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page 5 of 7
Washington's
Bogeymen
The
government might regard these profits as “obscene.” But they
will be indispensable both to pay for the transformation of American media
and to attract the next generation of competitors into the business. These
rivals are already on the way: Direct Broadcast Satellite (DBS), wireless
cellular “cable” at 28 gigahertz, low-earth-orbiting satellites
such as the Gates-McCaw Teledesic, all-fiber “Internets” and
the array of passive fiber- to-the-home technology summed up as the fibersphere.
Even broadcasters and utilities will enter the field. In a world where
the government micromanages communications in the name of “competition,”
however, all these capital-hungry competitors will languish.
Dynamic Competition or Static Competitors?
The dynamics of competition on the information superhighway repeats the
previous dynamics of competition in computers. Preventing the dominance
of successful technologies—sustaining an artificial diversity—is
anticompetitive. If in the early 1980s the Department of Justice had ruled
against the Microsoft and Intel standards, for example, and had required
a variety of microprocessor instruction sets and operating systems, the
result would have been less competition in computers, not more. Perhaps
Pick, Quarterdeck, Digital Research and others would have gained share
against Microsoft. But the applications software business, with its floods
of real competition in new programs for everything from financial management
to videogames, would have languished, along with the parallel markets
in hardware peripherals.
The fact is that Microsoft faces antitrust pressure at the twilight of
its dominance. Impelled by the new markets for multimedia and handheld
communicators, the industry is on the cusp of an entirely new landscape
of competition. In this new arena Microsoft’s present market share
and installed base are barriers to entry for Microsoft rather than for
its rivals. If Microsoft is to prevail in these new areas, it must cannibalize
its own systems and compete on an equal basis with everyone else.
The laws of dynamic competition apply just as forcefully to networks as
to computers. Just as the time arrived when text editing and disk utilities
would be integrated into operating systems—or floating point computations
would be integrated into microprocessors—broadband cable services
now must be integrated into the public switched telephone network (PSTN),
not segregated from it. Despite the “competitive” access dreams
of politicians and regulators, true competition requires that the “two-wire
model” of home communications give way to a broadband, one-wire system.
The best and most cost-effective network practicable today is a combination
of telco fiber and cable coax. Even the telephone industry agrees. U.S.
West, Pacific Telesis and Bellcore all have resolved on the same hybrid
system that TCI, Time Warner and Cablelabs have pioneered. Without mergers
with cable firms, the telcos in essence will try to rebuild cable networks.
Attempting to duplicate the connections to homes built by the cable industry
over the last 25 years, however, the telephone industry would have to
spend some $ 200 billion. It would have to sustain this level of new investment
while maintaining its existing plant and expanding into long-distance
and other services. It would have to summon large incremental capital
in the face of continued competition from the cable industry’s taking
of many of the most profitable markets.
The telcos currently declare they are willing to make these investments.
They tell Washington regulators and politicians that all will be fine
as long as they are allowed to own programming and information services
and build equipment. But the message from the markets is clear and to
the contrary. At the very time that telco executives were intoning their
bold plans, telephone and cable share prices were plunging toward new
lows. Now Raymond Smith of Bell Atlantic is announcing a half-billion-
dollar reduction in infrastructure outlays. Southwestern Bell is giving
up its plans to buy Cox Cable. Under a similar “competitive”
regime in cellular telephony, even AT&T and McCaw have found their
merger in jeopardy.
Under rate-of-return regulations with prohibition of cross- subsidies
from current cash flow, a “competitive” information superhighway
simply cannot fly. An information superhighway cannot be built under a
canopy of federal tariffs, price controls, mandates and allocated markets.
Highway Imperative: Cable PC
Politicians must recognize that what is at stake is not merely games,
entertainment and a few educational frills but the very future of the
U.S. economy. Cable is central not only to the next generation of television
technology but also to the next generation of computer technology.
Again, many companies offer bold words in business plans for interconnecting
homes with new networks. Indeed, the telcos can provide some intriguing
computer services through their accelerating rollout of Integrated Services
Digital Networks (ISDN), as was so eloquently urged by Mitch Kapor and
others. Internet will continue to expand rapidly its cornucopia of mostly
narrowband offerings. Bill Gates and Craig McCaw may even enlarge the
bandwidth available to homes to a level of 2.4 megabits per second through
their elegant and ambitious Teledesic. Direct broadcast satellite systems
and public utilities and wireless cable operators will all enrich the
flow of video to the nation’s homes.
Except in the short ran, though, these systems are not remotely competitive
with cable. Available ISDN, for example, offers less than one-100th the
bandwidth of one digital cable channel and less than one-1,000th the bandwidth
of a cable coax line. The other rivals to cable, from direct broadcast
satellite to Teledesic, are similarly far too little and too late. Even
the advanced 28-gigahertz wireless cable projects, for all their promise
as supplementary systems, cannot ultimately compete with the potential
two-way bandwidth of fiber-coax systems in the ground.
All the current plans of the telephone companies and the government leave
the huge U.S. endowment of home computers—the fastest-growing and
most promising segment of the computer industry—stranded in a narrowband
world. Only the cable industry’s gigahertz links, passing into some
95 percent of American homes, can launch the American personal computer
industry into a new level of two-way broadband digital connectivity.
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