Last Updated: May 3, 1994 _________________________________________________________________________ Dear Colleague: The Clinton Administration has given high priority to working with the private sector to develop an advanced information infrastructure for our country:|en|the National Information Infrastructure (NII). As Chairman of the Interagency Task Force that is helping to shape our vision of the NII, I believe that it is vital for us to continue our dialogue|mdash|private and public sectors -- on the form our future will take. An interconnection of computer networks, telecommunications services, and applications, the NII can open up new vistas and profoundly change much of American life, not by the fact that it exists but by the way it is used. For that reason, this document explores some of the opportunities and obstacles that are presented when we talk about how people and organizations will use the NII. This document was prepared by the Committee on Applications and Technology of the Information Infrastructure Task Force. The Committee is charged with coordinating Administration efforts: o to develop, demonstrate, and promote applications of information technology in manufacturing, electronic commerce, education, health care, government services, libraries, environmental monitoring, and other areas; and o to develop and recommend technology strategies and policy to accelerate the implementation of the NII. This document is intended for four important audiences: the general public, the private sector organizations that are building the NII and driving its applications, the committees and working groups of the Information Infrastructure Task Force, and other agencies and departments in our Government. The topics presented here explore manufacturing, electronic commerce, health care, education, environmental monitoring, libraries, and government services as a stimulus to further debate. This is a limited list, as clearly there are many other relevant applications of the NII. Sections of the papers are presented as questions. We welcome your input in helping to answer these questions and to raise other relevant issues. Your response will illuminate and guide government policies and investments to accelerate NII applications. We look forward to hearing from you. Sincerely, Ronald H. Brown Acknowledgments Last Updated: May 3, 1994 _________________________________________________________________________ Introduction DRAFT FOR PUBLIC COMMENT "I know of but one single means of increasing the prosperity of a people that is infallible in practice that I believe one can count on in all countries as in all spots. This means is naught else but to increase the ease of communication between men...America, which is the country enjoying the greatest sum of prosperity ever accorded a nation, is also the country which, proportional to its age and means, has made the greatest efforts to procure the easy communication I have spoken of. Of all the countries of the world America is the one where the movement of thought and human industry is the most continuous and swift." -- Alexis de Tocqueville, 1835 PART I: Introduction The goal of this document is to express how improvements in the technical foundation upon which modern communications rests can benefit all Americans. We call this platform the National Information Infrastructure (NII), meaning the facilities and services that enable efficient creation and diffusion of useful information. We wish to focus the public debate on the uses of the NII and the benefits to be derived by applications of advanced computing and communications technologies. This collection of papers describes a national vision for how the evolving NII can: - enhance the competitiveness of our manufacturing base - increase the speed and efficiency of electronic commerce, or business-to-business communication, to promote economic growth - improve health care delivery and control costs - promote the development and accessibility of quality educational and lifelong learning for all Americans - make us more effective at environmental monitoring and assessing our impacts upon the earth - sustain the role of libraries as agents of democratic and equal access to information - provide government services to the public faster, more responsively, and more efficiently In addition to articulating a national vision that can serve as a framework for discussion and dialogue, a second goal of this collection of papers is to improve public policy-making, to identify critical barriers, enablers, and the tools of government action most effective in each of these areas. In this way we can maximize the benefits of government activities in support of the development of the NII while we minimize unintended or undesirable consequences. While the term NII is new, the promotion of innovation in communication and transportation is among the proudest elements of our American heritage. From the postal roads, canals, and railroads to the telegraph, telephone, interstate highways, and the spacecraft with which we loft our satellites skyward, America has been fearless in its pursuit of new and better ways of moving people and their ideas. And nearly every generation has sought ways to pursue public purposes by properly guiding these innovations. Moreover, the facilitation of free and open communication is the centerpiece of American law and culture. Freedom of speech and expression, protection of an inviolate private realm, and institutions by which the popular will may be expressed are the fundamental principles upon which our nation was founded. The task before us is not just to defend these ideals as historic artifacts, but to deepen, enliven, and enrich them; to give them new life in our time and a foundation that will maintain them in the new century that lies before us, as ever more capable tools for human communication evolve and are adopted. Yet, while the American people acting collectively through their government have established and enforced guiding principles, it has been the American people acting through private industry who have built and maintained most of the core elements of the infrastructure in previous generations. This will not change. The very dynamism that forces us to address questions of industrial convergence -- technological innovation in fields ranging from electronics to entertainment -- stems in large measure from our past commitment to seeing the business of communications remain in the hands of private citizens. The government's role is to set the rules for competition and enforce them, ensure that improvements in public communication benefit all Americans rather than a select few, promote the adoption of standards that allows systems to interoperate, ensure that intellectual property rights are respected, support research to improve information systems and make them easier to use, be a wise purchaser of information technologies and services, and reduce uncertainty and risk by funding pilot projects that demonstrate the usefulness and economic efficiency of new services and applications. This introduction will identify some of the themes common to all of the papers in this first collection. Before doing that, however, a few other introductory notes are important concerning the scope of these papers and the process for ensuring widespread circulation and comment. These papers are the first set the Committee on Applications and Technology has chosen for development. We identified these as the core set because there are significant public interests to be served by the application of advanced information and communication technologies in these arenas and some key government activity already underway. The next collection of papers could include such things as entertainment, arts and culture, demand-side management of electrical power, the NII and Americans with disabilities, information technologies in the workplace, political participation and community networking, transportation, telecommuting and other topics. We look forward to getting the next set of papers underway and welcome input on topics of greatest interest. This collection of papers represents the most detailed effort to date of the Information Infrastructure Task Force (IITF) to articulate the opportunities presented by an advanced NII and identify some of the obstacles to its deployment. To invite as much public comment and debate as possible, the potential actions identified be low and in the papers themselves are stated as questions on which we are seeking your views. We are trying to move the national debate forward so that our discussions as well as our actions are considered judicious, and well-informed. PART II: Issues Common to all of the Applications Papers Several themes emerge as concerns common to all of the papers. They are equity of access, the pursuit of demonstrations and pilot projects, the standards setting process, privacy and communications security, training and support, identification of long-term research and development priorities, and performance measurements to assess both public and private investments and experiments. Equity of Access: Improved means of information access and dissemination must serve to close the gap between those with more influence and those with less; it must lower the obstacles to full and complete citizenship in American society rather than raising them. Earlier this year, the President and Vice President set a goal of connecting all hospitals, clinics, libraries, and classrooms to the NII by the end of the century. Doing so will empower citizens and help reinvigorate their public institutions. Hearings are being held to assess strategies for achieving universal telephone service. While the Administration is funding demonstration projects through the National Telecommunications and Information Administration (NTIA), this will only connect a small number of public institutions to the NII. The Administration's proposals for telecommunications reform will ensure low cost basic telephone service and maintain the ability of communities to require cable operators to connect public institutions at little or nocharge. To ensure that public institutions can continue to serve their historic functions this must be preserved in the new regulatory regime. To this end, should the Federal Communications Commission propose regulations that enhance the availability of advanced telecommunications services to all educational and health care institutions and libraries by mechanisms such as preferential rates for telecommunications services? Are there alternate means for achieving this public requirement? Demonstrations and Pilot Projects: Among the key obstacles to the adoption of new communications techniques is risk and uncertainty as to the benefits. In the adoption of health information systems, for example, uncertainty among private sector purchasers of these systems about their ability to exchange information accurately must be overcome before the costs and benefits of such systems may be proven in clinical practice. In the case of libraries, mechanisms to ensure that works placed in the system will be protected from unauthorized uses will be required if copyright owners will make their works available under appropriate terms and conditions. Teachers and administrators must be able to see that networked-based teaching tools improve the educational process before deciding upon widespread adoption of these techniques. How can interactivity as a technical attribute of advanced networks best be incorporated into services that facilitate genuine social and political interaction among citizens and consumers, and between them and the companies and governments that serve them? The federal government is currently supporting a host of demonstration projects, as described in this collection of papers. What future NII applications can be demonstrated in ways that will allow later scaling to community- or society-wide status? How can these simulations be conducted under conditions that closely resemble what would be found if they were fully operational? Standards: Standards for information content, display, and exchange are such a crucial element in the development of the NII that it may be said there is no infrastructure without them. In addition, there is a significant international component to the adoption of standards. The United States can no longer assume that other nations will adopt our standards or purchase products built to U.S. developed standards. Standards may be effective barriers for product entry in foreign markets. There is an urgent need to make the selection of standards for information technologies and services as efficient as it can be. Broadly speaking, the government's role is to set clear goals and be an intelligent adopter of standards, and to ensure the best possible coordination among standards organizations, industry, and the government so that the private, voluntary standards system in use in the United States works to maximum efficiency. How can the adoption of standards best be improved? In addition, what specific standards-setting activities and decisions are of greatest importance to the development of the NII? How may the government facilitate consensus among relevant parties? Is it possible to identify interfaces between technologies and services where the establishment of common standards would enable faster infrastructure development and those interfaces that inhibit infrastructural improvements because they are not open? Privacy and Communications Security: Among the most notable shortcomings of today's Internet is the inability to be sure of the identity of someone with whom one is exchanging electronic mail, and uncertainty as to whether a message was read by unintended parties. If communications over the NII are not secure, then people will not honestly report their condition to their physicians. If physicians do not trust the NII to maintain confidentiality they may misreport sensitive medical information to insurance companies. Both of these not only degrade the efficiency of the health care system but will undercut the ability of advanced communications to make people healthier. Electronic Commerce also shows the same requirements. Few business class applications will develop on the NII until an infrastructure is in place to guarantee a high level of authentication and privacy. The IITF's Privacy Working Group has been working on a Code of Fair Information Practices that is soon to be issued. This report will address issues related to the privacy of electronic records. The National Institute of Standards and Technology has been working on strategies for implementing a national infrastructure for the management of public key cryptographic techniques for authentication and confidentiality. It will address such questions as: How should it identify a registration service that would issue policies and certificates? What is the best way to identify the work remaining to be done in protocol development for the interchange of certificates? How should it identify the necessary and sufficient services of the infrastructure itself to support Electronic Commerce and determine the initial entities to start developing actual services, such as government agencies and commercial service providers? Should these questions be addressed by a conference, a panel of experts, or some other process? Training and Support: Professional development and technical assistance often lag well behind the adoption of advanced communications tools. This has been identified as one of the most important obstacles to the development of NII applications in the areas of education and lifelong learning, libraries, and health care. Even the most cleverly designed and implemented advanced communication techniques will not be used if teachers and administrators, health care providers, and librarians do not understand how to use them. Improving the ability of these professionals to interact with the people they serve depends upon their being trained and practiced to use the new communications techniques that are at their disposal. Failure to adequately train these professionals will obviate any improvements in services delivered over the NII. How can we ensure the training that professionals receive keeps pace with advances in the capabilities of the NII? Research and Development: One of the most effective tools for the promotion of the NII is the investment the federal government makes in research. Many of the current search and retrieval tools on the Internet today were created with the help of government-sponsored research. Government research today in such areas as advanced manufacturing techniques, digital libraries, and environmental assessment tools will be the foundation for future capabilities and commercial products. The newly formed National Science and Technology Council is charged with advising the President on how the federal research investment may be best managed. Under its purview, the High Performance Computing and Communications program coordinates key NII technology efforts across the government. How can federal research best support the key technical underpinnings of the NII, ranging from product data standards to digital storage, retrieval, and dissemination technologies? Performance Measurements: Demonstrations, pilot projects, and research expenditures are never ends in themselves. Without a set of metrics, it is impossible to tell if either public or private experiments with new services or cooperative research efforts have been successful. Monitoring and understanding the results of programs and experiments is therefore crucial for future decision making. How can we develop program evaluation techniques that help people understand the effects and results of experimentation with the tools of an advanced NII? How can the costs and benefits be best assessed and the understanding be widely shared, so that many people benefit from government expenditures, whether they take the form of the funding of pilot projects or cooperative research and development efforts? How do agencies ascertain whether these investments are yielding their anticipated national benefits? In short, how can we be sure to learn the right lessons? PART III: Conclusions As we begin to identify and understand the potential benefits of an advanced NII and develop policies to accelerate its development, we must tightly couple federal initiatives and programs to the goals, priorities, and activities of industry, academia, and labor. Only by effectively linking the complementary activities of the public and private sectors can we accomplish technological, economic, and social objectives that will pay dividends to the entire nation. There is no ineluctable force pulling these advanced applications of the NII into being. Nor can the simple statement of desirable future characteristics of the NII make it so. Success in each application arena requires the identification of intermediate goals and objectives and the successful negotiation of outcomes involving a multitude of different parties. Only conscious, willful, and well informed public decisions will result in an NII that meets America's needs. We hope that careful consideration of the policy questions in these papers will both facilitate the development of the National Information Infrastructure and guide its evolution so that it best meets public purposes. The most important performance measurements for the NII are not technical but social. The NII should -- and will -- be judged not by the speed at which bits may race to their destination to be reassembled into words or images, but by how well these technical capabilities make the nation and its citizens healthier, wealthier, and more wise. Last Updated: May 3, 1994 _________________________________________________________________________ Manufacturing and the NII DRAFT FOR PUBLIC COMMENT PART I: What Is the Application Arena? Description of Manufacturing [footnote 1: For the purposes of this paper, "manufacturing" refers to the discrete parts manufacturing industry, although the trends, issues, and opportunities discussed in this paper can be applied to a great extent to other industries.] From automobile and computer products to wood furniture, U.S. manufacturers face intense competition that threatens their very survival. Indeed, today's competitive advantage knows no national boundaries, going only to those manufacturers who can rapidly respond to ever-changing market demands with high quality, customized, competitively priced goods. U.S. manufacturers and workers have the skills, desire, and potential to succeed, but their success is by no means certain. In the new manufacturing paradigm, the efficient and effective management, manipulation, and use of information is essential to sustained economic vitality and growth. With information as a strategic asset, the integration of information technologies -- in an infrastructure of communications networks, hardware and software applications, databases, bulletin boards, and other services glued together through common interoperability and data exchange standards -- holds one critical key to manufacturing success. An advanced National Information Infrastructure (NII) will enable both the modernization and up grading of traditional design, development, production, and support processes as well as the complete re-engineering, optimization, and integration of separate business functions, activities, and enterprises. NII applications in manufacturing have the potential to transform and significantly improve all stages of manufacturing operations, from technology/market assessment and R&D to aftersales support and product disposal or reuse. Effectively applied information technology has a greater potential to change the way manufacturers do their work than the steam engine had in the Industrial Revolution. While the gains in productivity, quality, flexibility, and cost will be large, the greatest benefits will be realized through the combination of technology with organizational and managerial changes, enabling entirely new ways of working -- as well as the creation of entirely new industries. The potential benefits of an advanced NII to manufacturers come from the gains in a number of areas. The ability to quickly and efficiently transfer data within and among operations can revolutionize the design process, enabling concurrent collaboration and communication among suppliers, partners, customers, and competitors at distributed locations. It can enable the rapid vertical and horizontal integration of companies; accelerate first time optimization of products from design to production; reduce the number of design changes; enable "virtual" modeling, simulation, and testing; reduce waste and in crease yields -- with greater quality and increased flexibility and responsiveness. Imagine a future where: - Customers "custom design" products such as automobiles and clothing, electronically transmitting their requirements to remote locations capable of quickly manufacturing and distributing these products. - Companies rapidly and easily form alliances needed to produce new products, employing advanced manufacturing concepts such as "agile" and "virtual" manufacturing. - Small- and medium-sized companies advertise their manufacturing capabilities over computer networks and efficiently bid on projects required by other companies. - "Software system brokers" connect users who have a need for temporary access to sophisticated manufacturing tools that would normally be too expensive to acquire. - Manufacturers and suppliers use "intelligent" procurement systems to facilitate and speed parts procurement, billing, and payment transactions, reducing costs, improving accuracy, and meeting customer demands in a timely manner. An advanced NII can make available the best manufacturing application tools, knowledge bases, product information, and training materials regardless of location. Using advanced databases, bulletin boards and other services available on the NII, manufacturers can rapidly disseminate requirements and specifications for parts and subassemblies, letting the most qualified and competitive suppliers respond without prejudice to location or size. Over computer links and networks, companies can quickly adopt innovations in materials, parts, and manufacturing processes, advising suppliers of new capabilities at reduced costs. With an advanced NII, companies can quickly integrate data from distributed resources and use this data to create, model, test, and evaluate products, processes, and enterprises in real time and under a wide variety of simulated conditions, guaranteeing first time optimization while satisfying unique customer preferences and manufacturing requirements. With the continued development of other advanced manufacturing technologies such as intelligent machines and processes, engineering design and planning systems, and intelligent sensors and controls, U.S. companies can fully implement advanced manufacturing techniques such as concurrent engineering and agile manufacturing. By integrating advanced manufacturing technologies with an advanced NII, companies can identify, record, and manage a product throughout its life cycle, enhancing the quality, flexibility, and responsiveness of their manufacturing operations, while generating rapid production and product improvements and reducing unusable inventories, waste, rework, and costs. An advanced NII can also create entirely new business opportunities in such areas as services for processing, analyzing, and disseminating manufacturing information. It can create new opportunities for consulting services to assist companies in identifying opportunities to improve or reengineer their business processes and to develop strategic plans for migrating from their existing infrastructure to advanced manufacturing and other information technology applications. Finally, and most dramatically, in combination with other NII applications arenas such as electronic commerce, digital libraries, and education, an advanced NII in manufacturing can greatly affect the overall cost and efficacy of an entire business operation, including financial transactions, market analysis, workforce education and training, and supplier/customer relations. By linking businesses via electronic commerce and banking services, financial settlements can be made in real time with minimal paper work, thereby reducing outstanding balances and financial risks for small businesses. Through real time networks with suppliers and customers, companies can identify trends, respond to problems, survey needs, and quickly prepare for and swiftly react to everchanging market demands. Finally, advanced education and training available via the NII can help workers develop new skills and remain prepared, flexible, and comfortable with information technologies in the face of continuous and rapid technological change. What Is the Public Interest in Promoting the Application? The national impact of a highly advanced manufacturing infrastructure can be enormous in terms of international competitiveness, economic growth, and standard of living. Manufacturing accounts for nearly 20 percent of gross domestic product (GDP) and represents approximately 17 percent of all U.S. employment. It is the foundation of a diversified, interdependent, vibrant economy, providing a large share of the industry funded R&D and purchasing heavily from the service sector to support its operations. In addition, the service sector, which represents more than 70 percent of the U.S. economy, is increasingly dependent on high quality, low cost, customized goods supplied in a timely manner, and relies on manufacturers for the products it sells as well as the hardware, software, and other technologies it uses to market, support, track, and evaluate its inventories and sales. In the face of shortening technology and product life cycles and increasing technological complexity, the ability to manufacture high quality, competitively priced goods such as microelectronic components, automobile and aircraft parts, and telecommunications devices in the United States is critical to the nation's overall economic competitiveness. As a result, in addition to their own economic value, manufactured products contribute to and often drive technological innovations in downstream products and services, and therefore much of the value added in the economy. The ability to integrate highly sophisticated, nextgeneration components into downstream products and services requires close working relationships among component and end product manufacturers and service suppliers. Historically this synergy has been difficult to achieve between U.S. companies and foreign suppliers. In addition, as information and information exchange become more valuable to economic performance, those countries that develop an effective advanced information infrastructure will gain competitive advantage in global markets. Instead of just chasing low wages, as has been the trend in the recent past, manufacturers increasingly will choose to locate and invest in countries whose infrastructure is able to handle the rapid and efficient control and dissemination of information and the integration of diverse business operations. Consequently, an effective advanced NII in the United States can make the United States the country of choice for manufacturing and manufacturing R&D, with enormous and lasting positive impact on the national economy. Evidence of the Benefits Numerous studies and implementations of advanced manufacturing applications supported by an improved information infrastructure demonstrate the impact the NII can have on manufacturing products and processes. It should be noted that while automation and networking of existing manufacturing processes will bring significant benefits to many U.S. manufacturers, the ability to manufacture differently, that is to integrate traditionally separate manufacturing processes in combination with new management and business practices, will bring the lion's share of benefits. Specific Examples Edward Deming and other quality champions have found that the process of design exerts the most influence over a product's life cycle. For example, approximately 60 percent of a product's cost is fixed early in the process of design and, overall, the design process may fix as much as 90 percent of the total cost of a product. The application of information technologies such as computer-aided design and concurrent engineering techniques, however, can reduce product defects by as much as 80 percent. Other studies support these results. For example, one study found that advanced manufacturing techniques that enable the rapid exchange of information not only increase quality and cut the number of design changes by 50 percent, but also reduce total costs by 30 to 60 percent, development time by 35 to 60 percent, design and product defects by 30 to 80 percent, and scrap work by 58 to 75 percent. An advanced NII will enable manufacturers to take full advantage of the productivity improvement potential of computer-aided design and other information technology and advanced manufacturing technologies [Carver, pp. 14,20].[footnote 2: For more details, see Winner, Robert, "Information Infrastructures for Integrated Enterprises," Institute for Defense Analyses, Volume I, 1991.] Combining significant investments in advanced manufacturing equipment and techniques with intensive education and training programs for its workers, John Deere & Co. has been able to reduce production costs and design time while improving product quality and productivity. "[Acting] as a blueprint for the revival of other manufacturers," Deere has introduced advanced manufacturing methods such as just-in-time inventory control, teamwork, and supplier integration with the results of reducing inventory by 20 percent, cutting design time by 33 percent, and speeding delivery time to twice a week from twice a month. Deere's investments in both technology and workers have led to a dramatic resurgence in its competitive position. Profits that rebounded in 1993 are expected to increase by an additional 35 percent in 1994 [Kelly, p.65]. Thanks to computer-based concurrent engineering and improved communication among design teams which enabled simulation, consistency, and the sharing of data among concurrent work teams, Intel Corp. has been able to reduce the time from design-to-sample in half, even though product complexity doubled. In addition, the company achieved a 95 percent success rate on the first silicon fabrication of new products. As a result of those successes, Intel Corporation, in the face of a dozen Japanese competitors, has retained 95 percent of the flash memory market [Davidow, p. 94]. Faced with heavy competition from Asia that had driven out all other U.S. pager manufacturers, Motorola implemented a concurrent engineering system, completely revising its production strategy. Using soft automation, flexible computer controlled machines, a new modular conveyor system, and a computer-based order entry system, less than 18 months from the program's start order times were reduced from one month to minutes; manufacturing time, from 5 hours to 3 [Manufacturing A La Carte, p. 29-32]. In the Japanese automobile industry, implementation of proprietary concurrent engineering systems enabled Japanese auto makers to decrease time-to-market for new cars by more than 30 percent, helping them to gain considerable market share and to increase pressure on U.S. auto makers [Carver, p. 20 ]. A study of the impact of a common data management, storage, retrieval and exchange service for transferring in a standard digital format all contractor design and manufacturing data among the Air Force and its B2 subcontractors found significant savings. This study, CALS Contractor Integrated Technical Information Service (CITIS): Business Case Feasibility Study, determined that the CITIS would lead to a 50 percent reduction in the number of attendees at meetings between contractors and the Air Force, a 5.4 percent reduction in the total B2 spares dollars, a 23 percent reduction in modification lead time, a 1.8 percent increase in the average availability of aircraft fleet, and a 90 percent reduction in the contractor data submittals. The total estimated cost savings ranged from a minimum of $536 million to a maximum of $894 million, for investments that ranged from $9 million to $30 million. Through the use of just-in-time inventory control and total quality management practices, Harley Davidson reduced manufacturing cycle time for motorcycle frames from 72 days to just 2, while increasing final product quality from 50 percent to 99 percent; Digital Equipment Corporation reduced overall inventory from 16 weeks to 3, while reducing its defect rate from 17 percent to 3 percent; and 3M attained a 70 fold reduction in critical defects, appearance defects, and packaging problems [Davidow, p. 94, (from O'Neil and Bertrand, Developing a Winning JIT Marketing Strategy, 1991)]. Through its use of the ODETTE (Organization of Data Exchange via TeleTransmission in Europe), an electronic communications network, the French automobile manufacturer PSA Peugeot Citron was able to create closer, more efficient ties with its many suppliers and implement "just-in-time," "quick response" inventory control. As a result, Peugeot, "was able to reduce inventories and operating costs, while increasing the quality of its products and customer satisfaction levels. The company went from a monthly order cycle to a multi-day one. It improved inventory turnover by nearly 40 percent, cut the number of nonassembleable cars on the line by 70 percent, and offers customers nearly 30 percent more models to choose from [Teresko, p.36]." PART II: Where Are We Now? Background The information infrastructure has always been a fundamental part of manufacturing in the United States and many companies and government agencies have excelled at information exchange, control, manipulation, and use. As seen above, there are numerous success stories which highlight the fact that U.S. manufacturers have been and remain at the vanguard of the design and implementation of leading edge advanced manufacturing technologies. In addition, U.S. companies maintain strategic advantages relative to their foreign counterparts in a number of key information technologies, including hardware and software and telecommunications equipment. While many U.S. companies are leading the world in R&D and deployment of advanced manufacturing technologies, the overall use of information technologies by manufacturers in the United States, especially small- and medium-sized manufacturers, remains low (see tables below). With some notable exceptions, most U.S. companies are organized to take advantage of stable, mass production markets and have specialized tasks, seeking to minimize expenses, divide and separate work. To increase the speed of design and production and reduce costs, they have developed and implemented automated technologies, such as computer-aided-design (CAD), computer-aided manufacturing (CAM), computer-aided engineering (CAE), and computer-integrated manufacturing (CIM). Their successes in the past have led to the further fragmentation and division of labor and activities and the creation of narrow, focused activities within rigid, hierarchical bureaucracies. The result of these trends is that, for the most part, where information technologies have been developed and applied to manufacturing operations, it has been done with a high degree of sophistication yet with a narrow focus that makes integration of these manufacturing technologies not economically feasible. As a result, while U.S. manufacturers excel in product R&D and innovation and the automation of individual components of the overall manufacturing process, they frequently fare less well in the combination of individual technologies into an integrated manufacturing system, embodying such concepts as concurrent engineering, total quality management, and just-in-time inventory control. Moreover, most U.S. manufacturers have traditionally invested less, and subsequently use less and performed more poorly in commercial product improvement and process improvement relative to their foreign counterparts. For example: In the 1970s and 1980s, fixed capital investment in manufacturing (as a share of manufacturing output) was 1.5 times higher in Japan than in the United States. In developing new products and processes, Japanese firms allocate to tooling and equipment almost double the share of total project costs as the amount spent by American companies. . . . Over three-fifths of U.S. machine tools are 10 or more years old, while more than one-quarter are 20 or more years old. . . . Proportionately, Japan now uses numerically controlled (NC) machine tools at 1.5 times the rate in the United States 27 per thousand manufacturing workers compared with 18 per thousand in the U.S. [Shapira, p. 3]. Adoption and diffusion rates of technology are also a problem in the United States. A recent study by the National Institute of Standards and Technology reports that it takes 55 years for 90 percent of United States manufacturers to adopt a technology, compared with 18 years in Japan [Manufacturing Extension Partnership, p. 10]. In addition, while the use of information technologies for inventory control and tracking are reaching saturation in retail applications, they are far less prevalent in the industrial sector, where, for example, only some 30 percent of products are barcoded [Stevens, p.17]. As seen below, investment, adoption, and diffusion rates are most acute for small- and medium-sized manufacturers, whose rates trail those of larger companies, and dramatically lag foreign competition (see tables below). Table 1. Percent of U.S. Establishments Using Selected New Manufacturing Technologies in 1988 by Size of Establishment (employees) Technology 20-99 100-499 500+ Design and Engineering Automation Technology (CAD/CAE) 29.8 percent 54.4 percent 82.6 percent Flexible Manufacturing Cells or systems 6.5 16.2 35.9 Numerically Controlled/Computer Numerical Controlled machine tools 35.9 50.0 69.8 Local Area Network for technical data 13.1 25.9 58.6 Local Area Network for factory use 11.0 22.9 50.7 Intercompany computer network linking plant to subcontractors, suppliers, or customers 9.7 22.7 41.8 Programmable Controllers 22.5 48.1 77.8 Computers used for control on the factory floor 18.9 41.0 68.0 [Source: Shapira, p. 13.] Table 2. Japan-U.S. Ratio of Advanced Manufacturing Used By Small- and Medium-Sized Enterprises (fewer than 500 employees) and Large Manufacturers (over 500 employees) Advanced Manufacturing Technique SME Large NC/CNC Machine Tools 1.4 1.1 Flexible Manufacturing Cells 4.3 1.9 ComputerAided Design 1.1 0.9 Automated Inspection 2.9 1.5 Handling Robots 4.1 1.4 Automatic Warehouse Equipment 5.8 1.8 Assembly Robots 2.1 1.2 [Source: CTI study, based on data from the Industrial Technology Institute.] Low investment, adoption, and diffusion rates are a concern since it is only through the use of a technology that familiarity with its capabilities occur. Low investment and low diffusion rates mean that businesses which are initially uncomfortable with new technologies remain skeptical of the ability of advanced manufacturing strategies to affect competitiveness. In addition, firms that under-invest in new manufacturing equipment lag not only in their comfort and understanding of information technologies, but consequently in the use of combinations of technologies for modern manufacturing techniques such as continuous flow processing, just-in-time inventory control, and concurrent engineering. This under-investment puts U.S. manufacturers at a competitive disadvantage in world markets. Private Sector Activities Today, the increased pressure to reduce innovation time, the growing technical complexity of products and processes, and the need to be more responsive to external demand for quality, customization, and cost are rapidly shifting the manufacturing paradigm from one that rewards low cost, mass production manufacturing systems to one that rewards small production run, flexible manufacturing systems. This situation is true for small and large firms alike. As a result, companies are seeking ways to break down the walls that have traditionally separated operations within a company as well as the barriers that have inhibited communication with customers, suppliers, partners, and even competitors. To remain competitive, many companies, in particular large companies, are investing heavily in automated manufacturing equipment, process technologies, and networking capabilities. For example, the Boeing Company has invested $5 billion in creating a paperless design and manufacturing infrastructure for its next generation "777" aircraft. Other manufacturers, such as General Motors, Ford, Newport News Shipbuilding, Caterpillar, and Intel have instituted programs to develop or purchase new equipment and technology and integrate them with existing capabilities in order to create a seamless, flexible manufacturing environment. Yet, despite the achievements of these and other of America's premier manufacturers, without the development of an advanced NII capable of transmitting data quickly and efficiently from one application to another inside and outside their operations, most businesses will remain isolated and incapable of integrating their applications interacting with other companies, suppliers, and customers in a timely and cost-effective manner. In an attempt to remedy this situation, U.S. companies and government agencies are beginning to develop, demonstrate, and promote NII-related manufacturing applications and services. These activities take the form of industrial extension services, enterprise integration and electronic commerce applications, and R&D consortia. They include the following: The Manufacturing Extension Partnership The Manufacturing Extension Partnership (MEP), sponsored by the National Institute of Standards and Technology (NIST), is an industrial extension service designed to help U.S. manufacturers modernize manufacturing equipment, redesign processes, and improve relations with suppliers and original equipment manufacturers. The MEP achieves this through regionally based extension centers which provide technical assistance with new management and organizational practices, shop floor design and manufacturing process evaluation, workforce education and training programs, and deployment of appropriate advanced manufacturing technologies and manufacturing best practices. A key component of the MEP is its information infrastructure program, known as LINKS, which electronically connects the MEP's Manufacturing Extension Centers to a vast array of technology resources available throughout the nation (e.g., national labs, private services, universities). The LINKS pilot program, Technologies for Effective Cooperation Network (TECNet), effectively demonstrated the potential value of linkages among the Extension Centers. The next stage is to add services requested by clients and centers and to implement a user friendly front-end allowing transparent access to data repositories resident on the major network systems (e.g., World Wide Web, Gopher, WAIS, etc.). Databases of best practices, firm demographics, and corporate information will be added to the system along with access to manufacturing analysis and workforce assessment tools. Eventually video teleconferencing, on-line training, and the capability to perform electronic commerce with business and product data will be added. Most of these applications will be initially developed, implemented, expanded, and extended through the following projects sponsored by the Technology Reinvestment Project and deployed by the MEP: The Manufacturing Extension Partnership's Technology Network (MEPnet) is an electronic network and communication system intended to expand and enhance the TECNet pilot. It will start by linking the NIST Manufacturing Technology Centers (MTC) and Manufacturing Outreach Center (MOC) to each other, providing access to federal technology resources and the ability to communicate directly with clients. Eventually it will provide a forum for direct communications among small- and medium-sized manufacturers. Employing the capabilities of the Microelectronics and Computer Technology Corporation (MCC) Enterprise Integration Network (EInet), MEPnet will provide a set of online services, including directories, design and analysis tools, databases, and search mechanisms for the secure, easy, and timely exchange of manufacturing information in such areas as process analysis, benchmarking, quality assessment, and best practices. This scalable prototype will connect MTCs, MOCs, 2 National Laboratories, Department of Defense Centers, and can be extended to a potential user base of 370,000 small- and medium-sized manufacturers. Manufacturers' EnterCorp (MEC) will provide a practical, comprehensive, integrated, electronically linked service for manufacturers to quickly pinpoint specific needs and match them with the best network resources to fill them. MEC is a consortium of midwestern manufacturers that, in cooperation with Sprint, will use an enhanced version of EInet to enable smaller companies to share resources in the areas of product realization, design, prototyping, analysis and testing, production, and training. The initial market for MEC services is the 5,000 small- and medium-sized manufacturers in Missouri, Kansas, and Colorado. Partners in the organization include Allied Signal; Colorado State University; Day and Zimmermann, Inc.; DeMaTec Foundation, Inc.; Kansas Manufacturers Association; Kansas State University; MidAmerica Manufacturing Technology Center; Kansas Technology Enterprise Corp.; Metropolitan Community Colleges; Pittsburg State University; Sprint; and the University of Missouri. TEXAS-ONE, created by the Texas Department of Commerce, is intended to help small Texas manufacturers become comfortable with electronic commerce by providing an electronic network that is easy to access, affordable, and contains applications that are targeted at the small manufacturer's needs. Core participants include the Texas Department of Commerce; the Texas Department of Information Resources; the Texas Innovation Network System; Texas Marketplace; the Institute for Manufacturing and Materials Management at the University of Texas, El Paso; and the Microelectronics and Computer Technology Corporation (MCC). Initial applications include Borderbase, and on-line information systems providing demographic, socioeconomic, market, and customs data in support of U.S./Mexico commerce; Texas Market Place, a statewide electronic bulletin board service to promote buyer/seller exchanges; and the Texas Assessment Center, which provides information on hardware and software products as well as access to State information resources. CommerceNet is an open, Internet-based infrastructure to support the exchange of electronic data conceived of and operated by a consortium of Silicon Valley's major electronics manufacturers, software developers, and information service providers. Created under the auspices of Smart Valley, Inc. -- a consortium which includes Hewlett Packard, Intel, Sun Microsystems, Apple, National Semiconductor, and Texas Instruments -- CommerceNet will enable companies to revolutionize the way they design, manufacture, sell, and support their products by making interactions with customers, suppliers, and partners efficient, high quality, flexible, and responsive. Demonstration of the power and effectiveness of CommerceNet will attract hundreds and eventually thousands of small- and medium-sized companies, creating an integrated marketplace for the design, production, sales, and support of semiconductors, electronics, computers, and software capable of meeting the demands of 21st century manufacturing. National Industrial Information Infrastructure Protocols The National Industrial Information Infrastructure Protocols (NIIIP) Consortium, led by IBM and including participants from the software industry, private and public research organizations, universities, and defense and commercial products companies, is developing a series of computerbased protocols to enable the widespread deployment and use of virtual enterprises within America's industrial community. Sponsored in part by the Technology Reinvestment Project (TRP), the NIIIP will provide the software architecture, tools, and mechanisms to allow diverse organizations to work together as a virtual enterprise toward common goals by means of computer technology. The NIIIP will demonstrate several Challenge Problems through pilot projects which show the value of concurrent product and process design, project control, and distributed manufacturing. The NIIIP will consolidate, rationalize, and integrate a set of standards upon which applications will be built and virtual enterprises will be formed. The approach is to converge commercial off-the-shelf standards and tools, take advantage of the skills and experience of Consortium members (the leading practitioners of each of the relevant technologies), and develop an easily-accessible and secure "plug and play" environment that embraces both new and legacy applications and offers a powerful solution for the virtual enterprise. Rapid Response Manufacturing Four large U.S. manufacturers -- General Motors Corporation, Ford Motor Company, Texas Instruments, and United Technologies -- have joined forces with the U.S. Departments of Commerce and Energy to create a consortium to improve the process of rapid response manufacturing (RRM). The ultimate goal of the consortium is to reduce the time it takes an enterprise to design and manufacture products and get them to market. The RRM Consortium intends to enhance and adopt key technologies to enable the use of advanced, highly integrated systems for manufacturing. RRM consortium participants work to create computer-based tools to better assure an accurate first part, achieve one-pass product designs by developing intelligent software systems to analyze and choose optimum designs, and provide simultaneous consideration of manufacturing process constraints in the generation of initial designs. Included in the project is the development of a core architecture that will permit the "plugging in" of a variety of focused engineering tools, thereby enabling companies to use numerous suppliers as well as develop additional "next-generation" tools. The American Textile Partnership The American Textile (AMTEX) Partnership, initiated in mid-1992, is a collaboration of 30 fiber, textile, apparel, and retail companies working in conjunction with the U.S. Department of Energy National Laboratories to provide assistance to the U.S. soft goods industry. The AMTEX Partnership features long range, strategic R&D planning, technology transfer from the public to the private sectors, and an operational framework through which potential projects can be successfully implemented and directed. In January 1994, AMTEX announced a $20 million project -- Demand Activated Manufacturing Architecture (DAMA)|mdash|designed to develop a computer-based communications, analysis, and simulation architecture to link the entire textile supply chain to an electronic marketplace. This project is expected to reduce an estimated $25 billion a year loss due to stockouts, inventory, and distressed pricing that result from communication inefficiencies within the textile industry. Center For Electronic Commerce Combining a focus on small firm assistance and manufacturing information management, the Industrial Technology Institute (ITI) has developed the Center for Electronic Commerce (CEC). The CEC serves as a bridge between government and industry for electronic commerce, supporting the development and broad deployment of electronic commerce within industries through a program of pilots, demonstrations, training and outreach. The CEC works with industry groups (both large customers and their smaller suppliers) to work out the technical and business aspects of effective communication and information sharing and also acts as a hub for sharing information on electronic commerce with other outreach centers across the United States.|en|Examples of CEC pilots include a cooperative project with the Automotive Industries Action Group (AIAG) to develop new ways to manage order release and scheduling of automotive components and a project with the Michigan office furniture industry, a $25 billion industry, to shorten product order-to-delivery time to 5 days. The National Initiative for Product Data Exchange (NIPDE) The National Initiative for Product Data Exchange (NIPDE) is an industry-led, government-facilitated partnership that includes companies, corporate consortia, standards organizations and government agencies. Experts detailed to NIPDE from participant organizations are located together at one site to work for a fixed period of time on a standards development plan for digital information agreed to by senior executives from both industry and government. A primary focus of NIPDE has been the coordinated development and deployment of the Standard for the Exchange of Product Model Data (STEP). NIPDE has identified and catalogued over 400 on-going product data exchange projects accounting for approximately $50-$70 million of annual corporate and government expenditures. NIPDE's "Roadmap" methodology enables companies to evaluate product data exchange strategies, establish plans for their implementation, and monitor how well they help achieve specific business goals. NIPDE's 11 Capability Action Plans (CAPS) coordinate and optimize members' efforts to get early, usable pilot demonstrations of product data exchange capabilities into manufacturing operations. The NIPDE "Master Plan" milestones and schedules help participants review, coordinate, and maximize their own product data exchange efforts. The Department of Commerce hosts NIPDE at NIST's Gaithersburg headquarters. PDES, Inc. PDES, Inc., is a 26-member joint industry/government consortium focused on accelerating the development and implementation of the emerging international Standard for the Exchange of Product Model Data (STEP). PDES, Inc. is making substantial progress in influencing and accelerating STEP's development and implementation. Within PDES, Inc., the Development Group focuses on mechanical and electrical/electronics applications and STEP support activities while the Deployment Group conducts pilot projects and develops migration strategies to help members implement STEP in their enterprises. Pilot projects currently underway include AEROSTEP, a project supporting intercompany exchange of product definition data during the development of commercial aircraft design; the Advanced Weapons System pilot project, a demonstration of STEP in an advanced weapons system development environment; and the PreAmp Program, designed to develop precompetitive generic technology using STEP to improve concurrent engineering for the U.S. electronics industry. The Continuous Acquisition and Life-Cycle Support Initiative The Continuous Acquisition and Life-Cycle Support (CALS) Initiative is an industry and government strategy to enable more effective generation, exchange, management, and use of digital data supporting the life cycle of a product through the use of international standards, business process change, and advanced technology application. The CALS initiative was started in September 1985 by the U.S. Department of Defense with the goal of enabling the integration of enterprises on a worldwide basis through the development, implementation, and integration of digital information standards for product design, manufacture, and support. The vision is for all parts of a single enterprise to be able to work from a common digital database, in real time, on the design, development, manufacturing, distribution, and servicing of products. The five primary areas of the CALS initiative are: (1) Technology Development and Demonstration: Develop and demonstrate technologies that can support the integration, management, and secure electronic interaction of large volumes of digitized data, (2) Acquisition Process: Implement policy and procedures, program management guidance, and other contractual processes for major system acquisitions, (3) Technology Infrastructure: Address the way industry and government receive, store, and transmit data, (4) Standards: Integrate selected existing international and national standards, and (5) Training and Outreach: Develop an information dissemination process for effective cultural change needed to implement the CALS initiative throughout government and industry. Government R&D Initiatives Within the federal government, there are numerous existing programs explicitly focused on R&D for advanced manufacturing within eight federal agencies, totaling more than $1.3 billion for fiscal 1994. These activities are coordinated by the White House's National Science and Technology Council (NSTC). Within the NSTC, the Civilian Industrial Technology Committee supports advanced manufacturing through its subcommittee on Manufacturing Infrastructure, while the Communications and Information Committee oversees advanced information technology R&D through the High Performance Computing, Communications, and Information Technology (HPCCIT) Subcommittee. In addition to government involvement in many of the projects cited above, following below is a summary of key R&D programs sponsored by the federal government related to manufacturing applications for the NII.[footnote 3: These projects were selected from both the Committee on Applications and Technology and the High Performance Computing, Communications, and Information Technology (HPPCIT) subcommittee's inventories.] The Systems Integration for Manufacturing Applications Program The Systems Integration for Manufacturing Applications (SIMA) Program at the National Institute of Standards and Technology (NIST) addresses the development of a fully integrated set of manufacturing systems using High Performance Computing and Communication (HPCC) technology. Its primary focus is concurrent product and process design and integrated production planning and control. The centerpiece of the program is the creation of an Advanced Manufacturing System and Networking Testbed (AMSANT) which will support R&D in high performance manufacturing systems and will test high performance computer and networking hardware and software. It will serve as a demonstration and test site for use by industrial technology suppliers and users, and it will assist industry in the development and implementation of voluntary standards. In addition, the SIMA program includes a standards-based data exchange effort for computer-integrated manufacturing that will focus on the improvement of data exchange among computer-aided design, process, and manufacturing activities. Applications may include enterprise integration for manufacturing applications, integrated product/process design, simulation and agile manufacturing. Results will be made available to U.S. industry through workshops, training materials, electronic data repositories and pre-commercial prototype systems that can be installed by potential vendors for test and evaluation. Lastly, NIST will distribute Standards Reference Data, technical information, and digital product data designs via digital library technologies. Technologies Enabling Agile Manufacturing To support U.S. industry's efforts to meet the manufacturing challenges of today and tomorrow, the U.S. Department of Energy (DoE) facilities are teaming with industry in the development of Technologies Enabling Agile Manufacturing (TEAM). The TEAM project has a twofold mission: collaboration with industry to define critical technology needs, and direct access to the vast DoE scientific and engineering resources -- people and facilities -- that have created state-of-the-art manufacturing systems. DoE's world-class manufacturing resources will unite with industry to: - Define an integrated set of U.S. manufacturing requirements; - Form project teams to address specific technological needs and opportunities through out the manufacturing life cycle; - Promote awareness of available and potential solutions within both the private and government sectors; - Advance current technologies and collaborate to develop new solutions; - Demonstrate and install enabling technologies that will benefit a broad spectrum of U.S. industries without impeding the competitive process; and - Provide a virtual enterprise of technology centers, accessible to all partners. The TEAM project thrust areas are Production Design and Enterprise Concurrency, Virtual Manufacturing, Manufacturing Planning and Control, Intelligent Closed-Loop Processing, and TEAM Integration. In one project, TEAM will work with the Financial Services Technology Consortium to develop billing and payment systems using the NII for the manufacturing industry. Manufacturing and Design Engineering Program The Manufacturing And Design Engineering (MADE) program of the Advanced Research Program Agency (ARPA) focuses on the development and demonstration of key software elements for Integrated Product/Process Development (IPPD) and agile manufacturing applications for the NII. The primary emphasis is on mechanical parts and electro-mechanical assemblies, where today's automation environment is neither integrated nor flexible compared to electronics design and manufacturing. As a result, the program addresses the following areas: - Development of tools for conceptual design that provide a spreadsheet-like capability for iterative optimization of product and process characteristics. MADE will initially focus on design for assembly and assembly process planning, simulation, and control. - Development and demonstration of tools for interoperability, such as self-describing, reusable, sharable product and process representations. In addition, MADE will demonstrate unambiguous interchange of geometry, dimensions, and tolerances in machine interpretable form, and will develop productivity-enhancing capabilities for capturing and sharing data requiring human interpretation, such as design intent. These activities will provide a foundation for enhancement of emerging product data interchange standards such as STEP. - Demonstration of a scalable capability to share multiple types of distributed information among networked applications that were not explicitly designed for interoperability. MADE will prototype a layer of network integration services using intelligent agents to facilitate interactions among coarse grained objects (encapsulated legacy systems), fine grained objects (such as new MADE tools) and man-in-the-loop applications. Initial services will include brokering of services for engineering analysis and manufacturing processes, limited electronic commerce support, and multi-media interchange of information among engineering and manufacturing applications. Agile Manufacturing Initiative Sponsored by ARPA and the National Science Foundation, the Agile Manufacturing Initiative includes a prototype of an information infrastructure to support distributed concurrent engineering, flexible manufacturing, and electronic commerce in manufacturing applications. The vision of agile manufacturing is to enable "virtual companies" to be formed by linking design and manufacturing operations that are physically distributed among a group of companies. The program has three components: (1) an agile manufacturing network ($10M), which will provide access to design and manufacturing applications over both Internet and commercial networks, (2) agile manufacturing research institutes ($5M), which will work with industry groups in important sectors to develop a deep understanding of the business principles and practices for lean/agile manufacturing, and (3) pilot programs ($13M) to demonstrate use of the technology and business practices to achieve improvements in cycle time, cost, quality, and responsiveness to change. Part III: Where Do We Want to Be? The national vision of an advanced NII that supports manufacturing is one of widely accessible and interoperable communications networks; easy-to-use applications that are capable of running on whatever types of computers are available; a diverse collection of digital libraries, information databases, and services; and trained operators and support people. Achieving this vision will require both short and long term goals. Short Term Goals: A short term goal of the NII is for manufacturers, in particular small- and medium-sized ones, to have sufficient information to make adequate investments in both existing and advanced information technologies for the purpose of modernizing current manufacturing practices as quickly as makes business sense. Continued and expanded investment in automation and networking technologies will enable companies to streamline business and manufacturing processes, making them more efficient, effective, and competitive. [footnote 4: As noted earlier, the use of information technologies and the advanced NII is important to business modernization and competitiveness, but it is not the only important factor. Companies must also make changes in management, corporate culture, organizational design, and other "nontechnical" business factors throughout the entire manufacturing enterprise in order to remain competitive.] Through the use of information technologies, management and shop-floor workers alike increase their familiarity and comfort with information technologies, begin to see the benefit of treating information as a strategic asset, and most importantly, place themselves in position to take advantage of existing NII tools and services to solve real business problems and meet increasingly competitive business challenges. A second and related goal is for manufacturers to use existing NII tools and services in combination with automation and networking technologies to advance their business modernization efforts. NII tools for analysis and simulation, quality assessment, and data management and NII services which enable automated bidding, data conversion, and on-line searches of data bases and directories, enable companies to streamline manufacturing operations and activities. The use of information technologies in combination with NII tools and services, enables manufacturers to better understand their own and other's information requirements and flows and to see the value of an advanced information infrastructure to their business operations. As a result, the risk and uncertainty of additional investments is reduced while the role of information as a strategic asset is further clarified. To realize these short-term goals, initial NII tools and services should support the following manufacturing functions: - Transmission, translation, exchange, and down-loading of electronic design Initial Graphic Exchange Specification, product (STEP), and business transaction data Electronic Data Interchange; - Electronic bidding and proposal, billing and payment processes; - Conversion and translation of data, including legacy (Computer-aided-xxx) data; - Automation of engineering and design change; - Distribution of design and production functions; - Search, identification, location, communication, and coordination of suppliers, customers, partners, and others; and - Advanced planning concepts and implementations. To be effective, initial NII tools and services need to be transparent, easy to use, secure, and cost effective. A sample of initial tools and services is given below: While some tools and services already exist, others will need to be created. Almost all will need to be improved, enhanced, and extended as the advanced NII evolves. In addition, as companies increase investment in information technologies and become more accustomed to NII capabilities, additional, unforeseen tools and services will be needed. An additional short term goal, therefore, is the design, development, testing, implementation, and use of new NII applications for manufacturing. Most applications will be driven by users who will work together and with vendors to define information requirements and to develop, implement, and test them. Table 3. Examples of Initial Tools and Services Tools/Services process analysis tools/access to government services data storage, management, retrieval, and tracking tools/access to government procurement information electronic mail/forums and bulletin boards design tools/best practices databases quality assessment tools/data conversion services online search tools/online training and outreach modeling and simulation tools/electronic bidding networks and services software toolkits and libraries/teleconferencing services benchmarking tools/directories (white and yellow pages) management and organizational design tools/parts catalogues planning tools/referral services Whether in small or large companies, the adoption and deployment of manufacturing technologies and the use of NII applications will be incremental. A fourth short term goal is to hasten this process, encouraging companies to adopt technologies and use the NII faster than has been supported by the free market in the past. At the same time, it is imperative that companies think strategically about their investments in infrastructure technologies, tools, and services, and make all investments in the context of a long-term business strategy that places emphasis on the role of the information management and use in future economic competitiveness. Demonstration and testing of advanced manufacturing techniques such as enterprise integration and "agile" manufacturing will help companies see the benefits of the seamless exchange and use of information throughout an enterprise while providing a model for manufacturers to build toward. It will also encourage all investment to be made in the context of a long term business strategy, so as to avoid "islands of automation" or stove-pipe situations. As a result, to ensure the goal of hastened yet strategic investment in information technologies and NII tools and services, U.S. manufacturers, information technology vendors, and the federal government must encourage the development and implementation of advanced manufacturing pilot projects and testbeds. Long Term Goals Enabling U.S. manufacturers to compete and win in world markets is the ultimate goal of developing and implementing advanced NII applications in manufacturing. There are a number of technical and non-technical issues that need to be addressed for the vision of an advanced NII in manufacturing to become a reality. An essential goal is the establishment of standards for product and business data, network interfaces, and business and engineering practices. While product and process technological innovation is important to economic success, standards are essential. Without standards, effective and efficient cooperation and collaboration cannot occur. Indeed, "in an automated environment, concurrent engineering is impossible without standards [Carver, p. 3]." The same can be said for agile and virtual manufacturing as well as electronic business and financial transactions. Standards enable rapid communication and iterative decision-making. While protection of intellectual property and proprietary interests are critical to increase competition and innovation, they sometimes can provide unnecessary barriers to market competition. For example, some proprietary data formats, incompatible hardware peripherals and reporting requirements, and rigid supply and distribution networks inhibit rather than enhance collaborative activities and restrict rather than improve the speed, accuracy, and flexibility of supplier and consumer transactions. In addition, standards lower the barriers to entry by small- and medium-sized firms, frequently shut out of established markets by entrenched trading partners. Lastly, they reduce the risk of investing in complex products and systems, enabling accelerated market penetration and diffusion of new product and process technologies. For all these reasons, the establishment of international standards for data formats, network interoperability, and business and engineering practices is vital to the long term success of an advanced NII. Just as the private sector has the major responsibility for building the NII, it is the private sector which must play a vital role in standards development and implementation. The federal government can and should aggressively promote action on standards by the private sector and assist in their development and use. Other critical long-term goals include developing the ability to: - Understand how information is absorbed, sorted, accessed, and used; - Scale prototype systems; - Ensure data security and integrity, and maintain intellectual property rights; - Verify (certify) conformance to and compliance with NII standards; - Use benchmarking and other metrics to assess competitive position and evaluate alternative services and suppliers; - Provide adequate education, training, and outreach to overcome social, managerial, and economic barriers (including financial impact and business justification) to use of the NII; and - Maintain long-term research and development and commitment to advanced manufacturing technologies, through support of the Manufacturing Infrastructure subcommittee of the NSTC's Civilian Industrial Technology Committee, the High Performance Computing, Communications and Information Technology Subcommittee of the NSTC's Computer and Information Committee, and other strategic R&D programs. Part IV: How Are We Going to Get There? For the NIl to succeed, the private sector must own and operate it; develop, design, and implement its applications; and make the vast majority of investments. There are several significant barriers, some technical, some cultural, and some financial, to achieving the NII vision. For example, most of the 370,000 small- and medium-sized manufacturers in the United States, who compose nearly 98 percent of all manufacturing firms, have neither the expertise, time, nor resources to modernize their manufacturing processes without some assistance. Moreover, small and large firms alike are inhibited by the difficulty they find identifying and understanding technology trends, generating adequate investment decisionmaking and strategic planning models, implementing new technologies and migrating from old (legacy) systems, and, most importantly, developing a comprehensive business case capable of tying all these factors together. Inexperience with computers and other information technologies and the perceived threat of advanced manufacturing applications on traditional ways of performing work present additional barriers to achieving the NII vision in manufacturing. Accordingly, user acceptance of, and comfort and familiarity with information technology and its opportunities for improving manufacturing competitiveness and economic performance are necessary to developing meaningful advanced manufacturing NII capabilities. Moreover, manufacturers must increase education and training efforts to ensure that workers and managers are comfortable with and ready to use the NII. The federal role is to help the private sector get beyond these and other barriers to making the advanced NII a reality. The federal government must provide an environment in which the private sector can take the lead, seeking to remedy market failures such as low investment or adoption of information technologies, standards, or R&D where necessary. To make the NII vision in manufacturing a reality and to meet both short and long term goals, the following issues need to be addressed and answered through private and public actions: Issues and Questions to be Addressed - The continued modernization of manufacturing processes, in particular through incremental investment by small- and medium-sized manufacturers in appropriate manufacturing technologies, is fundamental to building a strong, competitive, sustainable industrial base in the United States. Early in dications show that programs such as the Manufacturing Extension Partnership (MEP) and other state and local efforts are successful at helping manufacturers make investments and adopt appropriate manufacturing technologies, including communications equipment and computer hardware and software applications for the NII. Should the federal government, building on the successes of the MEP, broaden the scope and reach of the MEP, turning it into a national program capable of assisting small- and medium-sized manufacturers throughout the United States in their preparation for the use of the NII for manufacturing? - In the new manufacturing paradigm, the factors that determine competitiveness -- flexibility, responsiveness, time-to-market, cost, and quality|mdash|all depend on the efficient manipulation, control, management, and use of information. For this reason, information is a company's key strategic asset. While many companies want to modernize their equipment and processes, they often find difficulty in procuring, installing, and configuring new equipment to work with old equipment and in thinking about short-term investments in new equipment and capabilities in the context of a long-term, enterprise-wide investment strategy. To facilitate the investment process, should the federal government increase the scope of the MEP to assist small- and medium-sized companies with their long-term strategic planning and investment decision-making activities? - Standards for product data exchange, electronic commerce, and interoperabiltiy are essential to the development and use of the NII in manufacturing. Currently, however, there are no generally accepted methodology or data format standards to allow easy exchange of data (both engineering and business) between U.S. companies within the same industry or across industries. In addition, information technology advances for manufacturing systems occur at very frequent intervals and there is concern that the standards development process as it is today cannot keep pace with the needs of the manufacturing industry. The federal government can accelerate the standards development and acceptance process by providing strong technical support for standards development and by demonstrating the soundness of technical ideas through rapid prototyping, demonstration of feasibility, and other implementation and validation activities. In which areas are the development and demonstration of the technical underpinnings of manufacturing-related standards for the NII most needed? Does continued federal investment in product data standards (STEP), electronic commerce standards (EDI), and interoperabiltiy standards (OSE) make sense? Is there a need for an overarching standards frame work that ensures that manufacturing applications for the NII are compatible? - The Committee on Civilian Industrial Technology (CIT) of the National Science and Technology Council (NSTC) has identified several areas as critical to the manufacturing infrastructure. These areas include: Agile Manufacturing, Manufacturing Systems Integration, Manufacturing Technology Deployment, Intelligent Sensors and Controls, and Rapid Prototyping. In addition, the Committee on Information and Communications (CIC) of the NSTC oversees R&D for the Information Infrastructure more broadly. What are the specific technical requirements that industry needs to develop, implement, and use manufacturing applications for the NII? Which areas of R&D will stimulate most rapidly the development and use of applications for the NII in manufacturing? What are the best candidates for federally sponsored demonstration projects and test beds? Which federal agency or agencies should coordinate and lead the effort to build and test manufacturing applications for the NII? - While the federal government performs a great deal of R&D and provides demonstrations and test beds, it is the private sector that turns the results of both public and private R&D into commercial products and processes. In the capital intensive, preproduction, latter stages of R&D, however, capital markets often find it difficult to properly assess the risk-return ratio (i.e., expected value) of further investment in product or process development and therefore often do not provide resources to test the commercial viability of high risk products and processes. To what extent is this a problem in manufacturing? Is there a government role in helping capital providers to accurately determine the risk-return ratio of investment in the latter stages of high risk product and processes development? - In the information age, a highly skilled, flexible, retrainable workforce is essential to economic competitiveness. The NII can be used to provide just-in-time, remote, tailored, multi-media education and training applications. (See, for example, "A Transformation of Learning: Use of the National Information Infrastructure for Education and Lifelong Learning"). The dynamic nature of the manufacturing sector necessitates the existence of adequate mechanisms for the identification of current and future trends and needs of U.S manufacturers, assessment of the skills required to perform new tasks and use new manufacturing equipment, and development and delivery of focussed education and training programs directly to workers on the shop floor in a timely and effective manner. To what extent should the federal government play a role in developing mechanisms for the education and training of the U.S. workforce to meet manufacturing needs? Should the federal government guarantee that all U.S. manufacturers, regardless of size, have access to adequate education and training resources? Which federal agency or agencies should be responsible for these activities? - For manufacturers to use the NII they must be assured that their transactions will be secure, timely, verifiable, and unaltered. To what extent is the safety, reliability, security, and maintenance of the NII a federal responsibility? References "Advanced Manufacturing Technology," Committee on Manufacturing Science, Engineering, and Technology, Federal Coordinating Council for Science, Engineering, and Technology, Office of Science and Technology Policy, August, 1993. "Basic Technologies for Industry," Ministry of International Trade and Industry, Japan, 1988. 