All right.

It's a pleasure to have you have

you're here for
a great presentation by good friends.

Peter Coy in John Aaronson.

Who C.V. is so long and so impressive and
I'll do the short version.

Peter is coming now from U.C. San Diego
where his video in of international

relations and Pacific Affairs school as
well as being the vice chancellor and

was at the F.C.C. and I think was
a chief of international bureau and

we should all personally thank him for

lowering the international rates
calls by eighty five percent.

I think.

So it's really a small contribution can
be given after the dark and loved ones.

Yes.

Jonathan aren't son comes from the
University of South California where he

was the director of international
relations school and

now moved to London Bourke School
of Government nation.

Which is always good to have worked for

several years now on the question of what
they called a four trillion dollar gamble.

Which they will explain but is has to do
with the way in which we regulated and

basically created the modern
telecommunications infrastructure.

Both in the US but also global.

And I had the pleasure of being
an addict or of especially a shoe with

a contribution of the paper and
I think that theory empirics

are amazingly interesting if we're
still allowed to use it or the mazing.

And I hope you enjoyed it.

Talk.
Peter and Jonathan will speak for

about forty five minutes and then we.

Open it for discussion.

So both of whom I have
to leave on the hour.

Have a chance to ask.

Participate in the discussion again
thank you for so much for coming and.

If Andy is here.

I want to thank you for organizing and

here is a gene for organizing and
getting us this wonderful.

Thank you.

And forth to Tom from the library for
lying us to be his guests.

Well thanks.

Janet to you and

all of your colleagues for being such
wonderful hosts to Jonathan May and.

We're just sorry that we're going
to have to rush off this afternoon.

To return to California where
the weather is like this every day but

the tough talk is titled The four

trillion dollar gamble but
it's based on a book which is for

you what twenty nine ninety five gamble
thirty four zero it went out Farai.

Called Transforming Global Information and
Communications markets is

that the right title job than
the political OK the political economy.

You know Asian there had to be a subtitle
writer also would be an ethical you

write one of the transformations of

the Information Economy is you no longer
choose titles based on their human appeal.

You do it on the basis of
Search Engine terms and.

So we are living out our scholarship.

On this book is really
based on a longstanding

intellectual quest by John and myself

that has also at times taken the form
of practical intervention in the world.

About how you could reorganize
the world's intersection of

the communications and information markets
in order to create an infrastructure for

innovation and change and.

Higher productivity and
growth in the world.

And so
this book is exploring both the past of

the revolution that has taken
place in a period marked by after

our time about twenty five years and then
looking forward to the next fifteen years.

Why is it a four trillion dollar gamble.

Well I pulled the wrong slide for this
slide pack but if you are extrapolated

out with the same bad data you would
find out that the combined market for

our global communications
information technology services and

equipment poss adding broadcasting and
our content

to global market is roughly hitting
the four trillion dollar mark not big

compared to the bail out by Congress or
by any other metric quite substantial.

So there's a lot of money at stake.

But what's more important
is that the information and

communications infrastructure the I.C.T.
infrastructure is

one of the underpinnings of our
transactional capacities whether for

basic science or for the organization
of industries and commerce and

trade in the world and of course of all
of our individual social networks and so

what we're trying to do in this
book is to explore the implications

of the next change in the front tier
of technology because that changes

the interests in the standings of
the stakeholders in the global market and

in changing the positions
of the stakeholders.

We set off the dynamic
of a policy debate and

a re tuning of both national and
global public policies.

So our first big argument today in
brief is the theme is going to be that

the further evolution in the merger
of these technological markets and

in their technology front here is
creating this moment of unsettling again

that's causing people to
recalculate interests.

Our second big argument is.

To the extent that we actually can design
good public policy good public policy

would facilitate the growth of what we
call modularity in the technological

infrastructure and we'll be explaining
what we mean by the concept of modularity

in just a minute and finally this talk
is going to take one piece of that

public policy puzzle and look at it
in a little bit more doubt namely

global trade policy as an instrument for
reconciling how

the national infrastructures mesh
in cross border flows of investment

services and capital and while doing that.

We'll talk briefly about the politics and
the political economy.

But I want to emphasize that while the
book spends a great deal of time on these

issues of politics and
political economy today Jonathan and

I in this presentation to keep it shorter
won't spin that tale out of great

length but we'd welcome talking about
it in the question and answer period.

So let me begin by taking you in at fifty

thousand feet to an argument about
the nature of the competition problem

in this converging information and
communications technology infrastructure

as it's emerged since really
the one nine hundred fifty S. and

the argument here is simple fine an
argument that you can find literally tens

of thousands of articles on in
an industrial organization economics and

law journals on competition law but
essentially the fear that we have and

we deal with these large
technology industries.

Is that in the end that are digital

is that there is the possibility of
leveraging in and Vantage in one part

of the value chain into an advantage
in other parts of the value chain.

And you do that by achieving
such a dominant position and

one key part of the value chain that
you can build up a corporate war chest.

And research investments and market
competition strategies that effectively

foreclose competition in adjacent parts
not just in your core part the classic

examples that American public policy
have wrestled with were for example

the eighteenth telephone monopoly before
one nine hundred eighty four the I.B.M.

dominance of the mainframe industry in the
sixty's in the seventy's and of course we

all recall the epic Microsoft antitrust
suits the one nine hundred ninety S.

All those were basically despite
the details of the argument

examples of an argument
about leveraging OK.

And today.

If you pick up discussions about
the future of the technology industry.

There's a considerable debate
about whether Google is new

Microsoft Intel example
as we argue in the book.

We don't think so but
that's for another lecture.

So let me just try to
spin this hour off for

a moment more because we'll make clear
what we think the change today is if

you thought back to the mainframe market
in the one nine hundred sixty S. and

one nine hundred seventy S. the leverage
point for I.B.M. was in the subpoena or

performance in processors that gave
them better performance in computing and

they integrated it with system software
that was novel and important at the time.

Now the important thing
about the system software.

