerhardwareandsoftwareprogramstomanipulatethedatabyusersontheircomputers.LeadingcompaniesintheUnitedStates,includingIntergraphtheEnvironmentalSystemsResearchInstitute,McDonaldDetwiller,andSHLSystemhouseinCanadaareactiveinthisnewindustry.By1992,theUnitedStateshadover100geographicaldatabasesandover200softwarepackagestochoosefrom.Industryrevenuestotalled$3.5billioninthatyear.10RoadScholarSoftwareofHoustonproducesaGISsoftwaredatabasecalledCityStreetscovering170citiesintheUnitedStatesand80inEurope.Anothercompany,WessexCorporation,introducedapackageoftwenty-twoCDscontainingdigitalmapsofeverystreetintheUnitedStatesin1994.Yetanothercompany,Etak,adatabasedeveloperownedbyRupertMurdoch’sNews

CorporationofAustralia,isalsocomputerizingthestreetsinAmericaandEurope.

Manufacturersofautomobilesandcomputerandconsumerelectronicequipmentmanufacturingcompaniesarecooperatingwithsoftwareproducerstobringthesenewgenerationsofproductstomarket.Siemens,Apple,andSony,forexample,havebeencooperatingtodevelopaportableCD-basedMAPMANdeviceformassmarkets.SonyMobileElectronics,asubsidiaryofSonyCorporation,andEtakInc.announcedacomputerizednavigationsystem,inFebruary1994,fortouristsandtravellingsalespeople.Thesystemusesglobalpositioningsystemtechnologyanddetailedroadmapswithstreetnamestodisplaylocationonafive-inchcolorcomputerscreen.Theinformationcanbeusedtolocaterestaurants,parks,shops,nightspots,museums,andsoon.GeneralMotorsandacompanycalledZexolintroducedasimilarsystemin1994andothersareexpectedtofollow.

Geographicalinformationsystemsserveawidevarietyofindustries.Telephoneandgascompaniescanuseittomonitorandmaintaintheirburiedinfrastructureandmakerepairs.Governmentscanuseittobettermanageurbandevelopmentprojects,landregistrationrecords,andemergencyvehicleservices,aswellaswater,forests,andwildlife,andotherenvironmentalprotectionusesincludingpollutioncontrol.GIScanalsobeofconsiderablebenefittopoliceandlawenforcementagenciesandcompaniescanuseitfordeterminingthebestlocationforanewrestaurantoraretailoutlet,forexample.Industryandgovernmentshavejustbeguntorealizethepotentialofthisnewmedium.

THEINTELLIGENTINFRASTRUCTUREEXTENDSINTOSPACE

Theworld’selectronicintelligenceinfrastructurenowextendsintoouterspacewhereearthobservationsatellites(EOS),orbitinghighabovetheearth’ssurface,constantlymonitortheearth’sresources.EOSsatellitesaredesignedtopickupradiofrequenciesemittedfromtheearth’s

surface.Thesesignalsarethenprocessedandconvertedintogeologicalmapswhichcanbeusedtoidentifywater,mineral,andoilandgasdepositsbelowthesurfaceoftheearth.Ortheycanbeusedtotrackthemovementoficebergs,identifytheoutbreakandspreadofforestfires,spotcropdisease,andmonitorpollutionintheoceans,theair,andonlandorthehealthofagriculturalcrops.EOSsatellitesalsohaveveryimportantmeteorologicalapplications.Theyareused,forexample,tomonitorthetemperatureoftheatmosphere,trackthemovementofstormsandhurricanes,andprovidetop-sidephotographsofweatherformationsfordisplayontelevisioninhomesaroundtheworld.Agrowingnumberoforganizationsnowsellsatelliteimagesaroundtheworld.TheseincludetheEOSATCorporation,nowownedbyGeneralElectricandHughesCommunications(nowownedbyGeneralMotors)throughitsLandsatsatellites11andSatellitePourL’ObservationdelaTerre

(SPOT),ownedbyaconsortiumofFrench,Swedish,andBelgiumgovernments,aswellasitssubsidiarySpotImagesCorporation(Sicorp).

Thereappearstonolimittotheuseofsatelliteimagesbybusinesses,governments,orevenindividuals.In1991,forexample,EOSATadvertisedinleadingbusinessmagazinesincludingBusinessWeekthatitssatelliteimagescanbeusedtodetectundergroundwatersourcesandhiddengeologicalfaultsandidentifytemperature,moisture,density,andtexturepatterns.“Insurancecompaniesuseourdatatoverifydamageclaimsafterfloodsandotherdisasters,”theadvertisementread.“Retailersuseittotrackpopulationtrendsinordertolocatemorecustomers.Ourdatahelpsinvestorsmakecropyieldpredictionsforuseinmarketforecasts.Itevenenablesrealestatedeveloperstocompleteenvironmentalimpactstudies.”

AgrowingnumberofcountriesareinvolvedintheEOSsatellitesbusiness.TheSovietUnionoperatestheV/OSoyuzkartaandIndiatheIRS-1earthobservationsatellites.JapanoperatestheMarineObservationSatellite(MOS)andtheJERSearthresourcesatellite.ESAoperatestheERS-1earthresourcessatellite.Canada’sRadarsat,thecountry’sfirstearthobservationsatellite,usesanewtechnologycalledsyntheticapertureradar(SAR)toproducethehighestresolutionimagesoftheearth’ssurfaceevermade,regardlessofweatherordarkness.Whenoperationalin1995,itwillsupportmineralexploration,environmentalmonitoring,andcropdiseaseandpredictionandproducewhatdeveloperspromisewillbethefirst3-Dsurfacemodeloftheentireglobe.

Satellitessuchasthesearenowstrategictotheworld’sinformationgatheringanddisseminationnetworksaswellasitseconomic,political,andmilitaryintelligencegatheringactivities.TheFrenchSPOT1observationsatellite,forexample,enteredserviceonlydaysbeforetheChernobylcatastrophetookplaceonApril26,1986.France’sCentrenationald’étudesspatiales(CNES)wasfortunatethatthesatellitewasinapositiontoenableittoobtainanimageoftheburningreactorwithinhours.TheLandsat5satellitealsopickedupthepictureswhichwere

relayedtojournalists.Bothincidencesdemonstratedthat“commercial‘spy’satellites”havebecomestrategicinthenewageof“spacebasedjournalism.’’12TheU.S.NationalEnvironmentalSatellite,DataandInformationService(NESDIS),abranchoftheNationalOceanicandAtmosphericAdministration(NOAA),gathers,processesanddisseminatesdatatoawidevarietyofusersrangingfromuniversitiestotelevisionstations.SatellitesignalsareprocessedbyNESDIS’scomputerstoproducedigitalimageswhichwereusedbyalliedforcesduringthePersianGulfWar,forexample.

AsatellitecommunicationssystemcalledSARSAT(SearchandRescueSatellite)isbeingintegratedintotheworldsearch-and-rescuesystem.StillanothercalledNAVISATformsanimportantpartofthenewinfrastructureforglobalmarinenavigationsystemsaswellasforship-to-shorecommunications.Othersatellitecommunicationssystemshavebecomevitaltoourmilitaryandpeace-keepingoperations.Hundredsofmilitarysatellitesystemsarenowapartofaglobalearlywarningsystem.

THENEWGLOBALMILITARYDEFENSEINTELLIGENCEINFRASTRUCTURE

TheworldwitnessedthestartlingimpactofthenewintelligenttechnologyonmilitarydefenseontelevisionduringOperationDesertStorminthewinterof1991,demonstratingbeyondanyreasonabledoubthowdramaticallytechnologyhastransformedallaspectsoftheartandscienceofmilitarywarfare,fromitsweaponssystemsanditssystemsforbattlefieldmanagementtoitscommand,control,andcommunicationssystems.Indeed,inthelastdecadeormore,wehavewitnessedoneofthemostremarkabletransformationsinmilitarywarfareinhistory.Thenewmilitarydefenseandweaponssystemsaretrulyartificiallyintelligentbythestandardsofthepast.Computersandcommunicationssystemsdominateeveryaspectofthenewbattlefieldmanagementenvironment.Theyareessentialcomponentsofthenewtanks,bombers,cruisemissiles,stealthbombers,andhelicoptergun-ships.Stealthbombers,forexample,areabletonavigatetheirwayintothewartheaterundetectedbyconventionalradarsystemsandconsequentlydonotneedthesupportofthedozensofprotectiveaircraftthatareusuallyrequired.Thistranslatesintovastlyimprovedefficiencyandcost-effectivenessofmilitaryexpenditures.Computersandtelecommunicationsnetworksarealsocriticalelementsinbattlefieldsimulationandmanagementsystemsandinnavigationsystems.ComputerizedAirborneWarningandCentralSystems(AWACS),forexample,andglobalsatellitepositioningsystemssuchasthoseusedduringOperationDesertStormprovidetheessentialmeansofnavigationandcoordinatingmuchoftheactivity.

Militarytechnologistsandleadingcompaniesinthedefenseindustryarenowworkingtocreateatotallyelectronicandintelligentmilitarybattlefieldsystemtomonitorandmanagetheentireworld.Air,sea,andgroundsurveillance,defenseandcombatsystemswillbecomecompletelyintegratedandcoordinatedwithoneanotherinthefuture.Supersmartmilitarysurveillance,communications,andcontrolsystemswillbecapableofautomaticallyidentifyinglikelytargetsfordestruction,thencoordinatingthelaunchingandguidanceofhundredsandthousandsof

smartweaponsfromthesea,air,andgroundintothebattletheaterallwithminimumhumanintervention.Theonlyrolethatairmen,soldiers,navycrewmen,andmilitaryofficerswillplayintheelectronicbattlefieldofthefuturewillbeasobserversandtechnicalexpertsstationedinfrontoftheircomputerscreensinhidden,protectedbunkersinlocationsfarremovedfromtherealbattlefieldandtherealaction.

EDUCATION,MEDICINE,ANDHEALTHCAREAPPLICATIONS

High-technologyintheformofcomputers,telecommunicationsnetworks,anddatabanksaswellasimagingandautomaticdiagnosticsystems,multimediaapplications,expertsystems,artificialintelligence,andCD-ROMsaregaining

importanceinallaspectsoftheeducationandtrainingsystemsinbothformalandinformaleducationalinstitutions,trainingcentersaswellasinmedicineandhealthcare.ThepotentialbenefitsofinformationtechnologyaresosignificantthattheClintonadministrationhasmadetheapplicationofinformationtechnologythecentralfocusofitseffortstocutcostsandimprovetheefficiencyandeffectivenessofAmerica’seducationandhealthcaredeliverysystem.Educationaltelevision,tele-education,distancelearning,andcomputer-basededucation,training,andinstructioncanprovideameansofaugmentingandextendingthetraditionalclassroom,andallarebecomingintegratedintoanewtechnology-intensiveeducationenvironment.Themultimediacapabilitiesofcomputers,however,couldprovetobethemostattractivetoeducationalinstitutionsinthefuturesinceitcouldgoalongwayinassistingstudentsandadultsathome,onthejob,orintheclassroom,betterpreparethemselvesforthedemandingworkenvironmentinthefuture.

Computershavealreadybecomeaverypowerfuleducationaltoolandmediumcapableofassistingbothstudentsandteachersnotonlyinsuchfieldsasmathematics,biology,chemistry,andphysics,butingeography,history,andevenart.Studentscanhonetheirmathematicsandscienceskillsontheirownathomeorintheclassroom,gaingreaterinsightintoscientificprinciples,andtesttheirknowledgeofhistoryandgeography,forexample.Theycandesignexperimentsinhypotheticalchemical,physical,biological,orsociologicalenvironmentsandtestscientifichypothesesandprinciples,engageinsimulatedbusinessdecision-makingproblems,andsolveproblemsthroughnumericalandstatisticalanalysis.Studentsandfacultycanperformresearchfromacomputer,orinacomputer,andcommunicatewithoneanotherandaccess,share,storeandretrievesoftwareandinformationcontent.StateandfederalgovernmentsintheUnitedStates,Canada,Japan,andEuropearedevelopingcomputernetworkstosharetheeducationalresourcesoftheschools,libraries,andcollegesanduniversitiesthroughoutthenationandthroughouttheworld.InCanada,forexample,over2,500schoolsarelinkedintoanationalSchoolNet.

Computersandtelecommunicationsnetworksalongwithcyberneticcontroldevicesandexpertsystemsandartificialintelligence,itseems,arealsoinvadingallaspectsoftheartandscienceofthepracticeofmedicineandthedeliveryofhealthcare.Overthepastdecadeormore,aproliferationofnewcomputer-basedEEGandECGequipmentalongwithcomputeraxialtomography(CAT)andmagneticresonanceimaging(MRI)scanners,forexample,havecomeintowidespreaduse,whicharecapableofproducingtwo-andthree-dimensionalimagesofthebody.Thesecanbeusedtoidentifyanddiagnosemedicalproblemswithouttheneedforexpensiveexploratorysurgery.Asthesetechnologiesimproveinthefuture,costsareexpectedtodeclineandanalyticaltechniquesmorerefineduntileventuallyadvancedmedicaldevicescouldbecomeavailabletothemasses.

Oneofthemostpromisingnewhealthcareapplicationsiscalledtheelectronicpatientrecordssystem(EPRS)whichiseitherinoperationorunderdevelopment

insomebigclinicsliketheMayoClinicandtheHarvardCommunityHealthPlan.Eventhoughthebasicprincipleshavebeenaroundforseveraldecades,EPRSsystemsarejustnowgettingtheattentiontheydeserve.Anautomatedpatientrecordssystemmakesuseofacommunicationsnetworktolinkhighlydistributedpersonalcomputersandworkstationsindoctors’offices,medicalclinics,hospitals,medicallaboratories,andpharmaciesintoalocalorregionaldatabasesoallcansharetherecordsofeachpatient.AccordingtoanarticleintheNewYorkTimes,anationwideelectronicpatientrecordssystemcouldcutbetween$40and$80billionoffthehealthcarebudgetoftheUnitedStateswhileimprovingthequalityofhealthcareatthesametime.13Theycouldbeusedonamassscaletomonitorandevaluatetheeffectivenessofdrugtreatment,forexample,eliminateunnecessaryexamsandsurgery,cutdownonpaper,andimproveaccountingandbilling.Suchanetworkcouldalsobeusedtoprovidephysicianswithinformationonnewdrugs,newdiagnosticproceduresaswellastheresultsofnewmedicalresearchanddevelopments.Inconjunctionwithadvancementsinexpertsystems,forexample,computerscouldalsobeusedtoimprovethequalityandspeedofdiagnosticproceduresandmakepreventivemedicinemorecost-effective.

Improvedtelecommunicationsinfrastructurescouldgoalongwaytoimprovingthequalityofmedicalservicesinsmallcommunitiesandruralandremoteareaswhichcouldnototherwiseaffordsuchhigh-costservices.MemorialUniversityinNewfoundland,forexample,nowprovidesviatelephoneavarietyofelectronichealthcare,andtraininganddiagnostictestingservicestotheCaribbeanandEastAfrica.Telemedicine,telehealthandteleconferencingsystemsalongwithcomputer-basedinformationsystemssuchasthesepromisetoimproveandextendthequalityofmedicalandhealthcareservicesineverynationandthroughouttheworld.

UNIVERSALAPPLICATIONSTOALLACTIVITIESANDINALLSECTORS

Intelligenttechnologyalsohasapplicationsinthepublicsectoraswellasagricultureandresourcesectors.Inadditiontotheirapplicationstoweatherforecastingandtheremotesensingoftheenvironment,computersalongwithsatelliteshavebecomeimportanttotheexplorationofoil,gas,andmineralreserves,forforecastingearthquakesandhurricanes,andspottingcropdiseasesandforestfires.Inthepetroleumindustry,geologistsusepowerfulcomputerstocombinethedatafromseismicsurveystobuildthree-dimensionalmodelsofoilreservoirswhichtheythenusetoanalyzeandidentifythemostprobablelocationstodrill.Intheminingindustry,hugeundergroundroboticmachinescontrolledbyoperatorsatremotelocationsnearthesitedoalloftheworkminersusedtodobutthroughcamerasandcyberneticcontrols.Computersarebecomingincreasinglycommononthefarmwheretheyareusedtoaccessdatabasesandretrieveinformationonsubjectssuchasthemarketpricesandavailability

oflivestock,grains,feed,seeds,andfertilizer,andreceivetipsonthelatestincropandlivestockmanagement,theapplicationofnewchemicalsandfertilizers,inadditiontotheall-importantweatherforecasts.Moreadvancedapplicationsinvolvingtheautomatedfeedingandcleaningoflivestockarealsobecomingcommon.

Manygovernmentagenciesarefullyautomatingtheiroperationsanddoawaywithpaperaltogether.TheInternalRevenueServiceintheUnitedStates,forexample,expectstoprocessalltaxreturnselectronicallybytheendofthedecadeandusehandwriting-recognitiontechnologytopreventfraud.Onanotherfront,anautomatedelectronicfilingandretrievalsystem,calledEDGAR,theacronymforElectronicDataGatheringandRetrievalsystem,developedbytheSecuritiesandExchangeCommission,allowstensofthousandsofcorporationsinAmericatosubmittheirfinancialreportselectronicallyandtheSECtoaccessthesereportselectronically.Computersarealsobeingusedtostreamlinecustomsandimmigrationoperations.InOctober1992,theU.S.SmallBusinessAdministration(SBA)turnedonanationalelectronicbulletinboardservice,calledSBAOn-Line,whichallowssmallbusinessestoqueryitsdatabasesanddown-loadinformationabouttheSBA’sloanprograms,financialmanagement,andgovernmentprocurementservices,aswellaspublicationsandtrainingservicesandacalendarofevents.TheBusinessComputerNetwork(BCNet),establishedbytheEuropeanCommissionin1988,nowprovidestensofthousandsofsmall-andmedium-sizebusinessesinthirty-fivecountrieswithaccesstoabusinessmatchingservice.

Eagertoexploitanypotentialmeansofgeneratingadditionalrevenues,manygovernmentshavebeguntakingadvantageofthecommercialvalueoftheirenormousdatabanksofeconomic,demographic,andlandregistryinformation,eitherbysellingthisinformationoutrightorbyprivatizingit.Automatedlandregistrysystems,forexample,areunderdevelopmentinmanycountries.Thesesystemscontainawidevarietyofsensitiveandcommerciallyvaluableinformationontheownershipandvalueofprivatepropertiesaswellasmapsofthepropertiesandsurroundingdistricts.

Librariesareanotherareawherecomputerizationandautomationaretakingover.Public,private,anduniversitylibrariesarebandingtogethertomaketheirholdingsaccessibleon-linesopeopleindistantlocationscanbrowseinsearchofspecificpublicationsandmakeinterlibraryloans.Andsomearelookingforwardtothedaywhentheywillbeabletoaccessnotonlytheholdingsoflibrariesaroundtheworldbutallofthebigdatabanksofinformationthroughouttheworldon-line.Computersandcommunicationssystemshavealsobecomeessentialtotheefficientoperationofthecriminaljusticesystemandtoorganizationsresponsiblefornationalsecurity.Policeandlawenforcementagenciesmaintainenormousdatabanksofinformationoncriminalsandevenordinarycitizens.Thesedatabankscancontainpersonalinformationoneverythingfrommedicalrecords,photographs,andfingerprintstotrafficviolationsandcriminalconvictions.Databanksofinformation,communicationsnetworks,sophisticated

software,andartificialintelligenceareamongthemostimportantmeansbywhichInterpol,theFederalBureauofInvestigation,andothernationalandinternationalpolice,security,andlawenforcementagencies,communicateandcoordinatetheiroperations,shareinformation,andimprovetheefficiencyandeffectivenessoftheiroperations.Countriesaroundtheworldarealsocooperatingtocreateacomputerizedinformationexchangetomakeiteasiertotracerunawayorabductedchildren.Lawenforcementagenciesandcustomsofficialsatairportsandbordercrossingsarebeingissuedportablecomputerssotheycanaccessthisinformationandphotographsofmissingchildrenatthepressofabutton.

Manygovernmentsareactivelypreparingforthedayinthenot-too-distantfuturewhentheywillbeabletooffermanyoftheirserviceselectronicallytotheircitizens.PresidentBillClintonandVicePresidentGorehaveannouncedtheirintentiontouseinformationtechnologytorevitalizeandre-engineerthepublicserviceandcreateamorecustomer-drivenformofgovernment.ThefederalgovernmentinCanadaannouncedplans,inApril1994,tobuildanelectronicinformationhighwaytoprovideeveryCanadianwithaccesstoone-stopshoppingforallgovernmentinformationservices.

Thisbriefsurveyservestodemonstratethatcomputers,telecommunicationsnetworks,softwareresources,andintelligentinfrastructureshavealreadybecomethecriticalunderpinningsoftheevolvingpostindustrialeconomy.Itprovidesundisputableevidencethatafull-blowntechnologicalrevolutionandasocialandeconomictransformationisuponus.Everyindustryandeverysectoroftheeconomyandeverykindofeconomicactivityisundergoingthesametransformation,andmostofthesecanbelinkedtotherevolutioninintelligenttechnologyandknowledgerevolutionwhichithasinitiated.Thenatureofworkandmanagementandthestructureandoperationsofcorporateorganizationsareundergoingdramaticchangesaswell.

Inthenextchapter,Iwillbrieflydescribehowleadingcompaniesareusingtechnologytobreakdowntheoperational,geographical,legal,and

otherbarriersthatseparateorganizations,industries,markets,andeconomicsystems,andarecontributingtotheglobalizationofeverything.

NOTES

1.Foradescriptionofthepossibilitiesandpotentialsofthenewmultimediatechnologiesinthefuture,seeStuartBrand,TheMediaLab:InventingtheFuture(NewYork:VikingPenguin,1987).

2.Forapreviewoftheimplicationsofthisnewglobalelectronicfinancialsystemforeconomicpolicyandworldstability,seeJoelKurtzman,TheDeathofMoney(NewYork:SimonandSchuster,1993).

3.ForananalysisanddescriptionoftheGreatCrashof1987,refertoReportofthePresidentialTaskForceonMarketMechanisms(Washington,D.C.:U.S.GovernmentPrintingOffice,1988).

4.Foranexplanationofthesephenomena,seeMauriceEstabrooks,ProgrammedCapitalism:AComputerMediatedGlobalSociety(Armonk:M.E.Sharpe,Inc.,1988).

5. “CanaComputerBeattheMarket,”GlobeandMailReportonBusiness,2January1993,p.B1.

6.

Londonabandonedthephysicaltradingfloorintheaftermathofthe“BigBang”in1986,whentheBritishgovernmentderegulateditsentirefinancialservicessectoronthepremisethatthiswouldenableittobecometheworld’spremierfinancialcenter.AccordingtoPierceBunting,PresidentoftheTorontoStockExchange,theTSE’snewelectronictradingsystemwillreducecosts,increaseproductivity,“contributetotheliquidityoftheexchange,”andenabletheexchange“tocompeteintheglobalsecuritiesindustry.’’

7. See“KeyboardReplacesWoodandClay,”GlobeandMailReportonBusiness,22January1992,p.B4.

8. “HowtoBolstertheBottomLine,”SpecialIssueentitled“MakingHighTechWorkforYou,”Fortune,Autumn1993,pp.15–17.

9. OtisPortandJohnCarey,“ThisIsWhattheU.S.MustDotoStayCompetitive,”BusinessWeek,16December1991,p.92.

10.“TheDelightofDigitalMaps,”Economist,21November1992,p.69.

11.TheLandsatPrivatizationActof1984broughtthesatellitesunderprivateownershipandcontrol.

12.SeePeterD.Zimmerman,“CivilRemoteSensing:NewTechnologiesandNationalSecurityPolicy,”inPaulaR.Newberg(Ed.),NewDirectionsinTelecommunicationsPolicy(Durham:DukeUniversityPress,1989),p.101.

13.“NewMomentumforElectronicPatientRecords,”NewYorkTimes,2May1993,p.F8.

Chapter8Restructuring,Transforming,andGlobalizingOrganizations,Markets,andEconomicSystems

Iarguedinchapter1thatthestructure,organization,andoperationofeconomicsocietyistoalargeextentdeterminedbyitsknowledgefoundationsandtechnologyunderpinningsasmuchasitisbyitscultureandeconomicandpoliticalphilosophiesandinstitutions,andthatallareinterrelatedwitheachinteractingwithoneanotherdirectlyandindirectlyinavarietyofcomplexways.Imaintainthatamatrixofforcesexiststhatlinksthescientific,technological,andknowledgefoundationsofsociety,thesystemsandinfrastructuresthatfacilitateitsbasicinformationprocessing,communicationsandproductionanddistributionactivities,thestructure,organization,andoperationofbusinessenterprises,themarketsystemandtheeconomyitself,aswellasthenatureanddistributionofdecisionmakingandpowerandcontrolinsociety.Allconstituteintegralcomponentsofasingleinterdependentsystemsothatmajorchangesinanyoneorcombinationofthesecaninitiateachainreactionwhichworksitswayupthroughthevarioushierarchicalstructuresofbusinessorganizationsandthroughouttheeconomyasawholeuntilitultimatelytransformssocietyinitsentirety.Thischapterwillexploretheeffectsofthecurrenttechnologicalrevolutiononorganizations,markets,andeconomicsystems.

NEWTECHNOLOGYANDCORPORATEINFRASTRUCTURESANDTHENEWBUSINESSORGANIZATION

Someofthemostimmediateimpactsofintelligenttechnologyareorganizationalinnature.Thespreadofpersonalcomputers,workstations,andmainframecomputerslinkedtogetherbylocalareaandenterprisewidenetworksandallofthevariouscorporatedatabanks,databases,electronicfilingsystems,andspecializedserversconnectedtothemtogetherwithalloftheprivateandpublictelephoneandtelecommunicationsfacilitiesthatbusinessesnowuse,hasevolvedtothepointthatthesenowconstituteanewcorporateinfrastructureinitsownright.Butitisanintelligent,information,communicationsandcoordinationanddecision-makinginfrastructureincontrasttothepassive,paper-based,manual,andelectromechanicalinfrastructuresofthepast.Thismakesitpossibletocreatenewkindsoforganizationsandanewkindofeconomicsystemthat,inmanyrespects,aredefinedbytechnologyandthearchitecturesandthefunctionalitiesthatitpermits.Itis,therefore,importantthatcorporationsexercisestrategicjudgmentsindesigningandcreatingtheirelectronicinfrastructuretoensurethatitscapabilitiesmatchtheorganization’soperationalneeds,theneedsofitsemployeesandcustomers,aswellasitsstrategic,long-termgoalsandobjectives.Intelligenttechnologyis,ineffect,leadingtoaradicaloperationalandorganizationaltransformationofthecorporation.

Theevolvingcorporateinformationandcommunicationsinfrastructureenablesorganizationsandthepeople,systems,processes,andactivitieswithinthemtointeract,communicate,andtransacttheiraffairsinmorediversewaysandwithgreateraccuracy,efficiency,andconcentrationthaneverbefore,anditpermitsinformationflowsandcommunicationstotakeplaceinmoreofahorizontalratherthanverticalmanner.It,therefore,providesmanagerswithaneffectivemeanstodistributeinformation,informationprocessinganddecisionmaking,andcontrolindifferentwaysthaninthepastandtoredesignandreorganizetheiroperationsinnewwaystocreateandenhancecompetitiveadvantage.It

canbeused,forexample,tore-engineermoreefficientandflexibleworkflowsaswellasdesign,production,anddistributionandinformationandcommunicationsprocessesandorganizationalformssothatactivitiescantakeplaceinacollaborativeandparallelratherthanasequentialfashion,andproductdesigners,engineers,marketers,andblue-collarandwhite-collarworkersfromvariouspartsoftheorganizationcancooperateinfreeassociationwithoneanother.Authorityandresponsibilitycanbesignificantlydelegateddownwardsothatlevelsofmanagementandlayersofcontrolandplanningcanbeeliminated.Theorganizationalstructureasaconsequencecanbesignificantlyflattened.

Intelligentinfrastructuresthusenableorganizationstoachieveamuchgreaterdegreeofcoordinationandcontrolovertheiroperations.Theycanprovidebusinesseswithmuchgreaterfreedomandflexibilityand,therefore,scopeofchoice

inhowtheyorganizethemselvesandundertaketheirdesign,development,production,distribution,andmarketingandsalesactivitiesandwheretolocatetheseactivitiesthroughoutthenationandtheworldtotakestrategicadvantageofeconomicopportunitieswherevertheymightbe.Intelligenttechnologyalsoprovidesorganizationswiththemeanstogainnewsourcesofcompetitiveadvantagethrougheconomiesofscaleandscope,forexample,andthroughthestrategicmanagementofpeople,customers,customerservices,aswellasinformation,time,geography,andfinancialandotherresources.Organizationscanusetheirintelligentinfrastructuresandworkgrouptechnologies,forexample,topooltheirknowledge,experience,talent,andotherresourcesandtapthenecessaryexpertiseimmediatelywhentheneedarises,whereverithappenstobelocated.Intelligentcorporateinfrastructuresthusintroduceanewdynamicthatallowsorganizationstocollaborateandcooperateandfocusonproblemsandsolutionsandcustomersandservicesasrequired.

Ontheonehand,intelligenttechnologyprovidesworkerswithgreaterfreedomandautonomy.Ontheotherhand,itforcesthemtorelyononeanotherindifferentways,indifferentdegrees,andindifferentintensitiesthanbefore.Itprovidescorporationswithmuchgreaterfreedomandflexibilityinhowtheyorganizeandstructuretheiractivitiesandoperations,but,itbindsthemtonewstructuresandorganizationalformsthatarejustemerging.Intelligenttechnologyenablescorporationstodesignintelligentinfrastructurestoachievestrategiccompetitiveadvantage,butonlyintheshortterm.Iftheyaresuccessful,theinnovationswillbecopiedbyothers,inwhichcasetheyceasetobeasourceofstrategiccompetitiveadvantage.Companiesmustthenseeknewandmoreeffectivesourcesofstrategiccompetitiveadvantagetosustainthemandthecyclebeginsoveragain.

Intelligenttechnologycanbeatremendousproductivityboosterinwayssuchasthosedescribedaboveandinpreviouschapters.Itcanalsobeusedasameansofenhancingcreativityandinnovation,especiallythroughtheuseofworkgrouptechnologies.And,bycuttingdownoninventoryrequirementsandcontributingtoincreasedflexibilityand

customerresponsiveness,itcanbeastrategicingredientto“time-basedcompetition.”1Itcanalsobeusedtocutdownonand,insomecasestotallyeliminate,materials,energy,andpaperincertainstagesofproductionprocesses.Organizationscanalsousethetechnologytogetherwithappropriateinnovationsinmanagementandhumanresourcepracticestochangetheeconomicsofproduction,forexample,byreducingthemarginalcostsofdoingbusinessandtodiminishthesignificanceofeconomiesofscaleintheproductionprocess.Butcorporationscanalsousethetechnologytoincreasetheeconomiesofscale2andscopeintheiroperationsandtointernalizemarkettransactionsandexpandintoothergeographicalproductandservicemarkets.

Theresultistheemergenceofnewkindsoforganizationsinwhichmostoftheirdesign,development,production,distribution,marketing,andsalesactivitiesaremediatedbycomputer-basedinformationandcommunicationsnet-

works,software,andintellectualcontent.Thisnewpostindustrialcorporationhasbeengivenmanynames.Inanearlierpublication,Ireferredtoitasa“computer-mediatedcorporation.”BrianQuinncalledthepostindustrialcorporationan“intelligentcorporation’’inhisbookofthesametitle.WilliamDavidowandMichaelMalonecalledita“virtualcorporation”intheirbookofthesamename.Ithasalsobeenreferredtoasa“network-basedcorporation.”Whateverwechoosetocallit,thenewcorporationisamuchmoreflexiblyorganizedandflexiblyoperated,knowledge-based,learning,cooperative,andcollaborativeentity.Itisanorganizationinwhichintelligentinfrastructuresformthefoundationofitsoperationalstructures.Theseinfrastructuresinturnenablecompaniestogainsynergiesandstrategiccompetitiveadvantagesfromthejointoperation,management,andinteractionamongdiverseunitswithinthesameorganizationandwithotherorganizations—sometimescompetitors—independentlyoftimeandglobalgeography.