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Last Updated: May 3, 1994 _________________________________________________________________________ Electronic Commerce and the NII DRAFT FOR PUBLIC COMMENT "Electronic Commerce integrates communications, data management, and security services, to allow business applications within different organizations to automatically interchange information. Communications services transfer the information from the originator to the recipient. Data management services define the interchange format of the information. Security services authenticate the source of information, verify the integrity of the information received by the recipient, prevent disclosure of the information to unauthorized users, and verify that the information was received by the in tended recipient." Source: Information Infrastructure Technology and Applications (IITA) Task Group, National Coordination Office for High Performance Computing and Communications, February 1994, pp. 13-4 PART I: What Is the Application Arena? Description of Electronic Commerce The telephone, fax, and electronic mail have provided faster, cheaper, and more reliable communication of business data within and between commercial entities. Great distances and multiple time zones are no longer barriers to business communications; the challenge now is how to respond to and use an ever-increasing flood of data from diverse sources in a timely and effective manner. The stakes are high: vital information from the office next door or the other side of the world may be lost or unnecessarily delayed in the flood. Many businesses are coping with the data flood by shifting much of their routine data processing and business transactions to automated, electronic information systems. However, differences in information systems require that trading partners frequently translate from one system to another manually, greatly reducing both the speed and the reliability of information exchange. In addition, while standards for Electronic Data Interchange (EDI) enable fast, accurate exchange of routine, relatively simple business transactions between different automated information systems, EDI requires rigid agreements about the structure and meaning of data. These agreements are often expensive, inflexible, and difficult to maintain, especially in a rapidly changing business environment. Electronic Commerce is the evolution of EDI into other types of data and transactions. An advanced national Electronic Commerce capability will be comprised of interconnected communications networks; advanced computer hardware and software tools and services; established business transaction, data exchange, and interoperability standards; accepted security and privacy provisions; and suitable managerial and cultural practices. This infrastructure will enable diverse and distributed companies throughout the nation to rapidly, flexibly, and securely exchange and, more importantly, use information to drive their business processes. As a result, people -- who are needed to creatively solve complex business problems -- can be taken out of the loop of routine data processing. An advanced NII for Electronic Commerce can support activities such as the following: - Electronic funds transfer -- extending and completing the procurement process by providing buyers the ability to rapidly and cost-effectively make their payments to sellers and shippers with less financial risk and fewer errors, while reducing paper handling and storage. - Government regulatory data interchanges -- collecting formatted data from (and returning data to) various communities to enable the government to carry out its mandated responsibilities: e.g., organizations that transport hazardous materials, corporations and banking institutions that submit financial reports, and State public health officials who report health statistics and epidemiologic incidents. - Collaborative engineering -- providing for early evaluation of engineering designs to ensure manufacturability, reliability, maintainability, and other "-ilities." This may involve massive amounts of highly complex engineering data, as well as extensive, non-routine interactions among people. - Enterprise integration -- extending integration throughout a company and into other trading partners. Business Process Reengineering is needed to identify business processes which can be improved (or eliminated entirely) by improving communication within a company or by outsourcing to other companies. The result is the Virtual Enterprise, which provides vertical integration of companies with their suppliers as well as horizontal integration of segments of a company. - Computer-supported collaborative work -- expanding collaborative activities from engineering into many other business activities, such as supporting joint development of requirements, maintenance documents, etc., within or across companies (e.g., just-in-time inventory control). The intent is to remove the barriers (time, space, information complexity, etc.) that inhibit creative interactions among people. Electronic Commerce can combine the advantages of computers (speed, reliability, high volumes of data) with the advantages of people (creativity, flexibility, adaptability). Electronic Commerce can enable people to review, analyze, add value, and sell a wide variety of products that are represented electronically, such as reference material, textbooks and training materials, entertainment, and software. Electronic Commerce is not limited only to business transactions -- it also applies to exchanges of ideas and opinions, as well as the amassing and sorting of information. The successful extension of Electronic Commerce into these more complex (and rewarding) areas is dependent on the integration of communications, data management, and security services into a ubiquitous, user-friendly, easily accessible national electronic marketplace that encourages and enables the seamless exchange of information for social and business transactions -- for all companies. [footnote 1: Electronic Commerce will affect all types of business transactions and personal activities. As a result, Electronic Commerce applications are described to some extent in each of the applications strategies white papers. For a detailed discussion of the potential influence of Electronic Commerce on the manufacturing industry, see the white paper: Manufacturing and the NII.] In sum, Electronic Commerce differs from traditional commerce primarily in the way information is exchanged and processed. Traditionally, information has been exchanged through direct, personal contact or through the use of the phone or postal systems. In Electronic Commerce, information is conveyed via a digital communications network, computer system, or some other electronic media. In addition, the information accompanying a typical traditional business transaction is usually acted upon by individuals involved in the transaction, whereas with Electronic Commerce much of the transaction is automated. At a minimum, Electronic Commerce increases the speed, accuracy, and efficiency of business and personal transactions. What Are the Benefits of Electronic Commerce Applications in the NII? An advanced NII that supports Electronic Commerce applications will provide benefits in a number of areas: - Reduced costs to buyers from increased competition in procurement as more suppliers are able to compete in an electronically open marketplace; - Reduced errors, time, and overhead costs in information processing by eliminating requirements for re-entering data; - Reduced costs to suppliers by electronically accessing on-line databases of bid opportunities, on-line abilities to submit bids, and on-line review of awards; - Reduced time to complete business transactions, particularly reduced time from delivery to payment; - Creation of new markets through the ability to easily and cheaply reach potential customers; - Easier entry into new markets, especially geographically remote markets, as the playing field becomes more level between companies of different size and locations; - Better quality of goods as specifications are standardized and competition increases, and better variety of goods through expanded markets and the ability to produce customized goods; - Faster time to market as business processes are linked enabling virtual elimination of time delays between steps and the engineering of each subprocess within the whole process for seemingly seamless processing; - Optimization of resource selection as businesses quickly form cooperative teams to better tailor capabilities to work opportunities to increase chances of success, to share economic successes more broadly, and to give the customer a mix of capabilities more exactly meeting his requirements. Teaming may happen at either the company or individual level, creating a just-in-time "virtual" resource for delivery of the right human and business resources for a job. In addition, the workforce can be better utilized by freeing skilled labor from routine activities enabling them to focus instead on customer service and more complex duties; - Reduced inventories and a related reduction of risk of obsolete inventories as the demand for goods and services are electronically linked through just-in-time inventory and integrated manufacturing techniques; - Ability to undertake major national programs such as national health care where the cost and personnel needed to manage a manual or disjoint automated system could be prohibitive or unreasonable; - Reduced overhead costs through uniformity, automation, and large-scale integration of management processes which enable flatter, wider, more efficient processes; and - Reduced use of ecologically damaging materials through electronic coordination of activities and the movement of information rather than physical objects. What is the Public Interest in Promoting the Application? Productivity increases are essential to the long-term economic viability of the U.S. economy. Increases in productivity enable companies to create, provide, and maintain goods and services using less resources. As a result, profits rise, additional resources are freed to be invested in the sources of future economic growth and even greater productivity, and, rounding out the virtuous circle, companies continue to grow and profit. The ultimate beneficiary, of course, is the U.S. worker whose economic security is strengthened and whose standard of living continues to rise. Since the early 1980's U.S. companies have been pumping money into information technologies as one way to boost productivity. However, despite investments of over $1 trillion during this period, the resulting economic benefits have been disappointing: overall U.S. productivity grew at an annual rate of only 1.0 percent, while during a similar period, Japan's productivity increased 3.0 percent per year, Germany's 1.8 percent per year, and Korea's 5.7 percent per year. [footnote 2: Productivity is measured as the average percent change in real gross domestic product (GDP) per employed person for the period 1975 - 1991. Source: U.S. Department of Labor, Bureau of Labor Statistics. footnote 3: Some economists have concluded that any apparent lack of productivity growth may be due to deficiencies in the way we measure productivity. For an excellent summary of the current literature and a thorough assessment of the "Productivity Paradox," see Brynjolfsson, Erik, "The Productivity Paradox of Information Technology," Communications of the ACM, December 1993. In this study the author argues, "that the shortfall of IT productivity is as much due to deficiencies in our measurement and methodological tool kits as to mismanagement by developers and users of IT." He later concedes, however, that, "although it is too early to conclude that the productivity contribution of IT has been subpar, a paradox remains in the difficulty of unequivocally documenting any contribution, even after so much effort."] Table 1. Annual Growth In Gross Domestic Product per Labor-Hour for Selected Sectors of the U.S. Economy, 1979 - 1989 Industrial Sector Average Annual Growth per Labor Hour (percent per year 1979 - 1989) Manufacturing 3.33 Service Producing 0.84 Government 0.53 Source: U.S. Department of Commerce, Bureau of Economic Analysis, 1991. Survey of Current Business, April, Tables 6.2 and 6.11. An advanced NII which supports Electronic Commerce applications will help U.S. companies increase productivity by enabling rapid business transactions, data and information exchanges, and organizational changes. Through the ability to handle tremendous volumes of transactions and the ability to amass, analyze, and control large quantities of specialized data, organizations will be able to improve efficiency and accuracy, and reduce costs, while providing faster, more reliable, and more convenient services. Most importantly, in combination with changes in management practices, organizational design, corporate culture and other non-technical advancements, U.S. companies can reengineer their business processes, and then use the NII to take greater advantage of the productivity potential of their current and future information technology investments. Electronic Commerce will increase efficiency by improving human access to information, and increasing the need for human judgement based on that information. The immediate effect will be to enhance the dynamics of competition in the U.S. economy. With the ability to perform Electronic Commerce anywhere at anytime, smaller firms will be able to enter and participate at less cost and more efficiently in new markets, and larger firms will be able to evaluate, select, and work with other companies more readily than is possible today. In addition, with an advanced NII in place, new ways of doing business and new forms of economic activities will develop, including telecommuting, worldwide research networks, global sourcing arrangements, large-scale development and sharing of new databases, new training and education capabilities, faster response innovation systems, and disaggregated alliances or networks of companies. As U.S. companies use Electronic Commerce to boost productivity, they will be able to maintain and expand their share of international markets. At present, the United States maintains a large trade surplus in computer software, communications equipment, financial services, and other information-intensive manufacturing and service industries. Catching up in some international markets and expanding market share in others is critical to domestic economic growth, as the export market will be the largest single source of potential value-added to the GDP in the future. In addition to their importance to international trade, communications equipment and computer hardware and software drive the information infrastructure, providing the connectivity, tools, and services that other companies use to produce their products and to ensure a close working relationship among their suppliers, customers, and partners. In the face of shortening technology and product life cycles and increasing technological complexity, the ability to integrate highly sophisticated, next-generation components and associated services into downstream products and services requires close working relationships among component and end-product manufacturers and service suppliers. Historically, this synergy has been difficult to achieve among U.S. companies and their suppliers. An advanced NII will facilitate and encourage these relationships. Finally, as information and information exchange become more valuable to economic performance, those countries that develop an effective advanced information infrastructure will gain competitive advantage in global markets. Instead of just chasing low-wages around the globe, as has been the trend in the recent past, companies increasingly will choose to locate and invest in countries whose infrastructure and highly-skilled workforce are able to handle the rapid and efficient control and dissemination of information and the integration of diverse business operations. Consequently, an effective advanced NII and trained workforce in the United States can make the United States the country of choice for investment, with enormous and lasting positive impact on the national economy. Evidence of the Benefits Many companies in several industries have experienced the benefits and realized the need to use Electronic Commerce to survive. Large companies such as Sears, General Motors (GM), and Wal-Mart have championed electronic trading practices for their suppliers. Indeed, in some industries EDI has become a virtual necessity for doing business. Some examples of the benefits of Electronic Commerce are given below: In the 1980's, Wal-Mart Stores, Inc., experienced explosive growth in sales, rising to number one in the U.S. retail business. Despite its rapid growth, Wal-Mart's investment of half a billion dollars in computer and satellite communications networks, bar code systems, scanners, and other "quick response" equipment linking each point-of-sale terminal to distribution centers and headquarters in Bentonville, Arkansas, enabled the company to maintain high service levels and increase sales while preserving one-fourth the inventory investment. By empowering its individual stores to order directly from suppliers, even overseas, Wal-Mart stores reduced inventory restocking time from an industry average of six weeks to thirty-six hours. Moreover, by tracking every sale to see what was selling and what was not, Wal-Mart stores were better able to keep their stores well-stocked while maintaining tight inventories and low prices [Davidow, pp. 23 - 24]. In building a brand new facility in which to manufacture its Saturn cars, General Motors developed an information infrastructure to enable Saturn and its numerous suppliers to operate as one company. Through the implementation of a production scheduling database and the use of electronic data interchange, Saturn and its suppliers reduced overhead in all organizations, increased cooperation, and broke one of the oldest rules in any corporation's unwritten rule book: treat vendors as adversaries. Located in Spring Hill, Tennessee, the Saturn plant includes an online manufacturing database which is accessible by component suppliers who do not wait for GM to send a purchase order, but simply consult the car maker's production schedule, included in the database. In this process there is no paper -- no purchase order and no invoice. After the parts are shipped, the vendor sends an electronic message to Saturn saying, in effect, "These are the parts we have sent you." When the box of goods arrive, the receiving clerk scans the bar code printed on it with an electronic wand. The computer can then tell the receiving clerk to what part of the plant the goods should go. The scanning also initiates payment to the vendor [Hammer, pp. 90 - 91]. Over the past decade, the banking and financial industries have invested heavily in automation and networking technologies to handle and process electronically an ever-increasing number of financial transactions. For example, the Clearing house for Interbank Payment Systems coordinates daily bank-to-bank transactions worth nearly $2 trillion while the nation's network of more than 75,000 Automated Teller Machines (ATMs) handles more than 6 billion transactions per year. In addition, one analysis of the New York Stock Exchange suggests that electronic trading saves stock buyers and sellers hundreds of millions of dollars annually. Examples of the effect of Electronic Commerce on specific financial institutions abound: Through the use of information technologies, Visa's peak capacity for processing credit card transactions grew from 30,000 per day in 1978 to over 1.4 million per day in 1991, while its response time for authorizations dropped from 5 minutes in 1973 to 1.1 seconds in 1991; through the deployment of an ATM network in 1977 Citibank increased its market share from 4 percent to 13.4 percent; by installing a computer-based network to resolve credit card disputes, Mellon Bank reduced its backlog of customer complaints from 5,200 to 2,200, resolving them in 25 days on average (versus 45 days previously) [National Research Council, pp. 83 - 84 and Davenport, p. 54]. Through the use of just-in-time inventory control and total quality management practices, Harley Davidson reduced manufacturing cycle time for motorcycle frames from 72 days to just 2, while increasing final product quality from 50 percent to 99 percent; Digital Equipment reduced overall inventory from 16 weeks to 3, while reducing its defect rate from 17 percent to 3 percent; and 3M attained a 70-fold reduction in critical defects, appearance defects, and packaging problems [Davidow, p. 94]. The Defense Medical Logistics Standard Support (DMLSS) system has embraced Electronic Commerce concepts of business process redesign and EDI to obtain an estimated $3.2 billion savings over 12 years from an investment of $120 million. Savings come from reduced inventories and the leverage of the civilian health care supply industry to streamline DoD operations. The U.S. Customs Service, one of the leaders in the federal sector for adoption of EDI, today processes 94 percent of all customs declarations electronically and collects 60 percent of all duties electronically. By moving from paper to electronic declarations, Customs reduced error rates from 17 percent to 1.7 percent, a whole order of magnitude. In addition, it saves an estimated $500 million in processing costs each year while increasing annual productivity an estimated 10 percent each year. PART II: Where Are We Now? [footnote 4: Much of this section is excerpted from "Electronic Commerce on the Internet," by Robert Neches, et al.] As seen above, many companies and government agencies use Electronic Commerce applications to facilitate internal operations and interact seamlessly with their trading partners. While a wide variety of transactions occur electronically already, the performance of Electronic Commerce applications usually requires highly structured, previously established arrangements and, for the most part, dedicated lines and/or Value-Added-Networks (VANs). The resulting costs and necessary lead times frequently create barriers to investment in and widespread use of Electronic Commerce applications by small and medium-sized companies, and inhibit the expansion of Electronic Commerce beyond large companies and their major trading partners. Despite these barriers, the electronic market place is forming at a rapid pace. By the end of 1994, more than 10,000 companies will be offering information and services for sale over a combination of Internet and VAN service providers. Their ranks are expected to swell to 100,000 by 1997 and 1 million by 1999. In addition, the Internet is already making some form of Electronic Commerce an economically viable option for many companies. Today, the Internet connects some 10 million users in over 130 countries, and at current growth rates it will link to an additional 15 million users by 1995. While the Internet is useful for electronic mail, bulletin boards, and file transfer, it has a number of limitations that must be overcome before it can be deemed suitable for commerce. Some commonly expressed concerns include reliability, security, scalability, and ease-of-use. These problems could be more easily addressed if the Internet were run as a business enterprise; the enterprise would be accountable to customers from whom it would receive payments for specified services rendered.[footnote 5: Potential solutions to these and other concerns about using the Internet for Electronic Commerce are explored in "Electronic Commerce on the Internet," by Robert Neches, et al. ] Electronic Commerce usually happens as a set of evolutionary implementations. The early implementations focus on the introduction of electronic technologies to add functionality and operational effectiveness (i.e., automate business processes) by connecting computers and applications with electronic tools such as bulletin board systems, groupware, databases, e-mail, electronic directories, imaging, and graphics. The second phase moves beyond automation to complete business process reengineering, where major benefits are realized from the integration of the business processes. Business process reengineering, facilitated by Electronic Commerce, eliminates time and distance constraints, leading to double digit or higher annual returns on investment as well as increasing cycle time by an order of magnitude or better.[footnote 6: For an excellent discussion of the role of information technology in business process reengineering see Davenport, Process Innovation: Reengineering Work Through Information Technology. ] Obtaining Electronic Commerce benefits is more like a journey rather than a destination. With each increase in the efficiency of business processes, new bottlenecks are identified, studied, and overcome yielding a new level of benefits. An improved NII will establish an environment conducive to speeding up this evolution. The computers, networks, standards, interoperability, accessibility, training, and other components of the NII are the raw materials used to build the national Electronic Commerce capability. Once the tools for Electronic Commerce are nationally available and companies are comfortable using them, organizations will be able to concentrate on a re-examination of business processes rather than working to overcome technology barriers. As a result, the realization of the benefits possible through Electronic Commerce will be accelerated by implementation of the NII. Federal Goals From its sheer size, the government's adoption of a redirection in business practices can create a force that can sway business practices throughout the nation. At present, there are numerous pockets of expertise in the federal government. Most importantly, the Administration has made the development and implementation of Electronic Commerce throughout the federal government a top priority, with the President asserting personal leadership in this area by signing an Executive Memorandum outlining federal goals for "Streamlining Procurement Through Electronic Commerce" dated October 26, 1993. That memorandum provides the following milestones: - "by March 1994, define the architecture for the government-wide Electronic Commerce acquisition system and identify executive departments or agencies responsible for developing, implementing, operating, and maintaining the federal electronic system; - "by September 1994, establish an initial Electronic Commerce capability to enable the federal government and private vendors to electronically exchange standardized requests for quotations, quotes, purchase orders, and notices of awards and begin government-wide implementation; - "by July 1995, implement a full-scale federal Electronic Commerce system that expands initial capabilities to include electronic payments, document interchange, and supporting databases; and - "by January 1997, complete government-wide implementation of Electronic Commerce for appropriate federal purchases, to the maximum extent possible." This implementation schedule should be accelerated where practical. By creating and completing an initiative such as the President's Executive Memorandum, the government will signal strong leadership for the country's adoption of Electronic Commerce. In addition, the National Performance Review, conducted by Vice President Al Gore, has proposed to reengineer many current government services and information dissemination processes through the introduction of Electronic Commerce applications.[footnote 7: For more detail on federal initiatives to use Electronic Commerce improve the collection and dissemination of information and the provision of government services see the white paper: Government Service Delivery: Reengineering Through IT.] Many smaller businesses and government agencies, however, are waiting for Electronic Commerce applications to become more prevalent before they make their investments, citing the desire to avoid prohibitive trail-blazing costs that are always incurred by the leaders. Legacy systems and a large installed base provide further barriers to Electronic Commerce. In addition, some organizations, even if large, are at the end of an information chain involving many organizations which have handled the information before it gets to them; the benefits from conversion to electronic data handling may not make sense until that data is delivered in electronic form. Federal Activities The following is a small sample of current activities within the federal government: The Executive Office of the President has established the Federal Electronic Commerce Acquisition Team to define the Electronic Commerce architecture called for in the President's Executive Memorandum. Representatives from over a dozen federal agencies and departments participate on this team, which is co-chaired by the General Services Administration and the Department of Defense. The General Services Administration (GSA), Information Resource Management Services (IRMS), is engaged in several government-wide Electronic Commerce initiatives which should have a major impact on the way the federal government conducts business with the private sector. These activities include: - The support of the President's Electronic Commerce Executive Order by providing procurement, automated data processing, and telecommunications technical support and by serving as co-chair of the Federal Electronic Commerce Acquisition Team. - The redesign and implementation of an automated procurement system which will start with the preparation of a purchase requisition and include the electronic transmission of a purchase order, either using EDI, e-mail, or fax. Once the order is completed the vendor will electronically transmit its invoice, which will be electronically matched with the purchase order and receiving report. The payment to the vendor will then be made through EFT. - The establishment and maintenance of the IRMS Bulletin Board which contains Multiple Awards Contract information is undergoing enhancements to enable federal agencies to directly place purchase orders. - The development and introduction of emerging technologies into the government-wide infrastructure through Master Contracts for products and services, and the development of critical multiagency services. A number of specific initiatives are likely to support Electronic Commerce. These may include service ordering and billing, and X.435 prototype and operational system development, distributed directory services, registration services, and security certification services. The Office of Management and Budget has established an E-Mail Task Force (EMTF), to develop a plan of action for promptly establishing a government infrastructure for interagency e-mail. The plan will support mail-enabled applications such as electronic filings, Electronic Commerce, interactions with state and local governments, and Service to the Citizen. EMTF is currently supporting several e-mail pilot projects to promote government e-mail. Throughout the Department of Commerce, Electronic Commerce applications are being implemented. For example, the Bureau of Export Administration processes export licenses electronically; the Economics and Statistics Administration maintains the Department's Economic Bulletin Board; the National Oceanic and Atmospheric Administration electronically disseminates weather information to local meteorologists and news stations; the Office of the Secretary receives and processes Federal Express invoices using EDI; and the Department transmits time and attendance data to the U.S. Department of Agriculture National Finance Center electronically. Many more initiatives are either underway or planned. Also within the Department of Commerce, the National Institute of Standards and Technology (NIST) has been active in R&D for Electronic Commerce as well as efforts to increase public dialogue on Electronic Commerce and standards issues. NIST assists the private sector with the development of the technical underpinnings for interoperability, and also works to coordinate and facilitate the standards process. NIST has issued Federal Information Processing Standard 161, which assures federal agency adoption of appropriate national and international voluntary standards for use in Electronic Commerce. NIST reports on Electronic Commerce include: "National Public Key Infrastructure Implementation," "The Federal Certificate Authority Liability & Policy," "Good Security Practices for Electronic Commerce, Including Electronic Data Interchange," and "Analyzing Electronic Commerce." NIST's work to establish the Digital Signature Standard (DSS) is critical to the success of Electronic Commerce. Other NIST activities include the establishment of an Electronic Commerce Integration Facility (ECIF), described below: The goals of the ECIF are: (1) to serve as a technology transfer center to assist government and industry in the deployment of Electronic Commerce applications; (2) to demonstrate, through prototypes and pilots, generic open systems implementations of Electronic Commerce applications; (3) to perform, in cooperation with industry, research, development, and testing of Electronic Commerce applications and infrastructure services. These goals should assist in the removal of barriers that are currently preventing the transition from paper-based commerce to Electronic Commerce, and should help to advance technology in order to permit the development of future Electronic Commerce applications. The ECIF is developing a pilot electronic procurement system which will assist agencies in the implementation of the Executive Memorandum on electronic procurement. Other Electronic Commerce applications, such as health care and manufacturing, will be addressed in the future. Prototypes and pilots of infrastructure services, required by Electronic Commerce applications, are also under development. The initial services included are: secure electronic mail, directories, EDI translation and transmission, and Remote Database Access. Other ECIF deliverables will include: (1) guideline documents disseminating the knowledge gained from the facility, (2) liaison services with other government and industry groups involved in Electronic Commerce, and (3) consulting services, which help users in the federal and private sectors deploy Electronic Commerce applications. The Security and Exchange Commission's (SEC's) EDGAR system is designed to automate the receipt, processing, and dissemination of documents filed with the SEC. The purpose of EDGAR is to increase the efficiency and fairness of the securities markets for the benefit of investors, corporations, and the economy by accelerating the processing, dissemination, and analysis of time-sensitive corporate information filed with the SEC. Under the fully implemented EDGAR system, millions of pages of information currently submitted to the SEC on paper will be transmitted and stored electronically using electronic communication and data management systems. Currently, 3,400 of the approximately 15,000 U.S. corporations with filing obligations are using the system to submit 309 different filing types. Once the electronic filing is accepted, public information is immediately disseminated and becomes available quickly to investors, the media, and others on computer screens via the SEC's public reference rooms and through electronic subscription services provided by information resellers. EDGAR makes disclosure in formation readily available on both a document retrieval and a text search basis to all of the SEC operating divisions and offices. The Department of Veterans Affairs (VA) is using EDI as a business reengineering tool to improve relationships with third parties regarding benefits delivery, seeking to improve the quality and reduce the costs of doing business. VA has recently completed a Business Case Analysis that outlines savings of approximately $500 million over a five year period by replacing approximately 15 commonly used business documents, including purchase orders, invoices, health care claims and others with their electronic equivalents. VA is currently developing an implementation plan for Electronic Commerce applications. The Department of Defense Continuous Acquisition and Life-Cycle Support (CALS) Initiative is an industry and government strategy to enable more effective generation, exchange, management, and use of digital data supporting the life cycle of a product through the use of international standards, business process change, and advanced technology application. The CALS initiative was started in September 1985 by the U.S. Department of Defense with the goal of enabling the integration of enterprises on a worldwide basis through the development, implementation, and integration of digital information standards for product design, manufacture, and support. The vision is for all parts of a single enterprise to be able to work from a common digital database, in real-time, on the design, development, manufacturing, distribution, and servicing of products. The Tennessee Valley Authority (TVA) is modernizing business processes to allow TVA to compete more effectively in today's global economy. A critical tool in this modernization process is the NII. TVA is streamlining its procurement processes to use electronic data interchange to solicit bids, develop contracts, and to deliver and receive products. As a result of this initiative, TVA has developed electronic data interchange relationships with 56 preferred suppliers. Of the 56 suppliers, 19 are small, minority, or woman-owned businesses. The U.S. Postal Service (USPS) has instituted a Postal Electronic Commerce Services project at the request of the Department of Defense to provide trusted third-party value-added services for Electronic Commerce transactions. The services consist of a registration authority service for individuals to obtain a public-key certificate to sign electronic transactions, a time/date stamp service to prove existence of an electronic record and to seal it to prevent undetectable alteration and a directory service for identification and location of Electronic Commerce trading parties. The services, developed jointly with NASA, will be tested with the Federal Aviation Administration and the Internal Revenue Service. A decision will then be made by the USPS concerning making the services generally available throughout government. The USPS is also working with other federal agencies, most noticeably the Social Security Administration, the Internal Revenue Service, and the Department of Veterans Affairs, to establish a generic government-wide Service to the Citizen kiosk program. The program will provide an economy of scale and a "one stop shopping" kiosk program for the public. The kiosk program material will migrate to interactive TV delivery of the government information services at such time as the NII supports secure home interactive TV services. The Internal Revenue Service, which introduced an Electronic Filing System on a limited basis in 1986, received over 13 million individual returns from over 75,000 filers last year, a number that is expected to grow to 80 million returns within the next 10 years. Over the past few years the system has expanded to include certain business forms and balance due returns. In 1991 a Federal/State cooperative program was started that has grown to include more than 25 states. In 1992 a 1040EZ file-from-home pilot (TeleFile) was introduced via touch-tone phone. The current system uses a proprietary input format but a pilot is scheduled to accept American National Standards Institute/American Standards Committee X12 (ANSI/ASC X12) EDI input in the near future. Private Sector Activities Many private sector organizations are developing and implementing Electronic Commerce applications for the NII; indeed, the Gartner Group has made a strategic planning assumption that by 1997 there is an 80 percent probability that electronic messaging will become more important for Electronic Commerce than EDI [Gartner Group ECS Research Notes, February 14, 1994]. Evidence of this movement is that the Electronic Messaging Association, the national U.S. e-mail association, has created an Electronic Commerce Committee to promote adoption of Electronic Commerce throughout the U.S. and internationally. National voluntary standards organizations working in electronic data interchange, in bar coding, and in electronic exchange of product modeling and specification data, are providing necessary components for the infrastructure. Below is a brief list of examples of current private sector activities: CommerceNet CommerceNet is an $8 million project designed to help Silicon Valley businesses make commercial use of the NII. Half of the funds for CommerceNet will be provided by a federal "Technology Reinvestment Program" (TRP) grant. Matching funds will be provided by the State of California and participating companies. CommerceNet's goal is to make public computer networks, such as the Internet, "industrial strength" for business use. CommerceNet will address issues including low-cost, high-speed Internet access using newly deployed technology such as Integrated Services Digital Network (ISDN) services and multimedia software. CommerceNet will support a range of commercial network applications such as on-line catalogs, product data exchange, and engineering collaboration. It will also offer outreach services such as technical assistance to small- and medium-size businesses that want to access public networks. The CommerceNet consortium is sponsored by Smart Valley, Inc., and the State of California's Trade and Commerce Agency. Enterprise Integration Technologies, a local high-tech company specializing in Electronic Commerce, will lead the effort. Enterprise Integration Network (EINet) The Microelectronics & Computer Technology Corporation (MCC) is an industry consortium of more than 80 leading companies in the microelectronics and computer industry committed to the joint development of pre-competitive technologies. MCC has developed the Electronic Integration Network (EINet) which dramatically reduces the time and costs involved in getting products and services to market using Electronic Commerce technologies. EINet allows the wide-spread, secure exchange of information and services in order to increase and enhance business activity across networks. With EINet, businesses and organizations are able to interconnect with partners, suppliers, and customers. Four initial services|mdash|directory, security, remittance, and advanced e-mail -- have been developed based on industry priorities. The Advanced Research Projects Agency, the National Institute of Standards and Technology, Electric Power Research Institute, Sematech, and the National Center for Manufacturing Sciences, among others, are participating in the EINet program. Pilots are being planned in the manufacturing, health care, and general commerce arenas. Geographically based initiatives are also developing in Albuquerque, Austin, Omaha, and Rochester. These initiatives are aimed at increasing the economic viability of a specific region. Electronic Manifest Bar Code (EMBARC) The publishing industry has been using EDI since 1985 and has grown its Electronic Commerce uses through an evolution of progressive changes that started with financial or operational justification and that have evolved into strategic service differences. The publishing industry has developed a proprietary set of EDI transactions and bar codes called Electronic Manifest Bar Code (EMBARC) which it uses to used to track and control paper shipments. This standard is expected to migrate to X12 EDI standards in the near future. As an example of the benefits of EMBARC, Judd's, a Virginia printer, has used the EMBARC technology to reduce on-hand paper stock from 100 to 25 days and reduce their inventory by $3 million. EDI transactions are also used to provide activity reports electronically to such customers as Newsweek in an automated process that is quicker and more accurate and that saves time. Production Order Specification (PROSE) Using a new complex EDI transaction for Production Order Specification (PROSE), also to be converted to X12, New York based printer World Color Press receives detail printing instructions that can set up a print job 60 percent faster and can be used by the U.S. Postal Service to rate the resultant mail pieces. Use of PROSE enables customers such as U.S. News & World Reports to make last minute changes while extending their deadlines closer to print time. PROSE in the future will be used to customize printing for companies, regions, or even individuals to receive their personal customized copy of their national magazine!! What started with notices and control of paper shipment, through successive iterations, will generate whole new strategic products and capabilities [EDI News, pp. 1 - 3, "Publishing Industry Gets The Word Out On EDI", January 10, 1994]. Financial Services Technology Consortium The Financial Services Technology Consortium (FSTC) is a consortium of financial service providers, national laboratories, universities, and government agencies whose goal is to enhance the competitiveness of the U.S. financial services industry. The FSTC sponsors interbank technical projects with particular emphasis on projects involving the NII and the High Performance Computing and Communications Program such as Electronic Commerce/consumer payments; fraud prevention and control; and trusted, secure remote access to financial services. In addition to the examples cited above, the Council on Competitiveness has created an inventory of Electronic Commerce applications in various stages of development. Their inventory includes: "Institute for a Distributed Workplace" and "Intell-I-Center" are two Electric Power Research Institute (EPRI) projects designed to study the impacts of telecommuting on productivity and social structure. "Internet Mercantile Protocol" is a Bellcore proposal to develop technologies that will permit Internet users to conduct business over Internet, and use Internet services to validate and complete the transaction. "Kodak Picture Exchange" is a Kodak pilot to demonstrate an on-line marketing service for the commerce of images and the commerce of image-dependent products or services. Kodak's project enables keyword and visual searching of an image database, transmission of thumbnail images to the desktop, and electronic ordering. "Interactive Transaction Partners" is an operational joint venture among General Motors/Electronic Data Systems (GM/EDS), US West and France Telecom to provide interactive financial and information transactions to the consumer and small business in the home and office. It provides a platform to move seamlessly among applications. "PowerView (Energy)" is an operational EPRI pilot that provides residential and other electric customers the ability to manage their electricity to reduce their energy expenses. PowerView is a combination of software and broadband network technology that allows real-time information exchange between the utility and its customers. It has ample capacity to integrate other services to the home, such as video and telephone. "Workers Compensation Reporting Services" is an EDS developed system that conveys an employer's First Report of Injury to the state and to the insurance agent, carrier third party payor, or self-insurer and to the state's Industrial Accident Board. International Activities The United Nations Economic Commission for Europe is developing an international family of standards called UN/EDIFACT that is starting to make possible world-wide Electronic Commerce. Many nations throughout the world, including the United States, contribute to development of these standards. [footnote 8: ANSI/ASC X12 has agreed to adopt EDIFACT standards, and has established the EDIFACT Alignment Task Group.] The United Nations has established a Commission on International Trade Law (UNCITRL) to develop rules for the international adoption of EDI. The United Nations Commission on Trade and Development (UNCATD) is working on reducing the administrative costs of conducting international trade, which currently is $400 billion annually, to enable $4 trillion of commerce. UNCTAD is holding a World Symposium on Trade Efficiency in Columbus, Ohio, on October 17-24, 1994. Secretary Ronald H. Brown, of the U.S. Department of Commerce, will serve as host and UN Secretary-General Boutros Boutros-Ghali is expected to attend. Columbus, one of the fastest growing centers in North America for international trade and utilization of information technologies, has been named The North American Trade Point by UNCTAD under its Trade Efficiency Initiative Project. This project is an effort to include the developing world in Electronic Commerce with the developed world. The European Community started in 1988 a Trade EDI Systems (TEDIS) program to educate users, to help set standards, and to help implement and coordinate EDI systems in such industries as automotive, chemical, and retail. Singapore perhaps is the leader in the world today in its adoption of Electronic Commerce. Singapore has adopted a national program to aggressively maximize its use of telecommunications and paperless processing to establish competitive advantage for its nation. Singapore represents a potential national model and benchmark for Electronic Commerce. Worldwide recognition of the potential payoff for international enterprise integration is evidenced by CALS organizations in Australia, Canada, France, Germany, Italy, Sweden, Denmark, Norway, Netherlands, Japan, and Taiwan. Singapore and South Korea are also considering CALS efforts. PART III: Where Do We Want to Be? The ultimate goal of the NII in Electronic Commerce is the creation of a national electronic marketplace which is secure, open, affordable, easy to access, and easy to use. The exponential growth of the Internet indicates that connectivity and the use of electronic mail, bulletin boards, and file transfers are growing at an enormous rate. In addition, EDI is currently being used by many individuals and organizations to automate simple business decisions and financial transactions. To make an advanced NII for Electronic Commerce a reality, individuals and organizations must continue to increase their use of and familiarity with networked communications services and tools, such as the Internet and EDI, as quickly as makes financial sense. A fully scaled, comprehensive national Electronic Commerce capability, however, involves much more than the reduction of paperwork and the speeding of decision making information for business and government transactions. In particular, the creation of an advanced infrastructure that can support national Electronic Commerce requires solutions to many technical, legal, security, financial, and regulatory barriers, as well as the widespread adoption and use of a variety of technical standards for communications, information processing, and security. Although the federal government itself generates a small portion of total commerce, it may be, with its Departments of Defense, Veterans Affairs, and General Services Administration leading the way, the largest single purchaser of goods and services in the United States. All over the government, agencies are beginning to adopt Electronic Commerce for the very high volumes of information interchanges required in its tax, insurance, and regulatory activities. Implementation of Electronic Commerce by the federal government, including its adoption of applicable national voluntary standards, has provided and will continue to provide significant momentum towards implementation nationwide. As a result, the full implementation of the President's memorandum on Electronic Commerce is an important goal. While the government as a large user of Electronic Commerce can provide leadership, it is the private sector that generates the overwhelming majority of commercial transactions, and therefore will make an overwhelming majority of the investments in Electronic Commerce capabilities. As such, for an advanced NII to develop and succeed, it is critical that the private sector own and operate it. The nature of Electronic Commerce, in particular the fact that cooperation and flexibility among permanent and transient partners as well as the establishment of standards for the interoperability of communications networks, information and data exchange, and security services are needed means that the government can play a pivotal role in creating the NII by facilitating and coordinating private sector efforts. Until many technologies, Electronic Commerce capabilities, and security provisions are proven, individuals and companies will be hesitant to invest in research, development, and implementation of Electronic Commerce applications. For example, concerns about threats to proprietary data, computer virus exposure, unauthorized access, increased single points of failure, control and auditing functions, and search and verification mechanisms inhibit investment. Many of these concerns go beyond Electronic Commerce; in particular, information protection, privacy, and security have been identified as a critical requirement and enabler in each application strategy paper. It is a cross-cutting need and the challenge for government and industry is establishing a comprehensive and coherent approach for these applications. This will require leadership and cooperation across government and industry, and the requirements for Electronic Commerce will offer a benchmark application. The President's efforts toward "Streamlining Procurement Through Electronic Commerce" afford the government a unique opportunity to provide the needed leadership and to demonstrate secure and trustworthy operational solutions. Consistent with the National Performance Review (NPR) Recommendations, the Government Information Technology Services (GITS) Working Group must provide the leadership to identify the steps that must be taken to provide solutions that cross-cut applications in an integrated fashion. With such leadership stovepipe systems can be avoided, and the benefits of an integrated and comprehensive solution fully realized. The documentation of success stories and the development of a national scorecard and metrics for evaluating Electronic Commerce implementations as well as the development of legal and regulatory structures that address these threats will help ameliorate some fears. In addition, the expansion of national R&D, pilot demonstrations, and testbeds, and the continued support of the High Performance Computing and Communications Program and other long-range, high risk R&D programs will further reduce fears and create a healthy environment for investment in Electronic Commerce applications. To create a national commerce infrastructure, the following seven subject areas, illustrated in Figure 1 (see below), must be coordinated and facilitated through public-private sector partnerships, setting base implementations and standards for minimizing costs overall, but allowing for flexibility to meet unique requirements: [footnote 9: Saltman, pp. 52 - 62.] - Agreements among organizations of partners interchanging diverse subject matter, so that the developed infrastructure meets all requirements in a cost-effective manner; - Details of message interchange standards, i.e., character sets, data types, data elements, message syntax, message types, and provision for inclusion of security parameters; - Supporting interchange technologies, such as communications protocols, audit trails, security, and graphics interchange capability; - Network reliability, availability, and management, including agreements among connecting networks, to assure that messages are delivered in a timely manner with integrity, security, and appropriate audit trails; - Directories of prospective partner information, including network addresses and representational data, such as contacts for Electronic Commerce, banking arrangements and financial terms for buying and selling, and sources for security credentials and public keys; - Technology and standards development, including a national Electronic Commerce architecture employing a distributed implementation using networks such as the Internet that tie together other networks, and transmit electronic mail, formatted commercial documents and graphics. - Legal and regulatory framework, including strategies for facilitating the transition from paper-based commerce to Electronic Commerce, and for addressing such issues as legal acceptance of electronic documents and electronic signatures, assurance of the "trustworthy" electronic record and the "trusted third party." PART IV: How Are We Going to Get There? It is probable that Electronic Commerce, like fax, will grow slowly until a critical mass is reached, and then explode in popularity. How can we reach critical mass as quickly as possible while ensuring that the transition from traditional commerce activities to Electronic Commerce activities is as smooth as possible? The following paragraphs represent only a starting point for formulating the key issues and questions, and for initiating the key actions and policies that are needed to facilitate the development of the Electronic Commerce application as part of the NII. The full range of issues described in this paper must be addressed to realize the full potential of Electronic Commerce. Issues and Questions to be Addressed - Government and industry cannot accept Electronic Commerce unless electronic transactions are secure. There are clear requirements for authentication of the source of a transaction, verification of the integrity of the transaction, prevention of disclosure of the transaction to unauthorized users, and verification of receipt of the transaction by the intended trading partner. Is the current work in computer security services adequate for timely resolution of these technical issues, or should the direction of work be changed or the level of effort increased? What organizations and mechanisms are needed to ensure that government and industry can jointly address security-related issues? - Electronic Commerce application will require the interoperation of communications, data management, and security services. These services will be provided by many different companies, including Value-Added-Networks, systems integrators, hardware vendors, and software vendors. Given this diversity, how can government and industry ensure that Electronic Commerce will be reliable, and that the components can be assembled, maintained, and upgraded at reasonable cost? We must develop technologies, measurement tools, testing services, interoperability demonstrations, etc., to ensure that components satisfy the current and future requirements of government and industry. Should the NIST Electronic Commerce Integration Facility be tasked to lead this effort? What other organizations can lead or contribute to this effort? What actions are needed to ensure appropriate funding? - Successful resolution of technical issues will be insufficient to ensure the widespread use of Electronic Commerce; economic, cultural, regulatory, and legal barriers to Electronic Commerce must be identified and removed. For example, how can government and industry ensure that Electronic Commerce will be viewed positively by workers? What incentives can be provided so that workers will share in the benefits of Electronic Commerce? How can government and industry establish realistic business cases and success stories to encourage potential users and providers of Electronic Commerce hardware, software, and services? Are the benefits discussed in this paper adequate, or are additional incentives required? Should government and industry create a joint task force to identify the most critical barriers and incentives and identify or create appropriate organizations to remove those barriers and provide those incentives. What actions are needed to ensure appropriate funding for the joint task force and for the organizations that it will identify or create? excluded: Figure 1. Planning for Global Electronic Commerce. References Byrne, John, "The Virtual Corporation," Business Week, February 8, 1993. Carnahan, G. W., J. J. Peavey, and K. E. Schohl, "The Internet and Its Relationship to the National Information Infrastructure (NII)," General Motors Corporation Input to the National Initiative for Product Data Exchange (NIPDE) Committee, March 1994. Davenport, Thomas H., Process Innovation -- Reengineering Work through Information Technology, Ernst & Young, Boston, MA, 1993. Davidow, William H., and Michael S. Malone, The Virtual Corporation, HarperCollins Publishers, Inc., New York, NY, 1992. Gebase, Len, and Steve Trus, "Analyzing Electronic Commerce," National Institute of Standards and Technology, 1993. Gleckman, Howard, "The Technology Payoff," Business Week, June 14, 1993. Gore, Al, "From Red Tape to Results: Creating a Government that Works Better and Costs Less," Accompanying Report to the National Performance Review, Office of the President of the Vice President, September 1993. Hammer, Michael, and James Champy, Reengineering the Corporation -- A Manifesto for Business Revolution, Harper Collins Publishers, Inc., New York, NY, 1993. Hardcastle, T., et al., "A Business Case for Electronic Commerce," September 1990, LMI Report DL001-06R1. Information Infrastructure Technology and Applications (IITA) Task Group Report, National Coordination Office for High Performance Computing and Communications, February 1994. Moore, John, "BPR: RX for DOD Health Care System", Federal Computer Week, September 20, 1993. National Research Council, Information Technology and the Service Society: A Twenty-First Century Lever, National Academy Press, Washington, DC, 1994. Neches, Robert, Jay M. Tenenbaum, Anna-Lena Neches, Paul Postel, and Robert Frank, "Electronic Commerce on the Internet." Office of the President of the United States, "Streamlining Procurement Through Electronic Commerce," Executive Memorandum, October 26, 1993. Ross, E., "CALS-CE ISG Benefits Working Group Reports, 1989 & 1991," CALS Journal, Winter 1992. Saltman, Roy G., "Planning the Infrastructure for Global Electronic Commerce," EDI FORUM, Vol. 6, No. 3, 1993, pp. 52 - 62. Teresko, John, "Tripping Down the Information Superhighway," Industry Week, August 2, 1993. Weiss, Peter, "Electronic Data Interchange Federal Programs and Policies," Office of Management and Budget. Last Updated: May 3, 1994 _________________________________________________________________________ Health Care and the NII DRAFT FOR PUBLIC COMMENT PART I: What Is the Application Arena? Description of a Health Care Information Infrastructure Implementation of wide-area, comprehensive, integrated, networked information systems is a logical response to the challenges faced by the Nation's health care delivery system. These challenges arise from several sources: dissatisfaction over rising health expenditures, in both private and public health care programs; concern over the personal health security issues of access and continuity of insurance coverage, and serious questions about the uneven quality and appropriateness of health care [reference 1,2]. These challenges are driving the health system to a cost-conscious, competitive, market-based, managed care environment. In such an environment, information systems linked to the National Information Infrastructure (NII) are destined to play a central role. The applications of the NII have significant potential for cutting unnecessary medical costs and improving health care access and quality. With the NII in place, consumers, physicians, other practitioners, hospitals, payers, and managers could readily obtain the information needed to make informed choices about treatments, providers, institutions, and health plans. With standards for defining, collecting, communicating, and storing administrative and clinical patient care data, scientific studies could point the way to medically effective and cost-effective care. National networks would enable all persons and health care providers to access the most recent information about particular medical technologies, clinical treatments, and provider performance. Patient outcome information could be linked to medical treatment data in a variety of settings so that all interested parties could obtain a better understanding of what works in the practice of medicine in the community and where it works best. In addition to improving clinical processes, the NII can simplify and speed up administrative processes within the health system, eliminating much duplication of paperwork and making uniform the data definitions required to make health care claims. As a result, electronic claims and payment transfers could occur rapidly over national networks and administrative costs would be significantly lowered. However, there is much infrastructure to build. A Vision of the Future SCENARIO 1: In a rural area, a child awakens with severe coughing, fever, and a rash on her chest. Her mother dials the interactive telecommunication connection to access medical care support and describes her child. The nurse at the other end asks for the mother to connect special probes that monitor the child's temperature, blood pressure, pulse. She then listens through an electronic stethoscope to the child's breathing. She examines the rash through the high resolution telecommunications viewer. After consulting information through the NII about recent health events reported in the community, such as the incidence of measles, bacterial and viral infections, she recommends action to the mother. Such action could be (1) stay on the connection and the physician will be right with her, (2) remain at home and continue to monitor the child and report in, (3) come in for an appointment with the doctor, or (4) head immediately to a designated emergency room. A valid medical encounter record is documented by this system and sent to the family's longitudinal medical service file, to the community's information repository, to the family for verification, and then to the family's health plan for payment. SCENARIO 2: A state public health official examines the state's health profile based on encounter records (with the identifiers removed) from health plans serving the state's communities. The records are retrieved from a statewide information network which is part of the NII. She is alerted by the information system to a statistically significant high incidence of children treated for respiratory disorders in a community. This leads her to call up the laboratory information from a sample of these children (the identifiers are removed but the information has been linked). In one of the cases, the laboratory results confirmed a diagnosis of whooping cough (pertussis). Immediately, she queries the immunization records and finds that some children do not appear to have been vaccinated. She then calls the community's health department to verify the data in the system. Finding it accurate, she queries the information system about the vaccine inventory in that community and, discovering it to be short of pertussis vaccine, calls four other communities with ample supplies to request that half of their vaccine be shipped to the first community. After notifying the first community of her actions and receiving their plan to resolve the problem, she returns to her examination of the state's health profile. SCENARIO 3: In the hospital of a major medical university in the state, Dr. Jones visits a virtual reality learning center to review procedures for a surgical removal of a portion of the prostate (prostatectomy). As she sits in the virtual reality clinical education room, she takes the electronic scalpel and feels the sensation of cutting into the patient, the texture of the skin, the hardness of the prostate as she is guided to making the proper incisions. The simulation program that guides her uses an electronic model human object obtained via the NII from a national library of reference models in conjunction with clinical measurement readings from the actual patient who will undergo the prostatectomy. Two floors up, Dr. Smith is performing a cataract surgery operation using robotics assistance. Although Dr. Smith is past middle age and has slight tremors in his hands, the robotics device with microsurgical vision enhancements eliminates the effects of his tremors. This supporting device allows his surgical productivity to continue for many years, increasing the life-long value of his medical training and years of experience. A Picture of Today Other sectors of the U.S. economy, some even less data- and information-intensive than the health sector, have for many years centered their operations around computerized systems. Banks, airlines, stock markets, and even salvage yards use computers to communicate, maintain inventory control, allocate costs, bill, and manage their major activities in an integrated, seamless manner. All these industries have experienced operating efficiencies, improved products and services, and, most important, greater customer satisfaction. These same benefits can be acquired for health care. The health sector, however, has lagged far behind the other sectors of our economy in applying information and communication technologies. Most hospitals and clinics have computers but relegate them to perform isolated, relatively small segments of the organizations' clinical operations. In these settings, the computer's widest use is for billing purposes and for patient admission, discharge and transfer functions, not for clinical purposes. Few hospitals and clinics link all caregivers together over local- or wide-area networks. As a result, patient care information is re-entered numerous times, information of value is not widely shared, and the paper outputs of these systems are manually collated in what is called a patient record. In this paper form, the patient record does not provide the basis for efficient clinical management, quality control, cost allocation, accurate billing, or clinical or health services research. Often the paper record and the information it contains is simply not available to the clinician when needed. The course of the patient through the health system is obscured by lack of documentation of the decisions, consultations, and sequence of interventions that he (or she) experiences. Thus, it is difficult to trace longitudinally the course of an individual patient, impossible to aggregate the data across a large number of similar patients, and improbable that all useful medical knowledge can be gleaned from the ongoing treatment of patients. Without reliable, comparative, performance feedback to the provider of health care, it is not likely that improvements in the quality of care or the efficiency of operation can be effected. Reliable feedback requires uniform vocabulary and coding standards for health care conditions, diagnoses, and procedures. Further, without an active communications interface among providers of care, it is difficult to make available -- especially in underserved urban and rural areas -- the benefit of the rapidly developing and evolving body of knowledge arising from biomedical and health services research. What is the Public Interest in Promoting the Application? Health care spending is high and growing. In 1994, the American public will spend $1 trillion on health care, nearly 15 percent of its Gross Domestic Product (GDP). National health care expenditures have risen by 10.5 percent per year for the past 8 years -- more than double the rate of increase in the consumer price index [reference 3]. Insufficient knowledge exists for informed decision making. Health and medical decision-making processes are flawed by a lack of knowledge and by financial considerations. The man (or woman) on the street has less knowledge about medical treatment alternatives for a specific condition than he (or she) has about any other service he buys. Therefore, he is more heavily dependent upon experts in the health care industry who often have no financial incentive to refrain from ordering every service, regardless of cost, if there is the hope of a benefit, however small. People do not pay the full price of the health care they consume. There would be no problem with the rapid rate of growth of national health expenditures and its portion of the GDP if it adequately represented consumer preferences expressed in the marketplace. After all, how much would the GDP have grown if not for the large increases in national health expenditures? Growth by itself is not bad. There is more than a suspicion, however, that when people pay 25 percent or less out of pocket for medical care at the time of choice, with insurance or public coffers paying the rest of the cost, there is a tendency to consume additional medical services. The value to the consumer of many of these additional services is less than the cost of the resources to produce them. How Can the NII Help? While the NII cannot change the U.S. health care system's financial incentives directly, it can support research into cost containment efforts and payment initiatives targeted at incentives to lower costs. For example, it could supply information to help appraise which payment systems in use are the most cost-effective. Further, the NII can provide information that increases knowledge about the medical effectiveness of alternative treatments and make it available to the providers and consumers of health care. The NII also can make available information consumers need to become more cost-conscious purchasers of health care services. The NII can provide an infrastructure that supports personal health improvement and medical technology assessment. Finally, the United States is one of the world's leading manufacturers of medical technology. With increased emphasis on cost-effective technology, there is a greater need for information about how well alternative technologies work when applied (1) in an ideal setting such as an academic medical center and (2) in the average community. The goal is to generate knowledge about which treatments and technologies work best for specific clinical conditions and under what circumstances, to have this knowledge available at the point of service (care), and to have medical decisions made jointly by caregivers and their patients. The NII can help attain this goal by supporting the analysis of large quantities of patient care and administrative data, by protecting its confidentiality, by assisting in the dissemination of information based on these data, and by adding value through the evaluation of the information gained from these data and converting it into useful knowledge. It is well recognized that there is substantial unexplained geographical variation in medical practices. The findings of unexplained differences in decisions about the best treatment for similar patients with the same condition elevates concern about the quality of care being delivered. Analyzing of patient care data from communities and providing feedback about these findings to the caregivers and consumers can both reduce inappropriate care and increase beneficial care. It can also improve continuous, life-long learning for health care providers who have difficulty keeping up with the flood of biomedical literature and clinical practice guidelines. By providing information access at home, schools, and the workplace, the NII can play an important role in improving public knowledge and decisionmaking about health, thereby reducing the significant information gap between consumers and clinicians and improving clinical outcomes. National and community networks that allow consumers to obtain information about their own health care conditions and to obtain professional medical advice in their homes can empower patients to take better care of them selves. What is the Evidence of the Benefits? Although the health care industry has been slow to adopt information and communication technologies in routine patient care, there are studies pointing to where the greatest benefits may be achieved. However, because these studies most often are conducted in single sites, both the size of the benefits to be achieved in multi-site and community settings and the costs of obtaining these benefits are unknown. Some examples of the studies follow: - In randomized controlled trials conducted at Wishard Memorial Hospital in Indianapolis by the Regenstrief Institute for Health Care at Indiana University, experimental groups of attending physicians that wrote their orders on microcomputer workstations were shown (1) prior test results for their patients, (2) computer predictions of abnormal results if another test was ordered, and (3) test prices at the time test orders were placed. These three trials showed reductions in outpatient test-ordering costs. A further randomized controlled trial tested the effect of physicians writing all their inpatient orders on workstations with screen information that encouraged cost-effective ordering. This intervention resulted in charges per admission reduced by $887 and hospital stays shortened by .89 days. However, achieving these savings did require more physician time per patient (33 minutes more over a 10-hour observation period, or 5.5 minutes per patient).[reference 4] - Including the costs, as well as the benefits, of implementing electronic data interchange for administrative health care activities (such as consumer enrollment, eligibility checking, billing, and claims payment), the Workgroup for Electronic Data Interchange (WEDI) believes "the cumulative net savings over the next six years (to the year 2000) is estimated to total over $42 billion."[reference 5] - An Automated Antibiotic Consultant software program was introduced into the HELP (Health Evaluation through Logical Processing) system at Latter Day Saints Hospital in Salt Lake City and evaluated. The Consultant was used when it was necessary to select an antibiotic therapy before the results of bacterial culture and susceptibility were known. The Automated Consultant suggested an appropriate antibiotic 94 percent of the time. The Consultant can support improved physicians' decisions under such conditions of uncertainty whether accessed on site or through a medical network.[reference 6] - The HELP system was also instrumental in determining the optimal timing (0 to 2 hours) of antibiotics before surgery to minimize the risk of post-surgical infection. The uniformity of data produced by such systems is advantageous not only for obtaining accurate patient care data, but also for conducting medical effectiveness studies.[reference 7] - A case study supported by the U.S. Public Health Service's Agency for Health Care Policy and Research (AHCPR) of a comprehensive hospital information system in one hospital in California, compared with systems in two other hospitals, was recently completed. The original system was installed in 1975. Now, almost 20 years later, the hospital continues to outperform comparison hospitals in all financial indicators. It experiences shorter patient stays (adjusted for mix and lower costs per admission.