For the I.B.M. mainframes were that
the interfaces weren't transparent and

therefore it was very hard for
third party competitors to plug in and

compete even in these adjacent markets
outside of the mainframe hardware itself.

And what occurred was that it reinforced
I.B.M.'s dominance in the integrated

hardware system because people didn't
have comparably powerful packages for

the software and at the same time it
led to the ability to truly dominate

the related mainframe software areas and
integrated services for large customers.

This.

Led to a series of U.S. antitrust
suits which essentially forced I.B.M.

to turn the interfaces into transparent
interfaces to allow greater competition.

The story with eighteen T V
four nine hundred eighty four

which was a seminal moment in the history
of the communications market.

Because in one thousand
nine hundred four the U.S.

government basically signs a deal
with a T. and T. That says a T.N.T.

will no longer be the de facto monopoly
for the communications infrastructure of

the United States and this represents
a reversal of the pattern of every country

in the world about the organization
of the communications infrastructure.

What was the basis of
the eighteen thousand monopoly.

Most people actually think
it was because one thousand

nine hundred had a legal monopoly and
eighty like to leave that impression.

But it wasn't true.

There was no statute.

That exist in the United States that
gave eighteen T. a legal monopoly.

There was an ancient antitrust settlement
which said U.S. government wind.

Overturned the de facto
monopoly of a T.N.T.

but it did not commit the US to
saying it was an authorized monopoly.

Now in the case of a T.N.T.
there were a lot of bases for

eighteen T.'s ability to lock out
rivals state public utility commissions

wouldn't often grant licenses the F.C.C.
wasn't grant licenses but the heart of it.

Aside from those legal barriers
was the fact that eighteen T.

controlled an asset in the network
that was hard to duplicate in

an economically efficient way in
a timely way and that was the control of

the local transmission network the local
transmission network Think of it as from

your curbside to your house or
the curbside to your office building.

That's as opposed to the network that
ties together Atlanta and Los Angeles

the long distance backbone network and
that switching system that went with it.

The long distance enough.

Work and the switching system that went
with it or in fact assets the people who

could duplicate in a way that was
economically feasible in a timely way.

But the local network require tearing
everything up at extraordinarily high cost

for relatively low revenues and
in a process that would take years.

So the dominance of that
local transmission network

was the asset that eighteen T.
leveraged into de facto continuing control

over the national
communications infrastructure.

Even after the F.C.C. had started to allow

experiments in competition in
the late one nine hundred seventy S.

in the break up of eight hundred T.
was a way of trying to deal with that.

Well those were early
examples of leverage but

the point that we're making in this book
is that digital technology has humor

to flee when reinforced by
appropriate public policy

lead to OP fundamental change in
the architecture of the information and

communications technology industries and
we call this the modular revolution.

And when you think of modularity
we have a deliberate picture here.

Lagos of building blocks.

That's what it means an interface
that allows technologies to be

snapped together in a simple
transparent and easy way.

What's inside the building
block may be exotic where it

connects to the other pieces of
the infrastructure is easy to mash.

Now I said that this is both a matter
our technology frontiers changing and

public policy design
technology frontiers I'll talk

a little bit more about the dimensions of
the technology frontier in a few seconds.

But this is a visualization of
the fundamentals that all of you who

are engine ears in the audience know
better than we do the bottom line here.

Represents the change and
the semiconductor

capacity integrated
processors under Moore's law.

It's basically that silicon computer
chips have the number transistors

double every eighteen months along with
the capacity at the same price point.

Now that's what we usually think of
as the great technological revolution

in computing in information.

But take a look at above.

That's the cost performance occur for

data storage considerably
faster than Moore's law and

then above that is the performance on
fiber optic communications capacity.

And so you can see that Werner series
a wildly escalating performance.

With fixed cost performance for
the dollar.

So this is the beginnings of the
fundamental revolution and as everything

becomes digital this curve slowly
seeps into every aspect of the market.

But along with that of course
has come a series of and so

every technological changes and
policy changes.

I'm not going to read you all of these
slides but I just sort of want to take you

through some of the seminal points in at
again one hundred thousand foot level.

So the revolution you can think of is
beginning really with the terminal

revolution the hardware
attached to networks and

the two things that stand out there is
big turning points where first the I.B.M.

antitrust suits that I talked about
previously but equally important was

a car or phone and its related
descendent decisions at the F.C.C.

about terminal Whitman on
the communications network.

Up until Carter phone and
the follow up decisions.

The way the phone
companies around the world

organize the phone network
was the following.

We provide you with the communications
transmission capacity all and

we also provide.

We want all the equipment
attached to the network.

Why because only we can guarantee the
liability and safety of the equipment and

of the network with the equipment and
what the F.C.C.

rule was no you can do it a different way
you can have a transparent interface to

the network that you have to design to
as a supplier and you can have to pass

a safety certification test that your
equipment will do no harm to the network.

As to whether it serves
the consumer better or

worse than what the phone company offers.

That's up to the consumer to decide.

That was an act of policy
driving modularity

to reshape the equipment industry for
telecommunications.

Later we got to the heart of
the communications networks

the first big break was really breaking
open the long distance networks in

the eighteen tiebreak up as the immediate
area to open the network and

then of course local transmission
network followed the second big change

that really fit this notion of modularity
was in the deployment of wireless

markets in the United States
where the U.S. by

the time we came to the second generation
wireless network deployment basically said

that the government was not going to tell
anyone what the technological architecture

of the network was as long as it didn't
interfere with the other networks and

as long as it posed no harm
to consumer safety and

once they said that it odd
then led to this principle of

technology neutrality creating a growth
pattern in the wireless industry

that emphasized diverse modular
suppliers with rival technology designs.

And later we're still struggling
through the arguments

about what's often called
network neutrality.

And network neutrality is really
takes on many political connotations.

But its core heart is that.

Users should be able to access content and
any value added service and

the widget that you want to put on
your Facebook without interference by

the carrier and that that means of
the tap policy environment says

that the service environment wall
our modular choices by consumers.

