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Who Runs What? A Review of
Interconnecting the Network of Networks
 Eli M. Noam
MIT Press, 2001
ISBN: 0-262-14072-1 261 pp. $49.95
Review by Bob Whipple
Creighton University
Introduction
Relatively few people think much about the breakup of the monolithic Bell System in the 1980s, wherein the national telecommunications monopoly was split into many different
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separate companies (or "baby bells"). But we all live with the consequences of the January 1982 decision mandated by the Justice Department. And the breakup, interconnection, and recombination of networks continues apace, hastened by the emergence of regulatory structures, new technology, and competitive forces.
This flux is what Eli M. Noam sees as the nature of telecommunications monopolies and their natural tendency to be broken up, the
web of issues determining their interconnection with other networks, the role of government regulation thereon, and the future of such interconnected networks. If this sounds like a recipe for complex economic discussion, you're correct. But don't run away yet. Interconnecting the Network of Networks is not a book to be ignored. Worked at, yes, but not ignored.
Interconnection 101
Noam, the director of the Columbia University Institute for Tele-Information in Columbia's School of Business, who has written several books since 1982 on telecommunications regulation, telecommunications in other countries, competition in telecommunications, and telecommunications law, presents his work as a series of lessons explaining the nature of networks and interconnection.
Interconnection is a key term for understanding the book. This describes the ability for different telecommunications entities, providers, conduits, and networks to allow each other to use each others' services and media (for example – AT&T, in 1984, being
required to allow Sprint, MCI, and other long-distance providers to use its owned lines). This is, according to Noam, "the glue that holds [the network of networks] together" (1). Another key term is centrifugalism. This is a "spin-off" diversification of the communication network environment. It can cause divestiture, either voluntarily or otherwise, wherein new technologies make the ability to provide communication service possible from entities not traditionally in the telephone business. Noam notes cable TV providers, wireless companies, electric utilities, ISPs, DSL providers, and others as examples of companies which by virtue of their technological ability (and commercial desire) compete and cooperate in the current network of networks. They compete and cooperate through interconnection and centrifugalism.
As the book proceeds, it's not too hard to see what could be made a little clearer: the emergence of new technologies and new types of companies offering these technologies (and we can guess of course that these new companies are reaching for or responding to new audiences) is often the spur for new types of interconnection. To the new audiences and the new companies this is exciting and potential-laden, but to the traditional companies and to regulators is often more work than either ever expected. To traditional companies as well as to regulators, it's a great deal of work.
The History of Phone Monopolies – L'etat, Cest the Phone Company
Noam starts his historical discussion by presenting the background of systems and their growth toward monopolies. It's interesting to note that in many European countries (Noam cites Sweden, the U.K., and Norway), commercial startups eventually became nationalized by each state. This was in part due to a denial of interconnection, seemingly the surest way to create a telecommunications monopoly. This is a concept that – in the U.S. at least – runs against judicial, commercial, and popular culture. Only the U.S. avoided national telecommunication control at the outset, in part because in 1913 AT&T, umbrella company of what would later become the Bell System, brokered an agreement with the Justice Department whereby limited interconnection was granted to independent companies. This effectively left Bell still in charge of most local and all long distance over 50 miles.
Sharing the Goodies; or, All (Good?) Things Must End
But all good monopolies must end, and it's clear that the preference of the author follows the implied theme that regulation plus divestiture equals competition. This equation then fosters new technology (though not without a fight, as witnessed by the uproar in the 1980s from customers, ran-and-file employees, and Bell corporate leaders who claimed that divestiture was "ruining" the best telephone system in the world). The question monopolies eventually have to ask is Shall we let the competitive entrant use our facilities? The ability to say "no" to this question and make it stick is called bottleneck power. Regulatory agencies like state agencies and the Federal Communications Commission complicate the mix because they have many constituencies, including the government they represent, corporate and business interests, and end-users.
The Bell System divestiture is the example Noam uses to show the result of regulation and competition on a monolithic monopoly. MCI's 1978 suit to provide competing
long-distance service (via new microwave technology) helped tip the scale toward the Justice Department's order for AT&T to divest in 1982-84. Since 1984, regulators have had to deal with access charges ("How much shall we charge them to use the facilities we didn't really want them to use?"). Further, the 1996 Telecommunications Act mandated to the regional Bell companies what they could do regarding long distance service within their regions, as well as what resources they were required to provide to competitors. Wireless cellular telephone providers and cable television providers, each providing telephonic service (this includes Internet access as well), brought about the need for new technologies to make interconnection into traditional telecommunications.
The interconnection of Internet Service Providers (some of which are allied with traditional telco systems, such as AT&T WorldNet and Sprintnet, others which provide only Internet access) "exploded from 230 in 1994 to over 6,500 in 1999" (63). According to Noam, ISPs "are partly competing and partly collaborating," and they "voluntarily provide interconnection with each other" in many ways, including directly with each other and through companies whose business is to provide interconnection between the different ISPs (67). Noam says that competition is therefore likely, and the result will be "prices of transit and interconnection [that] will be close to cost" (67). While Noam also says that this tends to show that "market forces result in interconnection," proving the point he introduced at the beginning of the book, it would be useful if he were able to make specific correlations regarding how these reduced costs affect effect end-user subscription fees as well.