[reference 8] - A National Cancer Institute cancer treatment information system, Physician Data Query (PDQ), provides physicians and patients with information about state-of-the-art therapy and clinical treatment trials for each cancer and its stages. In PDQ, new literature and cancer prevention and treatment trials are continually reviewed by panels of clinical cancer experts, synthesized monthly, and updated. PDQ has experienced rapidly increasing use since its implementation and provides necessary information about the most recent cancer treatments and research findings worldwide using CancerFax and CancerNet. - The Comprehensive Health Enhancement Support System (CHESS) developed at the University of Wisconsin runs on a personal computer and offers a range of information, social and emotional support, and problem-solving tools for people in health crises. CHESS is typically placed in homes, but can also be installed in health care settings and community sites. CHESS currently offers modules for early stage breast cancer, HIV/AIDS, sexual assault, academic failure, adult children of alcoholics, and stress management. Such personal health information systems may grow to achieve user familiarity and acceptance, heavy use, quality of life improvements, and reductions in total costs of care. PART II: Where Are We Now? In many health care settings, patient information is handwritten in paper records and stored manually. Some of this is due to "state quill pen laws" that require handwritten pen and ink signatures on paper medical records. The current health information system does not adequately support patient care, medical effectiveness and cost effectiveness, and the public health of the community. This lack of support is often a result of incompletely recording the patient's signs, symptoms, and conditions; coding the patient's medical diagnoses to maximize billed charges instead of accurately describing the patient's ailment and the treatment given; and storing this information in ways that hinder both retrieval and making comparisons among patients with similar complaints. Consumers have insufficient information to make informed choices among the health insurance plans, health institutions, and providers available to them. Providers of care have insufficient means to keep abreast of all the information generated in their fields of specialty. Moreover, they often are unable to marshall all relevant information on a patient when making medical decisions. Health organization administrators are hampered in their ability to merge administrative and clinical information to make rational choices concerning resource allocations, quality of care, and product and service pricing. Payors of care have insufficient information to determine what package of benefits by which providers of care yield the best value for their clients. Further, public health officials should have the ability to more rapidly detect sharp increases in the incidence of influenza, specific bacterial infections, and other public health problems and to act quickly in health crises to inform the community. Public health policymakers often have insufficient information for offering solutions to health care problems. As a result, public health decisions are made without the advantage of timely, relevant information using technology that could reduce the costs of health care and improve patient outcomes and the health status of populations. The value of data on patient treatment and outcomes -- especially automated, uniformly defined, linked, and anonymously aggregated data -- is increasingly recognized and demanded throughout the health care sector. These data are needed for clinical, quality assurance, utilization review, business planning, administrative, and public health purposes. For example, computerized ambulatory patient care data are scarce and not uniform in definition, coding, or content. Computerized hospital clinical care data are collected on hospitalized patients in a small number of settings, but often are not stored for long in retrievable form after the patient is discharged. As valid methods for assessing the quality of care increase, so will the value of community patient care data. When the benefits from this information are shown to exceed the costs of producing it, society must find a way to pay for the resources necessary to produce it. Confidentiality and privacy are important concerns. Society must deal with perhaps its most vital information issue: assuring the privacy, confidentiality, and security of health care data about identifiable individuals. Even though patient care data can lead to important information for health care providers and their patients, it also has potential for personal harm if disclosed inappropriately. For example, these data may be required for emergency medical treatment or telemedicine applications in rural areas. As the data are transferred across wide areas, the system that transfers it must provide security against unauthorized access and disclosure, maintain the integrity of the data, and confirm the originators and requesters of the data. Quite possibly, most of the uses of patient care data may not require that the individuals be identified. When patient identification is necessary, the legal system must provide severe penalties for inappropriate uses of confidential patient care data. Although many States have their own privacy laws, many others do not. Moreover, uses of patient care data are not controlled uniformly from State to State. This problem must be addressed by national legislation. Selected Private Activities Private-sector activities discussed here include coordinated activities and projects in standards development, computer-based patient records, telemedicine, and community health data repositories. Standards. In the private sector of the United States, the development of medical information standards is coordinated through the American National Standards Institute (ANSI) Healthcare Informatics Standards Planning Panel (HISPP). AHCPR, in cooperation with the Food and Drug Administration, supports the meetings and administration of HISPP. The HISPP is also the official link between U.S. and European standards developing organizations. Other countries (particularly the European countries) are making notable progress with central development of medical information standards. Pursuing international cooperation in the development of these standards could prove beneficial for standards development in the United States. Administrative health data standards are being developed by the ANSI-accredited standards committee X12, through its subcommittee X12N. The Workgroup for Electronic Data Interchange is a private sector advisory body that has provided much leadership for these standards, which are essential for electronic exchange of health insurance business information. Progress has been faster for administrative health data standards than for clinical health data standards. The development of standards for the electronic interchange of clinical data is becoming more coordinated under the Message Standards Developers Subcommittee of ANSI HISPP. These standards will permit standardized data flows among departments of a hospital, for example, and among hospitals, physicians, and other medical organization entities. Some examples of standards for the coding of medical diagnosis and procedures are the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) and Current Procedure Terminology, 4th Revision (CPT-4). The ICD-9 coding system was developed by the World Health Organization and modified in the United States by the Health Care Financing Administration and the National Center for Health Statistics to produce the ICD-9-CM. The American Medical Association maintains the CPT-4 coding system. These codes, however, are used more for billing purposes than for their clinical information. They do not code the signs, symptoms, and conditions of the patient upon which the diagnosis is made. The Systemized Nomenclature of Medicine (SNOMED), 3rd Edition, does code for signs and symptoms of diseases as well as for disturbances in biochemical and enzyme factors of interest to the clinical pathologist and for anatomy, pathology, and etiology upon which the diagnosis is made. However, clinical codes that better reflect the conditions of the patient and the treatment received are needed. Further, much work is needed to develop standard validated measures of the patient outcomes of medical care. Although coordination of standard development efforts continues to improve, the pace of clinical data standards development has much room for improvement, and there are many gaps. What is the reason for the slow development of clinical data standards? Because no one firm in the private sector can generate sufficient gains from developing clinical data standards, the development effort is voluntary, and it suffers from a lack of resources. Further, it takes time to reach consensus, and the benefits to the public are diffuse. If the public good is sufficiently large, a proper role for the Federal Government is to accelerate standards development and collaboration in the private and public sectors. Computer-based patient records. Created in 1991, the Computer-based Patient Record Institute (CPRI) promotes and coordinates the development of CPR systems in the United States. The CPRI is composed of representatives from physician, hospital, computer system, vendor, managed care, university, and other national groups. The CPRI is working for the ubiquitous use of CPR systems in medical care, with workgroups in four areas: Codes and Structure; CPR Systems Evaluation; Confidentiality, Privacy, and Legislation; and Professional and Public Education. Several private sector-projects are attempting to build a computer-based patient record and to export common definitions and reporting systems to all their sites nationwide. Two of these efforts have begun at Kaiser Permanente in California and at the Mayo Foundation in Minnesota. Although there is strong interest in finding the best information systems for particular health-care organizations, there is no common method for evaluating existing systems. Additionally, there are differences in opinion regarding which costs and benefits to include in such evaluations, and how to place a value on outputs and resources that are not priced in the market place. In addition, more knowledge is needed about the technical, legal, social, and economic barriers to the development and deployment of computer-based patient record systems. Telemedicine. In early 1994, Ameritech, Inc., demonstrated a system that enables the family of a person with a serious chronic illness to access medication at regular time intervals and to obtain direct consultation with the family physician via personal computer, television cameras, and special hook-ups. This project can reduce visits to the hospital emergency room and physician's office, while improving patient compliance with drug therapy. Another example of a personal health information system has been described above (see CHESS). The private sector also supports several telemedicine projects such as those in Texas and Georgia. Although payment for telemedicine services has been nearly impossible to obtain from insurance programs, these projects continue to support patient care. Additionally, they are informing health care policymakers and potential entrepreneurs about the potential for cost savings and increasing access particularly in rural areas -- and about the social and legal concerns that must be addressed when providing medical care across State borders. Most of the potential savings are projected to come from reduced transportation expenses required to bring physician and patient together in the absence of telemedicine. Community Data Repositories. Stimulated by grants from the John A. Hartford Foundation, Community Health Management Information System projects have been initiated in the States of Washington, Iowa, Vermont, New York, Minnesota, and Ohio and the city of Memphis. These projects aim to extract patient, provider, and service data from claims and encounters and store them in a shared community data repository. As desired by the community, the repository may be enhanced to include condition-specific data and patient-centered surveys. In addition, many other health information networks are in planning stages, although without a common model for health information networks to guide them. The goal of these projects is to begin the development and implementation of local health data networks and data repositories. The expected benefits are improved health business transactions and community health data repositories of standardized health data about the process and outcomes of health care delivery. Demonstrations such as these can show the advantages of collecting standardized health data about the community. The potential for NII to link national and community networks with homes, offices, and health institutions to facilitate improved and cost-effective health care should be demonstrated and evaluated. This information would increase understanding about the sources of efficiency and the size of the costs relative to the benefits. Armed with this knowledge, private and public ventures, when targeted to obtain demonstrated cost savings, would be less risky. Selected Public Activities Department of Health and Human Services The National Library of Medicine (NLM) contributes to the NII on many different levels. Foremost, NLM produces data bases and information services that provide access to the scientific knowledge underpinning biomedical research and health care. NLM's on-line data bases and data banks are the most widely used medical information resources in the world. The expanding Internet provides an enhanced vehicle for delivering NLM services -- from MEDLINE to GenBank -- including on-line access to clinical practice guidelines that combine images and full text; the developing "Visible Human" digital library of image data from photographic, computed tomography, and magnetic resonance imaging of complete male and female bodies for a range of educational and health care applications; and remote execution of sophisticated gene sequence matching algorithms. Since the mid-1980's, the number of clinicians with direct access to MEDLINE has increased dramatically. More than 34,000 individual health professionals now search NLM's computer system, up from just a few hundred less than a decade ago. "Physicians report that in situations involving individual patients, rapid access to the biomedical literature via MEDLINE is at times critical to sound patient care and favorably influences patient outcomes.[reference 9] The Unified Medical Language System (UMLS) Project of NLM focuses on linking terms and codes in patient records to evidence-based knowledge such as that in practice guidelines and the scientific literature. Through the development of the Metathesaurus that connects the various computerized coding schemes and controlled vocabularies and an Information Sources Map that will support automated selection of data bases containing information relevant to particular information needs, the UMLS is providing tools for successful navigation among the growing number of health care information resources and for capturing and encoding patient data. The NLM's High Performance Computing and Communications (HPCC) program funds NII applications research in the areas of test-bed networks linking health care organizations, telemedicine, and development of computer-based patient record systems, coordinating and in some cases co-funding projects with other agencies such as AHCPR and the Department of Defense, Advance Research Projects Agency. Supporting the development of computer-based patient record systems is also a priority for NLM's National Information Center on Health Services Research and Health Care Technology (NICHSR), since data collected as a by-product of current health care delivery could greatly enhance the quality and timeliness of health services research, including outcomes studies. To ensure that academic medical centers, hospitals, and members of the National Network of Libraries of Medicine can access and make effective use of the NII, NLM and the National Science Foundation are co-sponsoring a Medical Connections program to link these institutions to the Internet. The NLM's programs to support the development of enterprise-wide Integrated Advanced Information Management Systems (IAIMS) and to provide Medical Informatics training to health and information professionals create a receptive environment for effective use of the NII. The NLM's current Director serves as the Director of HPCC's National Coordination Office, which is housed at the NLM and reports to the President's Office of Science and Technology Policy. AHCPR, through its Medical Treatment Effectiveness Program (MEDTEP), adds to a knowledge base of medical effectiveness research findings and clinical practice guidelines that inform practitioners and their patients about what works best and for whom. AHCPR is collaborating with NLM to make guidelines available in a form compatible with NII applications. In addition, AHCPR supports the development and evaluation of computer-based patient record systems and attendant clinical computer decision support systems. AHCPR assesses their impact on the medical and cost effectiveness of health care and their potential to generate uniform, accurate patient care information for medical effectiveness researchers. Through its extramural program, AHCPR has for years supported the study of computer-based patient records and clinical decision support systems. Through its Office of Science and Data Development, AHCPR promotes the coordination of the developers of patient care data standards and the analysis of confidentiality and privacy issues concerning researcher access to patient care data. The Food and Drug Administration (FDA), through its Submission Management and Review Tracking (SMART) program, is developing a consistent approach to the electronic submission and review of drug, biologic, and medical device applications. As part of this project, FDA is working with its regulated industries, the clinical community, the World Health Organization, and the European Union to enhance and standardize nomenclature for coding clinical safety data. FDA also is pursuing nomenclature and data format standards for other data elements required in product submissions, including toxicology, pathology, and patient information. These standards, coordinated with the private sector, will improve the uniformity of patient care data. The Health Resources and Services Administration, through its Office of Rural Health Policy, is undertaking support of telemedicine project application and evaluation in rural areas. These applications should stimulate the outreach of NII health care applications to rural America. The Health Care Financing Administration (HCFA), the Nation's largest health insurer, has the most comprehensive health care data base in the world, which supports the management of the Medicare and Medicaid programs. Much of this data is managed in a large network, linking Medicare enrollment and benefits information to both the contractor claims payment sites and providers. HCFA electronically receives more than 90 percent of the institutional providers' claims and more than 65 percent of the individual providers' claims, which collectively require HCFA to process over 500 million claims annually. HCFA agents use clinical data to assure quality and appropriateness of care provided to beneficiaries. HCFA shares this information with other organizations to facilitate research and formulate health care policy. HCFA has been an active participant in the development of data standards, and was the first among the health insurance groups to deploy electronic health insurance claims standards. HCFA is an active member in ANSI-Accredited Standards Committees and ANSI's Healthcare Standards Planning Panel. HCFA also supports research on telemedicine projects in rural areas and on payment methodology for telemedicine consultations. In 1985, HCFA, in cooperation with the National Center for Health Statistics (NCHS), developed a process for updating and maintaining ICD-9-CM through the Coordination and Maintenance Committee. HCFA is responsible for maintaining Volume 3, Procedures, while NCHS is responsible for Volumes 1 and 2, Diagnoses. Proposed revisions to the coding system are received by the appropriate agency, researched, developed in a standardized format, and publicly presented for informational purposes. Final approval for any coding changes comes from the Administrator of HCFA and the Director of NCHS. The changes are made annually. To address the shortcomings of the ICD-9-CM procedure codes, HCFA investigated developing a new procedure coding system and contracted with 3M, Health Information Systems, Inc., to develop a prototype. Six chapters thus far have been developed, with the cardiovascular chapter being the most complete. The National Cancer Institute, in addition to the PDQ program described above, is supporting the development of technology that could make use of a national broadband network capability for digital mammography. If successful, this technology could electronically transmit breast images for the purpose of obtaining rapid and expert radiologic consultation. This future application of teleradiology requires significant improvement of digital imaging modalities to acquire primary digital images, film digitizers to translate conventional film images into digital form, digital data networks, image-processing algorithms, computer workstations, and other imaging technology. Within the Public Health Service, Office of the Assistant Secretary for Health, the Office of Disease Prevention and Health Promotion is developing a community services workstation. With support from other PHS agencies and the Department of Defense, Advanced Research Projects Agency, a prototype of the workstation is being created to illustrate how information about health, education, and welfare service availability may inform a community's population. Department of Commerce The National Telecommunications and Information Administration (NTIA) was allocated $26 million for FY 1994 to support the development of the NII. The purpose of the NII is to interconnect the nation's businesses, residences, schools, health care facilities, and other public information and social service providers through broadband interactive telecommunications networks. During FY 1994, NTIA intends to issue grants in the area of health care for pilot demonstrations that are designed to develop, demonstrate, and promote applications of information technology that will educate, restrain health care costs, improve quality, and increase access to health care, with the potential for wide-scale deployment and interconnection over NII networks. Also within the Department of Commerce, the National Institute for Standards and Technology (NIST) has been active in several standards development efforts related to health care, including (1) Health Level 7 and (2) the Health Care Special Interest Group of the Open Systems Interconnection (OSI) Working Group. The purpose the OSI Working Group is to encourage broad scale adoption of medical information standards developed in the United States, leading to information systems that will exchange data with each other and operate on a variety of computer operating systems. The NIST also has a cooperative research and development agreement (CRADA) with private industry in medical information systems/architecture standards, which draws upon NIST's experience with electronic data interchange. Department of Veterans Affairs The Department of Veterans Affairs (VA) operates 171 medical centers located in all 50 States and Puerto Rico. All 171 facilities are supported with a hospital information system called the Decentralized Hospital Computer Program (DHCP). DHCP has approximately 60 public domain software modules supporting functions such as admissions, pharmacy, laboratories, medicine, order entry, health summary, engineering, purchasing, and finance. Both the Department of Defense and the Indian Health Service, as well as some State institutions, have used this public domain software, modifying it to meet their particular needs. Recent clinical releases, such as Discharge Summary, Progress Notes, Allergy Tracking, and Problem List are part of an incremental approach to automating the patient record. The Problem List serves as a point of integration, organizing patient information by clinical discipline and associating patient treatments and outcomes with problems. It also ties the automated patient record to appropriate billing procedures. The Problem List works with VA's new Clinical Lexicon; a tool that permits the user to enter a clinical term using natural language. The system then maps the term to all of the applicable coding schemes (e.g., ICD, DSM, SNOMED, CPT) and stores the term so that it can be retrieved and used by a wide variety of legitimate users of clinical data. All VA facilities have been interconnected for the past 8 years with a digital communications network. VA is enhancing its data transport utility called Patient Data Exchange (PDX) so that VA health care facilities can exchange health summaries containing relevant clinical data across the VA network. At the Washington and Baltimore Medical Centers, VA has installed an integrated imaging project to store medical images as an integrated part of the electronic patient record. These systems have been in daily use for several years and store images from such applications as pathology slides, gastrointestinal, bronchoscopy, cardiac catheterization, echocardiography, and radiology examinations. At the Baltimore Medical Center, the VA has built a standards-based gateway between a hospital in formation system and a commercial Picture Archiving and Communications System. With these capabilities, VA could be a useful test bed to determine the effectiveness of electronic data exchange between facilities and health care providers. As a result of the common software at many Federal medical care facilities, this test bed could easily be extended to other agencies as appropriate. An example could be the effectiveness of making AHCPR-sponsored clinical practice guidelines available to clinicians on VA wards using connections to Internet. Department of Defense The Department of Defense, Office of Health Affairs has supported the development of a Comprehensive Health Care System leading to six modules that are being deployed world-wide. The Department was also charged by Congress to deliver a plan for developing and deploying a computer-based patient record in military settings in early 1994. The military's Medical Diagnosis Imaging Support System has developed and demonstrated projects that involve filmless radiology departments in hospitals, electronic transmissions of digital images via satellite, and the use of the most recent standards in digital image transmission. Department of Agriculture Within the Department of Agriculture, the Rural Electrification Administration (REA) plays a key role in the rural aspect of the NII. The Distance Learning and Medical Link Grant Program (DLMLGP) demonstrates the ability of rural communities to utilize existing or proposed telecommunications systems to achieve sustainable, cost-effective distance learning or medical-link networks. Rural schools, libraries, hospitals, health care clinics, and related organizations that operate rural educational or health care facilities are eligible. Implemented in FY 1993, the DLMLGP has selected 28 rural projects (9 medical projects) for funding, and is currently reviewing applications submitted under the second round of funding. REA funds equipment used for distance learning classrooms such as encoding and decoding devices, specialized cameras and video monitors, video switchers, microphone mixers computers, and local area networking equipment. For medical link projects, REA funds equipment used in physician consultation, teleradiology, and educating rural health care providers. Some of this specialized equipment includes teleradiology workstations, X-ray scanners, digital microscopes, and all of the above distance learning equipment. Applicants to the DLMLGP work closely with local telecommunications providers creating a demand for bandwidth capacity and switching technology in remote areas. In this respect, the DLMLGP accelerates the development of rural networks, one of the most challenging areas of the NII. National Aeronautics and Space Administration The National Aeronautics and Space Administration (NASA) has been a pioneer in the field of telemedicine since the early days of manned space flight. NASA's interest in telemedicine is to understand its application to medical care in space for future long duration platforms, such as a space station, and to minimize risk to astronauts and increases probability of mission success. NASA's early efforts to monitor the health of its crew members have helped promote dramatic changes in the way medical monitoring in terrestrial medical transport is conducted in the U.S. NASA has been involved in several telemedicine projects over the past 30 years. Space Technology Applied to Rural Papago Advanced Health Care Program (STARPAHC), brought medical care to remote areas of the Papago Indian Reservation in Arizona in the 1970s. The Space bridge to Armenia provided satellite consultation to a disaster area in 1988. Currently, NASA is involved in a joint effort with Russia, the Space bridge to Moscow, to link several U.S. medical centers with a hospital in Moscow. NASA's experience in telemedicine and communications technologies has helped promote the practice of telemedicine across the globe. The Armenia experience demonstrated that interactive consultation by remote specialists can provide valuable assistance to onsite physicians and favorably influence clinical decisions in the aftermath of disasters. PART III: Where Do We Want to Be? To obtain the benefits called for by the vision of the health care information system of the future, an advanced NII should support the development and evaluation of information technology applications that can improve patient care, both directly and indirectly. These achievements would improve the health status of communities and reduce their costs of health care. Applications that bring both higher benefits and lower costs should be carefully evaluated. Patient care data describing patient's signs, symptoms, and conditions; treatment; and outcomes should be generated at the point of care delivery by the providers of health care. These data should be defined uniformly across all points of care, automated, and made available through the NII for direct patient care; public health policy development at community, state, and national levels; and research purposes. This sharing should occur only under conditions of confidentiality, privacy, and responsibility that are acceptable to society. Patient care data and other information necessary in the direct care of the patient should be promptly available to providers of care at the site of care. Clinical decision support systems should incorporate research findings based on studies of these data and on other studies. The purpose is to give providers of care information about drug interaction alerts, allergy alerts, preventive screening reminders, and other prompts that improve the delivery of health care. Personal health information should be widely available on the NII and be accessed through personal computers and telephone links, cable television, or other links to community and nationwide networks. This linkage will permit people to obtain health care information, computer-assistance for analyzing health problems, and advice from medical professionals and from people with similar health conditions. The result of improving personal self-care and wellness should be more power in the hands of the people to influence their health and a more appropriate use of health care resources. Public health surveillance and epidemiologic studies based on patient care data and social indicators should be available to inform public policy and to guide the provision of public health services. Information about the patient outcomes of care produced by health care providers and health care plans should be available to guide consumers in making health plan choices and to feed back information to providers of care about the patient outcomes their peers are achieving. This information will benefit consumers in their homes, schools, and workplaces. Providers of care in physicians' offices, other ambulatory sites of care, and hospitals will have access to data about specific patients and the information, if necessary, to guide decisions about treatment alternatives and their expected outcomes. Health care managers and policymakers in health plans, public health departments, national health policy positions and other settings will be able to develop an overall picture of health care utilization to assess the allocation of health resources and whether private and public health needs are being met. Achieving these benefits requires the development of several components of a health information infrastructure. These components are: - Medical information standards for the - nomenclature, coding, and structure; - content of specific data sets; and - electronic data interchange of patient care data. They are necessary to achieve the uniformity of definition and meaning of the patient care data used in the care of the patient and in generating information about the outcomes of care. The standards will improve the sharing of patient care data across different computer information systems. The slowness of there development of these standards hinders the cost-effectiveness of clinical decision support systems in institutional and provider settings. - Unique personal identification for accurate links across databases used for patient care. Although the social impact and confidentiality issues are the most important for society, technical issues still remain. Patient information must be uniquely identified and linked across databases used for patient care. Some options are thumbprints, retinal eye scan images, DNA blood typing, or personal identification numbers in digitized form. If personal identification numbers are used, they could be social security numbers (SSN) or identifiers unique to health care. The costs and security of different techniques to assure unique personal identity, plus confidentiality and privacy of patient care information and any information to which it may legitimately be linked, need to be investigated. - Model development for health care information, reference requirements, and a reference architecture to define and relate patient care data and medical information and the clinical and administrative functions they serve. A concept model should be developed that serves as the guiding framework that shows the purpose, dimensions, and minimum characteristics of health information networks, computer-based patient record systems, and other concepts. The concept models may pertain to specific domains, such as hospitals, clinics, and local networks. These models, requirements, and architecture will provide a common framework that will allow software vendors and system designers to build software tools that can work together. If they work together, these tools can fill out, or build, the health care application architecture (the common framework). By supporting the design, building, and implementation of systems that can interact with each other, this framework, and tool development, will support improved patient care and build a path for the movement of existing systems to patient-centered systems. - Federal confidentiality and privacy laws that supersede a patchwork quilt of State privacy laws. They will allow society to gain the benefits of rapid automated information transfers across States through information technology, while protecting patient care data from disclosure. They should provide penalties for inappropriate linking, use, or disclosure of patient care data and define inappropriate use. - Health data repositories to maintain and assure the uniformity and confidentiality of patient care data and to provide access to the appropriate users of these data. These repositories might be distributed among local communities or located regionally across the United States. At the extreme, there could be one central or national data repository. Safeguarding the confidentiality of patient-identifiable data wherever it is stored is essential and must be a prime responsibility of the depository management. - Computer-based patient record system development to capture patient data at the point of care and make it available electronically upon request of the provider for patient care. This development should extend computer-based patient record systems so they support both clinical and administrative decisionmaking. - Health Care Computer Laboratory (test bed) development to determine the technical usefulness of data standards and data exchanges that support specific functions. Findings from these pilot test sites should guide modifications to data standards, models, and architectures to make them suitable for commercial applications. - Pilot tests and evaluation of health information technology in patient care settings such as the home, physician's office, hospital, and community. These pilot tests and evaluations should include rural as well as urban settings, and consumer as well as provider settings. They should reveal where the most beneficial applications are likely to be. - Community trials for applications that have been proven successful in single site settings. These trials would be linked in broad-area studies to assess their scalability (i.e., their costs and performances at different volume levels and configurations) and their success in achieving quantifiable savings that can be duplicated. - Specific studies should evaluate the economic and medical feasibility of patient care data transfers between primary care physicians and specialists across geographic distances, of the use of personal home information systems to promote wellness and efficient use of medical services, and of administrative electronic data systems to improve the efficiency of medical claims handling and payment. These transfers include telemedicine transmissions such as medical and patient images, consumer health information and decision analyses, and consultations with experts and patients with similar conditions. Additional studies should evaluate the potential for libraries of information on standard representations of medical conditions to be accessed by providers to improve their understanding of patient conditions, disease entities, and healthy body functioning which, in turn, should improve patient outcomes of care. Studies of alternative means for professional education and training using the NII should also be undertaken. PART IV: How Are We Going to Get There? Issues and Questions to be addressed - How can the federal government facilitate a public-private partnership for the development of health care information standards? What should the priorities be among: -- Medical information standards for the nomenclature, coding and structure, content of specific data sets, and electronic exchange of patient care data, information, and medical knowledge. -- Standards for electronic signatures, especially for the validation of physicians' orders and other information within health information systems. -- Standards for personal identification methods. With regard to personal identification, how best should the federal government examine the benefits and costs of alternative schemes, including (1) improving the Social Security Number, (2) creating and implementing a new unique health identification number for the population, and (3) adopting any other identification system, such as a private-sector numbering system, retinal scans, or fingerprint readers? - When developing standards, data sets, and formats for regular reporting of patient care data used in the programs of federal agencies, how should the agencies work cooperatively with the private-sector standard developers to achieve common standards and to accelerate the private sector's development of standards to meet the programs' needs? - How should federal confidentiality and privacy legislation be developed that would apply civil and criminal penalties for inappropriate use of personally identifiable patient data, including inappropriate disclosure and redisclosure of that data, and discriminatory decisions based on linking such data with other personal data bases? -- Should this legislation supersede State privacy laws to achieve nationwide uniformity in the way the uses of personally identifiable patient data are restricted? -- How should information system security requirements be addressed? - How should information about the health care information system technologies being developed, placed in use, and evaluated by federal agencies be coordinated? -- Due to the diverse missions, technologies, service delivery programs, and research and demonstration programs across federal agencies, should there be a federal work group established for coordination to reduce unnecessary duplication by sharing program information that could improve NII health care applications? - Should the federal government support a public-private partnership to develop integrated health care information systems in hospitals, physicians' offices, and other health care settings? -- Should this partnership develop models for health care information and reference requirements and architectures for supporting the functions that require patient care data? -- Should this partnership develop tools for software developers and system designers? -- Should this partnership support the development of the computer-based patient record for capturing patient care data at the point of care for clinical and administrative decisionmaking. -- Should this support be based on a study of the expected benefits and costs of these systems and target to those areas where the benefits are most strongly expected to exceed costs? -- Should this support include a portion of the capital cost of these systems? -- Should this support be coordinated with existing telemedicine projects aimed at increasing health care access for rural populations? -- Should this support include investigating the training necessary for these systems to be adopted by health professionals and their staffs? - Should the federal government undertake a program of research, demonstration, and evaluation of integrated health care information systems to identify the specific applications for which the benefits exceed the costs? -- Should this program participate with the private sector in the funding of pilot tests of these systems in single-site pilot tests, multiple-site trials, and community-wide demonstrations? -- Should this program be coordinated with standards developing efforts to test preliminary standards and provide feedback to the developers for revisions to the preliminary standards? -- Should this program support demonstrations that show the benefits and costs of linking clinical decision support systems in hospital and physician office settings to national sources of medical knowledge? -- Should this program support demonstrations showing the value of personal health information systems that provide access to health care knowledge to individuals in their homes, in their workplaces, and in public libraries? -- Should this program investigate the costs and benefits of nationwide networks for carrying out administrative health care functions, including enrollment, eligibility checking, claims processing, and electronic funds transfer? -- Should this program investigate the potential administrative and clinical cost savings, the changes in health care service utilization behavior, and the change in consumer satisfaction from providing access to financial and medical effectiveness information to community populations and their health care providers? -- Should this program investigate the expected changes in the process of health care and in the patient outcomes of care that result from use of clinical decision support systems in relevant health care settings that are linked to national information sources? - Should the federal government support a public-private partnership to develop Federal strategies for repositories of health care data? -- Should this partnership fund workshops and projects that support the development of important community issues, new concepts and policies concerning health care data that will be needed for addressing control, access, and accountability questions in the NII? -- Should a research program investigate the value of community health care data repositories for efficient and effective deliver of health care services and for improving patient outcomes in the community? -- Should Federal support include partial funding of community health care data repository demonstrations? -- Should Federal support include funding evaluations of the community uses of their own data, determining what are the benefits to the community, who else receives benefits from such repositories, and what are the costs of achieving those benefits? - Should the federal government support State efforts to use the NII to promote and evaluate the public health of their populations and the administrative efficiency of their health care programs? -- Should there be Federal support for States to demonstrate the benefits to state and local public health functions of community data repositories linked at the state level? References [1] Wennberg, J. and Gittelsohn, A. (1982). Variations in medical care among small areas. Scientific American, 246,120-134. [2] Chassin, M., Kosecoff, J., Park, R. E., Winslow, C. M., Kahn, K. L., Merrick, N. J., Keesey, J., Fink, A., Solomon, D. H., and Brook, R. H. (1987). Does inappropriate use explain geographic variations in the use of health care services? A study of three procedures. Journal of the American Medical Association, 258, 2533-2537. [3] Health Care Financing Administration, Office of the Actuary, October 21, 1993, personal communication. [4] Tierney, W. T., Miller, M. E., Overhage, J. M., and McDonald, C. M. (1993). Physician inpatient order writing on microcomputer workstations: effects on resource utilization. Journal of the American Medical Association, 269, 379-383. [5] Workgroup for Electronic Data Interchange Report (October 1993). 1993 WEDI Report, Executive Summary, p. iii. [6] Evans S., Pestotnik S. L., Classen D. C., and Burke J.P. (1993). Development of an automated antibiotic consultant. M.D. Computing, 10, 17-22. [7] Evans R. S., Reed M. G., Burke J. P., Pestotnik S. L., Larsen R. A., Classen D. C., and Clayton P. D. (1987). A computerized approach to monitor prophylactic antibiotics. Proceedings of the Eleventh Symposium on Computer Applications in Medical Care (pp. 241-245). Silver Spring, MD: IEEE Computer Society Press. [8] Kunitz and Associates, Inc. Final Report (Revised March 28, 1994). Agency for Health Care Policy and Research, Contract 282-91-0062. [9] Lindberg DAB, Seigel E. R., Rapp B. A., Wallingford K. T., and Wilson S. R. (1993). Use of MEDLINE by Physicians for clinical Problem Solving. Journal of the American Medical Association, 269,3124-3129. Last Updated: May 3, 1994 _________________________________________________________________________ A Transformation of Learning: Use of the NII for Education and Lifelong Learning DRAFT FOR PUBLIC COMMENT Today, we have a dream for a different kind of superhighway that can save lives, create jobs and give every American young and old, the chance for the best education available to anyone, anywhere. I challenge you. . .to connect all of our classrooms, all of our libraries, and all of our hospitals and clinics by the year 2000. Vice President Al Gore, speaking to communications industry leaders, January 11, 1994 PART I: What Is the Application Area? Description of Education and Lifelong Learning Communications technology is transforming the way we live by connecting us with information and each other. The National Information Infrastructure (NII) promises every business, government agency, hospital, home, library, and school in the nation access anywhere to voice, data, full-motion video, and multimedia applications. The impact of these capabilities on learning -- for the children, for higher education students, and for lifelong learners -- will be substantial. The way Americans teach, learn, transmit and access information remains largely unchanged from a century ago. We find the following conditions in American education and training: - The textbook remains the basic unit of instruction. Absorption of its contents tends to be the measure of educational success. - Teachers and instructors use "chalk and talk" to convey information. Students are often recipients of instruction rather than active participants in learning. - School teachers work largely in isolation from their peers. Teachers interact with their colleagues only for a few moments each day. Most other professionals collaborate, exchange information and develop new skills on a daily basis. - Although half of the nation's school teachers use passive video materials for instruction, only a small fraction have access to interactive video, computer networks, or even telephones in the classroom. - While computers are a frequent sight in America's classrooms and training sites, they are usually used simply as electronic workbooks. Interactive, high performance uses of technology, such as networked teams collaborating to solve real-world problems, retrieving information from electronic libraries, and performing scientific experiments in simulated environments, are all too uncommon. - "U.S. schooling is a conservative institution, which adopts new practice and technology slowly. Highly regulated and financed from a limited revenue base, schools serve many educational and social purposes, subject to local consent. The use of computer technology, with its demands on teacher professional development, physical space, time in the instructional day, and budget ... has found a place in classroom practice and school organization slowly and tentatively."[note 1] Events of the last two decades have proven that we can do better. We have found that most American children are capable of learning at dramatically higher levels -- levels of performance we now expect only of our best students. We have learned this from research in cognitive science, from the educational achievements of other countries, and from pioneering efforts in our own schools. Moreover, after 35 years of research, we have found that technology can be the key to higher levels of achievement.[note 2] Similarly, in the American workplace we have found that workers can achieve levels of productivity and quality equal to the best in the world.[note 3] Well-educated, well-trained, motivated workers can produce high-quality goods and services at low cost, enhance industrial productivity and competitiveness, and sustain high living standards. High-quality education and training payoff for the individual whose skills are upgraded, for the company seeking a competitive edge, and for the nation in achieving overall productivity and competitiveness. Our major foreign competitors place much greater emphasis on developing and maintaining workforce skills than we do. Experienced production workers at Japanese auto assembly plants, for example, receive three times as much training each year as their American counterparts. Research in our country has shown that workers who receive formal job training are 30 percent more productive than those who do not. Again, we have found that technology is the key to making training accessible and affordable -- especially for small- to medium-sized firms with few resources of their own to devote to producing and implementing the training and lifelong learning their workers need and for workers who, on their own, are attempting to improve their skills or transfer them to new areas of endeavor. Finally, in preparing students for the workplace, we have learned that interactive, high performance technology can produce immersive, real world instructional environments. These environments can smooth longterm school-to-work transitions while helping to meet the immediate objectives of both schools and workplaces. Our efforts to develop this capability have been fragmentary and shortlived at best. A Vision for the Use of the NII The NII, will be the vehicle for improving education and lifelong learning throughout America in ways we now know are critically important. Our nation will become a place where students of all ages and abilities reach the highest standards of academic achievement. Teachers, engineers, business managers, and all knowledge workers will constantly be exposed to new methods, and will collaborate and share ideas with one another. Through the NII, students of all ages will use multimedia electronic libraries and museums containing text, images, video, music, simulations, and instructional software. The NII will give teachers, students, workers, and instructors access to a great variety of instructional resources and to each other. It will give educators and managers new tools for improving the operations and productivity of their institutions. The NII will remove school walls as barriers to learning in several ways. It will provide access to the world beyond the classroom. It will also permit both teachers and students access to the tools of learning and their peers -- outside the classroom and outside the typical nine to three school day. It will enable family members to stay in contact with their children's schools. The NII will permit students, workers and instructors to converse with scientists, scholars, and experts around the globe. Workplaces will become lifelong learning environments, supporting larger numbers of high skill, high wage jobs. Printed books made the content of great instruction widely and inexpensively available in the 18th Century. The interactive capabilities of the NII will make both the content and interactions of great teaching universally and inexpensively available in the 21st Century. Education and Lifelong Learning Applications for the NII The NII will provide the backbone for a lifelong learning society. Education and training communities will better accommodate an enormous diversity of learners in an equally diverse variety of settings. In addition to schools and work places, interconnected, high-performance applications will extend interactive learning to community centers, libraries, and homes. Education, training, and lifelong learning applications available from the NII may include: - Multimedia interactive learning programs delivered to homes to immigrant children and their parents to collaborate on learning English as a second language. - Troubleshooting and operating applications that access the computer-assisted-design (CAD) databases used to design workplace technology and to integrate the CAD data with instructional and job-aiding capabilities to provide just-in-time training and maintenance assistance. - Comprehensive interconnectivity for students that allows them to receive and complete assignments, collaborate with students in distant locations on school projects, and interact with teachers and outside experts to receive help, hints, and critiques. - Simulated learning activities such as laboratory experiments and archeological digs. - Universal access interfaces for computers and telecommunications devices for students, workers and others with disabilities to allow access to the NII. - Affordable, portable personal learning assistance that tap into the NII from any location at any time and provide multimedia access to any NII information resource. - Immersive, realistic interactive simulations that allow emergency teams made up of geographically dispersed members to practice together on infrequently used procedures that may be urgently needed to meet local exigencies. The Educational Benefits of Technology Evidence from research, schools, and workplaces around the country tells us that communications technologies are powerful tools in reaching the highest levels of educational performance. - Students with disabilities, who previously had at best limited access to most educational and reference materials, will have fuller access and will have the ability to participate in the learning experience with their peers. - A 1993 survey of studies on the effectiveness of technology in schools concluded that "courses for which computer-based networks were used increased student-student and student-teacher interaction, increased student-teacher interaction with lower-performing students, and did not decrease the traditional forms of communications used."[note 4] - Research on the costs of instruction delivered via distance learning, videotape, teleconferencing, and computer software indicates that savings are often achieved with no loss of effectiveness. Distance learning vastly broadens the learning environment, often providing teaching resources simply not available heretofore. Technology-based methods have a positive impact on learner motivation and frequently save instructional time. Savings in training time produce benefits both by reducing training costs and by shortening the time required to become and remain productive in the workplace. - A review of computer-based instruction used in military training found that students reach similar levels of achievement in 30% less time than they need using more standard approaches to training.[note 5] - A Congressionally mandated review covering 47 comparisons of multimedia instruction with more conventional approaches to instruction found time savings of 30%, improved achievement, cost savings of 30-40%, and a direct, positive link between amount of interactivity provided and instructional effectiveness.[note 6] - A comparison of peer tutoring, adult tutoring, reducing class size, increasing the length of the school day, and computer-based instruction found computer-based instruction to be the least expensive instructional approach for raising mathematics scores by a given amount.[note 7] - A landmark study of the use of technology for persons with disabilities found that "almost three-quarters of school-age children were able to remain in a classroom, and 45 percent were able to reduce school-related services."[note 8] Of course, these benefits depend upon several contextual factors, including the instructional methods used, the quality of the applications, the availability of professional development for educators, accessibility of instructional materials, the presence of school technology support staff, and family involvement.[note 9] We must learn through experience how best to ensure that the benefits we intend to obtain from NII-based applications become routinely realized in practice. Telecommunications networks provide a range of resources to students and educators that were never before available or affordable. Students and workers can now gain access to mentoring, advice, and assistance from scientists, engineers, researchers, business leaders, technicians, and local experts around the globe through the Internet, using a level of access and connectivity that was previously unimaginable. High school students in West Virginia, for example, can now study Russian via satellite and telephone with a teacher hundreds of miles away. Few West Virginia school districts could afford to offer such a course any other way. Less well understood are changes in the types of learning that occur with the use of certain technologies. Current evidence suggests that some technology applications are more effective than traditional instructional methods in building complex problem solving capabilities for synthesizing information and in improving writing quality. The effects are achieved in part by permitting alternate methods of "reaching" and motivating learners. The Administration's National Information Infrastructure initiative can trigger a transformation of education, training, and lifelong learning by making new tools available to educators, instructors, students, and workers and help them reach dramatically higher levels of performance and productivity. The impact of this transformation in teaching and learning is in-estimable, but clearly enormous. Knowledge drives today's global marketplace. The NII will permit us to take learning beyond the limitations of traditional school buildings. It will take our educators and learners to worldwide resources. Learning will be our way of life. PART II: Where Are We Now? Today, compelling teaching and learning applications are the exception, not the rule. Several federal agencies provide services that meet specific, focused needs, while hundreds of state and local networks and private service providers have begun to address the technology needs of education. Current uses, while expanding rapidly, reach only a small number of technologically-literate school communities. Current application of NII capabilities to work place training is more extensive and technologically advanced than educational applications, yet it lags well behind what is needed and available. The story of workplace training seems to be a case of the haves receiving more and the have-nots remaining neglected. Small firms, those with 100 employees or less, provide about 35 percent of total U.S. employment, but they lack the expertise to provide in-house training, the resources to pay for outside training, and sufficient numbers of people who need training at any one time to justify focused training efforts. Larger firms are more likely to provide training than smaller ones, but the training they provide is mostly limited to college-educated technicians and managers. The lower the level of skills possessed, the less likely the worker is to receive training from any source. Transportable, quality controlled training and lifelong learning could be made readily and inexpensively accessible using the NII and will have a major impact on improving worker skills and workplace productivity. While much remains to be done, the opportunities offered by the NII put many of the needed capabilities within reach of schools, homes, and the workplace. Current Uses of Telecommunications for Education The existing telecommunications infrastructure is composed of telephone, broadcast, cable, and electronic networks. It is used for education, training, and lifelong learning in five basic ways: 1) instructing with video; 2) gathering information from remote libraries and databases; 3) communicating using two-way asynchronous capabilities such as e-mail and information bulletin boards; 4) distance learning; and 5) electronic transfer of instructional software and simulations. - Instructional video. Seventy-five percent of America's schools have cable television, and half of its teachers use video material in their courses.[note 10] The Stars Schools program is reaching 200,000 students in 48 states with advanced placement courses in mathematics, science, and foreign language instruction using fiber optics, computers, and satellites.[note 11] Cassette videotapes for instruction are widely used in schools and work places, and the development of these videotapes for both education and training has become a vigorous industry. - Information collection. This activity includes location and retrieval of documents such as lesson plans and research reports, but it also includes newer data sources such as CAD databases for workplace technologies and equipment, and multimedia information retrieval from digital libraries that can be accessed by students, workers, or people in homes, libraries, and museums. Over 60,000 electronic bulletin boards are used by more than 12 million Americans every day.[note 12] The annual rate of Gopher traffic on the Internet, which directly represents an effort to use NII facilities to gather information, is growing at an annual rate of approximately 1000%[note 13] The Department of Education has a Gopher server which points to or contains educational research information, such as the AskERIC service and information from sources such as CNN, Academy One, and the Educational Testing Service. NASA Spacelink makes lesson plans on space flight and related science topics available on the Internet. - Two-way communication. This includes communication via electronic mail and conferencing among teachers, students, workers, mentors, technicians, and subject matter experts of every sort. Approximately one-quarter of the teachers in Texas regularly sign on to the Texas Education Network, or TENET, to share information, exchange mail, and find resources. A professor at Virginia Polytechnic Institute and State University teaches a writing course entirely online. Students swap writing projects and discuss their assignments online. In the workplace, electronic mail is used by more than 12 million workers, increasing to over 27 million workers by 1995. Just less than a sixth of U.S. homes now have at least one computer connected to a modem, and this percentage is growing rapidly. As of July, 1993, there were four Internet hosts for every 1000 people in the United States. There are now 60 countries on the Internet. About 137 countries can now be reached by electronic mail.[note 15] - Distance learning. Hundreds of thousands of students in schools, community colleges, and universities now take courses via one-and two-way video and two-way audio communication. In South Carolina, high school students across the state study with a teacher of Russia based in Columbia through South Carolina Educational Television. Boise State University offers a masters degree program conducted entirely over networked computers to students all over the country. The Department of Defense is investing well over $1 billion in the development and implementation of networked distributed interactive simulation. This technology, which allows dispersed learners to engage in collaborative problem solving activities in real time, is now ready for transfer to schools and workplaces outside of the defense sector. - Transfer of instructional software and simulations. Instructional programs, simulations, materials, and databases can all be accessed over the NII and delivered to schools, homes, libraries, and workplaces wherever and whenever it is desirable to do so. Currently, there are massive exchanges of software, databases, and files using the Internet, but relatively little of this activity occurs in the service of education, training, and lifelong learning. Nonetheless, compelling applications that will become indispensable to teachers, students, and workers are not yet available. All the capabilities of computer-based instruction and multimedia instruction can be distributed using NII facilities to schools, workplaces, homes, libraries, museums, community centers, store fronts -- wherever and whenever people wish to learn. Yet the infrastructure and applications to support this level of accessibility for education, training, and lifelong learning uses have yet to be developed. Until compelling applications are available, educations will not realize the potential of the NII. Efforts to Build the NII for Education and Lifelong Learning: Roles of the Private, Nonprofit, and Public Sectors Successful implementation of the NII to serve the nation's education and lifelong learning needs will require significant contributions by the private sector, state and local governments, the federal government, and the non-profit sector. - The private sector's role in providing telecommunications services and applications for education and lifelong learning has been expanding rapidly in recent years, and should continue to do so. The private sector will build the telecommunications infrastructure and must also make 75% to 95% of the nation's investments in applications development for education and lifelong learning. The private sector also supports the bulk of job training costs. On the telecommunications side, Pacific Bell has committed to providing data links for all California schools, colleges, and universities. On the applications side, the Software Publishers Association reports that education is its fastest-growing product category, with over 700 firms currently producing educational software. - State and local governments provide 93% of the nation's investment in elementary and secondary education and provide a large percentage of the investment in higher education. Accordingly, most of the spending on hardware, software, professional development and support services will come from state and local public funds. In addition, states are in the position to remove regulatory and tariff barriers to NII access in the local communities. - The federal government has three principal responsibilities. It facilitates the private sector investment in infrastructure and applications for education and lifelong learning by creating incentives, removing regulatory barriers, establishing standards, supporting research, evaluation and prototype development, developing visionary "benchmark" applications, and providing assistance to the education and training communities. It communicates a vision for the education, training, and lifelong learning uses of the NII. And, most importantly, it promotes access for all learners to the resources of the NII. - Thousands of private nonprofit organizations, ranging from large national industry associations to small, informal groups serving Internet users with specialized interests, now serve critical roles as providers of information, technical assistance, and valuable applications. Key Federal Agencies While almost every Federal agency supports instructional activities that involve telecommunications technology, eleven agencies actively support the development of instructional uses of the future NII. The Department of Agriculture collaborates with land-grant colleges and universities to make an array of information and expertise available on-line and to provide distance learning opportunities to urban and rural communities. The Department of Commerce provides support and direct funding for telecommunications infrastructure planning and development, and plans to support improvements in workplace training using the NII. Commerce's National Institute of Standards and Technology supports standards development. The Department of Defense provides lifelong education and training to hundreds of thousands of military personnel. It supports R&D for education and training and is expected to transfer knowledge and software to schools and non-Defense workplaces under its Dual-Use and Technology Reinvestment programs. The Department of Defense Dependents Schools are expected to serve as a testbed for new applications. The Department of Education advocates for the needs of all learners in the development of the NII. The Department is the principal source of Federal support for distance learning, via the Star Schools Program. In FY 1995, the Department will also support applications and programming development, pilot projects, teacher networks, research, and planning grants to states and districts. The Department of Energy is in the forefront in the development and use of information technologies, such as high performance computing, high speed networking, data storage and data bases, and other information services and system integration technology. The Department is developing K-12 computing and communication applications that support a new learning paradigm and take advantage of the regional presence and capabilities of the Department's laboratories. Emphasis is placed on reaching a broad range of students, including women and underrepresented minorities. The Department will initiate pilot projects that have scalability as an important characteristic so that schools can bridge the period until network and system costs decline to the point that the education establishment can take over this support. Another key technology initiative is the development of digital libraries that will enable users speedy and economical access to Energy information over an electronic data highway. The Department of Housing and Urban Development has undertaken an initiative to develop the capability to provide training to HUD employees and clients by linking trainers to students who may be thousands of miles apart. This distance learning network makes use of computer, interactive video, satellite, and telecommunications technologies, and will be implemented under the auspices of the recently established HUD Training Academy. The Department of the Interior has several activities underway to implement the NII within the Department. One of these is the National Biological Information Infrastructure, which will allow users to access, manipulate, organize, and use biological data and information from a variety of sources. The Department of Labor has direct and indirect interaction with employers, workers, business and labor organizations, and other government entities and administers most Federal training programs. The Department hopes to use the NII to enhance the skills, education and training of the American workforce. The Federal Communications Commission regulates interstate and foreign telecommunications by radio, television, wire, satellite, and cable. The FCC is responsible for the orderly development and operation of broadcast services and the provision of rapid efficient nationwide telephone and telegraph services at reasonable rates. The National Aeronautics and Space Administration continues to build on its HPCC program, its aeronautics and space science research and engineering missions, and its existing education outreach infrastructure to facilitate the general development of the NII to support mathematics, science, and engineering education in K-12 education. This program consists of pilot projects at 7 NASA Centers involving many of their local schools and school districts. The goal of the K-12 effort will be to produce and distribute curriculum materials to a very broad user community over the Internet. A video is in production in cooperation with the Department of Education to provide guidance on appropriate steps for implementing Internet access and utilization in the classroom. NASA continues to operate and improve its "Spacelink" computer information system for the education community, principally teachers and students. The National Science Foundation supports research on digital libraries for capturing, categorizing, and organizing data of all forms (text, images, sound, speech) in electronic form to allow utilization of networked databases distributed around the nation and the world. A networking infrastructure for education program will establish test beds and implement prototypes that explore the role of electronic networks in support of reformed education. The NSF will also support the development of national facilities and centers such as NSFNET, High Performance Computing and Communications Centers and National Challenge Centers needed to support the research, education and training activities required to broaden the impact of the NII. In addition, the High-Performance Computing and Communications initiative, an interagency effort under the aegis of the Office of Science and Technology Policy, includes several components that directly support the development of NII uses for education, training, and lifelong learning. These include: - The National Research and Education Network (NREN). The NREN will establish a very fast communications infrastructure for research and educational use. NREN efforts include increasing the availability of advanced network products and services at affordable cost to research and education communities. - Information Infrastructure Technology and Applications (IITA). This component supports the development of software, interfaces, and tools necessary for the educational use of the NII, including access to digital libraries. State and Local Agencies States and local communities have initiatives to provide Internet access and high speed access to the NII for education and lifelong learning. More than half the states sponsor broad educational networking. In some states, the state government has led the effort, in others, regional or local organizations have taken the initiative as illustrated in the examples that follow. - The Iowa Communications Network (ICN) currently includes over 2,600 miles of fiber optic cable that links together fifteen regional centers, three regent universities, and Iowa Public Television. Current uses include 63 semester-long distance learning courses offered in the fall of 1993, workshops and seminars for educators, and town meetings. Ultimately, ICN will link up every college and high school in the state. The state has invested over $100 million in ICN so far.[note 16] - In May, 1993, North Carolina Governor Jim Hunt announced the North Carolina Information Highway, an effort to link educational, medical, economic development, and public safety organizations statewide. In January, 1994, Governor Hunt announced the first 106 sites to be linked up to the information highway, most of which are educational institutions. The state legislature created a school technology commission to examine the technology needs of the state's schools. The legislature is scheduled to vote on a $350 million proposal to fund educational technology in late 1994. - In Ohio, a number of local and statewide organizations are now working to increase access to networks for educational use. These include the State of Ohio Network for Integrated Communications, which provides connectivity for all state agencies; the Ohio Educational Computer Network, charged with developing K-12 educational links; Cleveland FreeNet, a regional network; and the Ohio Academic Resources Network, linking up colleges and universities. Comparatively little state money has been spent to build these networks.[note 17] Use of Telecommunications Technologies in Schools While computers and some communications capabilities are present in American schools, high speed communications technology is limited to very few classrooms. Substantial local infrastructure investments will be necessary to realize the promise of NII applications. The installed base of computers, modems, networks, and video technology indicates that growth has been, at best, uneven. Since education and training application development has not kept pace with other grand challenges types of NII applications, most schools, communities, and state and local governing bodies have neither recognized nor acted on the need to build the technological capability to access the information superhighway. A key but not well understood requirement is for technical expertise to install and maintain high speed connections to the NII. Once the high speed communications linkages of the NII are brought to the schoolhouse door, the challenge is to build the internal high speed linkages within the building to connect the user hardware. The installed base of computers in American elementary and secondary schools is largely incapable of supporting multimedia graphical applications because of obsolete or obsolescent hardware. Eighty percent of the base includes 55% Apple IIs and 24% IBM PCs, XTs, ATs or similar class machines, with limited modern graphic or multimedia capabilities; the part of the base made of 10% Apple Macintoshes and 8% IBM compatible 386s or 486s is capable of supporting high level applications. The number of computers in the schools, 2.5 million, is equivalent to one per classroom.[note 18] In a 1993 survey of NEA members, only 4% of teachers reported having a modem in their classroom, while 38% reported having access to a modem somewhere in the school building.[note 19] Another survey found that among 550 educators who are actively involved in using telecommunications, less than half have access to the Internet. They use the Internet services twice as often for professional activities as for student learning activities. [note 20] Use of Telecommunications Technologies in the Workplace Well-designed technology-based training can provide greater mastery of material in less time and with higher employee satisfaction than the average classroom lecture, yet classroom instruction remains the most common formal training method in the United States.[note 21] Most corporate trainers have insufficient experience with technology to use it confidently or to design courses around it. Although 35 million adults have difficulties with common literacy tasks, no more than 15 percent of literacy providers use them regularly for instruction, and many do not use them at all.[note 22] Despite the explosion of cable, public, and commercial television channels, there are only a few instructional television programs that target adult literacy. This situation remains despite the privacy and accessibility that technology and the NII offer adult learners. The issue is not limited to the literacy training adults need to obtain and keep employment. Even among those who are prepared to benefit from them, the immersing, tutorial interactions of instruction and especially instructional simulations that are now available from high-performance technology are rarely found in the workplace. Even the capabilities of just-in-time and just-enough training and job performance aiding are rarely employed to their useful limits. Equity and Access Computer technology is unevenly distributed in our schools today when measured by computer density, the ratio of computers to students. Those schools in the top quintile have nine times as many computers as those schools in the bottom quintile. Computer density in the schools is not strongly correlated with socio-economic, racial, or ethnic patterns, however. Lower than average computer densities are found in large schools, urban schools, both private and parochial schools, and schools with large numbers of Hispanic students. Because the installed base is 80% obsolete, it is not a significant indicator of utilization of modern technology. Distribution of video technologies such as distance learning equipment, VCRs, and cable TV is more evenly distributed. Schools in rural and poor areas actually have higher densities of these types of equipment. For instance, every school in West Virginia, regardless of its location, has a satellite receive-only dish providing ready access to televised courses. Dramatic disparities appear in the area of computer networking. Instructional networks are most prevalent in the Northeast, in suburban schools, in schools whose parents' education is "said to be above average," and also in elementary schools receiving Chapter l support, a reasonable measure of poverty. Although most schools' use of technology is far below what they desire, because the technology is not affordable, a small number of schools have made substantial investments in technology. Such schools achieve greater "high end" technology usage. Higher socioeconomic level schools also are more likely to be high-end technology users. A disparity in technology investments between small and large firms is noted, small firms can make only limited investments in training, with or without NII support. When such investments are made, they appear to pay off. A Canadian study found that successful companies innovate and spend more on technology than those that are less successful. [note 23] However, entry level training to facilitate school-to-work transitions remains everyone's stepchild. Some of the entry level training needs are being met by electronic home learning. In fact, education software sales for the first three quarters of 1993 were up 46% from the same period in 1992.