Network-based,information-processing,andcommunicationstechnologiesandinfrastructures,forexample,enablesuppliersandbuyersandcustomerstorealizeimportantsynergiesandcompetitiveadvantagesbycoordinatingtheiractivitiesandtheiractionsinanon-line,interactivefashion.Banking,insurance,securities,commoditiesandforeignexchange,options,andfuturestradingcompaniesarepurelyinformationprocessingandnetwork-basedentitiesatheartlikepublishing,andthismeansthattheytoowilleventuallybecomecompletelymediatedbytheintelligentinfrastructuresunderdevelopmenttoday.Tocapturethesynergiesandcompetitiveadvantagesandotherbenefitsthattheycanprovide,however,organizationsarehavingtoenterintonew,strategicshort-termandlong-termcontractualandelectronicnetworkrelationshipsofvariouskinds.Clustersofsuppliers,buyers,andwholesaleandretailserviceorganizationsarebeingformedinthemanufacturingandservicessectors,withagrowingvarietyofelectroniclinkagesthatconnectthemforwardandbackwardwithoneanother.Similarnetworksarespreadingthroughthefinancialservicessector.Network-basedorganizationsderivetheirstrengthsandstabilityfromtheirabilitytointerworkwithoneanotherinanon-line,interactivefashion.

Eventhemarketplaceandtheeconomyarebecomingmediatedinthesameway,andanetwork-basedmarketplaceandanetwork-basedeconomyareevolvingasaresult.

Intelligenttechnologyisthusblurringanderodingtheboundariesofthecorporationandradicallychangingthemeaninganddefinitionofthefirm.Itismakingitdifficultandsometimesimpossibletodistinguishwheretheboundariesofonefirm,oneindustry,oronesectoroftheeconomyoronenationaleconomy,forthatmatter,endsandthatofanotherbegins.

Inadditiontothedelayeringofcorporatehierarchiesandtheadoptionofflatterorganizationalstructures,intelligenttechnologyhasalsofacilitatedthedecentralizationofproductionactivityandthedelegationofdecisionmakingdownintothecorporatehierarchyandoutintothefield,factory,andcustomerlevels.Theriseofintelligentcorporateinfrastructureshasalsofacilitatedthecreationaneweconomicsoflocationbyenablingcorporationstolocateplants,warehouses,andofficesinstrategicnationalandglobalcenterswithoutpaying

theusualeconomicandotherpenaltiesassociatedwithcoordinationovertimeandlongdistances.Insomecases,strategicadvantagecanevenbeachievedbycolocatingaplantonthepremisesofacustomer(orsupplier)andevenintegratingtheoperationsofsuppliersandcustomerstothepointthattheybecomeindistinguishablefromoneanotherfromanoperationalpointofview.Theintensiveuseandapplicationofintelligent,multifunctionalnetworksisalsofacilitatingtherationalizationoforganizationalactivityatthefirm,thenational,andthegloballevels.

Theintelligentinfrastructureismultiplyingtheinformation-processing,communications,decision-making,andcontrolcapabilitiesofcorporationsandmarketsbymanymagnitudes.Itisaffectingtherelationshipsamongbusinessenterprisesinthesamesectoraswellasinothersectorsand,throughthese,itisaffectingthestructureandoperationoftheentireeconomy.Itiscontributingtothecreationofhugepostindustrialconglomerateenterprises—inthemanufacturing,banking,financial,andinformationandcommunicationssectors,forexample—which,insomerespects,resemblethestructureandtheoperationoftheJapanesekeiretsu,thehugeindustrialcombineswhichcontrolmuchoftheJapaneseeconomy.3UnliketheirJapanesecounterparts,however,manyofthetheseareelectronicnetwork-basedorganizations,andmanydonothaveafinancialarm.ThesenewWestern-stylekeiretsuarealsodifferentbecausetheyarebeingcreatedthroughinnovationsinthestrategicmanagementofpeople,organizations,andintelligenttechnology—allprimaryresourcesofthecreativedestructionandeconomicrenewalprocess.4Thesenewcorporateenterprisesderivetheirstrategiccompetitiveadvantagefrominternalizingmanyofthekeytransactionsandtradingandexchangeactivitiesthathavetraditionallybeendelegatedtomarkets.

Inotherrespects,theeffectsofthespreadofintelligentinfrastructuresaretomakethemarketamoreefficientmediatorofeconomicactivityandallocatorofeconomicresourcesinboththenationalandglobaleconomies.Theyarethusdiminishingtheoptimumsizeofcorporationswhileexpandingthescopeofmarketactivitysothatmanymore(global)

playerscanbeaccommodated.

Muchoftheindustrialrestructuringandmanyoftheinstitutionalchangesthathavebeentakingplaceinrecentyearsinthetelecommunications,broadcasting,entertainment,andbankingandfinancialservicesindustries,includingconvergence,deregulation,privatization,andglobalization,canthusbeattributedtotherevolutionsbroughtaboutbycomputers,microchips,andtelecommunications.Beforedescribingthesefurther,letuslookathowtechnologyandglobalcompetitionaretransformingthehigh-techmanufacturingsectoritselfandhowcompaniesinthissectorarereinventingthemselves.

THETRANSITIONFROMHARDWARETOSOFTWAREANDSERVICESECONOMY

Ofthemanythousandsoftechnologicalandeconomicchangestakingplacetoday,noneisperhapsmoresignificantthanthetransitionfromhardwareto

software,thatis,fromaneconomyspecializingintheproductionofphysicalhardwareproductstoonespecializingintheproductionofknowledge-basedproducts,includingsoftware,andintellectualdesignsandcontent,forithasmajorimplicationsforoureconomicfuture.Thistransitionisbeingdrivenbythecontinuingminiaturizationofsemiconductordevicesandtheuseofintelligentmachinesandintelligentinfrastructuresforthedesign,production,distribution,andoperationofallproductsandservices,ineffect,forthecomputerizationandcomputer-mediationofeverything.Themicrochipandcomputerandtelecommunicationsrevolutionsarecontributingtothedemiseoftheindustrialeconomybasedonthemanufacturingofdumbproductsandmachinesandequipmentandtheriseofapostindustrialeconomybasedonintelligentmachines,knowledge,andsoftware—thenewintellectualcapitaloftheworld—andtheirproductionandapplicationtoallaspectsofeconomic(andsocialandcultural,includingentertainment)activity.Thistransitionthushasimportantimplicationsforeverybusiness,everygovernment,everyeconomy,andtheworldeconomicsystemitself.

Thesemiconductorindustrycontinuestobeafundamentalsourceoftheneweconomicsaswellasprovidingmuchofthedynamismofthehigh-technology,knowledge-basedeconomy.Theprocessbywhichbulkyhardwarecomponentsareshrunkinsizeandincorporatedintomicrochipsoreliminatedaltogether—eitherbecausetheynolongerserveausefulpurposeorbecausetheyarebeingimplementedinsoftware—iscontinuingtospeedaheadwithoutencounteringanyeffectivelimitsorconstraints.Themicroprocessorhousedinanadvancedengineeringworkstationtodayhasmorepowerthanthemainframehadonlyadecadeago,but,insteadofoccupyingaroom,itsitsonthetopofadeskorfitsintoabriefcase,andsoonitwillfitintothepalmofyourhand.Thebulky,electromechanical,analoguetelephoneswitchesofthepastarebeingreplacedbyfullycomputerizeddigitaltelephoneswitchesinasequenceofstagesthatisreducingthemtoever-smallersize—tothesizeofacabinet,thenasinglecircuitboard,andinsomecasestoasinglemicrochip.Theotherdifference—anditisamostsignificantone—isthattheirprocessingcapacitiesandfunctionalitiesarebeingexpanded

tenfold,thenanothertenfold,andtenfoldagain.

Thisprocessofcondensingmorehardwarecomponentsontoasinglechipandbuildinggreaterfunctionalityandperformanceintomicrochipdesignsisexpectedtocontinueintotheforeseeablefuture.Asthisprocesscontinues,asthedensityofsemiconductorcircuitscontinuestoincrease,andasgreaterfunctionalityandperformanceisbuiltintobothhardwareandsoftware,acorrespondingshiftin,andtransformationof,industrialactivityistakingplaceatthemicroeconomicandmacroeconomiclevelsawayfrombulky,energy-consuming,physicaldevices,equipment,andmachinestoenergy-conserving,semiconductordevicesandmultifunctional,intelligentmachineswithnomovingpartsandmillionsuponmillionsofsoftwareprogramsandintellectualprogramcontentandservicesthattheycanmediate.Thistooishavingdramaticimpactsonthenatureofproductionandthelocationofeconomicactivityintheworldaswellasthe

natureofworkandmanagementandthedistributionofeconomicpowerandwealthintheworld.

Atthesametime,theapplicationofabroadrangeofcomputer-andcommunications-basedtoolsandtechniqueshasdramaticallydiminishedthetimeandeliminatedmanyofthestepsitusedtotaketodesign,test,andproducethenewgenerationsofmicrochipsandcomputerandcommunicationssystemsandequipmentthatusethem.Puresoftwaretools,suchassiliconcompilersandlogicsynthesizers,makeitpossibletodesignsemiconductorchipscompletelyoncomputerscreensinthe“cyberspace”insidecomputerchipsratherthaninphysicalbuildingsandplants.Microchipproducersusetheselogicsynthesizerstooptimizetheirchipdesignsautomatically,reducecircuitlengths,andincreasechipdensities.5Thismakesitpossibletodramaticallyshortendesigntimesandreducethecostsofproducingchipswhileincreasingtheirspeed,functionality,andperformance.

Thechipdesignrevolutionhasgivenriseto“fabless”chipdesignfirmsand“semicomputer”companiesinthesiliconvalleysoftheworld.Fablessmicrochipcompaniesarethosethatspecializeinthedesignofchipsbutfarmouttheirproductiontosilicon“foundries”intheUnitedStates,Japan,orotherAsianorEuropeancountries.Companies,likeSunMicrosystems,MIPS,DEC,andApple,turnedtothesenewdesigntechniquesinthelateeightiestokeepthemaheadoftheircompetitors.Othertechnology-intensiveapplicationsdescribedinchapter7,suchaspaperlessdesigntechniques,concurrentengineeringandrobotics,MRPandJITsystemscuttime,material,energy,andhumaneffortinallstagesandallphasesoftheproductionprocessineveryindustry.Robotstypicallydominatetheproductionandassemblyprocessesinmosthigh-techmanufacturingplantstoday,and,moreoftenthannot,theyoperateinmultipleshifts.Fullyautomatedfactoriesusethelatest,up-to-dateflexiblemanufacturingsystemsandtechniquestoproducedozensandevenhundredsandthousandsofdifferentiatedproductsonthesameassemblylinethroughthenewproductionprocesscalledmass-customization.6Thisenablesthemodernassemblylinetoberetooled

andredesignedinhourstoproduceanyoneofadozenormanyhundredsofnewproducts.Suchspeedisessentialtoremainingcompetitiveintheglobalmarketplace.

Asthistransformationinthehigh-techmanufacturingsectorgainsmomentum—asbulky,room-sizecabinets,equipment,andmachineryarereducedtothesizeofchips,ascomputerscometocompletelydominatethedesignprocessandrobotstodominatetheproductionprocessandassoftwareincreasinglybecomesasourceofaddedvalue,anotherkindoftransformationistakingplaceintheorganizationofproduction.Fewerworkersarerequiredtowire,solder,andassemblecomponentsandbuildormountassembliesincabinetsortopaint,transport,andmaintaincomponents,cabinets,andendproductsbecausealloftheessentialfunctionalityhasbeenbuiltintochips.Oneoftheresultsisthecontinuingreductioninthelaborcontentofthehigh-techmanufacturingsector.Manufacturingisbecomingevenmoretechnology-intensiveandcapital-and

knowledge-intensiveasaresult,andemployeesarebeinglaidoffinthehundredsofthousandsaroundtheworld.Ontheotherhand,employmentisincreasinginotherareas,inthedesign,development,andproductionofnewcustomizedchips,insystemsdesignandsystemsintegration,andinnetwork-basedapplications,forexample,butparticularlyinsoftwareapplications,includingthoseinvolvingtheproductionofmultimediaeducationandtrainingandentertainmentcontentwherethefuturecouldbeparticularlybright.

Thestrategicapplicationoftelecommunicationsandcomputertechnologyinallaspectsofmanufacturingisalsocontributingtotheglobalizationofthecorporation.High-speeddigitaldatacommunicationsnetworks,computer-aideddesign,andthegrowinguseofworkgrouptechnologiesmakeitpossibleforcompaniestoserveglobalmarketsasefficientlyastheydonationalmarkets,butwithadditionalstrategiccompetitiveandoperationaladvantages.Atthesametime,thefixedcostsofdoingbusinessgloballyarerapidlyincreasingduetotheneedtofinancehigherinvestmentsinresearchanddevelopment,indevelopingnewmarketsanddistributionchannels,inadvertisingandproductpromotion,aswellasinbuildingthenecessarycomputerandtelecommunicationsinfrastructuresneeded.7Globalcompetition,togetherwiththespeed-upinthedesignanddevelopmentofnewproducts,systems,andservices,alsomeansthatmanufacturingcompaniesmustlookfornewwaystowriteofftheirenormousinvestmentsinfixedcosts.Onewayofdoingthisisbygoingglobalandtakingmarketsharesawayfromcompetitors.Anotheristhroughacquisition.Athirdisthroughcooperation,thatis,throughjointventuresandstrategicalliances.Andthehigh-technologycompaniesworldwidehavebeenengaginginallthreekindsofstrategies.Theresultofalloftheseforcesactingtogetherisagrandrestructuringofthesemiconductor,telecommunications,andcomputermanufacturingindustriesworldwide.

THEGREATSHAKEOUTINTHEWORLDWIDEHIGH-TECHNOLOGYSECTOR

Thesemiconductorindustryworldwidehasbeentransformedbytheseforcesaswellastheshiftfromelectronictoopticalandoptoelectronictechnologies,andallsuppliershavebeenteaminguptocompete.8IBMandSiemens,forexample,arecollaboratingtoproduce256MBDRAMchips.TexasInstrumentsisinajointventurewithHitachitoproducechips,asisMotorolawithToshiba,AT&TwithNEC,andIntelwithSharp.AmericanandJapanesecompaniesarealsocollaboratingonproducingspecializedchipsformultimedia,advancedgraphics,andvideoapplications,forexample.Similardynamicsareatworkinthetelecommunicationsmanufacturingindustryworldwide,andashakeouthasalreadytakenagreattoll.CompanieslikeStrombergCarlsonandthemanufacturingactivitiesofGTEintheUnitedStateshavebeentakenoverbyothersincludingSiemens.SiemensandGeneralElectricofBritaintookoverPlesseyTelecommunicationsinthespringof1989.And,inalongandcomplexseries

oftransactions,theFrenchgovernmentmergeditstelecommunicationsequipment,officeautomation,andconsumerelectronicsmanufacturingcompaniestoformanewcompanycalledAlcatelN.V.Collaborationisnowthekeytosurvivalintheworldtelecommunicationsmanufacturingindustry.AT&T,DEC,andMITarecollaboratorsintheWidebandAll-OpticalNetworksConsortiumwhichisbuildingfullyopticaltestbedsinseveralU.S.sites.

Thecomputerindustryhasbeenhitperhapsthehardestofallhigh-techindustriesprimarilyasaresultoftheshifttopersonalcomputers,powerfulworkstations,andclient-serversystemstiedtogetherbylocalareaandenterprisewidenetworks,thegrowingemphasisonRISC-basedcomputers,scalableprocessors,andsupercomputersbuiltonparallel-processingarchitectures,butespeciallyasaresultoftheentryoftheindustryintoitsmassmarketstagewhereretailingismostimportant.The‘‘commoditization”ofthemicrochipandcomputerindustriesisaffectingeverything.EveryEuropean,American,andJapanesemanufacturerhasbeenhurtasaresult.VictimsofthisshakeoutincludeZenithDataSystems,AmdahlComputers,andWangintheUnitedStates,InternationalComputersLimited(ICL)inBritain,GroupeBullinFrance,NixdorfinGermany,andPhilipsintheNetherlands.Theircomputermanufacturingoperationsweretakenoverbyothercompanies,primarilyJapanese,butJapanesemanufacturershavebeensufferingaswell.

TheshakeoutintheworldwidemainframeandminicomputersmanufacturingindustriesreachedaclimaxinDecember1992,whenIBMannouncedthefirstofwhathasturnedouttobeanannualmassivelayoffofworkers,andexpenditurecutof$6billion,andacompleterestructuringofits$60billionoperationsworldwide.Thecompanyineffectbrokeitselfintothirteensmallercompanies—ninemanufacturingandservicesunitsfeedingintofourglobalgeographicaloperatingunits.DEC,theotherbigcasualtyoftheshifttomicrocomputersandtheworldwideslump,announcedinDecember1992thatitwouldsplititselfupintofiveseparatecorporationstotargetseparatemarkets.Thisrestructuringofcomputermanufacturingcompaniesandthecomputerindustryisstillcontinuingashardwaredevicesbecomesmallerandsmallerandpack

highervalue,performanceandgreaterfunctionalityandintelligenceandasthefocusofactivityshiftstothenewknowledge-basedfrontiersoftheeconomy.

THENEWFRONTIER:SOFTWAREANDSERVICES

Itisnowwidelyagreedthattheleadingedgeoftheinformationrevolutionintheninetiesandbeyondisincomputerandcommunicationsapplications,software,andservicesofallkinds,includingworkgroupandmultimediasoftwareandmultimediacontentandinformation-andcommunications-relatedservices,asshowninFigure8.1.ThisviewisheldbyAndrewRappaportandShmuelHaleviwhowroteina1991issueoftheHarvardBusinessReview:

Thefuturebelongstothecomputerlesscomputercompany.Valuederivesfromscarcity.Inthecomputerindustry,scarcitynowresidesinthegapbetweenpower—whatcom-

Figure8.1

TheNewSoftwareandServicesFrontier

putersandtheirunderlyingsemiconductortechnologiesarecapableofdoing—andutility—whathumanimaginationandsoftwareengineeringarecapableofenablingcomputerstodo….Butvirtuallyallofthese[high-valueaddedapplications]…representsoftwarechallengesratherthanhardwarechallenges….[Theconsequenceisthat]bytheyear2000,themostsuccessfulcomputercompanieswill…leveragefabulouslycheapandpowerfulhardwaretocreateanddelivernewapplications,pioneerandcontrolnewcomputingparadigms,andassembledistributionandintegrationexpertisethatcreatesenduringinfluencewithcustomers.9

TheascendancyofsoftwarecompanieslikeMicrosoft,Lotus,Novell,Borland,Broderbund,Corel,andComputerAssociates,forexample,andthedeclineofbighardwarecompanieslikeIBMandDECintheranksofAmerica’slargestindustrialcorporationsareindicativeofthegrowingimportanceofsoftwaretotheneweconomy.10SoftwareisthefocalpointofallofMicrosoft’snewstrategiccorporatedirections.ItisaggressivelypromotingitsWindowsoperatingsystemasthestandardforeverythingfromlaptopandpen-basedcomputerstowalletPCsandtelephone-andTV-PCsandpursuingopportunitiesinworkgroupsoftware,officesystemsintegration,aswellasmultimediaapplicationsandinteractivetelevision.11Microsoft’snewlong-rangevisionis“InformationatYourFingertips.”Itwantstomakeinformationavailableondemandinwhateverform,whereverindividualsare.MicrosoftisalsoaleadingplayerintheproductionofmultimediaCDcontent.AmongitsbiggestsuccesseshavebeenitsCinemaniamovieguideforthemoviebuffsandMusicalInstants,BookshelfanditsEncarteencyclopediafortheeducationmarket.GateshascreatedasoftwarecompanycalledContinuum,whichisaggressivelybuyinguptheelectronicrightstomanyoftheworld’sarttreasuresfordistributiononCD.Microsofthasrecentlybeguntakinglong-termstrategicpositionstobuildinformationsuperhighwaysinfieldssuchasinteractivetelevisionandvideoondemand.Inlate1994,italsoannouncedanon-lineservicecalledMicrosoftNetworkasitsfirstcommercialinformationserviceoffering.

EventhoughAppleComputeriswidelyknownasahardwarecompany,

itsgreateststrengthhasbeeninsoftware.Indeed,theAppleMacintoshoperatingsystemanditsgraphicaluserinterfacerankamongthemostimportantinnovationsinthehistoryofthecomputerindustryandarestillthestandardbywhichalloperatingsystemsaremeasured.Applehasalsobeenaworldleaderinelectronicpublishingandmultimediasoftware,andithasslowlybeensheddingitsmanufacturingactivitiessoitcanconcentrateonnewdevelopments.Itssubsidiary,ClarisCorporation,isaleadingsupplierofsoftwareforboththeMacintoshandIBMPCs.IthasstruckdealswithSony,Toshiba,andSharptomanufactureawiderangeofPDAstoleverageonitssoftwareandsystemsexpertise,anditisstrengtheningitspositioninmultimediathroughitsTaligentandKaleidajointventureswithIBM.Applehasbeenstrategicallypositioningitselfinkeyemergingmarkets,includingconsumerelectronics,telecommunications,media,andpublishing.Itreorganizeditselfin1992intofournewfunctionalgroupingsto

bettertargetthesemarkets.Applealsohasinitiativesunderwayacrosstheentirerangeofadvancedapplicationareas,fromhandheld,computingandcommunicationsdevicesandmultimediaapplicationstoelectronicinformationservices,telecommunications,andinteractivetelevision.InJanuary1994,Appleannounceditsentryintotheon-lineservicesmarketwithanewservicecalledeWorld.Itprovidesavarietyofinteractiveinformation,communications,andentertainmentservicesincompetitionwithProdigyandAmericaOnline.

IBMhashadtomakethemostdrasticchangesinitsstrategiccorporatedirectionsinitshistorytocopewiththetransitionfrommainframetoPC-basedandnetwork-basedcomputingandthetideofothertechnologicalchangesthathaveovertakenthecomputerindustry.Ithasdownsized,reorganized,andgivenmoreautonomytoitsindividualoperatingunits,andithasputsystemsintegration,software,andservicesatthefocalpointofitsnewstrategicdirections.IthasalsoforgedjointventuresandstrategicalliancesandpartnershipswithformerrivalsincludingLotus,AppleComputer,Motorola,Borland,andNovell.Itsbiggestjointventures,ofcourse,arewithMotorolaandAppleandothercompanieswhichresultedinthedevelopmentofnewlineofPowerPCcomputerswhichitisdependingontoprimethenewgenerationofbroadband,video,multimedia,andteleconferencingapplicationsinbusinessandthehome.IBMisalsostakingoutaleadershippositionasadeveloperofeducationandtrainingandentertainmentcontent.Itisfinancinganambitiousprojecttodevelopamultimediaversionofthehistoryoftheworld,forexample,andithasanagreementwiththeVaticantoputitscollectionofrarebooksandmanuscriptsonCDsotheworldcanaccessthem.

IBMisalsore-focusingitseffortsinsuchareasasinformationservices,electronicmessageservices,electronicdatainterchangeservices,andelectronicfundstransferservices.Itisactiveindataandvoicenetworkingandvalue-addedservicesaswellasinternationaloutsourcingthroughAdvantis,itsjointventurewithSears,Roebuck.Tosome,IBMisoneofAmerica’sleadingkeiretsuorganizations.

Softwarehasbecomethestrategicfocusofeveryplayerinthecomputer

industry.WangComputers,forexample,hasbeenforcedtoabandonmanufacturingaltogetherandbecomeasoftwareandsystemscompany.SteveJobs,founderofNeXtComputersInc.,announcedinthewinterof1992,thathetoowasabandoninghardwaremanufacturingtoconcentrateonsupplyingsoftware.Softwareisalsoprovingtobeasourceofstrategiccompetitiveadvantagetoothercomputermanufacturers,includingHewlett-Packard,forexample.SunMicrosystems’dominationoftheworkstationmarkethasalsobeendueinlargeparttoitssoftwareexpertise.Softwareisastrategicsourceofmuchoftheaddedvalueinhardwareproductsandsystems,anditsimportanceisgrowingininformation,communications,andbankingandotherservices.

Softwareisaneconomiccommodityquitelikeanyotherintermsofitsintellectuallaborintensityandbecause,onceproduced,itscostofelectronicdistributionisalmostzero.Softwarecanalsobecontinuouslyupgradedin

sophistication,functionality,andefficiency,semi-independentlyofthehardware.Softwareisbothafactorofproductionandanend-productinitself.Itrepresentsthenewformofcapitalofthecomputer-based,intelligenteconomyoftheninetiesandbeyond.

Thisshiftfromhardwaretosoftwarecouldhaveanequallydramaticeffectonothermanufacturingcompaniesinthefuture.Indeed,theentiremanufacturingsectorcouldgothewayoftheAmericansemiconductorindustryinspiteofthefactthat,accordingtoconventionalwisdom,manufacturingisoneoftheleastsoftware-intensiveindustriesintheeconomy.“Fabless”automobilecompanies,forexample,couldbecomecommonperhapsbeforethisdecadeisout.Thesecompaniescouldperformmuchofthehigh-value,knowledge-baseddesignactivitieswhilemanufacturersthroughouttheworldwouldtransformtheseintofinalproducts.Likepublishing,architecture,andfilmproduction,industrialproductdesignisaknowledge-intensive,intellectualactivity,whichiswhattheevolvingpostindustrialeconomyappearstothriveon.

MOBILIZINGTOTAKEADVANTAGEOFOPPORTUNITIESINTHENEWHIGHTECHNOLOGY,SOFTWARE,ANDSERVICESECONOMY

SomeofthebiggestmanufacturingcompaniesintheUnitedStatesandaroundtheworldhavebeenredesigningtheircorporatestrategiestotakeadvantageoftheopportunitiesinthenewknowledge-intensiveandtechnology-intensivesectorsoftheeconomyofthenineties,insuchfieldsasinformationandcommunicationsservices,softwaredevelopment,systemsintegration,andfacilitiesmanagementaswellasfinancial,educational,andhealthcareservicesandentertainment.TheyincludenotonlyAT&TandIBM,butmanyotherslikeGeneralMotors,GeneralElectric,andconsumerelectronicsmanufacturinggiantslikeSonyandMatsushita.Thesecompaniesandmanyotherslikethemhavebeenluredintothenewhigh-technologyserviceseconomybythepromisetomakebigprofits.

GeneralMotorshasbecomeoneofthemostaggressivemanufacturingcompaniesintheworldinpositioningitselfforthenewageinwhichmasteryoverhightechnologyandleadershipinsystemsandservicesarestrategictocompetitiveness.In1985,itpaid$5.2billionforthegiantHughesAircraftempire,oneofAmerica’spremierhigh-technologycompanieswithglobalstrengthsinthemanufacturingofdefense,radar,weaponscontrolsystems,andtacticalguidancemissilesandcommunicationssystems.InthesameyearitpurchasedElectronicDataSystems(EDS)fromRossPerotfor$2.5billion.EDSwasoneofthelargestcomputerservicescompaniesintheworld.GMwassoimpressedwithEDS’sexpertiseinsystemsintegrationthatitputEDSinchargeofautomatingitsautomotiveproduction,inventorycontrol,andretaildistributionoperationsaroundtheworld.

ThroughHughesElectronicsandEDSanditsothersubsidiaries,GMhasagrowingpresenceintelecommunicationsandvalue-addednetworksservices,includingEDIservices,anditisinthecellularphoneandfacilitiesmanagementbusinessesworldwide.Hughesisalsooneoftheworld’sleadingmanufacturersofsatellitesystemsandequipment.HughesCommunicationsdominatestheVSATmarketintheUnitedStateswitha60percentmarketshare,anditisajointownerwithGEintheEOSATventuretomarketearthresourcesinformationservicesaroundtheworld.HughesElectronicsalsohasgreatambitionsintheentertainmentindustrywhereithasinvestedmorethan$600millioninthedevelopmentandlaunchingofitsDirecTVDBSsatelliteswhichbeganbroadcasting150channelsofnews,sports,andspecialprogrammingtohomesthroughoutNorthAmericain1994.GMisevenapartnerinGeneralMagicwhichisdevelopingthemarketforwireless,pen-basedcomputers.ThroughEDS,itisajointownerofHitachiDataSystemswhichproducescomponentsandclonesforIBMcompatiblemainframecomputers.AndthroughitsGeneralMotorsAcceptanceCorporationsubsidiary,ithasbecomeafull-fledgedfinancialservicescompany.

GeneralElectric,a$60billion(1992)conglomeratewithrootsgoingbacktoThomasEdison’sinventionoftheelectriclightbulb,isanotherexampleofamanufacturingcompanythathasshedmuchofitsoldlinemanufacturingbusinessestoconcentrateonhighvalue-addedopportunitiesinthenewhigh-technology,knowledge-basedeconomy.GEhasbuiltastrongworldleadershippositioninsatellitecommunications,broadcasting,andinformationandfinancialservices.Itpaid$6.4billioninJune1986forRCA’saerospaceandsatellitecommunicationsandbroadcastingunits,includingNBC,inwhatwasbilledasthebiggestnon-oilmergerinhistory.Thisalsostrengtheneditsgloballeadershippositioninaerospaceandtelecommunicationstechnologies.GEAmericaCorporationisalsomajorplayerinsatellitecommunications.GEcombinedseveralofitsowninformationservicesunitswiththoseofRCAtocreateits$2billioninformationandcommunicationsservicessubsidiary,GEISCO,whichsuppliescommunicationsequipment,

installation,andmaintenanceaswellasinformationandcommunicationsservicestogovernment,business,andindustry.

Throughitsvarioussubsidiaries,GEalsoprovidesawholerangeofnetwork-basedinformationandcommunicationsservices,includingEDI,banking,healthcare,andnetworkmanagementandsystemsintegrationservices.Genie,GE’snetworkforinformationexchange,allowspersonalcomputeruserstoaccessawidevarietyofinformationandcommunicationsservices,includingtravel,reservations,shopping,andentertainmentservices.ThroughKidder,Peabody,GEisalsoheavilyintoinvestmentbankingandbrokerageservicesandthroughGECapitalCorporation,itisintoequipmentandindustrialfinancing,insurance,consumerfinance,realestate,assetmanagement,andreinsurance.AllofthesearepartoftheGeneralElectricFinancialServicesorganization(GEFS).GEFSissobigthatifitwereclassifiedasabank,itwouldranktheeighthlargestin

theUnitedStatesintermsofassets,andithasbeenoneofGeneralElectric’smostprofitablesubsidiaries.

OtherworldmanufacturerslikeGTE,Westinghouse,DigitalEquipment,ControlData,Unisys,aswellasAT&Thavebeenexpandingtheirportfolioofservicesinkeygrowthareaslikesystemsintegration,outsourcing,andvalue-addedserviceslikedatabaseinformationservices.

Someofthebiggestconsumerelectronicscompaniesintheworldarealsodiversifyingintothenewsoftwareandinformationandcommunicationsserviceseconomy.Sonypaid$2billionforCBSRecordsin1988and$3.4billionforColumbiaPicturesin1989.Sonyhasrolledthesealongwithitselectronicpublishing,digitalaudio,andvideodistributionsubsidiariesintoanewsubsidiarycalledSonySoftwareCorporation.Matsushitapaid$6.6billionforMCA,ownerofUniversalStudios,in1990.Bothcompanieshavebeentryingtousetheseacquisitionstotakeadvantageofthesynergiesbetweentheirconsumerelectronicmanufacturingactivitiesandmusicandentertainmentcontent.PhilipsownsPolyGram,oneoftheworld’stopthreeproducersofrecordedmusic.Othermanufacturersarefollowingtheirlead.ToshibaCorporationhasenteredintoajointventurewithTimeWarnertodevelopthehomemarketforinteractivemultimediacabletelevisionproductsandservices.Motorola,aworldleaderinthemanufactureofsemiconductorsandmobileradiocommunicationsequipmentandsystems,hasbecomeactiveinsupplyingcellularandmobilecommunicationsservicesinJapan,Europe,andNorthAmerica,anditisdevelopingtheIridiumglobalmobilesatellitesystem.BritishTelecomhasalsoabandonedmanufacturingtoconcentrateonthehigh-growthnationalandglobalmarketsfortelecommunications,outsourcing,andmultimediaservices.Thesearebutafewofthecompaniesstrategicallypositioningthemselvesintheneweconomy.

