The Internet: The Great Equalizer Michael C. Maibach

Michael C. Maibach is Vice President, Government Affairs, at Intel Corporation.

A technological tidal wave is sweeping the planet. The Internet is bringing changes that will even surpass the dramatic, pervasive impact of the Industrial Revolution. As we advance into the Information Age, will the social, political and economic forces that are taking the world by storm advance efforts by developing nations to secure economic prosperity and political freedom? Yes,

they will.

This essay will explain why the answer to this question is "affirmative." We will examine why the coming digital economy will improve life for nations left behind in the Oil Age. And we will delineate public policies that will best serve emerging markets as they seek to "catch the wave of opportunity" rushing towards their shores. (Also refer to the information technology issue of ERT, No 3/98.)

Internet opportunities

The global telephone system connects individuals by use of copper wires, analog switches and basic audio transmitters we call phones. Information is transmitted slowly and imprecisely by voice. It may be in a language we don't understand. A successful transaction may require information available only as data or images one cannot convey by speech. The knowledge and energy of the two people speaking also can limit the information shared. The word "finite" applies.

Internet communication is fundamentally different. A good phrase to describe the Internet is "connected computing." The Internet uses broadband lines (e.g., fiber optic cables) and digital switches to connect people through PCs and other computing/communication devices. The Internet transmits digitized audio, video and data to any corner of the globe at any time. The people "communicating" do not have to be on-line at the same time, nor share information in the same language. The Internet collapses space, time and language differences. The sources of data do not tire or misspeak. Information is limited not by accessibility but only by whether the information exists at all. In the Internet world, the word "infinite" applies.

Let's briefly examine how Internet access will enhance the creation and growth of wealth in every society—no matter what its past performance has been in different countries.

Access to global capital

Fundamental to capitalism is access to capital. Until the 20th century, access to business private financing capital was limited to government and the wealthy. In the early years of this century, local banks granted loans to local citizens. The ability of most banks to make commercial loans was tied to the overall wealth of their community. With the coming of multinational corporations we saw the rise of foreign direct investment

around the world. This spread this kind of capital to the far corners of the world, although the lion's share went to other industrial nations. Moreover, large institutions and wealthy families, hemmed in by government investment and fiscal policy, still largely controlled private financing

Geography or a borrower's size no longer limits capital. The Internet allows even a single entrepreneur living in the most remote village to search the world for venture funding—provided he has a phone line and modem. Indeed, today some $1 trillion in capital moves around the world each day, which is 15 times the value of goods and services that moves around the world! To a large extent, an entrepreneur is now limited only by the quality of his ideas—not who he is, what group he is a part of, or where he lives.

Access to the stock market

The realities of access to capital similarly apply to investor access to equities markets. With a PC, modem and a $20/month Internet service provider (ISP) connection, anyone on earth can buy Intel, eBay, Cisco or GE whenever he or she wants—and at the same cost. Each day millions of different equities are traded by all kinds of institutions and individuals rich.

Access to global markets

Once capital is secured for research, product development and manufacturing, one must have access to markets. Again, until this century "markets" were local by nature. Most people never traveled beyond a 200-mile radius from their town or village. A person made a product or performed a service for those in his community, as well as a few neighboring communities. Scale, transportation and geography limited the scope of any large or small enterprise.

The Dutch and English ruled global trade in the 17th and 18th centuries in part because of their ports and ship technology. The Industrial Age gave us mechanically powered ships, trains and planes, as well as the telegraph and telephone. Engines and copper wire extended a person's market reach—but at considerable expense. Only the largest, most successful enterprises could truly take advantage of global markets, and even they were slowed by physical barriers such as rivers, oceans, mountains and weather.

The Internet has changed all of this. Now a single businessperson with a website is a "multinational corporation" thanks to the worldwide web. Sales are now limited not by size of the organization but by product and service quality.

Access to world class education

Let's take Asia. There are 500 million Asians without a high school education. With satellite, PC and Internet technologies, small communities without teachers can have classroom information downloaded from a satellite to PCs overnight, and create a real-time connection during class with a teacher living far away. As developed nations' populations age, they have a growing number of potential teachers who can share their knowledge with others around the world from the comfort of their homes and civic centers.

Access to good health care

The United States has one doctor for every 387 people. For Indonesia the number is 6,786. For Thailand it's 4,361. For Malaysia the number of persons is 2,063 per doctor. Tele-medicine has the potential to change all of this. Many developed countries can now make use of PC/Internet technology to have "virtual examinations" of patients over the Internet. X-rays can be examined, specialists can be consulted and databases can be accessed about a given population—all without travel. This is a win-win situation, of course. In the US, for example, we dedicate 14% of our GDP to health care. We can make much better use of these assets once tele-medicine is a practical and legal alternative treatment.