[note 24] Nonetheless, the situated apprenticeship training and basic skills training that forms the foundation for entry level training that could be provided through the NII remains to be developed. Without accessibility to such workplace training technical capabilities, intractable inequities are likely to remain. PART III: Where Do We Want to Be? The goal of the Administration -- as stated by Vice President Al Gore -- is for all citizens to use the NII from every home, library, workplace, community center and classroom in the nation. The NII will support lifelong learning opportunities for an enormously diverse community of learners. This goal implies nothing short of a complete transformation of American education and lifelong learning. The NII will enable education to become a lifelong enterprise for all Americans, integrating and substantially enhancing school, community, and workplace learning and providing opportunities accessible to all. Immediate Objectives We propose the following objectives as goals for the near term: - Schools, libraries, workplaces, and other learning sites will have high speed access to the NII, capable of supporting interactive, multimedia applications. - Interactive, multimedia, high-quality educational applications for students in the basic learning areas and at different skills levels will be affordable and readily available in the marketplace. - Schools will have internal networking capabilities and hardware capable of supporting high-quality applications. - High-quality basic skills training that provides every motivated worker with the verbal and quantitative skills needed to learn and perform job-relevant tasks will be available in every workplace. The following conditions should exist in support of the these goals: - Educators and the public will understand the potential of the NII to support high-performing learning environments, and they will be able to use NII resources effectively. Examples of the effective use of the NII for education, training, and lifelong learning, and evidence of concrete instructional benefits, will be widely available. - All states, and a majority of school districts, will have comprehensive plans in place for the integration of technology into education and lifelong learning, that are linked to systemic education improvement plans, and will have begun implementation of these plans. At a minimum, these plans will address the challenges of diminished budgets while meeting requirements for increased investments in technology, professional development, maintenance, and technical support; provision for access by users with disabilities; provide broadband access to classrooms and other learning sites; and make changes in regulatory structures to facilitate infrastructure and applications investments. - Investment by all levels of government in research, development, and evaluation, implementation, and technical support will increase dramatically. The investments will include professional development and technical assistance for teachers, school administrators, instructors, and managers in the use of information technologies. Providers of professional development and technical assistance will be encouraged to offer quality, easily accessible services in a variety of ways -- including access through the NII. A majority of teachers will have access to personal telecommunications devices and networking services to support continuing professional growth and interchange of professional information. - The demand for high-quality software packages and tools for education, training, and lifelong learning will grow rapidly and substantially such that the private sector will make massive new investments in the infrastructure and increase the quality and accessibility of the software packages and tools. - Multimedia education and training packages will become portable so that they can be delivered across the NII and used when they reach their destination regardless of the hardware platform to be found there. - Strategies and standards will be available for making at least the current generation applications accessible to users with disabilities or who are experiencing limitations due to aging. Long Term Goals To serve the needs of the educational community in the long term, an improved NII must have the following attributes: - Convenient and equitable access. Connection to every American classroom, public library and other learning locations will ensure that NII applications are available to all citizens as instructional tools and not available just as special, rationed services. - Affordable workplace and home access will give all learners access to the NII resources whenever and wherever they are needed, will enable family members to be fully involved in the education of their children, and will allow workers to participate in a productive, lifelong learning society. - High sped transmission capability. The NII will permit the interactive transmission of voice, video, data, multimedia applications, and other digitized information at the capacities needed to support education, training, and lifelong learning. - Easy use. User interfaces will be simple and easy to use. Networks and applications will be interoperable, to permit easy access from all hardware platforms to the widest possible array of resources. The NII will have directories and other exploration tools that allow students, teachers, and workers to make their way conveniently through the massive amounts of available information. Tools to assist users identify resources will be developed. - Technological simplification. Telecommunications hardware and software will be simplified so that connecting a computer to the NII is no more complex than connecting a telephone. - Accessibility. User interfaces and information must accommodate users with a widespread range of abilities through built in interface options, flexibility, and compatibility with special access technologies. - Security. The NII will accommodate security systems adequate to protect privacy, the confidentiality of sensitive information, and to safeguard intellectual property rights. The network must also accommodate varying levels of access to resources in education and training settings. - Content. The NII must offer information, communication, and learning opportunities that meet high standards of quality and help America reach the National Education Goals. - Portability. Interactive courseware will have the same operating interoperability -- "plug and play" -- now available in high fidelity audio systems. Investments in multimedia education and training programs will be preserved through NII delivery using inter-operability standards in the development of software and hardware. - Instructional delivery. Instructional delivery will provide workers with a "PhD in a pocket." Instruction and job performance aiding will be delivered on a device that resembles a pocket calculator. Every complex device will include sufficient embedded training and user assistance to make it easily useable. - Instructional intelligence. Instructional intelligence will support integrated individualized tutoring that integrates goal setting, instruction, job performance aiding, and decision aiding into a single package. Natural language interaction will be an essential feature of this capability. - Institutional integration. Institutional integration will be the most difficult challenge to meet. The new instructional capabilities will first have to be integrated into the routine, daily practice of our current instructional and workplace institutions. Just-in-time and just-enough training that is universally available will not only change the ways people are treated in the workplace but the workplace itself. PART IV: How Are We Going to Get There? Making the NII a reality for education will require significant capital investments by the private sector and commitments to meet continuing operating costs. Federal, State, and local governments need to create the conditions in which this investment can proceed, and will play a critical role in "jump starting" educational applications and access to the network. The following questions are intended to focus attention on the most important issues for Federal policy. Issues and Questions to be Addressed Access How can the Federal Government facilitate the connectivity needs of schools and other learning sites? Should schools that have been traditionally underserved be given special attention with respect to network access and access to the information resources relevant to their needs? Should schools and other learning sites be given universal service to ensure the delivery of service at the same affordable rates as most American homes? How can the NII be made accessible in a variety of learning environments? How can the NII allow individual learners access to the resources they need when and where they want access? How can the NII provide the capability for learning on demand through education and training programs funded by the Federal Government? What incentives, regulatory actions, or other activities within the private sector and state and local government are needed to encourage investments to connect educational institutions and other learning sites to the NII? Should the FCC propose regulations that enhance the availability of advanced telecommunications services to all educational institutions by mechanisms such as preferential rates for telecommunications services? Are there alternative means of achieving this public requirement? Should the Federal Government collect and publicly report data to monitor progress in areas such as the extent of network access in schools? Professional Development Teachers, administrators, instructors, and others need access to professional development opportunities on a much wider scale than is now the case. How can the Federal Government facilitate access to on-site and on-line assistance? Should professional development be expanded to include the new role of the teachers and trainers as guides and mentors rather than their present role as the primary information provider in the classroom? Development of Education and Training Applications Should the Federal Government target investments for the development of high quality applications for education, training and lifelong learning use of the NII that meet challenging content and performance standards? What incentives and guidelines should be developed to encourage software developers and other producers of education and training materials to participate in developing new technologies and applications to address the needs of diverse and special needs populations? Research and Development What categories of research and development should be identified across the agencies of the Federal Government to ensure technology-supported learning is being pursued in conjunction with the development of the NII? Should the Federal government require evaluation of all supported projects? How can the teachers, trainers and other educators who are actively using the NII best be supported and their work disseminated? How can the intellectual property rights of those creating applications of the NII for learning best be protected? Planning How can the Federal Government best support State and local efforts to develop and implement technology plans? Should the Federal Government ensure a coordinated approach between states? Within each state? Technical Assistance How can technical assistance best be provided by the Federal Government in response to a general or specific request from any segment of the learning community? Should the Federal Government establish specialized teams (composed of Federal staff or contractors) to assist schools, districts, state agencies? Should technical assistance networks of expert staffs be available to answer questions about NII uses for education and lifelong learning? Should planning tools be developed and disseminated, such as videotapes, planning guides, directories, resource listings and other forms of information? Partnership What is the role of the Federal Government in developing sustained public and private partnerships to support education and training uses of the NII? How can the Federal Government best promote the goals of the NII and its application to education and lifelong learning with the public, with state and local governments, and with the education and training communities? What role should the Federal Government play in making public and private information resources available to schools, institutions of higher education, training institutions, libraries, and other institutions of learning? How can the Federal Government facilitate a public-private partnership for the development of interoperability standards, application quality standards, and effectiveness standards to facilitate the development of high-quality telecommunications and applications? How can the Federal Government best ensure collaboration among the agencies to bring together technical expertise and application development to expand the use of the NII for education and training? How can the Federal Government best support research and evaluation on the education and training applications of current and emerging technologies to the NII? Notes 1. Melmed, Arthur (June 1993) A Learning Infrastructure for All Americans. Fairfax, VA: Institute of Public Policy, George Mason University. 2. For example, see U.S. Congress, Office of Technology Assessment. (September 1988) Power On! New Tools for Teaching and Learning. OTA-SET-379 Washington, DC: U.S. Government Printing Office. 3. U.S. Congress, Office of Technology Assessment. (1990) Worker Training: Competing in the New International Economy (OTA-ITE-457). Washington, D.C.: U.S. Government Printing Office. 4. "Report on the Effectiveness of Technology in Schools 1990-1992," conducted by Interactive Educational Systems Design and commissioned by the Software Publishers Association, 1993, p. 2. 5. Orlansky, J., & String, J. (1979) Cost-Effectiveness of Computer Based Instruction in Military Training (IDA Paper P-1375). Institute for Defense Analyses, Alexandria, Virginia. 6. Fletcher, J. D. (1991) Effectiveness and cost of interactive videodisc instruction. Machine Mediated Learning, 3, 361-385. 7. Fletcher, J. D., Hawley, D. E., and Piele, P. K. (1990) Costs, effects, and utility of microcomputer assisted instruction in the classroom. American Educational Research Journal, 27, 783-806. 8. National Council on Disability, "Study on the Financing of Assistive Technology Devices and Services for Individuals with Disabilities: A Report to the President and the Congress of the United States," March 4, 1993. 9. Henry Jay Becker, "How Our Best Computer-Using Teachers, Differ from Other Teachers: Implications for Realizing the Benefits of Computers in Schools," Journal of Research on Computing in Education, 26 (1994). 10. Corporation for Public Broadcasting Study of School Uses of Television and Video, Spring, 1991. 11. Withrow, F. Personal Communication, 2 March 1994. 12. Investor's Business Daily, 17 February 1994. 13. Treese, Win (December 1993) "Internet Index." 14. Melmed, Arthur (June 1993) A Learning Infrastructure for All Americans. Fairfax, VA: Institute of Public Policy, George Mason University. 15. Treese, W., op. cit. 16. "lnformation Intrastates," State Government News, publication of the Council of State Governments, October 1993, p. 19. 17. ibid. 18. Melmed, A., op. cit. 19. Princeton Survey Research Associates. NEA Communications Survey, Spring 1993. Weighted sample of 1,206 NEA member teachers. 20. Honey, M. and Henriquez, A. (1993) Telecommunications and K-12 Educators: Findings from a National Survey. New York, NY: Bank Street College of Education. 21. Worker Training, op. cit. 22. U.S. Congress, Office of Technology Assessment (1993) Adult Literacy and New Technologies: Tools for a Lifetime (OTA-SET-550) Washington, DC: Government Printing Office. 23. Worker Training, op. cit. 24. The Heller Report (January 1994). Last Updated: May 3, 1994 _________________________________________________________________________ Environmental Monitoring and the NII DRAFT FOR PUBLIC COMMENT PART I: What Is the Application Arena? Description of Environmental Monitoring Environmental monitoring is fundamental to our ability to understand and predict changes in the environment, and to respond to the range of environmental issues facing the Nation today. It starts with the multitude of systems for space-borne, airborne, land-based, and ocean-based observations of physical, chemical, and biological characteristics and extends to dissemination of such information for safeguarding public health, life, property, and our Nation's natural and cultural heritage. It is absolutely essential for supporting the range of human endeavor, including transportation, commerce, education, and day-to-day activities. It encompasses phenomena both natural and man-made that occur on scales from seconds to millennia and from local to global. Just as we monitor financial, labor, and other indicators of economic health, so must we monitor environmental indicators to judge the state of the environment. Environmental monitoring tells us how well we are conserving biodiversity, how our activities are impacting the planet, and how to plan for and assess environmental remediation actions. Our national capability to perform comprehensive environmental monitoring is currently limited by an infrastructure that is extremely fragmented and which will not allow the kinds of capabilities envisioned for a multi disciplinary and global view of the environment. An improved NII will be a critical link in supporting the process of environmental observation, analysis, and information dissemination. The Vision: Develop a nationally integrated network of observing systems, computational centers, archives, libraries and information dissemination systems to address the Nation's needs for environmental data and information. Such an infrastructure will serve as an enabling integrating agent for the diversity of observational data and information by building upon the national investment (both public and private) in environmental monitoring and protection activities. Historically, environmental monitoring has been limited by our lack of understanding of the "interrelatedness" of environmental factors and the technological capability to make detailed, comprehensive environmental measurements, and then to integrate and interpret them in support of a host of scientific, policy, and operational uses. Consider the following scenario. The supertanker EXXON Valdez runs aground in the Gulf of Alaska. Authorities are informed of the mishap and an oil spill emergency management team is called into action to assess the situation. They call for an aerial reconnaissance of the region requesting that the airplane observations be distributed in real-time to a team of environmental experts located in various cities in the U.S. The experts determine that, based upon the rate of spillage and spread of the oil, a major environmental disaster is in the making. The emergency management team swings into action. It assembles a panel of experts (including fisheries and wildlife biologists, oceanographers, and meteorologists) through video teleconferencing. Within minutes it determines via on-line databases the resources available in the local area to combat the oil spill including ships, personnel, and appropriate equipment. Because of the remoteness of the spill region and its areal extent, it becomes clear that satellite imaging will be essential to monitoring the situation on a broad scale, to guide the local aerial and ship reconnaissance, and to support the spill containment operations. Invoking emergency authority, the team issues a direct request to an environmental satellite to adjust its imaging schedule so as to increase the rate of data taking over the site from once per day to once every orbital over pass. The team of scientific experts utilizes advanced high-resolution numerical models, accessible remotely at supercomputing centers, to predict the likely path of the oil spill so that spill containment and clean-up operations can be focussed to minimize environmental damage. Real-time observations of winds and ocean currents are fed to models to guide their output. The expert team accesses a remote, nationally distributed database containing the national biological inventory to determine the locations and populations of local fish spawning areas and wildlife habitats and to plan for appropriate safeguarding actions. The experts team devises a program of long-term monitoring to track the effects of the oil spill on the region and to assess environmental recovery. Economic models running at remote computational centers are invoked by the experts to assess the potential short-term and long-term economic impacts of fisheries degradation. Thanks to easy and timely access to real-time and historical observational data, advanced computational facilities, on-line databases, communications networks to link observing systems to emergency managers and analysts, resources have been effectively marshalled just in time to avoid serious, long-term damage to the area's environment and economy. Such a scenario for dealing with a potential environmental disaster is technologically feasible today, but requires overcoming a set of non-technological barriers that limit the implementation of such a decision-support system. Studies of the environment were once limited in scope to studying small regions and specific phenomena, generally in isolation from others. From the 1960s to the present, certainly our perception of the interrelatedness of environmental phenomena has changed. Equally as important, our capacity to make ever more accurate and precise regional and global measurements of the environment has expanded geometrically, particularly with the advent of advanced satellite-borne sensors as well as improved airborne, ground-based, and ocean-based instrumentation. However, our ability to fully utilize these measurements in support of decision making still lags behind our ability to make the measurements. A major cause of this lag is our inability until now to cope with the avalanche of data emanating from widely diverse systems, stored and disseminated in varied formats, and acquired in support of different agency or organizational missions. Technological solutions exist now that will allow acquisition of large volumes of disparate data, transmitting them to users, storing them in large capacity storage devices, retrieving them from databases, and manipulating them for analysis and decision support. Environmental monitoring is primarily a federal responsibility although state and local governments also play a significant role. For example, all levels of government and the private sector participate in water resources monitoring for a total investment of several billions of dollars annually across hundreds of organizations. Federal agencies having major programs in the environmental monitoring arena include the National Oceanic and Atmospheric Administration (NOAA), National Aeronautics and Space Administration (NASA), Environmental Protection Agency (EPA), Department of Energy (DoE), Department of the Interior (DoI), and Department of Defense (DoD). The roles of these agencies are extremely diverse, yet complementary. Examples of the functions performed by these agencies are: daily weather forecasts and severe storm prediction (NOAA), space-based atmosphere/ocean/land science research (NASA), fossil fuel-generated pollution monitoring and assessment (EPA), nuclear dump monitoring and nuclear power plant radiation release mitigation (DoE), characterization of the Nation's earth and water resources and public lands management (DoI), global weather and ocean prediction in support of national security operations (DoD). The national investment in observing systems, computational systems, and telecommunications systems to support the environmental monitoring activities of the various federal agencies over the next decade runs well into the tens of billions of dollars and includes such programs as NOAA's Weather Service Modernization, NASA's Earth Observing System (EOS) Mission to Planet Earth suite of environmental satellites, USGS investment in ground water observation wells and stream gaging stations, the National Biological Survey's "Gap Analysis Project," and EPA's Environmental Monitoring and Assessment Program (EMAP). Many of modern-day environmental issues raise fundamental questions regarding sustainable development, i.e., our capacity to maintain economic growth while preserving environmental quality. To address the range of questions requires the analysis of a vast array of information derived from globally distributed observing systems (including earth-based, airborne, ocean-based, and satellite-borne) as well as historical environmental observations and analyses contained in hundreds of disparate and geographically distributed databases and libraries. To provide the best possible decision support, whether it be to assess effects of ozone depletion, issuance of severe weather warnings, response to oil spills, or other natural or man-made phenomena, requires access both to real-time as well as to historical data and information. Advanced modeling and predictive tools, and data visualization capabilities are needed. Effective and timely environmental monitoring requires a mechanism to integrate the array of observations and analyses and to provide the means by which those needing environmental information (including scientists, policy makers, educators, the general public, etc.) are provided with the best possible information in the most timely way. A number of barriers exist today that prevent us from fully realizing the capability to monitor the environment in a comprehensive way and to bring the information to those who can benefit. To foster the conditions under which the national investment in technology and personnel is translated into significantly improved environmental understanding and emergency preparedness requires that a number of issues be resolved to make effective use of an advanced NII as an enabling and integrating agent for environmental monitoring and as a means by which all segments of society derive maximum benefit. What is the Public Interest in Promoting the Application? Environmental information is key to a broad range of individual and societal endeavors and, therefore, is a logical application for the NII. An advanced NII will be an enabler of activities that depend on environmental information including: Economy and National Competitiveness Businesses require environmental information to make critical decisions that directly affect their productivity and overall competitiveness. For example: - Agricultural companies and small farming concerns require assessments of economic impacts of floods, droughts, insect infestation, and plant disease. They require environmental information to plan for planting and harvesting and to assess market needs. - The construction industry requires ongoing assessment of regional and local environmental parameters for construction codes (e.g., to withstand earthquakes and severe winds), insulation standards, flood plain boundaries, etc. - Retailers require environmental information for targeting product sales for specific local climatic conditions and for timing the shipment of seasonal products for particular markets. - The legal profession requires environmental information to arbitrate issues of culpability and liability as, for example, in the case of Hurricane Andrew property damage in South Florida. - The insurance industry requires information to set insurance rates and to assess risks due to potential floods, earthquakes, proximity of property to hazardous materials sites, and severe storms. - Electric power utilities use environmental information to site and design power plants, to plan for fuel consumption, and to anticipate power outages initiated by solar activity, severe storms or geologic activity. - Consultants and other private sector companies use environmental information to develop value-added information products targeted at specific industry needs (e.g., weather and crop health information is used by consultants to advise commodities traders). Environmental Change Assessment It is generally recognized by the scientific community that the range of man's activities is leading to significant change in regional and global environments and, in particular, on climate. Cultural causes of environmental change include deforestation, burning of fossil fuels, and urbanization. Environmental change also results from natural causes such as volcanic activity and solar activity variations. Environmental information and the ability to accurately monitor changes over time are critical to tracking changes in biological diversity, and hence, to monitoring the health of the planet. An advanced NII can enable better and earlier assessment of trends in the earth's environment by enabling the integration of real-time observations from the myriad of observing systems and from the historical record contained in archive databases. It can enable the integration of environmental data with human dimension data to assess the effect of demographics on the environment and of the environment on demographics. Transportation The integration of environmental information on the NII will support the nation's transportation systems for both commercial as well as non-commercial uses. Air traffic can receive timely and more comprehensive information, marine navigation can have the latest information on hazards to navigation and on waves and currents, the trucking industry can plan deliveries around traffic delays caused by inclement weather, the general public can better factor weather into local and distant travel plans. Emergency Preparedness and Environmental Disaster Mitigation The integration of environmental information from a wide range of sources and its ready dissemination via the NII can allow emergency managers to access the most up-to-date and comprehensive environmental information to support rapid decision-making and contingency planning in the event of an environmental disaster. For example, in the event of toxic gas or radiation release, emergency managers could access the latest satellite observations to analyze the extent of the problem or real-time, ground-based wind measurements as well as historical wind information to assess the likelihood of such emissions reaching a designated area. Plans for evacuation, best route for evacuation, or other mitigation steps can be planned based upon such information. Support for this critical application mandates that the NII be robust, and be able to support a wide range of disaster situations. The expanding use of wireless technology can be expected to address this requirement. Environmental Hazards Regulation and Remediation Many thousands of sites exist in the U.S. (and many more world-wide) that contain hazardous byproducts of industrial and military activity. Many are known; many are yet to be discovered. These include dumpsites of toxic chemical and nuclear, waste most of which are on land, but a number are also known to exist at sea. Pollution standards and clean water standards are codified in federal law and are the responsibility of the federal government to monitor and enforce compliance. The NII can provide the means by which regulatory authorities, including elements of DoE and EPA, have ongoing capability to discover previously unknown waste sites, to monitor known ones, to enforce compliance with clean air and water statutes, to plan remedial action to combat pollution, and to assess the success or failure of remediation activities. This will necessitate practical, appropriate linkages among federal, state, and local authorities using the NII. Education Environmental information from many sources can be integrated via the NII and used to bolster the Nation's science and technology education. School teachers as well as students can be given access to both real-time and historical data to explore real-world natural phenomena. The government's volumes of science and technology information can provide excellent source material for teachers to build lesson plans, to become more knowledgeable in a particular subject area, and to develop materials for class presentation. Likewise, an ability to monitor natural phenomena such as earthquakes, volcanic eruptions, and severe storm events in a class room environment as they happen can form an invaluable experiential learning tool. The following application is proposed as part of the Vice President's Global Learning and Observations to Benefit the Environment Program. The participation of school children across the globe can be incorporated in a real scientific experiment. Schools will be issued devices such as the commonly available personal digital assistants (PDAs). They will be asked to take periodic environmental measurements such as air temperature and then to transmit the readings to a central repository using their PDA. The information will be incorporated in a scientific analysis with feedback of results provided electronically. Natural Resource Management Effective policy making with regard to natural resource utilization and its impacts on our economy and the economies of other nations depends upon natural resource utilization planning, and assessments of the effects of utilization on regional and global environments. Quality of life considerations require ongoing cognizance of natural resource inventories and the impacts of utilization. For example, a major environmental concern today is the effect of deforestation, and particularly loss of the earth's tropical rain forests, on regional and global climate. Such potential environmental change has immeasurable impacts on economic and global habitability considerations. The NII has the potential to bring together widely diverse information from environmental observing systems and historical information repositories that, when integrated, provide the guidance needed to manage such natural resources and to predict deleterious effects. How Do We Know Whether We Have Succeeded? The positive effects of the NII environmental monitoring applications will be measured in ways we cannot fully predict at this time. However, the evidence of our success will be apparent over time and will be measured in terms of: - Reduction in time to assemble environmental information for emergency action in the event of natural or man-made environmental disaster. - Ability to locate and retrieve comprehensive, up to date, critical data for economic analysis and environmental policy considerations. - Improvement in the quality of environmental research results attributable to easy access to multiple agency databases. - Enhancement in executing the government's regulatory role in pollution control and natural resource utilization. Better, more reliable information and access to such information by analysts, scientists, policymakers and the general public will put an end to the perceived conflict between the economy and the environment; the Nation will get more results for its enormous annual investment in environmental observation and protection. PART II: Where Are We Now? Environmental monitoring is an activity that is primarily the purview of the federal government. However, significant participation exists in academia and private industry in the form of research to advance environmental understanding, to develop the technologies for observing the environment, and to provide value-added information products. Even with the limitations of today's information infrastructure, there are some good examples of the power inherent in environmental collection and dissemination. For example, the Emergency Planning and Community Right to Know Act of 1986 established a Toxic Chemical Release Inventory, which requires industries to report their estimated total releases of toxic chemicals into the environment. Able to access the information via an innovative online service called RTK Net, citizens were able to point to the harms and urge polluting companies to reduce their emissions. Based on public pressure and their own concern about the quantities released, many companies voluntarily committed to making major reductions, even though no regulation mandated reductions. This demonstrates how publicly-assessable and usable environmental can wield tremendous power, both in the economic marketplace and the marketplace of public opinion. Federal agencies with major activities in this arena include (but are not limited to) NOAA, NASA, DoI, DoE, EPA, DoD, and U.S. Department of Agriculture (USDA). Some existing federal programs and interagency activities provide both the impetus to move forward and a base of experience in interagency cooperation in the environmental arena. Some Major Interagency Efforts U.S. Global Change Research Program The USGCRP is a multi-billion dollar federal program that involves most of the U.S. agencies with environmental programs as well as some that do not. It also includes academia and private sector. This program consists of research activities that involve deployment of a number new environmental observing systems including the EOS satellites (scheduled for launch beginning in 1998), implementation of networks and data processing centers to support data acquisition and distribution, and a range of scholarly research. The networking part of this program is embodied in the Global Change Data and Information System (GCDIS), which is intended to provide the appropriate level of communications technology, interoperability, and connectivity to allow easy exchange of data among participating agencies. Global Change Data and Information System The U.S. Global Change Data and Information Management Plan, a Report by the Committee on Earth and Environmental Sciences approved in 1992, commits the participating Federal agencies to work with each other, with academia, and with the international community to make it as easy as possible for researchers and others to access and use global change data and information. Toward this end, the agencies are organizing a Global Change Data and Information System, which takes advantage of the mission resources and responsibilities of each agency. The GCDIS is described as the set of individual agency data and information systems supplemented by a layer of crosscutting new infrastructure, and made interoperable by use of standards, common approaches, technology sharing, and data policy coordination. Current plans call for the development of network interconnectivity, interagency data gateways, adoption of common standards for data exchange, and the establishment of procedures and policies for data and information dissemination among the participating agencies. As a decentralized system, the primary focus of the GCDIS is on establishing and maintaining effective mechanisms that integrate the disparate elements. National Spatial Data Infrastructure The Federal Geographic Data Committee (FGDC), established by OMB Circular A-16, has as its goal the creation of a national digital geographic information resource. The importance of this committee has significantly increased under the chairmanship of Interior Secretary Bruce Babbitt, and implementation of the National Spatial Data Infrastructure (NSDI) by Executive Order is anticipated. The FGDC has taken a lead role in the development of data exchange and metadata standards needed to implement the NSDI. The scope of the NSDI includes all types of geographic information system (GIS) data from mapping and charting to all geographic or "spatial" data including climatic, demographic, natural resource, oceanographic, and geophysical data. High Performance Computing and Communications Program The U.S. federal HPCC program is a major multi-billion dollar interagency activity designed to promote the development of technologies and applications in high-performance computing and in telecommunications. Several agencies with major environmental programs are players in this program. A major element of the Program is the development of the National Research and Education Network (NREN), which would expand current Internet capabilities with a much higher capacity network. In 1993 a major new element, referred to as Information Infrastructure Technology and Applications (IITA) was incorporated in the program to advance the use HPCC technologies in the development of the NII. Environmental Monitoring is one of approximately eight applications that define and establish technical requirements for implementing advanced telecommunications systems and services under IITA. The NII is seen as an integrating element and facilitator in Environmental Monitoring applications; that is, it promises to provide the transport mechanism and the data translation services to allow the user to work with many heterogeneous databases that are geographically dispersed. Federal Agency Activities National Oceanic and Atmospheric Administration NOAA has mission responsibility to predict the weather, chart the seas, assess natural and man-induced climate change, manage U.S. fisheries, and perform environmental research to advance capabilities in these areas. NOAA is a major participant in the U.S. Global Change Research Program (USGCRP), within which it performs basic ocean and atmospheric science research as well as conducting research in a variety of environmental areas within its laboratories. It also participates in major international and interagency environmental research activities including the World Ocean Circulation Experiment (WOE), Joint Global Ocean Flux Study (JGOFS), and the Global Energy and Water Cycle Experiment (GEWEX) Continental-Scale International Project (GCIP). In carrying out its mission, the agency operates a variety of observing systems including environmental satellites, doppler weather radar, ground-based weather sensors, ocean-going fleet, ocean-based instruments, etc.; telecommunications facilities have been established to support the acquisition of data from these observing systems for operational use. The agency operates three National Data Centers (National Climatic Data Center, National Oceanographic Data Center, and the National Geophysical Data Center) charged with maintaining the nation's climate, ocean, and other earth science records and distributing environmental information in support of commerce, transportation, construction, education, research, etc. NOAA's High Performance Computing and Communications (HPCC) Program has been established to coordinate the agency's needs for and development of high performance computation in support of mission objectives and the fundamental telecommunications infrastructure for environmental information acquisition and dissemination internally and with the outside. NOAA's Environmental Service Data and Information Management (ESDIM) Program provides coordination within the agency and with outside organizations (including federal, international and academic institutions) in matters of environmental information management, including environmental information product generation, distribution, and standards; data policy considerations; and interagency and international agreements on environmental data exchange. National Aeronautics and Space Administration NASA has mission responsibility to conduct space-based research in atmospheric, ocean, and land science and the development of satellite-borne sensors to accomplish this research. In support of this mission, NASA has long been involved in the development of information systems to acquire the data from these sensors, manage it, and convey the data to its researchers. It is currently involved in several major interagency and international environmental research programs including USGCRP and GCIP. NASA has undertaken an ambitious program to launch a series of earth observing satellites beginning in 1998 referred to as the Earth Observing System (EOS). These satellites will measure a variety of atmospheric, ocean, and land parameters over a period of 15 years to arrive at a better and more comprehensive understanding of earth processes. In particular, the measurements will attempt to provide answers to fundamental questions about how the earth's environment is changing. An equally ambitious program of data management, called the EOS Data and Information System (EOSDIS), has been established to develop the systems to acquire, manage, and disseminate the environmental data from the satellites. A set of eight Distributed Active Archive Centers (DAAC) have been established by NASA along scientific discipline lines to receive the data, generate information products, and distribute them to NASA's research community. These DAACs will be interconnected via a high-bandwidth telecommunications infrastructure called the NASA Science Internet (NSI) to enable data exchange among the DAACs. NASA has initiated a program on Public Use of Earth and Space Science Data Over the Internet by developing pilot end-user remote sensing database applications and applying new digital library technologies that can enable and demonstrate the application and accessibility of earth and space science databases. Remote sensing database applications potential areas of interest include: atmospheric, oceanic, and land monitoring; publishing; agriculture; forestry; transportation; aquaculture; mineral exploration; land-use planning; libraries; cartography; education (especially K-12); entertainment; environmental hazards monitoring; and space science data applications. Potential Digital Library technologies include: innovative user interfaces; direct public access to satellite imagery; heterogeneous databases; information retrieval; advanced search and browse techniques; data structures; use of data and image compression; distributed database systems; accounting and data security; file storage management systems; and resource discovery. Environmental Protection Agency EPA is responsible, through its research and regulatory authorities, for protecting public health and ecological resources from environmental pollution. Environmental monitoring is an essential tool in the development and evaluation of policies intended to protect human and ecological health. The use of environmental monitoring data allow EPA offices and their partners to better estimate the risks associated with pollution in the environment and to more effectively manage these risks. Specifically, EPA's environmental monitoring and research activities relate to the development and field evaluation of models that: 1) estimate concentrations of pollutants in the environment based on source information and 2) evaluate the risks posed by these pollutants to human and ecological health. These efforts are supported by programs that develop methods and technologies for measuring pollutants in the environment and approaches for assuring the quality of monitoring data. EPA also monitors pollutant concentration and indicators of human health and ecological condition as a means of evaluating the effectiveness of its policies and regulatory decisions. These efforts include: 1) several Clean Air Act-mandated programs to monitor concentrations of the major ambient air pollutants and their sources; 2) monitoring of water supplies and discharges into lakes and rivers mandated under the Clean Water Act; 3) the Environmental Monitoring and Assessment Program (EMAP), a national scale program to monitor ecological resources; and 4) the National Human Exposure Assessment Survey (NHEXAS). EPA's environmental monitoring programs allow the agency to continuously evaluate and improve its regulations, decisions, and policies, by ensuring that all relevant scientific and technology information is considered in their development. EPA provides information and data to the public and other interested stakeholders through a variety of means: public information centers, limited mainframe access, electronic bulletin boards, hotlines and clearinghouses. Key environmental systems that are of interest and importance to the public and businesses are available such as the Toxic Release Inventory (TRI). Also, the Center for Environmental Research Information is the focal point for the exchange of scientific and technical environmental information produced by EPA. Department of Energy DoE has mission responsibility to provide an environmentally safe, economically sound, and politically stable energy future. It conducts focussed scientific research involving the carbon cycle including research on the effects of fossil-fuel emissions on the earth's biosphere. To support its research efforts and its data dissemination, DOE has established the ESnet wide area network connecting 23 sites and with links to the Internet. DoE has significant expertise and experience in using computing and information technology to support its efforts in environmental cleanup. Databases currently exist for classification of waste streams and waste tank status and condition. DoE is pioneering the effort to develop and use Geographic Information Systems (GIS) in the process of monitoring and managing environmental remediation. The agency is a leader in the development and use of modeling and simulation technology for modeling groundwater flow and evaluating the effectiveness of remediation technology. DoE also has developed leading edge technology in robotics and teleoperated systems. DoE's overall objective is to leverage the large, ongoing investment made by industry and other government agencies in the successful implementation of the NII dedicated to enhancing the quality of our environment. Both managing and remediating existing waste sources and reducing waste from U.S. manufacturing operations through universal access to best practices information are critical. DoE will apply its information infrastructure resources to ensure that an information structure is developed and implemented providing significant utility to all enterprises in the Environmental Restoration Industry to enhance their productivity and competitiveness by: - Reducing the time required for the industry to identify, characterize, assess, recommend and remediate environmental issues - Providing and enhancing the access for all environmental industry enterprises to the intimidating amount of regulatory information in a timely manner - Ensuring high performance access to resources, especially monitoring and modeling resources, to validate remediation plans. DoE makes environmental information available through three major centers: the Carbon Dioxide Information Analysis Center (CDIAC), the Energy Information Administration (EIA), and the Office of Scientific and Technical Information (OSTI). CDIAC is focussed on deriving information for global change analysis and is the nation's primary steward of information on greenhouse gases. EIA has data collection and analysis authority for total fuel cycle especially for benefit-cost analysis of environmental impacts. The data holdings are a resource for energy production and/or use and socioeconomic analysis. OSTI is responsible for managing the department's scientific and technical information, particularly it's scientific publications. DoE researchers located at several National Laboratories are involved in major interagency and international environmental research programs. These include the U.S. GCRP, WOE, and JGOFS. A major new research program in DoE, the Atmospheric Radiation Measurement Program acquires and analyses the environmental data necessary to characterize the climate-cloud mechanisms for understanding climate change. Department of Interior As the major federal land manager and a primary federal agency responsible for managing the Nation's natural ecosystems, fish and wildlife, and energy and water resources, DoI is particularly concerned with environmental monitoring. DoI's programs address topics such as the quantity and quality of the Nation's fresh water resources; geologic processes (including earthquakes) and earth resources; land use, and land cover; biological habitats, resources, and diversity; past environmental change recorded in the physical, chemical, and biological record; land surface and solid-earth processes that relate to environmental change; geography and cartography; polar and arid region processes; ecosystem modeling and dynamics; and resource ethnology. DoI bureaus collect, maintain, analyze, interpret and actively maintain short- and long-term land, water, air, biological, and other natural resource data and information in support of their missions. These efforts require the maintenance and communication of many levels of data and information, whether remotely sensed or gathered in situ, and extensive collaboration across many organizational and technical barriers, nationally and internationally. PART III: Where Do We Want to Be? What is envisioned for the environmental monitoring application area of the NII is a virtual national monitoring system that brings together data sources and data users, integrating existing systems and building upon their strengths. In addition to providing the integration mechanism for the disparate components of U.S. environmental monitoring infrastructure, such a system should have strong links to international observing systems and environmental data centers so that a truly global environmental picture can be assembled. Developing the environmental monitoring application does not mean replacing the existing systems used by various organizations for fulfilling their missions, but rather developing the layer of hardware/software linked via telecommunications facilities providing appropriate transmission capacity and network services. A national environmental monitoring infrastructure should allow the various participating organizations (both public and private) to continue to pursue their individual independent missions while harmonizing their activities with other organizations. It is impossible to quantify the synergy accomplished given the implementation of the infrastructure, but it is very clear that comprehensive environmental management cannot occur without it. PART IV: How Are We Going to Get There? To achieve the goal of a national integrated system for environmental information and services using NII enabling technology requires a commitment on the part of federal agencies to coordinate development and implementation. Plans that currently call for agency-specific development should be reconsidered in light of the need to satisfy larger national goals. Leadership on the part of the federal government is required to foster partnerships among public and private organizations so that each sees a clear benefit in participation and cooperation. We should note that the federal government is providing strategic leadership, e.g., the data management principles, OMB Circular A-130, Federal Information Processing Standards (FIPS), the NII Agenda for Action, the Government Information Locator Service proposal, the National Environmental Index, and the National Spatial Data Infrastructure plan. The federal government is also helping to development promote many of the critically important technologies and technical standards (e.g., the Internet, the Spatial Data Transfer Standard, the ANSI Z39.50 Information Search and Retrieval Standard). The federal government should commit to providing the organizing principles for the comprehensive framework that underlies environmental information, and should actively promote the consolidated acquisition and other sharing of data, as is done with the National Aerial Photography Program. The federal government should also promote consensus building using electronic mechanisms. Making it happen will require close attention to eliminating some barriers. The following are some of the areas on which we must focus: Interoperability Standards Interoperability may be the single most important issue in realizing the integration of environmental information on the NII; without agreement on interoperability standards and a commitment to adhere to these, we are left with the current set of disparate and isolated environmental information systems. Multidisciplinary analysis, critical to addressing environmental concerns, will be nearly impossible and will proceed at the slow pace that it currently takes by necessity. Environmental observations may be single measurements at one location, time series at a location, digital imagery of the entire planet, swaths of observations of the earth's surface, profiles through the atmosphere, etc. The data types may be text information, or numerical values, graphics products, or digital imagery. The size of environmental data sets may range from single-point measurements to hundreds of terabytes. A proliferation of data formats currently exists to support the myriad of data types. For environmental data to be transported from various observing systems owned and operated by a variety of agencies, integrated into information products, and distributed to the appropriate user on the NII, a set of data formats and electronic information exchange protocols must be universally adopted. Interoperability also implies the existence of user interfaces that are intuitive and common across the various environmental databases. However, the valid integration of information presents fundamental problems of data consistency that must be addressed by the development and application of content and metadata standards. The user should be capable of formulating questions and receiving responses without having to be knowledgeable about how each system is organized. Information Security and Reliability To maintain user confidence in environmental information on the NII, appropriate measures must be taken to preserve the integrity and reliability of data. Any system deployed for information dissemination must incorporate the appropriate safeguards to ensure against the intentional or unintentional corruption of the information. Further, uniform quality standards must be adopted and enforced that ensure that data derived from a number of sources and integrated into information products that are then used by policy makers, scientists, educators or the general public are of consistent high quality regardless of source. The environmental monitoring information must be highly reliable not only in terms of quality but also in terms of timeliness to maintain the confidence of those segments of society who rely on the information for routine forecast purposes, issuing emergency natural hazard warnings, recreation, or in conducting day to day activities. Very Large Data Volumes Planned or currently deployed environmental observing systems, both satellite- and earth-based systems, produce data at ever-increasing rates as the observing technologies extend the spatial, temporal, and spectral coverage of measurements. Some systems are capable of producing hundreds or gigabytes of data daily with much of the transmissions being "bursty" in nature, i.e., large volumes in a short time period. Further, the accumulated databases may range into the hundreds of terabytes. The NII must provide the end-to-end transmission capacity as well as a means of prioritizing transmissions to ensure that data needed for environmental monitoring are available when required by the user. The bandwidth and prioritization consideration are particularly important for real-time environmental data acquisition necessary to protect life and property. Information Access/Connectivity (including international) A definition of levels of access and connectivity must be agreed upon. In many cases, a simple modem and data terminal are all that is required for access to environmental information; in other cases, equipment and connectivity to support virtual reality environments are necessary. A hierarchy of network functions must be defined with the appropriate communications services and technologies. A "floor" or fundamental set of network services available to nearly everyone must be defined and goals should be established on the time frames for providing the fundamental services and the higher service levels. Since environmental issues recognize no national boundaries, the two-way free flow of environmental information must be maintained with other nations who are both consumers of U.S. data as well as producers of data for U.S. consumption. For environmental monitoring considerations, the NII must be sufficiently robust and dependable to provide the transmission medium for data that affect protection of life and property. The data from environmental observing systems must be reliably transported to organizations responsible for emergency preparedness. The information products, including forecasts, warnings, or emergency bulletins, must be reliably transported to the intended target and in a timely way. Exploiting Multiple Uses of Acquired and Processed Environmental Data Environmental data normally have many important uses beyond the primary purpose for which they are acquired. For example, wind measurements may serve the primary purpose of short-term weather forecasting but find important other uses in long-term climate assessment, siting power plants, building design, etc. A variety of agencies are responsible for various environmental observations specific to fulfilling the agency's mission; more often than not, the data are not fully utilized for other purposes and are not integrated with other-agency data because of difficulty of access, lack of adequate documentation, etc. The NII may serve as an integrating medium leading to the sharing of environmental information to provide more comprehensive data sets and improved monitoring. Issues and Questions to Be Addressed The following issues and questions need to be addressed and policies initiated to facilitate the development of the environmental monitoring application as part of the NII. It should be noted that these issues, in and of themselves, will not ensure overcoming the barriers described in the previous section of this paper; but they are a starting point. Full realization of a national environmental monitoring system enabled through the NII will require tackling a full range of issues discussed in this paper. - A Global Change Data and Information System (GCDIS) is the cornerstone for collection and dissemination of global change and other environmental data and information for use by the private sector, researchers, educators and others. The importance of this activity must be recognized within the National Science and Technology Council (NSTC) process. How should the NSTC Committee on Environmental and Natural Resource Research, with support from the Committee on Information and Communications pursue the full development of a GCDIS that fully satisfies a wide range of public and private information requirements? What actions are required to ensure that all involved federal agencies are appropriately funded? - Several federal agencies are conducting research into systems to handle environmental information. Coordination is required and the effort needs to be expanded to ensure that national needs are met. How should the HPCC Program, through its IITA component, establish a set of environmental information dissemination pilots to stimulate development and test application of new network information navigation and access tools, such as extensions of MOSAIC, that focus on access to very large amounts of heterogeneous environmental information distributed across agencies in many geographical locations? - There is currently no generally accepted methodology or data format to allow easy exchange of data from one agency's system to another and, therefore, a user cannot easily navigate through thousands of environmental databases of the agencies. How should the Federal Geographic Data Committee move forward as directed in the National Performance Review in establishing a National Spatial Data Infrastructure in developing the consensus among federal and private concerns for standards and technologies to facilitate spatial data exchange? How should NOAA take the lead, in response the Executive Order, to coordinate with other federal agencies the development of the National Environmental Index establishing the information content and format standards for cataloging environmental data? How should NIST work proactively with agencies involved in environmental monitoring to ensure the appropriate application of federal systems and information standards? - A very large number of agencies distribute environmental data in electronic form, some of which is fee-based. Currently many agencies (and many sub-agency units) manage billing and accounting services separately, although some use the services of the FedWorld gateway run by the National Technical Information Service (NTIS) in the Department of Commerce. In many cases, users must make separate payment arrangements with each database distributor. How can the NTIS or other billing and accounting services be accessible to all government information providers? How can users negotiate costs and billing with a single organization and receive a single bill?  Last Updated: May 3, 1994 _________________________________________________________________________ Libraries and the NII DRAFT FOR PUBLIC COMMENT Policymakers must determine how to sustain, in the electronic age, the democratic and equal access to information that free public libraries have provided in the age of print. [footnote 1: Statement by James H. Billington, the Librarian of Congress, at the "Delivering Electronic Information in a Knowledge-Based Democracy" (DEIKBD) conference; proceedings, 4.] PART I: What Is the Application Arena? Description of Libraries The Traditional Role of Libraries. Libraries are central to the storage and sharing of knowledge, history, and culture. They offer access to knowledge and information representing diverse sources and viewpoints. Libraries are adjuncts to education, a base for generating innovative thinking, a stimulus to culture, and an aid to the individual self-development of citizens. They are also keepers of the intellectual, cultural, and historical memory of their community. Libraries acquire, catalog, make available, and preserve collections in all media. These collections traditionally consist of material items stored in site-specific facilities which limit access to those who can travel to the site of that library or receive the items through interlibrary loan. Whenever an item is in use, it is temporarily unavailable to all other people. Libraries have developed in response to the nature and character of the publishing communities. In the United States, libraries have served as information "equalizers" or providers of equal access for all, permitted by the first sale [footnote 2: The first sale doctrine of copyright is the information equalizer in that it limits copyright owners' rights by making only the initial distribution of a particular copy of a work subject to the owner's control. Section 108 of the copyright code allows libraries to make copies of certain works under certain conditions both for patrons and other libraries.] doctrine of copyright law to lend copies of copy righted works after their initial distribution. The Role of Libraries in the NII. The ability of digital libraries to store and share knowledge, history, and culture will be central to the success of the NII. The digital library [footnote 3: "Digital library" is used here as an aggregate, implying electronic access to many sources of digital information. This includes libraries but does not exclude other sources such as corporate, government, and research entities.] is really a library with extensive electronic collections in a variety of forms in different locations. Increasingly materials are being acquired in electronic form; libraries are beginning to convert their paper and analog collections to machine-readable formats for both preservation and spatial reasons. As today, the role of libraries in the future will be to advocate and help provide information equity for the public. Libraries will continue to coordinate and facilitate preservation of the records and expressions of the nation's intellectual and cultural life both in traditional and digital formats. Libraries will be sources of free or inexpensive digital information; provide access to an improved flow of electronic government information and world-wide digitized resources; request and be sent copies of remotely stored documents and other publications as allowed by copyright licensing and other agreements; make digitized reproductions of rare and unique material that is in the public domain or for which permission of the copyright owner is available as allowed under the copyright law; and provide long-term access to the records and expressions of culture and scholarship. The evolving information infrastructure is already dramatically changing traditional operations within and relationships among libraries and their providers and users. It is also offering new challenges. New forms of unpublished, and often unauthenticated, digitized materials are emerging as millions of people are linked by world-wide networks. The volume of new digital material, if it were on paper, would eventually dwarf the existing physical collections. The situation is additionally complex because digitized information can be easily updated, manipulated, and combined with other materials, and displayed in multiple ways. Digital data thus creates enormous new amounts of knowledge that maybe accessed and manipulated by computers, existing temporarily and never stored anywhere permanently. Institutions, including libraries, may provide access to these materials without ever physically controlling them, and readers at multiple sites have access to the same material at the same time. Future Role of Librarians. The role of librarians will change significantly as they become increasingly viewed as managers of both information and knowledge. This forward-looking perspective was underscored at the Library of Congress (LOC) conference on "Delivering Electronic Information in a Knowledge-Based Democracy" [proceedings, 5]. These knowledge management skills may take many forms and can be expected to involve librarians in all facets of the information chain. Librarians may be present at the information generation process; they will help manage digital materials and assist people in dealing with the plethora of information. Librarians will increasingly function as facilitators, enablers, and teachers of network users; library systems and consortia will negotiate information access rights [footnote 4: "Access" implies a complex of possibilities. It includes online viewing either by one or many users, printing, downloading, transmitting the work to the libraries, modem access, public performance, and public display. This list while not all-inconclusive does suggest the complexity of the access issue which must be addressed by copyright law as well as by vision and technology. To paraphrase Barbara Ringer's statement at the Senate Committee on Rules and Administration Hearing on March 3, 1994: It is obvious that we are at the beginning of an enormous revolution in communications. What isn't obvious is that the copyright law is at the center of this revolution and will determine the course it takes. The bulk of the material to be transmitted on the superhighway is copyrighted, it is intellectual property that is owned by someone.] on behalf of public users of the digital library. Librarians will become guides to network tools in much the same way as they have acted as guides to the use of traditional materials. New Roles and Alliances.|en|New roles and alliances are expected to emerge. The originators of published and unpublished information are being empowered by the new digital information tools to carry out many of the services previously fulfilled by libraries: from subject-driven information delivery to navigational services and from onsite access to virtual access as providers of research tools. This could expand the concept of "libraries" to include not only collections maintained by traditional libraries but also those held by publishers, research organizations, universities, commercial enterprises, and new players of all kinds. While the digital library within the context of the NII is a national initiative, there are significant international implications both for the sharing of information across national borders and for the shift in the organization of intellectual creativity. Questions of international cooperation and economic competition will arise. Because the infrastructure permits international access to digital information in a way that is impossible in the traditional library model, new international relationships and models can and will emerge. Without taking into account from the outset rules for effective protection of intellectual property, the development of an international system (the Global Information Infrastructure (GII)) will be severely hindered. In a global system a user in one country will be able to manipulate information resources in another country in ways that may violate that country's copyright laws. Copyright laws are territorial; international copyright conventions and other multilateral agreements allow for significant differences in national laws. Work must begin on international harmonization of copyright laws to accommodate a digital world. The Application. Digital libraries in the NII will contain vast amounts of digitized data: text, pictures, audio, and video. The data will not be located at any single site, but rather will consist of digitized materials and processing methods from many sources. The development of digital collections in libraries will depend on the following components: - Interconnected and Interoperable Networks. Digital libraries are premised on the existence of a network of networks, interconnected and interoperable. - Decentralized Data and Processing. A second assumption concerning the digital library is that information and knowledge can exist and processing can take place at multiple, decentralized sites. - Databases. Digital libraries will contain data that only exists digitally and digitized data that has been converted from another medium such as print, sound, or audio. Developing techniques to consistently collect, store, and archive digital material using automated methods is an important first task for the digital library community. The conversion of existing material to digital form also is important. This converted material will form the nucleus of the digital database and provide a bridge to traditional collections. - Navigation and Retrieval Tools. Navigation and retrieval tools capable of identifying, accessing, and retrieving the digital resources must be developed. When practical, major navigation and retrieval tools will be based on standards that ensure the ability to communicate in order to share both data and processing. - Document Delivery. The ability to deliver physical copies in print or in any of several fixed digital formats must be supported. [footnote 5: Document delivery, while a technical component of the applications, involves significant copyright issues that must be resolved. Downloading substantial amounts of copyrighted material will require license agreements with related questions of who will pay and how will they be administered. Guidelines must be developed as to what are insubstantial amounts of downloaded materials, subject to fair use exemptions. - Presentation standards and techniques to assure reliable and effective representation of intellectual content must be created. - Mass Storage. The ability to store increasing amounts of data at steadily decreasing costs is a technological trend that is vital to the massive amounts of data that digital libraries will need to store and support. - Human Resources. The most critical success factor for the success of digital libraries will be the human resources component. This component assumes the education of a new generation of librarians as knowledge navigators; training and retraining of current librarians; and training of the public in the new technology and the use of electronic information resources. Benefits of Applications in This Arena The benefits of linked digital libraries include continued and expanded access to current information and access to historical material in unparalleled detail. Technical barriers to information sharing will largely disappear. Using libraries as gateways to the digital network can help ensure that information is accessible to all and prevent the formation of a society divided into information haves and "have-nots." Libraries must continue to play their vital role of information safety net for the public by providing access to and promoting literacy of digital materials much as they have for printed materials. This is particularly true of libraries' role in providing access to and navigation of the plethora of government information that is to be made available electronically. As Senator Edward Kennedy recently stated [quoted in McClure et al, 38]: Public libraries are a vital information link between the government and the public...libraries must continue to play a critical role in providing broad access to the public...[and guiding] citizens of all ages through the world of computer networks...