TECHNOLOGY,CORPORATESTRATEGY,ANDTHECREATIONOFINFORMATION,COMMUNICATIONS,AND

FINANCIALSUPERMARKETS

Theroleplayedbycorporatestrategy,technology,andorganizationinrestructuringeconomicactivityisnowherebetterillustratedthaninthemannerinwhichcorporationsareusinginformationandinformation-processingpower,telecommunicationsnetworks,andsoftwaretotakeadvantageofsynergiesandeconomiesofscaleandscopeofonekindoranotherandcreatemuchbigger“megacorporations”whichcombineavarietyofactivitiesinvarioussectorsoftheeconomyintosomethingascloseaspossibletoa“one-stopshopping”organization.Theseverylarge,highlydiversified,conglomeratesor“supermarkets’’areespeciallycommoninwhatIhavecalledthecentralintelligenceandcontroland,henceregulated,sectorsoftheeconomy,thatis,ininformationandcommunicationsandbankingandfinancialservicessectors,whicharepurelyinformationprocessing-,communications-,andtransactions-intensive.Butthey

couldbecomecommoninothersectorsaswellinthefuture.Althoughthestrategieshavenotalwaysbeensuccessful,theyareindicativeofthewaycorporationshavebeenusingtechnologytorestructureandtransformtheeconomy.Thefollowingisacapsulesummaryofthestrategiesandsuccessesofsomeofthemajorplayers.

Citicorp,AmericanExpress,andMerrillLynchhavebeenleadersinthestrategicapplicationofcomputerandtelecommunicationstechnologysincethesixties.Citibankwasthefirstbanktobuildanationwidenetworkofautomatedtellermachinesintheseventiesandeighties,inspiteofstrictlawsprohibitingbanksfromsettingupoperationsacrossstatelines.Andithasbeenbusydevelopingnewlinesofbusinessacrosstheentiregamutoffinancialandinformation-processingservicesmainlythroughacquisitions.Itisinthecreditcardandcreditcardprocessingbusiness.Ithasalsousedadvancedtechnologytocreateaplaceforitselfintheinformation,securitiesbrokerageandunderwritingaswellasthecurrencytradingandfundstransferservicesbusinessesthroughouttheworld.CiticorpownsQuotronintheelectronictradingbusiness,forexample,andithastargetedinformationservicesasoneofitsstrategicgoalsforexpansioninthenineties.

ComputersandtelecommunicationstechnologieshaveplayedastrategicroleinenablingAmericanExpresstobuildaglobaltravelerschecksandcreditcardservicesorganization.Leveragingonthisstrength,thecompanysuccessfullydiversifiedthroughaseriesofstrategicacquisitionsintheeightiesintotheinsurance,banking,brokerage,andunderwritingbusinessesandotherkeyindustriesthatmakeintensiveuseofcomputersandtelecommunicationsnetworks.ThroughAmericanExpressInformationServices(AEIS),itprovideshigh-volumeinformationprocessingandcommunicationsservicesworldwide.MerrillLynchhasalsoevolvedintoaglobalfinancialsupermarketovertheyears.Itisinvolvedineverythingfrominvestmentbankingandunderwriting,securitiesbrokerage,andbankingandfinancialservicestoassetmanagement,insurance,andrealestateservices,andithasembarkedonanambitiousplantousehigh-technologytocreateaglobalfinancialservicesorganization.

ReutersPLC,Knight-Ridder,Dun&Bradstreet,DowJones,andMcGraw-Hillareotherleadingcompaniesthathavealsousedcomputerandtelecommunicationstechnologiestotakeadvantageofthegrowingopportunitiesintheelectronicinformationservicesbusiness.Reuters,PLCsuccessfullydiversifiedoutoftheinternationalnewswireservicesbusinessinthesixtiesandseventiesthroughtheinnovativeuseoftechnologyandhasgoneontodevelopacompleteportfolioofelectronicservicesfortheglobalmarketplace.Theseincludeinternationalstockmarketquotations,internationalbusinessandeconomicinformation,andcurrency,commodity,andsecuritiestradingservices.Leveragingonitsstrengthinthepublishingindustry,particularlyitsownershipofTheWallStreetJournalandBarron’s,DowJoneshasdiversifiedintotheelectronicpublishing,computerprocessing,andelectronictradingservicesindustries.ItownstheDowJonesRetrievalService,anon-linebusinessandfinancialnewsservice,

anelectronicforeignexchangeservice,calledTheTradingService,aswellasTelerate,whichisamajorsupplierofstockmarketinformationandofstocktradingservices.Knight-Ridder,whichownstwenty-ninenewspapers,hasbecomealeadingplayerintheelectronicinformationservicebusiness.In1988,itpurchasedLockheed’sDIALOGInformationService,thebiggeston-linefulltextinformationretrievalsystemintheworldwith96,000subscribersineighty-sixcountries.Knight-Ridderisalsoaleadingplayerinthedevelopmentofafullyelectronicmultimedianewspaperserviceinvolvingnotonlytextbutmotionpicturesandsound.

Dun&Bradstreet(D&B)hasexpandedintothewholeinformationservicesmarketplacefromitsinitialbaseinthecreditinformationbusiness.ItacquiredNationalCSS,aleadingtime-sharingservicescompanyin1979,anditwentonabuyingbingeinthemid-to-lateeightieswiththeacquisitionofA.C.Nielsen(1984),thelargestmediaresearchcompanyintheUnitedStates,andInteractiveDataCorporation(1988),whichsuppliessecuritiesinformationandcorporateperformanceinformation.Dun&BradstreetalsoownstheMoody’sInvestorServiceandsuppliesyellowpagesandtelephonedirectories.McGraw-Hillhasalsotransformeditselfintoaninternationallydiversifiedelectronicinformationservicescompanytocomplementitsbookandmagazinepublishingandbroadcastingactivities.Throughitsvarioussubsidiaries,includingStandardandPoor’sandDataResources(DRI),itisaleadinginternationalsupplierofbusinessandeconomicinformationandeconometricforecastingserviceswhichitprovidesinprintedformaswellason-lineviatelephone,satellite,andCD-ROM.Thecompanyconsolidateditsinformation-relatedholdingsintothenewMcGraw-HillFinancialInformationServicesGroupinOctober1993.McGraw-Hillisalsobecomingamajorplayerinthemultimediapublishingbusiness.ItsEncyclopediaofMammalianBiology,forexample,whichisonCD-ROM,containstext,stillimages,sound,andfull-motionvideo.ItalsoproducescomputerizedcollegetextbooksinapartnershipwithKodak.

SomeofthebiggestretailservicescompaniesintheUnitedStates,includingJ.C.Penney,K-Mart,Wal-Mart,andSears,Roebuck,havebeenstrivingtocreatehigh-tech,informationorfinancialservices

supermarketsoftheirown.Sears,Roebuckhasalsobeenpursuingopportunitiesininformationprocessing,database,information,andtelecommunicationsservices.SearsCommunicationsandSearsTechnologyServiceshavebeenprovidingvoiceanddatacommunicationsandnetworkdesignservicessincethemid-eighties.ThroughProdigy,itsjointventurewithIBM,Sears,Roebuckhaspenetratedthemarketforhomeinformationretrievalservices.InAugust1992,itannouncedanotheragreementtocombineSearsTechnologyServicesandSearsCommunicationsCorporationwithIBM’sNetworkingSystemsandServicesDivisionandIBMInformationNetworkbusinessintoanewjointventurecalledAdvantis.Thenewcompanyoffersawidevarietyofservices,includingvoiceanddataoutsourcing,value-addednetworkservices,aswellasthoserelatingtothedesign,development,andintegrationofcustomnetworks.AdvantiscompeteswithGEandAT&Tin

theinternationalVANsmarketplace.Wal-MarthasusedinformationandcommunicationstechnologytobecomethelargestretailerinAmerica,andithasembarkedonastrategytodominatetheworldinretailing.

AT&Taswellastheregionalholdingcompanieshavebeenslowlymovingintothenewinformation,communications,andfinancialservicesmarketplace.AT&ThasalsoestablishedaconsiderablepresenceinthecomputerandfinancialservicesindustriesthroughitsacquisitionofNCR.ItsUniversalCardhasbecomeoneofthemostpopularcreditcardsintheUnitedStatessinceitwasintroducedinMarch1990.AT&ThasalsoacquiredseveralfinancialservicecompaniesincludingtheassetleasingandfinancingservicesdivisionofPacificCreditCorporation.In1991,itconsolidatedallofitsfinancialholdingsintoasubsidiarycalled,naturally,AT&TCommercialFinancialCorporation.Anothernewsubsidiary,AT&TSmartCardsproducesasmartcardwithvoice-recognitioncapabilitiesthatenablesindividualstomakeairlinesreservations,purchaseairlinetickets,theaterticketsorlifeinsurance,andpayhighwaytollsoritcouldbeusedasasecurity,identificationormedicalcard.ThesmartcardcouldgiveAT&TmuchgreatercloutthanthecreditcardhasgivenAmericanExpress,Visa,orMastercardinthefuture.AT&Thasalsoembarkedonaboldstrategytocreateitsownelectronicsuperhighway,whichitreferstoasa“knowledgenetwork.”Thisnetworkwouldtietogethervideoservers,multimediadatabanks,andothersourcesthroughoutthecountry.Thenetworkwillprovideeverybusinessandhouseholdwithaccesstoanykindofinformationandcommunicationsservicesimaginableanywhere,ondemand.

Itisinthemediasectorasdescribedinpreviouschapterswheretechnologyandcorporatestrategyareplayingaparticularlycrucialroleinrestructuringtheeconomy,especiallyintheUnitedStatesbutinothercountriesaswell.Herethefocusofstrategyhasbeenontryingtogainasmuchcontrolovertheelectronicsuperhighwaysaswellasthecontentthattheywillcarry.Telephoneandcabletelevisioncompanies,broadcasters,motionpictureproducers,videoproducers,publishers,anddatabankandinformationsuppliershavebecomeinvolvedinthismadscramble.Theleadersincludetheregionalholdingcompaniesaswellas

TimeWarner,Viacom,TCI,QVC,andCoxEnterprises.In1993,USWestCommunicationsboughta25percentinterestinTimeWarner,thesecondbiggestcabletelevisiondistributorintheUnitedStatesandamajorproduceroftelevisionandmotionpicturecontent.CoxEnterprises,abigplayerinthecabletelevisionandnewspapersbusinessintheUnitedStatesandhopingtobecomeoneintheUnitedKingdom,purchasedthecabletelevisionoperationsofTimesMirrorinJune1994for$2.3billion.ViacomwonthetakeoverbattletopurchaseParamountCommunicationsin1994.ParamountisintomovieproductionanddistributionthroughParamountPicturesaswellastelevisionprogramming,distribution,andhomevideo.ItalsoownsSimon&Schusterandseveralotherpublishingcompaniesaswellassixbroadcastingstations.Viacomisintobroadcastingandcabletelevisionsystems.Thismakesthemergedorganizationone

oftheworld’sleadingproducersanddistributorsoffilmedentertainment,cableprogramming,andpublishedinformation.

CONVERGINGINDUSTRIES,EVAPORATINGINDUSTRIALBOUNDARIES,ANDOBSOLETEINSTITUTIONS

Theeffectsofthestrategiesofcompaniesinindustriesasdiverseasmanufacturing,retailing,andbankingandfinancialservices,aswellaspublishing,computerservicesandtelecommunications,cabletelevision,andbroadcastinghavebeennothinglessthantorestructureandtransformindustrialeconomiesorganizationallyandinstitutionallyinrecentyears.IntheUnitedStates,forexample,ithasresultedingiantnonbankfinancialservicescompanieslikeMerrillLynchandAmericanExpressandretailerssuchasSears,Roebuckenteringthebankingbusinessandbigbanksenteringthesecuritiesbrokerage,trading,andinsurancebusinesses.ManufacturinggiantslikeGeneralElectric,AT&T,GeneralMotors,FordMotorCompany,Chrysler,Xerox,andPrimericaarenowmajorplayersinthefinancialservicessector.TheregionalBelloperatingcompaniesandAT&Thavetargetedinformationandpublishingservices,homebanking,cabletelevision,andvideo-on-demand,andmultimediaentertainmentservicesasareasofexpansion.Cabletelevisioncompaniesarepositioningthemselvesinthetelecommunicationsandinformationandentertainmentservicesbusinessinabigway.Andtraditionalpublishingcompaniesaremovingintosoftwareandelectronicpublishingandmultimediaproductionsofpersonal,educational,andentertainmentcontent.

Ithasbeendevelopmentslikethesethathavebeendrivingderegulationandstructuralchangeanderodingtheindustrial,institutional,andlegalboundariesbetweenjustabouteveryindustryandeverysectoroftheeconomy.Thelegal,regulatory,andgeographicalboundariesbetweenbanking,securitiesbrokerage,andinsurance,retailingandevensecuritiesandoptionsandfuturestradingarealreadyinshamblesintheUnitedStatesandtheinstitutionalboundariesbetweencomputers,telecommunications,broadcasting,andcabletelevision,aswellas

publishing,entertainment,andinformationservicesarealsorapidlydisappearing.Theconsequenceisthatthelawsandlegislationandtheinstitutionsthatweredesignedtocontrol,regulate,andadministerthesekeysectorsoftheeconomyarenowobsolete.Thisnewtechnoindustrialrevolutionclearlyhasimportantimplicationsforregulatoryandantitrustpoliciesinthetelecommunications,broadcasting,andbankingandsecuritiesindustriesandthereforeforgovernment.

GLOBALIZATIONOFTHEMEDIA

Technologyandcorporatestrategyareplayingacrucialroleinthetransformationofindustrialeconomiesinyetanothercriticalway—throughtheglob-

alizationofthecommunicationsmedia.InformationandcommunicationstechnologiesextendingfromCD-ROMsandVCRstoglobalopticalfiberandsatellitecommunicationsnetworkshavemadeitfeasibleandeconomicaltotransplanteverykindofcontent—fromnewspaper,magazine,andbookpublishingtoaudio,video,andmotionpicturecontent—acrossallmediaandacrossallnationalbordersandtocreateglobalmarketsforallofthem.Technologyhasmadeitpossibleformediagiantstotreatthemarketsofothercountriessimplyasanextensionoftheirownnationalmarketsfromaproductionanddeliverypointofview.Forthepastdecadeormore,book,magazineandnewspaperpublishingindustries,andmusicproductionandrecordingindustries,andfilmandtelevisionproductionindustrieshavebecomecaughtupinaglobaltakeoverfrenzywhichhasconcentratedandrestructuredtheseindustriesnationallyandglobally.

RobertMaxwellbecameprominentintheeightiesasaresultofhishavingcreatedaglobalpublishingandbroadcastingempirethatencompassedBritain,Europe,andtheUnitedStates.Atitsheight,theMaxwellempireincludedPergamonPressandMacmillan,bothleadinginternationalbookpublishersaswellastheBritishPrintingandPublishingCorporationandtheMirrorGroupofnewspapers,Britain’sbest-sellingnewspaperchainandtheOfficialAirlinesGuide.In1990,helaunchedTheEuropeanweeklynewspaperandpurchasedtheNewYorkDailyNewsin1991.Sincehisdeath,theempireMaxwellcreatedisnowbeingdismantled.PearsonPLC,anotherBritish-basedmediagiant,ownstheFinancialTimesandpublishersLongman,Addison-Wesley,Penguin,andVikingBooks,andithasenteredtheelectronicpublishingbusinessaswell.

TheBertelsmannGroupofWestGermanyisoneofthelargestmediaconglomeratesintheworld.Itisinvolvedineverythingfromprintingandpublishingtotelevisionbroadcasting,records,CDs,andmusicvideosonthethreemajorcontinentsoftheworld.PublishingcompanieslikeDoubleday,Bantam,andDellandtheLiteraryGuildalongwithrecordcompanieslikeRCARecords,Arista,andZooRecordsandEntertainmentintheUnitedStatesandBMG-VictorinJapanareall

membersoftheBertelsmannGroup.Inthenewspaperandmagazineindustry,itownsParentsintheUnitedStates,DerSterninGermany,andPrimainEurope.Intheprintingindustry,theBertelsmannCompanyownsBrownPublishingintheUnitedStates,and,inbroadcasting,itownsRTLPlusandPremierePayTVFinGermany.

TimeWarnerInc.isthesecondlargestmediaconglomerateintheworld.Themergerofthetwocorporationsin1989wasseenasadefensiveoneinthefaceoftheglobalizationofthemediasectorandthetakeoveroftheAmericanmediaindustrybyforeignconglomerates,includingSonyandMatsushita,anditcreatedaworld-scaleentertainmentandmediaconglomeratewithcombinedassetsof$18billionin1989.TimeWarnerisaworldleaderinbookpublishing,musicrecordingsandpublishing,filmmaking,andcabletelevision.Itpublishessuchwell-knownmagazinesasFortune,Time,Life,MoneyandPeople.Inthefilm-entertainmentindustry,itownsWarnerBrothers,LorimerTelepictures,HomeBoxOffice,andCinemax.Inmusicandmusicrecording,itownsAtlanticRe-

cordsandWarner/ChappelMusic.ItalsoownsWarnerCableCommunicationsand82percentofAmericanTelevisionandCommunications.

PerhapsnoothermediacompanyhasbeenasforwardlookingandasaggressiveingoingglobalasNewsCorporationofAustralia,theholdingcompanyownedofAustralianmediamagnate,RupertMurdoch.Sincetheseventies,Murdochhasbeensteadilybuildingaglobalmediaempireencompassingnewspapers,magazines,satellites,televisionstations,andproductionhousesinAustralia,UnitedStates,Britain,Europe,Asia,andSouthAmerica,andheisaggressivelyexpandinghisempirebyusingadvancedtechnologytocreateaglobalelectronicmultimediagiantofacompany.TheflagshipofNewsCorporation’sholdingsisthe205-year-oldnewspaperTheTimesinBritainanditalsoownsTheSun,TheNewsoftheWorld,andTheSundayTimesinBritainaswellastheNewYorkPostintheUnitedStates.NewsCorporationofAustraliaalsoownspublishersHarper&RowandTrianglePublicationsintheUnitedStateswhichpublishesTVGuideandSeventeenmagazine.Inthetelevisionandfilmproductionindustries,itowns20thCenturyFoxandFoxTV,and,throughFoxTV,itoperatesanetworkoftelevisionstationsintheUnitedStates.NewsCorporationofAustraliaalsocontrolsMGM/UACommunications.InEurope,itowns50percentofBSkyB,Britain’sbiggestsatellitebroadcastingcompany,whichsuppliesatwenty-four-hoursatellitenewsnetwork.MurdochhasmadeitclearthatheplanstomakeBSkyBakeytothecreationofa“superhighwayoftheair.”HehasanagreementtobuildaninternationaldigitalsatellitesystemspanningAsia,NorthandSouthAmerica,andEurope.Murdoch’slatesttargetfordevelopmenthasbeenAsia.InJuly1993,henegotiatedthepurchaseofa63.3percentshareinHong-Kong-basedHutchVisionLimited,parentandsupplierofprogramstoStarTV,oneofAsia’sfastestgrowingsatellitetelevisioncompanies,thusgivingNewsCorporationapresenceonallthreecontinents.

Murdochforeseesthebreakdownoftraditionalbarriersseparatingfiveoftheworld’slargestindustries—computing,communications,consumerelectronics,publishing,andentertainment—andtheirtransformationinto

adynamicwhole,andhewantstoplayaroleinmakingithappen.In1993,TheannouncedthepurchaseofDelphiInformationSystemsInc.(nowDelphiInternetServices),thefifthlargeston-lineservicesupplierintheUnitedStates.Murdoch’splansaretouseDelphitogivesubscribersinstantaccesstonews,educationalmaterial,andotherinformationworldwide.Healsowantstocreateanelectronicnewspaper,whichdistributesanelectronicversionofTVGuide,forexample.Murdochisalsointoreservationssystems,travel,andtourism.

TRANSFORMINGTHEWORLD’SSOCIAL,ECONOMIC,ANDINTELLIGENCEINFRASTRUCTURES

Corporatetitansaroundtheworldhavebeentransformingnationaleconomiesandtheworldeconomyinatleastoneothersignificantway,thatis,throughtelecommunications.

Throughtheirmassiveinvestmentsintransoceanicopticalfibercablesand

satellitecommunicationssystems,companieslikeAT&T,BritishTelecom,NipponTelegraphandTelephone,andFranceTelecom,alongwithSprint,MCI,TeleglobeCanada,andCableandWireless,andPTTsinothercountries,aswellasspecialcarrierslikeIntelsatandInmarsatandmanynewoneslikeGeneralElectric,Motorola,andGM/HughesElectronicsarebuildingtheglobalelectronicandopticaldigitalinformation,communications,andfinancialhighwaysthatwillpredominatelaterinthisdecadeandthenext.Buttheyarealsotakingadvantageofallofthemanyotheropportunitiesthatareopeningupthroughouttheglobaleconomy.TheyarerushingintobuyuporbuyintonationaltelephoneandcellularradioandpersonalcommunicationsoperationsandcabletelevisionfranchisesinWesternEurope,EasternEurope,SouthAmerica,andAsia.Inadditiontoprovidingtransmissionandswitchingservices,manyofthemareeagertoenternewandpotentiallyhigh-growthmarketssuchasinternationalvalue-addednetworkservices(IVANS),tosupplyawidevarietyofE-mail,EDI,EFTS,andotherfinancialservicesaswellasinformation,database,andtradingandtransactionsservices.Somearebusypositioningthemselvesinthereallybiggrowthmarketsforsoftware,systemsintegration,andnetworkmanagementservicesandoutsourcingthatareexpectedtobeworthbillionsinthelatenineties.

Heretoo,theworld’sleadingtelecommunicationscarriersareattemptingtocreateaone-stopshopping,globalservicesorganizationthatsuppliesallofthenetworkingfacilitiesandservicesneedsthattheirinternationalcustomersneed,aswellasthesoftwareengineersandmanagementpersonnelandtheexpertisetodealwithdozensofforeigntelecommunicationsadministrationsanddifferentinternationalstandards.Althougheachwouldliketogoitalone,nonehasthenecessarystrengthsinalloftheproductandservicemarketsandallregionsoftheworldtobesuccessful.Onestrategyistobuyintoothercompanieswithexpertiseandstrengthsinsystemsintegrationandvalue-addedservicestocomplementtheirownstrengths.Thesecondstrategyistoforgestrategicalliancesandjointventureswithoneanother.Intheprocess,theyarecreatingwhatTheEconomisthascalledanew“superleague’’ofinternationalsuppliers.

AT&Thasbeenaggressivelybuildingaglobalservicesorganizationtocomplementitsstrengthasadominantnationalandinternationalcarrierandservicesupplierandmanufactureroftelecommunicationsequipment.ThroughGlobeCom,itprovidesawholerangeoftelecommunicationsandvalue-addedservicestointernationalbusinessesincludingE-mail,facsimile,EDI,andadvancedimageandvoiceservices.AT&Talsosuppliesafamilyofvideoconferencing-relatedservices,calledGlobalBusinessVideoServices,whichtargetstheneedsofbusinessesfortraining,meetings,marketing,andsales.InMay1993,itannouncedits“WorldSource”alliance(withKDD,Japan’sinternationalcarrier,andSingaporeTelecom)whichoffersinternational“one-stopshopping”forvoiceanddataservicesandend-to-endprivateline,virtualnetwork,andframerelaydataservices.AnotherAT&Talliance,called“World-Partner,”offersend-to-endglobalserviceswithothercarriers.Athird,called

“WorldWorx,”isamultimediaserviceprovidedincollaborationwithApple,Novell,andIBM.AT&Tisacompanythatshouldbewatchedbecauseitistheonlycompanyintheworldthatisstrategicallypositionedinallofthemajorsegmentsoftheworld’sinformationandtelecommunicationsmarketplace,inresearchanddevelopment,telecommunications,andcomputerequipmentmanufacturing,andlocal,national,andglobalfacilities,andservicesmarkets,anditisaggressivelyadvancingonallfronts.AT&Tissostrong,accordingtoBusinessWeek,thatitcouldendupadecadefromnowrulingtheworld.

BritishTelecomhasalsobeenforgingastrategytobecomeadominantforceintheglobalinformationandcommunicationsserviceseconomy.Thecompanyprovidesawholefamilyofend-to-endnetworkmanagementanddatacommunicationsservicestoitscustomersfrommorethan1,000locationsworldwidethroughitsGlobalNetworkServices(GNS)organization.Tymnet,aworldleadingsupplierofpacket-switchingservices,isnowanintegralpartofGNS.Tymnetowns25percentofNetworkInformationServicesCompany,oneofJapan’sleadingcomputernetworkservicescompanies.BTisusingTymnettogohead-to-headwithGeneralElectricInformationServices,AT&T,andIBM.InOctober1991,BTannouncedthelaunchingofits“supercarrier”Syncordiasubsidiarytoprovideend-to-endglobalnetworkservicestolargecorporateusers.OneofitsmostambitiousprojectsiscalledCyclone.ThisisaworldwidenetworktowhichBThascommitted$1billionininvestmentthroughoutthisdecadetoprovideacomprehensiverangeofvirtualprivatenetworkservicesforinstitutionalcustomers.ThecompanytookitsfirststepinthisdirectioninMay1993whenitannounceditwouldtakea20percentstakeinMCIfor$4.3billion.Thetwocompanieshaveagreedtoinvest$1billiontocreateanewcompanycalledConcerttobuildglobalnetworksforofferingvoice,data,andvideoservicestotheirinternationalclients.

Otherinternationalcarriersarecreatingtheirownglobalservicesorganizationthroughstrategicalliancesandjointventures.SeveralofEurope’sbiggestPTTs,includingSwedishTelecom,FranceTelecom,DeutschesBundespostTelekom,andKDDofJapan,arejointownersof

Infonet,whichsuppliesinternationalvalue-addedservicesonthethreemajorcontinentalmarketsoftheworld.Twelveoftheworld’slargestcarriersrespondedtothemovesbyAT&TandBTin1992byformingtheFinancialNetworkAssociation(FNA)toprovideallofthetelecommunicationsneedsoftheworld’sfinancialcommunity.OthermembersincludeAOTCofAustralia,StentorofCanada,FranceTelecom,DeutschesBundespostTelekom,HongKongTelecom,Italcable,Japan’sKDD,SingaporeTelecom,andTelefonicainSpain.Thefinancialcommunityisoneofthemostprizedclientgroupsbecauseitisintheforefrontofglobalnetworking.

AnotherrivalofSyncordiaisUnisource,ajointventurebetweentheDutchandSwedishPTTs,announcedinJune1992.Itoffersinternationaloutsourcingandmanagednetworkservices.Athirdrival,Eunetcom,isthejointventurecompanyformedinthesameyearbyDeutschesBundespostTelekomand

FranceTelecom.OnDecember7,1993,thetwocarriersunveiledajointventuretoprovide“one-stopshopping’’servicestomultinationalcompanies.

MergersandacquisitionsandjointventuresandstrategicallianceslikethesehavebecomethenormthroughoutEuropeandacrosstheAtlanticandPacificoceans.ButsomeinternationalcarrierslikeCableandWireless(C&W)arealreadywellrepresentedglobally.Bymid-1993,thecompanyhadanownershipstakeinmorethanfortycarriersaroundtheworld,includingallofthecountriesthataremajorhubsforinternationalprivate-linenetworks.CableandWirelessalsoownsMercuryCommunicationsandHongKongTelecomandhasa10percentstakeinInternationalDigitalCommunicationsinJapan.ItisalsopartownerofTele2,analternativeservicessupplierinSweden,andamemberoftheGlobalVirtualPrivateNetwork(GVPN)groupformedin1991.OthermembersofthegroupincludeHongKongTelecom,Sprint,TeleglobeCanadaandUnitelCommunicationsinCanada,SwedishTelecom,TelstraofAustralia,andInternationalDigitalCommunicationsofJapan.

TRANSFORMINGNATIONALTELECOMMUNICATIONSINFRASTRUCTURES

DomesticandinternationaltelecommunicationscompaniesintheindustrializedcountriesarealsocontributingtoanewsocialandeconomicworldorderbybuyingintonationalcarriersandinvestingheavilyinthedevelopmentofnationalinfrastructuresinNorthAmerica,WesternandEasternEurope,Asia,SouthAmerica,andAfrica.C&WisamemberoftheMannesmannMobilfunkcellularconsortiuminGermany.ItisbuildingalocaltelephonenetworkintheGdanskRegionofPoland.BellCanadaInternationalpurchaseda20percentinterestinMercuryCommunications,Britain’ssecondcompetitivecarrierinthefallof1992togiveitafootholdintheBritishmarketwhereitcompeteswithBritishTelecom.Stentor,theconsortiumofmajortelephonecompaniesinCanada,announcedapartnershipinOctober1992withMCItocreateanintegratedCanada-U.S.intelligentnetwork.Afewmonthslater,in

January1993,AT&Tannouncedthatithadnegotiateda20percentinterest,themaximumamountpermittedunderCanadianlaw,inCanada’ssecondinterexchangecarrier,Unitel,givingAT&TvirtuallyunlimitedaccesstotheCanadianbusinessmarket.Then,inJune1994,DeutschesBundespostTelekomandFranceTelecomannouncedthepurchaseofa20percentstakeinSprintfor$4.2billion.

Theregionalholdingcompanies(RHC)intheUnitedStateshavebeentransformedbyderegulation,competition,anddivestitureintodiversificationandacquisition-hungrytigers,andtheytooareplayingakeyroleinthetransformationoftheworld’stelecommunicationsinfrastructure.By1994,RHCshadbecomeinvolvedinmorethantwenty-fiveindustrialactivitiesinmorethanthirty-sixcountries,primarilyinareasliketelephone,cellularandcabletelevision,andradioandpagingnetworksbutininternationalfiberopticcables,packetswitching,voicemessaging,anddirectorypublishingservicesaswell.

Theyhavealsobecomeinvolvedinmanyotherareas,includingcomputer,bankingandelectronicfundstransferservices,networkdesign,facilitiesmanagement,systemsintegration,computersoftware,consultingandprofessionalservicesinAsia,WesternEurope,SouthAmerica,andEasternEurope.12BellAtlanticandAmeritechweresuccessfulinpurchasing49percentofTelecomCorp.ofNewZealandfor$2.46billionin1990.SouthwesternBell,inpartnershipwithFranceTelecomandaMexicanmanufacturingandminingconcern,woncontrollinginterestinMexico’sstate-runtelephonecompany,TelMex,inMarch1991,for$1.76billion.BellSouthispartownerofOptusCommunicationsinAustralia.ThecableindustryintheUnitedKingdomhasbecomebesiegedbyregionalholdingcompanies.In1994,USWesthadtwenty-threefranchisespassing3.4millionhomes.SouthwesternBellhadsevenpassingonemillionhomes,andNYNEXhadsixteenpassing2.5millionhomes.RHCsareheavilyinvolvedininvestmentsontheContinentaswellasEasternEuropeincludingRussiaandAsia.USWestholdsfranchiseswithpartnersinHongKong,Britain,andFrancetobuildcabletelevisionsystemsreachinguptosixmillionhomes.NYNEXhasa50percentinterestinanewcompanytoown,operate,andmodernizethephonesysteminGibraltar.InNovember1993,itacquireda23percentstakeinHongKong-basedOrientTelecommunicationsandTechnologyholding(OT&T)for$177million.OT&Thasa25percentinterestinTelecommunicationsAsiaCorporationwhichownsatwenty-five-yearfranchisetobuildandoperateatwomillionlinetelephonesysteminBangkok.

RHCsarealsoheavilyinvestedincellularandpagingservicesventuresinsuchcountriesasNorway,Poland,France,Germany,Belgium,Greece,Japan,Argentina,Mexico,andVenezuela.PacificTelesishasa26percentstakeinaconsortiumthatisdevelopingasecondWestGermancellularsystem,andithasa20percentstakeintheMicrotelCommunicationsconsortiumwhichisbuildinganationwidepersonalcommunicationsnetworkinBritain.USWesthasa30percentstakeintheUnitelConsortiumwhichisbuildingapersonalcommunicationsnetworkinBritain.Italsohasa49percentstakeinaHungariancellular

telephoneproject.AnditisamemberofseveraljointventureswithRussiancompanieswhichbegansupplyingcellularservicesinSt.PetersburginSeptemberandinMoscowinDecember1991.InJanuary1993,USWestalsowontherighttobuildaGSMmobilecommunicationsysteminoverahalf-dozenRussiancities,sharinglicenseswithVART,aRussiancompanybasedinMoscow.BellsouthhascellularinvestmentsinArgentina,Uruguay,France,Britain,Switzerland,andMexicoandpagingventuresinAustralia,Britain,andSwitzerland.BothUSWestandBellAtlanticareinvolvedinaconsortiumtobuildcellularnetworkandapublicswitchedpacketdatanetworkfortheCzechRepublic.