Access to information

We cannot end this brief review of the Information Age without listing access to information itself. For centuries books held man's knowledge and they were expensive, scarce and located in a few large libraries in the wealthiest nations. Today one can "surf" the Web for virtually any information chronicled by man and usually access it for free. Want to sell umbrellas in Mexico City? The web can tell you in what months it rains there and how much. Want to know median income of its population and learn local customs? It's all on the Web. This is tantamount to free market research for the asking!

The Internet and freedom

Freedom of speech & information

Democracy requires many things. Among them are an educated citizenry, a growing economy, information about conditions throughout a country, as well as information about political candidates during election periods. The Internet now offers citizens more information than ever about their country, as well as about other nations and their efforts at self-government. One can examine more easily what works, and what does not—again, without travel or great expense. Most importantly, the Internet eliminates the "filters" of government agencies, politicians and even the news media. Freedom of religion

Basic to religious freedom is the sharing of beliefs, stories and messages. The Internet can be an alternative forum for any faith, and people can "assemble" without being in a religious site or making a long journey. While faith practices are naturally more powerful in groups and in person, for those who cannot attend services or can't find others locally who share a like faith, the Internet can provide a virtual community.

Internet policy prescriptions

Now that we have a taste of the potential Internet contribution to prosperity and freedom, below are some of the policies governments can pursue to create an Internet-friendly climate for success.

Deregulation and privatization

The PC industry has flourished in part because it has not been regulated. Most of the communications systems historically have been government-owned or regulated. While this approach worked reasonably well to provide analog (voice) communications in most places, providing digital content requires the kind of investment in switches, lines and infrastructure that is only available from the private sector—and only then with incentives for profit. Fortunately, over-regulation is finally changing in some countries.

The message here is to follow the lead of the United Kingdom, the US and others who are moving swiftly to privatize their telecommunications and TV cable infrastructure. As deregulation creates the environment for competition, investment will be made. AT&T has purchased MediaOne TV cable service for $58 billion dollars only because the package of Internet, voice and TV services they can bundle together will be so popular.

The AT&T investment is moving America's regional phone companies to now invest in ADSL digital switching technology to make their voice networks truly data-friendly. Clearly, this kind of investment has only come about due to the competitive forces of deregulation and competition.

Wiring schools and libraries

Everyone must become Internet savvy and we must naturally start with our children. The US is now wiring schools and libraries to connect all children and adults to the Internet no matter what their status in society. Long-term, this is a tremendously prudent investment for any nation.

Personal computer labs

Whether in schools or communities, personal computer laboratories can help students and citizens become familiar with the potential of the World Wide Web for their education, work and pursuit of happiness.

IT import tariffs

Most nations have signed the Information Technology Agreement, which eliminates all tariffs on information technology goods (e.g., PCs, phones, software) by 2000. The People's Republic of China and most Latin American nations stand out as places still charging high import tariffs on such things as computers and computer chips. This is a tax on their citizens' access to the tools of the future and is harmful to future growth. "Smart" nations do not tax products that help their citizens work smarter.

Licensing professionals

Above we examined the potential for global accessing of world-class education and health care. One must keep in mind that professionals such as teachers, doctors, nurses, architects, and lawyers are usually required to operate with licenses granted at the state or national level. Thus, a US doctor who wishes to treat a Brazilian child over the Internet may not be able to do so for lack of a cross-border license. Professionals who are licensed by government must now begin to fashion transnational accreditation procedures so that the full potential of the Internet can be realized in important, even life-saving ways.

Investing in IT infrastructure

Finally, nations must pay as much attention to using IT technologies and products as exporting them. This is especially true in Asia, where information technology products are leading exports—yet use of these very products domestically is too often neglected. For example, China, Indonesia, Philippines, Thailand, and India all spend less than 1% of GDP on IT infrastructure. The United States, in contrast, invests 3.5% of GDP in IT systems and networks. It should be no surprise that of all the people on the Internet, more than 50% are in the United States. All nations and their citizens must embrace the empowerment of the Internet to be competitive in the 21st Century.

Policy prescriptions by region

Competition in the computer and communications industry will drive investment and innovation. However, such competition must take place in the most robust policy environment. Let's examine some policy prescriptions, looking at the major developing economy as well as those of the EU and US.

People's Republic of China. The PC market in the PRC is among the fastest growing in the world. It has risen to the fourth or fifth largest, and promises to rank third in the next two years. It must move quickly to a competitive communications network if it is to allow for the fast and reliable computing and communications that is the Internet. Internet accounts had grown from 60,000 at the end of 1996 to 2.1 million at the end of last year.

First, the PRC must do all it can to continue to lower telephone and Internet access costs. In February of 1999 it made significant cuts in access costs that were well received by the country's Internet users. With the cuts made earlier this year, it is projected that users will number about five million by December 1999. Given the PRC's population of 1.2 billion, there is clearly substantial room for additional progress with each incremental price cut, as access costs are quite high as a percentage of the citizen's average annual income.