[L]ibraries will make the government less remote and more responsive to the needs of individual citizens. Measures of Success of Digital Libraries An important measure of library success is use. An example of this is LOCIS, the Library of Congress Online System, that was made available via the Internet in April 1993. While Internet LOCIS was only available for 8 months of fiscal year 1993, Internet transactions accounted for 6 percent of the total number of LOC mainframe computer transactions in 1993. It is projected that Internet transactions will account for more than 12 percent of the total number of mainframe transactions in fiscal year 1994. Rising usage statistics and positive public response demonstrate that Internet access to LOCIS is a success. The same type of measurement must be applied to the digital environment. When there is substantial use of electronic information, particularly of items not otherwise available, then success that can be measured has been achieved. Other indicators of success of digital libraries are changes of patterns of patron service and demands. If patrons indicate a preference for digital forms, then this new form of material is a success. This has already happened in large part for library catalogs. Some indirect measures of success include decreased costs of processing, managing, and storing materials and increased availability of resources. PART II: Where Are We Now? Libraries Demographics. There are 87,000 public and private school libraries, 9,000 local public libraries, 4,600 college and university libraries, plus hundreds of specialized business libraries and federal and state libraries in American today. More than 182,000 professionals work in libraries [Billington, 109]. Connectivity. Based on the preliminary results of a national survey of public libraries sponsored by the National Commission on Libraries and Information Science (NCLIS) and executed by Professors Chuck McClure (Syracuse) and Doug Zweizig (Wisconsin-Madison), approximately 21.1 percent of the responding libraries are currently connected to the Internet and 78.9 percent are not. However, 84.6 percent of the responding public libraries serving populations of 500,000 or more are connected, while only 13.3 percent of the libraries serving populations of less than 5,000 have Internet connectivity. Of the 1,400 depository libraries, 929 (68.1 percent) have access to email via Internet, Bitnet, or other electronic service; 716 (52.5 percent) depository libraries have file transfer; a survey question concerning telnet or remote database access capability was not included in the survey [US/GPO]. Government Applications Several federal agencies of importance to libraries have been mandated to develop applications using the NII. The applications have involved electronic publishing and conversion, navigation and retrieval tools, interoperability standards for information transfer between different networks or different hardware and software systems with reliability and accuracy, copyright management in an electronic environment, and archival efforts. Of the programs cited, the Government Printing Office (GPO) Access Act and the National Telecommunication and Information Administration (NTIA) Grants program support operations. All of the other programs noted are research and development (R&D) efforts. Some agencies, recognizing the potential of networked information, have begun network efforts as part of improving existing services. These are listed under Operational Efforts. [footnote 6: Most government funding of the NII to date has supported R&D rather than operations. The notable exception is the funding for the telecommunications backbone funded through the NSF which connects the regionals. Government R&D and operational programs of note are: Research and Development. - High Performance Computing and Communications Research and Development. The Federal High Performance Computing and Communications (HPCC) Program provides funding for research in library and information science and systems required to advance the development of digital libraries. NSF, ARPA, the Department of Energy, the National Aeronautics and Space Administration (NASA) and others participating in the HPCC Program are funding a variety of projects to support the creation of digital libraries and advance the technology base available to operate digital libraries. Under a new program component, Information Infrastructure Technology and Applications, ARPA funds the development of hypermedia systems with intelligent human interfaces; NSF funds digital libraries research; NASA is developing prototype digital libraries and advanced methods for accessing their data; the National Institutes of Health are developing advanced medical data base technology; the National Security Agency supports research in mass storage and database management; and the Environmental Protection Agency and the National Oceanic and Atmospheric Administration are expanding access to environmental data. - Research on Digital Libraries. HPCC R&D includes cooperative initiatives, combining agency funds and efforts. A recent endeavor of importance to libraries is the Research on Digital Libraries Initiative, a joint effort of NSF, ARPA, and NASA. This initiative provides grants for research on systems for data capture, software for searching, filtering, and summarizing large volumes of data in various formats, and networking protocols and standards that can accommodate the high volume and bandwidth requirements of digital libraries. - Other. R&D projects such as the Digital Technical Reports Library project involving ARPA and other players, and the NSF Digital Library Initiative, have emphasized the manipulation of large data collections, including models for policy and technology tools necessary to make large amounts of data available. The use of sophisticated text retrieval techniques, including statistical and semantic analysis, continues to be explored through activities such as the Tipster project and the Text Retrieval Conference (TREC), both sponsored by ARPA. ARPA also is providing support for the CS-TR (Computer Science Technical Reports) R&D project. This is an effort to share university-generated computer science literature in a linked digital library among the participants (MIT, UC-Berkeley, Carnegie-Mellon, Cornell, and Stanford). The overall project is coordinated by the Corporation for National Research Initiatives (CNRI). Operational Efforts. The GPO Access Act of 1993 encourages electronic availability of federal information. The NTIA Grants is intended to stimulate the building of the infrastructure. Due to demand and perceived value, some agencies are striving to make use of the Internet to make data available electronically. Some federal data bases are only available through private sector vendors, and several of the most important of these are candidates for low-cost distribution to the public (for example, the Security and Exchange Commission's EDGAR database). Several dozen federal agencies already provide points for distribution of publications and other agency-generated information on the Internet. Other efforts include the management and distribution of copyright information pilot and federal preservation and archiving projects. - GPO Access. The Government Printing Office "Access" Act, which became public law in June 1993, requires the Superintendent of Documents to maintain an electronic directory of federal electronic information; provide a system of online access to the Congressional Record, the Federal Register, and other appropriate publications; and operate an electronic storage facility for federal electronic information. These services are to be operational by June 1994. Depository libraries are to have free access to the services while others will pay a fee to cover the incremental cost of dissemination. The law also requires the Superintendent of Documents to accommodate, to the extent practical, agency requests to include their information in the GPO online access system. - NTIA. P.L. 103-121, appropriating FY 1994 funds for the Departments of Commerce, Justice, State, the Judiciary, and related agencies, includes $26 million requested by the Administration to begin an information infrastructure grants program to support demonstrations of new telecommunications technology applications. Libraries are among the institutions eligible to receive matching grants under this program to expand telecommunications networks and to access existing and new sources of electronic information. - Federal Information Online. Use of electronic bulletin boards systems (BBS) and online databases has grown rapidly within the government over the past decade. More than 40 organizations within the federal government operate BBS as part of their information dissemination activities. These BBS can be accessed directly through a modem, and, in some cases, through the Internet. The Fedworld BBS, operated by the National Technical Information Service (NTIS), provides easy access to a plethora of government information sites, including digital libraries, more than 130 other federal BBS, and digital documents such as Presidential speeches and health care legislation. The White House routinely posts the text of speeches, press briefings, press releases, reports, and legislative proposals to various bulletin board systems, including some available through consumer-oriented services like Compuserve and America On-line. A few members of Congress have begun posting the text of their speeches and press releases to publicly accessible bulletin board systems; one member has setup a Gopher server. Several dozen federal agencies provide Internet distribution of publications and other agency-generated information through public Gopher, World-Wide Web (WWW), Wide Area Information Server (WAIS), and other servers or File Transfer Protocol (FTP) sites. - Publishing and Data Creation. More than 50 separate organizations within the federal government were listed as database producers in a 1992 directory of online databases. Among the 175 publicly available federal databases, perhaps the best known are the National Library of Medicine's MEDLARS system, the National Agricultural Library's AGRICOLA system, the Library of Congress information system LOCIS, and the Federal Election Commission's Direct Access system. - Electronic Copyright Management System (ECMS). ARPA, the Library of Congress, and CNRI are collaborating on the development of an experimental Electronic Copyright Management System to explore the use of high-performance computing systems and networks, tools, and procedures to manage copyright information and other intellectual property and associated rights in a network environment. This system will serve as a testbed for the evaluation of the concepts and issues of electronic copyright deposit, registration, and recordation of transfers of ownership and licensing transactions. This development effort is an interagency effort involving agencies from both the executive and legislative branches. - Archival and Digitization Projects. The United States National Archives and Record Administration (NARA) continues to evolve mechanisms for management of digital archives. NARA's Center for Electronic Records appraises, collects, preserves, and provides access to U.S. federal records in electronic format. The Center maintains electronic records created by the U.S. Congress, the courts, the Executive Office of the President, Presidential commissions, and nearly 100 bureaus, departments, and other components of executive branch agencies and their contractors. The National Library of Medicine (NLM) is developing the capacity to acquire, store, and distribute large collections of digital images, including digital pages created as part of the System for Automated Interlibrary Loan (SAIL), diagnostic radiology images used by the Diagnostic X-ray Prototype Network (DXPnet) project, and the 2-D and 3-D anatomic images acquired as part of the Visible Human Project. Other federal agencies actively exploring efforts to convert traditional-media material to electronic form to improve access and preservation include the Smithsonian Institution and the Library of Congress (American Memory project). Non-Government Applications R&D and pilot projects are being undertaken by many non-federal government organizations representing both commercial and non-commercial entities interested in participating in the NII. These efforts are vital both for the continued development of the infrastructure and for the establishment of roles and policy in the electronic environment. Publishers. There are currently a number of experimental projects under way to use networks to deliver documents or provide access to images of print publications. These include services offered by Colorado Alliance of Research Libraries (CARL), Engineering Index (EI), University Microfilms International (UMI), and Faxon of ten in partnerships with secondary database access providers such as the Online Computer Library Center (OCLC), the Research Libraries Group (RLG), or Dialog. EI, UMI, AT&T (InterNIC), Faxon, Elsevier, and Springer-Verlag are also undertaking projects to develop the infrastructure for digital publication and conversion, navigation and retrieval, and interoperability standards. Several scientific journal publishers such as Elsevier and Springer-Verlag are conducting experiments with universities to make the contents of certain journals available electronically to the university either under site licenses or pay-per-view agreements. Third-party aggregators and relicensers such as UMI and Information Access Corporation are licensing full-text or journal-page images for specific areas directly to institutions. A number of publishers are making the text of their publications available for searching through database access providers such as Dialog or BRS on a transactional basis. Journals published only in electronic form are well established and growing in number. Most are free; only a few are refereed and those constitute a minor force in the academic tenure process. The growing number of respected free electronic journals and newsletters include Psycoloquy, Public Access Computer Systems Review, and the Library of Congress Cataloging Newsline. Some subscription journals have begun to be published electronically. These include OCLC/AAAS (Online Computer Library Center/American Association for the Advancement of Science) Online Journal of Current Clinical Trials, which is peer-reviewed, and John Quarterman's Matrix News, published both electronically and in print. Copyright issues relating to electronic journals still need to be resolved. In the sciences, distinguished print journals are now or soon will be published in digital as well as print form. Mathematical Reviews and the Bulletin of the American Mathematical Society are available in electronic and print form. Plans have been announced to publish digital forms of both the Physical Review Letters and the Astro physical Journal Letters. The same is true of several popular magazines (i.e., Mother Jones, Wired). Academic and Research. Academic and research institutions and professional associations have also pioneered digital library or infrastructure building projects, with spectacular success in forcing the expansion of the Internet and related electronic mail services, and are becoming increasingly influential in the areas of navigational software development and retrieval applications. All but one of the most common navigational tools on the Internet was developed at research or academic organizations (Gopher, Archie, WWW, and Mosaic; the original WAIS implementation was developed by commercial organizations). Academic institutions are also at the forefront of diverse and active electronic publishing ventures, facilitated both by the LIST SERV software, and increasingly by Gopher and WWW. [footnote 7: Gopher is used extensively for Campus-Wide Information Systems and is widely implemented in academic and government communities. The hypertext-based WWW is being implemented along with Mosaic software for searching mixed-format data. WAIS is widely used for text indexing and searching on the Internet. The Internet LISTSERV software is used extensively for email forums.] Gopher was developed at the University of Minnesota. WAIS was developed cooperatively by Thinking Machines Co., Apple Computer, Dow Jones & Co., and KPMG Peat Marwick. WWW was originally developed by CERN (the European Particle Physics Laboratory) and is currently being implemented along with Mosaic, an interface developed at the National Center for Supercomputing Applications (NCSA) facility at the University of Illinois at Champaign-Urbana. The Internet LISTSERV software was developed by Anastasios Kotsikonas at the University of Boston. Other academia-private sector cooperative ventures are the University of Massachusetts (at Amherst) Inquery and Tipster projects, funded with NSF and other federal money, and developed in collaboration with several major commercial publishing partners. Another tool of interest that is being developed by public and private funds is the Knowbot Information Service (KIS). KIS is designed to act as a personal digital assistant to locate, evaluate, and retrieve information based on the user's requirements and other constraints (such as the willingness to pay for information). Elsewhere software vendors and database publishers are making important strides in the development of powerful retrieval engines (e.g., Oracle's ConTEXT). Community. Community projects of interest include the Blacksburg, Virginia Electronic Village (BEV), the San Francisco Public Library Community Electronic Information Infrastructure (SFPL/CEII), and NYSERNet's Project GAIN (Global Access Information Network). Community-focused projects tend to produce a model where library services have an integral (but not necessarily a central) role in a large set of information delivery and communication tools and services. These projects are typically intended to promote interactivity among members of the communities. The BEV project is a collaborative effort between the town of Blacksburg, Virginia Polytechnic Institute, and C&P Telephone to create a network of high-capacity data communications and services with the objective of linking members of the community with each other and with the Internet. Information available through BEV currently includes electronic mail and access to local and Internet resources. Potentially, all residents of Blacksburg will be able to connect to BEV from their homes. The SFPL/CEII initiative, is another ambitious community project that is still in the planning phase. This project focuses on the use of world-wide resources to support the information needs of a specific community, in this case San Francisco. The NYSERNet GAIN project extended Internet access and training to five rural New York State public libraries and one Indian national school. The project clearly demonstrated that public librarians in a very rural setting with limited resources...could in fact get connected to the Internet, use a broad range of equipment and electronic services, develop new types of services to the community, and create a sense of excitement that came out of the library. Their sense of excitement and discovery translated into programs and applications that often put the public library at the foreground of technology application in the entire community [McClure et al, 40]. Standards Standards-setting Groups. Several major groups are developing standards for the information technology, electronic information, and computer networking components of the NII. The groups are the International Organization for Standardization (ISO) and its U.S. counterpart, the American National Standards Institute (ANSI); the National Information Standards Organization (NISO), an ANSI-accredited standards developing body serving the publishing, library, and information services communities; the National Institute of Standards and Technology (NIST), which develops and coordinates standards for the federal government and leads U.S. standards development generally; ad-hoc standards groups, which usually focus on a single problem such as UNICODE or the Open Software Foundation (OSF); the Internet Engineering Task Force (IETF), an informal standards making group that generates Internet standards; and the Internet Society which is responsible for the Internet standards process. A newly formed group known as the Cross-Industry Working Team is striving to create a consensus view of the required standards. Data Description. Standards are needed for the description of data. Tangible, traditional library materials are physically described, classified, and given a physical location code. In the past all these operations have been carried out by libraries. When retrieval is necessary, access is gained by looking up an item's classification number indicating where the physical item is located and where it may be retrieved. Currently, the extension to the USMARC (U.S. Machine Readable Cataloging) record for data description is a stable standard which can be used for electronic items. In digital libraries both the access scheme and the retrieval needs have changed. To access an electronic item, additional information may be required, including information about the medium or system requirements (such as in the case of a computer program). A standard for this description must be implemented. ANSI/ISO and the IETF are currently working on such standards. While a formal standard for information description is highly desirable, the cost, the slowness of the process, and the demands and politics of the international networking arena make this a difficult area. With the transition to electronic material, the need for such manual descriptive techniques may be supplanted by electronic methods for abstracting, indexing, or otherwise capturing the high-level descriptive information necessary for efficient access. Computer-to-Computer Communications. One standard that is stable, and that has the potential to be of use initially, is the ANSI/NISO Z39.50 standard for system-to-system communications for retrieval. The ARPA CS-TR project is exploring new approaches for computer-to-computer communications that go beyond the existing Z39.50 standard. Cryptography, Security, and Privacy. Cryptographic technology, essential to ensuring electronic information integrity, must exist before large information providers will participate in the network. Standards for cryptography will only be developed in a policy framework that does not impede their development. The issues of intellectual property and export controls on cryptographic technologies must be resolved before proposals in this area are internationally accepted and implemented. Crude measures such as restriction by password and network address are common ways to provide security for access to restricted information today. Measures for providing privacy to information seekers need to be defined, implemented, and made widely available. Other Standards. Other standards which must be agreed upon are ones for exchanging and interpreting networked materials formats, and for assuring security of operations and information. There are multiple standards for sound, while standards for images are in their infancy. Some progress has been made in the area of transmitting documents in specific formats. For text, Standard Generalized Markup Language (SGML) is frequently proposed for use as a document content standard for non-structured text. Standards mentioned for exchanging structured data include ASN.1 (Abstract Syntax Notation One), which is used in library applications, and EDI (Electronic Data Interchange). Several of the Internet navigation and retrieval tools discussed earlier have become de facto standards in a relatively brief period of time. These include Gopher, WAIS, and WWW. Private industry also is actively developing tools that may provide meta-standards (standards for the conversion of diverse ad hoc standards to a common form), such as Adobe's Acrobat and Common Ground software for the presentation of formatted text and other data. These examples (not exhaustive) are illustrative of an extremely volatile, complex, active, and sometimes competitive mix of parties involved in building the portions of the NII of concern to libraries. PART III: Where Do We Want to Be? NII Long-Term Goals and the Libraries The long term goal of the NII is a world of ubiquitous information. The realization of this vision for libraries depends on the reliability and universal accessibility of the information infrastructure. Society must not only have the ability to support projects to gather and control electronic information but must also underwrite funding to assure basic access. The realization of this vision is dependent on technological advances and policy that will allow all of the interested entities to work together within a single network and policy framework, whether corporate, library, government, research, or entertainment. Achieving this long-term goal requires that commercial providers of information, libraries, and user communities discuss, explore, and develop a new paradigm for their roles in the evolving electronic community. Copyright, funding, standards, and privacy and security issues must be addressed in both the short and long runs.S Short-Term Goals Copyright. It is obvious that we are at the beginning of an enormous revolution in communications. The copyright law is at the center of this revolution and will determine the course it takes. The bulk of electronic material will be copyrighted, as is the bulk of published material today. The issue of the protection of copyrighted material must be addressed (effective and administratively feasible licensing systems will be the key). For now, there is a standoff. Copyright owners (publishers, information providers, authors), librarians, and others with interests in this area must come together to model agreements covering on-premise online access, transmission to the public, downloading and reprinting, and feasible payment mechanisms. Funding. Library budgets have not kept pace with the costs of materials. As the prices for serials, monographs, and other materials have soared, library budgets have declined. [footnote 8: See Mellon Foundation Study. For the 24 public and private universities libraries included in the study, library budgets and expenditures as a percent of educational and general expenditures had declined from a high in 1974 of 4.05 percent to a low in 1990 of 3.20 percent [Cummings, 192].] If libraries are to participate in the NII, funding is required to support all aspects of their electronic evolution. Funding to continue current operations is basic. To become digital libraries, funding is required to purchase and install equipment, provide connectivity, digitize core materials, and educate both the staff and the user communities. Standards. The provision for international standards for interoperability, data description and storage, navigation and retrieval, authentication of retrieved material, cryptography, privacy, security, and preservation are essential before information providers will offer their data over networks or users will accept the network as the central provider of their information needs. PART IV: How Are We Going to Get There? Today's libraries, facing the challenges of developing improved electronic capabilities and addressing standardization and privacy issues, can work toward making a reality of the long-term NII vision and strengthen libraries' roles as information purveyors by working incrementally on a number of fronts. The government has a leading role in supporting many of these efforts, among them new applications of copyright regulations and law to deal with the emerging digital world; privacy protection; research and development in digital libraries; support for demonstration projects; education, training, retraining for those who will staff digital libraries; and ensured access to government information. Some of these government activities are outlined below. The Government's Role Funding of Operations. Governments currently support libraries at the state, local, and federal levels. While the costs of acquiring materials and administering collections have continued to rise during the past 20 years, library budgets have shrunk. Funding, therefore, is vital if libraries are to develop comprehensive electronic capabilities while continuing to offer existing services. Funding is needed to ensure the existence of equipment, connectivity, and education at the local level. This is particularly true of K-12 schools and public libraries. Many school and public libraries currently lack network access and knowledge of how to use the technology once access is achieved. Funding is also needed for prototype projects to explore the roles and relationships of libraries to the commercial and scholarly communities. Facilitation of Standards Development. The government can play a leadership role by working closely with standards-setting groups to define standards and to clarify and expedite the standards-setting process. The federal government, with its need for broad government-wide consensus on the use of de facto as well as formal or de jure standards, is in a key position to help establish consensus on key standards. The Government Information Locator Service (GILS) group has made progress in this area by identifying and promoting the use of interoperability standards where they exist. For the progress made by GILS to be extended and utilized, government dissemination of information efforts must be coordinated with standards-setting efforts. Providing a Testbed: Federal Information. The tremendous information output of the federal government is an ideal testing ground for the development of information retrieval and delivery because of its vast quantity and broad utility and interest, and because it is nearly all in the public domain. Providing a Test Group: Depository Library Program. [footnote 9: The Depository Library Program (DLP) is a national resource network designed to ensure free public access to all government produced and published information. Depository libraries are located in each state and congressional district to assure wide distribution of these documents. This commitment to public access to government information can be traced back to 1857 when it was resolved that printed documents should be made available to the public through official sources. The Depository Library Act of 1962 established the network of Regional Libraries and increased the potential number of depository libraries.] Since 1983, the Joint Committee on Printing, the Ad Hoc Committee on Depository Library Access to Federal Automated Data Bases, and GPO have initiated projects to assess the viability of depository distribution of federal publications or products in electronic form. An analysis of the projects concluded that, "The primary implication of the pilot projects is that input from depository libraries is essential from the ground level in future planning efforts if electronic products are to succeed in depository libraries" [Aldrich and Jobe as quoted in Hernon and McClure, 73]. This group of 1,400 libraries is an ideal subset of libraries for a variety of test projects. Policy Setting: Copyright. Resolution of the complex but important copyright issues will stimulate the growth of the national information infrastructure, including digital libraries. Copyright law encourages both creativity and the open dissemination of the products of creativity. The benefits which accrue to authors under U.S. Copyright law have spurred the U.S. to become the largest creator and exporter of copyright material in the world. From an NII or digital library perspective, the major issue is how to encourage copyright owners to make electronic material widely available under terms and conditions that are not administratively burdensome or unduly expensive. Related significant challenges are to develop guidelines which set forth permitted uses of digital information under the "fair use" exemptions to the Copyright Code (Section 107) and appropriate downloading or reproduction of digital information under Section 108 by libraries and archives. - Dissemination Issues. Publishers and other information providers are currently addressing many of the issues involved in electronic dissemination of their products and new bases for compensation. Today the answer to the acquisition and use of most electronic mate rials is individual contracts with publishers or other copyright owners. However, it is impossible for any library to negotiate thousands of contracts, and publishers will not want to do this either. Unfortunately, the results of efforts to standardize contracts, e.g., the Coalition for Net worked Information's READI project, have been discouraging. Therefore, the possibilities of an information broker, a clearinghouse, or a collective rights organization for permissions and payments become attractive. Any system must be flexible enough to allow copyright owners to control rates and other conditions of access. Model contracts or blanket or site licenses must be considered. Additionally, the critical issue of fair use in a digital environment must be addressed. The development of guidelines to set forth permitted uses under the fair use section of the copyright law would be extremely useful; such a task, however, is formidable. Current Material. For libraries, the issues are different for retrospective and current materials. With government encouragement and support, publishers, information providers, and librarians should be able to work together to develop effective and efficient mechanisms to safeguard the rights of copyrighted digital materials. There are already projects under way that are addressing this problem. One of these projects is the Electronic Copyright Management System sponsored by the LOC Copyright Office and Information Technology Services, ARPA, and CNRI. The system will provide mechanisms for electronic copyright deposit, registration, and recordation of transfers of copyright ownership as well as licensing transactions of works owned in a network environment. Material. For older materials, different solutions may be necessary. Here, copyright owners are difficult to find, and, indeed, the copyright status of works may be difficult to determine. For a library to convert materials to machine-readable form and make such works available digitally requires permission to reproduce and distribute them. Creative solutions must be developed that do not disadvantage authors and copyright owners. Definition Issues. There are other difficult issues that must be explored. Only copy rightable expression is protected. Ideas, methods, systems, facts and the like are not. Works with expired copyright terms are free for all to use. Copyright terms vary from country to country; the Internet is increasingly international, and the NII will have international linkages. A national plan must consider the international implications. A number of questions will arise in a networked and digital environment: (1) How is "a work" defined? (2) How is authorship defined? (3) What about subsequent contributions when the author's contribution is similar to what is considered an adaptation? (4) What constitutes public communication or performance? and (5) How should the rights of reproduction, distribution, public performance, public display, and the making of derivative works be adapted to digital technology and networking? Groups Addressing the Issues. The Intellectual Property Working Group of the Information Policy Committee of the Information Infrastructure Task Force (IITF) is directly addressing these and other issues. Others working on these issues are: the Coalition for Networked Information; the Copyright Clearance Center; Ted Nelson in his Xanadu project; the Information Industries Association with its "Digital Library" issues paper written by Joseph Ebersole; Gary Griswold of InfoLogic Software, Inc., with his proposal for a copyright tracking mechanism; Peter S. Graham, Librarian at Rutgers; and Carnegie Mellon's Information Networking Institute project for an Internet Billing Server prototype. The Library of Congress through its Digital Library Coordinating Committee also is addressing this area. Industry Regulation (Cable, TV, Telecommunications). Key industries are currently making and implementing plans to move into the world of electronic information. Among them are the cable companies, the seven regional Bell companies, and various entertainment companies. All have pieces of the electronic infrastructure -- cabling, a user base, or digitized data -- upon which to build major information-providing businesses. These companies are undertaking mergers and acquisitions to supplement their areas of strength for the information industry they see evolving. Deregulation without safeguards could lead to the formation of oligopolies with price structures that effectively preclude the use of major amounts of timely information by the average citizen. The federal government has an imminent and critical role in determining that affordable access by the public is assured. Education.[footnote 10: See study done by D'Elia et al (funded by the Department of Education). The survey consisted of a sample (1,001) of the general public who were asked to evaluate ten roles of the public library (the ten categories included libraries' roles in the community, education, recreation, and as information provider), using four response categories ranging from "not important" through "very important." The three roles ranked most important were educational support center for students of all ages (88 percent); a learning center for adult independent learners (85 percent); a discovery and learning center for preschool children (83 percent).] The federal government plays a key role in the nation's education infrastructure, and the priority, direction, and support it provides to educational institutions at national, regional, and local levels will be critical to the ability of these institutions to gain meaningful access to the NII. Important opportunities exist for the development of network connectivity in schools, and for the promotion of distance learning and other extensions of educational opportunities across age, economic, and geographic barriers. Early steps in this direction could include a program of grants to extend at least primitive access to the NII to virtually every school, and to support a broad program of distance learning curriculum development and teacher and librarian, particularly those who staff public and K-12 libraries, training drawing on the resources of the NII. Once consistent connectivity exists for educational institutions, the foundation will have been laid for sharing the resources of digital libraries with students and educators. This means that libraries will continue to fulfill their traditional role as adjuncts to education. Opportunities in the Coming Year The most important opportunities in 1994 for the application of the NII to libraries may be the confrontation of copyright issues and policies, and the need to monitor and respond appropriately to the shifts taking place in the telecommunications and cable industries. All legislation that is passed in support of NII and NII-library programs is obviously of major importance. The Transition of Libraries to the NII There is great divergence between current library services, technology, and funding on the one hand and the vision of the NII for digital libraries on the other. There will, of necessity, be a transition period in which libraries continue to acquire, organize, collect, and preserve traditional materials in specific geographic sites, and continue to receive funding in much the same ways that they do currently. The NII envisions "universal access," yet the infrastructure is incomplete. Work to be done includes everything from the fiber optic cabling to installing modems at the local public library, to the creation of software to make the navigation of diverse systems on diverse platforms easy, and the creation of standards to make it all work. It is unlikely that acquisitions will become fully electronic on a large scale -- meaning that an information item can be ordered and delivered electronically -- until issues concerning the roles and rights of authors, publishers, libraries, and users are clarified. Some type of descriptive record, such as the descriptive and subject record currently created by catalogers, will continue to be required for efficient searching and retrieval until hardware and software can create the abstract data for accurate searching of massive text files; or until libraries' hardware and software platforms are so powerful that searching massive amounts of textual and image data no longer presents a constraint. Other components which must be addressed during the transition in order to fulfill the vision of the NII is the conversion of existing non-digital data and the assurance of access to and preservation of data in digital form. Due to the amount of material to be considered for digitization (500+ years of printed material, 150 years of photographs, 100 years of movies) and the number of problems associated with conversion (the lack of image standards, selection and organization practices for digital materials, the expense of the process, the strategic problem of mutilating an item in order to digitize it easily, copyright issues), building an efficient model for the digitization of analog must be considered early in the transition. Similarly, material created and only existing in digital form is not being archived or preserved in an orderly fashion. The issues of collecting digital items with a view to long-term archiving and preservation, particularly those without broad market appeal, are of little interest to entities interested in immediate economic reward. Archiving and preserving for posterity are largely being ignored at this time. Methods to assure the preservation of material of value to succeeding generations must be created. In times of transition, sufficient funding to continue current operations while converting to and adopting new operations is critical. The libraries that make up the U.S. library community are funded through diverse and uncoordinated sources. Public libraries depend on local budgets; research libraries depend on their respective institution for their funding; government agency libraries are part of the federal budget; repositories depend on endowments and donations for funding. In times of economic restraint, such as today, funds to educational institutions, of which libraries often are a part, are among the first to be cut. If libraries are to continue to perform the services currently provided and, at the same time, adopt technology that will make their participation in the NII a possibility, then a national plan to coordinate and supplement both the required efforts and funding is essential. After the Transition: Digital Libraries The transition to an information age will continue to be evolutionary rather than revolutionary. The need for physical access will decrease and demand for network-based access to information will increase. The evolution will occur for a variety of reasons: increasing demand for timely information; increasing costs of traditional material; lower costs and faster and cheaper networks which make digital knowledge networks feasible. Not the least of the reasons for the evolution will be a preference for access to material that is easily searched and manipulated. The national digital library will be geographically distributed. It will consist of a network of publishers, vendors, libraries, other organizations, and individuals, public, commercial, and private, any of which can offer an item or collections of items. Digital libraries will allow users access to knowledge worldwide. Similarly, digital libraries will make their own databases available to users of the worldwide network. At the same time, it will provide programs and services that will build a sense of community and meet the needs for access to information and knowledge for that community [Dowlin]. Digital libraries collectively will strive to contain all past and future knowledge in electronic form. In the United States, public libraries will try to assure that digital information is made available to all either for free or at a reasonable cost. Policy makers will have to resolve the copyright licensing issues as well as the issue of fair use in the electronic world to the satisfaction of authors and publishers, and to the continuing benefit of the public. The role of librarians could evolve from electronic archivist to knowledge navigator of the network of data which is the library. Librarians will continue to acquire, organize, preserve, and make available information, but they also will be required to function as managers of electronic information. This role may require librarians to participate in all aspects of the knowledge chain, from advising authors on outlets, to placing digital material under control, to organizing data for ease of access, to instructing and guiding users. Issues and Questions to be Addressed Copyright The advanced information infrastructure presents three significant and qualitatively new challenges to protecting intellectual property. First, digitization offers an unprecedented, easy, and inexpensive method to produce an indefinite number of perfect copies. Second, information in disparate media can be converted into a single digital stream and can be easily manipulated to create a variety of new works. Third, digitized information can be instantaneously distributed to and downloaded by thousands of users of the network. If the NII environment is to prosper as expected, then contributions to it must flow from all sources: commercial, private, public, and government. If the information provided by these sources is to be valuable, creativity must continue to be remunerated. Since the issues of intellectual property rights are critical to further development of the NII, how should the federal government work together with representative members of the information community to provide leadership to clarify the existing intellectual property laws [footnote 11: Copyright in the United States is established by the Constitution and confirmed by statute. Its original purpose was to encourage intellectual productivity by securing intellectual property rights for authors while promoting fair public access to their output. Only expression is protected; the manner is which the expression is packaged is not.] as they relate to electronic information in the networked environment? Should this include a review of the appropriateness of the current public policy objective of the copyright law -- the attempt to strike a balance between copyright rights holders and the public good? How should the federal government help create an intellectual property rights model for the network environment? How should such models contribute to future collections of material in digital form? Any new models must continue to encourage creativity while addressing the public and research communities' continued and legitimate information needs. Authors, publishers, scholars, librarians, information technology and service providers, the Copyright Office, and the public all must be represented in any modeling and decision-making efforts. Consideration must be given to the impact that the recommendations of the Intellectual Property Working Group of the Information Policy Committee of the NII will have. What kind of pilot projects are appropriate to explore issues, establish precedents, clarify roles, and identify standards, policies, and models for fair use and protection of rights in the digital environment? Such projects should include exploring prototypes that protect the rights of copyright owners while at the same time allowing use of material in research and public libraries (i.e., browsing, research by one or a small set of users for the advancement of knowledge). The Electronic Copyright Management System pilot currently being developed by ARPA, CNRI, and LOC will provide an electronic means for handling the deposit, registration, and recording of copyright ownership as well as licensing transactions of works already owned. This project can begin the process of building future digital collections and serve as a model for non-participating publishers. Once it is operational the challenge will be how to expand it to include more partners. Equity of Access and Education The specter of information "have-nots" in the midst of the wealth of NII information must be averted. Access and education are two key ways to increase the probability that the number of the information "have-nots" will be reduced. What should the federal government's role in reducing the potential for information "have-nots" be and how can it achieve the vision of universal access? How should the federal government fund programs for public gateways and for the education of librarians in the new technology. What institutions will act as gateways for those not having access or technical knowledge sufficient to make use of the NII? Isn't this the emerging role of libraries? What funding should be extended, refocused, initiated to stimulate connectivity for gateway institutions such as libraries? What role will the federal government play in funding the education of the NII knowledge organizer-navigator? Isn't this the emerging role of librarians in the NII? Who will be trained to be the knowledge organizer and navigator of the NII databases? Providing access and strengthening the technical position of libraries offers a strong possibility for providing equitable access. One means of doing this is to extend and re-focus the Library Services and Construction Act (LSCA) through FY 1998 to explicitly encourage libraries, particularly public and depository, to become public gateways to the National Information Infrastructure. LSCA-funded gateways could begin to provide for universal access to the national digital library's information. Is it appropriate to substitute funding for the purchase of necessary computer and network hardware and software and training of staff by public and depository libraries for the current LSCA funding authority for public library construction? The LSCA currently is set to expire at the end of FY 1994. The Administration's FY 1995 budget request proposes to continue at level funding the largest LSCA program for improvement of public library services. President Clinton's proposal in the State of the Union address to extend the NII to every school and library is partially addressed in the proposed budget by continued funding of the LSCA program for interlibrary cooperation. Although level funding is requested for this program, the "requested level would enable the States to expand their networking capabilities and library participation in development of the National Information Infrastructure." What means are there to provide funds for librarians so that they are prepared for the technological challenges of advanced networks and search tools and also able to undertake digitization of unique resources in academic and research libraries? Funding to provide broader access and to strengthen the technical position of public, depository, and academic libraries offers the possibility of providing equitable access for all. Education of the leaders in the library community could strengthen the technological knowledge of librarians so that they are able to employ the technology optimally and train others to do the same. Digital Conversion Much of the concern of the National Information Infrastructure has been with connectivity and access. There is an increasing need to focus on content, as reflected by the Committee on Applications and Technology (CAT) mandate. While discussions of digital initiatives are generally broad and imply the existence of digitized data through the conversion of existing holdings in major libraries, the issues surrounding the digitization of these holdings are frequently avoided. Who is going to do the digitizing? Should this be undertaken by a single institution or by multiple institutions? What institution(s) have the holdings and the expertise to initiate significant pilot projects in this area? What comprises a significant set of material worthy of the funding of such major projects? How should the federal government fund these initiatives? It is clear that market forces are unlikely to produce the resources required to initiate this effort on a meaningful scale. However, are there private entities that could help supplement federally initiated digitization projects? One set of materials that should be [footnote 12: The Library's Americana holdings are much greater than the estimated 1 million items contained in these 200 collections. The Library's Americana holdings are estimated to be closer to 40,000,000. These 200 collections are those that have been identified as important to the culture of the United States and for which copyright protection either no longer exists because the materials are in the public domain or permission for use is a reasonable certainty.] is held by the Library of Congress. This material consists of more than 200 collections that represent the American cultural heritage. These collections contain more than one million items: books, manuscripts, microfilm, photographs, recorded sound, music, and maps. The suggestion that the Library's Americana collections be considered for digitization is based on the collections' reflection of the nation's heritage, the broad public interest in the material, and their specific value to education. The digitization of these collections presents a less significant problem than many others would in that the materials are either no longer subject to copyright or permissions for re-publication have already been granted. It is also attractive for a project of this magnitude to be broached initially by a single institution. Such a project could serve to establish a model which could then be expanded to other libraries holding important Americana materials. The objective would be to create a networked set of distributed, network-accessible databases on the American experience for education within this decade. In the long run, creation and implementation of appropriate intellectual property protection models will permit the future collection of material in digital form. This, however, will not address the rich heritage of material that exists now in libraries and which will never be accessible over the network unless digitized. It is essential that some of the legislation under consideration, as well as some of the budget proposals being drafted, address digitization. Federal Investment in R&D Which areas to be considered for research have the potential to contribute the most rapid development and orderly growth of digital libraries as part of the NII? What searching aids could be designed for the short term? for the long term? What basic architectural components of the digital library are in place? Which are missing? What issues must be resolved before the public will be willing to depend on the network in the same ways it trusts traditional libraries and the voice network? What are the models for preservation in the NII, both for material that only exists in digital form and material that exists in other forms that are endangered? Who will provide a testbed for digital repositories? What should be included in this testbed? How should the federal government deploy its funding support to focus the necessary research efforts on the following areas: - Schemes for classification and the building of lexicons and thesauruses are vital. Given the magnitude of data that will be searchable in the electronic environment, more efficient searching mechanisms must be built. Broader, more orderly, and more up-to-date classifications are one way to do this. Similarly, well-designed electronic lexicons and thesauruses can reduce the number of search query iterations and improve the precision of the response without excessive user intervention. - The basic architecture to guide the implementation of library systems is needed. Many components are already in place: processing, storage, networking, authoring tools, and intellectual property law. Components missing from this architecture are: full technological interoperability; mechanisms to determine availability and ownership of items; a means to electronically receive permission for use. - "Smarter" tools are needed. Currently, the amount of information retrieved from the network (directly and precisely related to the topic) is highly correlated with the expertise of the user searching the network. - The issues of privacy and security must be resolved before the public will be willing to trust the network. - Models for preservation, both for material that only exists in digital form and material that exists in other forms that are endangered, are currently lacking. - Finally, testbeds for digital repositories must be established. Any testbed must provide: acceptance of digital items; authentication of the item and its source; the ability to interface the item(s) with other systems as required (for example, copyright management); a means to authenticate and respond to requests to identify or provide access to stored items; the ability to provide a multimedia response; a means to impose conditions on the use of an item; and on going management of all stored items. Coordination and Review of Standards Better coordination of standards-setting groups should be initiated so that standards on internet working, interoperability, and security are created and adopted in a more timely way. In a dynamic and quickly changing environment such as the Internet and the future NII, standards groups must consider streamlining the process for setting de jure standards and creating a process to adopt de facto standards when they are useful. How can the federal government most effectively participate in the setting of appropriate standards for libraries? Any national efforts to review standards-setting groups and methods should be undertaken with a clear sense that the network is already an international entity and that its international component is likely to grow as quickly (or quicker) than the national entity. Conclusions Libraries are central to the success of the NII. Librarians have already begun to explore the challenges presented by electronic materials and navigation tools. Enhanced skills, roles, and alliances in the electronic environment must be explored and developed before the vision of NII digital libraries becomes a reality. Libraries and librarians are anxious to assume their place in this electronic world, but basic issues must be addressed. These issues include copyright licensing schemes, collective rights administration and guidelines for fair use in an electronic environment, the availability of sufficient resources to ensure reliable connectivity and staff knowledge in network use, and databases of sufficient quality and quantity to be useful to those in need of reliable information. While the growth of the Internet has been impressive, the NII is a much more comprehensive, ambitious initiative which necessitates resolving significant issues and meeting critical objectives for Libraries as well as other application areas. Finally, the network world is now international. Any national efforts, therefore, must consider the international context and implications. References American Library Association Telecommunications and Information Infrastructure Policy Forum Proceedings: "Principles for the Development of the National Information Infrastructure" Washington, DC: September 8 - 10, 1993. Billington, James H. (1994). "The Electronic Library." Columbia University (New York): The Freedom Forum Media Studies Center: Media Studies Journal. Winter 1994, 109 - 112. Browning, John. (1993). "Libraries without Walls for Books without Pages." Danbury, CT: Danbury Printing & Litho.: Wired: premiere issue. Campbell, Laura, and Carl Fleischhauer. (1993). "American Memory Strategic Plan." Draft, Version 1. February 1993. Clinton Memorandum on Administration of Freedom of Information Act. October 4, 1993. Cummings, Anthony M., Marcia L. Witte, William G. Bowen, Laura O. Lazarus, and Richard Ekman. (1992). 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A paper based on a presentation given at the Data Processing Conference in Champaign-Urbana, April 5, 1993. McClure, Charles R., Waldo C. Babcock, Karen A. Nelson, Jean Armour Polly, and Stephen R. Kankus. (1994). Connecting Rural Public Libraries to the Internet: Project GAIN - Global Access Information Network. Project Evaluation Report Prepared for NYSERNet, Inc. February 15, 1994. Mitchell, Maurice, and Laverna M. Saunders. (1991). "The Virtual Library: An Agenda for the 1990s." Computers in Libraries, 11(4), 8 - 11. Perritt, Henry H., Jr. "Commercialization of Government Information: Comparisons between the European Community and the United States." Presented at the "Government Information and the Internet: Issues, Applications, and Prospects" Seminar. December 15, 1993. Peters, Paul Evan. (1993). "Internet Information Access and Delivery: Key Concepts, Tools, Strategies, and Issues." Washington, D.C. (Library of Congress): SIGWAIS-ii, "Libraries and Internet Databases: Quality and Navigation." July 23, 1993. Polly, Jean Armour. (1993). "NREN for All: Insurmountable Opportunity." Library Journal, February 1, 1993, 38 - 41. Sprehe, J. Timothy, Jane Bortnick Griffith, and Jean Cantrell. (1993). "Policy Issues in Government Information and the Internet." Presented at the "Government Information and the Internet: Issues, Applications, and Prospects" Seminar. December 15, 1993. Sy, Karen J. "The NII: What Does It Mean for Libraries?" (1993). The CPSR Newsletter. Vol. 11, no. 2; Summer 1993. von Wahlde, Barbara and Nancy Schiller. (1993). "Creating the Virtual Library: Strategic Issues." The Virtual Library: Visions and Realities. Edited by Laverna M. Saunders. Westport, CT: Meckler, 15 - 46. US Congress. Congressional Research Service. (1993). The National Information Infrastructure: The Federal Role. By Huth, Virginia, and Stephen Gould. CRS Issue Brief. Washington, DC: CRS. (November 1993). US Congress. Office of Technology Assessment. (1993). Accessibility and Integrity of Networked Information Collections. Washington, DC: US Government Printing Office. US Government Printing Office. Library Programs Service. (1993). Biennial Survey of Depository Libraries, 1993: Results of Survey (Incomplete). Washington, DC: US Government Printing Office. US National Commission on Libraries and Information Science. (1992). "Report to the Office of Science and Technology Policy on Library and Information Services' Roles in the National Research and Education Network." November 13, 1992. Last Updated: May 3, 1994 _________________________________________________________________________ Government Service Delivery: Reengineering Through Information Technology DRAFT FOR PUBLIC COMMENT PART I: What Is the Application Arena? Description of Government Service Delivery and Information Dissemination President Clinton has spoken often about the "trust deficit" -- the sad reality that the American people lack confidence that government will do the right thing. Improving customer service is the most direct way to attack this trust deficit. In the National Performance Review (NPR) report, Vice President Al Gore recommended an executive order to create a customer-driven government. The President signed this order on September 7, 1993. It sets the standard for government services to equal the best in business, and it requires federal agencies to survey their customers on what they want and whether they are satisfied. In announcing the NPR on March 3, 1993, the President said: "... We intend to redesign, to reinvent, to reinvigorate the entire national government..." These comments were motivated in part by the lack of public confidence in the federal government's ability to deliver services. Focusing on "Putting Customers First" as one of the four major themes in the NPR, Vice President Al Gore, in one of his many town hall meetings had this to say: "... we are going to make the federal government customer friendly. A lot of people don't realize that the federal government has customers. We have customers. The American people." One of the NPR teams, Reengineering Through Information Technology (IT), examined ways to better serve customers through the use of IT. The findings and recommendations contained in the IT report form the basis for this Application Paper. The NPR IT Team confronted the fact that dealing with the Federal government is often complicated, slow, and confusing. Compounding the problem is that public access to government services is uncoordinated, cumbersome, and paper based. Further, if more than one agency is involved, an individual or business entity usually goes through two or more rounds of inquiries just to find a cognizant office. Contrast this maze with credit card companies who can resolve an issue at 1:00 AM, or an express delivery company which can find your package anywhere on earth -- why can't the government do as well? Although a big part of the problem is due to the large amount of information that the government processes and files, it is equally true that where technology solutions do exist, the government is falling far behind the private sector in using technology to deliver services. What is the Public Interest/Benefits in Promoting the Application? Information technology has brought the convenience of revolutionary change to everyday life, from bank Automatic Teller Machines to global transfers of funds, from 800 telephone services to personal home computers, "e-mail," and the world-wide Internet computer telecommunications system. Whatever its problems, the information revolution is upon us. Many authors call such technology the most powerful tool for change in the modern era. American businesses, particularly the smarter ones, are taking notice. The Clinton Administration wants to reengineer governmental processes using information technology to improve Americans' quality of life and reinvigorate the economy. The administration has identified technology as the "engine of economic growth." Further, public expectations for good service in a service based economy are at an all time high. Providing high quality government service to Americans is no exception. Good service includes good access to information. Government information is a public asset. The government should make information available to the public on timely and equitable terms. It should foster the existing diversity of information sources, in which the private sector, along with State and local governments, libraries, and other entities are significant partners. These principles apply whatever the medium, printed or electronic, in which the information has been collected or stored. The development of public networks such as the Internet and NREN (National Research and Education Network) will contribute significantly to this diversity. They will enable government information to be inexpensively disseminated to a broad range of users. In June, 1993, the Office of Management and Budget (OMB) issued a revision to its Circular A-130 that sets forth these principles and provides specific management guidance to agencies regarding their implementation. Evidence of the Benefits of an Electronic Government Today, information technology can create the government of the future, the electronic government. Electronic government overcomes the barriers of time and distance to perform the business of government and give people public information and services when and where they want it. It can swiftly transfer funds, answer questions, collect and validate data and keep information flowing smoothly within and outside government. In electronic government, high speed telecommunications links (information highways) will carry the data necessary to support government operations. These information highways will connect federal, state, and local governments, and help form a National Information Infrastructure (NII) made up of public and private transmission circuits and information services. The development of this infrastructure will enable the creation of "virtual agencies" which will give citizens access to integrated program information and services organized around service "themes" (e.g., unemployment assistance), rather than bureaucratic -- and often -- idiosyncratic -- structures. In a virtual agency, several interconnected intergovernmental entities will be able to provide information and services in a seamless manner. Examples of some of these services and the associated benefits are: - Citizen Services -- One-stop shopping for common government information and services, kiosks in shopping centers, electronic town hall meetings. - Healthcare Services -- Remote diagnostics and expert consultations, more efficient sharing of healthcare resources, improved access to medical records, realtime training on new medical procedures. - Law Enforcement and Criminal Justice -- Arraignments and parole board hearings via video technology, near real-time fingerprint identification via a national law enforcement public safety network. - Research and Education -- Distance learning, more efficient sharing of super computing and educational resources, improved access to large volume data libraries, and others such as tax law training. - Human Resources Management -- Job assessments and training via video technology at convenient locations, increased accessibility for individuals with disabilities, and flexible work place. PART II: Where Are We Now? The NPR validated the lack of a cohesive approach to service delivery. The NPR report emphasized that citizens and government workers contend with an increasingly complicated array of federal agencies, organizations, processes and forms. The existing service delivery system is largely based on hierarchical design structures developed in the 1930s. The result is slow, inefficient service that may not satisfy actual customer needs. The information needed for sound decision-making and high-quality customer service is not coordinated across government agencies, thus increasing cost and time to provide services. In short, today's government structures, processes, and business practices which were designed for a different era, cannot keep up with the existing types and volumes of customer demands. Information technology will be the key to providing more cost-effective and user-friendly government services. Industry examples illustrate how exploiting technology can provide superior customer service, significantly decrease costs, increase quality, and improve overall effectiveness and competitiveness. For various reasons -- some regulatory, some legislative, some cultural -- the federal government lacks appropriate access to the most efficient, cost effective information technology products and services. The government has lacked not only strong leadership in this area, but also a coherent plan on how to most effectively tap information technology's potential for service to the public. When it comes to applications of information technology, the federal government is woefully behind the times, unable to use even the most basic technology to conduct its business in some cases. To correct this problem, the NPR IT Report focused on three areas where improvements must be made in order for the government to reap the full benefits available through the use of information technology. These include: - Strengthening Leadership in Information Technology - Creating an Electronic Government - Establishing Support Mechanisms for Electronic Government Leadership The recently created Information Infrastructure Task Force (IITF) can provide leadership in integrating information technology into systems that support government's operation. This task force is responsible for articulating and implementing the President's vision for advanced telecommunications and computing technology. It is uniquely positioned to help develop the governmental aspects of America's information infrastructure. The IITF's Committee on Applications and Technology has established a Government Information Technology Services (GITS) Working Group which, in turn, will collaborate with state and local governments as well as the private sector. The GITS Working Group is developing a strategic vision and an implementation plan for using government information resources across and within agencies, and developing steps to improve how government provides information and services to the public. In addition, the GITS Working Group is developing strategies to empower information technology management in federal agencies and setting priorities for sharing information among agencies. Creating an Electronic Government As the NPR IT Team recognized, information technology, with its ability to electronically store and rapidly access, sort, and transmit information, is the key to improving information dissemination and service delivery. When used to its full potential, information technology goes beyond the automation of paper processes -- it allows agencies to rethink and redesign work processes to eliminate steps and make them more effective. The vision of "electronic government" extends the idea first seen in electronic banking. Just as ATMs, plastic access cards, and nation wide networks have made banking more convenient, electronic government will make communicating with government easier and faster. To inaugurate the concept of "electronic government," the NPR IT Team identified seven illustrative IT initiatives, which if implemented, will provide substantial return on investment through increases in productivity. These include: Integrated Electronic Benefit Transfer -- Electronic benefit transfer will use information technology present in the financial industry to deliver, nationwide, fast and efficient government assistance -- including Food Stamps, Social Security benefits, and veterans benefits. Integrated Electronic Access to Government Information and Services -- Access to government is a right of Americans. Existing technology makes possible the integrated electronic access to government information and services. The use of a single nationwide 800 telephone number would simplify access to government agencies. Electronic government kiosks that use technology similar to that in ATMs can provide "one-stop shopping" for both government information and services. Personal computers may also be used to access electronic bulletin board systems, databases, and agency directory services. National Law Enforcement/Public Safety Network -- A National Law Enforcement/Public Safety tactical network will improve coordination and communications among federal, state, and local law enforcement and public safety agencies, and will save money. It must focus on establishing standards for sharing information and implementing appropriate privacy and security measures. Intergovernmental Tax Filing, Reporting, and Payments Processing -- The Internal Revenue Service (IRS) already has on file all the tax information to calculate the taxes due for about 60 million taxpayers because financial institutions and employers are required to report this information. Yet IRS and state tax agencies still require taxpayers to compute what the IRS already knows. If IRS computed taxes and sent a statement, and if electronic filing were used for all others, IRS could forgo the mailing of 75 box cars of forms to taxpayers -- and certain classes could ultimately not need to file. For others, they will need to file only once. Enormous administrative savings would accrue to government and the burden on taxpayers would be reduced. International Trade Data System -- To help ensure the nation's competitiveness in global markets, the Treasury Department should create an all-inclusive database for disseminating international trade data, for use by the government and the trade community. National Environmental Data Index -- The National Oceanic and Atmospheric Administration should create a National Environmental Data Index to coordinate the development and use of environmental data gathered by various government agencies. Its goal -- to give government, the private sector, academia, and citizens easy access to environmental information. Governmentwide Electronic Mail -- In the private sector, e-mail and messaging systems are becoming as common as the desktop computer. Government wide electronic mail is a natural progression from paper-based government to an electronic government. E-mail allows rapid communications among employees across agency boundaries. The administration should work to connect all federal employees by electronic mail. Support Mechanisms The NPR IT Team also recognized that in order for "electronic government" to become a reality, support mechanisms to address specific issues must be put in place. These include: - Establishing the Government Information Infrastructure -- On a broad scale, the National Information Infrastructure (NII) will revolutionize the way we work, learn, shop, and live, and provide Americans the information they need, when they need it, and where they need it -- whether in the form of text, images, sound, or video. This capability will "enhance the productivity of work and lead to dramatic improvements in social services, education, and entertainment - The public and private sectors both must help improve the nation's information infrastructure. The Government Information Infrastructure (GII) as a sub-set of the NII must adopt forward-looking policies that promote the development of new technologies in the delivery of government information and services. - The infrastructure will allow the government to consolidate and modernize its data processing centers and standardize many of its basic administrative functions ranging from payroll to management information systems. The GITS Working Group is developing an implementation plan for consolidating data processing installations and reengineering common application systems. - Developing Systems and Mechanisms to Ensure Privacy and Security -- Success in implementing electronic government also depends on public confidence. Electronic government must protect the information it processes and insure individual privacy. It must also protect national security interests, permit legitimate law enforcement activities, enhance global competitiveness and productivity for American business and industry, and ensure civil liberties. The government must define uniform privacy practices and generally accepted principles for information security. It must adopt a digital signature standard, and it must promulgate encryption standards for sensitive information. - Improving Methods of IT Acquisition -- The government also must expedite and simplify how it acquires information technology. The market for computer hardware and software involves products for which the shelf life can be as short as a few months. In this environment, the government needs to establish more aggressive, innovative purchasing methods. - Provide Incentives for Innovation -- The administration recognizes that initiatives to bring electronic government to the public require strategic relationships between government and the private sector. These relationships must include necessary incentives for innovation. Agencies should be able to retain a portion of savings produced through information technology for reinvestment, and use multi-year funding for information technology projects. The government should promote performance-based contracting for information technology products, allow the private sector to increase its profits if it can find ways to make government run more efficiently and cost effectively. It should create an innovation fund to finance innovative information projects within agencies. - Provide Training and Technical Assistance in IT to Federal Employees -- Federal, state, and local employees must get training and technical assistance in information technology. The government should create a program to train nontechnical senior executives and political appointees. Moreover, the Office of Personnel Management and GSA should establish information resources management (IRM) competencies for federal employees pursuing appointments to IRM management positions. Current Actions Information technology must not be applied haphazardly or sporadically. It also must not be used simply to automate existing practices. Instead, information technology must be used to exponentially improve business practices in the government of the 21st century. FedWorld One operating example of an integrated electronic access service exists today within the marketplace called FedWorld, established by National Technical Information Service. FedWorld is an online information service which provides the general public with a user-friendly, central resource for government information. FedWorld offers both dial-up and Internet access, thus serving the needs of those using the developing "information highway" as well as those operating with current dial-up technology. Since FedWorld was established eighteen months ago, NTIS has received over 400,000 calls from nearly 75,000 registered users, who have downloaded files over 330,000 times from the system. It currently serves many in the policy community as one of the primary points of dissemination for White House information. For example, over a gigabyte-worth of copies of the President's Report to America and the Health Security Plan were downloaded from FedWorld within 48 hours of the President's address to Congress. FedWorld also allows users to "gateway" through the system to over 130 other publicly available government information systems, effectively providing "one-stop shopping" for many types of government information. As a result of the gateway, many of these systems are accessible from the Internet for the first time. NTIS does not charge agencies for these services. Moreover, the public is not charged to use basic FedWorld services. Instead, NTIS is recovering system development and maintenance costs through the sale of products online and through subscriptions to a small number of specific data bases and files in the system. FedWorld also provides information dissemination services on behalf of other agencies, for which NTIS charges the agencies based on their costs. The incremental cost of adding another agency's information, even in a highly customized way, is substantially lower for the agency than it would be for the agency to create its own stand-alone system with comparable support and customer service. FedWorld is currently handling about 3,000 calls each day, but is in the process of a series of hardware and telecommunications upgrades that will allow a peak of 6,000 to 10,000 calls a day. The Administration's plan for expanding FedWorld's capacity are included in an overall one-time $18 million request for FY 1995 to support three initiatives developed by NTIS that are aimed at expediting the transition to full electronic dissemination of scientific, technical, and other government information to all users. The request targets $6 million specifically for FedWorld to gain capacity and other enhancements that will permit FedWorld to serve the tens of thousands of daily callers that a fully operational system ought to be able to handle. Government Information Technology Services The Government Information Technology Services (GITS) Working Group is chartered to provide clear, strong leadership to integrate IT into government business processes to make government a customer-driven enterprise; define a vision and oversee implementation; encourage and facilitate cooperation; and serve as a catalyst for change. The GITS Working Group has begun work to develop an action plan that will address the following: - Develop a strategic vision for using information resources within the federal government. This vision will define an overall strategy and master plan for information technology in the federal government and should include goals and objectives for improving government use of technology in mission performance -- both across and within agencies -- and measures for assessing service improvements to the public. - Develop strategies to improve leadership and authority within federal agencies, and to continually benchmark against the best of private and public sector business practices. - Set priorities for federal information resources management and assess the adequacy of resources to support and facilitate important goals. - Develop an implementation plan for the IT recommendations in the NPR report and overseeing the execution of the plan across the government. - Work with state and local governments and private sector advisers to promote cooperation and information sharing. - Establish a continuous improvement process to design, develop, and implement technology-enabled governmentwide business initiatives -- the electronic government. - Identify additional opportunities and oversee follow-up on additional opportunities for sharing information resources across agencies to improve program performance. - Use existing interagency groups such as the Federal IRM Policy Council (FIRMPoC) for assistance where applicable. Working Group In addition to the work being done by GITS, a sizable portion of the government services area being handled by the Information Policy Committee of the IITF in the areas of privacy, intellectual property rights, and information dissemination. One item in the information dissemination area -- the government information locator service (GILS) illustrates the potential in this area. On July 2, 1993, OMB revised Circular No. A-130, Management of Federal Information Resources, to strengthen polices for managing government information. Circular A-130 encourages agencies to utilize new technologies to make government information available to the public in a timely and equitable manner, via a diverse array of sources, both public and private. It states that availability of government information in diverse media, including electronic for mats, permits the public greater flexibility in using the information, and that modern information technology presents opportunities to improve the management of government programs to provide better service to the public. It also notes that the development of public electronic information networks, such as the Internet, provides an additional way for agencies to increase the diversity of information sources available to the public. In the spirit of the above polices, OMB has committed to promote the establishment of an agency-based GILS to help the public locate and access government information. Being a locator, GILS will be an information resource that identifies other information resources, describes the information available in those resources, and provides assistance in how to obtain the information. A key concept of GILS is that it uses network technology to arrange information to support many different views. GILS will be a collective set of agency-based locators that is decentralized in order that ongoing maintenance responsibilities stay as close as possible to those who understand and care for the information. Each agency is responsible for assuring that its GILS are continuously accessible to GILS direct users on the network, whether through agency computer resources or through other arrangements. Among the agency GILS are those designated as part of the GILS Core. The GILS Core is comprised of high-level descriptions of agency holdings in a specific format and maintained by the various agencies. These agency locators can be aggregated by direct users of GILS to provide a view of all Federal Government holdings, and they can be supplemented by non-GILS information sources of all kinds, or by non-Federal locators that are interoperable with the GILS Core. Many people will use GILS by accessing resources directly on networks, but many others will use GILS through intermediate services. A researcher interested in government operations may access GILS directly over the Internet and explore issues from a variety of perspectives. Network service providers may offer GILS access to users as an option to their bulletin board services. An educator interested in education materials may access GILS once a month over a dial-up connection to the Internet. An information service may access GILS hourly and construct a value-added directory for sale to users with specific needs. When accessed directly as it exists on the network, GILS will provide maximum flexibility to create specific views of the full complement of available information. It should be noted that GILS will include some redundancy and will present information from a variety of perspectives. Casual users and those lacking network access facilities will be serviced typically through products created by agency or non-government intermediaries such as public libraries and private sector providers. Participants in GILS will use formal standards processes to promote interoperability of search and retrieval mechanisms, network communications, user authentication, and server descriptions, among other essential components. Although near-term implementations of GILS may utilize the Internet and TCP/IP communication protocol for practical reasons, the GILS core will be based on the international Open Systems Interconnection (OSI) model and is designed to be compatible with other network technologies. GILS will take advantage of the network technology known as client-server architecture, which allows information to be distributed among multiple independent information sources. Applications can then be constructed to allow a user to question many sources concurrently and have the answers automatically combined. Because GILS will adopt existing information search and retrieval standards, direct users of GILS will gain access to a wide range of additional Federal sources. Other major Federal government information systems, such as the proposed Government Printing Office Access System, the NTIS FedWorld systems, the National Geospatial Data System, and the Global Change Data and Information System, can also be made readily accessible to GILS users. In fact, the Department of Commerce already has a prototype Commerce Information Locator System (CILS), in operation and available to the public, on NTIS' FedWorld. PART III: Where Do We Want to Be? Since formation, the GITS Working Group has adopted the vision of creating a Government that "uses Information Technology to interact with and to serve its customers on their terms." To achieve this vision, the GITS Working Group will strive for the following goals: - Develop a national vision which includes an institutionalized process that ranks IT priorities for the Administration, provides support and funding to achieve them, and coordinates partnerships with industry and state and local governments. - Provide our customers with a modernized, electronic government to give them responsive and efficient access to information and services. - Develop and implement information technologies, policies, procedures, and standards that empower leadership and support and enable customer-driven government, rather than constrain it. Critical Success Factors To achieve the vision and goals, the GITS Working Group will promote total customer satisfaction and make the U.S. Government a model and leader in the use of information technology in service delivery. Success can be measured based on performance criteria established for the following areas: Customer Satisfaction -- Is the product the "right" product? -- Is the service level adequate? -- Is service delivery timely, accurate, accessible, affordable, ubiquitous, discreet, reliable, and easy to use? Productivity/Efficiency -- Are there any cost reductions and/or improvements in the level of service? -- Has customer demand for IT services to solve business problems increased? -- Has the government eliminated unnecessary paper-based services? Leadership -- Has the government become a model and leader in the use of information technology? -- Is IT being recognized as a strategic resource in agency plans? -- Has electronic access to information and services become more available? Infrastructure -- Has easy and effective government-wide electronic mail communication been achieved? -- Are federal/state/local government services interoperable? -- Is service delivery integrated? Partnership -- Is government/industry partnership working? -- Is federal/state/local government partnership working? Continuous Improvement Program The continuous improvement program is a "shared vision" of the GITS Working Group to provide a cross-agency environment for "open" communications and feedback within the government enterprise. Feedback coupled with a road map to the future being developed by the GITS Working Group will ensure a customer and stakeholder focus on an interactive basis. Customer suggestions will be evaluated and acted upon. Performance goals will be established and met. The GITS Working Group is focusing on system thinking, guiding principles, critical success factors and teamwork to form a cohesive way of approaching intergovernmental systems and services. Critical success factors that measure the "to be" state require continuous monitoring with obstacles quickly handled. Stakeholder involvement in the overall improvement process is also required. Performance based contracting will reward contractors for continuous improvement in technology furnished to the government under contract. Agencies will be rewarded for identifying and implementing innovative customer-driven services in concert with the GITS Working Group strategic vision. PART IV: How Are We Going to Get There? To facilitate discussion in this area, this paper ends with three questions for the reader to consider in the development and deployment of the NII. How can the government fund innovative IT projects? Resource constraints, incremental budgeting practices, and a lack of incentives often discourage federal managers from investing in innovative information technology applications that might yield long-term benefits and that cut across program and agency boundaries. How could the government provide a source of financing for projects that might not otherwise receive agency funding due to the experimental nature of the technology, long payback periods, benefits that accrue to a number of agencies, or funding needs that exceed the normal one-year funding cycle? What steps should the government take to issue a final digital signature standard? A digital signature standard is considered a prerequisite for an electronic government. Initiatives such as electronic filing of tax returns depend on such a standard that can provide assurance of the integrity and authenticity of messages. Other applications such as financial transactions between governments, business and the public, equally depend on the establishment of such a standard. Patent problems and the cryptography debate have thus far stalled this initiative. One element that can be addressed independently of these concerns is the establishment of a "public key infrastructure" to support digital signatures. What are the appropriate next steps to making that infrastructure a reality? How should the government use its buying power to promote investment in the national and local information infrastructure? The federal government is a major purchaser of IT, spending over $25 billion on commercial IT goods and services. As a major buyer, it can sometimes influence the market place and thus the direction of the NII. For example, the vision of electronic government requires high levels of interoperation and integration among diverse networks. Although integrated voice and data services, can be provided through a technology called Integrated Services Digital Network (ISDN), interoperable ISDN service between networks remains elusive. The root of the problem is the lack of a common standard and reluctance in the private sector to invest in building the infrastructure to support ubiquitous ISDN service. The government has had limited success, through its FTS2000 network, in influencing the adoption of common standards and the building of this infrastructure. The FTS2000 contract put in place the first, national, multi-net work intercity ISDN service. However, the infrastructure of the local carriers does not support extending this service beyond major metropolitan areas. This infrastructure deficiency severely limits the utility of ISDN service for government applications such as telecommuting and training. On a broader scale, the inability of the local carriers to support ISDN service to communities located at the outer edge of metropolitan areas and rural areas deprives the citizens a vital communications tool for accessing government services of the future. This example illustrates both the potential and the limitations of the using the government's buying power to influence markets. More strategic attention may be needed in using this tool to leverage investment in the NII. Last Updated: May 3, 1994 _________________________________________________________________________ Acknowledgements ================== The Information Infrastructure Task Force and the Committee on Applications and Technology would like to thank the following people for their devoted efforts in developing this document. Coordinator David Lytel, National Institute of Standards and Technology Education Linda Roberts, Department of Education Electronic Commerce Chuck Chamberlain, United States Postal Service David Jefferson, National Institute of Standards and Technology Environmental Monitoring Ernest Daddio, National Oceanic and Atmospheric Administration Government Services Jasmeet Seehra, Office of Management and Budget Health Care Michael Fitzmaurice, Department of Health and Human Services Libraries Herb Becker, Library of Congress Manufacturing Mark Mandell, National Institute of Standards and Technology Last Updated: May 3, 1994 _________________________________________________________________________ Electronic Access to These Papers =================================== In addition to receiving printed copies of "Putting the Information Infrastructure to Work: A Report of the Information Infrastructure Task Force's Committee on Applications and Technology" from NTIS or GPO, the document is also available electronically from the following sources: 1). The Information Infrastructure Task Force (IITF) Gopher Server:|en|gopher, telnet (login = gopher), or anonymous ftp to iitf.doc.gov. The document is located within the Speeches/ Testimony/Documents category, documents/papers subcategory. Access is also available over the World-Wide Web (WWW). 