Thesearejustasampleofthemergersandacquisitionsandjointventuresandstrategicalliancesthatarerestructuringthetelecommunicationsindustryworldwide.Otherindustriesandsectorsarebeingaffectedinsimilarways.Cross-borderandcross-countrymergersandacquisitionsandjointventureslike

thesewillincreaseintheninetiesandbeyondasthenetworksofallcountriesbecomeincreasinglyintegratedtoformaseamlessNorthAmericanandWesternEuropeantelecommunicationsinfrastructure.EuropeanandAsianandSouthAmericancountrieswillexperiencethesamefateascarriersandnoncarrierscompletethebuildingofaseamlessinfrastructuretointerconnectandintegratealloftheeconomiesintheworld.

GLOBALINFORMATIONANDTELECOMMUNICATIONSINFRASTRUCTURESARECONTRIBUTINGTOTHEGLOBALIZATIONOFEVERYTHING

Theopticalfiberandsatelliteandradiocommunicationsinfrastructuresthatcarriersareputtingintoplacearoundtheworldmaybeinvisibletothenakedeyebuttheyarecapableofcarryingliterallyalloftheessentialinformationandcommunicationsandothertrafficnecessarytosustaintheoperationofglobalbusinesses.Theseinfrastructuresalreadycarryeverythingfromvoice,data,message,image,andvideotraffictomoney,securities,andotherfinancialassets.Theyalsocarrythelatestnewsandpublishedinformationalongwithengineering,manufacturing,andarchitecturaldesignsandmedical,educational,andentertainmentcontent.Indeed,theyarecapableofmediatingalloftheessentialinformationprocessing,communications,andtradingandtransactionsactivitiesrequiredfortheglobaleconomyandtheglobalmarketplacetooperateefficientlyandeffectively.Thisglobalinfrastructureinturniscontributingtonothinglessthantheglobalizationofeverything—ofbroadcasting,publishing,banking,securitiestrading,insurance,advertising,retailing,consulting,travel,tourism,manufacturing,andtransportation.

Inthenextchapter,Iwilllookattheimplicationsofglobalization,computerizationandtheriseofthehigh-tech,knowledgeeconomyforgovernmentsandnation-statesintheninetiesandbeyond.

NOTES

1.GeorgeStalkandThomasHout,CompetinginTime:HowTime-BasedCompetitionIsReshapingGlobalMarkets(NewYork:FreePress,1990).

2.

MichaelE.McGrathandRichardW.Hoole,“Manufacturing’sNewEconomiesofScale,”HarvardBusinessReview,May-June1992,pp.102–105.AlsoTechnologyandtheEconomy:TheKeyRelationships(Paris:OrganizationforEconomicCooperationandDevelopment,1992).

3.

Japan’skeiretsutakestwoforms:abank-centeredandsupply-centeredcombine.Thebank-centeredkeiretsuconsistsof20–45corecompaniescenteredaroundabankandprovidesamechanismforallocatinginvestmenttostrategicindustries.Supplykeiretsuaregroupsofcompaniesintegratedalongasupplierchainanddominatedbyamajormanufacturer.MorethanhalfofJapan’slargest100companiesaremembersofsixgroups,andbythelateeighties,accordingtoMarieAnchordoguy,“earnedsome18percentofthetotalnetprofitsofallJapanesebusiness,hadnearly17percentoftotal

sales,heldover14percentoftotalpaid-upcapital,andemployedalmost5percentofJapan’slaborforce.”Formore,seeMarieAnchordoguy,“ABriefHistoryofJapan’sKeiretsu,”HarvardBusinessReview,July-August1990,pp.58–59.

4.

FormoreinformationontheseWestern-stylekeiretsu,IrecommendCharlesFerguson,“ComputersandtheComingoftheU.S.Keiretsu,”HarvardBusinessReview,July-August1990,pp.55–70;and“LearningfromJapan:HowaFewU.S.GiantsAreTryingtoCreateHomegrownKeiretsu,’’BusinessWeek,27January1992,pp.52–60.

5. “SiliconValley’sDesignRenaissance,”NewYorkTimes,6August1991,Section3.

6.

MotorolaiswellknownforitssuccessinusingfullyautomatedproductiontechnologiesinproducingthousandsofdifferentkindsofpagersinitsplantsintheUnitedStates.Flexiblemanufacturingtechnologiescanprovidecompanieswithsufficienteconomiesofscopetooffsetthedisadvantagesofsmallproductionruns.Intelligenttechnologycanalsoleadtoeconomiesofcoordination—ofresearchanddevelopment,production,marketingandsales—atthenationalandgloballevelsbytakingadvantageofnetworkingsynergies.SeeMichaelE.McGrathandRichardHoole,“Manufacturing’sNewEconomiesofScale,”HarvardBusinessReview,May-June1992,pp.102–105.AlsoB.J.Pine,MassCustomization(Cambridge:HarvardUniversitySchoolPress,1993).

7. KenichiOhmae,“TheGlobalLogicofStrategicAlliances,”HarvardBusinessReview,March-April1989,pp.143–147.

8.

Intheearlynineties,thecostforproducing256MbDRAMs,forexample,hasbeenestimatedat$1billioninresearchanddevelopmentandanother$1billionforbuildingafactory.Inthecaseoftelecommunications,theinvestmentcostsareoftheorderof$2billion.See“TheCostlyRaceChipmakersCan’tAffordtoLose,”BusinessWeek,10December1990,p.186;also“TalkAboutYourDreamTeam,”BusinessWeek,27July1992,pp.59–60;andCarlEdgarLaw,“MergerManiaHitsEuropewitha

Vengeance,”BusinessCommunicationsReview,February1989,p.68.

9. “TheComputerlessComputerCompany,”HarvardBusinessReview,July–August1991,pp.69–78.

10.

InBusinessWeek’s1992rankingofthetop1,000U.S.companiesbystockmarketvalue,Microsoftjumpedfrom45thin1991to24thplaceaheadofFordMotorCompany.Novelljumpedfrom185thto83rdplace,aheadofAppleComputer(90thposition)andXerox(100thposition).IBM,ontheotherhand,slippedfromfirstplaceto7thplace,andDECfrom54thto94thplace.In1992whenMicrosoft’sstockwastradingatahighof$95,ithadamarketvaluationof$28.4billion.Atitslowin1992,IBMwasworthjustbelow$30billion.Statisticsliketheseillustratethedramaticchangessweepingthroughthecomputerindustryworldwide,thatis,theshiftawayfromhardwaretosoftwareandservices.

11.“BillGates’NextChallenge,”Fortune,28December1992,pp.31–41.

12.LeslieA.Taylor,“TheWorldIsBecomingtheRHCs’Oyster,”Telephony,27August1990,pp.44–49;also“TheBabyBellsTakeTheirShowontheRoad,”BusinessWeek,25June1990,pp.104–106.

Chapter9WaroftheWorlds

Theglobalizationofeconomicactivityiswithoutdoubtoneofthegreatestchallengesthateverycorporation,everygovernment,andeveryindividualmustfaceandcopewithnowandinthefuture.Ataminimum,globalizationmeansagrowingopennessintheaffairsofallcountrieswithglobaltradeplayinganincreasinglyimportantroleindeterminingeconomicgrowth,employmentcreation,andtheprosperityofeverynation.Butitalsomeansgrowingeconomicintegrationandinterdependenceamongallnationalmarketsandnationaleconomiestothepointthatglobaleconomicandpoliticalissuessupersedeanddominatenationalonesinimportance.Atamaximum,globalizationentailstheeliminationofallphysical,spatial,geographical,andtemporalbarrierstosocialandeconomicactivity.Theintelligentinfrastructuresthatnationsandcorporationsarebuildingthroughouttheworldaresynchronizingandrationalizingallsocialandeconomicactivityonaglobalscaleandgivingrisetotheconvergenceofeconomicandpoliticalsystemseverywhere.

Theentireworldis,ineffect,beingtransformedintoonegiganticintegratedcommonmarket.Alleconomicactivityandallinformation,knowledge,scienceandtechnology,andmoney,securities,andeducationalandentertainmentcontentand,indeed,allofthewealthandintellectualcapitaloftheworldarebecomingmediatedbyelectronsandphotonsprocessedbycomputersanddistributedoveropticalfiberandradioandsatellitecommunicationsnetworks.

Nationaleconomiesarebeinginterconnectedandintegratedinspaceandtime,thusmakingworkerandmanagerialskills,educationalsystems,andinnovationandproductivitystrategicvariablesintheequationofeconomicsuccessofeverynation.1

Globalizationalsomeansthatthesocioeconomicandpoliticalaffairsofeverycountryarenowinextricablyinterdependentandinterlinkedwithoneanother.Themonetaryandfiscalpoliciesofindividualnation-stateshavebecomeinterdependentalongwithdomesticregulatorypoliciesintelecommunications,banking,andfinancialservices.Thedailyturmoilininternationalcurrencymarketsisevidenceofthis.Scienceandtechnologyandresearchanddevelopmentpoliciesarenowlinkedwithindustrialandtradepolicies.Tradepolicies,industrialpolicies,andevenculturalpolicieshavebecomedependentontelecommunications,standardsforequipmentmanufacturing,andnetworkinterconnectionaswellastheallocationofradiofrequenciesandoncomputersystemsandoperatingsystemsarchitectures.Allofthese,inturn,influencenationalandinternationalbankingandfinancialservicesregulatorypolicies.Nationalsecurityanddefensepoliciesnowconstituteotherelementsinthisnewmatrixofpoliticalinterdependenciesamongnations.Socialpolicy,taxationpolicy,andregionaldevelopmentandtransportationandenergypoliciesarealsointerdependent.

Forbusinesses,globalizationultimatelymeanstreatingalloftheeconomiesintheworldasoneenormousmarketwhereallresourcesareallocatedandgoodsandservicesproducedanddistributedaccordingtostrictglobalstandardsofperformance.Fornation-statesandgovernments,itmeansthatitisnolongerpossibletoprotectdomesticindustriesfromforeigncompetitionorfundallofthecostlysocialandeconomicprogramsasinthepast.Itmeansthatnationsandnationaleconomiesandunionsandworkersinthenationaleconomiesoftheworldmustcompetewithoneanothertoanincreasingdegreeforjobs,investment,andeconomicgrowth.Forgovernmentsandnation-statesasawhole,itsignifiesaprofoundlossofcultural,economic,andpoliticalsovereignty.Foreveryone,itmeansalossofsecurity,protection,and

evenidentity.

Sinceeverynationandeverynationaleconomymustnowoperateinthisnewglobalcontext,globalizationmeansafundamentalrethinkingofnationalpoliciesandprioritiestowardeconomicgrowthanddevelopmentandtradeandcompetitiveness.Itmeansthatnationsmustabandonmanyoftheindustrial,regulatory,andtradeandprotectionistpoliciestheyhavedependedoninthepasttoservetheireconomicdevelopmentobjectivesandadoptpoliciesthatpromoteinvestmentinhumancapitalandeducation.Insomecases,itcanevenrequirenationstocompletelyreversetheirnationaleconomicpoliciesofthepast.Industrialpoliciesthatactuallypromoteforeigninvestment,forexample,aresuperiortothosewhichhaverestricteditinthepast.Strategiesthatpromoteinnovationandchangearesuperiortorestrictiveregulatoryandantitrustpoliciesthathaveconfinedtheminearliertimesbecausetheyenhancecompetitiveness.Cooperativeindustrialandtradeandtechnologystrategiesarepreferabletothego-it-alonenationalisticapproachesofthepast.And,policiesthatpromotetrade

arepreferabletoprotectionistpolicies.Freetradeandfreetradeagreements,afterall,arefarsuperiortonotradeatall,atleastfromaneconomicperspective.

Theglobalizationofeconomicactivitythereforecallsforanewroleforgovernmentascoachofthenationalteamofeconomicplayers—ofindustriesandinterestgroups—andastheprincipalagentandarchitectresponsibleformanagingthehuman,financial,andeconomicresourcesofthenation.Itisgovernmentsthathavetheresponsibilityforensuringthatthey,alongwiththeproductionanddistributionsystemsofthenation,itsinfrastructuresandinstitutions,areoperatingatglobalstandardsofperformanceandinharmonywiththeglobalcommunityofplayers.

THESUPREMACYOFKNOWLEDGE,SCIENCE,ANDTECHNOLOGYINGLOBALECONOMICANDPOLITICALAFFAIRS

Theriseofglobaltransportation,electronicinformation,communications,andfinancialinfrastructureslinkingallpartsoftheworldalongwiththeintegrationofworldeconomieshasopenedupmanynewandunexploredpotentialsforeconomicgrowthandwealthcreation.Butithasalsoexposedeverycompany,everyindustry,andeverygovernmenttotherealitiesofglobalcompetition.Andithasprecipitatedaraceamongthenationsoftheworldtousealmostanymeansattheirdisposaltogainstrategiccompetitiveadvantage.Thestakesinthisinternationalracehavebecomesogreatthatitnowsupersedesthearmsraceinimportance.

Thescientificandengineeringlaboratoriesoftheworldwhereknowledgeisproducedandproductsaredesignedrepresentthenewbattlefieldswheretheseeconomicwarsarewaged.Thescientists,engineers,softwaredesigners,computerprogrammers,andcontentproducersconstitutetheirarmiesoffootsoldiersandtheirentrepreneursrepresenttheircommandingofficers.Thenewweaponsandfactorsofproductionarethebrainsandmindsandcreativeskillsofscientists,engineers,and

otherknowledgeworkersandtheimaginationandcreativityofproductdesigners,inventors,managers,andcontentproducers.Thenewglobalwarfaremodelisnowbasedontheworldcontrolanddominationoverinvention,ideasandinformationandthediscoveryandapplicationofknowledgeandscience,technology,engineering,andmanagerialskills.Thesealsoconstitutethenewsourcesofglobalpowerandwealthofnationsandtheworld.

Nationalindustrialdevelopmentpoliciesarestilloneofthemostpopularand,indeed,oneofthemosteffectivemeansfornationsandgovernmentstocopewiththechallengestheyfaceinanincreasinglyglobalizedeconomy.Insomerespectseverynationmusthaveastrategy,beittogainormaintainaleadinthisglobalrace,tocatchuptotheleadersortosimplyavoidfallingfurtherbehind.Thestrategicfactorsthatwilldecidethewinnersincludeahighlyeducated,highlyskilledandhighlymotivatedworkforce,superiormanagement,vastamountsofcapitalforinvestmentpurposes,accesstoglobalmarkets,a

superioreconomicinfrastructure,andthecapabilitytorapidlyandefficientlyinnovateanddevelopandcommercializenewscientificandtechnologicalinventionsanddiscoveriesonanever-decreasingtimescale.Andnationsaredoingeverythingtheycantoexcelinalloftheseareas.

Thefront-runnersinthisglobalracearetheUnitedStates,Japan,andtheEuropeanCommunity,whichrepresentthefociofwhatKenichiOhmaehascalledthe“triad”ofglobalpower.Itisfromthistriadthateconomicpowerandcontrolarenowexercisedovertheglobaleconomy.Itsmembersarebattlingitoutfordominationoverallaspectsofcontrolofthedevelopmentandapplicationofknowledgeandtechnologyintheworldtoday.2JapanhasclosedthegapthattheUnitedStatesbuiltupintheearlypostwaryearsandtakentheleadershipinagrowingnumberofhigh-technologyproducts,includingmemorychips,anditnowcontrolsmanysegmentsoftheintelligenthardwareeconomyworldwide.Britain,France,andWestGermanyandotherEuropeancountriesareendeavoringtocatchuporavoidfallingfurtherbehindtheUnitedStatesandJapan.Othernations,suchasSouthKorea,Taiwan,HongKong,andSingapore,aredoingtheirbesttoclosethetechnologicalandeconomicgapswithJapan,Europe,andtheUnitedStatesinkeyindustrialsectors.

Eachofthemajorplayershasitsowninstitutionsandchoseninstrumentsforpromotingitsindustrialdevelopmentgoalsandobjectives.InJapan,itcontinuestobethefamousMinistryofInternationalTradeandIndustry(MITI),whichhasbeencreditedwithnothinglessthancreatingthepostwareconomicmiracleinJapan.IntheUnitedStates,institutionssuchasthePentagon,theDefenseDepartment’sAdvancedResearchProjectsAgency(DARPA),andtheNationalAeronauticsandSpaceAdministration(NASA),alongwithavarietyofpublicandprivatescientificresearchinstitutions,suchasMITandBellTelephoneLaboratories,whichinlargeparthavebeenresponsibleforAmerica’spreeminenceinscienceandtechnology.TheEuropeanCommissionnowspearheadsEurope’shigh-technologystrategywithindividualstatesplayingastrong,cooperativeroles.

Thenationalindustrialpoliciesofleadingnationstypicallytargetcriticalenablingtechnologiesthatareperceivedtohavestrategiccompetitivesignificancetothenation.3Theseincludebiotechnology,pharmacology,nanotechnology,advancedmaterialsscience,ceramics,low-temperature“superconductor”physics,medicalelectronics,andopto-electronic,andphotonic,semiconductortechnologies.Nextgenerationcomputerandcommunicationstechnologiesaswellassoftwareandartificialintelligenceandknowledge-basedsystemsarealsothetargets.Criticalenablingtechnologiessuchastheseareviewedasbeingofstrategiceconomicimportancebecausetheyrepresentmajorbottleneckswhich,onceovercome,couldleadtogloballeadership.Complementingtheseisavarietyofpublicpoliciestargetingtheapplicationofthesetechnologies.Nationalstrategiesalsofocusonthesoftsideofthespectrumofindustrialdevelopmentpolicies,emphasizingorganizationalandhumanresourcedimensionsandeducationandtrainingpolicies,forexample.Thepublicpolicymixalsoincludes

antitrustandregulatoryandprivatizationpolicies,aswellasgovernmentsponsorshipofcooperativeventuresandstrategicalliancesamongfirms,industries,anduniversities.

European,American,andAsiannationshavebeenengagedinthisglobalhigh-technologyraceformorethanadecade.Theirgovernmentshavebeenchannelinghundredsofmillionsandevenbillionsofinvestmentdollarsinsomecasesintopureandappliedresearchanddevelopmentprogramsinvolvinguniversities,industries,andgovernmentinanefforttogainstrategiccompetitiveadvantagesovertheothers.Spearheadingthisnewformofscientificandtechnologicalandeconomicwarfarehasbecomeanimportantroleandresponsibilityforgovernmentsinthepostindustrialera.Theoutcomeofthiswarcoulddecidewhetherglobalindustrial,economic,andpoliticalpowerwillbesharedanddistributedamongnationsmoreorlessequally,orwhetheritwillbeconcentratedandcontrolledbyonenationorbyafew.Thistechnoeconomicwarcouldexacerbatetheeconomicdividebetweentherichandpoornationsoftheworld,oritcouldgoalongwaytowardslesseningoreradicatingitaltogether.

THEJAPANESECHALLENGE

IfweacceptthefactthattheUnitedStateshasnothadan“explicit”nationalindustrialpolicy,thenJapan,morethananyothercountry,hasbenefitedfromhavinganexplicitone.Japan’sindustrialpolicies,spearheadedbyMITI,itsuniqueindustrialandtechnology-orientedcultureanditsorganizationofproductionunderthekeiretsusystemareamongthemostcriticalfactorsthathavecontributedtoJapan’ssuccess.Butitspublicpoliciestowardstheproductionandaccessanddistributionofknowledgeandthemannerinwhichithasappliedscienceandtechnologytoallindustrialactivitieshavealsocontributedtoitsriseasaneconomicsuperpower.Japanhasdemonstratedthatknowledge,technology,andorganizationandhumanresources(inconjunctionwithappropriateexport-orientedandprotectionisttradepolicies)aremorecriticaltoeconomicgrowthandcompetitivenessthanhugereservesof

energyorrawmaterials.

Sinceits1972“PlanforInformationSociety,”whichtargetedcomputersandinformationtechnologyasthekeycomponentandfocusofitsindustrialstrategy,theJapanesegovernmenthasfollowedonwithprogramafterprogramaimedatdevelopingleading-edgetechnologiesandscientific,technologicalandknowledgeresources.4MITIalsoinitiatedaseriesofadvancedtechnologyprojectsintheeighties,rangingfromfifth-generationcomputers,artificialintelligence,androbotstodatabasesandsatellites.Japan’sfifth-generationcomputerproject,launchedin1981,wasdesignedtoproduceanewgenerationofknowledge-basedorknowledge-processingcomputersystems.Its1983TechnopolisPlandevelopedablueprintforbuildinganetworkofnineteenhigh-techcommunitiesinlesserdevelopedareasbasedonthesiliconvalleymodel.5Theseareexpectedtobecometheenginesofeconomicgrowthinthetwenty-firstcentury.ItsReal-timeOperatingSystemNucleus(TRON)programwaslaunchedinthemid-

eightiestodevelopacommonsetofhardwareandsoftwarearchitecturesforanintegratedall-electronicsociety.6Researchhasbeencarriedouttodevelopreal-timeoperatingsystemsinthreestrategicareas—business,home,andindustrialandcommunicationssystemsapplications—togetherwithanoverallarchitecturedesignedtoachievefulltransparencyacrossallplatforms.ThisisoneofaseriesofprogramsthatJapanlaunchedtogainworldsupremacyinsoftwareintheninetieswhenithopedtochallengetheUnitedStates’leadershipinyetanotherhigh-technologyfield.

Since1987,over200Japanesecompanieshavebeeninvolvedinthe‘‘Manufacturing21”program,oneofthemostadvancedandambitiousmanufacturing-technologyprogramsintheworld.Japanalsohasanextensiveprogramtodevelopandapplyneuraltechnologyinmanyofitsproductsforexport,anditisalsoaleaderintheapplicationoffuzzylogic.Fuzzylogicisamathematicalmethodbasedonapproximations,suchasmany,closeto,loworhighratherthanexplicitnumbers.Japanesecompaniesareinstallingfuzzylogicdevicesinmanyconsumerproductlinesaswellasautomobiles,forexample,tomakedecisionsbasedonthebehavioralpatternsoftheirownersandusers.Japanesecompaniesarepositioningthemselvesinthesetechnologiestoextendtheirdominationoftheworldwideconsumerelectronicsindustryintotheninetiesandbeyond.

ManyofMITI’sambitiousprogramshavebeenhighlysuccessful.Companieshavebenefitedfromtheknowledge,insight,andexperience,especiallysharedexperience,theyhavegainedfromparticipatingintheseprogramsaswellasbeingabletosharethehugecostsofsuchdevelopmentsandreducetheirrisk.OneoftheresultsisthatJapanesecompanieshavecaughtupandsurpassedtheUnitedStatesinagrowingnumberofhigh-technologyareas,andtheynowdominatecertainproductlines,forexampletheproductionofsomelinesofhigh-capacitycomputermemories.Japanesecompaniescompletelydominatetheworldmarketforflatpaneldisplays.

ButsomeofMITI’smostpromisingandmostexpensiveprojectshave

alsobeendismalfailuresbyitsownadmission.In1992,forexample,Japanacknowledgedthefailureofitsfifth-generationcomputerprojectandpromisedtogiveawayallofitsdevelopmentstoindustryfreeofcharge.And,inFebruary1994,topofficialsoftheMinistryofPostsandTelecommunicationsannouncedthatthecountrywasconsideringabandoningitshigh-definitiontelevisionprograminwhichithadploughedbillionsofdollarsininvestmentsforoverthirtyyears.NipponHosoKyobaiBroadcastingCorporation(NHK),Japan’sstate-ownedbroadcaster,admittedthattheprogramwasmadeobsoletebyAmerica’sall-digitaltelevisiondesigns.Japanhasalsofailedtodevelopaninternationallycompetitivesoftwareindustry.ButthesefailureshavenotdeterredMITI.Soonafterabandoningitsfifth-generationcomputerprojectin1992,MITIannounceditsso-calledReal-WorldComputingProject(orsixth-generationcomputerproject)whichisdesignedtodevelop“flexibleinformationprocessing”or“soft

logic”systemstoenablecomputerstoseeandrecognizeobjectsandhumanfacialexpressionsandgesturesandunderstandhumanspeech.

ThesuccessofJapan’snationalindustrialstrategyhasbroughtitintoincreasingconflictwithitsmajortradingpartners,especiallytheUnitedStatesandtheEuropeanCommunity,and,underthispressure,Japanhasbegunopeningupitsprogramstoparticipationbyforeigncompanies.Oneoftheseisaninternationalten-year,$1billionprogram,proposedin1990,todevelopan“IntelligentManufacturingSystem.”Theprogramwouldintegratefactorytechnologiesfrommajorindustrializedcountries,developaworldwidestandardforfuturefactorytechnologies,andpoolinternationalresourcestocreateatwenty-first-centuryhigh-technologysystem.Companies,universities,andgovernmentsintheUnitedStatesandEuropehavebeeninvitedtoparticipateintheproject,andMITIhasofferedtopickup60percentofthecost.JapanhasalsoinvitedAmericancompaniestoparticipateforthefirsttimeinitssixth-generationcomputerproject.IBMisaparticipantinthisprogram.

TheJapanesegovernmentiscontinuingtotargetotherenablingtechnologiesincludingnewceramicmaterialsandsatellites,aswellasbiotechnologyandothersindefenseandaerospacetoimproveitsindustrialstrengths.Japanisalsobuildingacommercialrocket-launchingandsatellitecommunicationsindustriestocompetewiththatoftheUnitedStatesandEurope.Anotherstrategictargetofitsambitiousindustrialplansisthedevelopmentofanationalopticalfiberinfrastructureleadingintoeveryhomeofthenation.OfficialsatMITIviewthisasameansofdevelopinganewinformation-basedsocialinfrastructure.Amongtheseisa$250billionplantobuildanadvancedintelligentnetwork(AIN)infrastructurebytheyear2015.NipponTelephoneandTelegraphisalsodevelopingwhatitcallsitsVisual,Intelligent,andPersonalCommunicationsService(VI&P),andithasplansonthedrawingboardtoinvestasmuchas$4trillionintelecommunicationsinfrastructuresbeforeyear2015.Inwayssuchasthese,Japanhasclearlysetitssightsonbecomingoneoftheleadingknowledgedevelopersandappliersoftechnologyandoneoftheleadingknowledgeexportersintheworldasameansofsecuringandensuring

itssuccessthroughouttheremainderofthedecadeandbeyond.Newlyindustrializingcountries,particularlyinAsia,lookatJapanasamodelfortheirowndevelopment,andtheyarechallengingJapan’sgrowinghegemonyinAsia.

EUROPEANHIGH-TECHNOLOGYSTRATEGIES

NationalindustrialstrategieshaveplayedanimportantroleintheeconomicdevelopmentofWesternEuropeinthepostwarperiod.Asdescribedinchapter4,Britain,France,andWestGermany,forexample,setupnationalindustrialprojectsthroughouttheseventiesandeightiestodeveloptheirsemiconductor,computer,andsoftwareindustrieswhiletargetingkeyindustrialandeducationalapplications.Thesehadlimitedsuccess,however.Bythelateeighties,legislationcreatingasingleEuropeanmarketwasbeginningtotakeeffect,andpan-

Europeaninitiativeswereovertakingnationalprograms.AmongthemostambitiousEuropeanhigh-technologyprojectsareESPRIT(EuropeanStrategicProgramforResearchintoInformationTechnology),a$9.8billionprogramwiththeobjectiveofstrengtheningEuropeanmicroelectronicstechnologyinareaslikeintegratedcircuitdesignandcomputer-aidedmanufacturingandEUREKA(EuropeanResearchCoordinationAgency),a$15billion,nineteen-nationprogram,involving297jointgovernment-industrycooperativeprojectsdesignedtogainstrengthinsuchfieldsashigh-definitiontelevisionandautomobileguidancesystems.TheEuropeanCommunityisalsospearheadinganumberofinfrastructureprojectsincludingthe$2.8billionRACE(ResearchonAdvancedCommunicationsTechnologiesinEurope)program,whichfocusesonthedevelopmentofbroadbandnetworksandtelematicprogramsandthebuildingofanumberoftrans-Europeannetworksforcooperatingineducationandtraining,libraries,linguistics,administration,transport,healthcare,andruralservices.

EuropealsohasitsSTAR(StrategicTelecommunicationsApplicationsforRegionalDevelopment)Programtofostertheadoptionanddiffusionoftelecommunicationstechnologyandservicesespeciallythroughoutunderdevelopedregions.StillanotheristheJointEuropeanSubmicronSiliconInitiative(JESSI),aneight-year,$4U.S.billionventuresimilartotheU.S.SematechProgram.Europehasalsotargeted$3.2billionforadvancedmaterialsandmanufacturingtechnology.TheEuropeanUnion’sAdvancedComputerResearchInstituteinLyonsinFrancehasdevelopedasupercomputerwhichitismarketingworldwide.MostEuropeancountriesnowhavetheirownhome-grownsiliconvalleys.EnglandhasMiltonKeynesandCambridge.Francehashigh-technologycentersinGrenobleandnearParis.GermanyhasitstechnoparksinBerlin,Stuttgart,andMunich.EvenScotlandhasitsown,callednaturally,“SiliconGlen,”whichcomprisesahundred-kilometercorridorstretchingacrossScotlandnorthofGlasgow.Fourhundredfiftyofthelargesthigh-techcompaniesintheworldarelocatedhere.

Europeaninitiativesarealsodesignedtofosterthedevelopmentofadvancedtelecommunicationsinfrastructures,includingfullydigital

networksandopticalfibers,satellites,anddigitalcellularradiotelephone,systemsinadditiontohigh-definitiontelevision.TheEuropeanUnionhasitsownintelligentmanufacturingtechnologyprogramliketheJapaneseandtheUnitedStatesandEuropeancountries,anditisbroadeningitseffortstogainagrowingpieceoftheactionintheglobalhigh-technologygame.TheEuropeanLaboratoryforParticlePhysicsisafourteen-nationresearchprojectthathasbuilttheworld’slargestatomsmasher,aseventeen-milelonglargeelectronpositroncolliderorLEP.Europeansalsohaveprojectsunderwaytoconductresearchanddevelopmentinsuchstrategicareasasnewfighteraircraft,antitank,andantiaircraftmissilesandplanstobuildaprototypenuclearfusionreactor.TheAirbusconsortiumofcompaniesfromFrance,Britain,Spain,andWestGermanyhasalsobecometheworld’snumbertwomanufacturerofpassengeraircraft,BoeingCorporationbeingnum-

herone.TheEuropeanConsortiumArianespacenowcontrolsasmuchas65percentoftheworld’scommercialrocket-launchingmarketandisoptimisticthatitcanincreaseitsshare.MuchofthissharehasbeenattheexpenseoftheUnitedStateswhichcontrolled100percentintheseventies.TheEuropeanSpaceAgencyhasbuiltmorethanthirtysatellitesfortelecommunicationsandmeteorologicalandscientificresearchpurposes,anditisbuildingthe$4.8billionspaceshuttleaspartoftheplannedinternationalspacestation.TheEuropeanCommissionisalsolayingplansforthecreationofwhatitreferstoasan“EuropeanNervousSystem”modeledaftertheInternet.

TheEuropeanUnion’sindustrialstrategyhashadadownside,however.Infact,EuropeannationshavefallenbehindJapanandtheUnitedStatesinsemiconductorsandcomputertechnology,andhaveabandonedtheirall-digitaltelevisionprogram.ThemostuniquefeatureofEurope’sindustrialstrategy,however,maybeitscooperative,cost-sharingapproachtofundinghigh-scienceandtechnologyprojects.Thisapproachmayeventuallybeadoptedbyothercountriesandevenonaninternationalscale,foreventheUnitedStatesandJapanarefindingitincreasinglydifficulttocomeupwiththebillionsofdollarsneededtofundscienceandtechnologyprograms,especiallysincetheendofthecoldwar.

