INTERNATIONAL IMPLICATIONS OF COMPETITION AND SUBSIDIES
by Roger K. Summit, Ph.D Director, Information Systems Lockheed Palo Alto Research Laboratory Paper Presented at the EUSIDIC 1979 CONFERENCE, 19-21 September 1979 Noordwijkerhout, The Netherlands
Having 20 minutes to discuss as complex a topic as International Implications of Competition and Subsidies makes me feel like a Japanese brush painter. To be qualified to paint a simple 3-stroke fish, for example, a brush painter must study the anatomy, physiology, and mating habits of the species. As a result, an apparently simple painting actually reflects a full and detailed knowledge of the object painted.
Without claiming full knowledge
or insight, permit me to outline some of the major issues which in my opinion online system users should consider.
I must qualify those statements by
saying there are few that are unequivocable. Furthermore, being on the last panel of the meeting - in fact, being the final speaker - provides me with a certain perspective, but also carries the risk of redundancy.
I
hope I can offer some additional insights or provide some additional discussion on those points which have already been considered.
Subsidized Services The first issue is that of subsidized services. Subsidization of services occurs for a variety of reasons. Subsidization can be detrimental if it results in driving out competing, non-subsidized services and encourages monopoly.
The U.S. experience is that databases on subsidized services
tend not to be offered outside of the subsidized service.
This can lead
to an ultimate dependence on the subsidized service. Perhaps an anecdote will better illustrate the point.
In the last century there existed a
rare variety of horses on a small island off the coast qf Africa. These horses were desired by European breeders to strengthen a certain strain of livery horses. The problem was that the horses had been left so long on their own they were crafty and wise, and could not be captured by traditional means. The horse traders called in a specialist who assured them he would be successful.
He began making daily visits to the island
each day taking a bushel of oats which he left near their water hole in a small canyon. At first the oats were left untouched - the horses being wary of this new presence. Gradually though, the more venturesome animals sampled the food and found it to their liking. After two weeks the herd would await his arrival each day, for they had given up foraging on their own. At this point capture was an easy matter, and the horses were led away to their fate. So it is with subsidies. We come to depend on them and often
lose the resourcefulness to exist without them.
Then we are easily
victimized by those providing the subsidy. Telecommunications Charges European PTTS receive approximately 50% of the total revenue charged for a TELENET or TYMNET link to a U.S. lost. The breakdown is roughly: European PTT
50%
IRC
40%
TYMNET/TELENET
10%
If we assume a $30/hour communications charge, then about $15 is paid by Europeans for local access to an international network and $15 is paid for everything else. Because telecommunications equipment costs are relatively fixed in nature, the current charges should be reduced in time if use of U.S. services increases as they were last year in Great Britain.
If DIALOG and other U.S. services were permitted to connect to
EURONET as a host, the total communications charge including EURONET could be approximately $14 per hour, total. Thus, the decision by EURONET to exclude U.S. hosts can be viewed as a cost to you of approximately $16 per hour of U.S. access. You must assess whether or not protection of EURONET services merits a de facto tariff of $16 per hour. Information War It has been suggested that the EURONET tariff differential may result in an information war between the U.S. and Europe. Wars, however, are organized and perpetuated by politicians and military organizations, not by professional societies and small businesses. As long as information publishing, access and distribution remain in non-governmental hands, there would seem to be little danger of an information war, however defined. Competition Finally, let me address the point of competiion. Competition is the information user's insurance policy.
It protects against price exploitation,
access controls, and service degradation, and insures a responsive ear -2-
from the supplier.
If there is a single, user-benefit axiom, it is that
the long-term best interest of the user is served by an environment which encourages competition.
It is important though that all competitors
in an area play by the same rules - which is not the case when government organizations compete with free enterprise.
In determining costs, govern-
ment organizations typically expense or write-off computer equipment and other fixed assets in the year of acquisition. charged against the income derived from them.
Such fixed assets are not In industry fixed assets
are charged against the income they produce, over the life of the asset. Governments also borrow funds and pay interest. Again, the interest is not charged to the project benefiting from the borrowed funds. Because of differences in accounting rules, it might appear that it costs a government less to operate a service which should allow it to charge a lower price.
In actuality governments simply are not organized to provide
project cost accounting and cannot reflect true costs in pricing.
In the
U.S., for example, information retrieval service pricing is often set at a level that barely recovers royalties and direct operating labor. This means a large unusing population must bear the cost differential in a tax. Competition between these government services and free enterprise services is maintained only because of the poor quality of services provided by these government organizations, a highly unstable situation. With regard to competition within EURONET, we face a very interesting situation. EURONET estimates of demand and revenues have consistently been optimistic. There would appear to be a situation of over-supply of potential hosts. To remain healthy, competitors must earn reasonable profits. As EURONET hosts become aware of the modest profit margins available in the information services industry, there will most likely be some realignment of services and prices. Let us hope that it will not only be subsidized services that withstand the inevitable shakeout.
Users' Bill of Rights We have now considered several issues of concern to information users. But how can concern be translated into action?
Let me propose that EUSIDIC
draw up an "Information Users* Bill of rights." The purpose of a bill of -3-
rights is to protect a citizenry from the actions of over-zealous governments by providing a policy framework for and a limited domain within which laws can be enacted.
Let me review a few of the points which might
be considered for inclusion in an information users' bill of rights. Several of these points have been previously promulgated in the very excellent EUSIDIC Policy Statement of October 1978. In my discussions I will concentrate on points which principally apply to government actions and controls. RESOLVED that because access to recorded informtion is a fundamental need in any society affecting the intellectual and physical productivity of that society, informtion users should be quaranteed certain rights if they are to utilize informtion services effectively to the benefit of their society: 1. Privacy. Users have a right to know that their inquiries are not subject to review by third parties including government organizations. 2.
Fair and Equal Charges. Service contracts should be equivalent worldwide except for clearly identifiable, out-of-pocket cost differences which occur in the provision of services.
3. Domestic Telecommunications.
Telecommunications, if a government
monopoly, regulated or not, should be offered at the lowest price possible consistent with cost recovery. Telecommunications services should not cross-subsidize other forms of communication. Competition in the provision of telecommunications services should be encouraged.
The advantages enjoyed by the U.S. in information
services could not have been realized without the liberal policies of the FCC in encouraging competition in telecommunications. Whatever advantages we enjoy now, however, are insignificant compared with developments already announced by Satellite Business Systems and Xerox's XTEN networks.
Separation of telecommunications
from the post office as recently announced by Sir Keith Joseph, British Secretary of Industry, will be crucial to any country who is to have a major role in information in the 1980s. 4.
International Telecommunications.
Telecommunications point-of-
entry fees should be reciprocal on an end-to-end basis throughout -4-
the world and should not be imposed as a tariff or international trade barrier. 5.
Denial of Service. No government shall establish restrictions which will prevent users in one country from accessing databases in other countries.
6.
Source Documents. As a result of the protection privilege of copyright they enjoy, publishers have an obligation to provide or permit the provision of single copies of source documents at reasonable prices.
7. Competition. An environment which encourages fair competition should be fostered. These statements can no doubt be more succinctly expressed. Furthermore, there are undoubtedly other areas that should be included.
But to the
extent that EUSIDIC formulates and continues to express these rights, and can develop sanctions to encourage compliance, the user's voice will have a profound effect on the information policy of governments, service suppliers and database producers. You are encourage to further consider these points and issues in your group discussions.
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