2). The IITF Bulletin Board: Dial by modem to 202-501-1920. Modem communication parameters should be set at no parity, 8 data bits, and one stop (N, 8, 1). Modem speeds up to 14,400 baud are supported. 3). FedWorld: Telnet to fedworld.doc.gov or dialing by modem to 703-321-8020. Last Updated: May 3, 1994 _________________________________________________________________________ This paper is intended for public comment and discussion. Your comments can be sent to any of the following addresses: Post: Committee on Applications and Technology National Institute of Standards and Technology Building 225, Room B164 Gaithersburg, MD 20899 Phone: (301) 975-4529 FAX: (301) 948-7242 E-Mail: cat_exec@nist.gov UNITED STATES OF AMERICA * * * * * DEPARTMENT OF COMMERCE INTERNATIONAL TELECOMMUNICATIONS HEARING * * * * * THE EMERGING GLOBAL INFORMATION INFRASTRUCTURE * * * * * Wednesday, July 27, 1994 * * * * * The hearing was held in the Grand Ballroom, Georgetown, University Conference Center, Washington, D.C., at 9:00 a.m., Carol C. Darr, presiding. PRESENT: PANEL 1: HEARING BOARD: CAROL DARR, CHAIRPERSON CHARLIE RUSH, DOL/NTIA JONATHAN SALLET, DEPARTMENT OF COMMERCE SCOTT HARRIS, FCC MIKE NELSON, OSTP PANEL WITNESSES: ARTHUR K. REILLY, ATIS LEONARD KOLSKY, MOTOROLA FRED WILLIAMSON, U.S. CHAMBER OF COMMERCE DIANA L. DOUGAN, CSIS ROBERT LEVIN, VIATEL PANEL 2: HEARING BOARD: CAROL C. DARR, CHAIRPERSON CHARLIE RUSH, DOL/NTIA TOM KALIL, NEC CATHY SANDOVAL, FCC JEFF SMULYAN, HEAD, U.S. DELEGATION, KYOTO DON ABELSON, USTR MIKE NELSON, OSTP PANEL WITNESSES: BRIAN MOIR, MOIR & HARDMAN GREGG DAFFNER, PANAMSAT KEVIN J. KELLEY, QUALCOMM WENDY FRANZ, AIRTOUCH JASON S. BERMAN, RIAA PANEL 3: HEARING BOARD: CAROL C. DARR, CHAIRPERSON DON ABELSON, USTR JON BAKER, CEA DICK BEAIRD, DEPARTMENT OF STATE MINDEL DE LA TOREE, DOC DIANE CORNELL, FCC PANEL WITNESSES: MARSHALL PHELPS, IBM, CBEMA ANDREW MAISEL, SUN MICROSYSTEMS WILLARD M. BERRY, EUROPEAN-AMERICAN CHAMBER OF COMMERCE FRITZ ATTAWAY, MPAA TOM CASEY, SKADDEN, ARPS, SLATE, MEAGHER AND FLOM WARREN ZEGER, COMSAT C-O-N-T-E-N-T-S CALL TO ORDER 7 RONALD H. BROWN, SECRETARY OF COMMERCE 7 PANEL 1 - COMPONENT TECHNOLOGIES OF THE NII/GII: 23 ARTHUR K. REILLY, CHAIRMAN, COMMITTEE T1 - TELECOMMUNICATIONS 23 LEONARD KOLSKY, VICE PRESIDENT OF GLOBAL TELECOM RELATIONS, MOTOROLA 31 FRED WILLIAMSON, DIRECTOR OF IMAGING TECHNOLOGY POLICY, EASTMAN KODAK COMPANY, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE 37 DIANA L. DOUGAN, CHAIR, INTERNATIONAL COMMUNICATIONS AND INFORMATION POLICY, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 46 ROBERT LEVIN, DIRECTOR OF PUBLIC AFFAIRS, VIATEL 55 COMMENTS AND QUESTIONS FROM HEARING BOARD 63 OPEN MIKE TESTIMONY FROM AUDIENCE 81 PANEL 2 - INFORMATION INFRASTRUCTURE TODAY 86 BRIAN MOIR, PARTNER, MOIR AND HARDMAN 87 GREGG DAFFNER, VICE PRESIDENT FOR MARKET DEVELOPMENT AND REGULATORY AFFAIRS, PANAMSAT 94 KEVIN J. KELLEY, VICE PRESIDENT FOR EXTERNAL AFFAIRS, QUALCOMM 102 WENDY FRANZ, VICE PRESIDENT FOR INTERNATIONAL PUBLIC POLICY, DEVELOPMENT, AND PLANNING, AIRTOUCH 107 JASON S. BERMAN, CHAIRMAN AND CEO, RECORDING INDUSTRY ASSOCIATION OF AMERICA 115 COMMENTS AND QUESTIONS FROM HEARING BOARD 121 PANEL 3 - PRINCIPLES OF THE GII, PART I 148 MARSHALL PHELPS, VICE PRESIDENT, INTELLECTUAL PROPERTY AND LICENSING SERVICES, IBM, ON BEHALF OF THE COMPUTER AND BUSINESS EQUIPMENT MANUFACTURERS ASSOCIATION 149 ANDREW MAISEL, DIRECTOR OF OPEN SYSTEMS TECHNOLOGIES, SUN MICROSYSTEMS 161 EMORY SIMON, EXECUTIVE DIRECTOR, ALLIANCE TO PROMOTE SOFTWARE INNOVATION, ALSO ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE 171 WILLARD BERRY, PRESIDENT, EUROPEAN-AMERICAN CHAMBER OF COMMERCE 179 FRITZ ATTAWAY, MOTION PICTURE ASSOCIATION OF AMERICA 188 TOM CASEY, SKADDEN, ARPS, SLATE, MEAGHER & FLOM 196 WARREN ZEGER, GENERAL COUNSEL, COMSAT 206 COMMENTS AND QUESTIONS FROM HEARING BOARD 213 OPEN MIKE TESTIMONY FROM THE AUDIENCE 244 P-R-O-C-E-E-D-I-N-G-S 9:21 a.m. CHAIRPERSON DARR: Good morning. I'd like to call this meeting to order. This is a hearing of the International Telecom Working Group of the Administration's Information Infrastructure Task Force. The Secretary of Commerce will be here in just a moment. Before he gets here, I'd like to introduce the hearing panel. To my far left is Mike Nelson, who's with the Office of Science and Technology Policy at the White House. Immediately to his right is Scott Harris. Scott is the new head of the International Section of the Federal Communications Commission. To my right is Jonathan Sallet. Jonathan is the head of Policy and Planning for the Department of Commerce and the Secretary's righthand person. My name is Carol Darr. I'm the Chair of the International Telecommunications Working Group, and to my right is Charlie Rush, who is the Chief Scientist of the National Telecommunications and Information Agency of the Department of Commerce. Thank you all for being here and thank you for waiting. The hearing this morning is, I think, the first in a series of events that will get the Administration's policy going on the GII. We've had a lot of internal discussions, and the Secretary will have a few remarks about that in just a few moments. It is my very great pressure and honor right now to introduce the Secretary of Commerce, Ronald H. Brown. He is the head of the Administration's Information Infrastructure Task Force. He and the Vice President has worked very carefully in setting the Administration's agenda. He is particularly interested in trade and technology, and his trade missions around the world reflect that, that he's getting it done every day with regard to trying to find American jobs abroad and in the United States. He's is here today to give us a few remarks about what he sees as the agenda for the GII. It is my pleasure to introduce Ronald H. Brown, Secretary of Commerce. (Applause.) SECRETARY BROWN: Good morning. I am very pleased to be with you this morning. It is not surprising, but gratifying to see such a good turnout for what I hope and trust will be an informative discussion, an opportunity not only to listen to those who are up here in the front of the room, but to hear from you in the audience to get the benefit of your counsel and advice as we move down uncharted waters. It seems to me that the tasks before us are extraordinarily important to the future of our country, to our effort to create an environment for sustained economic growth and job creation, our effort to raise the standard of living of the American people to make us a more productive, more competitive nation. Obviously, I'm pleased to have the opportunity to welcome all of you to this event, but before getting into any matters of substance, I do want to thank Carol Darr, the Deputy General Counsel of the Commerce Department, and all our staff at the National Information and Telecommunications Administration, and all of those who have been responsible in the Administration for putting this session together. Carol has been leading our efforts through the Telecommunications and Information Working Group on International Matters, really working to bring together those from all over the Federal Government who have an interest in the outcome of our deliberations and an interest in trying to shape our policy direction. As you're well aware, information technologies are going to unleash a torrent of opportunity, also a torrent of challenges, both domestically and internationally. Business, as I've indicated, we expect to become more competitive, and, therefore, to be able to grow, and it's clear to me that a lot of the focus is going to be on small and medium-sized companies and startup companies, entrepreneurs who have a dynamic vision of the future. We went through a period a number of years ago when companies like Apple and others were starting up, many of which started up in somebody's garage somewhere, and are now multi-billion dollar international companies employing tens of thousands of people. We expect the same to be true with telecommunications technology. New markets for our goods and services will be created. Medical treatment will be more widely available. Education should be improved, workforce training enhanced, and, ultimately, economic integration accelerated. I think as we look to our effort to first construct a national information infrastructure and then participate in the construction of a global information infrastructure. Our responsibilities are clear, hopefully as clear as our opportunities. The fact is that we've got a chance to really do some extraordinary things. Health care delivery is just one. Educational opportunity for all is another, but I think, generally, closing some of the gaps that exist in our society, both domestically and international, is one of the reasons why the President has said, for example, in reference to our national information infrastructure, that we're going to have every school, every hospital, every clinic, every library connected to our national information infrastructure by the year 2000. One thing we want to be certain of, and that is that we don't create a society of information haves and information have-nots, but rather we use these opportunities to overcome some of those gaps. The Information Infrastructure Task Force's Telecommunications Policy Working Group on International Telecommunications, which Carol Darr chairs, has focused its attention on the development of the national information infrastructure in the context of an emerging global information infrastructure. The Working Group is responsible for drafting an agenda for cooperation which will be a blueprint for the Clinton Administration's initiatives with respect to the global information infrastructure. We believe that today's hearing is absolutely critical to that policy development. The testimony here today and written submissions will clearly help to guide our thinking as we formulate the global information infrastructure objectives. Your input is essential as we consider such key questions as: what are the obstacles to interoperable and accessible networks? How can we extend local initiatives, such as Commerce Net, to the global marketplace? What types of cooperative joint ventures should the government and the private sector pursue? We currently envision the GII as a web of interconnected local, national, and regional networks. Taken as a whole, this global network of networks can substantially further economic growth and job creation, infrastructure improvements, and broad-based social discourse within and between and among all countries. The global information infrastructure will facilitate the sharing of information. It will facilitate interconnection and communication on a global basis, creating a new global information marketplace. We all know, as we talk in this hearing today, that this process has already begun. It is not waiting for this hearing or waiting for the policy declarations of the Administration. At last count, the Internet, for example, linked 140 countries, more than 2 million host computers, and 20 million users. The number of telephone lines in the world is expected to grow by more than 30 percent by the year 2000. In March of this year, Vice President Gore discussed the global information infrastructure at the ITU Telecommunications Development Conference in Buenos Aires. He set forth five fundamental principles for the GII: private investment, competition, open access, universal service, and a flexible regulatory environment -- not very much different from the principles we set for our national information infrastructure. These principles were incorporated in the Buenos Aires Declaration at the conclusion of the conference and are being put into practice not only in the United States, but also in many other countries. These principles can create the common ground for the development of the GII and provide a useful foundation upon which to build agreements on important issues such as standards and network security. International collaboration is fostering that development. The Department of Commerce's National Oceanic and Atmospheric Administration has been working with Japan's Science and Technology Agency to establish the Global Observation Information Network which will connect networks containing global observation data. Through the Global Schoolhouse Project, the Department of Education is already using low-tech video-conferencing to connect elementary school students in three states and Britain. Earlier this month in Naples I think we were probably all pleased to hear the heads of state of the seven major industrial nations and the President of the European Commission agree to President Clinton's proposal to hold a ministerial- level meeting in Brussels early next year to discuss GII issues. I'm going to have the honor and pleasure of leading the United States effort in that regard, and the Department of Commerce will be spearheading our involvement in the meeting, which will focus on how the G-7 can work together to promote innovation and the spread of new technologies through the development of an open, competitive, and integrated worldwide information infrastructure. In going into that process, we fully recognize that we have some competitors in the G-7. We understand that the will and desires of the G-7 nations will not always be consonant with the desires of developing countries as they work to build a basic telecommunications infrastructure, but we do think that communication between and among G-7 nations on these telecommunications issues is certainly an important step that cannot be overlooked. When we talk about our national information infrastructure, one aspect on which we focus is the potential for economic growth and job creation, which is clearly the hallmark of this Administration. It is what we spend the most time and attention doing. These benefits we believe will increase as we develop the GII. It is my judgment that it is in the interest of all nations to embrace the GII because it really provides an opportunity to do new things, to break out in new directions, to create an infrastructure that allows for economic growth and job creation not only here, but all around the world. The more all countries link their networks and develop their information infrastructure, the more we will all reap in terms of economic and educational and health care and environmental benefits. The GII will clearly have a tremendous impact on global productivity. It will not just build new communications and information companies an infrastructure, but it will help all companies engaged in a wide variety of endeavors to do their work more efficiently and more effectively and to reach new markets. I think that is a factor that we sometimes forget. When we talk about the GII, when we talk about telecommunications generally, we tend to think of it in terms of the telecommunications companies, of the telecommunications sector of our economy, rather than extending that vision to the profound impact these developments are going to have on all business and industry, on our ability as a nation to compete effectively in this very tough and difficult and competitive global economic environment. The United States is only one of a growing number of countries pursuing plans to develop a national information infrastructure. There's the European Union and Canada and Australia and Japan, just to name a few, and they all have embarked on ambitious programs not dissimilar from our own NII efforts, and other countries in Asia and Latin America and Eastern Europe have identified telecommunications and information technologies as essential to further economic growth and economic development. Our economies are increasingly interrelated and increasingly information-intensive. In the United States alone, approximately 60 percent of all of our workers are now knowledge workers, so- called. Twenty years ago only 50,000 computers existed in the entire world, and today more than 50,000 computers are sold worldwide every hour. That shows what kind of explosive environment we are living in. Telecommunications networks and the advanced information capabilities of these networks serve as the critical foundation for the global commerce that draws our economies closer together. According to a business communications company report in April of 1994, the current $33 billion market for telecommunications outside the United States is projected to nearly double to $64 billion by 1998. In the short term, we are, of course, focusing on our GII-related efforts in Latin America and Asia, two areas of the world with tremendous growth potential. About a year ago this time, I had the opportunity to go to Venezuela to attend a hemispheric telecommunications conference, and many of the major American telecommunications companies were there, but, more importantly, to see the telecommunications ministers and private sector individuals from all these Latin American countries so focused, so attentive, so obsessively generated activity in their countries on telecommunications was really quite astonishing. I did not recognize until that meeting the need for us to really get moving in our own planning process, in our own internal communications efforts and dialog. At the end of June of this year, just a few weeks ago, I had the opportunity to go to Argentina and Brazil and Chile with a group of CEOs, many of them from telecommunications companies, and most of the conversation, much of the focus was on telecommunications and how those countries build an infrastructure. As it turns out, Chile's going to have a fully-digitized telephone system before the United States does. It might well be the case with Mexico as well. So we shouldn't be sitting back on our laurels. We ought to understand that the competition, although focused in parts of Asia and Europe, can soon come from other parts of the world as well. In Santiago, Chile, we signed a Memorandum of Understanding regarding cooperation in the development of the GII between the United States and Chile. It is our view that that is really the first important step in building this global information infrastructure. The MOU will establish a collaborative program that will encourage and strengthen the progress of telecommunications in each country to support the network of networks to which we refer. The program will include fostering telecommunications-related trade between the United States and Chile. The program also will establish educational seminars to share information on distance learning and telemedicine, and we actually demonstrated some of the uses in telemedicine connecting Latin America in this particular case with Texas. We've done it here in the NII out at Fairfax Hospital not along ago, connecting Fairfax Hospital with the world community and West Virginia, delivering medical services through the use of telecommunications. The program will encourage the development of Internet and other electronic networks between the United States and Chilean libraries and schools and hospitals and health clinics. At the end of August, I have the good fortune again of leading a trade mission to China. One of the areas of greatest opportunity for growth in the field of telecommunications, China clearly offers tremendous opportunities for information infrastructure development and the concomitant economic growth and job creation. By one report, the Chinese government will spend in excess of $6.7 billion by 1996 to upgrade the country's communications infrastructure. By the year 2000, Beijing wants to raise that one line for every hundred Chinese to almost ten lines for every hundred. That will be the equivalent of building a new Bell Operating Company every year. To give you the sense of the dimensions of that, some of the early estimates were that they wanted to take telephone penetration from about 1 percent to a little over 7 percent between now and the year 2000, and that would be 80 million new telephone lines between now and the end of this century -- unbelievable, unbelievable opportunities in the telephone and telecommunications infrastructure arena. Let me say, finally, that the development of the global information infrastructure will clearly help bring the economic and social benefits of advanced telecommunications and information technologies to all peoples around the world, and I'm looking forward, as I indicated at the beginning, of hearing your ideas and recommendations, and would like to take this opportunity to thank you all for your valuable input. We have many of our key people from the Administration who are working on these issues who will be with you for the entire session. I'm going to have to leave to go to a meeting on Asia policy, which obviously is going to focus considerably on the issues that you're discussing. But let me just say I don't think that we can overemphasize the importance of this trek on which we are embarking, and I think the most important thing to me at least is the kind of impact we can have on the real lives of real people, how we can improve people's lives. This is not just about economic growth for economic growth's sake. This is not some ideological or philosophical task. I think if we are relentlessly pragmatic, we have to understand the implications for what we're doing on people's lives. It can change lives, and change lives for the better. It can help move people out of poverty. It can help make sick people well. It can help do many things that we did not think were possible just a few short years ago. So as we focus on those things that encourage investment and encourage competition and encourage interoperability and encourage universal access, that is all for a reason, and the reason is that we can really do some extraordinarily positive things not only for our country, but for this planet, as far as having a profound impact on people's lives, on the way they live, on the what they're able to achieve, on allowing people to achieve their fully human potential. So it is within that context that I welcome you, that I urge your participation, that I attempt to assure you that this is not an occasion for us just to talk at you, but for us to do some listening to you, and we are convinced that we can learn much through this process. So thank you very much for attending. Thank you. (Applause.) CHAIRPERSON DARR: Thank you, Mr. Secretary. Before I introduce the first hearing panel, I'd like to give you a sense of what we hope to accomplish by this hearing. In the next four or five months there are an extraordinary series of events that face the Administration on international telecommunications issues. In, let's see, in November we have the APEC conference. That will focus on telecommunications. In December, we will have the Summit of the Americas, focused on telecommunications for Latin America. Probably sometime the first of the year, we will have a G-7 conference on telecommunications that grew out of a larger G-7 conference that was just concluded. We'll then go into a series of bilaterals with various countries. Can all of you all hear me? Okay, good. Thank you. One of the things that will grow out of this hearing is the beginning of a document called the Agenda for Cooperation. Many of you will remember that last September the NII Task Force published a document called, "The NII Agenda for Action." Approximately one year later, this October, we hope to publish a GII Agenda for Cooperation. The purpose of that document will be to flesh out the Administration's policies, to flesh out the Vice President's five principles, and to have a document that we can take to various countries and tell them what the United States GII policy is. This hearing will provide input to that document, and it's not just the testimony of the people who are presenting testimony today. Any of you in the audience who wants to comment on the testimony or ideas you have growing out of this hearing, we would honestly very much like to have your thoughts, all of which will go into our document. So we would very much welcome your input. This is the beginning, we hope, of the private sector's input into the Administration's policy on GII. I'd like to turn now to introducing the panel. As I do, I'd ask each of you to stand up so that the audience can see you. The first member of the panel is Arthur K. Reilly. He's with the T1 Committee on Telecommunications. Thank you, Mr. Reilly. Our second presenter will be Leonard Kolsky from the Motorola Corporation; Fred Williamson from Eastman Kodak, who is appearing on behalf of the U.S. Chamber of Commerce; Ambassador Diana Dougan from the Center for Strategic and International Affairs; and Arthur Levin from Viatel. Our first comments will come from Mr. Reilly of the T1 Committee. MR. REILLY: Fine. Thank you very much, and good morning, Madam Chair and members of the International Telecommunications Working Group. As indicated, my name is Arthur Reilly. I'm the Chairman of Committee T1 - Telecommunications. Committee T1 is sponsored by the Alliance for Telecommunications Industry Solutions, or ATIS, and is accredited by the American National Standards Institute, ANSI. Someone will be representing ANSI tomorrow in your afternoon session. ATIS, our sponsor of Committee T1, is an industry association that is open to membership by exchange carriers, interexchange carriers, cellular providers, alternate access providers, and cable TV companies -- all U.S. telecommunications service providers who own their own investment in plant or transport or switching. Committee T1 was established to serve as the U.S. public telecommunications network standards developer. It's also the primary source for U.S. technical contributions on public telecommunications network standards for the International Telecommunications Union on the related subjects, and it's also been an initiator of national, regional, and global standards cooperation and coordination. Committee T1 was formed at the time of the AT&T divestiture a little more than ten years ago to develop U.S. standards and technical reports related to interfaces in the U.S. public telecommunications network and to develop positions on international issues as well. The T1 membership is made up of four interest groups: users and general interest, interexchange carriers, exchange carriers, and manufacturers. Since T1 is accredited by the American National Standards Institute, it's open, voluntary, balanced, consensus-based, private sector-initiated process is one that's open to all interested parties and, as such, our participants come from all around the world. Committee T1 has been set up as a model for other organizations around the world as privatization has taken place. In addition to having served as the Committee T1 Chair since 1992, an elected position by the membership of Committee T1, I'm also Director of Network Performance Requirements and Applications at Bell Communications Research or Bell Cor. I very much appreciate the opportunity to be before you today to briefly review the comments that are provided in my written testimony, overview those on Committee T1 activities to meet the user needs and our efforts to coordinate those activities with others nationally, regionally, and globally, but also to talk about our relationship in that regard to the government and to reach some conclusions and observations relative to the partnership between Committee T1, the private sector, and government relative to standardization. Since its formation, Committee T1 has had as one of its priorities to not only establish the standards for the existing network to be forward, but also to be forward-looking and look at the minimum requirements, so that we can grow the network of networks. Over the years, Committee T1 activities have been functional in nature and have looked across a broad range of technologies, looking at the functional characteristics independent of the specific technologies, so that interoperability and innerworking were possible. We looked at ranges of network interfaces, services, architectures, signaling, synchronization, et cetera. Specifically, some of the key component technologies of the NII or the GII are being standardized in Committee T1, such areas as digital access technologies; narrow band ISDN, for example; broad band ISDN; asymmetrical transfer mode, ATM; asymmetrical digital subscriber lines, ADSL, et cetera. But we've also worked in intelligence network, fiber optic systems, network survivability, Signaling System 7. These are all key component technologies of the NII and the GII of 1994-1995, but we continue to work at a pace of about approval of one standard every week, one to two standards every week, so that the GII and NII of the year 1999 and 2000 are also under development right now. Committee T1, as I mentioned, is the primary source for developing U.S. contributions to the ITU through the State Department process. There's a chart contained in my report that identifies that process and shows the parallel flow. On an annual basis Committee T1 provides approximately 500 to 1,000 contributions to the State Department process that are approved and are the basis for U.S. positions internationally. In addition to those activities, because of this strong role and commitment we have to that global activity, we are, of course, interested in having that progress, so that our own domestic work can progress. That being the case, we have initiated a number of activities nationally, globally, and regionally to look at this. One of them occurred back in 1990. Committee T1 initiated the Interregional Telecommunications Standards Conference, or ITSC. We hosted the leaders from the European Telecommunications Standards Institute, the Japanese Telecommunications Technology Committee, and the Director of the ITU to discuss issues of mutual interest and to develop the Fredericksburg Plan, which was a statement of cooperation to work together, to exchange information early in our process, and to work toward electronic document exchange to provide a means for information exchange. Those efforts have continued and today we have evolved to an organization that we refer to as the Global Standards Collaboration that met most recently in Melbourne, Australia in early 1994. We have been joined at the table by our colleagues from Canada, Korea, and Australia. So that we now have an opportunity to discuss not only the key technical issues that I mentioned before, but issues of our own individual experiences and develop agreements on such areas as openness to cooperation between our organizations. In addition to these activities at the global level, we've also been active in the region in several forms. One is the Organization of American States. We, together with the Organization of American States, CTEL, currently referred to as the Commission on Inter-American Telecommunications. We established an ad hoc group initially, and now we have a Working Group on Standards Cooperation that will be meeting for the first time in August. But we have already developed in the course of our ad hoc group white papers on the subjects of ISDN, Signaling System 7, and personal communication, and in August we'll be beginning our efforts on the area of intelligence network. One of the other activities that we have planned for our August meeting is the Committee T1 is sponsoring a seminar on Signaling System 7, so we can share not only our experiences in standardization, but also the experiences of operators with regard to operating those Signaling System 7 systems, many of which are just beginning to be introduced in the rest of the Americas. In addition to that activity, we've also sponsored the first Americas' Telecommunications Standards Symposium, and we attended the second one in Brazil, hosted by our Brazilian colleagues. We've also been active players, along with our colleagues from TIA, in the NAFTA-supported effort on the Consultative Committee Telecommunications, a trilateral group looking to work the technical issues associated with supporting the standards-related measures within NAFTA. In looking at all of the activities that we have underway and many others that I could talk about in the GII context, we look at this situation and we come to the conclusion that the relationship and the partnership between Committee T1 and the government in their role as the administrator of the ITU, as a participant in the T1 standards process, as a regulator of telecommunications in the U.S., and as an advocate for international trade, that the partnership has worked very well on behalf of the U.S., providing technical input and also providing the technical leadership to complement the activities of the U.S. Government. We see the convergence of the technologies of telecommunications, communications, and entertainment as requiring a process that stimulates competition and innovation, and we think our process of developing minimum requirements in an open, forward-looking process is, in fact, conducive to meeting those requirements. We would strongly encourage you to endorse that process and to continue to support government efforts in this regard, including the increased awareness of the industry and users to the importance of standardization and to the byproducts of that effort, which, as Secretary Brown indicated, are an element in improving the quality of life of the citizens around the world. I thank you very much for the opportunity to testify. Thank you. CHAIRPERSON DARR: Mr. Reilly, thank you very much. Mr. Kolsky? MR. KOLSKY: Thank you. Is this on (referring to the microphone)? Can people hear me in the back? CHAIRPERSON DARR: Can you hear Mr. Kolsky? Yes. MR. KOLSKY: Ms. Darr, members of the Hearing Board, I'm Len Kolsky with Motorola, and I want to discuss briefly with you the role of the wireless telecommunications technologies in the NII -- CHAIRPERSON DARR: They're having trouble hearing you. Can you speak up a little bit more into the microphone? MR. KOLSKY: Sure. How about now? CHAIRPERSON DARR: There seems to be a problem with the mike. MR. KOLSKY: How's this? Better? CHAIRPERSON DARR: Can people hear? MR. KOLSKY: How's this? CHAIRPERSON DARR: Can people hear? Yes? No? MR. KOLSKY: Yes? Okay. I'm doing a sound bite, it sounds like. It's both a good news and bad news to be among the first panelists. The good news is we have an opportunity perhaps to set the agenda and set directions. The bad news is you will hear, as Mr. Reilly commented, a lot about networks, wire line networks, and I think many people have a vision of NII as looking like a skeleton of the blood system with a lot of branches. In that equation, wireless often gets lost, and I'm concerned that as the day goes on you will forget wireless. So if there is one word you will carry away, I hope, with you, it is the importance of wireless. Of course, wire line networks will be needed. They'll be needed in and of themselves, and they will be needed to transmit wireless services. Voice, data, imaging, facsimiles -- all are going to be handled through wireless as well as wired means. Developing countries have no problem understanding the value of wireless services. Secretary Brown described China's plan to install more phone lines, and he described a fabulous effort that by the year 2000 there would be 80 million new phone lines and there would now be penetration of 7 percent. Wireless, we believe, can help that other 93 percent. We find that countries such as China are quite innovative in using wireless technologies. For example, we have done a tremendous business in selling pagers into China, and what the paging user has found is by using a pre-arranged code with the person who has the pager, you can use the neighborhood phone, one phone for several hundred people, and by a pre- arranged signal you can have a one-way message that enables those people to operate in today's world. In India, Mexico, Indonesia, all major markets globally, the ability to keep up with the wire line needs is just impossible, and they are going to continue to rely heavily on wireless communications. In developed countries -- the United States is an illustration -- the need and the appreciation of wireless is somewhat more subtle, but you're going to find that there will be wireless lands offices. As you move computers, for example, it will be done without having to rewire a building, but just literally by the use of radio. Secretary Brown mentioned that they hope to have all the schools in the United States into an NII net by the year 2000. We would offer that by using a wireless local loop and wireless technologies, either in transition or permanently, vast sums of money can be saved and still meet that year 2000 objective. The wireless units of tomorrow will be portable. It's interesting that those of you who walk around the Washington area and use our portable telephones or those of other members of the industry will find that there are frequently spots where communications are inadequate; they fade away. That's because the system in Washington, D.C., and almost every system in the United States, cellular system, was designed for mobiles. It was designed for a phone in the car, not on the person. Yet, everybody recognizes the wireless systems of tomorrow will go with the person; they will not be restricted by location. Can wireless technologies be a part of GII and NII? The answer is of course. We will need, however, the support and help of the government. In what areas? First, the U.S. Government should be technologically neutral. By that, we mean you must look at all the ingredients, all the services, and all the technologies that will be part of an NII/GII system and afford them equal treatment based on merit. Secondly, you must encourage competition. Particularly as we go into other parts of the world, there must be open access to infrastructure, provided, of course, that there will be no harm to the basic infrastructure. Second, we must stop trade barriers in forms of high tariffs, in the form of artificial restrictions. Recently, the USTR was instrumental in an agreement we formulated with Japan to further open up the cellular market. One of the big ingredients that has produced a change is that formerly in Japan the end-user could not a cellular phone; they had to lease it from the cellular operator, who then bundled that with a pretty high service fee. The new agreement calls for ownership by the end-user if he/she should so desire and lower basic tariffs. The result has been that in two months of that agreement we've almost reached 50 percent of the market that existed over the last several years. Standards -- Mr. Reilly talked about standards. They must not be used as a barrier to entry. They must be minimal to encourage technologies, particularly in the wireless area, and they must recognize intellectual property rights. Vice President Gore has set the course and every resource is needed. The U.S. Government must be the catalyst to harmonize those resources. Thank you. CHAIRPERSON DARR: Mr. Kolsky, thank you. Generally, we're going to hold comments and questions for the panelists until the very end, but Jonathan Sallet had a comment on Mr. Kolsky's remarks. MR. SALLET: I wanted to just say, because there's this question that comes up sometimes about the Administration's view of wireless technology -- now the fact that I've got two pages during the time that you were speaking demonstrates the immense value to me personally of wireless technology, but let me address it on a slightly broader scheme. You ought to know, and everybody ought to know, that our view of this is precisely what Mr. Kolsky has stated, which is we take a technologically- neutral view as a means of getting to a connected world. It is for the market to decide in large part what technologies to be used, and there are many different pathways. I was out in Las Vegas a month or so ago speaking to a different wireless group, the wireless cable people, and I said to them, our basic message is you don't have to be wired to be connected. Everybody ought to feel quite comfortable with the notion that we're focusing on connection; we're not focusing on any particular technology to get people connected. I think in that respect as we go on and talk about other aspects of this, we ought to feel comfortable, and I hope you and Motorola and other people in the industry will feel comfortable that we have taken a position that will accommodate all advancing technologies. MR. KOLSKY: I appreciate your remarks very much. MR. HARRIS: I think once again we're seeing the dangers of an overextended metaphor. Everybody talks about the information highway, and the assumption is that that's terrestrial. That's not the case. The infrastructure will have highways and skyways, satellites, cable, telephone. Every option is going to be part of this infrastructure. CHAIRPERSON DARR: Mr. Williamson, representing the Chamber of Commerce. MR. WILLIAMSON: Thank you. I am Fred Williamson. I am chairing the U.S. Chamber of Commerce Telecommunications Infrastructure Task Force. In my day job, I'm Director of Imaging Technology Policy for Eastman Kodak. On behalf of the Chamber, I very much appreciate this opportunity to address and offer the perspective of business users of the technologies, products, and services that will make up the NII and the GII. Our members believe that the development of these infrastructures will have a profound impact on America's private sector domestically and globally. Businesses, small and large, recognize that communication, information, and imaging technologies are already shaping and defining the future of the American workplace. As you know, the U.S. Chamber is the world's largest federation of businesses and associations and often the principal spokesman for the American business community. The Chamber is notable in at least three ways for the perspective it brings to issues such as those we consider today. First, there's the scope of its membership, which comprises over 215,000 individual businesses, state and local chambers, trade associations, and overseas extensions of the American business community. The importance of this broadly- based membership is enhanced by its diversity in terms of company size. While most of the nation's large companies, such as Kodak, are active, 96 percent of the members are companies with fewer than 100 employees and 71 percent have fewer than 10. Even these smaller companies, of course, are significant in their economic impact because they represent well over a million jobs, and, as we shall see, they also represent an area of considerable interest in the application of NII technologies. A second important aspect of the Chamber's membership is its industrial diversity. Essentially every standard industrial code and other business category is represented. For example, the major classifications of manufacturing, retailing, services, construction, wholesaling, finance, each have at least 10,000 Chamber members. Finally, the Chamber has significant geographic diversity amongst its membership. In addition to being present in nearly every small town and city in all 50 states, the Chamber's international reach is substantial as well in 69 American Chambers of Commerce abroad and 11 bilateral international business councils. An excellent example of this international interest is the fact that the Chamber has had a task force on telecommunications trade issues since 1988, which has been actively supporting the government's efforts to liberalize world trade in telecommunications products and services, and I believe many of you all are well aware of their work. Now that we know something about the Chamber's many members, how do we get them involved in the NII initiative? I think as we are all too well aware, there's great debate underway in this country regarding the ground rules for establishing the advanced telecommunications and information infrastructure that, along with a myriad of applications and services, will comprise the NII and, hopefully, the GII. Among the host of participants in this debate, one group has been significantly underrepresented; namely, the business user as opposed to provider of telecommunications-based services and products. We think this is especially true of small and medium-sized business users that the Secretary mentioned. In fact, if you look at the composition of the U.S. Advisory Council on the NII, I think it reflects that under-representation. The industries represented there are essentially those that create, manufacture, and sell telecommunications-based products, services, or content. There's no representation of the many small and medium-sized businesses that depend upon the use of such products and services for the survival and expansion of their business. For example, ABC Home Health Services of Brunswick, Georgia is not on the Advisory Council; neither is Mateland Travel Services of Kalispel, Montana; Paige Zabrowski Architects of Tulsa, Oklahoma, or even the National Association of Realtors here in D.C. But all of these either are or represent businesses that can offer meaningful input on how the NII and GII can affect jobs and productivity. So my purpose, then, in providing this testimony on behalf of the U.S. Chamber is to identify specifically why it's so important that the voice of the business user is heard in this debate and factored into the formulation of laws, policies, and regulations surrounding the NII. Business users are going to form a significant, if not the most significant, segment of the NII market. The investments they make, the incremental revenues and jobs they generate, and the taxes they pay will all be major contributing factors in realizing the vision of the NII. Accordingly, earlier this year the Chamber established the Telecommunications Infrastructure Task Force to focus specifically on the needs and concerns of the business user in the NII debate. The goal of this effort is to be able to make the policy establishment aware of these grassroots concerns, and that's why even though we've not yet finished our work, that we're really delighted to have the opportunity to tell you about what's underway. Let me spend just a moment on our Task Force and how it's going to operate. We have almost 100 members representing a wide range of companies, including those I mentioned earlier. They are divided into three subcommittees, each co-chaired by an industry and a state or local Chamber representative. One subcommittee is addressing the NII technology- related educational needs of Chamber members; another is getting a sense of what role members think the government should play in the NII, and the third will put together a set of business user principles that the Chamber will use to guide its public policy activities. In addition to having local Chamber members as co-chairs, our emphasis on outside-the- Beltway input is reflected in our intent to survey up to 6,000 Chamber members from all over the country using professionally-prepared survey questions to address our topic areas. Interestingly, almost 1,000 of our survey recipients are self-identified as having a sufficiently high level of interest in the subject to serve as research members of our task force. Our plan is to have the bulk of our work done by the end of the year, so the Chamber's Board of Directors can formally establish any resulting policy positions. Based on early indications from our members and other studies, it's safe to conclude that there is a very high interest in how NII-related products and services might increase the competitive posture of these businesses. At the same time there is a wide variation in the level of knowledge and understanding of these technologies. In response to this circumstance, along with the education efforts of our Telecommunications Task Force, the Chamber is coordinating technology demonstrations to small businesses nationwide in conjunction with the White House Conference on Small Business and the Community Learning Information Network. Mobile demonstrations displaying a variety of business-related technologies will be touring the country starting this fall and continuing through next June, giving thousands of small businesses the opportunity to see and have some hands-on experience with existing hardware and applications. Another tentative conclusion is that there is a strong preference for private sector solutions, wherever possible. Some of this seems to be driven by the fact that most businesses only want to pay for as many of these expanded services as they feel will help their bottom line, but a related conclusion is that a large percentage of the businesses, big and small, appear to see a direct relationship between the successful attainment and utilization of NII-related products and services and improved competitiveness, productivity, and profitability, just as the Secretary indicated. In fact, as we know, continuing progress in adapting technology for business use is already making automation an affordable option for even the smallest businesses. The cost of computing power is dropping approximately 30 percent every year. At present, well more than 50 percent of office workers in the U.S. use computers, and half of all PCs are connected to networks. PCs, networks, and inexpensive software are allowing smaller businesses to successfully compete against larger corporations in many industries. Electronic bulletin boards, online data services, and outsourcing of business functions empower small businesses and give them a competitive edge through access to market data and business opportunities. It would appear if we build it, if we make it easy to use, affordable, and widely available, they will come. So, in conclusion, I'd like to leave you with four thoughts. First, today's telecommunication and information technologies are already in widespread use throughout the business community, even at very small companies, and are already making a difference in their ability to compete. Second, even among those companies that are not technically sophisticated there is an intuitive recognition that if the visions of the NII and GII are realized, their ability to compete in a global economy will be enhanced. Third, these business users, large and small, are going to form a major segment of the market that will enable the NII and GII to happen. They are currently severely underrepresented in the policy discussions, and this is something I think the government must address in order to make sure that the legislative and regulatory policy that results meets the needs of all the participants in the marketplace. And, finally, the U.S. Chamber, because of its ongoing relationships with the business community and its thorough understanding of both domestic and international business issues related to the NII and GII, offers the unique ability to bring an important grassroots input to the policy process. The Telecommunications Infrastructure Task Force looks forward to sharing the results of its efforts with the IITF and with all those that are part of the policymaking process. Thank you very much. CHAIRPERSON DARR: Thank you, Mr. Williamson. Ambassador Dougan? MS. DOUGAN: Thank you, Madam Chair. I would like to congratulate you and your colleagues for reinforcing the diversity and importance of this issue to many sectors, and notwithstanding all the groups that were not represented or could be represented on the NII, I think it is important that they be part of the process. Hearings such as this help to air these considerations. Before turning to the specifics of the issues of technology, I want to make a few quick references to some of the items covered in my advanced testimony related to the establishment of the Global Information Infrastructure Commission, which is being launched this fall. I'd also like to express my appreciation to many of you on the panel and others in the Administration who have given us very thoughtful advice and counsel on the evolution of this process. The Global Information Infrastructure Commission is being purposely established to promote private sector initiatives as well as cooperation among the variety of government and industry endeavors in focusing on information infrastructure issues, and I think you've already heard about a number of them here today. I think what is one of the exciting things is that there are so many good things that are going on that do need to be radiated and replicated and shared in other parts of the world. So part of the goal of the Commission is to advance the utilization of information technologies, applications, and services in support of economic growth, education, and quality of life in both developing and developed countries. Indeed, much of the inspiration for this Commission came from the World Bank, who sees an opportunity for pragmatism in the developing countries to have privatization and competition, even in countries that have been considered poor markets; that their focus very much is moving toward restructure and incorporating them into the global market. The Commission will involve public and private sector leaders from a variety of countries, regions, industries, organizations, and fields of expertise. Its objectives are fourfold: First, to provide a focal point for marshalling private sector initiative in cooperation with governments, academia, and industry beyond national borders. To facilitate recommendations, research, and information sharing to address the economic, political, and technological considerations in information infrastructure development and services. And, third, and this is a very important one, to promote projects and programs utilizing telecommunications, broadcasting, and computer applications in support of key areas such as education, health care, and environment. And, fourth, to establish a clearinghouse and data bank to help support the numerous national and regional initiatives that are going on throughout the world. As many of you know, at CSIS we have undertaken a number of initiatives working with both national and regional information infrastructure councils and commissions that have evolved, and it is clear that there is a strong need for more information sharing and understanding the success stories, not just the failures, and look at things not just in a trade context, and also look at it beyond the communications sector itself. For example, when I spoke at the ITU Conference in Cairo a couple of months ago, unfortunately, all the ministers were PTT ministers. There were no ministers of finance. There were no ministers of health. There were no ministers of education. There were no ministers from other groups who have a key interest in this area and can benefit from it. We have an outstanding opportunity -- and I don't mean to sound Pollyanna-ish about this -- to bring the developing world in to a pragmatic global market, and it can offset the tyranny of geography and many other things that have long plagued the developing world. Having said that, I do not mean to be overly simplistic about it. Also, I want to make clear that the Commission is not intended to supplant or take the place of any other organizations, but rather to reinforce the many governmental and private sector initiatives, trade association initiatives, that are going on out there, but to broaden the base globally to more developing as well as developed countries. Because CSIS has had extensive experience both in nonpartisan international commissions and in telecommunications research, we have agreed to be the Secretariat for this Commission, and we look forward to working with you and others as it evolves. Now I would like to turn to the specific issues of technology and perhaps pick up on a couple of points. What's clear not only with the testifiers today, but elsewhere, there are a lot of things that are working and they're working well, but I think as policymakers I would like to suggest three questions that you continually ask when you look at the issues of technology not only in the global context, but the domestic context as well. And that is, who pays; who plays, and who benefits? Now, for example, on who pays, there are a number of things -- and this is an issue that hasn't been brought up here today, but when you're talking about international communications it can't go away, and that's the issue of industrial policy. Many countries look at telecommunications as an area of industrial policy. They also look at it as an area of cultural policy, audio-visual policy. It's noteworthy, for example, that the European Commission took a reservation in the GATT on audio-visual policies. It is in many people's view a thinly-veiled industrial policy concern. Having said that, however, you cannot be dismissive that there are cultural considerations as well, but in looking at the technologies there is going to be a continual underpinning of industrial policy that has to be looked at. Before we get accused of being the hypocrites of the decade award, I think we also have to acknowledge in the United States we've had a lot of industrial policy in this area in the context of our defense R&D. A lot of this is going to change in the post-Cold War era. There are those in this room who remember when we used to have sort of tidy scripts that were handed out in NATO related to a lot of telecommunications standards that somehow easily translated to the ITU. Those alliances no longer exist. And there are those who will say, perhaps tritely but not without merit, that we're moving from an era of military aggression to economic aggression. So we cannot dismiss this when we look at technology. Areas such as high-definition television win the "Dallas and Dynasty Award" in terms of what not to do in industrial policy. In the past, with the Europeans using it to try and preserve the European market, and it was really the overtaking of events in time that moved it onto a digital issue that it is today, rather than the 1125 versus 1050 make-your- eyes-glaze-over technical concerns of the past. But underneath those technical concerns were primarily political and economic rather than technical. So I think we want to keep an eye on the technical merits or the technological merits of standards, and in the long run I think that we can benefit best from that. Second, on the issue of who plays, the issue of access to technology is a very important one for developed countries, as well as developing countries. As we move beyond the Cold War, the issues of COCOM and technology transfer are diminishing, but they're still going to some important considerations that need to be taken up. A couple of weeks ago, at a forum we had Mike Nelson made some very articulate points about the difficulties of dealing with encryption issues. There are not easy answers to these things. These are difficult problems, and, frankly, you're to be commended for putting them on the table, and in a way that generates a lot of discussion and dialog. But the issue of access is very different in other countries than it is in the United States. So as we look at the access to technology, we have to look at the different environments in other countries and the subsidies related to local procurement codes and a variety of other things that still exist as part of the mix. Thirdly, on the issue of applications -- and this is one of the things I think will be particularly exciting about the Global Information Infrastructure Commission -- there's some very creative things that are going on in developing countries on the applications of technology. For example, in China, even though they have these monumental objectives of looking to have now 130 million lines by the year 2000, where it was 100 million lines projected even four months ago, but they're also looking at things like creating voice mailboxes for people as opposed to just trying to get lines per unit. One of the most interesting, I found, is the initiative in South Africa where here is an area where there has always been a presumption that world communications had to be an area of subsidy. There it's called "telephone womphakathi," which is Zulu for community telephone project. Basically, by including smart cards and going to wireless technology, they are being able to create cost-effective service to remote townships using high-quality technology. So we now have an opportunity not just to leap-frog technology, but to also leap-frog applications. These are some of the issues that I think can and should be reinforced. Finally, since we're asked to give a few opinions and advice, in dealing in the global context I would reinforce three points as we deal with the issues of technology. First of all, reinforce the pragmatic self-interest of the countries. In the long run, I think that will benefit us as well as them. Second, avoid the seduction of protectionism industrial policy. We have many pulls here in the United States to protect particular parts of industry, and the whole domestic debate related to access and our domestic regulatory policies is very much caught up in that, but the commitment to openness and flexibility are the strengths that have held us -- have served us well in the past, and I think can in the future. And, third, focus on practical applications and users. This is a point that I think Fred made very well, and, as we deal with the international environment and our colleagues abroad, if we focus on the use and the application and the benefits of technologies, we will all be better off. Thank you very much. CHAIRPERSON DARR: Thank you very much. Mr. Levin? MR. LEVIN: Thank you. About four years ago, a friend of mine, a young, dynamic, 29-year-old entrepreneur, Martin Varsausky, decided to start an international telephone company called Viatel after he found out it cost his mother in Argentina three times as much using Tel in Tar to call him in New York as it did for him to call her from New York. He saw an arbitrage opportunity and a technology gap. Today I'm representing Viatel, a company that develops value-added telecommunications services selling to clients in over 90 countries around the world. Viatel buys time at wholesale rates from U.S. carriers and sells it with value-added software services to over 17,000 clients around the world. With sales representatives in over 35 countries, Viatel has been recognized for setting new standards in technology, customer service, and savings. Our clients include the United Nations, Sony, Motorola, the Vatican, and major companies in Europe and Latin America. Our services include private networks and travel cards, both with voice mail, fax mail, multicurrency billing, and private networks. Our computers respond in seven different languages. For example, a client in Tokyo can call its customer in Paris and its call will be transmitted over the Japanese NTT to a U.S. carrier, to our switch in Omaha, and back to a U.S. carrier for further transmission to France Telecom. Telecom is becoming the fastest-growing category of U.S. service exports, and Viatel is a pioneer in this field. Viatel was one of the first companies to sell value-added services internationally. Viatel obtains transmission capability from major carriers such as MCI and AT&T and is a switch-based reseller. Three trends have made Viatel possible. One, computer cost and software development became relatively cheap, allowing development of value-added services. Two, excess capacity led to a decline in transmission cost. Three, deregulation of telephone services, both domestically and abroad. This has allowed Viatel to become a leader in providing value- added computer software-driven services. Now that large carriers have invested billions in developing huge networks of physical infrastructure, small entrepreneurs can provide services on those networks simply by buying time wholesale and selling it domestically or internationally. As transmission costs continue to decline, more and more value-added services will be provided through networks, giving consumers access to software innovations. This physical network is a distribution system, and Viatel and companies like Viatel can offer many new revenue-generating voice processing services on these international networks, services such as automated call answering; voice, fax, and E-mail messaging; debit, credit, and calling card completion to seamlessly integrate one voice and data network into any telephone network from almost any city on the globe to another. Technology allows Viatel to squeak in the back door of carriers through international 1-800 numbers and giving consumers a broad access to new services. In the future, companies like Viatel may export video dial tone, for example, to serve as a value-added multimedia bridge between private networks, intelligence networks in Europe, Latin America, Asia, and North America. For example, someday a customer in Tel Aviv will transmit a programming request over value- added resellers' leased line to a video or interactive information server which stores programs at a centralized database in New York, and video data and voice will be sent by fiber optic cable, again, for example, to a transmitter, to a COMSAT satellite, to Bezek, the Israel national telephone company, for an interactive service at a fraction of the current cost. Viatel offers private networks to companies with value-added features, such as four- digit speed dial and restricted destination, if you don't want an employee to make a call to a certain country, for example. Americans take call detail in their monthly telephone bills for granted. Viatel offers billing systems with detail to customers in countries where the local telephone companies do not offer itemized billing. We offer clients all over the world statements broken down by customer, by product, or by region, and a major currency that the customer can choose. So somebody in Japan can have their Viatel card billed in Yen, somebody in Germany in Deutsch mark. Viatel's customers in Germany can access any number of the services, voice mail, fax mail, which are not offered by their national telephone company. Viatel, for example, is also in the Vatican. If the Pope's office secretary requested a breakdown of calls by bishop and cardinal, it would be very easy for us to customize a billing statement. The Pope cannot get this service from any company in Italy; he needs our computer in Omaha, Nebraska. Our computer also speaks Italian, Russian, Japanese, French, and Spanish, and we could perhaps customize it for any language, providing we had somebody fluent in that language. So far, Viatel does not have any interactive private line with the Supreme Being, though. (Laughter.) If you want to set up a mail order business in Brazil, advertise in the local paper in Rio, and set up a voice phone mail and fax mail system, you can't get it from Embretel, the local Brazilian telephone monopoly, but you can get it from Viatel. The local customer will call a toll-free number and access a software program in our switching center in Omaha that speaks Portuguese and takes a voice mail or fax mail message. Viatel's full-time dedicated links in Europe, where we sell private networks, will be hooked up to the Internet very soon, so people in Europe can access databases, bulletin boards, and other online information services. By selling software-driven services abroad, Viatel is importing dollars, plus reducing the U.S. telephony deficit. More calls originate from the U.S. than any other country in the world. As more people obtain telephone service abroad, there will be more U.S.