REINVENTINGTHEAMERICANINDUSTRIALREVOLUTION

TheUnitedStateshasbeenslowtorespondtothenewglobaleconomicandpoliticalrealitiesthathaveemergedinrecentyearsbutthisischanging.TheriseofJapanasanindustrialsuperpowerandtherelativedeclineofAmericanindustrialpowercoupledwiththeendofthecoldwarandtherapiddeclineinthestrategicimportanceofmilitarypowerarechallengeswithwhichtheUnitedStateshasfounddifficultcoping.Thenationcanclearlynolongerdependonitsvastexpendituresonmilitaryweaponsandspacesystemstostimulateitshigh-technologyindustries.Thepositivelinkagesbetweenmilitaryexpenditure,researchanddevelopment,technologicalinnovation,andeconomicgrowthareno

longeraseffectiveastheyusedtobe.Infact,militaryexpendituresarenowwidelyrecognizedasaburden,ratherthanastimulus,toeconomicperformanceandcompetitiveness.TheeconomicprosperityoftheUnitedStatesisalsothreatenedbyitslowsavingsrate,lowinvestmentsinsocialandeconomicinfrastructure,anddecliningeducationalstandards.InvestmentsinresearchanddevelopmentarenowlowerintheUnitedStatesthaninJapan.Theupside,however,isthatthegovernment,businessleaders,andthepublicatlarge,accordingtoBusinessWeek,nowrecognizethatthesemustbeovercomeifthenationistogrowandprosper.7

TheUnitedStatesbeganoverhaulingthewayitmanagesitsindustrialandtechnologypoliciesintheeighties,andthisprocesshasbeenacceleratingsincethen.OneofthewaysinwhichtheUnitedStateshasdonesoistoadoptand

adaptsomeoftheindustrialandinstitutionalinnovationspioneeredbyJapan.Theseincludeamoreactivistroleforgovernmentinsupportingandevenleadinganumberofindustry-specific,high-technologyresearchanddevelopmentinitiativesinciviliantechnologies,muchlikeMITIhastraditionallydone.8TheU.S.governmentisalsoencouragingmorecooperationamongcompaniesandindustries,eventothepointofcreatingitsownAmerican-stylekeire.su.UndertheReaganadministration,forexample,itbeganrelaxingitsantitrustlawstomakeitpossibleforAmericancompaniestocooperateandengagein‘‘precompetitive”researchanddevelopmentactivities.CongresseventuallypassedtheNationalCooperativeResearchActwhichexplicitlyencouragescorporationstoundertakejointresearchintolong-term,riskyprojectsthataretooexpensiveforonecompanytofinancebyitself.

Thenewpolicythrusthashadimmediateand,somewouldsay,impressiveresults.In1982,twelvemajorcorporationsformedtheMicroelectronicsandComputerTechnologyCorporation(MCC)withtheobjectiveofcollaboratingonhigh-risk,precompetitiveresearchanddevelopmentinitiatives.MembershipintheMCCincludesDEC,Motorola,ControlData,andHoneywell.Inthesameyear,IBM,Intel,RCA,andthirty-twoothercompaniesformedtheSemiconductorResearchCorporation(SRC)tofundbasicresearchintomicroelectronics.Inresponsetoa1987,$1billionprogramaimedatrestoringAmericanleadershipinsemiconductor-makingequipment,fourteensemiconductormanufacturersformedSematech(SemiconductorManufacturingTechnologyCorporation)tomakeveryhigh-capacity,dynamic,random-accessmemories.Inthesameyear,theSemiconductorIndustryAssociationannouncedtheformationofU.S.MemoriestoproducethenextgenerationofDRAM.MembersoftheconsortiumincludedIBM,DEC,HP,Intel,NationalSemiconductor,AdvancedMicroDevices,andLSILogic.U.S.MemorieshasbeenworkingwithSematechtodevelopadvancedchip-makingtechnologyusingspecialsemiconductortechnologydevelopedbyandlicensedfromIBM.

Someoftheseinitiativeshavealreadyproducedpromisingresults.Inthe

summerof1992,forexample,SiliconValleyGroupLimited,aproductofAmerica’sSematechinitiative,announcedabreakthroughinopticallithographytechnologythatmanybelievewillmakeitpossibletoproducechipswithcircuitwidthsof.25micronsandsmaller.ThiscouldenableAmericancompaniestoleapfrogJapanesetechnologyintheproductionofveryhighcapacitymemorychips.

In1988,CongresspassedTheOmnibusTradeandCompetitionActwhichresultedinthecreationoftheAdvancedTechnologyProgramtoprovideseedfundingforconsortiaofgovernmentagencies,industry,anduniversitiestoengageinareasofgenericresearch,suchasceramics,superconductivity,androbotics,andtotransferresearchfromgovernmenttoindustry.Anditfolloweduptheseinitiativeswiththe$2billionHighPerformanceComputingActwhichwaspassedbyCongressinDecember1991.ThisprogramtargetsfourareasofstrategicimportancetothefutureoftheAmericanmicroelectronicsandcom-

puterandtelecommunicationsindustriesanditstelecommunicationsinfrastructure,andlinksthesetothefutureeconomicdevelopmentandcompetitivenessofthenation.Oneofthese,the“teraflop”initiative,isdesignedtosupportresearchintocomputerarchitectures,microelectronics,andsoftwarefordevelopinghigh-performancecomputersoperatinginthetrillionsoffloatingpointoperationspersecond.Asecondinitiativetargetsadvancedsoftwaretechnologiesandalgorithmsforspecificapplications.Athirdtargetsanationalresearchandeducationalnetwork(NREN),andafourthtargetsinvestmentsintoupgradinguniversitycomputersciencedepartmentsandincreasingthenumberofPh.D.sby1995.SeveralofthesealsotargetthedevelopmentofAmerica’s“informationsuperhighway.”

ConcernedthattheAmericanelectronicsindustrywillbedecimatedbytheJapanesedominationofthehigh-definitiontelevisionbusiness,theU.S.governmenthasallocatedfundstofinancejointventuresamongleadingAmericanhigh-technologycompaniestodevelopanall-digitaltelevisionsystem.AT&T’sBellLabsteamedupwithZenithElectronics.AmericanTelevisionAlliancebecameinvolvedseparatelyinallianceswithMITandGeneralInstruments.TheDavidSarnoffLabs,NEC,andCompressionLabsarealsoinvolvedinaconsortiumwithPhilipsElectronicsandThompsonElectronics.InMay1993,thefourconsortiaannouncedanagreementtopooltheirdesignsandexpertisetocreateasingleworldstandardforall-digitaltelevisionsetdesign.Otherconsortiaaretargetingpromisinghigh-techdevelopmentsthatrequirehugeamountsofcapitalinvestment.OneoftheseistheOptoelectronicTechnologyConsortium,formedin1992byAT&T,IBM,Honeywell,andGeneralElectricwith$8millioninfundingfromDARPA.Itsmissionistodevelopadvancedswitchingtechnologiesthatcanbeusedbycomputersandhigh-speedtelecommunicationsswitches.Theprojectaimstodevelopequipmentwhich,operatinginparallel,willbecapableoftransmissionspeedsof64Gbps.

TheUnitedStateshasalsodevelopeditsown‘‘twenty-firstcenturymanufacturingenterprisestrategy,”todevelopfactories“thatcouldenableU.S.industrytomatchandsurpasstheambitiousprograms

underwayinJapanandEurope.”9Theintelligentvehicularhighwaysystems(IVHS)programisanothermulti-milliondollarindustrialprogramwhichtheU.S.governmentissponsoring.Throughsuchprogramsasthese,Americahasbeenattemptingtorenewitstechnologicalandindustrialleadershipanddevelopnewstrengths.Itisbettinghundredsofbillionsofdollarsthattheseindustrialprogramswillpayoff.

TheUnitedStateshasalsoputthedevelopmentofanationwideinformationandtelecommunicationsinfrastructureatthetopofitsindustrial,economic,andpoliticalagenda.BesidestheHighPerformanceComputingActof1991,CongressalsoapprovedtheCommunicationsCompetitivenessandInfrastructureModernizationActof1991to“advancethenationalinterestbypromotingandencouragingthemorerapiddevelopmentanddeploymentofanationwide,advanced,interactive,interoperable,broadbandtelecommunicationsinfrastructureonorbefore2015.”ThisisthesameyearthatJapanhassettoachievea

similargoal.TheInformationInfrastructureandTechnologyActintroducedinAugust1992,isintendedtocomplementthehigh-performancecomputinginitiativebysupportingapplicationsineducation,healthcare,andmanufacturing.ButthenumberandvarietyandscopeofinfrastructurepolicyinitiativesincreaseddramaticallyunderClintonadministration,whichhasputthedevelopmentofthenation’sinformationsuperhighwaysatthetopofitspoliticalagenda.

ThechangingnatureofAmerica’sindustrialpolicyisalsodemonstratedbytheincreasingleadershiprolethattheFCCisplayingasafacilitatorinthedevelopmentofAmerica’stelecommunicationsandinformationindustriesandadvancingthedevelopmentofitsinformationandcommunicationsinfrastructure.TheFCCorchestratedtheformationofthe“grandalliance”ofcompaniestoestablishthenewworldstandardforhigh-definitiontelevision.Ithasalsobecomemoreaggressiveinrecentyearsinthestrategicmanagementoftheradiofrequencyspectrumasameansofachievingnationalindustrialobjectives.Ithasallocatedgenerousradiofrequenciesforemergingradiocommunicationstechnologiestostimulatethedevelopmentofnewwirelesspersonalcomputer-communicationsdevicesandnewservicessuchasinteractivenewspapersandvideo-on-demand.

TheUnitedStateshasalsobeencreatingwhatithopeswillbemoreeffectivealternativestospecialfederalagenciessuchasthePentagon,DepartmentofDefense,andNASAtospearheaditsindustrial-technologystrategy.Ithasredirectedtheeffortsofmanyoftheseagenciesandprovidedfundingforitsbigdefensecontractorstoenablethemtopursuemorecommerciallyrelevantresearchanddevelopmentobjectivesthatcouldhaveadirecteffectonthenation’sindustrialcompetitivenessanditstradedeficit.Discussionshavetakenplacetocreateaciviliantechnologyagency,similartotheNationalScienceFoundation,whichwouldfocusonappliedresearchandthecreationofaciviliantechnologycorporationtofundcompaniescommercializingnewtechnologies.

SomehavearguedthatthemainthrustsofAmerica’scurrentindustrialpolicyisthecreationofannewenterprisemodelsimilartothatofJapan’s

keiretsu.ManylargeAmericanbusinesseshave,indeed,takenadvantageoftheliberalindustrialandantitrustenvironmentbycreatingtheirownhighlydiversifiedcoalitionsandcooperativeventuresamongmanufacturers,suppliers,andfinancecompanies.Between1986and1992,accordingtoBusinessWeek,“hundredsofcompanies…inindustriesasdiverseascomputers,semiconductors,autos,farmimplementsandmotorcycles[revamped]theircorporateculturesand[recast]theirinvestmentpracticestoformcooperativelinksbothvertically,downtheirsupplylines,andhorizontally,withuniversities,researchlabs,andtheirpeers.”10Theselinksservetosharedevelopmentcosts,spreadrisks,takeadvantageofsynergies,andprovideaccesstomanagementandmarketingandotherkindsofexpertise.

CharlesFerguson,aresearchassociateatIBM’sCenterforTechnology,Policy,andIndustrialDevelopment,believesthattheonlywaytheUnitedStates

canreassertitsleadershipintheglobaleconomyisbyadoptinganexplicitpolicyofencouragingthecreationofmoreoftheseindustrialkeiretsu.InanarticleintheHarvardBusinessReview,in1990,hewrote,

OnlybybuildingappropriatecorporatecomplexeswillU.S.andEuropeancompaniesbeabletosecuretheirsupplybaseagainstthestrategicpressuresexertedbyintegratedJapanesecompetitorsandobtainsufficientfinancialreturnfromthecommercializationofinnovativedesigns.Onlybyco-operatingastheycompetewillU.S.companiesbeabletorationalizemajorcomponentsectors,maintainatechnicallycompetitive,non-Japanesecapital-equipmentandcomponentssupplybase,andcreatelong-term,reciprocalpartnershipsbetweeninnovativedesigners,standardsdevelopers,large-scalemanufacturers,suppliers,anddistributionchannels.11

THEEVOLUTIONOFANEWGLOBALECONOMICORDER

Theglobalizationofeconomicactivityandthegrowingintensityofglobalcompetitiontogetherwiththegrowingknowledgeandtechnologyintensityofeconomicactivityarecreatinganewworldeconomicandpoliticalorderthataffectseveryindividual,everycompany,andeverynation.Andgovernmentseverywherearerevisingandrefocusingtheirindustrialpoliciesandtheireconomicandpoliticalinstitutions,upgradingandmodernizingtheirsocioeconomicinfrastructures,andmobilizingtheirhumanresourcesasbesttheycantopositionthemselvessotheycanprosperinthisevolvingneworder.ThenewordercompriseswhatIwillrefertoasthe“first-tier”blocofcountrieswhoseeconomieshaveenteredthepostindustrial,knowledge-based,“intellectualcapital”age.The‘‘second-tier”compriseswhathavebeenreferredtoasthenewlyindustrializingcountriesthathavebeenmakingprogressuptheladderofeconomicsuccessbypursuingappropriateforeigninvestment,trade,technology,andotherindustrialpolicies.Thesecountrieshavespecializedinlabor-intensiveproductionactivitiesintraditionalmanufacturingandassemblyoperationswheretheirlaborcosts,proximitytoglobalmarkets,oraccesstonaturalorotherresourceshave

giventhemastrategiccompetitiveadvantage.“Third-tier”countriesarethosethatareenteringtheindustrialstageofeconomicdevelopment.

First-tiercountriesconsistofthoseintheglobaltriadofeconomicpower,thatis,theEuropeanCommunity,ledbyGermany,France,Italy,andGreatBritain;NorthAmerica,ledbytheUnitedStates;andAsia,ledbyJapan.Second-tiercountriesincludetheso-calledAsiandragonsofSouthKorea,Taiwan,HongKong,andSingapore.FollowingcloselyarecountriessuchasthePhilippines,Malaysia,Thailand,andIndonesia,Mexico,andBrazil,forexample.Third-tiercountriesconsistofthemajorityofAfrican,SouthAmerican,EasternEuropean,andAsiancountriesincludingIndia,China,Vietnam,andNorthKorea.

Countriesineachofthesetiersareinteractingwithandcompetingwithone

anotherandincreasinglywiththoseinothertiers.Second-tiercountrieshavebeencomingundergrowingcompetitivepressuresfromwithintheirowngroupaswellasfromthoseinthethirdtier.Theyarebeingforcedtospecializeinhigher-value,knowledge-intensive,technology-intensive,andskills-intensivemanufacturingactivities.Theleadersareabandoningtheirpreviouspositionstothird-tiercountriesandputtingincreasingcompetitivepressureonthepostindustrial,first-tiercountries,inthoseareasofeconomicactivitywheretheyhavetraditionallyenjoyedstrategiccompetitiveadvantagesandstrengths.

Third-tiercountriesareadvancingonthoseinthesecondtierbytakingadvantageoftheirindigenouseconomicstrengths,whethertheybeofahumanresourcenatureortheirgeographiclocationortheirsuppliesofnaturalresources.SouthKorea,HongKong,andSingapore,forexample,andevenThailandandMalaysianowviewmicroelectronics,computer,andtelecommunicationstechnologiesalongwithsoftware,information,andtelecommunicationsinfrastructuresasstrategictotheirsuccess.Theseindustriestypicallyconstitutecoreelementsintheindustrialstrategiesofalmosteverysecond-tiernation.12AlloftheleadingAsiancountrieshaveevenbuilttheirownsiliconvalleysandsciencecitiesbasedonWesternmodels.Taiwan’ssciencecityiscalledHsinchu,nearTaipei.SouthKorea’siscalledTaeduck.Typically,thesecitieshavetheirownuniversities,industrialparks,andaccommodationfortensofthousandsofresearchscientistsandengineers.Asia’ssecond-tiernationsalsoputgreatemphasisontelecommunicationsinfrastructure.Several,suchasSingapore,nowhavemoreadvancedcomputerandcommunicationsinfrastructuresthanthoseofanymemberofthefirsttier.Andtheyhaveusedthistostrategicadvantage,particularlyintheirbattlewithTokyotobecomeAsia’sfinancialandtradingcenter.Between1992and1994,SingaporeandHongKongoutperformedTokyointermsofnewlistingsandcapitalturnover,accordingtoTheEconomist.Inotherwords,theremaybesomescopeandpossibilityforcertainsecond-tiercountriestoleapfrogfirst-tiercountriesinthehierarchyofeconomicdevelopmentandevolutioninthedecadesahead.ThatiswhatcountrieslikeSouthKorea,Singapore,andChinawouldliketothink.

SouthKoreahasbecomeamodelofindustrialandeconomicsuccessformanydevelopingcountriesanditiseventhreateningJapan’shegemonyinthePacificincertainareas.Ithasbecomeamajorexporterofveryhighquality,technology-intensiveproductslikepersonalcomputers,automobiles,andhigh-qualitystereo,microwave,andVCRequipment.KoreanmanufacturersarealsochallengingtheleadofJapanandtheUnitedStatesintheproductionofmemorychips.Between1988and1992,SouthKoreancompaniesquintupledtheirshareoftheworldDRAMmarketto20percent,primarilyattheexpenseoftheJapanese.SouthKoreahasalsodevelopeditsownkeiretsuindustrialgroupingsthathavebeenresponsibleformuchoftheeconomicsuccessofthenation.LuckyGoldStarandDawoohavebecomehouseholdnamesthatarenowassociatedwithhigh-qualityconsumermanufacturing,likeSony,Hitachi,Panasonic,andToshiba.SouthKoreansalsoputagreatdealofvalueoneducation.About33percentof

SouthKoreansleavingschoolgoonforauniversityeducation,morethananyothernationintheworld.TheSouthKoreangovernmenthasidentifiedstrategicdevelopmentsinkeyindustrieswhichitbelieveswillbeessentialforthefuturecompetitivenessofitseconomy.Theseinclude256MBchips,high-definitiontelevisionsets,andtransmissionequipment,flatpaneldisplays,andmultimediacomputerswhich,untilrecently,onlyhighlydevelopedeconomiessuchasJapanandtheUnitedStatescouldproduce.

Ledbyitsgovernmentministries,SouthKoreahasalsobuiltfivenationalinformationnetworksincludingthoseforeducation,finance,andpublicadministrationaspartofitsnationalcomputerizationprojectlaunchedin1989.AnditisalsodiversifyingitstradingrelationshipsandfocusingonemergingworldmarketslikeChinaandEasternandWesternEuropewhilenegotiatingaunionwithNorthKorea.

Few,ifany,countrieshaveprosperedmorethanSingaporeinthestrategicapplicationofintelligenttechnologyinitseconomicdevelopmentplans,inspiteofthefactthatitisoneofthesmallestnationsintheworldandhasnonaturalresourceswhatsoever.ThesourceofSingapore’ssuccess,accordingtoRajendraSisodia,writingintheHarvardBusinessReview,hasbeenthedevelopmentofastrategywhichleverageson“itssinglenaturaladvantageofstrategiclocationbyestablishingworldclasstransportationandmaterialshandlingfacilities;[extending]such‘hubbing’intothefinancialandotherservicedomainsbyestablishingasophisticatedcommunicationsandinformationtechnologyinfrastructure;…[establishing]highlysophisticated,automated,andflexiblemanufacturingcenters;…[while]continuously[upgrading]theskillsofitsworkforcetokeepupwiththemorechallengingdemandsplaceduponit;andclosely[monitoring]relevantglobaltechnologicaldevelopments,absorbingthemasquicklyaspossible.”13Withtheencouragementofthegovernment,manyoftheworld’spremierhigh-technologycompanieshavelocatedmanufacturingoperationsinSingapore,andagrowingnumberarelocatingtheirresearchanddevelopmentfacilitiesthereaswell.TheyincludeAT&T,Motorola,Mitsubishi,IBM,AppleComputer,

Philips,andHewlett-Packard.

ItisintheapplicationofinformationtechnologyandtelecommunicationsinfrastructurethatSingaporestandsout,however.Convincedthatinformationtechnologywasstrategictothecountry’seconomicfuture,thegovernmentofSingaporeestablishedtheNationalComputerBoardbackin1980tooverseeallofthenation’scomputer-relatedactivitiesandtodevelopanindustrialstrategy.Thisresultedinthecreationofacomprehensive“NationalInformationTechnologyPlan”in1986,whichthegovernmenthaspursuedeversince.TheSingaporeNetworkServicesCorporation,whichwassubsequentlysetup,hasdevelopednetworksforalmosteveryconceivableactivity.TheseincludeAutoNet,whichtargetsmanufacturingautomation;RealNetwhichservesrealestateapplications;andotherslikeLawNet,PortNet,MediNet,andBizNet,whichprovideservicestoSouthKorea’slegal,medical,andbusinesscommunities.Singaporebecamethefirstcountryintheworldtoachieve100percent

ISDNavailabilityin1989,anditnowcallsitselftheworld’smostnetworkednationforthesereasons.Thegovernmenthasnowembarkedonafollow-on“IT2000”plantocreatewhatitcallsan“intelligentisland.“Wisely,thegovernmentofSingaporehasrealizedthatpoliticalprogressmustgohandinhandwitheconomicprosperity,anditisinitiatingchangestomakethecountrymoredemocratic.

OtherAsiancountriesareattemptingtojumpintothesameworld-class,high-technologyleagueastheUnitedStates,theJapanese,andtheEuropeans.Taiwan,forexample,whichisnotedforitsmanufacturingbaseisfacingstiffercompetitionfromThailand,Malaysia,andChinawherelaborratesareasmuchasaquarterofitsown.Itisattemptingtomoveintoengineeringdesignandsoftwaredevelopment,anditispromotingitsresearchanddevelopmentcapabilities.ItssiliconvalleyiscalledHsinchu,whichisnearTaipei.

EvenIndiahasbegunreversingitshighlynationalisticindustrialpolicyapproachtoeconomicdevelopment.UndertheleadershipofPrimeMinisterNarasimhaRao,thecountrydecidedtothrowitsdoorsopentotheworldin1991,andtheeconomyhasbeguntoprosper.IndianowboastsitsownsiliconvalleyinthesoutherncityofBangalorewhereHP,3M,TI,DEC,andIBMarenowlocatedtoservethegrowingAsianmarketandexporttoneighboringcountries.14ItshighlyeducatedworkforcenowposesaseriouscompetitivethreattotheWesterncountries,includingtheUnitedStatesandJapan,especiallyinsoftwaredevelopmentandsystemsdesign.A1992studybytheWorldBankratedIndiaasthemostattractivenationintheworldforWesterncompaniesseekingoff-shoresoftwaredevelopmentpartners.TheIndiangovernmentisfinancinginvestmentsintelecommunicationsnetworkswithgloballinkagestoenableforeignandhome-growncompaniestodevelopsoftwareproductsanddistributethemthroughouttheworld.CompaniesarebeingattractednotonlybythepotentialgrowthofthemarketandskillsofIndianprogrammersbutbytheirwageswhicharetypicallybelowtheminimumwageintheUnitedStates.TheIndiangovernmentisplayingaleadingroleinglobalizingandmodernizingtheIndianeconomyandtransforming

itintoamodernhigh-techstate.

Chinahasbeenquietlybutrapidlyswitchingovertoamarket-basedeconomy,andittooisputtingindustrialdevelopmentingeneralandthedevelopmentofitshigh-technologyindustriesinparticularhighonitslistofeconomicpriorities.Inspiteofthe1989crackdowninTiananmenSquare,Chinahasmadetremendousstridesinmodernizingitsproductionanddistributionsectors,attractingforeigninvestment,andexportingitsproductsallovertheworld.TheseandotherpoliciespropelledtheChineseeconomytogrowanaverageof10percentperannumthroughouttheeighties,andtheChinesegovernmenthastakenstepstoensurethatthissuccesscontinues.ThesouthernprovinceofGuangdong,formerlyCantonwhichistheclosestprovincetoHongKong,isthegeographicalcenterofChina’snewcapitalism.Throughouttheeighties,itsucceededinachievinganaverageannualgrowthrateofabout15percent,aratethatexceedsthatofthefourAsiantigerswhentheywereatthesamestageofdevelopment.

Guangdonghasattractedmanybighigh-technologycompanies,likeLockheedandGECofFrance,anditboastsofhavingcreatedanewclassofmillionaires.

OthercentersinChinasuchasthenorthernportcityofTianjinarealsoflourishing.Here,Motorolaistargetingatotalinvestmentof$400millionby1996inplantstoproducepagers,integratedcircuits,andcellularphonesaswellasautomotiveelectronics,advancedmicroprocessors,andsiliconwafers.15Otherhigh-techcompanies,likeAT&T,AlcatelN.V.,Siemens,Philips,Samsung,andNECarealsomovingintoChina.AT&Treacheda$1billionagreementwiththeChinesegovernmentin1993tomanufacturetelephoneswitches,wirelessphones,andintegratedcircuits.GeneralElectrichastargetedChinaaswellasIndiaandSouthAmericaforitsvastexpansionplansinthelateninetiesandbeyond.Itplanstosourceasmuchas25percentofitsrevenuesfrombothofthesecountriesbytheyear2000.Itsplansincludeeverythingfrompowerplantsandjetenginestoappliances,plastics,andmedicalsystems.

Chinaisalsoaworld-leadinghigh-techcountryinotherareasaswell.Itisoneofthefewcountrieswithspace-launchingfacilitieswhichputsitinthesuperleaguewiththeUnitedStates,Europe,andRussia,anditismarketingitslaunchingfacilitiesworldwide.Italsohasawell-developednuclearcapability,anditisoneoftheleadingsuppliersofsophisticatedmilitaryweapons.Oneofthese,theSilkWormmissile,wonconsiderablenotorietyinanumberofinternationalmilitaryengagementsintheeighties,includingtheMiddleEast.LikeothercountriesinSoutheastAsia,Chinaispromotingmarket-orientedandexport-orientedindustrialpoliciesaswellasforeigninvestmentpoliciesalongwithadvancededucation,highskills,andhumanresourcepoliciesinitseffortstobecomeaglobaleconomicsuperpower.Butitisalsocommittedtocreatingitsownuniquekindofcapitalism.

Nationalandinternationaltelecommunicationsnetworksandserviceshavealsobecomeafocalpointoftheeconomicdevelopmentplansofmanythird-tiercountries.Thisisbecauseinternationaltelecommunicationsnetworksprovideameansforthemtotake

advantageoftheirlow-wageworkerpopulationtodevelopthrivingexportmarketnichesforinformationcapture,conversion,andprocessingservicesforairlinetickets,insuranceclaims,mailinglists,andcouponsforcreditcardcompanies,banksandotherfinancialinstitutions,aswellaselectronicpublishing,hotelandairlinereservations,andcreditcardauthorization.16IrelandandSingaporewerethefirsttodevelopthesemarketsintheeighties.ButcountrieslikethePhilippinesandJamaica,theDominicanRepublic,Barbados,andSt.LuciaintheCaribbeanhavealsodevelopedthrivingexportmarketsintheseservices.Thesecountriesarenowmakingeffortstoexpandintootherhigher-valueservicesinvolvingsoftwareandcustomprogrammingservices,aswellasCAD/CAMapplications,mapping,andgeologicalservices.Thisexplainswhythegovernmentsofthesecountrieshaveputahighpriorityonthedevelopmentofadvancedtelecommunicationsinfrastructuresthatofferhigh-speeddigitalcommunicationsandaudioandvideoteleconferencingandvoicemailservices,forexample.

Moreandmorecountriesarepioneeringmanyotherboldnewpolicydirectionsandinitiativestoachievetheirnationaleconomicdevelopmentgoalsinthenineties.Therealityisthatmostcountries—notonlyindustrializinganddevelopingcountries,butindustrializedonesaswell—donothaveagreatdealofchoiceinthepoliciestheypursuetoachievetheirindustrialandeconomicdevelopmentgoalsasrapidlyastheymightlike.Fewcountrieshaveallofthetechnologicalandengineeringskillsandthemanufacturingbasewithintheirborderstosupplyallofnecessaryequipmentandsystemstobuildandmanagethenewtelecommunicationsinfrastructures,andfewhavethehugeamountsofcapitaltoinvestintodevelopingtheseinfrastructuresthataresofundamentaltotheirfutureeconomicwell-being.Therealityisthattheonlywaymanycountriescanmakethegreatleapforwardisbyimportingtheexpertise,thetechnology,theequipmentandsystems,andtheinvestmentcapital.Andthatiswhatmanygovernmentshavebeendoing.Theyareprovidingincentivesforforeigncarrierstodothejobforthem.

SatisfiedwiththesuccessoftheprivatizationeffortsinBritainandJapan,governmentsonothercontinents—fromPoland,Russia,Czechoslovakia,andHungaryinEasternEurope;MexicoinNorthAmerican;VenezuelaandBrazilandothersinSouthAmerica;andothersthroughoutAsiaandacrossthePacificRimaswellasinAfrica—havebecomeengagedinacolossalprivatizationofstate-ownedcompaniestoadvancetheirtelecommunicationsandeconomicdevelopmentgoalsandcatapultthemselvesintotheinformationleagueofnations.Theyareliberalizingregulationsonforeigninvestmentandforeignownershipandactivelypromotingthesaleofnationalizedcompaniestoconsortiaofdomesticandforeigncompanies.Governmentsarealsoauctioningofflicensestoforeigncarrierstooperatecellularandcabletelevisionfranchiseswithintheirborders,asdescribedinchapter8.Foreigncompanies—telecommunicationscarriersandcabletelevisioncompaniesintheUnitedStates,UnitedKingdom,France,Germany,andsoon—arebecominginthiswaythemostimportantsourceofmuch-neededinvestmentcapitalandengineeringandsystemsexpertisethatmostthird-tiercountriesneed.

Evidently,foreignownershipisasmallpricefortheeconomicbenefitstheybringtothesecountries.Thenewthrustoftheeconomicdevelopmentpoliciesofdevelopingcountriestodayisinstarkcontrasttothatofthesixtiesandseventieswheneconomicnationalismprevailed.Theeconomicdevelopmentpoliciesthatareinvoguetodaywouldhavebeenregardedasheresyonlyadecadeago.

Butthesuperiorqualityoftheeducationsystemsandeducationalinstitutionsofmanyleadingdevelopingnations,suchasHongKongandSingaporeaswellasChina,forexample,alongwiththeirindustrialpoliciesandthequalityoftheirhumanresources,amongotherfactorsonecanargue,mayprovidethemwithanimportantlong-lastingadvantageovertheirrivalsinotherpartsoftheworld.InFebruary1992,theEducationalTestingServicepublishedtheresultsofitsassessmentoftheperformanceoftheeducationsystemsofvariouscoun-

tries.AtthetopofthelistwereseveralnewlydevelopingcountriesincludingChinaandHongKong.FardownonthelistinthirteenthplacewastheUnitedStates.Thequalityoftheeducationsystemsmay,therefore,explaintoasignificantdegreethestellularperformanceofnewlydevelopingcountriesandthedecliningperformanceandthedeindustrializationoftheadvancedindustrializedeconomies.

FurtherevidenceoftherelativeperformanceofthevariouscountriesthatmakeupthisnewglobaleconomicorderisprovidedbyTheWorldCompetitivenessReport1990,publishedbyIMDandtheWorldEconomicForuminGeneva,whichranksthirty-threeOECDcountriesaccordingtovariousindicators.17Singapore,forexample,rankednumberoneandHongKongeithernumberone,two,orthree,inthevariouscategoriesofinfrastructurerequirementswhichincludesroads,airtransport,portaccess,telecommunications,andpowersupply.TheUnitedKingdomrankedbetweentenandseventeeninthesecategorieswhiletheUnitedStatesrankedashighasoneintelecommunicationsbutaslowassixinpowersupplyandportaccessandnumbertwelveinrailroads.IntermsofresearchanddevelopmentBritainandtheUnitedStatesrankedbetweentwelveandtwentywhileSingapore,forexample,rankednumberoneintermsofexpectedfuturespending.Finally,intermsoftotalresearchanddevelopmentpersonnelnationwide,Korea,Taiwan,andSingaporerankedone,two,andthree,respectively,whiletheUnitedStatesandtheBritainrankedfifteenandeightrespectively.SingaporealsorankednumberoneintermsofitsinformationtechnologypoliciesandmanagementwithKoreaaclosesecondandthird,respectively.