What Shall We Charge?
End-user costs are affected by pricing strategies for interconnection. This is the focus of Chapter 4. There are many ways to determine prices – one of the most interesting is "Ramsey pricing," named after a 1920s economist, wherein those who want the service most end up paying the most for it (81). However, Noam points out that the several theories posited in this chapter are transitional; that is, they are ways of regulating and determining the cost of interconnection and the cost of service until the real hoped-for end, a system of full or real competition, emerges.
All the World's Networks
Such a real competitive system, though, is hardly extant worldwide. Indeed, Noam asserts that most countries retain a traditional monopoly carrier system. Noam gives a whimsical example of claimed openness from the Ministry of Communication in Denmark: competition is expected within a short time "in all spheres of telecommunication" – all spheres, that is, "apart from telex, ordinary telephony, radio-based mobile services, satellite services, the infrastructure and use of the telecommunications network for broadcasting radio and television programs." After that list, it's hard to imagine
what's left to compete in. International interconnection has fared a bit better, with the ending of the Intelsat satellite monopoly in the 80s and 90s and private, non-governmental communications satellite use. But some problems still apply, according to Noam, among them "the determination of the true costs of the underlying infrastructure" and "the assurance of transparency in incumbent operation" as well as balancing the need for competition with the need for regulation (168). In the long run, though, many countries with strong encouragement of interconnection have also found the need for active intervention through regulatory policies. Interconnection, says Noam, is the universal contentious issue. Unbundling – that is, regulator-provided "interconnection at many intermediate points" of a large network (169) – is no less contentious – as one could guess, incumbent networks – the networks being asked to unbundle and provide access to a competitor – prefer to stay intact, and preserve costs for competitors (and revenue for themselves). On the other hand, it makes competitive entry into local service possible, and arguably reduces the need for subsequent regulatory intervention.
...And Now Things Get Complicated
But any interconnection is moot without the technological wherewithal to make interconnection happen. And even more important, to Noam, is an understanding of the nature of how content flows. It is at this point, 200 pages into the book (and 50 pages before the end) that the importance of the confluence of interconnection and the regulation/competition cycle comes through. If we look at the "big carriers" (such as AT&T, the old Bell System, the regional telephone companies, et al.) – which are also often the traditional, older corporate entities – we see that they are designated "common carriers." These are entities which serve the public in a large way and therefore must do what they can to accommodate that public without discrimination and with a "high standard of care" (213). Noam suggests that
- common carriers are being required to provide interconnection to contract carriers,
- contract carriers – best described as the newer entities seeking interconnection (i.e., in the form of a contract with the common carrier) – don't have to "serve" common carriers like the latter must serve
them, and
- contract carriers can pick and choose customers (common carriers cannot). (217-21)
If it seems that common carriers are getting the shorter end of the stick, it's so, and Noam feels that the concept of common carrier, because of these disparities, will eventually die out (227). Cable television was judged to be a common carrier in 1999, but this decision was overturned in 2000 (229). Thus there is a lack of consistency between the treatment accorded telephony, cable TV, and high-speed data, leading to the unique possibility that the same cable could carry both common carrier and contract carrier signals. "Third-party neutrality," wherein "no carrier is required to provide access or interconnection to any other network," and in which if a carrier does allow connection it cannot discriminate or keep that carrier from contacting other carriers (225), is seen as a solution to this and other problems.
What Next?
Things will change, Noam says. Yes, that's a little general, and no, Noam is not that general, but one wishes he were a little more specific about the changes he says will come in the future – and when in the future he thinks they will come. Of course, it's axiomatic that any predictions about technology will likely seem ridiculous in a few years (remember IBM chief Thomas Watson's prediction that only a few people in the world would need a computer). Still, the recommendations and predictions are pretty general. Noam says that processing will become cheap, ubiquitous, and inexpensive (247). We've heard this before – we've heard it since the IBM PC came out. We're not there yet. When, then? They'll be wireless? Great. How will the privacy issue be dealt with? Noam tells us in Chapter 9 that privacy issues are considerable and not easy to solve. As access, he says, is a commodity, he suggests something that will bring joy to the hearts of anyone who has ever been awakened by a telemarketer – access fees to be paid by the caller! Bandwidth will increase, optical systems will replace semiconductor technology, and individuals will have their own "personal networks" (247-51). This is going to be terrific. But how much will it cost? Noam tells us in Chapter 9 that universal service is synonymous with affordability, and that currently "lifeline contributions" (plans that assist the elderly and poor) and "universal service fund[s]" exist to assist users who need assistance (233-34). These last two chapters are most welcome, but seem to need more specifics when compared to the specificity of the remainder of the book. While this may be only a want of this particular audience, it's a serious one. What, in fact, are the implications for the next few years of the rich changes in networking and telecommunications over the last hundred? The text leaves one wishing for more.
Bob Whipple is A.F. Jacobson Chair in Communication at Creighton University. He teaches and researches in the area of technology and culture. He worked summers for Ma Bell ("...we may be the only phone company in town, but we try not to act like it...") in 1978-80. |