-directed calls and the telephony deficit of the United States will decline. Viatel's service introduces additional competition to long distance companies abroad and provides additional downward pressure on foreign PTT rates and settlement rates between carriers. This is good for the consumer. As other speakers have pointed out, equal access, universal access is a very important issue. Viatel wants equal access, and we notice there are many barriers, nontariff barriers, to equal access in Latin America. Equal access is starting to happen in Europe, universal access, but it's far away in Latin America and many places in the Far East. Why? Because monopoly PTTs are cash cows that offer, generally, plain vanilla services at inflated prices wholly unrelated to cost, similar to AT&T before the breakup of monopoly power in 1982. For example, it costs, still costs, three times as much for a U.S. citizen to reach Mexico City as it does Tokyo. This is because it's a monopoly in Mexico. Of course, rates in Mexico will come down as competition enters the market in 1996. Telephone services were not extensively included in NAFTA and largely left out of GATT. There is no multilateral agreement on liberalization, and liberalization is still being addressed piecemeal on a country-by-country basis. Privatization, when monopoly companies -- say Tel in Tar in Argentina sells shares to the Italian national telephone company or to the public, it does necessarily lead to liberalization of markets. Tel Mex is a case in point in Mexico, where liberalization is just beginning and they'll lose their monopoly status in the beginning of '97. So small entrepreneurial companies like Viatel that are leaders and pioneers on the information autobahn need very much your assistance. We need assistance from the STR, from the State Department, from the Commerce Department to assist us in opening up the Latin American telecommunications market, for example, which is practically closed to U.S. value-added service providers. One-third of our revenue comes from Latin America, but we could enlarge our market share in Latin America if only we didn't have to encounter nontariff barriers. So diplomatic pressure from the U.S. Government can help, since many of these countries are afraid of the possibility of retaliation and PTTs in Latin America are still anti-competition monopolies controlled by the postal services and ministries of communications. Viatel supports the Administration's efforts to foster greater competition and reduce barriers to access in international markets. American policymakers at the FCC, State, Commerce, and STR realize that Latin American PTTs are using monopoly power to fight callback and value-added telephone services. They should also know that companies like Viatel add competitive pressure on international telephone rates charged by PTTs and that this is good for the consumer and American business people traveling abroad. So as the U.S. continues to enlarge its market share abroad in telephone equipment and continues to be the largest exporter of information in the world, the general direction of telecommunication services can be predicted, but to forecast the direction accurately would require knowledge of the outcome of several political decisions, and those are far less predictable than the technical forces. I expect the people in this room will have a major impact on the political decisions that will alter the shape of the global telecommunication systems between now and the end of the century. Good luck to you, and I thank you very much. CHAIRPERSON DARR: Thank you, Mr. Levin. We'd now like to ask some questions of the panelists, starting with Jonathan Sallet. MR. SALLET: Thank you. It's very helpful for us to hear the variety of perspectives that are represented on the panel this morning, ranging from policymakers and advisors to specific industries who have concrete issues that need to be resolved and different kinds of technologies that can be deployed. I just want to make one point at the outset. It's very important that we hear not only from people who are, by their own admission, in the telecommunications or information sectors, but those people who will benefit from it, the point that Mr. Williamson makes. We are seeking in a variety of means, of which this is only one, to get input from everybody because we actually think it's not just a question of business users; it's a question of business users and providers. As we get to increasingly interactive set of networks, no business will be a business that does not actually provide information to other people even as it uses products and services that originate in what is thought of to be the information and telecommunications sector. I should note specifically on one point you raise Mr. Williamson about the makeup of the NII Advisory Council. I've been told that we had a fairly open process for soliciting nominations from the private sector, and I'll certainly go back and look to see whether any of the specific businesses you noted were nominated by the Chamber during that process, and if somehow we missed them in our own culling of the lists. But without regard simply to the makeup of that Council, you ought to know that we're very much involved in seeking the kind of input that we hear from business today, and we will over the next couple of months. Let me ask one question which I think is raised by the end of Mr. Levin's comments, and that's the question of market structures around the world. As you know, there are a lot of places where competition and private investment has not come. There are other countries like Chile where great advances have been made. There are some obvious benefits to the United States in opening up these markets in terms of both benefits to U.S. consumers and to U.S. companies which can find greater and additional business opportunities, but it seems to me that a fundamental issue here has to be to address the benefits that will come to those countries themselves. We don't want to be in a dialog, I don't think, an international dialog where it looks like we're asking people to open markets only for our benefit, but rather we need to note the benefits that will come to everybody, to those countries and their consumers from this opening. So my general question to the panel is simply, as you look around at market structures around the world, what do you think are the benefits that we can -- what are the best arguments we can make or the best examples we can raise, what's the best evidence we can adduce to demonstrate the benefits to people in all of these countries of the opening of market structures to private investment and competition? I leave that to anybody. Mr. Reilly? MR. REILLY: Yes, thank you very much. If we look at this issue, I think one area in which the GII can, in fact, facilitate opportunities not only for U.S. manufacturers and service providers, but also for the users in these other countries of Latin America and the rest of the world is evidenced by the fact that U.S. manufacturers had very great difficulty selling products in Latin and Central America for many years because of differences that existed between the standards in North America and those in South and Central America. As a result of that, we had situations in which different digital hierarchies evolved. The standardization activities in Committee T1 right now looking at personal communications, and we're working with our colleagues in TIA on wireless issues, and that's one of the areas that CTEL, the Organization of American States, is very interested. That's technology that is independent of the traditional European hierarchy and then the North American hierarchy. The synchronous optical network is a fiber optic interface that is, in fact, an ITU standard based on inputs from Committee T1. Signaling System 7, ISDN, ATM, et cetera, these are global technologies now that give us and give U.S. service providers and manufacturers opportunities to sell in those environments, but also give the users in those areas to have the benefits of buying products from a broader cross-section of service providers and, in fact, manufacturers as well. But I think we have an opportunity with the GII to, in fact, take advantages of the globalization of the technologies and the globalization of markets, and standards can, in fact, be a leader in that area. MS. DOUGAN: A slightly different point, and that is that notwithstanding the United States, where we have a great deal of tradition of customer activism and user activism and there are organizations such as INTUG and others who have worked very hard in the international environment to get the user perspective into this process. I was really quite intrigued when Paul Wierhoff, who is head of satellites for the European Commission that did a program for us a few months ago, and he, frankly, kind of said, "Gee, I wish the rest of the world had the kind of activism you have. We hear more from American users than we ever do from anyone in Europe." I really do think that your customers in these countries are oftentimes your best sales people. They can tell you what the applications are and the uses are and their frustrations are, but they have been caught for too long in this cozy relationship that if they complain too much against their government, things will get worse, not better. But I think that this is a very critical element that you can play a very important role, and that is reinforcing user and customer activism in these countries, and they can be some of your best advocates in opening up the markets. CHAIRPERSON DARR: Thank you. Scott? MR. HARRIS: I just returned from Moscow, where I participated in a U.S. delegation headed by the State Department, which the FCC and Commerce participated in as well, to engage in a discussion with the Russian Ministry of Telecommunications on the GII. I cannot emphasize to you enough how powerful the GII concept is in places where you would least expect it. The Russians are at least as interested in this concept as we are. They have established within the Office of the President a committee which is analogous to Carol's committee to create the Russian national information infrastructure. We get phone calls at the FCC literally daily from Latin America, South America, and around the world. What do we mean by the GII and how can they participate? It is important for you all to understand that this is a concept which gives us an opportunity to break through the old thinking about telecommunications markets and to open up telecommunications markets with a concept which sort of rolls over the old notions about protecting monopolies. It's also important for you to understand those old monopolies are not ready to give up, and what we all need to do is figure out a common approach government/private sector to help those overseas who see what the GII brings to overcome the resistance to it, and that's much of what this ought to be about today and as we proceed over the next couple of months. I recently read a history of opening competition in the United States in telecommunications, and it was led primarily by users, business users. It also was clear to me, as Ambassador Dougan suggested, they are going to be the lead forces overseas as well. Advanced telecommunications, cheap telecommunications is a competitive advantage, and the other thing we need to do is figure out how to marshal the users overseas and those elements overseas that see things the way we do, and that's where we need your assistance. I'm not quite sure yet I see how to get there. Now a specific question, one of the things I'm concerned about was alluded to both by Mr. Kolsky and Mr. Reilly, and I'm not sure you agree and I'd like you both to address this. The impression I have had, frankly, is that standards are a big problem in going overseas. It's one of the things that came up when we met with the Russians, particularly in wireless, whether you use a European standard, an American standard, and my real concern is standards being used as a nontariff barrier. Yet, from listening to Mr. Reilly, I had the impression things are going pretty well. I'm a little confused about that, and I'd like both of you to address it, if you would. MR. REILLY: As I indicated, the standardization efforts in the U.S. are efforts that we have exported in the form of contributions that we brought to the ITU, and in the area of telecommunications the Russians have been active in the past and continue to be active, perhaps even more so today than the distant past, with regard to an interest in this particular approach. Part of the reason for that, that standardization has evolved from being a situation in which perhaps 10 or 15 years ago people standardized existing technologies, today what's being standardized are advanced technologies. It's forward-looking in concept and more general than perhaps even technologies that are available off the shelf today. So the standardization efforts and the interest that has been shown by, for instance, the Russians is one to get an insight into the evolution of technologies. It may represent difficulties for them in terms of capital expenditures today to implement some of the standards, the technologies that are being standardized, but with regard to having insights as to the direction that's being given by the countries of the ITU which now number, I believe, more than 180, as to the direction of telecommunications, this provides a road map to them as to the ideas, as to technology is evolving, and the capabilities that will exist into the future. The standardization that we have had with our colleagues in ETSI, for instance, and TTC in Japan, along with Korea, Australia, and Canada, have been ones to exchange information very early in the process, so we can, in fact, mitigate discussions and arguments at the table in Geneva. So that process is one that we have seen very, very strong evidence of acceleration in the process in Geneva because of the fact that we have sent representatives to deal with our colleagues and discuss issues with our colleagues in Europe and Japan prior to actually bringing ideas to the table in Geneva. So I think we have very strong evidence of the fact that there is a progression, an acceleration in the standards process as a result of our actions, and we see countries such as Russia looking to get insights as to the direction that developed countries are taking with regard to those technologies. MR. KOLSKY: I think Mr. Harris has hit on a point where we -- maybe we don't disagree, but our experience is different. What happened in the United States, I think, is in the last dozen years, perhaps starting around 1980, we decided to have the marketplace determine standards, and, frankly, as an industry, we invited the government, the FCC, to stay out of it. The theory at least we operated in the wireless field was we would go in and sell our systems to X number of people and we would create a de facto standard, and that de facto standard would become a de jure standard. Unfortunately, at least our experience is that Europe, to take an illustration, has said, oh, no, you're not going to get into our markets unless you have de jure standard. So if you now look at GSM, whether one regards that as a good technology or a bad technology, it turns out that when Latin American countries and Asian countries say to the United States, "What's your digital cellular standard," and we really don't have one, they adopt GSM. Motorola is finding the same problem in the trunk area. The Europeans have been dealing with a system, their trunk system, called Tetra for a number of years. Motorola is now prepared to build Tetra. If that's what they want, let's build it. But the fact remains that Europe does not feel its manufacturers are ready for digital trunk systems, so it just isn't adopting a standard. I think Mr. Reilly's experience seems to have been more scientist to scientist or technologist to technologist. Ours tends to be technologist to politician, and we're not winning those kinds of battles. MR. HARRIS: That was my impression. I have lots more questions and I'm told I don't have time to ask them all, but I would like, if you two are willing, to agree to come by my office sometime in the next week or two because I want to talk about the standards issues in particular in greater detail, because you two guys need to be talking to one another, as well as to us, it seems to me. MR. NELSON: I had a couple of questions on standards as well, but maybe I'll just join Scott for that meeting. (Laughter.) I have a very general question, and this can be as open-ended as you like. It's the Mayor Koch question: how are we doing? (Laughter.) And I'd like to make it specific. Is there one thing that we could be doing better in this area that you could point to, something that we could fix in the next few months here to get the process going? GII policy tends to be set in a lot of different places in the Federal Government, USTR, FCC, Commerce Department, State Department, DOD, a lot of different things going on, and I'm wondering if there's a particular gripe you have, a particular thing that we can fix that we might be -- this is a brave question to ask maybe. MR. KOLSKY: With GII, NII, sir? MR. NELSON: About GII, international telecom policy in general. I'll start with Robert. MR. LEVIN: Well, luckily, I found out about this from Suzanne Seddle because I don't read The Federal Register and I don't know anyone in New York who does. And if you could somehow get the word out -- MR. NELSON: What does that say about New York? (Laughter.) MR. LEVIN: If you could somehow communicate your important work through perhaps the trade associations to small and medium-sized business around the country that are beginning to be entrepreneurs globally, you would have a larger net of information flow because right now most people in our position, small companies, unless we were called, we wouldn't know about what your work is and the results of your work. CHAIRPERSON DARR: On that particular point, we had put the hearing upon the Internet, on the TIA's section of that, and we had also put the notices in as many trade rags as we could, so people would know. So I'm sorry you didn't see that. MR. LEVIN: Okay. MR. NELSON: But we do take that criticism seriously and we have tried innovative new approaches like the Internet, and give us new ideas and we'll try them. MR. KOLSKY: I guess the one point I would make, I think it's time for the Vice President to take step two. I think we need the five principles that were enunciated in Argentina, I think caught the imagination of that conference. I think there was some momentum built up. I think we're now running into the danger that those words are becoming bromidic. I think we need to move on to a new plateau. MR. NELSON: Okay. MR. REILLY: I'd like to reinforce the notion that the NII and the GII have, through the principles and through other discussions that have taken place, highlighted the importance of standards. In an environment in which companies are, as we know, right-sizing in many cases and resources are very, very limited, I appreciate very much the fact that that note has bene made. I believe companies and service providers, manufacturers, end-users want to, in fact, be citizens of the U.S. and of the world in terms of contributing to the process, and I think highlighting the importance of it and the importance of the private sector open, consensus-based, voluntary standards process, forward-looking, minimum requirements -- highlighting that has been helpful and I would encourage you to continue to do that, so that we can ensure that the resources to look not only at today's technology, but to be there working to define the technologies of tomorrow. I think, as noted by Mr. Levin, the technologies that his new service is based upon are the technologies that Committee T1 standardized several years ago and contributed to in the ITU, things like Signaling System 7 and intelligent network capabilities, digital transmission paths, signaling capabilities. All of those are critical, and I think we need to have the resources working today to solve the problems of tomorrow, and to continue to highlight that would be very, very helpful to this effort. Thank you. MR. WILLIAMSON: Mike, I think that generally things are going well. I think that there's a tremendous amount of talent and energy in the Administration that's focused on these things. So I think one of the challenges is to have the right amount of patience along with the right amount of energy. There are some things happening in various bodies, such as the standards bodies. There are some things that are happening just in the marketplace. We tend sometimes to look back at this, for example, standards, and say, well, for years standards evolved very slowing for certain parts of the information industry that took a long, long time to achieve interoperability and things like that, but there were some market reasons for that. They used to use technology and standards to differentiate themselves. Now as you move in the direction of a network environment, there is a lot of market pressure to be able to interoperate with other vendors, because simply you're just not going to get the kind of reaction, especially from the small and medium-sized business user who is very much focused on price and value as he acquires this technology. You're not going to get a single-vendor solution. They're going to have to be able to interoperate more than ever in the past. So I think that kind of applying the wisdom as to where the market is working in the direction you want to go and then look and see where it needs a nudge, I think that's probably my advice on that issue. CHAIRPERSON DARR: Diana? MS. DOUGAN: Just a couple of quick points. It is true that the standard-setting process is expensive, and a lot of companies, particularly small ones, really can't spend the money to participate. For a number of years, there were a few companies that carried a lot of water and the T1 Committee that carried a lot of water, particularly in the ITU, and there are some real concerns on that. But there are some new dynamics happening, one of which -- and that is a lot of the issues are more computer-related now than straight telecommunications. So a lot of the things that used to be in the ITU are kind of fuzzy between the International Standards Organization and the ITU. There are also some serious departures in semantics. For example, the ITU standards are really recommendations. They are not requirements. But many countries use the ITU, the old CCIR/CCITT standards. They consider those absolute requirements and it becomes a very capricious and pernicious nontariff barrier area. So the spirit, the letter of the law, if you will, of the ITU agreement is voluntary, but one must be very cautious about that. The second point is the degree to which companies must disclose technology to be able to have a standard. There's a lot of mischief that can go on in that area, and the degree to which the inside of the box must look like the outside of the box, and these kinds of issues that can undercut competitive advantages of companies with new technologies, and we're already seeing that domestically with some of the problems with Bill Gates and others. But as the computer and the telecom worlds are merging more, you have a very important role to play in kind of sorting through how those are going to work, and I think there are better models coming out of the computer world in some respects. MR. NELSON: Thank you very much. They're all very, very useful suggestions. CHAIRPERSON DARR: Thank you. Let me tell you a little bit about the timing. We're going to run about probably 10 minutes over. We'll start the next section about 10 minutes late. I'd like to hear a question from Charlie Rush, who has a few points to make, and then we'll take a few minutes for comments from audience for the microphone. I'd also like to encourage you for the next section, if you have comments, to sign up to speak at the microphone for the two-minute slots. Charlie? MR. RUSH: Thank you very much, Carol. I'm not surprised that there's been such a focus on the standard-setting process when we're talking about a technological component of this thing that we call the GII. In my very naive fashion, having focused for the past year on the NII only, when I first heard the notion of a GII, I said, well, gosh, that can't be anything more than trying to assure interoperability and interconnectivity between networks on a national scale, and how else do you do that, but through the standard-setting process? And nothing that has transpired here this morning has dissuaded me from that rather naive approach. I would, however, like to pick up on something that Ambassador Dougan pointed out and ask the question particularly to Mr. Reilly and Mr. Kolsky to at least think of as you prepare a meeting with Mr. Harris and Dr. Nelson, as you prepare for this meeting to which I, or at least some of my colleagues at NCIA, and I'm sure the people at the Department of State would like to also be present. That is a very, very fundamental question with regard to the standard- setting process. That is, in light of the fact that things have changed somewhat since we have put into place the standard-setting process within the United States, the proprietary process and things like that, is it time to reconsider what is the government's role in this process? And I'm not advocating, Art, that we, the government, should go out there and be more proactive. I'm advocating, yes, that the process that we have now with industry-led, industry-driven is the way to go, but, clearly, there appears to be somewhat of a -- not maybe a disconnect, but a little difference of opinion with regard to the success on the part of at least one major American company compared to your view. So perhaps some thought could be given to whether or not there should be a change in the process itself, and if we're to go forward with this GII in an expeditious fashion, perhaps it's time to realize that also technologies are changing and maybe the way in which we undertake to do our international negotiations on the standards, on the technology issues, also needs to be changed. Thank you. CHAIRPERSON DARR: Let's hear for a few minutes from the people who have asked to make comments on this first panel. The first one is Paul Evan Peters, who's the Executive Director of the Coalition for Network Information. I believe he had a few remarks he wanted to make. Mr. Peters, are you still in the room? (No response.) MR. HARRIS: That's what happens when you go over the time limit. (Laughter.) MR. SALLET: He's probably just setting up for your meetings then. (Laughter.) CHAIRPERSON DARR: Let's go to the second one, Ross Stapleton Gray of the Intelligent Community Management staff. MR. GRAY: Is the mike on? CHAIRPERSON DARR: I think so. MR. GRAY: Hello. I'll probably spend the first minute disclaiming myself, that I do not speak for the Intelligence Community Management staff, nor for CIA, which was my home agency up until a year ago where I was an analyst looking at global telecom. I heard a lot of discussion of the carrier, but not a lot about the content; a lot about the technologies and not a lot about the uses. The idea of a GII suggests to me we need some innovation beyond telecom policy toward some information policy, both an information foreign policy and a foreign information policy. I don't need to tell the government agency folks here about the issue of the cobbler's children not having any shoes. We're building technologies and policies for global networking, and most of the federal agencies that do international work don't have the technologies to use. I think we can see a lot of growth and innovation in that area. I spent my graduate work studying the science in the former Soviet Union. There is a vast scientific community out there somewhat networked, a lot of it by its own bootstraps, and we can't deal with that community very well, though American academics can. I'd like to see the government have the tools in hand to do things abroad in the same way that the private sector is now gaining by leaps and bounds. On the other side, we have a very poor sort of information balance of trade with the rest of the world. It's a wonderful thing for the U.S. economy that we've got a 7- or 8-to-1 ratio of foreign students coming to the U.S. as opposed to those who go abroad, but I look at that and it looks bleak. We've got U.S. students going abroad and 80 percent of them go to France, Germany, Canada, Mexico, England, and Spain. We don't very well pull in information from all over the globe. We haven't very well solved the problem of getting foreign information into the U.S. market, into the U.S. academic sector. I throw all of these out as solicitations for suggestions and comments, and E-mail me at Stapleton, at BPA.ARIZONA.EDU, but how can we think about ways to use the global information infrastructure outside of merely the telecommunications markets and policy regime to bring in that information, foster contacts, and make the government as literate as the private sector in expediting things over this GII? Thank you. CHAIRPERSON DARR: Thank you very much. Let's all take a quick 10-minute break and reconvene in about 10 minutes. Thank you. (Off the record.) CHAIRPERSON DARR: I'd like to get started for the next session. I'd like to introduce the members of the hearing panel for this panel. We are joined for this panel by Jeff Smulyan to my left, who's the head of the American delegation to the ITU Plenty Pot in Kyoto in September. Also on my right, Tom Kalil of the National Economic Council at the White House; Charlie Rush, who's the Chief Scientist at NTIA, is joining us for this panel also, as he did for the first one. Mike Nelson at the Office of Science and Technology Policy from the White House on my far left, and Cathy Sandoval, who is assistant to the Chairman of the FCC. The next panel will be on the information infrastructure today: what is the current state of the world telecommunications and what are its limitations? I'd like to introduce the five members of the panel who are testifying. As I do, I would ask each of them to stand up, so that you can see them, also. The first one is Brian Moir, who's a partner at Moir and Hardman. Thank you. Gregg Daffner, Vice President for Market Development and Regulatory Affairs at PanAmSat; Kevin Kelley, Vice President for External Affairs at Qualcomm; Wendy Franz, Vice President for International Public Policy, Development, and Planning at AirTouch; and Jason Berman, Chairman and CEO of the Recording Industry Association of America. Thank you all. Mr. Moir? MR. MOIR: Thank you. Can everybody hear in the back of the room? I appreciate being invited here today to express views that are those of the business user community here on international aspects of the NII, as well as business user requirements for global telecommunications. For the record, my name is Brian R. Moir. I'm a principal, as was mentioned, in the Washington, D.C. law firm of Moir and Hardman. I've devoted a major portion of my practice over the past decade to legislative, regulatory, and public policy advocacy of the interests of the telecommunications user community, and it is that perspective which I hope to bring to this panel here today. Clearly, if the user perspective is not reflected whenever policies emanate from this Administration's deliberations on telecommunications and information infrastructures, then those policies that do emanate from these deliberations will run the risk of doing the opposite of what you want to accomplish, and that is seriously undermining the ability of American business to fully compete here and abroad through the use of cutting-edge technologies that we now have access here and, as I'll get into later on, not as much access to abroad. What are those business user requirements? The business user here in the United States faces intense competition and faces intense competition abroad. That global competition faced by the users forces users who want to stay on the cutting edge of whatever businesses they're in to have timely, accurate, cost-effective information at their fingertips. It's not a surprise; you've all heard that before as you've studied these issues, but telecommunications technology is the thread that ties all of those things together. Users must be able to obtain, operate, maintain, and fully utilize state-of-the-art technology, albeit information and telecommunications. This capability, access to technology for day-to-day business operations, has far greater and broader economic implications in terms of jobs, profits, competitive advantage, and balance of trade. Those interests go beyond the mere actual cost of telecommunications and information services that the business user community purchases daily. Because today's business user must compete in a global marketplace, the infrastructure requirements must be adequate not only in the U.S., but for the international links and the links in the domestic countries abroad where the various companies are co-located. American companies face a number of problems overseas. The list is long. I know some of the people who are on some of the other panels are going to go into them in more detail. I'd like to highlight just three. Access to private at cost-oriented rates: since most of the countries don't even permit competition in network facilities, it's critical, if we're not going to have choice in the vendor communities outside of the United States, to at least have access to those dominant facility services at rates that bear some relationship to cost. That's not the case. All you have to do is take off-the-shelf benchmark tariffs here in the United States and start shopping those around internationally and it will become self-evident. The ability to utilize equipment of their choice and the flexibility to structure their private networks to meet their unique requirements is the second point. Finally, which is important to every user, whether they're here or abroad, they have to have access to high-quality, reliable services. There's nothing startling about these requirements. They are the same which users have fought for in the U.S. for decades: state proceedings, the Federal Communications Commission, the Executive Branch, and on Capitol Hill -- in fact, as recently as an hour ago on Capitol Hill. Let me now turn to the business user experience in the U.S. since I think it will provide some lessons for what needs to happen overseas and some of the problems we have in dealing with the situation overseas. In the U.S., the telecommunications infrastructure evolved over many years. No one event, no one decision, no one technology brought us to where we are today. The major question in the NII and GII is: who pays for this infrastructure development? It's one the user community pays a lot of attention to. In the U.S., the networks that have evolved have largely been funded on the backs of ratepayers, whether they're business, government, institutions, or residential consumers, not by the shareholders of the dominant monopoly suppliers of telecommunications services and facilities. So one of the five principles which you all have espoused, indeed, is right on target. The private sector is the one that has been stepping forward in this area and needs to continue to step forward -- hopefully, with some guidance, well- intended guidance from you all. But let us not lose sight of the fact, as I stated earlier, that this private sector funding largely comes from ratepayers and, unfortunately, in at least a few areas in the United States captive ratepayers. That's important because, as we know when we turn overseas captive ratepayers is about all we have since choice is not something that runs rampant when you look at the examples case by case around the world. So just as the ratepayer community has historically funded the infrastructure, they continue to fund that deployment R&D and advancement, and, as a consequence, we become very interested when people articulate visions for the future. Those visions can require things to be done, if they're written that way. Those visions can appeal to the right-headed people to strive to do better, if they're written another way. What we caution you is to make sure that the visions that come out of these deliberations represent the needs of the user community and to ensure that the evolution that's been going on in recent decades continues to be driven by the user community. Almost two decades ago, it was the user, not the local telephone monopolies, who developed the new and innovative methods of using network facilities and services. The entrenched suppliers here, just as we find when we go abroad, have little incentive to provide equipment facilities and services needed by users when they're not faced with competitive alternatives, when the users don't have choice. As a result, the users here in the United States, as they've had to do elsewhere, are forced to go outside of the traditional provider community in order to obtain that that they need to do what they need to do better than anybody else. You will find many times users going into new countries will make telecommunications part of their negotiations. Regardless of whether it's available or not, the plant will not be opened, the jobs will not be there, unless that plant's provided with the telecommunications that they need. Unfortunately, nobody else in that country benefits, and all too often none of the other American businesses that are trying to co-locate in that country are benefitting. So those are stop-gap measures. In the end, we need the choices. New industries emerge when we provide the choices the user community needs. Those new industries, obviously, provide jobs, tax revenue, and a whole host of related benefits to the relevant economies. In the U.S., FCC decisions over two decades and the MFJ of a decade ago provided a competitive environment that have brought us tremendous amount of benefits in long distance, in the equipment area, information services, and enhanced services. Users have come up with significant amount of innovations as a result of those efforts. So the lesson we've learned here in the U.S. can be applied abroad, and that message has been carried around the globe with more success in some areas than others by business users. Business users need competition, need choice, and they need to have government policymakers that promote those views. Thank you. CHAIRPERSON DARR: Thank you, Mr. Moir. Mr. Daffner? MR. DAFFNER: Good morning. It's a particular pleasure for me to be here today because I can recall several months ago being in Buenos Aires where Vice President Gore first enunciated the principles of the GII, and so I would like to talk today about two specific points: satellites and why they are essential to the GII and, although I won't harp on this, I would like to echo Brian's remarks that in order to bring the benefits of the GII, we need the assistance of you, our government, to help us to open foreign markets for access for the provision of private international satellite services. Second, I want to emphasize that there is, beyond local impediments, there is an international global impediment to the GII, and, therefore, a need for restructuring of the market. That impediment is INTELSAT and its treaty organization. First, very briefly, I'd like to tell you who PanAmSat is and what we've done. We were founded in 1984, which was the same year that a presidential determination was made to permit limited competition to INTELSAT, which was at that time the monopoly treaty-based international satellite communications organization. With the launch of our first satellite in 1988, PanAmSat became the world's first private international satellite service provider. Our success was based on a correct assumption that there would be demand: in effect, if we built it, they would come, particularly in lesser- developed countries, if an alternative was permitted to INTELSAT and its U.S. participant COMSAT. In fact, we found that in most instances new demand for satellite services were created, since satellite services are highly price-elastic and INTELSAT's monopoly prices and service policies have been prohibitive. Despite the long odds of going up against a global monopoly that continues to enjoy treaty privileges, as well as significant market advantages, PanAmSat has continued to grow. We completed last year a $720 million financing, purchased four new satellites from Hughes, and intend to provide service to all regions of the earth. The first of our new satellites was launched a little less than three weeks ago to serve the Asia Pacific region. Over the next nine months, we will be launching two additional satellites, creating the first private global satellite system serving 98 percent of the world's population. That, ladies and gentlemen, is what is called universal service, and it is no burden. Let me repeat that: providing services to developing countries is no burden. In fact, we believe that it is a golden opportunity. When the goal of global information infrastructure is before us, reliance on wired connections alone is even more inappropriate than it is in the context of national information infrastructure. International satellite service is a critical wireless technology providing service that is truly universal, creating instant telecommunications infrastructure, requiring minimal investment for users. And, as the Vice President noted in Buenos Aires, by promoting the installation of a large number of widely-distributed earth stations, countries can leap-frog the expensive, time-consuming process of building a national terrestrial network with limited geographic coverage and can benefit from obtaining access to satellites whose basic development and construction costs have already been paid by private entities in their own or other countries. And, again building on Brian's remarks, these are satellites, in our case anyway, that are financed by the shareholders and not by the ratepayers. These additional satellite services create new sources of telecommunications traffic from unserved and underserved areas, increasing general traffic and revenues for the basic telecommunications network. Thus, distance learning between remote educational facilities, emergency communications from small villages and developing industrial areas, environmental monitoring, routine government and civic exchanges that do not now occur because of lack of communications facilities can be provided over satellite facilities. In addition to providing instant infrastructure, satellites offer accessibility and mobility to virtually every citizen through their wide coverage areas and through their having both transportable and truly mobile technology, while this access via satellite promotes the same level of broad band services available in urban areas to people and institutions such as schools, health care facilities, and businesses in less populated areas without the need for cross-subsidies, which at best assure only a minimum level of service anyway. Moreover, the cost of access is unrelated to the distance covered or to subscriber density. As the satellite industry becomes more robust, technologies which have served the world for three decades and brought connectivity to all countries are becoming a key building block in developing infrastructure in the developing world, and particularly for thin route and rural networks. As there is a movement from satellite to fiber optics for the high-density routes, there is a shift in the satellite markets to focus on multi-point communications, including broadcasting, program distribution, and interactive data networks, as well as serving the lower traffic routes in and among rural communities and across vast areas which lack terrestrial infrastructure. Competition in satellite facilities and services is bringing choices, critically-needed capacity, and lower prices, together with a wider range of specialized services. The United States took the lead in the 1970s, creating what is known as the open skies policy. We today have perhaps the most open, robust, domestic satellite market in the world with over 30 private "domisats," as they're known, in operation. Typically, we hear U.S. Government spokespersons criticizing overseas administrations and monopolies and we hold up our competitive system as a model for the rest of the world. It may, therefore, come as a surprise to learn that the United States Government is responsible for one of the most formidable obstacles to free competition in international telecommunications today. In the 1960s, the United States created, and now protects and maintains, INTELSAT as the global satellite consortium whose backbone is an intergovernmental treaty. The treaty confers upon INTELSAT government subsidies and financing, tax exemption, diplomatic immunities, antitrust immunities, and other special privileges and concessions, and I might mention it conveys freedom from the regulatory process which its entrepreneurial competitors such as PanAmSat are subjected to. Existing U.S. attempts to protect INTELSAT from competition are groundless and counterproductive. Protecting INTELSAT helps to sustain an obsolete monopolistic structure that restricts trade in telecommunications services. However, more is at stake than lower prices, greater efficiency, and improved trade opportunities -- important as these all are. The issue is also one of how the United States defines its role in the post-Cold War world. The protection of INTELSAT is a classic example of how political and strategic concerns held over from the Cold War are now handicapping the U.S. economy's ability to respond to a new global economic challenge. I refer to a commentary, an editorial, that appears in one of the industry publications, Space News. This week's edition has its lead editorial called, "Call it Mercy Killing," and it refers to the fact that amid the celebration of the Apollo successes it has been forgotten that a second major innovation of President Kennedy's in space was the creation of COMSAT, INTELSAT, and, ultimately, its sister organization, INMARSAT. The editorial goes on to say that, unlike Apollo, which achieved its purpose and then went out of business, INTELSAT and INMARSAT have long lived past their usefulness and have become anti-competitive behemoths standing in the way of more innovative, lower-cost systems. Residents in the world's poorer countries deserve wider access to the same information revolution that is transforming the economies of the developed world. If this Administration wants to foster the GII, you must take action now. With the creation of the '62 Communications Satellite Act, whose purpose was to promote communications by satellite and achieve universal international telephone service, the U.S. led the effort to create the present INTELSAT/COMSAT structure. You must lead again. Three actions are necessary: One, keep INTELSAT from further expansion into competitive services while its future structure is debated; that is, preserve the status quo. Two introduce and support U.S. legislation to remove COMSAT's privileges and immunities and ensure that it is effectively regulated. And, three, starting with this October's assembly of parties of INTELSAT, create and lead a process for a future privatized INTELSAT and ensure that it cannot abuse its dominant position which 30 years as a monopoly treaty organization has granted it. Thank you. CHAIRPERSON DARR: Thank you, Mr. Daffner. Mr. Kelley? MR. KELLEY: Thank you. My name is Kevin Kelley. I am the Vice President for External Affairs of Qualcomm, Incorporated. Qualcomm supplies wireless communication solutions worldwide. We design, manufacture, distribute, and operate the OmniTRACS vehicle communication system in the United States and license its use around the world. OmniTRACS is the largest satellite-based mobile digital communications system in the world. The company develops, licenses, and manufactures products incorporating its proprietary co-division, multiple-access technology for wireless applications, including the cellular personal communications services and wireless local loop markets. Through the Globalstar joint venture, the company is designing and plans to manufacture products for global wireless communications systems using low earth orbiting satellites. We design and sell very large-scale integrated circuits and selected equipment for the communications needs of business and governmental organizations. Over the past several years, QualComm -- and let me say this may be a little repetitive from the last panel -- QualComm has been deeply involved in the domestic and international standard-setting process for wireless telecommunications products. I believe the standards are a critical element in the development of the global information infrastructure. However, the standards process can be a two-edged sword. On the one hand, standards provide for nationwide, and possibly even worldwide, interoperability and tend to reduce equipment cost by allowing all manufacturers to build equipment that satisfies a common set of specifications. On the other hand, the time it takes to develop standards can slow the introduction of new technologies, and, perhaps even more important, administrations can use standards to keep innovative foreign technologies out of their markets to protect indigenous manufacturers. Unlike most governments, the United States Government has chosen to take a very limited role in telecommunications standards. For example, in its recent PCS order, the Federal Communications commission declined to do anything more than adopt standards necessary to prevent interference. The Commission recognized the benefits of having industrywide interoperability standards. However, because it believed that government-mandated standards might be discourage innovation and that industry will develop interoperability standards on its own, it limited its role to monitoring the PCS industry standards activity. Several years earlier, the Commission took a similar stance regarding the development of a digital standard for the cellular radio industry. As a result of these decisions, the United States cellular industry has two industry-approved digital standards, and the emerging PCS industry will very likely have at least two approved standards available to it. Europe, on the other hand, has settled on a single standard for both digitals, cellular, and PCS. The European standard, which is known as GSM, is based on a technology known as time division multiple access, or TDMA. The existence of multiple standards, while benefitting consumers and service providers in the United States, may be limiting the ability of U.S. equipment manufacturers to introduce their technologies into foreign markets. This denies the benefits of superior U.S. technologies to consumers in foreign markets, and there are many reasons for this and I'll just mention two. First, foreign countries may find the situation in the U.S. confusing and be unwilling to commit to a technology that is not universally accepted in its home market. Second, and more important, I believe it's a reluctance of the United States Government to actively support U.S. standards in foreign markets. Qualcomm's CDMA technology is the basis for one of the new digital standards adopted by the U.S. cellular industry, and it is a candidate -- I'm sorry. Qualcomm and several U.S. manufacturers are now working to make Qualcomm CDMA technology a standard for the emerging U.S. PCS industry. Qualcomm is working in a number of countries around the world, including South Korea, China, Russia, India, and several South American countries, to have the U.S. CDMA standard recognized and adopted. As a direct result of Qualcomm's international efforts, one country, South Korea, has adopted CDMA as its digital cellular standard, and many others are now considering adopting CDMA as a national standard. However, as Qualcomm makes headway in its fight to have CDMA accepted in overseas markets, it is being challenged, not by the technical superiority of the European standard, but rather by a well- orchestrated worldwide campaign by the European Community's political leaders in support of its standard. Qualcomm believes that it's important to remember that the acceptance of U.S. standards internationally is key to developing international markets for U.S. telecommunications products. As AT&T pointed out in a recent FCC filing which was supported by Qualcomm and Motorola, when a country adopts a U.S. standard, U.S. companies get a large share of that company's equipment market. However, when a company adopts a non-U.S. standard, even those U.S. companies that manufacture equipment to that standard get a much smaller share of the foreign market. For these reasons, Qualcomm believes that the U.S. should make support of U.S. telecommunications standards part of its international telecommunications policy. As the FCC prepares to award PCS licenses, some possible PCS licensees are considering using the European GSM standard to offer service in the United States. Qualcomm does not object to the introduction of foreign standards into the U.S. market. It is more than willing to let the U.S. marketplace decide what is the best technology. However, it believes that when the U.S. allows foreign technology into the U.S. market it should demand similar entry rights into foreign markets. As the global information infrastructure develops and grows, its progress should not be slowed by the imposition of standards that limit its flexibility to incorporate new technologies. The world marketplace should select the best standard for each portion of the GII. Thank you for your attention. CHAIRPERSON DARR: Thank you, Mr. Kelley. Before we go on to Wendy Franz, I'd like to introduce a new member of the hearing panel. Don Abelson is the Assistant U.S. Trade Representative for Services, Investments, and Intellectual Property. He'll be joining us for this panel. Wendy Franz from AirTouch. MS. FRANZ: Thank you. Let me first introduce myself and AirTouch. As most of you are aware, AirTouch is the new name for PacTel. I'm responsible for all of our international public policy for AirTouch International. AirTouch International is one of the world's leading investors and operators of wireless communications networks. We are in partnerships in both Asia and Europe, operating cellular networks in Europe. Our partnerships operate GSM cellular networks in Germany, Portugal, Sweden, Italy, and soon Belgium. We also are active in paging ventures in France and Spain. In the Asia market, our partnership has been awarded a license in Korea to operate a cellular network under the CDMA standard, and we are active in the Japanese market operating under the Japanese standard at 1,500 megahertz. In addition, we are an investor in the Globalstar consortium to provide mobile satellite services as an adjunct to our terrestrial services. I would like to present two proposals today which will strongly impact the ability of U.S. companies to compete for further participation in mobile services overseas. First of all, I would like to propose that we remove restrictions on foreign ownership of commercial mobile services licenses for countries or regions whose home markets are open to U.S. investment on a reciprocal basis. And, secondly, I would like to address the issue of market structure to support fair and balanced regulatory frameworks for mobile services, to encourage competition and private investment, and, in particular, focus my comments on the European Union Mobile Green Paper. First of all, on the question of market access, clearly, the window of opportunity for investment in mobile services is limited and is encouraged today by a trend toward liberalization around the world. U.S. companies seek full participation in overseas wireless licenses, both terrestrial and satellite. In a number of countries, U.S. companies are limited to minority percentages. Among those countries in which our partnerships are active, formal and legal ownership restrictions exist specifically in France, Portugal, and Spain. In addition to these formal and legal restrictions, informal restrictions not embodied in the law present additional hurdles to us and other American companies in both Europe and Asia. We also face the prospect that in those countries where no foreign ownership restrictions currently exist they may become more closed, given their perception of reduced access to U.S. markets. In particular, markets such as Germany and Sweden where we operate, do not have formal restrictions on ownership. I do not need to spend time today going through the background of 310(b) and the U.S. restrictions; only to mention that the burden of proof is placed on foreign investors when going to the Commission to achieve greater percentages here in the U.S. We well understand that the leadership in Congress supports foreign ownership restrictions here in the U.S., and this is based on a perception that our markets are more open than those around the world. Certainly, we, too, face restrictions in our investments overseas. In particular, in the European Union the legislation which requires preferences to be given on equipment contracts, this legislation affects both public and privately-held telecommunications operators. Furthermore, the European Union is the process of setting policies which govern mobile services licensing and is increasing the prospect of ownership restrictions. We see this in the satellite sector in the issues of mutual recognition of licenses. We see it in the terrestrial sector in the Mobile Green Paper proposals for licensing conditions. These proposed regional policies would expand restrictions even to those countries in the European Union who currently have no legal foreign ownership restrictions. In addition, given the expansion of the community, it would apply to new members such as those coming in from the aftermarkets. Furthermore, it sets a precedent for developing markets who are just now opening their telecoms market to foreign investment and who are likely to impose additional foreign ownership restrictions as they liberalize. We endorse a full reciprocity action in the area of commercial mobile services and suggest that the U.S. foreign ownership restrictions be no more restrictive than those placed on our investment in the foreign country. We recommend that the Communications Act be amended to authorize the FCC to grant waivers to permit foreign equity investment in U.S. commercial mobile service licenses based upon ownership restrictions imposed on U.S. companies in the relevant country or region. Even before we can achieve such statutory changes, we encourage the FCC to grant such waivers now under the public interest standard. Furthermore, we are prepared to support efforts of the Telecom Summit of G-7 countries as an excellent opportunity for Administration support on this issue. Evaluation of the openness of a given market should be done across all relevant departments in our government and should be done in conjunction with industry to ensure that we capture both de facto and de jure treatment of U.S. applicants or consortia seeking licenses for competitive telecom services. Furthermore, we underscore this by the fact that this impact will increase as mobile communications satellite ventures seek licenses overseas. We believe this policy is consistent with the Administration's publicly-stated goals for open markets and for reduced trade barriers, and we believe such action would demonstrate U.S. leadership on the issue and would encourage competitive entry into foreign markets. Many markets currently have provisions to waive their own foreign ownership limits, and such action would give incentive to these countries to lift these restrictions. The proposal still preserves discretion of the FCC in the evaluation to ensure that reciprocal open access is provided. Such a policy will encourage U.S. investment overseas and will encourage leadership of U.S. companies in provision of mobile services, an area in which the U.S. companies excel. In addition to this access question, the issue of market structure cannot be overlooked. Currently, the European Union is moving forward in a regulatory process to set a framework to govern mobile services. This framework will apply to the members of the European Union, but also sets an important precedent for other areas of the world. In two specific actions -- namely, the Mobile Green Paper and the Infrastructure Green Paper -- the next 12 months will be a critical turning point in European Union policy-setting. These policies are being put in place in advance of the January 1, 1998 services liberalization date to allow full liberalization of telecom services in Europe. We believe these actions will set the policy framework and the market structure governing provision of all competitive services, not only in the mobile sector, but other services of the information highway, since these will be precedent-setting actions. It will also severely affect the mobile satellite sector and could impact investment in satellite services. I'd like to mention briefly today two specific points regarding this Mobile Green Paper and the proposals of the European Union. First of all, we fully support the proposal for infrastructure liberalization. The Green Paper proposes to allow mobile network operators access to alternative infrastructure. This is a critical first step in the liberalization of infrastructure throughout the community for all services and would establish an important milestone in achieving alternate infrastructure sources. Such alternate infrastructure not only will provide services at a much lower cost, but also at extremely higher quality to our customers and could include the use of microwave or our own fixed lengths, as well as access to facilities currently provided by utilities or cable TV companies in Europe. Secondly, we would like to raise caution against proposed restriction on mobile network operators' ability to choose distribution channels and service providers. The Green Paper proposes restrictions on an operator's ability to refuse to deal with service providers or distributors. This proposal is based on an extension of what is known as open network provision in Europe. This regulation was designed for, and is quite necessary for, ensuring competitive access to exclusive services of the PSTN. It is inappropriate, however, to extend regulation design for exclusive monopoly services into a sector which is highly competitive, extremely investment- intensive, and which includes significant private investment both by U.S. and non-U.S. companies. It is our belief that the existing competition rules in the European Union are sufficient to regulate the competitive sector. In sum, we encourage support for flexible policies which encourage private investment, which support competitive provision of services, and support the five principles outlined by Vice President Gore. We are prepared to fully support the Administration in these efforts both here in Washington, at our headquarters in California, and in Brussels, the office which I head. Thank you. CHAIRPERSON DARR: Thank you very much. We'll next hear from Mr. Berman of the recording industry. MR. BERMAN: Thank you. My name is Jason Berman. I'm the Chairman and Chief Executive Officer of the Recording Industry Association of America, a trade association representing the producers of over 90 percent of the prerecorded music sold in the United States. In addition to being a $10 billion domestic industry, the foreign sales of U.S. recorded music last year amounted to more than $12 billion, representing approximately 60 percent of the world's consumption of recorded music. But for piracy, inadequate copyright protection, and the existence of a variety of market access barriers, foreign revenues would be substantially higher. Unlike traditional industries, the value of what copyright industries create is an intangible that may or may not be embodied in a physical product. While existing technology and consumer preferences have produced conditions in which copyright industries do produce and sell physical goods embodying their creations, developments in technology facilitate the growth of information infrastructures and may eventually entirely transform the market away from product delivery and toward signal reception. One's control over physical products embodying intellectual property ceases to have practical commercial significance. Our industry becomes completely dependent upon the statutory protections established by copyright laws around the world. It is, thus, critical that we ensure that such laws, both our own and those of our trading partners, continue to provide the financial incentives necessary to create and distribute works to the public. By providing copyright owners with the same level of control over their creations in the electronic domain as they now enjoy in the physical marketplace -- that is to say, the ability to prevent others from reproducing, distributing, performing, and displaying the work without the permission of the copyright owner -- we can ensure that the creators of recorded music will successfully survive this transition. However, this will necessitate going beyond traditional copyright principles in which it was sufficient to simply create a legal right and the legal ability to enforce such a right. The digital environment undermines the practical ability of copyright owners to control the uses of their works, and it is, thus, absolutely critical to consider technical solutions that are embodied in statutory protection, as well as traditional legal remedies. Intellectual property rights in the framework of a global information infrastructure will be meaningless in the absence of technical measures required by law that give the copyright owner the ability to exercise such rights. Intellectual property rights are essential elements of the infrastructure of the information superhighway. They must not be viewed as something to be grafted onto the highway. They must be an integral part of the fundamental rules of the road. Without a foundation of such rights, the highway will not become what it has to; namely, a marketplace. The question of rights in a global information infrastructure environment must reflect the new marketing possibilities it produces and must contemplate the continued vitality of a series of financial incentives for individuals and businesses to create and distribute their works. In short, we need to construct toll roads along the highway that are designed to ensure that the people who create and produce the information available are paid for its use. For record companies, the most pressing need is to establish the right to authorize or prohibit the public communication of their sound recordings in the new information society environment. Part of this entails creating a public performance right in our own law, as well as clarifying the scope of reproduction and distribution rights, as proposed by the Working Group on Intellectual Property. The international system for the protection of sound recordings was created in the early 1960s when analog broadcasting was deemed only a secondary use of a sound recording and the primary market consisted entirely of direct retail sales of copies of sound recordings to consumers. Throughout the 1980s, telecommunications use of sound recordings has become less a promotional adjunct to the distribution of recorded sounds and more a legitimate marketplace in its own right. In the near term, on the international level the principles and definitions of existing copyright and so-called neighboring rights will need adjustment, at least in order to achieve greater harmonization internationally. The difference between common law and continental copyright has already created conflicts among nations concerning authorship, conflicts of law and contract interpretation, to some degree issues over moral rights, and the occasion disagreement over subject matter. Perhaps the most fundamental difference, and certainly the most widely commented upon, is the protection of phonogram producers and performers as merely neighbors of the copyright community versus the copyright protection of sound recordings as works under Anglo-American law. These differences need to be bridged to achieve international harmonization without requiring states to revise fundamental legal principles that they wish to preserve at the national level. In particular, when the superhighway leads to regional and global licensing activities and heightened international trade in products and services, contract questions may re-emerge as a source of conflict. Rights need to be alienable or subject to licensing without a wide variety of restraints, and rights-holders will need to be able to enforce and exercise their acquired rights in their own names. Most importantly, the United States needs to take a leadership position in developing the legal constructs for the development of rights in the digital domain that are exclusive in nature, hopefully not subject to compulsory licensing, and supported by the mandatory introduction of technical systems that given practical effect to the copyright owner's exclusive right. The interim report of the Working Group on Intellectual Property offers a useful paradigm for the establishment of a new international agreement in this area; namely, by ensuring adequate protection for copyright owners in the digital marketplace, by clarifying the broad scope of their reproduction right. The reproduction right is the most central and universal feature of copyright laws around the world, regardless of whether such laws are based on common or civil law tradition. By forging a consensus around the sanctity of the reproduction right and the recognition that exclusive reproduction rights are impaired by digital transmissions, we will have gone a long way toward establishing a fundamental principle for consideration in global thinking about the development of information infrastructures. In conclusion, the development of national and global information infrastructures can only stimulate U.S. competitiveness if adequate and effective intellectual property protection is an essential building block, one of the rules of the road. We must zealously guard against the tendency of some who view intellectual property as an afterthought or, worse yet, an impediment to structural development. The information superhighway will only function properly if it operates as a marketplace where goods can be bought and sold. If we fail to recognize this, then American creativity and genius will become the unfortunate road kill of the superhighway. Thank you. CHAIRPERSON DARR: Thank you, Mr. Berman. That's an interesting way to end that. I'd like to start off with a question to the panel, to Mr. Berman. In starting to plan the new document that we are hoping to publish by the end of October, the Agenda for Cooperation, we've heard some comments from some of the foreign countries who hope that we will be sensitive to issues of "cultural imperialism." How important do you think that issue is to your industry vis-a-vis your other concerns about copyright protection and privacy and how would you have us deal with that issue? MR. BERMAN: It is a central feature of America's trading relationship, particularly with its European partners. It was an issue, unfortunately, that was embodied in the Canadian free trade agreement. I think the thing that the United States needs to do is to spend some time disassociating what represents a true cultural national interest from what, in effect, are merely commercial interests dressed up as cultural interests. Now it is a plain fact of economic life that in the area of entertainment services -- motion pictures, records, books -- the United States has a dominant world position, and there are, in fact, in many countries, and, in particular, European countries -- France to name one -- where this represents a threat to France's -- a perceived threat to France's cultural identify. In many ways there are legitimate national activities to deal with that dominance. It is perfectly legitimate for a nation to subsidize its cultural industries. Unfortunately, what we find is, for example, the subsidization today occurs by use of U.S. products. U.S. sound recordings, U.S. motion pictures are used to subsidize the production of French products as opposed to the French subsidizing their own. I find that to be a commercial issue, not a cultural issue. I think we need to spend some time looking at those constructs that foreign nations put up and simply give the name culture to and look beyond that and try to sort out what may, in fact, be legitimate national cultural concerns and separate them out from what are, in fact, simply commercial issues that divide us. CHAIRPERSON DARR: Thank you. I'd like to turn to Tom Kalil now for his questions. MR. KALIL: I have one question for Brian and one for Kevin. Brian, one of the things that you talked about was the importance of cost-oriented pricing, and one of the things that we've heard is that there are large differences in the pricing and availability of telecommunication services in the United States and overseas markets. Clearly, one of the indices we could use as a benchmark for measuring progress toward the GII is to the extent that we see a reduction in that gap. A study that was done by the National Academy of Sciences said that there was a 10-to-1 difference in the pricing of leased lines between the United States and other advanced industrial countries. So to the extent that your members have data on that, the Administration would be very interested in this because I think this would really drive home the point that countries that seek to protect their telecommunications market are really shooting themselves in the foot by hurting all the industries that are consumers of advanced telecommunications services. MR. MOIR: As well as the competitiveness of their own businesses. I'd be glad to get you some of that data. The data we've done in the past is probably a little out of date. I remember when we were working on the U.S.-Canadian agreement we sat down with some of our people and we looked at per-mile rates for various grades of private lines, and at the time between here and Canada, if you took the number 5X, you could pretty well figure out the difference. As you know, those rates look terrific when we benchmark them vis-a-vis the other countries in the world. So I commend Canada for being the best of the lot and point out that there are some problems. And we'd be glad to work with you. We've worked with administrations in the past. In some cases we could tell you ways to try to get around the actual off-the- shelf rates, but we'd be glad to work with you on that. It's a real problem, and private lines is an easy benchmark because the way they're offered the grade and per mile makes it easy to benchmark countries together. MR. KALIL: The question I had for you was: it wasn't really clear from your testimony what it was that you wanted the government to do differently than it's currently doing today. You indicated that there was a difference between the approach of other national authorities -- for example, the Europeans being able to actively promote GSM. You indicated that the U.S., because it has a more hands- off attitude and is promoting the voluntary industry- led standards, was in a more difficult position because there was not one industry standard that it could support. So that's one question. The other question is this issue of trying to balance the need for interoperability on the one hand and the need to allow competition and heterogeneity on the other is one that keeps on coming up in the course of discussion on the NII and the GII. I'm wondering if in your industry there has been any thought given to how you allow multiple standards to co-exist in the marketplace, so that, for example, you could have a switch that could accommodate multiple standards, for example. MR. KELLEY: As to the first part of your question, what I was relating really was our experience in places like China, South Africa, India, Russia, that when we, Qualcomm, go over and convince the regulators there that CDMA is worth a charge, what we find is the heads of the European governments coming in and actively -- and U.S. government -- I mean foreign government ministries going to the same people in the countries we're trying to persuade, making the case for GSM, and we don't see the U.S. Government coming in and saying, well, you should do something like we're doing in the United States and allow multiple standards in or support the idea of allowing U.S. standards into these foreign markets, that we see the EC doing, and I could give you just a long litany of examples where we've been close to a deal and all of a sudden some high-level official from a European country will come in and talk at the highest levels of the government and say don't do it; go with GSM. It's just been our experience. MR. KALIL: Right, but if U.S. industry is divided on what the best approach is, and the industry is saying, well, let the market sort it out -- MR. KELLEY: Right. MR. KALIL: -- then how does the U.S. Government play an advocacy role in the position -- MR. KELLEY: I think what I was trying to get across was the idea of at least going in and saying: you should open your market to U.S. standards. You should not say we're going to pick GSM or we're going to pick IS-54, which is the U.S. TDMA standard, or we're going to pick IS-95, which is the U.S. CDMA standard. We should encourage those governments to do exactly what the FCC says and let the operators in those countries select the technology that they think will best provide the best service to the mobile users in those countries, which brings me to the second part of your question. In the United States when the Commission in Docket 87-390 said it wouldn't get involved in the cellular standard, it also said that it wasn't going to give the cellular industry any more spectrum, and if they were to go digital, they would have to use the same spectrum for the digital service that they were using for the amps or present analog system. And what the industry has done is developed a dual-mode phone, so that if you're a cellular customer today and you have an analog phone, that phone will continue to work. When you buy a new digital phone, that phone will work not only on the digital system; it will work on the analog system. So there are technical ways to deal with incompatible standards and the U.S. cellular industry is a perfect example of an industry that's dealing with that. I think that it could be done overseas, too. There are ways to make diverse standards compatible, technical ways. MS. FRANZ: If I might address the first question concerning the cost of infrastructure on the PSTN, mobile networks generally overseas run between 30 and 50 percent of the total cost are paid to the PSTN operator, both for leased lines and for interconnection on calls. This is a highly significant portion of our cost base. We have found in markets where competition has been introduced in infrastructure this is the most effective way to achieve reductions in lease line prices by the established operator. If you look at the data in the UK, the price of leased lines in the UK, where there is some competition and more and more every day, these prices have come down dramatically, whereas in other parts of the world the prices remain very, very high. I will be happy to provide additional data to you on that point. CHAIRPERSON DARR: Thank you. MR. MOIR: She's correct. I mean, competition is a solution, but where you're not successful in bringing competition to the market, then we've got the rate disparities. CHAIRPERSON DARR: I believe Jeff Smulyan has some questions. MR. SMULYAN: Jay, a couple of things: is there substantial agreement between the RIAA and other copyright-holders in terms of how to deal with the global copyright situation? MR. BERMAN: Other copyright industries? MR. SMULYAN: Yes, the Motion Picture Association. MR. BERMAN: Well, I can't say -- I won't speak for anybody else. I would say that there is a general sense that we need to do something about harmonizing the state of our own law vis-a-vis our trading partners, and, in particular, the European Union in this regard, and I think there would be a cross-section of issues that would tie the U.S. recording and motion picture industry together in that. MR. SMULYAN: Do you also find that the charge of cultural imperialism seems to come about where our market share is significant and seems to tie into balance of trade? MR. BERMAN: Well, I think, again, it's so caught up in the fact that the U.S. is the dominant supplier of entertainment services to the world. The fact is that it is so -- in an environment in which U.S. industries are not subsidized, they operate in the free marketplace, and in many cases around the world their market share is actually regulated by national policies. MR. DAFFNER: Could I just interject a point on cultural imperialism? One of the things that we've noted about the superhighway, or in our case the superskyway, is that it's a two-way street or avenue, and with the increased digitalization of transmissions, that means the cost of communication, of getting from one to many places or from one place to another place has come down substantially. Whereas the United States, unquestionably, has the most robust production of software of programming -- and I might even add the best, but the fact remains that we are seeing that a majority of our customers, for example, are overseas programmers that are distributing programming not only within their own countries, but to other countries and back to the United States. I think this is precisely because the cost of doing what was once a field for only the very rich and powerful is now something that is coming down to a level that can be afforded by what were formerly the second-tier producers of this programming. So there's much more of an intercultural exchange, and I believe promotion of the GII will further facilitate that cross-cultural exchange. MR. BERMAN: I might also add that, in the absence of national barriers, the U.S. position would be even more dominant, and in the contrast to the fact that the U.S. marketplace for such products created by others is an open marketplace. MR. SMULYAN: How many billions of dollars do you think are lost? You estimated that many more than billions of dollars than the $12 billion are lost. Any estimate? MR. BERMAN: Well, we give an estimate to Mr. Abelson every year. It depends on whether you're defining it as a result of piracy or government policies. For example, we estimate that a direct result of copying, of piracy, results in a loss of over a billion dollars annually. MR. SMULYAN: Just one further question: Wendy, do you sense significant congressional sentiment to change domestic ownership laws? MS. FRANZ: I would say that this is the -- that Congress would be the sector where the greatest education will be needed to explain the benefits to U.S. investors of lifting foreign ownership restrictions abroad. (Laughter.) MR. ABELSON: I would like to ask a question to any member of the panel, and it really has to do with where -- the question is: what are the regions or countries where you face the greatest barriers to providing your services? And in those countries or regions, what is the best way to open up markets? Is it through reciprocity, which we heard about this morning? Is it through precedence, U.S. leadership? We heard about that as well. Or is it, in fact, by creating barriers at home and being content with our own market? I welcome comments from anybody. MS. FRANZ: I can start, if you'd like. I think that we have to bear in mind that at least for provision of telecommunication services that are a number of countries which are entirely closed today to anyone other than the domestic government or government-related companies. So they're not even open to private investment from within their own country, much less outside the country. And for those markets, I think it is important for our representatives there to begin the -- I joked about it before, but the education process with the relevant ministries to explain what benefits can be brought to their citizenry and to the state by allowing (a) private investment and (b) foreign investment. So here it is really a task of cost- benefits to them, and with the development of additional satellite services and mobile satellite services, this issue becomes more acute because the satellite can serve markets all over the world, if licensed to do so. MR. ABELSON: And there you're referring to France and Germany, for example, to name two? MS. FRANZ: Those were not -- MR. ABELSON: In your mind? MS. FRANZ: No, I was referring -- no, in France and Germany they are not totally closed for telecom services by private sector or outside investors. There the totally closed markets are generally in the less developed markets of the world. In the European Union we face different hurdles there. The investment is open to a certain degree and for selected services and under selective conditions, and in those markets this issue of reciprocity is taking on a major, major focus and we are seeing escalation on the part of foreign governments, and they are garnering -- the Europeans are now garnering support among other nations of the world as well. MR. MOIR: I think rather than focusing on regions within the user community, not every company is everywhere, but all of the users on a composite basis are affected by the policies of all the countries. Despite some of the countries who gain notoriety in talking about being more open or less open, it's fairly clear that if you look at the wide diversity of needs of the user community, they are more easily filled here than anywhere else in the world. There are exceptions, as some people have attempted to mention here and elsewhere, but if you look at the broad panoply of needs, they are more easily filled here. So in the markets, as AirTouch just mentioned, where they are totally closed, you have to start educating; you can't say, let's have facility- based competition head to head. I mean, it's not realistic. But we need -- they can start out the way we did. Instead of facilities-based competition, you start having resale; you start in the enhanced services area; you start in some of the -- not that wireless services are a niche, but you start in some of the niche markets. You start to educate the people on the benefits of these for them, as well as for us. In the markets that have been gaining a lot of notoriety in some publications that don't necessarily get it right, you'll note that a number of things are still problems in those and talk about how open they are. There are significant restrictions on resale services, rates that are clearly not cost- based. I mean, we know what it costs to buy a widget; we know what it costs to buy fiber. It's not -- dirt in one country is not more expensive to dig than in another. There's discriminatory access, prohibitions on facility-based competition for the bulk of user needs. I can go on with a number of them, but there are these problems which are prevalent in even the most talked-about areas which are five-, six-hour flights away. MR. DAFFNER: If I could expand a little bit, Don, I think at the risk of sounding simplistic, the solution is competition. As the Vice President noted, it's not simply privatization; it's the introduction of market access and competitive provision of services. I think that we lost a great opportunity in the GATT Uruguay Round when we allowed basic services to be taken off of the agenda. I think that we can toil at the edges concerning things like resale, but that ultimately it's facilities-based competition that will provide the greatest measure and the most -- the greatest opportunity for cost-based pricing. I think if we remember back to where this problem really originated, though, it was in the fact that the telecom entities that control most of the world, or have traditionally, arose out of the post offices which were government entities, and the purpose of making them government entities was twofold. Although people will claim otherwise, it was, one, to control the flow of information, to keep an eye on it, literally, and the other was it was very profitable. The state decided that it would take upon itself the profits of this industry. Today it's clothed in different terms. There's talk of provision of universal services which most of these state institutions have failed to provide, although they've had 100 years in which to get their act together. I think that we have to cut through that rhetoric and get to the basis. I think we have to lead by example. There are occasions where taking some kind of retaliation may be appropriate, but that's an extreme circumstance. I think that when we demonstrate that the benefits of competition, robust, open, free and fair competition, not partial, not dual-opolies, not oligopolies, will redound to the benefit not just of us, but, more importantly, to them and to their people, to their countries, to their businesses. When we can make that case and we can use institutions like the World Bank and we can use studies done by independent brokers and OECD and others to say it's not just our experience in a narrow way, that we're not just different, that we can look at particular countries, whether it's Mexico or a European country, and say, "Look what has been achieved by opening the market. Look at the wealth that has been produced," I think then it will be difficult for them to keep their defenses up and their markets closed. CHAIRPERSON DARR: Thank you. I think Cathy Sandoval has a question. MS. SANDOVAL: Thank you. This question is primarily for Mr. Daffner regarding satellites. You mentioned you need government assistance to open foreign markets for the provision of international satellite services. What do you see as some of the principal barriers to the provision of international satellite services, and what do you think the government could do to advance the removal of those barriers? MR. DAFFNER: Thank you. There are a number of things that can be done. First of all, the principal barrier that we face is a conceptual one, one that is promoted by -- and at the risk of being repetitious -- promoted by the sort of sacred aura that surrounds the intergovernmental satellite providers, the international satellite organizations such as INTELSAT, and we have a treaty that calls upon them to be the first among equals, that gives them the right to determine whether competitors can enter the market. There's an article, Article XIV, that forces PanAmSat and other private entities to actually go and reveal in great detail the technical and business marketing plans before we are allowed to even be considered by our government to launch our system. I would mention in passing that recently we came before them with a new satellite -- one of the ones I alluded to -- that we'll be launching later this year in the Atlantic Ocean region, and we had to provide them with detailed information about our Latin American planned services. Several weeks after we had concluded months, literally months, of handing over this detailed information, they came out with an RFP for a satellite that looked identical to the one that we already had under construction. So this becomes a major barrier, one which is given the full countenance of the U.S. Government. Beyond that, though, specifically with regard to foreign governments and market access, we continually confront -- and whether it's a real argument or one that's made up sort of along the lines of cultural sovereignty versus really the economic concerns, but whether it's real or just the one that they can tout as the basis for blocking us, is the treaty itself calls upon a lengthy process to justify creating, launching, operating, or using a non- INTELSAT satellite. There are some countries that takes these legal treaty obligations, which are sometimes the highest law of the land, superseding even acts of Congress, as a really serious matter. They consider it both a political and a moral obligation, or at