ADVANCEDINDUSTRIALIZEDCOUNTRIESFIGHTBACK

First-tiercountriesarefightingtheseseeminglyinexorableglobaltechnologicalandeconomicdevelopmenttrendsandrapidlygrowingcompetitionfromsecond-tiercountriesthroughavarietyofindustrialandotherpolicies.Oneoftheseisbyusingadvancedautomation,leanproduction,andflexiblemanufacturingtechniquestotheirownstrategic

advantagetokeepproductionactivityalongwiththeassociatedjobsandeconomicwealthwithintheirowncountries,andsomeareachievingsuccess.Japan,forexample,iswellknownfortheenormouscapitalinvestmentsithasmadetofosterthedevelopmentanddeploymentofrobotsthroughoutitseconomyinparttoimproveitsproductivity,itsflexiblemanufacturingcapabilities,anditscompetitiveness,butalsotocompensateforitsagingpopulationandtoprepareforafuturewhenitexpectsashortageofyoungerskilledworkers.Asaresultofthispolicy,Japanboaststhatithasmorerobotsthananyothercountryintheworld.18

Americanindustryisalsodeployingrobotstoimproveitscompetitivenessaspartofitsownindustrialpolicy.Automationintheelectronicsindustry,especiallyinthemanufactureofsemiconductors,computers,andtelecommunicationsequipment,aswellasradioandtelevisionsets,haveenabledsomeAmerican

companiestorepatriatemanufacturingjobsfromsecond-tiercountriesinAsia.Andithasbeenautomationand,asimportantly,innovationsinmanagement,organization,andmanagement-workerrelationships,whichithasborrowedtoasignificantdegreefromtheJapanese,thathasenabledAmericanautomobilemanufacturerstoeliminate,forallintentsandpurposes,thequality,efficiency,andproductivitygapstheysufferedwithJapanesemanufacturersintheeighties.

ThecompleteadoptionofadvancedautomationtechnologiesandthebuildingoffullyautomatedplantsinsomecasesprovideAmericancompanieswithoneofthefewmeanstobecomethemostefficientproducersintheworldandcreatejobsandeconomicwealthintheirhomecountry.Americantextilecompanies,forexample,havebeenusingadvancedautomationtechnologiestogainastrategiccompetitiveadvantageinworldmarketsandsomeareevenrepatriatingtheirforeignoperations.Evenlow-wagecountriescannotcompetewithsomeofthesefullyautomatedflexiblemanufacturingplantsinJapanandtheUnitedStates.TheexperienceofMotorolaatteststothis.Intheearlyeighties,MotorolawasdevastatedbyAsiancompetitors,whichfloodedtheworldmarketwithinexpensiveradiocommunicationsequipment.ButitsuccessfullyfoughtbackbyintroducingfullyautomatedflexiblemanufacturingsystemsinitsplantsintheUnitedStates.By1985,ithadsucceededonceagainindominatingtheworldmarket,andithascontinuedtodososince.

FortunemagazinehasreportedthatbigU.S.manufacturingcompanies,likeAT&T,TexasInstruments,Xerox,GEFanouc,andTandy,havealsoshiftedtheirproductionlinesbacktotheUnitedStatesfromHongKong,SouthKorea,andevenJapantotakeadvantageoflowerlaborcosts,higherproductivity,fasterproductdevelopment,quickerresponse,andmorerapiddeliverytimesintheUnitedStates.19Advancedautomationandflexiblemanufacturingtechniquespermitcompaniestointroducecontinuousimprovementsinproductdesignsandtocustomizethesetolocalmarkets.JITsystemsallowproducerstomaintainmuchlowerinventoriesandprovidefasterresponsetimes.Manyofthenew

technologies—automation,flexiblemanufacturing,paperlessdesigns,teleconferencing,andEDI,forexample—resultintremendousproductivitygainsespeciallywhenusedtogether.Theyareprovidingcompetitiveadvantagestolocalmanufacturingcompaniesoverforeignonesbecausetheyfavorproximitytothemarketplaceatatimeinwhichtimelinessofresponseanddeliveryiscriticaltomeetingcustomerdemands.Theyalsoprovidetheonlymeansofrealizingtheeconomicadvantagesofrapid,high-volume,customizedproductionatcoststhatarecomparablewithmassproduction.

First-tiercountriesarealsobeingforcedtotakestrategicadvantageoftheirleadershipinintelligenttechnology,theirstrengthsinsoftware,systemsdesign,andcomputerandnetworkmanagementskillsandtheiradvancedcomputerandcommunicationsinfrastructuresandallofthemanyapplicationareasthattheywillspawninthefuture.Software,forexample,hasalreadybecomeasourceofstrategiccompetitiveadvantageforAmericanmanufacturingcompanies.Ina1994articleinFortuneentitled“TheDigitalFactory,’’GeneBylinskywrote,“Softwareisbecomingmoreimportantthanhardware—moreimportantthanma-

chinetools—inAmericanfactories.Andsmarthumansareback,replacingdumbrobots.”20Whetheritisintheformofcomputersimulationorcomputer-aideddesignsoftware,flexiblemanufacturingsystemsorvirtual,multimediaorworkgrouptechnologies,orthecommunicationsnetworksthatmakealloftheseworktogether,softwareispoweringthecome-backofAmericanindustry.ForitisthesethatenableIBMtoproduceasmanyastwenty-sevencompletelydifferentproductssimultaneously,orGeneralElectric,GeneralMotors,orCaterpillartoproducemachineryandequipmentthatisfarsuperiortothatoftheJapanese.

Japan’sIntelligentManufacturingSystemprojectanditsManufacturing21projectalongwithAmerica’sTwenty-FirstCenturyManufacturingEnterprisestrategyarealsodesignedtoenhancethecompetitivenessoftheirrespectiveeconomies.Theinformationsuperhighwaysthatareunderdevelopmentinmanycountrieswillincreasinglybecomeasourceofstrategiccompetitiveadvantageinthefuture.TheClintonadministrationallocatedasmuchas$1billionininfrastructuremegaprojectsin1992.Manyofthesearetargetingsoftwareapplicationsandcontent.Itishopedtheywillprovidethecatalyticeffectonindustryandtheeconomythatthetelephoneandhighwaysystemshavehadthroughoutthetwentiethcentury.

Butsecond-tier(andeventhird-tier)countriesarealsoadoptingsimilarindustrialstrategiestogainastrategiccompetitiveedgeonfirst-tiercountries.Some,forexample,areresortingtomore-advancedautomationtechniquesthatmakeextensiveuseofrobotictechnologiesinanattempttoleapintothefirsttier.Asdescribedabove,theyarealsomakingbetteruseoftheirnationalandglobalcomputerandtelecommunicationsinfrastructurestocompeteandmakeaplaceforthemselvesinthenewworldeconomicorder.And,ifmembercountriesoftheformerSovietUnionsucceedinmakingthetransitiontoamarket-basedeconomyandbuildingmodernmanufacturinganddistributionandtelecommunicationsinfrastructuresattheratetheywouldlike,itisconceivablethattheytoocouldleapfrogintothefirsttierinasshorta

timeastenyears.

Theprospectsofsuchajump,however,appeartobemuchgreaterinChinaorIndia,orafreetradingareainthePacificinthenextdecade.Potentially,Chinaisthesinglebiggestmarketintheworld.ItisbiggerthanthemarketsoftheUnitedStates,Japan,andEuropecombined.IfChinacanharnessitshumanresourcesanditsknowledgeandsciencetechnologycapabilitiesaswellasJapanhasdone,andthereissomeevidencethatitcan,andifitcancontrolitspopulationandmakeapeacefultransitiontodemocracy,itcouldwellbecomeAsia’sandperhapstheworld’sleadingeconomicsuperpowerwithinthenextquartercentury.IfthisispossiblethenitisalsopossiblethatAsiancapitalism,AsiancultureandAsianvalueswilldominatetheworldinageneration.

NOTES

1.

Aconsiderableliteraturehasbeengeneratedinthepastdecadeonthesubjectofglobalization,globalcompetitivenessandtheirimportancetothenationaleconomy,corporatestrategyandpublicpolicy.AmongtheseareMichaelE.Porter,TheCompetitive

AdvantageofNations(NewYork:FreePress,1990):KenichiOhmae,BorderlessWorld:PowerandStrategyintheInternationalEconomy(NewYork:HarperCollins,1990);andRobertReich,TheWorkofNations(NewYork:AlfredA.Knopf,1991).

2.

LesterThurow,HeadtoHead:TheComingEconomicBattleAmongJapan,Europe,andAmerica(NewYork:Morrow,1992);andJeffreyE.Garten,AColdPeace:America,Japan,Germany,andtheStruggleforSupremacy(NewYork:TimeBooks,1992).

3.

Foranoverviewoftheindustrialpoliciesofleadinggovernmentsastheypertaintothecomputerindustry,seeKennethFlamm,TargetingtheComputer:GovernmentSupportandInternationalCompetition(WashingtonD.C.:TheBrookingsInstitution,1987).

4. MarieAnchordoguy,“HowJapanBuiltaComputerIndustry,”HarvardBusinessReview,July-August1990,p.65.

5.SheridanTatsuno,TheTechnopolisStrategy:Japan,HighTechnologyandtheControlofthe21stCentury(EnglewoodCliffs,N.J.:Prentice-Hall,1986).

6. DavidKellar,“TRON:OutoftheLimelight,”Computerworld,30November1992,p.28.

7. ChristopherFarrell,MichaelJ.Mandeletal.,“IndustrialPolicy,’’BusinessWeek,6April1992,pp.70–75.

8.

LewisBranscomb,“DoesAmericaNeedaTechnologyPolicy?,”HarvardBusinessReview,March-April1992,pp.24–31;also“TechnologyPolicy:IsAmericaontheRightTrack?,”HarvardBusinessReview,May-June1992,pp.140–160.

9. “ThisIsWhattheU.S.MustDotoStayCompetitive,”BusinessWeek,16December1991,p.92.

10.“LearningfromJapan,”BusinessWeek,27January1991,pp.52–60.

11.CharlesH.Ferguson,“ComputersandtheComingU.S.Keiretsu,”HarvardBusinessReview,July-August1990,pp.55–70.

12.PeterRobinson,ITImperatives:ComputersandCommunicationsforthe21stCentury(Amsterdam,Holland:Tide2000Secretariat,1992).

13.RajendraS.Sisodia,“SingaporeInvestsintheNation-Corporation,”HarvardBusinessReview,May-June1992,pp.40–50.

14.

“InSouthernIndia,aGlimpseofAsia’sHigh-TechFuture,”NewYorkTimes,6October1991,p.F9.Citicorp,Hewlett-Packard,LotusDevelopment,Novell,IBM,Unisys,andSunMicrosystemsallhavepartnershipswithIndiancompaniesinsoftwareandservices.See“India’sSoftwareEdge,”BYTE,September1993,pp.55–60.

15.“China:TheEmergingEconomicPowerhouseofthe21stCentury,”BusinessWeek,17May1993,pp.54–68.

16.“CaribbeanSeeksRoleasWorld’sPaperlessTiger,”FinancialTimes,Spring1992,p.7.

17.IMDInternational,TheWorldCompetitivenessReport1990(Lausanne,Switzerland:EMFFoundation,1991).

18.Dependingonthedefinitionoftheword“robot,”Japanhasbetween60and75percentofalltherobotsintheworld.

19.EdmundFaltermayer,“U.S.CompaniesComeBackHome,”Fortune,30December1991,pp.106–111.

20.GeneBylinsky,“TheDigitalFactory,”Fortune,14November1994,p.95.

Chapter10IntotheMillennium

Theelectronictechnologyrevolutionhasalreadycomealongwaybutithasalongwaytogobeforeitiscomplete.Someofthemostdramaticchanges,Iwouldargue,haveyettocome.Thisisbecausethemostimportantwillbeorganizational,economic,sociocultural,andevenpoliticalandthesewilltaketime.Managingthesechangescouldbeoneofthegreatestchallengesfacingbusinessesandgovernments.

Itmayhappenthattheinformationsuperhighwayswillneverachievethepotentialthatvisionarieshaveascribedtothembecausethetaskofbuildingthemwillbetoogreatortoocomplexfromanorganizational,legal,orpoliticalpointofview.Theymayneedtobehighlyregulated.Perhapstheywillconcentrateeconomicpowerinthehandsofafewpowerfulgroups,statelesscorporations,orkeiretsuthatoperateinmultiplesectorsineverycountryoftheworld.Itisalsopossiblethattheywillenslaveusinonewayoranotherorresultinmassiveunemployment.Ontheotherhand,intelligenttechnologyandinformationsuperhighwayscouldleadtoagreatsocialandeconomicemancipationofpeopleandenhancedemocracy.Theycouldbeaboontosmall,personal,home-basedmicroenterprises.Theycouldalsousherinanewageofinnovationandentrepreneurshipandcreateopportunitiesforeveryone.

Ifthehistorydescribedinthisbookhasamessageaboutthefuture,itisthatmanyofthedevelopmentsthatvisionarieshavewrittenaboutwillprobablynot

occur.Ontheotherhand,certaindevelopmentswilltakeplacethateventheexpertsdidnotandcouldnotpredict.Manyofthereallyimportantscientificandtechnologicalbreakthroughsthroughouthistoryforthemostpartwerenotpredictable.Eventhosewhoinventedthemfailedtorealizetheirpotentialinmanycases.Withthesecaveatsinmind,Ibelieveitispossibletomakecertaintechnological,economic,andsocialforecastsbasedontrendsandexperienceoverthepastdecadesandthroughoutthiscentury.

Anotherrealizationisthatscienceandtechnologywillprobablynotbealimitingfactorindefiningwhatkindoforganizationsandwhatkindofeconomicsocietywewilldecidetocreateinthefuture.Developmentsinsoftware,artificialintelligence,biotechnology,andgeneticengineeringwillcontinuetoopenupvastopportunitiestocreatenewsourcesofwealthandspureconomicgrowthandsocialprogress.Whetherwedecideasasocietytotakeadvantageoftheseopportunitiesandmakethenecessarychangesandsacrifices—andtherewilllikelybesacrifices—arequestionsthatcannotbeansweredatthistime.Certaingroupswilllikelybemajorbeneficiariesoftechnologicalandeconomicprogresswhileotherscouldbebiglosers.Howwedealwiththeproblemofinequalityofeconomicopportunitycouldwellbeoneofthegreatestchallengesthatgovernmentsandtheworldwillface.

TECHNOLOGYTRENDS

Long-termtechnologicalandeconomictrendsinthecostandperformanceofhardwarewillcontinueand,ifanything,accelerateoverthecourseofthenextquartercentury.1Computersandtelecommunicationsswitchingandtransmissionsystemswillcontinuetoshiftfromelectronictooptoelectronicandphotonictechnologies2withstaggeringincreasesinprocessingpower,memorycapacities,andtransmissionandswitchingspeedsandperformance.Super-supercomputers,capableofoperatingintheterafloprange(trillionsoffloatingpointoperationspersecond)willprobablybeontheleadingedgeofscientificandbusinessapplicationsbytheyear2000,andthe

computersthatwillbecommonintheyear2015couldbeasmuchasonethousandtimesfaster.Anddevelopmentsinneuralnetworksandbiologicalcomputersthatmimicthehumanbraincouldopenupentirelynewapplicationareaswheretraditionalsequentialandparallelmachineshavefailed.3Developmentssuchasthesewilllikelybringincredibleintellectuallystimulating,creativedecision-makingpowertothecomputersofhundredsofmillionsofindividualsthroughouttheworld,andthis,inturn,willstimulatefascinatingproductivity-enhancingdevelopmentsinbusinessthroughdecision-support,workgroup,andvirtualrealityapplications,forexample.

Leading-edgeinnovationswillhaveshiftedtosophisticatedsoftwareapplicationsinthenextquartercenturyandlong-awaitedbreakthroughswillhavebeenmadeinkeyapplicationareas,suchasexpertsystems,artificialintelligence,andmultilingualspeechandvoicerecognitionandsynthesis,thusmakingitpossibletoholdnormalconversationswithmachinesindozensoflanguages.

Computers,telephones,andtelevisionsetsasweknowthemtodaywillnolongerexist.Theywillbereplacedbyavarietyofadvancedmultimediadeviceswithacombinationoftelephone,television,teleconferencing,blackboard,andtelepresencefeatureswithpowerful,easy-to-use,man-machineinterfaces.Wallet-sizeandwristwatch-sizepersonaldigitalassistantswillalsolikelyhavefullmultimediaandmobileradioandsatellitecommunicationscapabilities.

Opticalfibersalongwithsatellitesandcellularandpersonalmobileradiocommunicationssystemswillinterconnectpeopleinhomesandofficesandthoseonthemove,wherevertheychoosetobeintheglobalvillage,enablingthemtogoabouttheirday-to-dayworkactivities,tokeepinformed,andcommunicateandcoordinatetheiractivitiesbytheday,thehour,andtheminute.Thehundredsofmillionsofpowerful,multimediapersonalcomputerswillmakemanynewkindsofeconomic,cultural,andpoliticalactivitiespossiblethatwereneverbeforefeasible.Peoplewillbeabletokeepinformed,attendmeetings,makedecisions,andinteractwithothersthroughtheuseofgroupwaresoftware,teleconferencing,multimediamessagesanddocuments,andinteractivemultimediadatabases.

Advancedartificialintelligencefeatureswillmakeitpossibleforeveryindividualtohavehisorherownpersonalsoftwareagent.Thesewillincreasinglytakeontheintellectualcharacteroftheindividualtheyserve.Theywillautomaticallymonitorthedatabanksandcommunicationschannelsoftheworldandaccessandretrievedocuments,reports,articlesoranykindofcontentthatcouldinteresttheirowner.Theseagentswilleventuallybeabletoanalyzeandextractrelevantinformation,createotheragentsthatwillreportbacktothemselvesandevenlearn,communicate,andexchangeinformationwiththeirownkindandassemblethisforhumanuse.Theintelligentinfrastructurewillevolveinvaryingdegreesintoauniversalinformationmedium,auniversallibrarymedium,auniversalretailmedium,auniversalbankingmedium,auniversalmarketingmedium,andpossiblyauniversalmediumforelectronicdemocracy.

THEFUTUREOFPUBLISHING,BANKINGANDFINANCIALSERVICES,EDUCATION,ANDHEALTHCARE

Newspaperpublishingcouldbecometransformedbymultimediatechnologyoverthecomingdecadesintoapersonalizedaudio,video,andbibliographicmediumdistributedviaelectronicstoragemediaoraccessedanddeliveredonlineandstoredandmanagedlocally.Giantnewspaperandmagazinepublishersthroughouttheworldwillhavebeenforcedbycompetitivepressurestoforgeevenbiggerglobalalliancestocreateandmanageenormousdatabanksofinformationandcustomizeandcommunicatethisinformationfortheirclientsinhomesandofficesineverypartoftheworld.Local,national,andinternationallibrarieswilllikelybecomeintegratedintoasinglevirtuallibraryaccessiblethroughouttheworld.

Banks,brokerageshouses,investmentdealers,andstockexchangeswillprobablyoperateinhighlydecentralizedanddispersedofficeenvironmentsbutconnectedwithoneanotherbypowerfulmultimediaworkstationsandefficient,high-capacitytelecommunicationsnetworks.Stockexchangesandfutures,options,andcommoditiesexchangesasweknowthemtodaywillnothaveanytradingfloors,andbanksandinsurancecompanieswillprobablynolongerbeconfinedtobigbuildingsinbigcitiesandstaffedbyhundreds,oreventhousands,ofcentralofficepeople.Computerswillhavecompletelytakenoveralloftheexchangesoftheworld.Theywillbeusedtogatheralloftheinformationfromrelevantmarketsaroundtheworld,processit,andmakedecisionsonalternativeinvestmentstrategiesbasedonneuralnetworkmodelsandexecutetradesandmakethenecessarypaymentsandsettlements—allautomaticallyandtransparentlysoefficientlyandaccuratelythatnoonewillbothertocheckonthedetails.

Thestockexchangesofthefuturewilllikelybeconspicuousbytheabsenceofpeople—ofbrokers,traders,andspecialists—asphysicallyactivemediatorsandmiddlemenintheirinternaloperations.Thisisbecausepeoplewillnotbeabletocopewiththehugevolumesofinformationneededtoplayalloftheexchangesintheworldorcopewiththeincrediblyhighspeedsatwhichtradingandtransactionswilloccur.Thesefunctionstoowillbedelegatedtocomputersoftwareagentswhichwillbeprogrammedtoactintheinterestofindividualtradersandtheirclients.Competitioncouldbeamongthesesoftware-basedtradingagents,eachprogrammedwiththetradingphilosophiesandinvestmentstrategiesoftheirinvestmentmentors.Throughtheirpersonaltradingagents,peoplewillbeabletoplaythestockmarketsoftheworld,tomanageandinvestmoneyandwealth,andtotradeandtransactbusinessonaglobalscalefromapersonalcomputerlocatedanywhereintheworld.

Thetransportationnetworkswilleventuallybeoverlaidwithanintelligentinfrastructuregivingthemthecapabilitiestomonitorandcontrolaircraft,trucks,trains,andcars,andkeeptrackofpeopleandfreight,andelectronicmapswillaidnavigationofallmovingvehicles.Fully

automatedaircraftnavigationandtake-offandlandingsystemsandcomputer-controlledandcomputer-guidedautomobilesandhighwayswilllikelybecommon.

Postalservicesandtheeducationandhealthcareindustrieswillhavebecomemediatedinlargepartbyintelligenttechnologybytheyear2015.Doctors,psychiatrists,psychologists,andmedicalclinicswilllikelyhaveaccesstosophisticated,computerizeddiagnosticequipment.Auniversal,automatedpatientrecordssystemprovidingthecompletecasehistoryofallpatientscouldcomeintoexistencebythenaswell.Expertsystemswillbecapableofcompletediagnosticproceduresthroughaccesstoauniversaldatabaseofbaselinedataandcasestudies.Computer-basedmedicaltechnologysuchasthiscouldevenbecomeavailabletoindividualsinthehome.Completecomputer-basedtrainingandeducationcoursewarewillbecomeincreasinglycommoninthesecondaryandpostsecondaryeducationaswellasinthehome.Technologycouldmakeit

possibleforastudenttotakecompletecoursesorcompleteayearofworkorevenauniversitydegreefromYale,Harvard,Cambridge,oranotherinternationaluniversitywhileremainingathome.

THEOFFICE-,FACTORY-,ANDHOME-OF-THE-FUTURE

Theoffice,thefactory,andthehomewillbecometransformedintofullyelectronicandintelligententitieswithpersonalcomputersandcommunicationsdevices,displays,andsoon,becomingembeddedintothedesks,thewalls,andfurnitureofeverykind.4Theonlywaypeopleandorganizationswillbeabletocopewiththeavalancheofmultimediapersonalandbusinessinformationandeducational,entertainment,andotherkindsofintellectualcontentwillbethroughfullcomputermediation,anditisthisneedcombinedwithimprovedeconomicsandperformanceoftheinformationandcommunicationsinfrastructurethatwillpropeltheacceptanceofthisnewworld.This,inturn,willmostlikelyrenderobsoletethemountainsofpaperfilesandfilingsystemsthataresocommonintheofficeoftoday.

Factorieswillhavebecomecompletelyelectronicanddecentralizedanddistributedthroughouttheworldaswell,perhapsbyyear2015,withgroupsofengineersinvariouscountriesusingcomputer-baseddesign,simulation,andtestingtoolstocreatetheirproducts,equipment,andmachineryentirelyinsoftware,whilefullyautomatedplantsinotherlocationsperformthemanufacturingandassemblyoperations.Allofthiscomputerprocessingandcommunicationstechnologyandtheintellectualpowerthatitmakespossiblewillhavediffusedthroughouteveryorganizationandeverypartofthenationalandglobaleconomies,anditwilllikelyhaveamassiveimpactonproductivityandefficiencyandonthequalityofournaturalenvironment.

Thehomewill,invaryingdegrees,cometoresembleanoffice,aclassroom,atheater,alibrary,alaboratory,anentertainmentcenter,andacomputerandcommunicationscontrolcenter.Robotscouldbecommoninthehomefor,bythen,theywillhaveadvanced

communications,motorcontrols,andmanipulativecapabilitiesenablingthemtodoeverythingfromperformingroutinephysicalhouseholdchorestomanagingmassivelibrariesofentertainment,educational,andinformationcontent.Asmuchas40to60percentoftheworkforcecouldbeforcedbythepressuresofglobalcompetitiontoworkfromhomeinsomecapacityagenerationfromnow.

AVIRTUALFUTURE

Someofthemostpromisingdevelopmentswillcomeaboutasaresultoftheintegrationofmultimedia,workgroup,andvirtualrealitytechnologieswhichareappliedandusedinabroadband,intelligentnetworkenvironment.Thiswillmakeitpossibleformanyhundredsoreventhousandsofexperts,professionals,andordinarypeoplethroughouttheworldtocollaborateandconcentratetheir

intellectualtalentsasneverbefore.Thiswillopenupincredibleopportunitiesforbrainstorming,learning,andstrategicthinking.Powerfulproblem-solvingtechniquessuchasthiscouldleadtomajorbreakthroughsinscienceandtechnology,engineering,medicine,andhealthcareaswellasentertainmentandeducation.

Theoffice-of-the-futurewill,therefore,cometoresembleandindeedbecomeavirtualoffice;thefactory-of-the-future,avirtualfactory;thelaboratory-of-thefuture,avirtuallaboratory;andtheclassroom-of-the-future,avirtualclassroom.Thestockexchange-of-the-futurewillbeavirtualstockexchange.Theworkplacewillbecomeavirtualworkplace.Themarketplacewillbecomeavirtualmarketplace,andtheeconomicsystemwillbecomeavirtualeconomy.Theriseofthevirtualeconomywillincreasinglymakeitpossibletoworkandbeeducatedandentertainedentirelyinanintellectualspace.

TELEWORKING,TELECONFERENCING,TELEMARKETING,TELETRADING,ANDTELESHOPPINGINATELE-ECONOMY

Theinformationandcommunicationsinfrastructureswillthusenableustomeetandexchangeinformationandmakedecisionsthroughteleconferencingmedia,andmarketandsellgoodsandservicesthroughtelemarketingmedia.Usingtheglobaltele-tradingsystems,wewillbeabletoplaythestockmarketsandthecommodities,options,andfuturesmarketsoftheworld.Wecouldreceivemuchofoureducationandtrainingthroughtele-educationandtele-trainingprograms,andwecouldhavetheopportunitytotelework,telecommute,teleshopandteleplayourwaythroughlife.Wemayeventuallybeabletovoteelectronicallyforwemaybelivinginateledemocracybythen.

THEPROMISEOFTHENEWORGANIZATION

Wewillcontinuetowitnessspectacularchangesinthewayweworkandorganizeourselvesinthedecadesahead,andwewilllikelywitnessthe

evolutionoforganizationalforms,organizationalcultures,andbehaviorthatwecanonlyimagineandmanyothersthatwecannotevenconceiveoftoday.Thestructure,operation,andperformanceoforganizationswillbecomeincreasinglydefinedbythearchitecturesoftheircomputerandcommunicationsinfrastructures.

Thevirtualcorporationcouldbethepredominantformoforganizationagenerationfromnow.Itwillhavenowell-definedboundaries,anditwillbeconspicuousbytheabsenceofhierarchy.Itwillbeacompletelyhorizontallystructuredandgeographicallydistributedorganization.Themajorityofpeoplewilllikelybeworkinginsmallclustergroupsthataredistributedthroughouttheworldinnetwork-intensive,computer-mediated,interactiveenvironments.

BIGCHALLENGESFOREVERYONE

Thehigh-techeconomyofthefuturewillchallengealloftheabilitiesandcapabilitiesofindividuals,businesses,andinstitutions.Someofbiggestchallengeswillbeforgovernments.Theriseofauniversal,multimediainfrastructuretogetherwithadvancesinvirtualreality,ontheonehand,couldcreatetremendousopportunitiesandinitiatearenaissanceinlearning,education,andcreativity.Ontheotherhand,itcouldbecomeamediumforpromotingprostitution,racialhatred,violence,andxenophobia.ActivitiessuchasthesearealreadytakingplaceovertheInternet.Ifthisproliferates,itcoulddestroythevalueofthemediumasanenlightening,educational,anddemocraticforce.Suchaprospectraisesthepossibilitythattheinformationhighwayswillbehighlyregulated,policed,andevencensoredinthefuture.

Thecreationofthefive-thousandchannel,interactive,andon-demandinfrastructurecouldprovidethemasseswithunlimitedchoiceofprogrammingcontent.Itcouldmakeeveryoneapotentialbroadcaster,forexample.Ontheotherhand,itcouldfragmentandpossiblydestroythetelevisionbroadcastingindustryasweknowittoday.Itcouldalsodestroytheadvertisingindustry,Theemerginginformationandcommunicationsmultimediumcouldbecompletelyadvertising-free.Thelikelihood,however,isthatitwillbedominatedbyadvertising.Theinformationsuperhighwaycould,infact,becomeaveritablegoldmineforthedirect-mailmarketingindustry.

Intheyearstocome,thespeedandvolumesofcomputer-directedtradingactivitiesandcurrenciesacrossinternationalborderswillcontinuetoincrease,andtheycouldrenderobsoleteanyprospectforgovernmentsandregulatorstocontrolandstabilizeglobaleconomicactivity.TheprospectsofanotherstockmarketmeltdownsuchasthatwhichoccurredinOctober1987,isrealandomnipresent.Therealdangeristhatitcouldcauseacompletecollapseoftheinternationalfinancialsystem.

Anothersetofproblemsarisesasaresultofthepowerfulintegrating

forceoftechnology.Forintelligenttechnologyisoneofthemostpowerfulintegratingforcestheworldhaseverseen.Itisalreadyleadingtotheconvergenceandintegrationoftelecommunicationsandcomputersandpublishingandentertainmentindustries,and,inthefuture,itwilllikelyleadtotheintegrationofallofthesewithbankingandfinancialservices,retailing,travelservices,securitiesbrokerageandtradingandinsurance,andinvestment,andrealestateservices.

Manyofthesesectorsarealreadydominatedbypowerfulmonopolies.Whatifthesecometodominateandmonopolizeothersectorsoftheeconomy?Ifthetelephoneorcabletelevisioncompanies,forexample,succeedinusingtheirinformationhighwaystoexpandtheirmonopolypowerintohomebanking,homeshopping,home-office,homebrokerage,andhomeinvestmentactivities,theycouldcreateevenmorepowerfulmonopoliesthantheydotoday.Theresultcouldbemore,notless,regulation.Sowhatroleshouldgovernmentsandregulatorsplayinthiscomingconvergenceoftheentireeconomy?

Theintelligentinfrastructuresandtheinformationsuperhighwaysintheyearstocomecouldalsohavecatastrophiceffectsontransportation,realestate,andurbandevelopmentaswell.Telecommunicationsandtheintelligentinfrastructurearetransformingthenatureandlocationofworkandmanybigcities,especiallyintheUnitedStates,arealreadysufferingastheresultofthemovementofbusinessesoutofthecoreareaintoresidentialcommunities.ThereisalsoamovementofpeopletocitiesintheSouthandWest.Ifthenewworldofwork-at-homeandwork-on-the-movedoesdevelop,whichishighlylikely,massesofpeoplecoulddecidetoleavethebigcitiesandmovetosmalltownsandvillagesandevenruralandremoteareas.Somemaydecidetomovetoothercountriesandworkfromthere.Newtownsandvillagesmightspringupinfar-awayplacesandevenfar-awaycountries,withmanyofthebusiness,intellectual,andsocialconveniencesthaturbandwellershavetodaybutwithoutthestresses,environmentalpollution,andotherinconveniencesassociatedwithurbanliving.SomeofthebiggesturbancentersintheWestwouldbedevastatedbythemovementofworkandjobstodevelopingcountries,forexample.Suchpossibilitiesasthesewouldlikelyresultinaseriousglutofofficespaceinthemajorcities.Realestatepriceswouldplummet.Roadsandhighwaysystemswouldbecomeunderusedorobsolete.Andgovernmentswouldloseamajorsourceoftaxrevenue.