A what if is keep abilities they have and
interchangeable suppliers.

Now along with that came
some other odd developments

the Microsoft antitrust suit basically.

Led to a reinforcement of the rule that

interfaces have to be
transparent in software.

If you're a dominant supplier and

perhaps more fundamentally the web
browser became the de facto standard for

translating devices are among
operating systems today.

If you design itself with a large
enterprise market for information systems.

The following basic rule
is true you have to show

that the web browser can interconnect for
the three to four dominant

large enterprise operating systems
deployed in the marketplace today.

And if you can't do that
with your design forget it.

You're just not commercially
viable any longer.

For new markets at least.

And finally even in the content
industry broadcast content for

example there were public policy decisions
that led to the portability of content

among networks a crucial
decision was made by the F.C.C.

early in the history of the rivalry
between cable and over the air broadcast.

That the two rival platforms couldn't lock
up content in perpetuity from the other.

If it was critical to market competition.

So these types of things encourage the
beginnings of content modularity and of

course the web has essentially by making
everything digital and by the deployment

of broadband networks allowed the growth
of the mix and match environment.

The drives the Hollywood movie makers and
the recording industry crazy.

Well if policy helped propel underline
possibilities in the technology curve the.

Full import of what is developing
is only being glance at today.

I mean we're just starting to
get a sense of this cheap.

Microelectronics powerful software
incredibly capable wired and

wireless infrastructure and
are allowing us to reconsider the reach of

information technology into every
process and dynamic in society.

This is not necessarily an accurate
prediction by any standards but it's

a representative prediction of what we're
really looking at with this revolution.

The I B M network estimate that
will have network terminals growing

to over a trillion in a relatively
short period of time from today.

The point here is that
everything is being covered

by terminals in new ways one of the major
application loves of this is sensors.

I'll take you through
a trivial example first but

actually the economically important
one on any large cargo ship.

You see nowadays if it's
a state of the art cargo ship.

If you look on the drive
shaft of the cargo ship.

The drive shaft is covered
blanketed by wireless sensors

that measure vibration and
heat on the drive shaft.

So they can optimize the drive
shaft performance over time and

reduce the rotations remains right.

If you think more broadly about the big
societal challenges we face today.

And in gene environmental systems and

energy systems for a whole new standard
of performance in order to deal

with global climate change and
our other challenges in this area.

One of the big sticking points in
traditional Environmental Control Policy

and Management was that we actually didn't
have very good measures of pollution.

The sensing stations in the air or
Los Angeles air pollution

basin that did oficial monitoring cost
four hundred thousand dollars apiece.

They were bigger than Jonathan and

me combined which is to
say they were bulky and.

The odd and odd as a result

there were only a power OP fourteen
of them in the Los Angeles Air Base.

Well as anybody who does
detailed analysis of

the management of environmental impacts
will tell you this is not good sampling.

All right.
It is very.

Aku to Proxima nation.

So where the technology
powerful sensors and

Microsoft computing capacity and

wireless networks is heading is to
the deployment of sensors on cell phones

that people walk around in your cell
phone will be an environmental monitor.

In a real time dynamic environment.

Right.

It will totally change
the nature of how we monitor and

manage air pollution in the long term.

And this is the beginning of the outreach
of this ubiquitous information technology

infrastructure.

Now the story with these things
is of course that this is going

to require flexible infrastructures
lots of ability to recombine and

recombine capacities and
you're going to need flexible spectrum and

networking arrangements to make
the economics of these networks work.

So the breathtaking conclude.

And that follows from this with no
further all logically between but

as an assertion of the conclusion
is that Jonathan I think that

in fact the traditional competition
problem of the robber gene.

Is declining and that modularity
modulators the capability for

leveraging not eliminated but reduces it.

And that the far more important task
if you had to weigh them up and

to find ways that we can retune public
policy to encourage the further

emergence of these modular capabilities
and of the mixing and matching of these

capabilities that war while for
innovation to excel rate along this curve.

Now the second thing that we assert and

here I think the data
already show we're right.

Is that this is going to pose a number of

very difficult political
policy challenges.

One of them is just simply what
happens with all of you when you use

Voice Over Internet Protocol to law
Fanie right which is basically this

has destroyed the pricing structure of
the traditional communications industry.

It's in its early stages of destruction
but it is doing this quite effectively and

when that happens you
have to understand that

every communications regulator
in the world has a mandate.

Nowadays for competition bought you
have these very large incumbents.

You know that sit around like
your local phone company

that employed lots of people in our
large stakeholders and communities and

having them collapse under an implosion of
pricing is not the sort of problem that

government officials like to think
about on an overnight basis.

So they're going to be lots
of tensions in the past brick

as these capabilities play themselves out.

And finally another area of the tension
is that these service applications made

possible.

By this new infrastructure
respect no boundaries and

the classic example of
this is broadcast policy.

As was explained to you
in a couple of minutes.

One of the biggest hang ups in creating
an integrated global information and

communications technology
infrastructure is that digital content

means that there are no
boundaries on broadcast.

And there are many countries in which
cultural protection of local broadcast and

suppliers of content.

Is one of the sensitive political
hot buttons in the country.

So we're going to be many of
these types of challenges.

So now how do we deal with these sorts
of technological transformations

of market transformations at
a global level in order to start.

If you would making sure that
global governance is aligned with

the possibilities for economic and
technological innovation.

And the example we want to talk about
today is the World Trade Organizations.

I want John and

I began this venture in the early
to mid one nine hundred eighty S..

We came up with this
notion that the gap now

W T O could actually serve as a place
where you could make a trade agreement

on how to integrate global communications
in information service markets.

And for that thought we were off.

I would say laughed out of most
rooms respectable policymakers or

on the world at the time.

And telephone companies don't laugh they
just threw us out the door right away

the arm and at the thought we
had behind it was that we had

a bet that the computing revolution meant
the telephone monopolies were dead and

the telephone monopolies were
dead at the national level.