Competition among service providers is a fundamental ingredient in price cuts. Too often pricing models of telecom networks is "cost plus" rather than market driven. The good news in the PRC is the recent government decision to break up its huge state-owned telecom company—China Telecom—into four companies. A firm called China Unicom is independently building an extensive nationwide, CDMA wireless network. while the Jitong Communication Company is piloting an IP telephony service. Several Internet-over-cable initiatives are underway as well. All this is a welcome breeze of competition in what has been a tightly closed market. The beneficiaries will be the Chinese people.

There is also a nascent trend towards allowing foreign companies to provide Internet services as well as equipment. For example, AT&T Shanghai Fiber Optics Co. recently announced an Internet telephony joint venture, the first time a foreign company has been permitted to provide telecommunications services in China.

Permitting foreign ownership reportedly is stipulated in the draft WTO accession package that has been under negotiation with the PRC. Opening up to foreign investment and expertise in this critical industry means the PRC can move faster toward its goal of a low-cost, widespread communications infrastructure.

European Union. Most European consumers connect to the Internet using standard telephone lines and pay metered local telephone tariffs for each minute they are on-line. This often amounts to more than 60% of the cost of their ISP, a cost which US consumers, for example, do not have. Clearly the EU needs to move to a flat rate pricing model for data communications.

EU Internet users deserve greater availability of competing telecommunications broadband services at more affordable prices. Regulators should ensure that dominant telecommunications operators make their physical local loop infrastructure available to other companies wishing to provide broadband services. To do this, network operators must be asked to offer collocation.

Industry and government should work together to create a regulatory environment which will enable competing infrastructures, such as ADSL, cable and satellite, to develop and ensure the ubiquitous provision of broadband services. We support complete unbundling of the local loop in Europe, as elsewhere. Without unbundling, there will be very little competition for broadband services.

A fractured market

European Internet infrastructure is different for each country and is not coordinated across the EU, even at the major carrier or backbone level. It's much easier to do business over the Internet within the US or within one EU country than across national boundaries in Europe. In many European countries, corporate users pay more than 10 times the price for a leased line than do US users, and European 2Mbit/s cross-border tariffs are approximately 17 times higher than within the US. Europe also has far fewer network access points. EU officials should recognize this significant competitive disadvantage for pan-European businesses and their customers by lowering costs and increasing competition for cross-border leased lines.

Regulators should also encourage the growth of pan-European Internet infrastructure providers and ensure full network interoperability across Europe. European users should not face performance or cost disadvantages for Internet use which consumers in other regions do not face. And telecom tariffs, particularly for broadband communications, should be competitive, particularly with the US.

United States of America. In 1996 the US Congress passed the Telecom Reform Act that set the stage for competition in communications, specifically phone and TV cable. But regulators at the FCC and elsewhere have had trouble finding effective implementation policies. Significant investments such as the recent purchase of TCI and MediaOne by AT&T, however, is now moving both government and the market closer to true deployment of competitive broadband data offerings.

There are many things the US government should do. First, the FCC should continue to resist placing a metered access charge for Internet use akin to the phone systems' universal service charge. Rather than extending universal services charges to the Internet, the government should be moving from a network universal service subsidy to individual telecom tax credits. We can no longer afford to have the entire system controlled by the current monopoly model of service subsidy.

Second, the US government should use the new Internet Tax Commission to find ways to fairly apply taxes to Internet transactions. The goal here is to make sure electronic business is treated just as all other commercial activities are for tax purposes.

The US government must also re-think its export controls on encryption programs. The Internet will grow to the extent that transactions are considered private and secure. The most basic protection used by citizens to protect their home and property is a lock. None of us has a policeman at our front door night and day—we use locks. Encryption is the Internet's "lock." It enables electronic business. Surely government and industry can work together to "use technology to fight technology" when it comes to keeping ahead of the criminal elements. Unilateral controls in light of global access to strong encryption only makes US industry and Internet users less secure.

Finally, the US government and industry should initiate a worldwide movement to find ways to reach mutual recognition of professions and service providers. Education, medicine and many other services will come to be used more and more over the Internet. Doctors in New York must be licensed to practice tele-medicine in Tokyo and London. Lawyers in Brazil must be able to offer US businessmen in Madrid and Miami advice on doing business in their country.

Educators everywhere must be able to teach children and adults no matter where they live.

We have detailed a few ways in which the Internet can help any person in any society create wealth for themselves and others. We have also examined how supportive of democratic government the Internet can be. Finally, we have reviewed public policies that should drive Internet growth.

With this and other visions in mind, it falls to those involved in the hard work of government to create an environment for cyber-success. And it falls to those entrepreneurs everywhere to make use of these powerful tools to create prosperity and even more opportunity.