Theintelligentmultimediainfrastructureofthefuturecouldalsotransformdecisionmaking,ingeneral,anddemocracyasweknowit.Itcouldenhanceourdemocraticprocessesbyprovidingeveryonewithmoreinformation,morechoices,andmoreopportunitiestoparticipateindemocraticprocesses.Conversely,itcouldturnoutthatthespeed,efficiency,andprocessingandthecommunicationspowerofournewinformationandcommunicationsmachinesandinfrastructureswillbecomesogreatthatwewillhavenochoicebuttodelegatedecision-makingauthoritytothem.Alreadytheworld’sleadingsecurities,commodities,andcurrency,optionsandfuturesexchangesarebeingover-whelmedbyprogramtrading,and,inthefuture,computerscouldentirelytakeoverthetradingfunctionworldwide.Traderswillnotbeable

toactquicklyenoughtotakeadvantageoftheopportunitiestoprofit.Sowhatistheretostoporganizations,governmentagenciessuchastheInternalRevenueService,themarketeconomy,andsocietyitselffrombeingrunautomaticallybycomputersinthesameway?Whichorganizationororganizationswillprogramandauditthem?

Ironically,itmayturnoutthatitwillbeinourcollective,democraticinteresttodelegateanincreasingproportionofdecision-makingpowerandcontrolinsocietytointelligentmachinesinthefuture.Inalllikelihood,thenewintelligentinfrastructureswearebuildingtodaywillfreeusinsomewaysbutenslaveusinothers.Notechnologyisperfect.Eachsolvesproblemsbutalsocreatesproblems.Somewouldarguethattechnologycreatesmoreproblemsandbiggeronesthanitsolves.

THECOSTOFOBSOLESCENCE

Technologicalandeconomicchangeandglobalizationwillcontinuetospeedupandacceleratethepaceofsocialandeconomicchange.Oneoftheresultswillbeanaccelerationintherateofobsolescenceofourknowledgebase,stockofhumanskills,andexperienceaswellasorganizationsandsocialandeconomicinstitutionsintermsoftheirabilitytocope.Inordertoworkandmanageinthisnewenvironment,wewillneedtoplaceevengreaterreliancenotonlyontechnologybutorganizationsandinstitutionstohelpusabsorballofthisnewknowledgemorerapidly.Theimplicationisthatwewillrelymuchmoreonourintelligenttechnologiesandintelligentinfrastructuresthaninthepast,ineducation,healthcareaswellasintheofficeandthehome.Thespeed-upandtheobsolescenceofeverythingwilldriveinnovationsinoureducationandhealthcaresystemsandinstitutionsasweattempttogainamoredecisivesourceofstrategiccompetitiveadvantage.

Thecomputerizationandtelemediationofsocietyisgoodbymanystandardmeasuresofeconomicperformanceandsocialprogressbutitcouldcomeatapotentiallyenormousprice.Foritmeansthatpeoplemayneverneedtomeetfacetofaceexceptonrareoccasionsandspecialcircumstances.Peoplewill,bynecessity,beforcedtointeractthroughcomputerterminalsandintelligentnetworksintheirmobileofficesandhomesinthefuturewhereverthesemaybelocated,inordertoovercomecriticallyimportanttime,geographic,anddistanceandcostconstraintstoeconomicactivity.Inmanycases,peoplewillseldom,ifever,needtomeetoneanotherinpersonoreventoseeoneanother.Theywillnothavetimetodoso,andtheywillnotneedtodosobecausetheywillbeinteractinginananonymousfashionwithhundredsoftheirownkindsandwithmachinesthroughouttheworld.Someoftheofficesoftheworld’sleadingsecuritiesbrokeragecompaniesandsecuritiesandfuturesexchangesalreadyresemblethesefullyelectronic,network-based,officesandenterprisesoftomorrow.

Sittingattheirworkstationswherevertheyarelocated,peoplewillview

theworldthroughthewindowsoftheirpersonalcomputersconnectedtoavarietyofnetworks,and,indeed,insomeways,peoplewillsimplybecomeextensionsofcomputerterminalsonaglobalnetwork.Executives,professionals,managers,andstaffwilldependontheircomputersforalmosteverythingtheydo.Thecomputer-andcommunications-basedinfrastructuresthatarebeingbuilttodaywillincreasinglybecomethemediumthatbindspeopletogetherasacorporation,amarketplace,aneconomicsystem,anation,andaworldcommunity.

Inthenextdecadeormore,wecouldwitnesstheevolutionofanewsocioeconomicclassstructureatboththenationalandgloballevelsasthetrickle-downofincomeandwealthwithinnationaleconomiesbecomesreplacedbyahorizontaltransferofwealthamongnations.Thisprocessisalreadywellunderway.Inthefuture,therewilllikelybethesuperrichineverycountry—thosewhogainedtheirwealthbytheirownefforts,throughinnovation,prudentwork

habitsandinvestments,orthroughinheritance,orwhateverspecialcircumstancesandfortunestheyfindthemselvesin.Therewillalsobelargenumbersofrelativelywell-offprofessionallawyers,engineers,doctors,scientists,teachers,andeducatorsaswellasexecutivesineverycountry.But,inalllikelihood,therewillalsobeaverylargeunderclassofpeoplelivingatornearthelevelofpovertyandbelow.Manyofthesepeoplewillhavelowlevelsofeducationandbeincapableofcopingwiththekindofworkworlddescribedinthisbook.Manywillhaveneverworkedadayintheirlives.Evensomewithadvanceddegreesmayfindthemselvesinthisclass.Theymaybetheresimplybecausetheywillhavebeenturnedoffattheprospectsofworkinginthemachine-mediatedorganizationoreconomyofthefuture.Theywillbetherebecausetheywillsimplyhavechosenanalternativelifestyle.

THEFUTUREOFWORK,WEALTH,ANDECONOMICPROSPERITY

Ofthemultitudeofimpactsoftechnologyonpeople,noneisperhapsmoreworrisomeasitspotentiallyadverseeffectsonwork,jobs,employment,andcareers,and,therefore,incomeandwealth.For,inalllikelihood,itwillonlybeamatterofadecadeormorewhencomputers,robotsandintelligentmachinesofonekindoranotherwillcompletelytakeoverfactorieseverywhereandperformmostofthephysicalandevenmuchofthenonphysicalworkofcontrol,monitoring,andcoordinationthathumanshavetraditionallydone.Robots,letusnotforget,donotneedcoffeebreaksorunionstorepresentthem,andtheyworkround-the-clockwithlittlesupervision.And,asmoreandmorefunctionalityandintelligencearebuiltintosmallerandsmallermicrochipsandsoftware,fewerandfewerpeoplewillberequiredtomanufactureandtestcomponentsandassemblethemintoequipment,machines,andsystems.Asallindustriesandallsectorsoftheeconomyadoptandusethesemachinesandasvirtualworkgrouptechnologiesbecomewidespread,thewholeeconomywillbeaffectedinthesameway.

Theimplicationisthatthecomputerizationofsocietywilllikelyresultin

dramaticincreasesinproductivityineverysectorinthefuture,andthiscouldeliminateanyprospectorpotentialforjobcreationintraditionalindustries.Employmentinmanufacturingandupstreamactivitieslikemining,forexample,looksbleakindeedbutthisisnotsurprising.Employmentinthesesectorshasbeenonthedeclinefordecadesandisexpectedtocontinuedeclining.Theservicessectorcouldbeespeciallyhithardbyautomationinthenextdecade.Developmentsinbiotechnologyandgeneticengineeringwillprobablyincreaseproductivityanddiminishemploymentintheresourceandagriculturalsectors.Unlikethetechnologicalrevolutionsthattookplaceearlierinthiscentury,thedefenseandaerospaceindustriesarelikelytoshedlargenumbersevenastheyattempttoconverttocivilianmarkets.Nowonderpeopleareworriedaboutthefutureofjobs.

EverytechnologicalrevolutionandeveryeconomicagehavehadtheirshareofLudditesandthecurrentageisnoexception.ButWesternsocietieshavecopedwiththenegativeimpactsofmechanization,automation,andtechnologicalchangethroughoutthecenturies.Duringtheeighteenthandnineteenthcenturies,amassivemovementofworkersfromagricultureintomanufacturingtookplace.Throughoutthetwentiethcentury,themillionsofworkersthatweremadesurplusbymechanizationandautomationintheresource,agriculture,andmanufacturingsectorshavebeenabsorbedintotheexpandingprivateandpublicbureaucraciesandtheservicessector.Thisarmyofsurplusworkersfoundjobsasaccountants,lawyers,teachers,professors,doctors,andhealthcarepersonnel,aswellassecretaries,stenographers,banktellers,salespeople,andsoon.However,manyofthesejobsarecomingunderattacksimultaneouslybytheglobalizationofeconomicactivityandbycomputerizationwhichisspeedingaheadtopayitslastrespectstotheindustrialeconomy.

Globalcompetitionisforcingcorporationsineverysectoroftheeconomytore-engineeranddownsizetheirworkforceusingtechnologyasagreatenabler.Manycorporations,governments,andevenentirenationsareoutsourcingagrowingproportionoftheirmanufacturingandservicesactivitiestoothercountrieswhileautomatingthosetasksthatremainasquicklyaspossiblesotheycanremaincompetitive.Thepublicbureaucraciesarecomingunderthesamepressuresasprivatebureaucracies.Decliningtaxrevenuesareforcinggovernmentstodownsize,deregulate,privatize,andcutspendingondefense,socialwelfare,education,andhealthcareprograms.

Asglobalizationgainsmomentum,moreandmorelow-skilledandlow-payingjobswillcontinuetobetransplantedoverseastolow-wagecountries,therebydisplacingdomesticworkersandcontributingtounemployment.Evenhigh-skilledandhigh-wagejobswillalsobethreatenedinthefuture.Thefuturelooksbleak,indeed,formillionsofworkersintraditionalindustriesworldwide.5Ifsomanytraditionaljobsarebeingthreatenedbythemarchoftechnology,whatkindoffutureand

whatkindofworkcanpeoplelookforwardto?Wherewillthenewjobscomefrom?Iftheyarenotinmanufacturingorresourceindustriesorintraditionalserviceindustries,thenwhatkindofnewservicejobswillbecreated?Willthesebelowskillorhighskill?Lowpayingorhighpaying?Willtheevolvingknowledge-intensivesectorsabsorballofthepeoplebeinglaidoffandcomingontothejobmarket?Thesearethequestionsthatmanypeopleareaskingthemselvestoday.

Onethingisclear.TherecordofeconomicprogressoverthepasttwocenturiesandsincetheSecondWorldWaratteststothefactthatmajortechnologicalandeconomictransformationsarecontinuallytakingplacewithoutmassivelossofjobsandthateconomicprogresscreatesasmanyjobsasitdestroys,althoughthenatureandqualityofthesejobsdoeschangedramatically.Technologicalprogressisusuallyaccompaniedbyashortageofhighlyskilledlabor.Clearly,oneoftheuniqueattributesofoureconomicsystemisitsabilitytoregenerate,reinvigorateandre-engineeritself.Thesameforcesoftechnological

change,competition,innovation,andentrepreneurshipthatdisplacedjobsandcreatedunemploymentinthepastalsosolvedthem.Thequestionis,Aretheseforcesstillaspowerfulastheywereinthepast?Theyprobablyare.

Clearly,notalltraditionaljobswilldisappear,buttheywillchangeinvaryingdegrees.Societywillalwaysneedworkingpeople.Computersandrobotscannotdoeverything—certainlynotasefficientlyorwiththedexterityandimaginationofpeople,atleastintheforeseeablefuture.

Anotherthingisclear.FortheadvancedeconomiesofWesternEurope,NorthAmerica,andAsiatogrowandprosperinthefuture,theywillincreasinglydependontheknowledge-basedactivitiesthatarecreatedthroughinvestmentsinscienceandtechnology,researchanddevelopment,andengineering.Theywilldependonthecapabilitiesofentrepreneurs,managers,andinnovatorstodesign,develop,andmarketthemanynewproductsandservicesthatconsumersintheirowncountrieswillneedaswellasforexporttotheworld’shigh-growthregions.

Demographicfactorswill,ofcourse,alsoplayanimportantroleindeterminingwherejobswillbecreated.Withanagingpopulation,considerablejobcreationandemploymentgrowthwillprobablyoccurinthehealthcare,tourism,andentertainmentindustries.Theagingpopulationcombinedwithdecliningbirthratesinadvancedcountriescouldverywellresultinashortageofskilledworkersintheearlypartofthetwenty-firstcentury.Andletusnotforgettheenvironment.Inthefuture,governmentsandbusinesseswilllikelyspendhugesumstopreserveandprotecttheenvironment,andthiscouldbecomethegreatgeneratorofjobsinthefuture.And,withthespreadofdemocracythroughouttheworldandthetransitiontoWestern-stylemarketeconomiesinAsia,SouthAmerica,andEasternEurope,worldeconomicgrowthwillincreasinglyfocusontheseregionsandlessperhapsontheUnitedStates,Canada,andJapanandthepostindustrialcountriesinWesternEurope.Thesecountriesarealreadyexperiencinganexplosionindemandforgoodsandservicesandthisiscreatingopportunitiesfor

economicgrowthandemploymentinthemembercountriesinthetriadleagueofnations.6

Sincewewillbelivinginapredominantlycomputer-mediatedworkenvironmentandacomputer-mediatedglobaleconomy,manyofthenewjobsandmuchofthenewwealthwilllikelycomefromtheapplicationofintelligent,multimediatechnologies.Wewilllikelyneedmanymoretechnicallytrainedspecialistsinareaslikemultimediasoftwaredevelopment,systemsdesign,analysis,andadministrationinnetworkoperations,management,andadministrationaswellasintrainingandeducation.Jobswilllikelybecreatedaswellinthefuturethroughinvestmentstobuild,operate,andmaintaintheinformationsuperhighwaysthatareunderdevelopmentaroundtheworld.

Someofthemostpromisingareasofeconomicgrowthandjobcreationarelikelytobeintheinformation,communications,andentertainmentindustries,intelevision,motionpicture,andhomeentertainmentproduction,asconsumerscontinuedemandingmoreandbetterqualityprogrammingcontent.Innovations

intheapplicationofinteractivetelevision,computeranimation,multimedia,virtualreality,andtelepresencelookverypromising.Jobcreationandeconomicopportunityareespeciallylikelyintheartsandentertainmentindustries,especiallyliveentertainment,asmoreandmorepeoplelooktomorehumanandcreativeendeavorstoexpressthemselvesandescapethestressesofthefast-pacedcyberneticage.AccordingtoanarticleintheMarch1994issueofBusinessWeek,spendingonentertainmentandrecreationasapercentageofallnonmedicalconsumerspendingrosefrom7.7percentin1979to9.43percentin1993.7Theseactivitiesnowemploymorepeoplethantheautomobileandrelatedindustries.

AccordingtoRobertReich,authorofthebookTheWorkofNations,theindustrializedworldwillneedlargenumbersof‘‘symbolicanalysts,”thatisthoseeducatedintheuseofdata,words,andoralandvisualrepresentations.Theseincludeentertainers,movieproducers,corporateexecutives,engineeringconsultants,lawyers,andsoon.RoutineworkersfacebleakprospectsinthefutureinReich’sview.

Theinstitutionalnatureofworkandemploymentwillalsocontinuetoundergodramaticchangesinthefuture,accordingtoCharlesHandy,authorofthebookTheAgeofUnreason,asthenewworldofworkbecomesmoredecentralized,mobile,flexible,andlessstructured.Jobsecuritywillbecomeathingofthepastforlargenumbersofthepopulationandlifetimecareerscouldceasetoexistformanypeople.Insteadofpermanentpositions,workerswillprobablybeworkingonone-year,three-year,orfive-yearcontracts,andlargenumbersofpeoplewillbeworkinginpart-timepositionsandholdingdowntwoormorejobsindifferentoccupationsorindifferentorganizations.Mostpeoplewill,ineffect,bepursuingmultiplecareers.Agrowingnumberoforganizations,includinggovernments,willoutsourcetheiractivitiestoindividualsandgroupsofindividualsworkingasfreelancersandconsultants.Inalllikelihood,largenumbersoftheworkforcewillbeworkinginindependentteamswithcontractsthroughouttheworld.

Industrializedcountries,however,mayneverbeabletogetbacktothe

“fullemployment”levelsofthesixties,inspiteoftheeffortsoftheirgovernmentstopursuetheirredistributiveandemploymentequitygoalsandobjectivesthroughamassiveoverhauloftheinstitutionsofwork.Oneofthemosttalked-aboutoverhaulschemesisareductionintheworkweek,perhapstoafour-dayorevenathree-day,twenty-four-tothirty-orthirty-five-hourweekbut,unlessthisisoffsetbyproductivitygrowthorlowerincomes,itwillnotsucceed.Anotherpossibilityistoreducethemandatoryageofretirementtofifty.Thepotentialsandpossibilitiesforworksharingcouldbeconsiderableformanypeoplebutthesearepurelyincomeredistributionschemes.Theyfailtotakeintoconsiderationtheimportantfactthateveryoneinvolvedwillhavetotakeareductionintheirincome.Unlessproductivityisimproved,thestandardoflivingofentirenationswillfall.

Inalllikelihood,everyonewillultimatelybeinvestingmoreandmoreoftheir

incomeandtimeandeffortinkeepingthemselvesinformedandeducatedandkeepingupwithchangingtechnologyandwork.Ultimately,muchoftheeffortofeveryindividualwillbeconcernedwithgenerating,adaptingto,andmanagingtechnological,economic,organizational,andpoliticalchange.Forultimately,changeitselfcouldbethegreatgeneratorofjobsandthegreatgeneratorofwealthinthefuture.Thisis,afterall,thegreatlessonofhistory.

NOTES

1.

Ifchipdensitiescontinuetoincreaseastheyhaveinthepast,accordingtoMoore’sLaw,thecapacitiesofstate-of-artmemorychipscouldpossiblyreachasmuchas10billionbitsaquartercenturyfromnow.Evenhigherdensitiesandmuchfasterchipsarepossiblethroughdevelopmentsinquantum-effecttransistorswhichswitchonandoffwiththemovementofasingleelectron.TexasInstrumentsexpectsthetechnologytohitthemarketby1998.SeeBusinessWeek,8March1993,p.87;and“SingleElectronics,”ScientificAmerican,June1992,pp.80–85.

2.

In1992,scientistsatRochester’sLaboratoryforLaserEnergeticsdevelopedagalliumarsenidephotodetectorcapableofoperatingatanincrediblespeedof510gigahertz.In1993,researchersattheUniversitiesofRochesterandMinnesotaclaimedtheyhaddevelopedamuchlessexpensivephotodetectorbasedonsiliconthatiscapableofoperatingataspeedof75gigahertzcomparedtothespeedofonetotwogigahertzofthebestcommercialdetectorsavailable.

3.

In1993,Signal,thejournaloftheU.S.ArmedForcesCommunicationsandElectronicsAssociation,predictedthatintwentyyears,thebioelectricapproachcouldleadtoextremelyfastmachinesthatmatchthehumanoperator’sintellect.

4.

ThevisualtheaterwhichresearchersatXeroxPARChavedevelopedcouldbecomethemodeloffice-of-the-future.Microprocessorsandcommunicationsdevicesarecontainedinallofficefurnitureandequipmentandevenembeddedinthewallsoftheofficetocreateatrulyelectronicinformation

processingandcommunicationsenvironment.

5.

AccordingtotheGeneva-basedInternationalLaborOrganization,bothrichandpoornationshavealreadybecomeengulfedinajobcrisisthatcouldexplodeandunderminethesocialfabricoftheirsociety.Ina1993report,entitledDefiningValues,PromotingChange,itestimatedthat30percentoftheworld’slaborforceiseitherunemployedorworkingbelowthesubsistencelevel.TheILO’sChiefofStaff,AliTaqui,warnedthatthecrisiscouldreversethestepstowarddemocracyinLatinAmericaandtheformerSovietUnion.

6.TheEconomistarguedinaspecialreportontheglobaleconomyinOctober1994thatthethirdworldisnowanengineforgrowthintherichworld.See“ASurveyoftheGlobalEconomy,”1October1994.

7.“TheEntertainmentEconomy,”BusinessWeek,14March1994,pp.58–66.

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Reich,Robert.TheNextAmericanFrontier.NewYork:TimesBooks,1983.

——.TheWorkofNations.NewYork:AlfredA.Knopf,1991.

Rogers,EverettM.,andJudithK.Larsen.SiliconValleyFever:GrowthofHigh-TechnologyCulture.NewYork:BasicBooks,1984.

Rosenberg,Nathan,andL.E.BirdzellJr.HowtheWestGrewRich:TheEconomicTransformationoftheIndustrialWorld.NewYork:BasicBooks,1986.

Rubin,MichaelRogers.InformationEconomicsandPolicyintheUnitedStates.Littleton,Colo.:LibrariesUnlimited,1983.

Schumpeter,JosephA.Capitalism,SocialismandDemocracy.London:

AllenandUnwin,1943.

Slater,Robert.PortraitsinSilicon.Cambridge:MITPress,1987.

Sobel,RobertandDavidB.Sicilia.TheEntrepreneurs:AnAmericanAdventure.Boston:HoughtonMifflinCompany,1986.

Stalk,George,andThomasHout.CompetinginTime:HowTime-BasedCompetitionIsReshapingGlobalMarkets.NewYork:FreePress,1990.

Sterling,Christopher,ed.InternationalTelecommunicationsandInformationPolicy.Washington,D.C.:CommunicationsPressInc.,1984.

Tatsuno,Sheridan.TheTechnopolisStrategy:Japan,HighTechnologyandtheControlofthe21stCentury.EnglewoodCliffs,N.J.:Prentice-Hall,1986.

Tedlow,RichardS.NewandImproved:TheStoryofMassMarketinginAmerica.NewYork:BasicBooks,1990.

Thurow,Lester.HeadtoHead:TheComingEconomicBattleAmongJapan,Europe,andAmerica.NewYork:Morrow,1992.

Weizenbaum,Joseph.ComputerPowerandHumanReason.NewYork:W.H.Freeman,1976.

Womack,JamesP.,DanielT.Jones,andDanielRoos.TheMachinethatChangedtheWorld.NewYork:MaxwellMacmillanInternational,1990.

Zuboff,Shoshana.IntheAgeoftheSmartMachine:TheTransformationofWorkandPower.NewYork:BasicBooks,1988.

Zysman,JohnandLauraTyson,ed.AmericanIndustryinInternationalCompetition:GovernmentPoliciesandCorporateStrategies.Ithaca,N.Y.:CornellUniversityPress,1983.

Index

A.C.Nielsen,203

Addison-Wesley,206

ADSL(asymmetricaldigitalsubscriberline),127

AdvancedMicroDevices,224

Advantis,198,203

AetnaLife&CasualtyInsuranceCorporation,95

Aitken,Howard,43

Alcatel,195,231

AliasResearch,166

Allen,Paul,63

Altair,59,63

Amdahl,56,57,195

Amdahl,Gene,56

AmericanBell,24,8794

AmericanExpress,89,140,202,204,205;InformationServicesCompany(AEIS),202

AmericanMarconi,30,31

AmericanMobileSatelliteConsortium,117

AmericanSatelliteNetwork,89

AmericanSpeakingTelegraphCompany,23

AmericanTelevisionandCommunications,207

AmericaOnline,135,160,162,164,198

AmeritechCorporation,93,99,126,210

AMSAT(AmericanSatelliteCorporation),105

Antitrust92,98,134,205,216,219.

SeealsoAT&T;IBM

AOTC(AustralianOverseasTelecommunicationsCorporation),100,116,124

ApolloComputer,64

AppleComputer:

earlyhistory59–66;venturesinmultimedia197–198,150,152–153

Applecomputers:

AppleI,59;

AppleII,59–61;

AppleClassic,65;Lisa,60,62;

Macintosh,60,62,63,144,153;MacintoshII,64;

MacintoshFX,64;

MacintoshSE,64;

Newton,164;

PowerBook,163

Ardis,115

Arianespace,223

ARPANET,76,80,151

ArthurAndersen,173

ArtificialIntelligence,43,83,150,162,171,181,182,218,238,239

ASCII(AmericanStandardCodeforInformationInterchange),55

Ashton-Tate,61

Atanasoff,John,43

Atari,65,152

AtlanticRecords,206

ATM(AsynchronousTransferMode),151,152,155

ATM(AutomatedTellerMachine).SeeIT(Applications&ImpactsbyIndustry),bankingAT&T(AmericanTelephoneandTelegraph):CommercialFinancialCorporation,204;consentdecree(1956),49,86,87,92,93;deregulationof,78–81;earlyhistoryof,23–27,30,31,33;globalstrategy,208,209;knowledgenetwork,204;MFJ,91–94,111;

onestop-shoppingstrategy,96,208,209;organization(post-MFJ),93–94;SmartCards,204;

StarlanLAN,95,144;

asasupermarket,204;

Telpakrates,78;

WorldPartner,208;

WorldSource,208;

WorldWorx,209

AT&T,venturesin:

Cellular,110,111;

ComputerIndustry,65,95,204;datacommunications,86,87;digitalswitches,137,138;HDTV,225;

ISDN,140;

multimedia,127,152,153;opticalfiberdevelopments,120,121;(global)opticalfibernetworks,123,124;PDAs,165;

satellites,105,109;

semiconductorindustry,194,195;VTN,142–143

Austel(AustralianTelecommunicationsAuthority),100

Australia,99,100,124

Autodesk,168

Bacus,John,52

Baird,JohnLogie,33

Banking(Electronic),169–171.

SeealsoIT(Applications&ImpactsbyIndustry)BantamBooks,206

Bardeen,John,45

BBC(BritishBroadcastingCorporation),30,33

Belgium,99,129,139

Bell,AlexanderGraham,22,32

Bell,Gordon,53

BellAtlantic,93,99,127,128;globalactivities,211;venturesinPCS,113,114,152

BellCanada,23,137;

Enterprises(BCE),129;International(BCI),210

Bellcore(BellCommunicationsResearch),93,140,153

BellSouth,100,115,126,140,162,211

BellTelephoneCompany,23

BellTelephoneLaboratories,26,27,35,45,48,58,65,92,110,218,225

BellTelephoneSystem(TheBellSystem),25–28,34,35,91–94.

SeealsoAT&T

Bertelsmann,206

Binary,44

BOCs(BellOperatingCompanies),79,92–94,125,151

Boeing,140,174,222

Boole,George,41

Borland,198

Branley,Edouard,28

Braun,Karl,29

Bricklin,Daniel,61

Britain,83,84,97,113,114,129,211

Britannica,164

BritishPostOffice,97

BritishTelecom,95,97,113,123,124,129,137,143;globalstrategy,209–210

Brittain,Walter,45

Brock,Gerald,78

BSB(BritishSatelliteBroadcasting),107

BskyB(BritishSkyBroadcasting),107,207

Burroughs,50,57

Bussicom,58

CableandWireless,36,97,98,100,106,113,143,210

CableCommunicationsPolicyAct,125

Cabletelevision,3,71;convergence,124–130;

revolution,88–91;

wireless,128

CAD/CAM/CAE(computer-aideddesign/manufacturing/engineering).SeeManufacturingCambridgeUniversity,44

Canada,73,74,99,105,127,135,143,185

CanadianBroadcastingCorporation(CBC),108

CanadianRadio-televisionandTelecommunicationsCommission(CRTC),99

Capitalism,2,5,9,41,230;changingnatureof,17,18;electronic,18;

information,18;

managerial,39;

matureageof,37

Carrion,Rod,63

Carter,Jimmy,84,85,91

Carterfone,78

CATV(communityantennatelevision),35.

SeealsoCabletelevisionCBS(ColumbiaBroadcastingSystem),32,34

CBSRecords,201

CDC(ControlDataCorporation),50,54,56,57,75,201,224;6600Computer,50;

Cyber70Series,57;

CYBERNET,81;

PlatoSystem,50

CD-ROM(compactdiscread-onlymemory),149,162–164,181,197–198,203,206;photoCD,167.

SeealsoMultimediaCellularautomota,42

Cellular(radiotelephony),26,46,93,103,130;internationaldevelopmentsin,113–114;revolution,110–112.

SeealsoPCS

CellularVisionTechnologiesandTelecommunications,128

Centrex.SeeCO

CGE(CompagnieGénérated’Electricité),36

ChicagoMercantileExchange,172

China,1,114,230,231

CIM(computer-integratedmanufacturing).SeeManufacturingCISC(complexinstructionsetcomputer),64

Citicorp,140,143,202

C.Itoh,98

ClarisCorporation,197

Clarke,ArthurC.,73

CLASS(customlocalaccessservice),138,139

Client-Server,144–149

CNES(CentreNationald’étudesspatiales),119

CNN(cablenewsnetwork),89

CO(centraloffice),137,141,142;Centrex,141

Coaxialcable,26,34,35

Collaborativecomputing.SeeWorkgroupTechnologiesColossus,42

ColumbiaPictures,201

Comcast,113,128

Commodore,59,61,65;152;Commodore64,61;

PET,59

CommunicationsActof1934,27,32,76,81,91

CommunicationsCompetitivenessandInfrastructureModernizatonActof1991,225

Communism,1,17

Compaq,63,64

CompuServe,135,160,164

Computer(digital),41–44;batchprocessing,75;

distributedprocessing,86,94;FifthGeneration,83,84,219,220;generalpurpose,44;

industryshakeout,56,57,195;laptop,163–164;

mainframe,47,53,57,66,67,74,76,86,148;multimedia,66;

parallelprocessing,42,57,195;plugcompatible,56,57;

supercomputer,43,57,195,222,238;threegenerations,48–52;time-sharing,50–52,75.

SeealsoClient-Server;ComputerInquiry;

Convergence;

Interdependence;

Microprocessor;

Minicomputer;

Multimedia

ComputerApplications.SeeComputerLanguages;IT(Applications&Impactsbyindustry);Software

ComputerInquiry:

FirstComputerInquiry(ComputerI),77,78,86,87;SecondComputerInquiry(ComputerII),86,87,92

Computerlanguages:

BASIC,52,61,63;

COBOL,52;

FORTRAN,52,53;

UNIX,65,95

Comsat(CommunicationsSatelliteCorporation),80,89,95,105,116,128;created,73

Concert,209

Concurrentengineering.SeeManufacturingConsumerCommunicationsReformAct,91

Contel,105,109

Convergence:

betweenbankingandfinancialservices,6,169–171,205;betweencabletelevision,telecommunications,broadcasting,etc.,6,125–130,153–154,205;betweencomputersandtelecommunications,6,71,83,87,94,103,136,205;betweenprint,audioandvideo,90;Industrial/EconomicImpactsof,6,205.

SeealsoComputerInquiryConvergentTechnologies,62

Corporation:

impactsofITon,4,5,6,66,67,188–191;intelligent,190;

postindustrial,190;

stateless,3,237;

astransformationagent,12,13;virtual,7,190,242

CoxEnterprises,128,129,162,204;CoxCable,127,128;

CoxCommunications,89;venturesinelectronicnewspapers,162;venturesinPCS,113

CPU(centralprocessingunit),42,51,57;-on-a-chip,58

Cray,Seymore,57

CrayResearch,Inc.,57

Cybernetics,43

Cyberspace,45,193

Cyclone,209

CygnusCorporation,104

DARPA(DefenseResearchProjectsAgency),76,218

DataGeneral,53

Datran,80

DavidSarnoffLaboratories,225

Dawoo,228

DBS(directbroadcastsatellite),82,89,103,130;historyof,106–108

DEC(DigitalEquipmentCorporation),53,54,57,62,66,95,148,152,174,193,195

deCastro,Edwin,53

deForest,Lee,29

Deindustrialization,16,71,84,85

DellComputer,66

DelphiInternetServices,207

Dematerialization,46,47;defined,11

DepartmentofCommerce,67,84

DepartmentofDefense,118,226.

SeealsoDARPA;IndustrialPolicy;

UnitedStates

DepartmentofJustice(JusticeDepartment),26,49,55,56,92,94.