Then in the long term you're
going to have competitive

communications carriers inside.

Powerful markets who were going to start
having to deal with global customers and

those global customers would
have to say asking them

how are you going to deal with
the provision of our global service needs.

Right.

And the question was Where
could you deal with that.

Well one obvious answer at
the time was well you could go to

the International Telecommunications Union
which is after all

one the world's oldest
international organizations.

The only problem was that the I.T.
was built on the promise of monopoly.

And therefore it was not if you
would in its organizational D.N.A.

to be a nurturer of a radical
market reorganization.

So we were looking for an alternative
venue with if you would a different

political clientele globally in
order to undertake this change.

Well if that big idea was there.

How did you do it and
we said OK what you've got to do is

create an open global market that's
going to allow you to provide

services across borders right
on an integrated basis and

because networking whether for
computing or pure communications

often implies that you have to have
teams on the ground to serve customers.

And you need facilities.

You've got to build off in your own
network in places to have the performance

you want it means you've got to have
the ability to either rent capacity from

the local providers or you have to
have the ability to build it yourself.

And that means foreign direct investment.

Where the notion.

Forget about communications of the W T O
regulating foreign direct investment

was another one of those anathemas
the mid one nine hundred eighty S.

that supposedly couldn't be done and
but Jock and I were kind of persistent

we kept saying well look you can see
what the business market decision is and

if the W.T. is going to be the venue
it's going to have to deal with that.

And there's some.

Political possibilities here.

So we flash forward.

To our mid one nine hundred ninety S. and
I ended up being recruited in the Clinton

administration to deal with the mess
that Jonathan I had created in the one

nine hundred eighty S. when they agreed to
add this to the trade negotiation agenda.

And any event in one thousand nine
hundred seven being implemented in

January of one thousand nine
hundred eight we had the world's

first basic telecommunications
agreement at the W T O.

And in that agreement sixty nine countries
in the initial agreement who represented

eighty two percent of the revenues
in the world communications market.

Agreed to sign on to trade commitments
in regards to communications and

information services and over seventy
percent of the market value was signed

up with what we called strong commitments
that is a top to bottom liberalisation by

the chart that we created with another
percentage of the world market being

phased in later the other key part of
this was that sixty two of the countries

agreed to a set of what are called Pro
competitive regulatory principles or.

The regulatory paper that included
thirty nine emerging economies.

Now you'll discover what the real
importance of that is in a moment except

to let me first say about it that
nobody had ever created a trade

document that was a set of
regulatory architectures for

national communications or any other
to regulatory market in the world.

Why how does a country commit to
open trade and communications and

information services.

I'm not going to lead you
through this in detail but

I want you just sort of skim this chart.

These are literally candid gory
categories for market commitments and

a country in the negotiation with check
the box to say commit it not commit.

So you weren't saying I'm for
the agreement.

I'm against the agreement.

You were taking each line item and
saying for.

Art or not right and
then you can talk a reservation

about it if I'm for it but
only five years from now.

OK so this was in the sense
of modular commitment system.

So that was the underpinning and
we then scored these and as a negotiator

I'll tell you we had a metric for
judging the value of these commitments and

seen if it met certain threshold
values that we were looking for then

here is the reference paper on
regulation and this was I think everyone

agrees now one of the landmarks in
contemporary trade negotiations.

This regulatory paper basically dealt
with the problem of leveraging All right.

Think back to the story.

I think that in the one nine hundred
ninety S. when we're negotiating this most

countries are just merging not a monopoly
Europe did not commit to wholesale

competition the communication services
until January of one nine hundred ninety

eight to coincide with the beginning
of the implementation of this deal.

OK So the first part of this
says asymmetric regulation and

that's a fancy way of saying
that will regulate Jonathan.

But we won't regulate Danny.

Why because as Jonathan is bigger and
older than Danny.

Right.

So that's why we favor D.N.A.
but we regulate you.

And that's basically to say take

a look at the traditional
incumbents who control what.

The local access transmission network and

say that they have the potential for
leveraging.

And therefore they should
be subject to specialized

regulation to control anti-competitive
behavior through leveraging.

And each country that signed the reference
paper committed themselves to that

framework of regulation.

To deal with the leveraging problem.

And these start to identify some of
the things that we said that in doing.

In that would give meaningful.

Implementation of those things.

These were not one hundred pages of
rules this runs about two pages they

are the principles that you use to judge
whether the policy is a serious attempt

to follow the concept of controlling
anti-competitive behavior.

The interconnection obligation is
perhaps the single most contentious

obligation in the world of communications
because it goes to the fundamental issue

of the economics of networks sharing
their capabilities and their traffic.

I will just tell you that people in
Washington when you hear about K.

Street lobbyists have to K. Street is
still full of lobbyists who wabi on this

issue because there is so much money
at stake on interconnection rules.

So these set out a set of principles that
people who study the competition problem.

I think are the core of good
interconnection regulation.

And you'll notice also that the final
bullet point here is about governments may

maintain policy measures designed to
achieve universal service when you get to

a socially sensitive technology capability
like communications people are worried

about do we have a continuing commitment
to deal with the problems of the poor and

the answer was of course that's perfectly
legitimate policy objective and

will be so with knowledge so
see what the actual commitment is.

These must be administered in
ways that are transparent.

Everybody can figure out how the money
flows from and what the rule is

nondiscriminatory you can't make it that
only Danny has to pay these subsidies and

Jonathan doesn't.

And competitively neutral.

You can't stack them up in a way that
de facto you're so rigging the market.

OK but you can do any security
versus subsidies scheme

that you want that meets those criteria.

The next big change here was
a requirement about the structural guy.

From that the right you later the market
had to be separate from the operators

we may say that's pretty obvious you don't
want the phone company being regulated to

control the regulator.

But in fact in most countries.

That's how it was done.

Traditionally.

Because the phone company
was government owned and

therefore why divide the government
own entity from the regulator right.

But even after the division
took place in formality.

Here's an example
the problem that existed.