SeealsoAT&T,consentdecree;MFJ;

IBM,antitrust

DeutschesBundespostTelekom,99,124,129,209,210

Devol,George,43

DIALOG,75,135,203

Digital:

factory,234;

photography,160,167;signalprocessing,153;switching,71,137;

videocompression,108,126,129,134

DirecTV,108,110,200

Divestiture.SeeAT&T

DowJones,109,160,163,202,206;RetrievalService,202

DRI(DataResourcesIncorporated).SeeMcGraw-HillDun&Bradstreet,75,160,203

DVC(digitalvideocompression),108,126,129,134

EarthResourcesSatellite.SeeSatelliteEckert,ProspertJ.,44

EckertMauchlyCorporation,49

EDI(electronicdatainterchange),172–173,198,200,208,234.

SeealsoVANS

Edison,Thomas,24,200

EDS(ElectronicDataSystems),75,199,200

EDVAC(ElectronicDiscreteVariableAutomaticComputer),44

Electromagneticradiation,28

Electromagneticwave,27,28

Electroniccommerce,172–173.

SeealsoBanking;EDI;

E-mail;

VANS

Electronic(super)highway,6,66,125,204.

SeealsoInformationsuperhighwayElectronictrading,171–173;Instinet,172;

Globex,172

Ellenby,John,62

E-mail(electronicmail),153,155,164,173,198.

SeealsoVANS

EMI(ElectricalandMusicalIndustries),33

EMMS(ElectronicMailandMessageServices).SeeE-mailEngelberger,Joseph,43

EnterprisewideNetwork,52,67,143–149,188

ESA(EuropeanSpaceAgency),74,119,223

ESPRIT(EuropeanStrategicProgramforResearchintoInformationTechnology),222

ESRO(EuropeanSpaceResearchOrganization),74

Ethernet.SeeLocalAreaNetworkEunetcom,209

EUREKA(EuropeanResearchCoordinationAgency),222

EuropeanCommission,98,99,218

EuropeanCommunity:

ITstrategy221–223;

liberalizationofTelecom,98,99;venturesinSatellites,105;venturesinopticalfiber,121

EuropeanConferenceofPostsandTelecommunicationsAdministrations,74

Eutelsat(EuropeanTelecommunicationsSatelliteOrganization),74,105

eWorld,198

Expertsystems,43,150,181,182

FairchildSemiconductor,46,58

Faraday,Michael,27

Farnsworth,Philo,33

FCC(FederalCommunicationsCommission),27,32,73,76–78,86–89,127,128;‘‘Above890”decision,78;cellular,110;

DomesticSatellitedecision(“DOMSAT,”or“openskies”),79,104;LandMobile,116;

ONA,136;

PCS,113;

opticalfiber,120;

ResaleandSharingdecision,79,80;roleinU.S.industrialstrategy,226;satellites,79,104,107;SpecializedCommonCarrier(SCC)decision,79,81;VANSdecision,80.

SeealsoComputerInquiry;Convergence;

Interdependence

FDDI(FiberDistributedDataInterface),144,146

FederalExpress,114

FederalRadioCommission,32

FederalTradeCommission,31

Feigenbaum,Edward,43,83

Fessenden,Reginald,29

FifthGeneration.SeeComputerFinancialNetworkAssociation,209

FMS(FlexibleManufacturingSystems).SeeManufacturingFord,142,173,174,205;strategicuseofIT,175

Forrester,Jay,50,53

FoxTV,207

Framerelay,151

France,83,99,107,139,222

FranceTelecom,99,116,139,143

Frankston,Bob,61

FTTC/FTTH(fiber-to-the-curb/to-the-home),125,126

FujitsuCorporation,57,175

Gates,William,63,117

GATT(GeneralAgreementonTariffsandTrade),17,96

GE(GeneralElectric),30–33,36,75,140,142,143,173,205,225,231;GECapital,200;

GEFinancialServices

(GEFS),200;

Genie,200;

hightechnologystrategy,201,202;GEInformationServicesCompany(GEISCO),81,200;venturesincomputers,50,51,57;venturesinsatellites,105,179,180

GeneralElectricFanouc,234

GeneralMagic,200

GeneralMotors,105,109,119,140,173,179,205;high-techacquisitions,199–200.

SeealsoHughesGeostarCorporation,118

Germany,99,115,129,139,210,221,222

GIS(geographicinformationsystems),178–179

Globaleconomicorder,227–233

Globalization,22,37,96,141,171,179–181,206,216,217;economicandpoliticalimpactsof,2,17,81–84,86,215–217.

SeealsoIT(socioeconomicimpacts);Sovereignty;

TBDF

Globalization,futureimpactsof,247;onbankingandfinance,170–172;onmanufacturing,174–176;onthecorporation,194;onthemassmedia,205–207

Globex.SeeElectronictradingGPS(GlobalPositioningSystem),118,119,177

Graphnet,80

Greene,Harold,92

Grey,Elisha,22

GreyhoundComputerServices,55

GroupeBull,195

Groupware,148–149.

SeealsoManufacturing;Software;

WorkgroupTechnologiesGTE(GeneralTelephoneandElectric),36,105,109,116,118,194,201

GUI(GraphicalUserInterface),62,65

Gutenberg,Johann,19

Harper&Row,207

HarvardUniversity,44

HBO(HomeBoxOffice),88,127,206

HDTV(High-DefinitionTelevision),107,120,160,167,220,225,226,229

HearstCorporation,163

Hertz(MeasureofElectromagneticFrequencies),28

Hertz,Heinrich,27,28

Hewlett-Packard,53,59,61,109,163,198,229;Ominbook,164

HighPerformanceComputingAct,224,225

Hitachi,95,194,200,228

Hoff,Ted,58

Honeywell,57,224,225

HongKong,211,218,228,233,234;Telecom,209,210

Hopper,Grace52

Hubbard,Gardiner23

Hughes:

Aircraft,73,105,199;Communications,105,117,179,200;Electronics,108,200;(mobile)satellite,117;satellitesystems,109;WorldLink,116.

SeealsoDirecTV

HutchinsonWhampoa,107;HutchVision,207

Hyperspace,45

IBM(InternationalBusinessMachines),44,48–57,60,61,63,64,75,150,153,194,209;antitrust,55,56,87,92,94;(1956)consentdecree,49;InformationNetwork,94,96203:askeiretsu,198;one-stop-shoppingstrategy,96;phantommachines,55;reorganizationofin1990s,195;SBS,80;

SNA,95,136;

strengthsandstrategies,49–51,53–57;uniqueproductphilosophy,55;venturesinmobiledatacomm,115;venturesinmultimedia,163,164,197–198;venturesintelecommunications,94–96;venturesinvirtualreality,168.

SeealsoIBMComputer;IBMPersonalComputer;Microprocessor

IBMComputers:

360Series,50–52,54,56;370Series,56;

650Computer,49;

701Computer,49;

1401Computer,50;

1620Computer,50;

7000Series,50

IBMPersonalComputer(s):AT,64;

PC,58,60,61,63,65,144;PCjr,64;

PS/1,65;

PS/2,63,64;

PowerPC,153,198;

ThinkPad,164;

XT,64

ILM(IndustrialLightandMagic),166

India,114,230

Industrialeconomy/society,2,12–18,38,41

Industrialpolicy,72–74,81–85,96–100,219–235;inBritain,97;

inChina,230–231;

inEurope,98,99,221–223;inFrance,83;

inIndia,230;

inJapan,97,98,219–221;inSingapore,229–230;

inSouthKorea,228–229;inTaiwan,228;

intheUnitedStates,84,85,223–227,233–235.

SeealsoTelecomliberalizationIndustrialrevolution,19,66,67,71,159

Informationeconomy/society,10,67,68,81–85,87–91,103,133,160.

SeealsoIT

Informationinfrastructure,149,225

InformationInfrastructureandTechnologyAct,226

Informationpolicy,84,85

Informationsuperhighway,126,152,225,235,243–244

Inmartsat(InternationalMaritimeSatelliteOrganization),116–118

Integratedcircuit(IC),45,46;fabrication,46;

small-scaleintegration(SSI),46,53;medium-scaleintegration(MSI),46;large-scaleintegration(LSI),46;verylarge-scaleintegration(VLSI),46

Intel,47,58,60,63,65,66,95,144,150,152,153,194.

SeealsoMicroprocessorIntellectualization,11,46,47

Intelligenteconomy/society,10–15,159–185;technologicalunderpinningsof,11–15

Intelligentinfrastructure,133–155,189–191

Intelligentnetwork,134,142,143

Intelsat(InternationalTelecommunicationsSatelliteOrganization),73,106,109.

SeealsoSatellite;Satellitesystems

Interdata,53

Interdependence:

ofcomputersandtelecommunications,72,75–78,86;ofnations,2,216.

SeealsoComputerInquiry;Convergence;

Globalization

InternationalDigitalCommunications,98,124,210

InternationalDigitalConsortium,98

InternationalSatelliteIncorporated,104

Internet,76,134–136,153,160,162,224

Iridium.SeeMotorola;Satellitesystems

ISDN(IntegratedServicesDigitalNetwork),139–141,146,151,155

IT(applicationsandimpactsbyindustry):agriculture,183;

bankingandfinancialservices,3,4,169–173,239,240;defense,181;

education,medicineandhealthcare,181–183,240;exploration,183;

factory,241;

geographic,178–179;

governmentservices,184–185;home,241;

lawenforcement,184–185;libraries,184,239;

navigation,177–179;

office,241,242;

postalservices,240;

publishing,160–164,197,239;reservations,177;

simulation/animation,160,166–169;space,179–180;

trading,171–173;

transportation,177–179,240;weatherforecasting,183.

SeealsoMultimedia;VirtualReality;

Workgroup

IT(IntelligentTechnology):defined,10,11;

nationalstrategies,82–85,217–233;platform,12–15;

technologytrendsin,149–155,238–239.

SeealsoIndustrialpolicyIT(socioeconomicimpacts),1–5,67,68,81–86,133–155,159–185,234;inthefuture,237–250;

global,16–18,215–219;onobsolescence,245,246;organizational,5,6,66,67,143–151,187–191,242;political,16–18,81–85,243,244;transitiontosoftware/serviceseconomy,191–194;onworkandemployment,243–250.

SeealsoGlobalization;Industrialpolicy;

Sovereignty

ITT(InternationalTelegraphandTelephone),37

ITU(InternationalTelecommunicationsUnion),37,86,112,136

IVHS(intelligentvehicularhighwaysystems),178,225

Japan:

InstituteforNewGenerationComputerTechnology,83;ISDNstrategy,139;

ITStrategy83,219–221;MinistryofPostsandTelecommunications

(MPT),97,98,220;

planforinformationsociety,83;telecomliberalization,97,98;strategyinsatellites,106;technopolisstrategy,219.

SeealsoComputer,FifthGeneration;HDTV;

IndustrialPolicy;

MITI;

Satellites

JapaneseCommunicationsSatelliteCompany,98

JapaneseNationalRailway,98

JapanTelecomCompany,98,120

JESSI(JointEuropeanSubmicronSiliconInitiative),222

JIT(just-in-time),173,176,193,234

Jobs,Stephen,59,60,199

Kaleida,197

Kapor,Mich,61

Kawasaki,175

KDD(KokusaiDenshinDenwaCorporation),98,123,124,209

keiretsu,198,219,224,226,237;defined,191

Kemeny,John,52

Kilby,Jack,46

Kildall,Gary,61

Knight-Ridder,109,163;asinformationsupermarket,203

Knowledge:

-basedorganization,190;-basedsystems,218,219,221;economicsignificance,of8,9,12–15,187,217,218;economy,2,57,67,85,192–194,227–228;informationprocessingsystems(KIPS),83;network,204

Kodak,167

Kurtz,Thomas,52

Kyocera,98

LAN(localareanetwork),62,66,94,140–141,144–146,148–150,188;AppleTalk,144;

ARCnet,144;

Broadband,144;

Ethernet,62,95,144;FDDI,144;

Starlan,95,144;

TokenRing,95,144,146;wireless,144,145

Learningcurve,47

LEC(localexchangecarrier),129.

SeealsoBOCs;RBOCs

L.M.Ericsson,36,115

Lockheed,75,203

Loral,117,119

LorimarTelepictures,206

LotusDevelopmentCorporation,61,149–153

LSILogic,224

LucasFilms,166

Lucky-Goldstar,95,225,228

Machlup,Fritz,67

MAN(metropolitanareanetwork),122,123

Manufacturing,173–176;CAD/CAM/CAE,144,151,169,174–176;CIM,175,176;

concurrentengineering,174;Intelligent…System,221,222,235;MRP,175,176,193;

FMS,2,43,193;

transformationof,192–194;twenty-firstcenturymanufacturingenterprisestrategy,225,235

Marconi,Guglielmo,28

Marconi(WirelessTelegraphandSignalCompany),28,30

Masscommunications,19,38

Masscustomization,193

Matsushita,98,165,168,201,229

Mauchley,John,44

Maxwell,JamesClerk,27

Maxwell,Robert,206

MCA,168,201

MCC(MicroelectronicsandComputerTechnologyCorporation),224

McCarthy,John,43

McCaw,Craig,117

McCaw:

Cellular,111,112,128;SpaceTechnologies,117

McCulloch,Warren,43

McGowan,William,78

McGraw-Hill,160,203

MCI,78,79,81,93,128,135,137,140,142,143;globaljointventures,209,210;venturesinopticalfibernetworks,120;venturesinsatellites,105;venturesinVTN,140–143

McLuhan,Marshall,73

MeadCorporation,75,135;LEXISdatabase,75

Media:

effectsoncommunism,17;globalizationof,205–207;revolution,87–

91.

SeealsoGlobalization;Multimedia;

Television

Medline,75

Memorex,55

Memory:

corememory,56;

DRAM(dynamicRAM),194,224;EPROM(erasableprogrammableread-onlymemory),58;MOS(metaloxidesemiconductor)memory,56;RAM(randomaccessmemory),59;ROM(read-onlymemory),58

MercuryCommunications,97,113,210

MerrillLynch,142,202,205;asfinancialsupermarket,202;inteleports,122

Metcalfe,Bob,62

MetropolitanFiberSystems(MFS),122,123,129,146

Mexico,100,105,114,211

MFJ(modifiedfinaljudgment).SeeAT&T

MGM/UA,207

Microchip,41,44,45,47–58

Microcomputer,45,47,59;revolution,58

Microelectronics.SeeIntegratedCircuit;Microchip;

Microprocessor;

Semiconductor

Microprocessor,45,57,58,60,72;Intel4004,58;

Intel8008,58;

Intel8080,58–60;

Intel8088,60;

Intel386,64,65,143;Intel486,65,66,143,150;Motorola6800,58;

Motorola68000,60,66;Motorola68030,65,143;Motorola68040,65,143;Pentium,66,150;

PowerPC,66,150,153

Microsoft(Corporation),55;historyof,60–66;

Microsoft-at-Work,152;MicrosoftNetwork,197;venturesinanimation,166;venturesinMultimedia,152,164–165,197.

SeealsoOperatingSystems;Windows

Microwave(radiocommunications),26,34,35,71,78

Minc,Alain,83

Minicomputer,47,66;revolution,53,67;

roleindistributedprocessing,76,77,86,94.

SeealsoClient-Server;Computer;

ComputerInquiry

Minsky,Marvin,43

MIT(MassachusettsInstituteofTechnology),43,48,50,53,195,218,225;MediaLab,163

MITI(MinistryofInternationalTradeandIndustry),83,218–221

MITS,59

Mitsubishi,95,98,174,229

Mitsui,95,98

MMDS(multipointmicrowavedistributionsystems),88

Mobilecommunications:AeronauticalMobile,116;LandMobile,115;

mobiledata,114,115

Mobilesatellite,115–119,177.

SeealsoSatellitesystemsMobilesociety,110.

SeealsoCellular;Mobilecommunications;Mobilesatellite;

PCS

MobiLink,112

Moody’sInvestorsService,203

Moore,Gordon,47,67

Moore’sLaw,47

Morse,Samuel,20

MOS(metaloxidesemiconductor),45,46,56

Motorola,150,174,194,198,201,224,229,231,234;venturesinIridium,117,119,201;venturesinmobilecommunications,115;venturesinPDAs,165.

SeealsoMicroprocessorMRP(manufacturingresourceplanning).SeeManufacturingMSAT(MobileSatelliteCorporation),117

Multimedia,66,139,181,182,194,195,205,229;corporatestrategiesinmarket,195–199;futureimpactsof,243–244;futureoftechnology,239;infrastructure,134,149–155,160–162.

SeealsoCD-ROM

Multiplexing,defined,35.

SeealsoTDM;TDMA

Multiprocessing,50,51

Multitasking,65,150

Murdoch,Rupert,107,207

NASA(NationalAeronauticsandSpaceAct),72,74,79,168,218,226

NationalBell,23,24

NationalEnvironmentalSatellite,DataandInformationService(NEDIS),180

NationalPhysicalLaboratory,44

NationalSemiconductorCorporation,58

NationalSpaceDevelopmentAgency,74

NEC(NationalBroadcastingCompany),31,33,200

NCRCorporation,50,204

NCube,152

NEC(NipponElectricCompany),24,194

Network.SeeEnterprisewideNetwork;LAN;

MAN;

VTN

Network-basedorganization,188,190,191.

SeealsoCorporationNetworkoperatingsystems:BanyanVines,146;

IBMLANServer,146;

MicrosoftLANManager,146;NovellNetWare,146

Newall,Allen,43

NewsCorporationofAustralia,179,207

Newsweek,163

NewYorkPost,207

NewYorkStockExchange,172

NewYorkTimes,75

NewZealandtelecommunicationsliberalization,99

NeXtComputers,150,198

NHK(NipponHosoKyobai),220

NipponInformationandCommunicationsCompany(NIC),95

Nixdorf,195

NOAA(NationalOceanicandAtmosphericAdministration),180

Nora,Simon,83

Norris,William,50

NorthernTelecom,36,121,127,137,153,165

Novell,148–150,152,198,208;Netware,152

Noyce,Robert,46,47,58

NREN(nationalresearchandeducationnetwork),225

NTIA(NationalTelecommunicationsandInformationAdministration),84

NTT(NipponTelephoneandTelegraph),36,97,98,120,121,139;privatizationof,98

NYNEXCorporation,93,126,211

OECD(OrganizationforEconomicCooperationandDevelopment),67,82

Oftel(OfficeofTelecommunications),97

Olivetti,95

Omninet,118

ONA(opennetworkarchitecture),136

Operatingsystem(s),51,52,60;AppleSystem7.5,150;

Chicago(Windows4.0),150;CP/M,61;

MS/DOS,63–65;

OS/2,64,150;

PC-DOS,60;

UNIX,150.

SeealsoComputer;Windows

Opticalfiber:

globalnetworks,123–124;historyof,119–120;

inlocalnetworks,122–128;nationalnetworks,120–121;technology,121

OptoelectronicTechnologyConsortium,225

OptusCommunications,100,211

Oracle,152

OrionSatelliteCorporation,104,106

OSI(opensysteminterconnect),136

OTC(OverseasTelecommunicationsCorporation),100

PacificTelesis,93,114,211

PackardBell,66,127

Packet-switching.SeeSwitchingPanAmSat(PanamericanSatellite),104,106

Panasonic,152

Paperlessdesign,174

ParallelProcessing.SeeComputerParamountCommunications,108,204

PARC(PaloAltoResearchCenter),62.

SeealsoXeroxPatterson,Tim,63

PBX(privatebranchexchange),77,78,86,94,140,142

PC(personalcomputer),45,46,60,61,66,86;revolution,57–66;

useinLANs144,145.

SeealsoAppleComputer;IBMComputers;

Intel;

Microprocessor

PCS(personalcommunicationssystems),112–113,128

PDA(personaldigitalassistant),163–165,197

Perceptron,43

PhilipsElectronics,152,165,195,201,225,229,231

Phillips,Charles,52

PlessyTelecommunications,194

Point-of-sale(POS)systems.SeeIT(applicationsandimpactsbyindustry)

Postindustrialeconomy/society,11,41,160,192;

age,227

PowerPC.SeeMicroprocessor

Pricecapregulation,97

PrincetonInstituteforAdvancedStudy,44

Privatization,100.

SeealsoTelecomliberalization

Prodigy,65,135,160,162,198,103

PTTs(Posts,TelephoneandTelegraphAdminstrations),36,37,96,97,99,105,117,141

PublicBroadcastingSystem,89

Qualcomm,117–119

Qube.SeeWarner

Quotron,202

RACE(ResearchinAdvancedCommunicationsTechnologiesinEurope),222

Radar,32,42,181

Radio(broadcasting),19,45;

earlyhistory,27–32,38.

SeealsoWireless;

Cellular

RAM(randomaccessmemory).SeeMemory

Ram:

broadcasting,115;

mobile,115,118

RBOCs(regionalbelloperatingcompanies),128,162

RCA(RadioCorporationofAmerica):

incomputers,50,57;

inradioandtelevision,30–34;

insatellites,88,104,105,200

RDSS(radiodeterminationsatellitesystems),118–119,177

Reagan,Ronald,84,85

RemingtonRand,49,50

Restructuringeconomy,205–206

Reuters,72,160;

informationsupermarketstrategy,202

RHCs(regionalholdingcompanies),72,93;

globalstrategies,210–211

Richie,Dennis,65

RISC(reducedinstructionsetcomputing),64,66,195

RKO(Radio-Keith-Orpheum),31

Robot(s),2,43,83,193,233

Rolm,95

ROM(read-onlymemory).SeeMemory

Rosenblatt,Frank,43

SABREsystem,177

Samsung,231

Sarnoff,David,31–33

Satellite,45,130;

C-band,105;

digital,207;

domesticsystems,105;

earlyhistoryof,72–74;

earthobservation,179–180;

earthresources,179,180;

effectsonglobalization,179–181;

geostationary,72,73;

GPS,177;

Ku-band,104–105,109,118;

LowEarthorbit(LEOSAT),117;

mobile,115–119,177;

spy,180;

transborder,74;

VSAT,200;

roleinnewmediarevolution,88–90.

SeealsoDBS;

Globalization;

GPS;

TBDF

Satellitesystems:

Arabsat,105;

AsiaSat,106–107;

Astra,107;

Aussat,100,105;

BS-2,106;

BS-2B,106;

EarlyBird,73;

Earthresources,82;

ECHOI,II,72;

EOSAT,179–180,200;

EROS(EarthResourcesObservationSatellite),82;

ETS-1,180;

Explorer,72;

Globestar,117;

GLONASS,119;

GORIZONT,105;

InmarsatII,117;

IntelsatI,II,III,73;

IntelsatIV,IVA,81;

IntelsatVI,106;

Intersputnik,105;

Iridium,117,119,201;

Kopernicus,105;

Landsat,82,179,180;

Marecs,116,119;

Marisat,116;

Morelos,105;

MOS,180;

NAVSAT,180;

Odyssey,117;

Prodat,119;

Pupa,106;

Radarsat,180;

SARSAT,180;

SatcomI,74;

SimonBolivar,106;

SPOT,180;

Sputnik,72;

SYNCOMIII,73;

Tele-X,107;

Telstar,72;

TV-SAT,107;

V/OSityzkarta,180

SBS(SatelliteBusinessSystems),80,86,95,105,109

Schumpeter,Joseph,9

SDN(software-definedtelecommunicationsnetwork),139,141

SDS(ScientificDataSystems),54,57

SearsCommunicationsCompany,203

Sears,Roebuck,60,109,198,205;supermarketstrategy,203,204

Sematech(SemiconductorManufacturingTechnologyCorporation),222,224

Semiconductor,26,44,45,53;metaloxide,46;

galliumarsenide,46;industrytransformation,192;industryshakeout,192–195;fabrication,46.

SeealsoIntegratedCircuit;Microchip

SemiconductorResearchCorporation,224

Servan-Schreiber,Jean-Jacques,82

Sevendwarfs,53,57

Shannon,Claude,41,43

SharpElectronics,94,197

SHLSystemhouse,178

Shockley,William,45,58

ShockleySemiconductor,58

Siemens,36,194,231

SiliconGraphics,152,166

Siliconvalley,58,222,228,230

Simon,Herbert,43

Simon&Schuster,204

Singapore,114,121,139,140,143,229,230

Skyphone,116

SMDS(switchedmultimegabitdigitalservices),151,155,156

SNA(systemsnetworkarchitecture).SeeIBM

Softimage,166

Software,26,50,51,52;agent,239;

bundlingof,55;

commodizationof,198,199;decisionsupport,52;economicsignificanceof,199;economy,11,191–201;object-oriented,150;strategicimpactsinmanufacturing,234–235.

SeealsoComputerlanguages;Groupware;

IT(applicationsandimpactsbyindustry);Operatingsystem;

WorkgrouptechnologiesSONET(synchronousopticalnetwork),121–122,129

SonyCorporation,45,90,95,98,119,152,164,179,201;SoftwareCorporation,201;venturesinGIS,179;venturesinGPS,119;venturesinPDAs,165,197

SouthernBell,211

SouthernPacificCommunications,79,81,89

SouthKorea,218,228,229

SouthwesternBell,93,112,127,129,140,211

Sovereignty(national),2,71,74.

SeealsoGlobalization;Interdependence;

TBDF;

WorldinformationorderSovietUnion,1,17,105,108,124

SpaceCommunicationsCorporation,98

Speechrecognition/synthesis,45,137,150,160,161

Sperry(Rand)Corporation,57

SpotImagesCorporation,180

Sprint,81,93,137,140;globalstrategy,210–211;international,124;

venturesincellular,111;venturesinopticalfibernetworks,120

SS7(SignalingSystemSeven),137,138,141

SSEC(SelectiveSequentialElectricCalculator),44

StandardandPoor’s,203

StanfordUniversity,48

STAR(StrategicTelecommunicationsApplicationsforRegionalDevelopment),222

StarTelevision,207

Stentor,120,209,210

STET,95,124

StorerBroadcasting,89

Strategy:

global,205–212;

one-stop-shopping,96,201,208–210;organizational,188–195;single

vendor,139;

roleineconomictransformations,12,13;roleinsoftwareandservices,195–212;roleincreatingsupermarkets,201–204.

SeealsoAT&T;Corporation;

IBM;

IT(applicationsandimpactsbyindustry)Sumitomo,98

TheSun,207

SunMicrosystems,64,144,150,193,198

Supercomputer.SeeComputerSuperstation,89

SwedishTelecom,209,210

Switching:

digital,71,

electromechanical,

34;

electronic,26,34;137;packet-switching,76,80,94,115,138

Syncordia,209

T1/T3,140–142

Taligent,197

TandemComputers,109

Tandy,59,63

TAT(transatlantictelephonecable),TAT-1,36,TAT-6,81;

TAT-8to13,123–124;CANTAT-3,123

TBDF(trans-borderdataflows),17,82,84.

SeealsoGlobalization;Interdependence;

Media;

Sovereignty;

Television;

WorldInformationOrderTCI(Tele-Communications,Inc.),113,126–129

TDM(time-divisionmultiplexing),76

TDMA(time-divisionmultipleaccess),104,112

Technologyplatform,12–15

TechnopolisPlan,219

TelecomCorporationofNewZealand,99

Telecomliberalization(deregulation,privatization):Australia,99,100;Britain,97,129;Canada,99;

EuropeanCommunity,98–99;France,99;

Germany,99;

Japan,97,98;

Mexico,100;

NewZealand,99;

othercountries,99,100,210–212,232;UnitedStates,84,90,91,96–100.

SeealsoFCC;Industrialpolicy

TelecommunicationsCompetitionandDeregulationActof1981,91

Teleconferencing,139,153,162,183,198

Teledesic,117

Telefonica,209

TeleglobeCanada,116,210

Telegraph,19–22,27

Telematics,83

Telemedicine.SeeIT(applicationsandimpactsbyindustry)Telenet,76,80,144,146

Telephone:

briefhistoryof,22–27;intelligent,137–140.

SeealsoConvergence;CO

Teleport,122–123;communications,129,140,146

Telepresence,168

Telerate,203

Tele2,210

TelesatCanada,74,99,108

Television:

digital,220,223;earlydevelopmentsin,32–34,38;interactive,119,134,160,167,198;Quantumservice,108,126;Qubeservice,89;

satellitedeliveryof,107–108.

SeealsoConvergence;HDTV;

Media;

Multimedia

TelewayJapanCorporation,98

Telex,21

TelMex,100,211

Telsa,Nikola,28

Tesler,Larry,62

Thompson,Kenneth,65

Thompson-CSF,36

ThompsonElectronics,225

3ComCorporation,62

3DO,152

TI(TexasInstruments),45,46,63,194

Time-basedcompetition,190

TimeIncorporated,88,89,162

Time-sharing.SeeComputerTheTimes,207

TimesMirror,89,162,163,204

TimeWarner,108,127–128,162,201,206;cablegroup,126;

entertainment,127;Quantumsystem,126;venturesinPCS,113

TMI(TelesatMobileInternational),117

ToshibaCorporation,95,194,197,201,228

Toyota,98

Transistor,26,44–46,48;germanium,45;

junction,45;

radio,45;

silicon,45.

SeealsoIC

Transportation,177–179.

SeealsoIVHS

Triadpower,218

TrilogyCorporation,57

Triode,30,44,45

TRON,219

TRWInc.,75,117

Turing,Alan,42–44

Turner,Ted,89

TVGuide,207

TVRO(televisionreceive-onlyearthstation),74,104.

SeealsoSatellite;DBS

20thCenturyFox,207

Tymnet,76,80,209

Tymshare,75

UNESCO(UnitedNationsEconomic,SocialandCulturalOrganization),82

Unimation,43

Unisource,209

Unisys,57,201

UnitedAirlines,121

UnitedNations,37,82,116

UnitedTelecom,120

UnitelCommunications,210

Univac,49,50,57;UnivacIcomputer,49

Universal(telephone)Service,25–27,91

UniversalStudios,201

UNIX.SeeComputerlanguages;OperatingsystemsU.S.Memories,224

USSB(U.S.SatelliteBroadcastingConsortium),108

USWest,Inc.,93,113,114,124,126,211

Vacuumtube,44,46,49

Vail,Theodore,23–25,27

VANS(value-addednetworkservices),80,94,95,97,98,146,204;international(IVANS),208.

SeealsoFCC;VANSdecision;78,79

Varian,53

VCR(videocassetterecorder),46,90,127,206

ViacomInc.,88,204

Video.SeeMedia;Multimedia;

Television;

VCR;

Video-on-demand;

Videotext

Videoconferencing/videoteleconferencing,119,140,151,153,177,208

Videodisc,90

Video-on-demand(VOD),119,127,134,205

Videoserver,150,152

Videotext,85,90;Minitel,85,90;

Prestel,85

Vidéotron,129

VikingBooks,206

Virtualcorporation.SeeCorporationVirtualeconomy,7,8,241,242

Virtualmemory,51,142

Virtualprivatenetwork,142.

SeealsoVTN

Virtualreality,160–162,167–169;futureimpactsof,241–242

Visicorp,61

Vodafone,113–114

Voicesynthesis/recognition,45,150,170

vonNeumann,John,42–44

vonNeumannBottleneck,42

VSAT(verysmallaperatureterminal).SeeSatelliteVTN(virtualtelecommunicationsnetwork),139,141–143

TheWallStreetJournal163,202

Wal-Mart,109,204

WAN(wide-areanetwork),144–146

Wang,53,195,198

Warner:

Qubesystem,89;

WarnerBrothers,127,206;WarnerCableCorporation,89;WarnerCableCommunications,207

WashingtonPost,163

Watson,ThomasJ.,44

Watson-Watt,Robert,32

WavefrontTechnologies,166

WesternElectric,24–26,36,92,93

WesternUnion(TelegraphCompany),20,23–26,80,105,122

Westinghouse,30–33,201

WidebandAll-OpticalNetworksConsortium,195

Wilkes,Maurice,44

Windows:

Windows3.0,65;

Windows4.0(Chicago),150;WindowsforWorkgroups,149;WindowsNT,66.

SeealsoMicrosoft;OperatingSystemsWireless(radio),27–28,110–115.

SeealsoCellular;Radio

WirelessCableTelevision,128

WordStar,61

WorkgroupTechnologies,5,52,148,149,174,189.

SeealsoComputerApplications;Groupware;

Software

Workstation,64,65,95,133,144,147

WorldInformationOrder,71,82

Wozniak,Steven,59,60

WTO(WorldTradeOrganization),18

XeroxCorporation,57,61,62,174,205;DataSystems,57;Ethernet,95,144;XTEN,86.

SeealsoOperatingSystems;

PARC

Zenith,152,195

Zuse,Konrad,44

Zworykin,Vladimir,33

electronic technology, corporate strategy, and world transformation

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