We were dealing with the early
implementation of competition in Germany.

In the German government still
retained a significant equity share in

Georgia telecom time.

In the German communications regulator

sat on the board of
directors of Dortch telecom.

And we called him up and
we said Don't you think this is a problem.

He said why he said I'm just
representing the state's interest.

We said yeah that's the problem
don't you quite get it and.

So there's little discussion we said then
we called the trade minister in the trade

ministry said.

OK in a good college communications
minister and he was off the board.

So these types of problems
are important and

fundamental in framing the task of
regulators and their Terms of Reference.

And finally you'll note here.

This last obscure item.

Governments will use procedures for
the elocution use of scarce resources

including frequencies that
are timely objective transparent and

nondiscriminatory And if you could figure
out what that is just as a Blind Reader as

an educated human being you are a mind
reader because it took us a long while.

If you were out what this meant as well
because we had a crafted very carefully.

Here's the problem in
understanding how governments.

Odd deep involvement in technological
infrastructures can create

huge difficulties and
getting adaptations in the infrastructure

of governments do two things
with radio frequencies and

virtually every country the government
has primary rights over radio spectrum.

OK.

So the government has control.

I want to have a T.N.T.
and arising and Sprint competing.

But before they compete.

I have to as a government allocate
spectrum to different things like

third generation wireless services or

to emergency services etc So
that is an allocation task.

That the government does with its
real estate and releases it for

different commercial purposes and
then I do assignment how and

who people get licenses to
compete with this spectrum.

Well I right.

That's very mind numbing details
I used to oversee the U.S.

global satellite system and
in my office I'd be sitting there making

decisions about which spectrum we've
released to which satellite system.

The notion that I was deciding
this was purely grotesque.

And I'm sure the engineers worked
with me agree with that as well but

the point was that it was a required task.

Well every government has its hand so
deeply in the radio spectrum

that they couldn't agree on
a way to make radio spectrum.

Other than a black box so

what we did was we said OK you can
allocate it and determine its use.

But you have to do it in a timely way.

You can't just sit on it and
once you say you're going to do it.

You've got to have a process that people
can observe and participate in and

the process can't be rigs a little only
a few people can be involved in it and

know what's going on.

So we don't with
the procedural aspects and

not the sub in a fast box and that was as
close as we could get to deal with us.

So here we come to

the practicalities of the situation there
was lots of things we didn't explore.

We didn't explore.

Obs are in let's get over the slide these
were the political issues that we had to

resolve in the negotiation.

So here are three things that we
didn't deal with this agreement has

says nothing about.

The Internet.

Why because the Europeans and
the American carriers

didn't want to think about
the Internet and those of us who were

writing the trade technicalities figured
that we slipped in between the lines.

So we can call the question
spectrum management.

Most of the anti-competitive potential
of spectrum management was untouched.

Or at least not fully touched.

And finally this was an agreement
based on force communications

not on the emerging set
of Internet applications.

It's a job that is going to take the last
few minutes to talk about where the front

here is that you are in
the telecom policy area.

Peter and

I have various monikers have already
suggested what some of the regulators

telephone companies say we're also
known sometimes as the evil twins and

they are the twins and they fit try to
figure out which one of us is the evil

ward where another thing that we do and

what I'm going to do today is he plays
Johnson to my play Boswell to his johnson.

So I try and put this into
a slightly different perspective.

I want to note just a few things.

Summarizing what painter was saying but
in different words one wise is important.

Well communications overall is
one of the largest construction

projects in the history of the world.

We have this remarkable system that you
type in a few numbers you dial a few

numbers and a message of one form or
another correctly gaps

in the moments from one side of
the world to the other as the engineers

here will appreciate that is
technically a remarkable achievement.

It is also a political achievement
of the first order because.

To make that happen to get all of
the people involved doing one is markedly

difficult.

The dream where we are going well as

all you have to ask any of
the students is what do you want.

And we all know what everybody wants we
want to be able to send anything we want.

In any form.

So it should be voice data pictures and

videos from any point while
we're moving to any other point.

While that's well their movie with great

confidence rapidity and
as cheaper price as possible.

That's all we want to
make that happen because

your children are going to demand it and
expect it and

to still have people make money because
you know we're not socialist sorry

we're we remain capitalist
is a difficult policy.

Others say we are not Futurist
we are not trying to predict

what the future will look like
what we are trying to do is

get things in order with
pretty good policy a term that

we like we think that pretty good policy
can push things in the right direction.

I'm fond of what I call it versus
of this model which is sis if

it's your member kept trying to push the
boulder up to the top of the mountain and

it never succeeded.

I prefer to start at the top.

I like O'Dowd Hillsboro better
than up with a crowbar and

sit on the top of the mountain with
a crowbar and use a fork or and

set but the question is which
direction are you going to push it.

And that the goal is we've got to get
these things started in the right

directions to try and micro-manage
governments don't do that very well

shouldn't do that very well but to set
some of the initial conditions becomes.

Very important.

So we are optimist.

Unlike a lot of social
scientists who can tell

you why something didn't work won't
work shouldn't work couldn't work etc.

We've been at it long enough that we say
yeah it can work sometimes policymakers

actually can do some important things and
make some things better.

It's not going to be perfect.

Everybody's not going to listen to us but

by putting something on the table we
can begin to get something moving in

a direct in a a more
appropriate adaptive matter.

Finally in terms of summarizing
paper without borrowing his words

you know we begin with three assumptions
a sort of go through a lot of what we

think first neither of us
have ever met any industry.

That we ever found where we that
didn't say they were unique

every industry tries to say you
know my situation is special

and our argument is now back there
are overriding issue is that

cross industries and everybody wants
to believe they're special but

there are some basic ways of going about
it that you really are quite somber.

Second thing everybody every industry
ever talked to seems to think is we

really really are in favor of competition
in the areas that we're not in yet.

But they're really special reasons
that we should have our special

advantage this goes back to the leverage
issue we want to contain our leverage but

will compete everywhere else and
the whole idea of modularity is

not going to happen that what
we really need is to open up

the competition to get us and
modularity is a path you.

And third I particularly at
least until two weeks ago

in the free market system markets
are wonderful and governments and

regulators should go
away not going to happen.

Governments are here to stay.

And further regulators are here
to stay and ought to be.

Now that doesn't mean they
should micromanage the idea.

Peter picky orbital slots and
spectrum is a little scary for

me much less the engineers but
there is an appropriate role for

the OP when having said that which one is
which will do it will I get the next one.

The down with the idea of
our basic approach and

I'm already over a time someone I'm going
to go through this very rapidly and

because I'd rather leave
a little bit of time with them.

We are our basic view is there
are things that can be done and

should be done it may get
to late a little but we.

We actually see the failure so
far of the Doha round.

As an opportunity not as of the W T O

the Doha round the trade
route which has supplied

it didn't get to a lot of the issues were
interested that we think are important.

What we lie.

But what that does the deputy home should
be abandoned it still has about advantages

we would like to see principle similar
to the ones that Peter talked to

having to do with modularity
interconnection and

route and a cordon ization
harmonization of domestic and

international policies
that are necessary for

the next stage of regulatory
reform we would we

speak about we in the book that will
be available sometime we speak of we.

Have various principles we
prefer we suggest ten norms and

I want to go through just
a few of those with you.

One is that we believe

down by too many things we we think that
you have to be clever and appropriate

Very well you actually got ahead of
me because you do that a lot but

we want people to be extraordinarily
flexible in what institutions.

We don't we don't we're not much
on creating new institutions but

we like to re purpose them
from time to time and

just as we found that
the W T O was very useful for

the coordination of
communications when the I.T.

you went bad that had an interesting
other aspect to trespassing and

W T O on tie to your
territory essentially.

Spook the W the I to you and

got them actually thinking again they
had got not only lazy and monopolistic.

But out of date.

We are in favor of light touch regulation.

We don't are not calling here for

micromanagement where
there is good competition.

We really prefer in to
introduce competition and

to regulate where you need to to make
sure that the modularity is increasing

too many things here on
the same thing to be said for

the way spectrum is distributed.

We are particularly interested we believe
we're going to get a next generation

interconnection What this requires and

just as Peter broke down
a checklist in the last the last.

Last time through for what needed to
be done on the basic telecommunication

agreement that we will be
focusing on some of the same and

some different missions as we
move forward and the next time.

Peering policy how to deal with
the buy Reeses the corrupt networks

all of this becomes very important.

How do you make sure you get
the interconnection How do you make sure

that in Lego terms we don't exclude

the blue building blocks it paper
of the red yellow or green.

So how do we make sure that
everything that can and should be

allowed to go on to come
in is able to do so

there will be an important aspect
of this in Mobile how to week.

Make sure that the wireless piece has
freedom of terminal attachment and

to bring your own software to the party

we have not dealt with audiovisual But
everybody is pretty convinced that

with movies with videos with
You Tube coming in the whole audio

visual area is going to be exceedingly
important going into the future.

We are going to need to liberalize

cross border data across border flows
of all of the official markets.

But we're going to run
into some issues and

we're going to have to
be sensitive to them so

that justice there is transparency and the
the conservations that Peter talked about

any kind of audiovisual agreement is going
to have to be sensitive to localism.

To pluralism to diversity of
content to cultural issues

across countries to simply say we're
going to ignore this isn't going to work.

So that you have to go in all.

To compromise open to figuring
out what can and cannot be done.

What kinds of subsidies make sense and
what kind do not I could go on but

let me end actually with this one so
that we have at least a few moments for

questions one of the big issues this
could be personal data portability.

We already have number portability
here in the United States and

many other countries.

One of the locks that people had on you.

Was that you couldn't take if
you want to switch services not

only did you have to pay a large P. But
you could take your phone number with you.

Well if you had your phone number for
long periods of time there's a real cost

of giving up the same thing
is true with data we want

we need to get some norms
that you should be able

to carry your personal data with you
do whatever service is holding it.

That's not always the case now or
in some cases it.

They may say it is but you need case
by case permission to get it done so

that they blockages are throwing up
this is sort of a lot of beginnings

of a laundry list a laundry list we
provide is longer I could go on.

Peter could go on but
let us turn it to you instead.

Thank you Peter.

Come on we could do this together.

There's another microphone.

So we can now wandered around.

We have a few minutes anyway.

It doesn't stop.

I could go on.

Right back when you say social
actor you mean government or

where you are so

this is a very penetrating
question a lot of ways.

And here's the short answer at the global
level which is where we gave our

examples here.

You don't want international arrangements
to have five hundred pages of rules and

regulations.

It's bad enough when a national
regulatory agency does it.

So what you want is an understanding
that there are some principles that

are well understood through negotiation
and where there's a negotiating history

as to what you were trying to do
with that set awarded principles and

governments are responsible for
enforcing those principles in

regards to all transactions in their air
territory so if let's say for the moment.

Google did something was
terribly amiss by your sense.

You mean you did evil they did evil.

Then if they had a trade obligation.

Let's say about number the information
portability one the child can talk about

last it would be the U.S. government's
obligation to address that problem

because it has an affirmative allegation
to assure information portability.

Now if the U.S. government didn't do that
the European Union could haul the U.S.

into a trade dispute and say you
didn't live up to your obligation for

you to do something about that right.

And so it's the notion of accountability
to clearly understood principles

that keeps it simple enough for
it to be an international framework but

the details of the hard work are Dawn at
the appropriate governmental unit in this

case the national regulatory level and
I think that's the only way you can design

this architecture because
otherwise you're in real trouble.

Now there's there is a side.

To of how do you use non-governmental
organizations to help inform policy in

an ongoing implementation level and that's
a big open area of exploration right now.

I think and work on global governance

is

zero three

years most international agreements
are what we call self and

forcing that is governments do it
because they basically want to do it but

they don't want to do it unconditionally.

They want to do it.

Knowing that others will do certain
other things simultaneously.

So there's reason to think
that most agreements of major

political magnitude and economic
magnitude are likely to get pretty

good at hearings rates but
this is like any complex agreement.

How many of you work in
the private sector at times.

All right.

Have and you've dealt with a big complex
contract first thing you know if my wife

is to be the outside general counsel
to Boeing and the first rule was

that the contract was a contract to work
scrupulously careful about it but for

God's sakes get your people in the same
room with those people all the time so

you understood what the contract
mant as a living document because if

you had to keep going back to the lawyers.

It was going to not work right.

And so
you've got to think about adaptation.

I think and you know the answer is
you can all you can pull out but

the reason you sign a nation really is
because you think it's going to be in your

benefit to do so if it proves not to be
you that will lose some occasionally but

the key is a lot of work
could be until Lucia's sure.

In terms of the compliance Lidgerwood
that once it is in you've got to dip.

Now and then you had a few cases
Indonesia getting out of the I.M.F.

for a little while and then coming back.

Right.

Well first of all I'd welcome
Danny adding that comment here

has been thinking a lot about China and
I.C.T. but here is my view about China.

China and
its negotiation of W T O accession and

I want to footnote here we're using
W T O as one example the venues for

global governance there are others.

OK but there was a very lengthy and
difficult discussion

about how China would liberalize its
communications infrastructure and

you can argue whether the U.S.
negotiators held out for enough or

not but they did make commitments that
they are fulfilling in the broad form.

Now that I would take your question to
really be about what about the fact that

China at the central government level is
trying to do things like micro manage.

Technology Development for
national champions.

Let me go back to this slide on
the ash next generation period.

I was in Washington a month ago meeting
with the people who are writing the new

national communications law for
China and the entire team there and

I spent two hours with them and
I showed them the slide and

they nearly jumped out of their chairs
they were so mad and the reason was

that they thought that this was a way of
stopping an effort of China to develop its

own security infrastructure that
would OP be appropriate for

Chinese purposes and
in fact if this obligation to.

It would be true that there could be
no mandatory security standard in China

that government would only be able
to mandate functional requirements

that problem with China is likely to be a
real that's a real negotiating problem but

it may be a real negotiation
problem with Europe as well.

So I don't want to pursue
this suggests that

China is the only country that we have to
deal with this particular game about and

whether China can really play off
their game in an era where leveraging

is declining as an advantage is
an open question in my mind.

That it takes a long time
you need to be patient.

I was at U.S.T.R. in the early one nine
hundred eighty S. and talks about Chinese

accession to the W T O were already
going on then it took more than

twenty years on and off again for this
to happen and still dark perfectly does.

So we're not arguing that this is going
to happen tomorrow or next week or

next year but you have to start
the process go it over time we have

found that if you get the principles were
less right then people rally around them.

If you get the principles
wrong which you do sometimes.

Then he changes and try again and
the politics still can be ugly.

I mean yes we have it we've been
describing this almost as though you had

Collin Powell right in the you know
the Powell doctrine for how the U.S.

was going to do you know
military intervention his son.

But but in truth.

This represented a very
complicated political power given

that we had to figure out to
allow this policy solution.

And that's the same true with
all these questions this

is stored or
low cost housing modularization.

That is just like you know alls.

They're sort of there WERE LOOKING years

you were you were very well that were.

Yeah I turn a second question mark where I

must get all that.

Yes we are the story idea.

Right right right right.

Yeah she's one of those

no not a lot of this talk.

They're calling

all of this.

OK so.

So first question is this based on I
continue ation of the historic president

would say yes but what we think is
important is that technological frontier

in some ways has allowed the OP
modularity to set in especially

in the software side of the industry
in the content side of the industry.

It's further changing
the dynamics of the models.

And therefore it's going to be an even
more turbulent ride in the future so

reaffirming the principle as a guideline
and recognizing that the cumulative effect

of the growth of modularity over time has
reduced the module leveraging issue allows

us to say let's focus more on this than on
leveraging not eliminating leveraging but

go forward by group through that it's
basically saying push it forward and

understand is probably the second point
where do you draw the line for a module.

I gave this talk at a very
prominent software company and

the same question was asked
with a lot of all the law.

Are you know where are they going
to draw the modular line and

the answer is that you can't
write that in a policy.

What you have is a principle
the principle says that

we are looking to say that
whatever is the major set of.

The primary products points
where you might conceivably

have market leverage we look at the places
we have Adama market position and

we ask are these capabilities.

Well documented and understood.

Can they be interconnected to by
other parties in a way that is fairly

straightforward those points become
where you look now you say but

shouldn't be at the edge out here or
it should be here in the operating system

someplace that's something that antitrust
policy actually is quite good at doing

making those sorts of judgments about
what's relevant for the market.

What we're saying is focus on the basic
principle that you're looking for

those points where
the capabilities snap together.

See if you get that transparency an
ability to interconnect and if it's there.

You worry less are right but it's not
that there are some can be a lot of

difficult decisions along the way and
you're quite right to point to that.

Final point here and
then I'll switch to Jonathan is in regards

to the question governments don't
like to live by these rules.

It's true but

again take a look at this in a historic
metric twenty five years ago most cover.

Once thought that they could run
a national champions policy for

their electronics industry.

Today most governments find themselves
with very limited carved out

of national champions policies China's the
most ambitious of the current players but

but still if you compare this
system to twenty five years ago.

It's quite different and

the reason is is that the economics of
this system including pricing dynamics

are such it's very hard to sustain the old
traditional policy as much as you want to.

So we'll see if it will create
anomalies in the marketplace.

But I still think this is likely
to be the broader trend job.

To try and make this a little bit more
concrete in terms of where we're going

at the very end of the book.

We after we go through some principles and
some norms.

We make for

broad sets of suggestions about where
what are we going to have to work on.

And we duck in that we don't
actually give any detail to this but

you know we're trying to open up things
for others to work on to figure out what

are the the major hurdles that going
to be in these include we were how

do you encourage the build out of
competitive broad beds infrastructure

including through the use of flex
the flexible use of spectrum.

How do you encourage technological
innovation while dealing with

the challenges of interconnection policy
for the next generation of networks.

How do you encourage liberalization and
globalization of audiovisual content.

While at the same time making sure that
you are able to encourage localism

on pluralism and
diversity of content and how do you go

about encouraging harmonization
of who are national policies on

personal data because that's going to be
something that's going to you know these.

They're all rough points
that need to be worked out.

It's hard work.

It's going to take some time.

It's going to take a lot of negotiation
but those are some of the issues.

It's partly picking the right
issues that you should

focus on because there's there's a limited
amount of time energy and expertise.

So if you get the the expertise you
have working on the right problems.

It's going to be a lot more fruitful and
productive than the others.

We don't have any confidence

that exactly what we are doing
is going to be all right.

But we find that putting something
on the paper on the table will

often cause our governments and
policymakers to pay attention.

Often what the U.S.

does because of its unique and
continuing pivotal role in the system.

If the U.S. if we even get the U.S.
to propose something.

Others may agree or disagree but
they have to begin to look at it.

An example from the past is when the U.S.
in the eighty's started pushing for

liberalization of trade and services
something originally outside the gap and

you know a lot of countries
said we don't want to do this.

It wasn't just India and Brazil it
was also countries like frats and

the first test of the first task that the
U.S. persuaded everybody to do starting

about nine hundred eighty two was that
everybody agreed to do a national study.

The US did a very elaborate one.

Well that meant France and Spain and
everybody else had to actually break down

and look at their own industries and
the net result was they found some really

remarkable things about their own country
industries that they didn't know.

France is a huge winner on trade and

services because it's the preferred
destination of tourism you would get the.

So I conference services which over
the last twenty years has been the fourth

growing fourth largest growing
service industry in the world.

You know how do you promote people
to do international conferences.

Would you rather how do you get
people to come to your country.

It's a huge business it's sort
of the Olympics on a smaller but

more continuing basis.

Now that he said Yes

yes.

Why why

why why

why

why why why why why no hospital.

No more what

you want with

me she thought you

guys are there any questions.

Could want to take them all together when

you

hear anything else.

Yes really.

You could do that.

The answer is in fact
on the last question.

You can skin this cat several different
ways and if the W T O is a hopeless

mass just like you moved out
the ID you you can move to for

example using regional agreements and

other things to try to do many of the same
points but the advantage of the W T O

is that there is that because there's
binding dispute resolution behind it.

It has more attention getting power and
governments.

So it's an easier way to do it if you
can do it that way now to move back

out move back to the questions.

Sequentially exactly your question about
open source is a terrific question and

I think that the way we think about it is
that open source is an example modularity

but for that matter code recycling what's
called the W T O is also an example and

in our minds.

It's probably the single most important
change if you are thinking about

the technological front year for
the software side

of this converged infrastructure was the
emergence of the web browser which became

the universal translation point that
made it much easier to get modularity

in the software industry and so
what open source is important.

We're not sure it's more important
than the recycling of code

in proprietary models and

the emergence of the browser but
they're all examples of these dynamics.

And finally to this big medic Western If I
if I understood the question correctly.

I think it gets to Oz all dynamic
that we didn't talk about in

this presentation but which is
central to the analysis of the book.

The way we sort of think of changes
in technological capability and

governance is something like this at time.

Moron you have a status quo.

Whatever the status quo is it's there and
suddenly

I Kasia only there are these technological
bursts for the the frontier and

the possibilities of opportunities and
cost change radically on the front here.

And people start looking at this and
noticing.

And when that happens stakeholders in
the marketplace who are involved in

governance start to recalculate their
interests and that's when if you when you

get into the primordial
stew of policy change and

in particular the U.S.
has been at the center of virtually every

major change in the global governance
of the I.C.T. infrastructure

because simply the U.S. is the most
important market fulcrum in the world.

So what happens is that when that
fermentation is big enough in the U.S.

to start bringing about a change in the
policy equilibrium in the US stakeholders

in other countries are you know coerced
by the U.S. trade negotiators to change.

They recalculate their own interests and

start to ask what is it about our own
way of doing things that is called

into question if the Americans have
any idea what they're doing right and

then you suddenly have stakeholders
in multiple government locations

market locations in this sort of
reconsideration of their options and

as a game this the first thing they always
look at is their domestic marketplace you

know you know you look home first because
that's where your biggest bucket of money

is initially but the second step is they
start to go and what cent mean for me.

Globally and then out of that
comes a separate conversation.

And so to your question in our
model the way it's played out.

Historically today.

It's the U.S. that has the first mover
advantage is that going to be true.

Twenty five years from now it's not so
clear.

But it's that calling
into question the or.

As ation of the major
market center in the world

that leads others around the world to
start reconsidering their efforts.

Let me just say a couple of things
harder the way Washington works.

That isn't always appreciated is just sort
of two quick comments one is I we were

talking last night about the difference
between plagiarism in university and

plagiarism in Washington where
the university if you plagiarize you

get thrown out of school and

the whole goal of Washington is to
get people to plagiarize your ideas.

It's called boilerplate so
that you trying to get your ideas so

they become part of everybody else's
talking points and be to be have somebody

plagiarize that is not something wrong or
something you deeply desire.

The second point in the same say well
in terms of the U.S. and overseas.

If you've ever been to.

Congressional hearings on
he international issues.

You'll see lots of lobbyist a few
citizens a few journalists but

what you also see are so the Junior.

Economic officers from a lot of
the different embassies rumbling wildly.

Because what they're really interested
this is the cutting edge of what's got

what America is thinking and
they send these back in reporting memos

to their capitals at which point everybody
says What is it they're doing and

what does that mean for us it's not a cold
or as Peter saying this isn't coercion.

But when the U.S. X.P. others say
have to continually recalculate and

when U.S. doesn't doesn't this.

Yes thank

you for.

Thank you for.