least they say this. So when we knock on their door and we say we've got customers that want to use us in your country that perceive that we have services to offer that they cannot get elsewhere at prices that are lower, et cetera, and that, therefore, it's somehow in the interest of the country to allow it, they, nonetheless, feel very, very awkward about authorizing a competitor to this sacred cow. Obviously, we take a somewhat more relaxed attitude in this country. You know that PanAmSat has not taken the sacred cow seriously for many years, but we can't forget that other countries take their international obligations more seriously in the literal sense of the word. The United States bent over backwards in the case of authorizing companies like PanAmSat to come into existence -- they bent over backwards to prohibit us from providing services in 90 percent of INTELSAT's market; that is, switched international telephone service. Why? Not because the U.S. Government believed that we would somehow harm INTELSAT, but we wanted to send a message to the world that we were still -- we, the United States Government -- were still committed to the treaty organization, and we didn't want anyone even for a moment to suspect that our commitment had wavered one iota. Well, other governments interpret their commitment and what will or will not harm that institution somewhat differently than our more liberal procompetitive economists here in the United States. So, you know, it's like my point earlier that only true competition facilities-based is going to relieve the problem of users and others from the high tariffs they have to pay. Likewise, the elimination of this aura of sacredness embodied in international intergovernmental treaty agreement is necessary to be removed before we can have the beginning of a truly open, enlightened, competitive regime. And, finally, and just in the briefest way, I say that when we go and meet with foreign governments -- and this sort of echoes the concern that Kevin mentioned in response to trying to sell particular technologies and products in foreign countries -- when we go and we're up against other governments, and our government isn't there saying that they support our efforts, it doesn't mean that they have to knock down big walls or find us customers, but to give a clear message stated in simple terms to the leaders, whether it's the telecom minister or the equivalent, that the United States firmly stands behind this kind of liberalization, market access by U.S. satellite providers, that it's important to the Clinton Administration that X and Y country give serious consideration to allowing us to serve users within that country, that makes a very big difference. People stand up and listen. The U.S. Government does this, but sometimes it's done in a sort of secondary fashion. A cable goes out. Someone is called upon and they answer a question, but there's no proactive involvement frequently on the part of U.S. Government representatives, which would be very, very useful for opening up those foreign markets. It would send the right message and make a big difference. Thank you. CHAIRPERSON DARR: Charlie? MR. RUSH: Yes, I would just like to make one statement, perhaps a point of clarification, concerning how those of us who have practiced for years and years from the government's side in defending our positions internationally, that we don't take lightly the treaty obligations that the United States is signatory to, and that while it may be a perception that other countries hold it much more sacrosanct than we do, I don't think that that is, in fact, the case. By way of example, I would just like to point to your own history, Mr. Daffner, when you did work with us at NCIA, and I would like to think that you certainly did take very, very seriously the treaty obligations of the nation when you were representing us. Thank you. MR. DAFFNER: If I might just say in response, I did not take those responsibilities lightly. And if I used the word "lightly," it was a poetic excess. (Laughter.) I meant to say "literally" rather than "lightly," and our interpretation of how the obligation, in light of 30 years' experience now, an obligation assumed in 1964 when the world believed that AT&T and its ilks were natural monopolies and the only way, that in light of 30 years' experience since 1964, we interpret the public interest and the trust embodied in the Communication Act in light of technological and economic rethinking, shall we say, that other countries may not have gone through that same kind of process and have our wisdom in hindsight. But, finally, what Charlie points out I think is a critical point: that, ultimately, there is the treaty and we have to take that responsibility seriously so long as it is our treaty and so long as we are still signatories to it, and the only solution to actually end this debate is for that treaty to come to its natural end. (Laughter.) CHAIRPERSON DARR: Thank you. Mike? MR. NELSON: I just have one quick question. I'm a scientist by training, so I like to ask quantitative questions. We've been talking about standards and the importance of standards. Last Friday I was fortunate enough to visit Qualcomm out in San Diego, and we talked at length about the importance of standards. I understand that the Chinese are in the process of deciding upon what standard they will have for their cellular telephone system. Mr. Kelley, can you give us an idea as to how large that market will be and how important that decision will be in terms of dollars and what -- put this in perspective. What kind of sales are we talking about here? MR. KELLEY: Well, I'm not a -- I'm also a scientist and a lawyer, but not into the financial aspects of it. But it was mentioned earlier here this morning, the number of telephone lines per 100 persons in China is less than 1 per 100. The number of telephone lines in the world average per 100 people is 12. In the United States it's something like 55. If China wants to bring that number up, the number -- I think the number that was mentioned here earlier this morning was like building a new Bell Operating Company every year between now and the year 2000. MR. NELSON: But is it fair to say that the simple decision that they're making on the standards will have billions of dollar -- MR. KELLEY: Oh, billions, yes, right. And we know even now that the Europeans are going over there -- the Chinese and the Russians are interesting people to deal with because -- and I hope nobody takes this the wrong way -- most of their telecommunications regulators are engineers and not lawyers. (Laughter.) See, I can do it either way because I'm both, see. (Laughter.) I was in Russia last week, and one of the ministers pointed out to me I'm an engineer and I like CDMA. All engineers do. But I think that's the same kind of thing that we've run into China, that they're very enamored of the technology and they would like to adopt it, and they're getting this tremendous pressure from Europe to reverse their intellectual desires. MR. NELSON: I do have several other questions for other members of the panel, but I'm not going to take up time now. You've all been very good about keeping to time limits, and we should do the same thing. If it would be okay, I would like to give you some written questions -- MR. KELLEY: Sure. MR. NELSON: -- and perhaps get some responses. We don't need elaborate responses, but I just do have a couple other questions. Thank you. CHAIRPERSON DARR: Thank you. We'll adjourn right now for lunch. If we can all be back promptly at two o'clock, that's actually not much time. It's about an hour and five minutes. Thank you. (Whereupon, at 12:55 p.m., the proceedings recessed for lunch, to reconvene at 2:08 p.m., the same day.) A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N 2:08 p.m. CHAIRPERSON DARR: Can we all get started, please? I'd like to introduce the new hearing panel. To my left is Jonathan Baker, who is the Senior Economist at the Council of Economic Advisors; to my right, Dick Beaird, who is the Senior Deputy U.S. Coordinator for International Communications and Information Policy at the Department of State. To his right is Don Abelson, Assistant United States Trade Representative, and to his right, Mindel de la Torre in the Office of the Chief Counsel at NTIA and Acting Director of the Office of International Affairs. I'd also like to introduce the hearing panel starting with Marshall Phelps of IBM -- if you'd stand as I introduce you, please. Thank you. Andrew Maisel, Sun Microsystems; Emory Simon, APSI; Willard Berry, European-American Chamber of Commerce; Fritz Attaway, Motion Picture Association of America; Tom Casey, Skadden, Arps, Slate, Meagher & Flom. Jim Kimsey I think will also be here from the American Electronics Association, and, finally, Warren Zeger from COMSAT. Before I start testimony, I'm going to have to leave for a few minutes and turn the Chair over to Dick Beaird. Mr. Marshall (sic), if you would start. MR. PHELPS: Madam Chair, thank you for the opportunity to testify. My name is Marshall Phelps. I am Chair of the Computer and Business Equipment Manufacturers Association, or CBEMA. I'm also Vice President of Intellectual Property and Licensing for IBM. CBEMA's members are leading U.S. providers of information technology and services, and CBEMA does two things for them: it participates in public policy issues such as this and it sponsors and plays a key role in standards development. CBEMA's members employ over a million people in the United States. In 1993, their worldwide revenues were $255 billion. They fund 20 percent of all U.S. private sector research and 60 percent of all information technology R&D. With 40 percent of their revenues coming from abroad, our members are also global companies. They understand firsthand the critical interest our nation has in pursuing policies that open international markets. At the onset, let me just state that the President, Vice President, and the Administration deserve high praise for their leadership in the national and global information infrastructure challenges. In particular, we welcome the Administration's initiative at the recent G-7 Summit to convene a meeting in Brussels of country ministers to discuss GII issues. Today's international trading system in the information technology area faces many challenges: a resurgence of protectionism, the urgent need to liberalize regulation, to keep pace with technology change, and attempts of too many countries to stifle competition from nonnationals, to pick three. As a result, the private sector has been moving rapidly along. Last month, with our counterparts in Japan, the Japan Electronics Industries Development Association, or JEIDA, we announced an intention to cooperate in the GII. In September, along with my colleagues from CBEMA, we will be attending a gathering of the key information trade associations from throughout the world, such as Europe BIT, JEIDA, called the International Information Industries Congress in Tokyo. We will deliver the keynote address and urge our private sector colleagues in other countries to join us in a common effort to make the GII a reality. We must all recognize we are at a moment of great opportunity. If global markets for information technologies open wider, it will mean many and more good jobs here in the United States and around the globe and a better standard of living for everyone. But if those markets fail to expand, countries around the world will be the poorer for it. Expanding and strengthening the international trading system is the one critical role the U.S. Government can play in advancing the GII. This better future for people everywhere will depend, in particular, on aggressive negotiating, persistence, and a new sophistication within government agencies. Above all else, what governments can do to advance GII is to work toward increasing access to markets. To do that, to successfully expand the international information technology markets and open the way for further development of the GII, we must keep our eyes on eight key principles. They are: One, private sector leadership driven by competition. Two, global interoperability. Three, appropriate privacy and data security. Four, universal access. Five, protection for intellectual property. Six, open access to government-funded R&D. Seven, reduction of both investment and trade barriers. And, eight, an effective role for international aid and assistance support for GII projects in developing economies. As the GII encompasses more than traditional telecommunications, so, too, the policy agenda is wider than the traditional international telecommunications agenda our government has pursued with support of the business community for many years. The international telecommunications policy objectives of fostering liberalization and competition remain important, but the GII will, of necessity, result in new issues of trade, investment, and technology for the computer, software, and semiconductor industries that do not share the heritage of regulation. I'd like to draw for you the meaning and implication of those eight principles I just mentioned. The first one was private sector leadership and competition. CBEMA and the U.S. Government have long agreed that consumer choice, private investment, and competition must be the guiding forces in the development of our own information infrastructure. Competition drives innovation, producing new products while driving prices down. But in Europe, for example, liberalization is uneven. Some countries have progressed more quickly while others have made little or no progress. And while the European Union has set a goal of liberalization by 1998, without some major push by the Union to exert leadership, Europe will be behind. CBEMA wants to express its strong support for Commissioner Bangemann's initiative and the high- level group report on the European information infrastructure to the European Council, which called for rapid and substantive liberalization. CBEMA believes the U.S. Government should continue to strongly promote liberalization in other countries. President Clinton's effort to push GII to the top of the G-7 agenda represents a major step in the right direction. Our second principle is global interoperability. Interoperability means the ability to use any information appliance to plug into any part of the network, to access any available database, or communicate through any network in any other part of the infrastructure. Our markets demand it. CBEMA members are working with the American National Standards Institute, ANSI, and through the International Information Industry Congress with our counterparts in Europe and Japan, Europe BIT and JEIDA, and in Canada, to further the development of voluntary industry-led global standards, standards that are driven by market forces. And while CBEMA's at the forefront of developing standards that support open interfaces, we are constantly mindful that it is essential to maintain rights in intellectual property as the critical incentive to spur development of these exciting new technologies. We look for the U.S. Government to help to ensure other countries do not use standards developed by themselves or by standard-setting bodies they control to unfairly impose on U.S. industries' compulsory licensing schemes that would make legal the expropriation of intellectual property. For example, the government's recent support, and continuing support, in the ongoing ITSI matter has been most welcome. Third on our list is development of appropriate privacy and data security rules. As with interoperability, our interest is market-driven. At the same time the information industry's customers are demanding even greater assurances that their communications and data will remain confidential, for over a decade the OECD guidelines governing the protection of privacy and transport of data flows of personal data, and the Council of Europe Convention for the Protection of Individuals with regard to automatic processing of personal data, have provided a reasonable balance between the protection of privacy and trans-border flow of data. All OEC member countries, including the United States, have adopted those guidelines, and over 175 American trade associations and companies have adopted privacy codes of conduct conforming to those. We believe the U.S. Government should work actively with other governments, especially in Europe, to expand adoption of those guidelines to ensure no country's data protection laws are used to create nontariff barriers to trade and ensure no country's data protection laws are used improperly to inhibit transfer of employee and customer data. Now regarding data security, it is essential that users have confidence in the GII. To have this confidence, they must be assured appropriate security measures are in place. Encryption is the way that's done. In our opinion, the U.S. key encryption -- key escrow initiative, Clipper and Capstones they're called, is a very good example of an international -- of a national initiative that is not interoperability and does not support international standards. It is unlikely, if not inconceivable, that Clipper and Capstone will be embraced by international users when the United States Government is the holder of the keys. CBEMA, therefore, welcomes the Vice President's recent initiative to work with industry to find an encryption solution that better balances the needs of government and industry. Our fourth principle relates to universal access and how that goal might be promoted. We must all recognize that universal access to today's information infrastructure does not mean the same thing as universal service meant in the 1934 Communications Act. In the thirties, universal service referred to one service only, voice over the phone. Today, with thousands of services, universal access will have thousands of meanings. And whatever it means, we must also recognize that there will be many access points, not just personal information appliances used in the home. For example, public libraries and schools will be, as they are now, public access points, and there will very likely be kiosks in public places for hooking into the GII. We will need to be very clear about which transmission capabilities and services may be appropriate to provide at which locations. We believe the market can help us do that effectively. Fifth on our list is protection of intellectual property, including patents and copyrights for hardware, software, and content. The U.S. Government has done an outstanding job in this area of bringing software copyrights under the rules of Berne and in both the GATT/TRIPS agreement and NAFTA. Piracy remains a serious problem. The compulsory licensing schemes I mentioned earlier and attempts to legalize decompilation of software are still constant threats. We have three recommendations. First, we'd like to see GATT/TRIPS properly implemented in national law and then enforced. Second, we'd like to expand the intellectual property protections in NAFTA to all Latin America. And, finally, we believe the government should work to make sure that other countries enforce their laws protecting intellectual property. For example, China has strong laws but weak enforcement. Our sixth item is open access to government-funded R&D. Every major government has R&D programs directing money to companies doing business in their countries. Europe allows U.S. companies to participate, although European-based companies are often favored. Japanese intellectual property rules effectively shut out many U.S. companies. Why? Because they have a rule that the Japanese Government retains ownership of all intellectual property that those programs produce. Members of CBEMA believe the U.S. Government should stand for private ownership of privately-generated intellectual property and equal treatment of all companies doing business in a country, irrespective of the location of their corporate headquarters. What's sauce for the goose is what's sauce for the gander, and that rule ought to apply here as well. That's why we believe that Congress should reject the Manton amendment to H.R. 820, the House version of the National Competitiveness Act. Item 7 is reduction in investment tariff and nontariff barriers to trade. The Uruguay GATT agreement made substantial progress, but more needs to be done. A couple of quick examples: The European Union is phasing down its semiconductor tariffs, but very slowly, and we are working with the U.S. Government on other sector- specific issues, such as international settlements for telecommunication services. Our eighth has to do with developing countries, and in that one we would like to see the World Bank and the regional counterparts play a significant role in incorporating the GII into projects in the developing world. Those are our eight principles. And if I might give you an example of how they play out, consider global electronic commerce and banking, the most extensive commercial use of the GII today. Liberalization I mentioned is critical to the principle of private sector leadership. Well, in banking deregulation will improve data flow, allow the development of new services, and by opening the door to more innovation and competition, drive down the price of those services. Interoperability is also vital. Banks must be able to move data around without barriers, either legal or technical. Assuming regulatory barriers fall, full interoperability should again lead to an explosion of new services such as, for example, global automated teller machines. Well, if you have global ATM services, that will require strong encryption and privacy protection, so ATM and pin numbers remain confidential. Then, too, the development of global ATM capabilities will require highly-specialized software and other intellectual property, all of which needs protection. Finally, let me give one example of why CBEMA wants to have lower tariffs and nontariff trade barriers. GATT coverage of banking does not extend to nonbanks engaged in banking-related services, such as consumer lending arms of major industrial banks. As a result, there is less competition, fewer services in the market compared to the United States, and less use of the GII. I've made a number of recommendations for specific U.S. Government action in my written testimony that you have. For the sake of brevity, I'll just reiterate our eight principles: first, private sector leadership and competition; second, global interoperability; third, appropriate privacy and data security; fourth, universal access; fifth, protection of intellectual property; sixth, open access to government-funded R&D; seventh, reduction of trade and investment barriers; and, eight, an appropriate role for the World Bank and regional counterparts. Now if we follow these eight principles, who benefits? American workers? Yes. American companies? Surely. American communities? Yes. But even more profoundly, all of us in this world, for the GII will never belong to any one country, one industry, one company, or one people; it will belong to everyone. Thank you. MR. BEAIRD: Thank you, Marshall. Mr. Maisel? MR. MAISEL: Thank you and good afternoon. I would like to thank the absent Deputy General Counsel Darr for inviting me to testify before the Working Group today. I'd like to thank the group for taking the time to listen, and I'd like to thank my fellow distinguished panelists. Sitting here today in the nation's capital with a long row of government VIPs sitting in front of me at a table draped in white, it reminds of a story about JFK's inauguration. It seems that shortly after being seated for the fancy dinner -- in those days they only did two or three versus I think the seven that Bill and Hillary went to -- a waiter in a black tux passed in front of the table, placing a single pat of butter on each bread plate. Kennedy asked for a second pat, but the waiter continued down the table. Kennedy asked again; no response. Finally, a somewhat exasperated JFK stood up and said, "Do you know who I am? I'm the President of the United States of America." And the waiter looked up and said, "Well, I'm the guy with the butter" and walked off. (Laughter.) As we sit here today and contemplate how we should shape the global information infrastructure, it would probably be useful to ask ourselves: who's got the butter here? Please keep that question in mind for the next few minutes. I will return to it. I promise that when you use an introduction like that, you can't just leave it dangling -- or smeared. (Laughter.) To my mind, today's hearing is a very important inauguration. The global information infrastructure will evolve over the rest of this decade, but a number of key architectural and regulatory decisions and international agreements made in just the coming few months will shape a much longer future. Among these decisions and agreements are those which will define the degree of access and interoperability allowed and whether monopoly control of critical interfaces will be permitted to limit that access and interoperability. The GII will be a network of networks connecting multiple sources of data, education, services, and entertainment with homes, schools, hospitals, libraries, businesses, and governments. It will be, in essence, a distributed library of digitized information with distributed borrowers and lenders, but with instantaneous global access. That's really neat. The socioeconomic impact of this global digital superhighway is widely expected to equal or exceed the impact of previous physical highways such as canals, rivers, the world's railroads, the United States interstate, or Germany's autobahn. In Silicon Valley speak, that's really awesome. Even neater, there's no rocket science required for this. A key feature of networks -- and maybe some other things -- is that bigger is better. Access to more information is of greater value than access to less information. Similarly, access by more individuals and companies and counties is of greater value than access by fewer. Interoperability is the key to making this network of networks bigger, better, sooner. Sun's view is simply stated: to attract the substantial private investment required to encourage free market competition and to enable universal access by the greatest number of information consumers and providers in the shortest time frame. Interoperability will be achieved by making critical interface specifications to the GII barrier-free. I used a number of terms there that I need to define. Interfaces are connection points. Access to any network is achieved through its interfaces. For example, on the interstate highway it is through on-ramps and off-ramps. On the telephone system we all have in this country, access is through telephone jacks and switches. For a public information infrastructure, the critical interface points are between information sources and the networks, between different networks, between networks and set-top boxes or information hubs, between operating systems and devices, between applications and operating systems, and probably between remote clicker controls or I/O devices and the hardware. Devices and software and information sources attached to this network will derive a large portion of their value from their ability to tie into a vast and rapidly-expanding global information network. And, remember, they will be able to send as well as retrieve digital data. For the GII network to reach its economic potential -- that is, to attract the broad economic participation, investment, and usage -- barrier-free access must exist at each of these critical interfaces. When we discuss interfaces, it's really important to carefully make sure you understand the distinction between an interface specification and an actual product which has interfaces that conform to the specification. Specifications are merely the words that describe the interface which allows interoperability between two components. They are not blueprints nor recipes for actual products. Let me repeat that because it's key to the issue: interface specifications are not blueprints; they're not recipes for products. They don't tell you how to make a clone. Sun and many other firms in highly- competitive industries believe that no one individual or company should own the rights to interface specifications for a public network such as the NII or the GII, or, frankly, for other public infrastructure networks. Can you imagine charging automakers a fee to let them know the load-bearing capability of the cement in the interstate? Or charging ship designers a fee to know the width of the locks on the Panama Canal? Or charging electric appliance makers a fee to know the voltage of the electric current flowing across the national power grid? Interface specifications are not blueprints for products; they are merely descriptions necessary to allow interoperability. They do not enable cheap knockoffs or clones. Barrier-free access provides the opportunity for new and existing businesses to develop and sell things like network pieces and network time, information storage and retrieval devices and services, viewing and computing devices, device operating systems and applications, set-top boxes and information hubs, TVs, modems, telephones, and hundreds or thousands of devices and services yet to be imagined to anyone. It is this type of economic participation which is vital to the growth of a commercially- and socially-economical valuable global information infrastructure, and it is this activity which is threatened by those who would seek to limit access to the network by erecting barriers to the network's critical interfaces. What barriers? How does monopoly control of an interface specification, a piece of paper, create a choke point to access and limit economic participation? Well, companies sometimes claim to have built intellectual property into the interface specification itself. Then they limit access completely or partially to the specification to keep out competitors, or they charge fees that limit the economic viability of potential competitors. Sun believes that in no way would innovation or economic investment be limited by a policy requiring barrier-free interface specifications for critical access points to either the NII or the GII. Proprietary rights to an actual product implementation is a prerequisite for investment; make no doubt about it, but proprietary control of interface specifications is not. Arguments to the contrary mix up the distinction between interface specifications, the piece of paper, and product implementations in an attempt to retain or regain the monopoly control to limit competition. The value in the GII will lie in the amount of information it makes accessible and the number of people who have access to that information. These are the factors which will attract private investment. If it's bigger, people will come. Monopoly control of interface specifications would have just the opposite effect by limiting the number of competing interoperable products and services, reducing usage, and artificially sustaining higher prices. In many competitive industries today, not just those involving public infrastructure networks, vast sums of money are invested by competing companies that make products that conform to barrier-free interface specifications. For example, no one company owns the ISO specification for film that allows multiple camera and film-makers to compete with each other while still making interoperable products. In the computer industry today the single most commonly-used networking specification is a protocol called TCP/IP. No one owns it. Yet, most of the major computer makers invest large sums of R&D dollars each year to make their own TCP/IP products better; yet, still remain compliant with the barrier- free specification, which no one owns, to ensure interoperability. When Sun and others propose that critical interfaces to the GII should be barrier-free, we mean that their specifications should be available for anyone to use. Everyone should be entitled to design and build compliant products that can interoperate with the GII. Monopoly control of any of the critical interface specifications, the pieces of paper, would limit that ability, greatly impair competition, retard technical evolution, slow the growth of the GII, and limit its economic value. To avoid these obstacles, the international rules for connection to the GII must require that all critical interface specifications be available barrier-free. These interfaces must be fully defined and the definitions publicly available. The interface specifications, not the compliant products, must be free of license fees. The interface specifications, not the compliant products, must be free of intellectual property restrictions, and changes to the interface specifications, but not the compliant products, must happen in a public process open to all. Nations which create barrier-free environments of their own will be the first to reap the economic benefits of greater access to information by their citizens and corporations. Nations which allow monopoly control to be gained through restricting access to the critical network interfaces will lag behind in realizing the economic benefits. It is imperative that the U.S. Government take the lead in supporting national policies and international agreements which recognize the need for barrier-free interfaces. The EC or EU, as it is now called, has recognized the importance of such policies in their recently-published report titled, "Europe and the Global Information Society." I began my testimony somewhat facetiously asking the question, "Who's got the butter?" I believe the answer is not just a few big companies like Sun or IBM or Microsoft, but all of us and many more people in many more companies and countries. The global information infrastructure must be, will be, the greatest information resource the world has seen since the burning of the ancient library at Alexandria. To achieve this vision, this destiny, the global information infrastructure must be accessible to all, to all potential information users and to all potential information providers without artificial barriers erected by would-be monopolists. Sun strongly believes in, and will defend, the right of intellectual property owners to maximize their returns on products, and just as strongly Sun believes that the critical interfaces for the global information infrastructure can be specified and documented without incorporating valuable intellectual property to enable the broadest possible economic participation. History records the library at Alexandria as one of the seven wonders of the ancient world. Here today we have before us the opportunity to lay the groundwork for the first wonder of the 21st century. If we allow the global information infrastructure to be any less because of the monopoly designs of the few, what will history say of us in 2,000 years? Thank you. CHAIRPERSON DARR: Mr. Maisel, thank you. Mr. Simon from APSI. MR. SIMON: Good morning. Thank you. I guess it's afternoon, though, isn't it? How time flies when you're having fun! My name is Emory Simon. I'm the Executive Director of the Alliance to Promote Software Innovation, and I appear today on behalf of my organization and the Business Software Alliance as well. We represent a cross-section of the software companies, American software companies, developing the software that is used in a variety of -- do you want me to talk louder or closer to the microphone? You know, you sit here all day and you're hoping that somewhere from these panels will emerge clear and distinct, specific answers that will give you direction and guidance on what to do next. And I assure you, if we knew, we'd tell you. We can't tell you the answers. We can tell you the little bricks and pieces that kind of fit into the puzzle. We're not even sure how they all fit together because, frankly, all this stuff is happening too darned fast. All this stuff is evolving in ways that none of us can predict and none of us can really anticipate. Our businesses are adjusting to it as we go along. Okay, that wasn't terribly insightful, was it? So the key is, from my perspective, to give you something that I hope will give you a touchstone, that will give you something you can turn to as you maneuver and navigate through these various issues in a way that will give you a foundation from which to analyze and look at things. Today the United States is clearly in the technological lead in virtually every aspect of what we call the NII/GII. Whether those aspects are hardware or software, telecommunications or computing, we're doing very well. Part of the trick for you is to figure out how we can continue to do well because the objective here is, yes, we need to develop global systems that are good, that advance everybody's interests, but they advance U.S. interests most of all. To create a framework like that -- and the debate rages in many different ways, and Andrew spoke about a variety of issues that are very important in that, as did Marshall -- I see basically three different things. Even louder you want me to speak? I can try. We can try to get closer to the microphone. Is that better? We're going to get intimate with the microphone, a low-technology solution. There are three aspects that I see that you need to keep in mind as you work through these issues: one of them is clearly standards. Standards are critical. At some level we must have some certainty and predictability about how to plug into the system and how to work with the system. The trick is to not standardize too early because then you stifle technological development. The further trick is to not standardize too much because then you turn into a series of homogeneous commodities, what we're developing on these networks. By doing so, you eliminate incentives for further innovation and investment in new products because what you're doing is you're now driving technology to a flat, seamless, unidimensional kind of environment. So standards are important because we need to be able to connect. We need to be able to exchange information. You don't want to standardize so much that you wipe out the incentive for innovation. Access -- you're dealing here today with international issues. The hardest issue of access from an international perspective is that countries that do not have technology want to share in what technology is being pushed, what's coming online. They want a piece of it. They want to be able to use it. They want to be able to use it to their advantage. To the extent that technology is being developed in the U.S., you have to be careful that, yes, they should be able to use it, but they shouldn't be able to use it in a way that deprives the U.S. innovator or the U.S. economy of a fair return on that technology. You want to ensure that the U.S. company that is in the business of developing this stuff can actually participate in markets not only here, but elsewhere. For the software industry, about 40 percent of the software industry's revenue comes from overseas right now. For some segments of the software industry, it's as high as 65 percent. The trend is clearly in that direction. The last element of this is what all of basically our testimony is focused on, the intellectual property issues. Now you've heard a lot about intellectual property issues. Intellectual property issues are actually kind of an interesting element of this mix because, as I've learned recently, those of us who worry about intellectual property know very little about telecommunications; those who worry about telecommunications know very little about intellectual property. The natural reaction is, ah, that's not important; let me do my telecom thing. Or the intellectual property guy's reaction is, ah, that's not important; let me just protect the thing that I've created. The answer is both are important, and the trick here is how to create a paradigm where there can be a mixing of the two, where there can be a conversation where you can advance both sets of interests without trampling, obliterating, and doing violence to either. We in the computer industry and software industry are becoming more like telecommunications companies. A lot of our software is at the core of the things that have made telecommunications most successful recently. Switching systems are software. Voice mail is software. A lot of the stuff at the core of all this is software, and in some ways you can think of software as the mortar that holds all those bricks together. And as you build and build a higher structure, you can't build a higher structure without mortar. You can't build a higher structure without making sure that it holds together, and software is that thing that makes it work. Well, for those of us who worry about innovation in the software industry, and as our products become more and more vulnerable to being reproduced -- but, frankly, in the NII context as they become more and more vulnerable to those who do not have our technology wanting to use it without our permission, and devising strange and wonderful rules that depart from traditional intellectual property law to excuse and rationalize taking U.S. technology without permission, those are the very things we need to avoid. So as you proceed in thinking about these various aspects of the NII and as you proceed in looking at those international elements of the NII, I would encourage you -- and I tried hard in the attachment to our testimony -- to lay out kind of 10 rules of thumb emerging from the intellectual property perspective that you should try to keep in mind. They are copyright protection, which has been the traditional way not only the U.S., but all countries around the world now protect software, should remain the basic way for protecting computer programs. Changes to the copyright law are probably necessary, but they should be changes done carefully and at the margin. It is not necessary for us to tear up the regime and throw it out. We can work within the existing body of law to ensure that transmissions and other forms of dissemination can be protected without undoing what we have. It is an evolutionary law which has proved its malleability over time, and there's nothing to suggest that it can't adapt to these challenges. In fact, the suggestions are just the opposite. Multimedia works, which is an important element of all this -- there has been very little discussion about it -- are going to be in some respects one of the elements that makes all this appealing to consumers. We haven't talked much about consumers, but, ultimately, we can build great networks and have great software, and if consumers don't use it, we have nothing. So part of the key here is to ensure that it's attractive to users. Making it attractive to users in large element depends on software, making it easy to access and process information. We should avoid compulsory licensing. I don't want to say anything more about that. We should avoid compulsory licensing. It's a bad thing. Right-holders should remain the ultimate decisionmakers to determine whether to license their works or not to license their works. It shouldn't be dictated to them. Intellectual property rights should be made part of national/international standards only with freely-given consent of the right-holder. I started out by saying standards were important and we recognize that, but the mere necessity of standardization at some level does not justify the obliteration of the underlying technology which somebody worked hard to develop. And, finally, the basic touchstone of intellectual property law is national treatment. It's the golden rule: do unto others as you would have them do unto you. Some in other countries, increasingly in Europe, are deviating from that concept. They're deviating from that concept purely for commercial reasons, to be able to use U.S. works, U.S. technology without permission. It is critical that we re-establish a concept of national treatment, that we try to create as level and as fair of an environment here as we can manage. With those thoughts in mind, I think that you have a little bit of a foundation from which to look at the specific technologies and the specific issues that arise. We don't need to do a lot. We've got a great foundation of law. We have a great industry which has developed under this law. The trick is to make sure the industry can continue to evolve and develop, creating jobs and wealth for the United States without doing damage to our future prospects. Thank you very much. CHAIRPERSON DARR: Thank you, Mr. Simon. Next we will hear from Willard Berry, President of the European-American Chamber of Commerce. MR. BERRY: Thank you. As President of the European-American Chamber of Commerce, I'm pleased to provide the International Telecommunications Working Group with the views of the Chamber on international aspects of the national information infrastructure. In the view of the Chamber, this hearing is crucial. The NII must be viewed from an international perspective because, ultimately, the success of the NII and other domestic information infrastructures will depend on their ability to offer consumers access to a borderless global information infrastructure. We must also remember that this GII is not an entity unto itself; rather, it is a network of networks, its added value being its interconnection of networks. As leaders in technology and the consumption and supply of information, the United States and Europe will be first to realize domestic information infrastructures. These will be the catalyst for the GII. It is critically important that policies guiding domestic efforts on both sides of the Atlantic consider international aspects as fundamental to national efforts. The European-American Chamber of Commerce is an association of 90 multi-national companies with major investments on both sides of the Atlantic. Our member companies are committed to further strengthening the trans-Atlantic economic relationship. The Chamber is an advocacy group that seeks to eliminate trade and investment barriers both in Europe and in the United States. Our member companies will play a role in the NII and the GII. Some will help build them; most will simply use them. In some of the key sectors that will build, use, and service the information infrastructures in the United States and Europe, U.S. industry is well positioned. The United States exported over $2.3 billion in telecommunications equipment to Europe in 1993, enjoying a $1.6 billion surplus. The United States exported over $12 billion in office equipment, computers, and electronics to Europe in 1993, a $9 billion surplus. In semiconductors, the U.S. exported $3.27 billion to Europe in 1993, a $1.9 billion surplus. The Clinton Administration and many leaders in the Congress deserve high praise for focusing public attention on the enormous task of creating an NII and a GII. The United States in the public and private sector leads the world in the development of a broad network that will serve as an information superhighway for all to use. But as the Administration realized with the creation of this Working Group, other countries, non-U.S. firms, and citizens of other countries also have useful ideas. In designing anything, whether it is a house to live in or an information infrastructure to serve the needs of the world, one typically asks several questions. Who will build it? What will it look like? Where will we build it? Who will pay for it? Today I would like to address the areas where the Chamber has been a leading advocate from the initial discussions on information infrastructures, nondiscriminatory government policies for U.S. firms operating in Europe and European firms operating in the U.S. I should note that we are not a scientific organization and we, therefore, do not speak to the technical aspects of information infrastructures. Our member companies speak for themselves on these issues or rely on central associations. First, who will pay for it? Successful creation of both the NII and the GII hinge on the active participation and investment by the private sector. The EU and U.S. Governments have been sensitive to this fact, understanding that an efficient information infrastructure can only be built and maintained if it is market-driven. Participating firms must be given ample room to react to the demands of consumers. Stated briefly, this means that government policy should not interfere with a free flow of global capital to innovative firms wherever they are located. Because of the clear need for global investment, restrictions on ownership or participation in information infrastructures are self-defeating. In the U.S., for example, Section 310 of the Telecommunications Act of 1934 restricts foreign ownership of firms covered by the act. These sorts of restrictions imposed in the first part of the century neither anticipated the massive technological developments of today nor the realities of global competition. Similarly, in Europe restrictions on foreign investment and soon-to-be privatized telecommunications providers are shortsighted and self-defeating and ought to be removed. If national information infrastructures and the GII are to be built quickly and with the best technology, neither the United States nor Europe can afford to regard foreign capital as second class. Who should participate? The answer to this question, I submit, is rather simple: those with the best ideas. For the most part, it is the global marketplace and its consumers that will decide who has the best ideas. This is consistent with the policy of private investment as the foundation of the information infrastructure. We believe that government should undertake to apply market principles in the distribution of funds, fostering competition and resisting the temptation to draft rules or administer programs in ways that would discriminate for reasons other than price, quality, and the maximization of the benefits of the information infrastructures. On the legislative front, there are a number of developments which would compromise our goals in this area. I will cite some examples of discriminatory eligibility criteria and performance requirements which the Chamber believes could prevent those with the best ideas from participating in the information infrastructures. Several pieces of legislation to improve U.S. technological competitiveness contain provisions that would hurt the development and commercialization of technology at both the national and global levels. The bills contain a two-part eligibility standard to apply to potential participants. The first part, applying to all companies regardless of capital affiliation, imposes domestic content, domestic manufacturing, domestic employment, domestic R&D, and other performance requirements as conditions of participation. The second part, applying only to foreign- owned U.S. companies, further conditions participation on whether the home government of the parent company meets certain policy goals that may vary with each bill. The Chamber has also been very disturbed to learn that a provision was added to H.R. 4650, the Defense Department appropriations bill, that would prohibit the Defense Department from procuring flat- panel displays unless they are produced and manufactured in the United States by a domestic-owned and domestic-operated entity. This provision, Section 8119 of the bill, is inconsistent with U.S. GATT and NAFTA commitments. Similarly, pending telecommunications reform legislation should be consistent with U.S. international obligations and should not contain domestic content or manufacturing requirements. House and Senate versions of legislation to enable the Bell Operating Companies to manufacture communications equipment impose domestic content and domestic manufacturing as conditions of this new freedom. These bills would require all manufacturing by BOC affiliates be done in the United States and would require domestic sourcing of components. Like other performance requirements, these provisions impair the development of a competitive information infrastructure, stigmatizing the purchase of non-U.S.-origin products and alliances with companies that source globally. Restricting participations limits new ideas and available technology, and, therefore, the development of an efficient and market-driven GII. Much of what I have said so far has been an expression of concerns regarding patterns in some areas applicable to both the NII and the GII. In fact, however, both efforts will overwhelmingly be marked by cooperation and healthy competition. Cooperation and competition among private companies is critical to the development of the information infrastructure. The international private sector is proceeding in directions of openness and cooperation with a healthy dose of competition. U.S. companies are investing in Europe, and European companies are gearing up their investments in the U.S. U.S. companies are working in Europe to develop technologies and systems that will speed the information society. The Chamber is strongly in favor of liberalization of telecommunications markets in Europe and in the United States. Particularly, the Chamber welcomes the initiative within the EU to liberalize the telecommunications monopolies in Europe before 1998, as well as efforts to open up alternative networks such as the cable and the electric grid. Government restrictions on competition must be removed both in Europe and in the United States. The Chamber will continue to push for widest and quickest possible opening to free competition. Cooperation among governments and businesses would facilitate development of the NII and the GII. Cooperation among companies through strategic alliances, technology sharing, and other relationships is growing exponentially. Industry on both sides of the Atlantic should undertake to assess mutual goals and concerns with regard to the development of information infrastructures and should work with governments to address those goals and concerns. National treatment should be a guiding principle of discussions. For example, in the area of eligibility criteria, governments and business should work together to develop common eligibility criteria to address the concerns of national government in ways that meet the needs of potential participants and the goal of commercialization of technologies. Similarly, in the area of standards, goals such as product mobility and a single mobile standard should be identified and standards set in a manner that maximizes interoperability and effectiveness of the infrastructure. Thank you for the opportunity to present these remarks to the Working Group. CHAIRPERSON DARR: Mr. Berry, thank you. Before we go to Mr. Attaway's testimony, I'd like to introduce Diane Cornell. She's the Chief of the International Division of the Common Carrier Section of the Federal Communications Commission. Thank you, Diane, for joining us. Mr. Attaway? MR. ATTAWAY: Thank you. I'd like to add my voice commending this Administration for taking the initiative on the national information infrastructure and global information infrastructure. This initiative capitalizes on one of America's greatest assets, its information industries. I am here today representing seven of the world's largest producers and distributors of theatrical motion pictures, TV programs, and home video material. MPAA member companies anxiously anticipate the creation of the information superhighway. The NII, and the GII, if properly constructed and maintained, will present wondrous opportunities for public access to information and entertainment that will be restricted only by the limits of our imagination. Greater public access benefits information providers as well as users and will stimulate the creation of ever-greater quantities of diverse information and entertainment. Creation and dissemination of information cannot be viewed in terms of national boundaries. The production of movies, TV shows, and home video material is dependent upon revenues from global distribution. Over 40 percent of MPAA member company revenues are earned abroad. No film producer in the U.S. or abroad can be successful in the long term on the basis of domestic revenues alone. We are, indeed, in a global information marketplace. The United States has become the largest creator, user, and exporter of intellectual property in the world. The core copyright industries accounted in 1991 for over $206 billion in revenues from their copyright-related activities, or 3.6 percent of the U.S. GDP. These industries employed new workers at a greater rate than any other comparably-sized sector of the U.S. economy and at more than three times the remainder of the U.S. economy as a whole. These industries delivered over $36 billion in foreign sales to this country in 1991. The motion picture industry alone -- movies, TV programs, and home video material -- contributes some $4 billion annually in positive balance of trade. Because foreign markets are essential to our domestic information industries, as we go about the creation of our national information infrastructure we must also seek to ensure that the NIIs of other nations present the same opportunities and safeguards that are essential to the success of our domestic endeavor. Two of the elements that we must look for in an NII, both at home and abroad, are access by information providers and security for the information placed on the system. Access, the GII must provide a path from those who have information to those who want information. We must guard against bottlenecks. No entity must be allowed to deny access to any consumer or any supplier of information. Access to the GII requires sufficient capacity to meet the needs of all information users and suppliers and safeguards to ensure that everyone is treated fairly on a nondiscriminatory basis. A corollary to access is competition. Absent healthy, vigorous competition, information suppliers will be excluded; consumers will be denied material, and everyone will pay too much. We must make certain that the statutory and regulatory framework for the NII places a high priority on competition. Although the First Amendment protects Americans against barriers to access based on content, such barriers are not infrequent abroad. Of particular concern are national content quotas such as the EU broadcast directive which limits U.S. programming on EU program outlets. And, Mr. Berry, I hope you're listening carefully to this portion of my presentation. (Laughter.) To the extent that you are representing -- or you are representing European interest that would like to see some restrictions in the U.S. eliminated, I would hope that the EU is also looking inwardly in this effort. The kind of content quotas that are in existence in the EU pose a serious threat to the global information infrastructure and our domestic NII because it places roadblocks against the free flow of information and dampens the incentives to create and disseminate information. Moreover, content restrictions will seriously impede construction of the GII. Content restrictions reduce demand and thereby erode the financial base necessary to build the GII. In the case of the GII, the maxim "Build it and they will come" does not apply. It has to contain something of value to consumers. The infrastructure alone is not enough. European Union Commissioner Martin Bangemann appointed a high-level group of European experts to provide advice on the European information infrastructure. The recently-released report entitled, "Europe and the Global Information Society," presents conclusions and recommendations that should be taken into account by all nations contemplating the GII. The report urged the EU "to put its faith in marketplace mechanisms," very sound advice. We cannot allow content filters to be placed at national borders to keep out programming produced by other nations. We should welcome programming from other nations on our NII and we should demand that other countries extend the same hospitality to our programming. National treatment should be a basic principle governing the GII; that is, programming created by the nationals of foreign countries should be given the same rights and privileges as programs created by domestic nationals. Without national treatment, the GII cannot exist. Security, we want the NII to deliver a cornucopia of information to consumers, but access to information by consumers cannot be exulted over the rights of creators. If the rights of creators are not respected, the creation of new material will be suppressed and existing material will be delivered through less efficient, but more secure pathways. Copyright protection, the recently- released draft report of the Working Group on Intellectual Property Rights clearly establishes that intellectual property protection is a high priority on the NII. The copyright community has enthusiastically praised Commerce Secretary Brown, Patent and Trademark Commissioner Lehman, and their staff for providing a solid intellectual justification for adequate and effective intellectual property protection. Expeditious implementation of the intellectual property provisions in the recently- negotiated Uruguay Round GATT agreement will also go a long way toward providing the adequate and effective intellectual property protection required by the GII. Unfortunately, the TRIPS agreement has a major flaw. it fails to provide a clear national treatment requirement with respect to certain new intellectual property rights. This flaw should be corrected as soon as possible. In addition to adequate and effective copyright protection, there must be efficient means to transfer rights to maximize the availability of information on the GII. All exploitation rights must be freely transferable; regimes that prevent the transfer of certain rights or vest rights in multiple persons or entities could seriously impede the cost- effective and expeditious clearance of rights, thereby reducing access to information on the GII. Clearance of rights through nonvoluntary collected administration or compulsory licenses should be avoided. Statutes that compel owners to accept unfavorable or unsuitable terms when their works are used on the GII will force owners to avoid placing their works on the system and to seek out alternative less-efficient outlets. On the other hand, voluntary collective rights management should be encouraged. We should make every effort not only to preserve the legal rights of creators, but also to build into the NII technological and legal means to protect copyrights. We must make sure that the information services provides on the NII are not subject theft. We should provide for the use of encryption technology where it is needed, and we should impose severe penalties against those who would be NII burglars. And now the words that you have all so patiently been waiting to hear: in conclusion (laughter), the NII information -- or the national information infrastructure will be part of, and substantially affected by, the global information infrastructure. The success of our NII will depend in part on the successful creation of national information infrastructures by other nations. We, therefore, must seek to ensure that other nations accept and implement the principles of access and security to ensure that the GII serves the interest of all creators and users of information around the world. My timing wasn't bad, was it? (Laughter.) Thank you. CHAIRPERSON DARR: Mr. Attaway, thank you. Mr. Casey from Skadden Arps. MR. CASEY: Thank you, Madam Chair and members of the Working Group. I've been asked to discuss the global information infrastructure from a slightly different perspective because Skadden Arps as a law firm is, has been involved in the recent past, or is currently involved in the introduction of competition and private ownership into telecommunications markets in about 15 countries or more in a variety of regions of the world, including South America, Asia, Europe, including Eastern Europe and the CIS countries. So I approach the topic for the panel in a somewhat different perspective, and that is to try to give some sense of the attitudes in other nations as they confront these questions on the implementation of GII principles. It's certainly appropriate that we do that because, as recognized by the Vice President and the Secretary and all the members of the Task Force, the development of the global information infrastructure and the development of each individual nation's networks are linked hand in hand. As a network of networks, the NII and the GII cannot really prosper without all elements developing. It's particularly important now because market economic and technological forces are driving, as we've heard from the testimony of the other members, the economic activity of both foreign entities and American entities to be more dispersed throughout the world. The development and the utility of our information infrastructure is directly affected by the development and utility of theirs. Infrastructure development abroad also provides U.S. companies, particularly companies, particularly with equipment manufacturers, service providers, and some technical experts, among which I don't necessarily include lawyers, although in our case it has been the case, with business opportunities that are very formidable. Billions of dollars are being spent in telecommunications, network, infrastructure improvement programs around the world, and estimates by multilateral organizations indicate that that pace of development is going to continue for at least the next decade, if not more. United States manufacturers and United States carriers, United States program producers certainly lead the world in their respective industries. There's a huge opportunity out there for them, and it's in all of our collective interest to make sure that we're able to capture those opportunities as they are presented. As a result, we should be -- the United States policy is -- and certainly the Task Force and the Working Group is evidence of that -- is to encourage infrastructure development throughout the world. Let me say that every nation with whom the Working Group or Task Force will do business has its own incentives to engage in this development. From the point of view of the other nation, particularly in the case of more developing nations, telecommunications infrastructure is essential to their own economic development. I think they understand collectively that before one can bring an industry and begin to upgrade the GDP and GNPs of these nations, that the infrastructure has to be upgraded and that primarily is going to involve telecommunications infrastructure. In addition, in turn, those kinds of upgrades produce regional and national economic growth which promotes opportunity and stability in these nations and regions. Thus, the United States is not only creating or supporting the opportunity for new jobs and domestic activity, but also foreign economic development, which leads to foreign stability, promoting several of our foreign policy goals. Indeed, these countries have other reasons to support these initiatives in addition to that, in addition to the economic development. All nations around the world face the same budgetary constraints, essentially, that the United States faces, and probably most of them face it more severely than we do. To the extent that there are public functions which must be funded, but which cannot attract private funding, in an era of limited resources it makes much more sense for the governments to take the programs and the activities that can be funded with private capital, fund them that way, and leave public funds for the purposes that no other private entity can step in and face. This private capital or the attraction of private capital is a critical component, as the Vice President recognized in his speech to the ITU and as the agenda here identifies, because in many cases it's the key to unlocking the door to all of the other changes that are appropriate for any regulatory program or domestic infrastructure development program. That is, private capital as a condition for coming into a market or coming into a company will insist on several things. It will insist primarily that the operation of the business be depoliticized. This is both the positive and the negative effect from the point of view of the privatizing company or the liberalizing country because the depoliticization requires them, or at least leads them, to begin to separate the government's functions in the telecommunications sector; that is, to begin to discreetly own the telecommunications interest, operate the telecommunications network, or regulate the telecommunications network. These three functions are very different and they should be separated. The EU, I think, as a matter of directive, is requiring it. The United States has it, of course, but other nations around the world are not so committed to the prospect of separating them. Private capital generally will insist on it because they need, private investors or private operators will need, to know that they have both a clear, predictable, and reliable relationship with the government. They need to know that the government will not blend or meld its roles as owner, operator. and regulator, but rather will be relatively clear. The only way one can get that clearance or clarity reliably is by moving in the form of a separate organization. The governments themselves, on the other hand, while they want the funds that private capital can bring in to bring into the budget and they want to avoid the losses that telecom operators can frequently produce in the future, or they want to avoid the capital requirements that upgrades, technological upgrades, will impose on the government, often are operating against a tradition that the telephone company or the telecommunications network is a national asset, is some sort of patrimony of the nation or of the people, and, as a result, it's a politically highly charged issue. In addition, there are very severe economic consequences for governments considering these kinds of market opening or privatization measures. Rural service in the telecommunications sector drawn narrowly is often funded in these countries, as it is in our country, by a form -- as it was in our country at least -- by a form of internal subsidies. It's not clear in nations where universal service is still a goal to be achieved, rather than an accomplishment, that they can readily give up easy measures of internal subsidies. In addition, these governments often frequently subsidize the postal operations with revenue produced from the telecom operations, and, as a result, disassociation of telecom from post is going to have profound impact on the people of these nations because, of course, postal rates and postal service is something that every citizen bumps into every day. And, finally, in some cases nations use their own and controlled telecommunications networks in order to support domestic manufacturers, either to subsidize them directly or create home markets that are sheltered that allow them to use these markets as a platform for entry in competition in the rest of the world. So that a decision to open up and liberalize the telecom market is not only potentially affecting the budget in a positive way, both now and in the future, but negatively in terms of post and subsidies and even manufacturers and the jobs that come from them. However, again, back to the issue of the principle of private investment, private investment will almost always insist on some of these protective devices that the United States views as the fundamental principles underlying the GII, and so, therefore, with one caveat that I'll mention in a minute, I think it's correct that the Working Group has identified private investment as one of the primary principles that United States policy should be supporting. I know that Diane and others at the FCC, and I think in the Department, just came back from Russia, where they were promoting U.S. interest and private ownership in the Russian telecommunications sector. I hope that -- I know that these governments around the world pay great attention to U.S. delegations when they visit and present those visits. So I think that's a very positive and constructive approach to this particular issue. The next principle that the GII is dedicated to achieving is, of course, competition, and we've heard about the benefits of competition. However, in developing nations, in particular, competition poses a risk to the accomplishment of some of the other goals, and particularly in universal service. If a national domestic telecom infrastructure is both technologically outmoded, not yet accomplishing any universal service goals, and subsidizing a variety of different other functions of the government because of a protected rate structure that does not bear any relationship to cost, then sharp or flash-cut open entry and competition in the infrastructure level of the facilities level will, obviously, attack all those places and perhaps threaten the very viability of some of these companies. Many nations are not convinced that their monopoly network infrastructure entities can survive a quick injection of open entry competition at the facilities level, and that the costs to the nation of a quick production of the benefits of competition for us -- that is, that rates go to costs -- may impose too many costs on the nation. Therefore, most of them stage the entry of private ownership and liberalization of markets in order to give the domestic network some opportunity to upgrade technologically, redo their rates, reorient their rates, and avoid some of the more dramatic political problems. Universal service, as I mentioned, is always a paramount concern of these governments because it is the politically most visible effect of telecommunications privatization. Economic affordability is sometimes difficult to achieve because of the economic level of these nations, particularly in rural areas and in some of the more agricultural areas, and, as a result, costs and the ability to deliver service at cost is a large issue for them. Technology is allowing universal service to be accomplished in far more efficient, cheaper, and faster ways than may have traditionally been the case, and, as a result, that's a big breakthrough for this. Open access you heard about. I would only say, in terms of open access, that the standard- setting organizations that operate multilaterally or internationally play a huge role in accomplishing that, and I think the United States can have a very big effect on open access by actively supporting those organizations' work. And, finally, we've talked about regulatory flexibility, which is the last principle of the GII, and I would say that the next two, private capital, appropriate regulatory frameworks, are both clear, predictable, and enforceable, are the key to allowing the development of foreign infrastructures because they are the key to permitting private capital to come in and produce the desirable effects that we all wish. Thank you very much for the opportunity to speak to you on this important subject. CHAIRPERSON DARR: Mr. Casey, thank you very much. Mr. Zeger from COMSAT. MR. ZEGER: I'm the General Counsel of COMSAT, and I welcome the opportunity to talk to you today about the GII. COMSAT brings to this discussion a perspective based on its unique position not only as a private company, but as private company mandated by Congress for the purpose of fulfilling the U.S. vision of global commercial satellite systems. COMSAT played a pivotal role in establishing two international satellite systems, INTELSAT and INMARSAT, and serves as the U.S. signatory to each in representing the interest of the United States. INTELSAT, with 133 member countries, provides fixed satellite communications to some 3,000 earth stations located virtually in all corners of the earth. INMARSAT has 74 member countries, established in 1979, and it provides maritime, aeronautical, and land mobile services throughout the world. These systems have been of tremendous benefit to the United States not only terms of providing high-quality infrastructure and services, but in making the United States a world leader in satellite technology. Some $3 billion has gone to U.S. satellite manufacturers, and some $2 billion has been awarded to the U.S. launch industry for INTELSAT and INMARSAT satellites, and these contributions to U.S. competitiveness delivered by COMSAT as a strong signatory are matched by hundreds of millions of additional dollars invested in satellite communications R&D and in the promotion of the U.S. earth station industry. COMSAT has two decades of experience working with other countries to establish global satellite infrastructure as a private company with a dual obligation, one to Congress in fulfilling statutorily-driven obligations and the other to our shareholders, and, accordingly, I would like to direct attention not only to the global infrastructure, but to the respective roles of government and the private sector. First, with respect to the encouragement of private investment, we strongly believe that international facilities must be privately funded and privately owned and operated. Unlike most countries in which the government-owned and operated PTT model is the norm, telecommunications infrastructure in the U.S. is built on private investment. Other countries are beginning to recognize the benefits of this. We, government and business, must promote development by the private sector. COMSAT's own history and experience is instructive in this regard. After a substantial debate in Congress as to whether COMSAT should be a government-owned and controlled agency or an entity controlled by carriers, or, last, a private, for- profit corporation, Congress settled on the model that it incorporated into the Communications Satellite Act with COMSAT as a private, shareholder-owned, for- profit corporation. In short, Congress wanted to demonstrate to the world the model of private enterprise through COMSAT. At the same time, implementation of a global system called for the cooperation of other countries, and INTELSAT and INMARSAT became rooted in intergovernmental agreements. Since most countries telecommunications providers were government monopolies, this policy was not only reasonable, but unavoidable. It is not, however, a policy designed for a competitive environment, nor is it sustainable in the long run. Based on our experience in these consortia, which is second to none, COMSAT firmly believes that infrastructure development must be driven by the private sector to ensure its commercial viability over time and in increasingly competitive marketplaces. COMSAT, therefore, urges the United States Government to promote private investment and the fully-commercialized operation of all telecommunication facilities, including the INTELSAT and INMARSAT consortia. Second, COMSAT believes the U.S. experience demonstrates the benefits of competition in establishing and advancing infrastructure development. All international communication services in the U.S. are provided on a competitive basis. This includes PSDN services, video, value-added, and enhanced services. International telecommunication facilities also are provided on a competitive basis in the United States. Today there are numerous international transmission facilities serving the United States. Both satellite and cable facilities link points around the world, and these facilities have expanded not only in number, but through advances in technology are capable of accommodating larger and larger traffic volumes. For example, whereas early analog cables could handle a mere 24 circuits, TAD-8, the first digital fiber optic cable has a capacity of up to 40,000 circuits. There are now a total of five trans- Atlantic, four trans-Pacific, and two trans-Caribbean fiber optic cables. By the end of 1996, undersea cables with direct links to and from the U.S. will link some 97 countries. In addition, satellites already link over 200 countries, including the most remote locations around the world. The U.S. separate system policy has been a clear success. PanAmSat and other separate satellite systems are deploying competitive facilities around the world, and I think it's fair to say that if anyone regards INTELSAT and COMSAT as a monopolist, they're far behind the time. We're subject to competition, both facilities-based and service-based, in every market segment in every geographic market that we address and that we serve. Transmission facilities for the provision of worldwide mobile services also have advanced through technology and through COMSAT's efforts. The third-generation INMARSAT satellites will have 20 times more powerful capacity than the first, making it possible to communicate via small, cheaper mobile terminals. INMARSAT competes not only with HF radio and cellular, including digital cellular, but K-band satellites and C-band satellites, and it will also compete with mobile satellite systems, including systems in various orbital configurations both below and above 1 gigahertz, and in some there is already a highly-competitive and a highly-advanced and extensive global telecommunications infrastructure. This is in place largely as the result of U.S. procompetitive regulatory policies. The existence of these facilities and proposals for additional facilities leave no doubt as to the incentive and ability of the private sector to satisfy infrastructure requirements. COMSAT believes further advancement can best be accomplished through the continued application of procompetitive policies in the U.S. and by other nations. Third, we agree with U.S. regulatory policy which permits and promotes competition and which substitutes marketplace forces for government regulation once competition is established. U.S. regulatory policy is to promote competition in the provision of international services and facilities. As a result, as a direct result of that, the U.S. has a competitive environment providing an increasing number of options and choices for users, and our infrastructure is the envy of the world. In addition to promoting competition, the FCC has pursued a policy of decreasing regulation as the environment becomes more competitive. Regulatory policy should reflect the degree of competition in the marketplace. Companies once regulated as monopolists should no longer -- companies once regulated as monopolists which no longer exert market power are candidates for nondominant regulatory treatment. Fourth, COMSAT urges the U.S. Government to promote open access to telecommunication markets overseas and to encourage other countries to require nondiscriminatory access to their national and international infrastructure facilities, particularly where no alternative telecommunications exist. Last, on the issue of universal service, we're a strong advocate of universal service, but we believe that competitive forces are best able to provide and sustain services of this category. Governments should develop regulatory frameworks that are both procompetitive and ensure that universal service and public service obligations are addressed. Only where competitive forces fail to meet these needs should government assistance be considered. In sum, COMSAT believes that a U.S. policy has resulted in expansive and sophisticated global telecommunications infrastructure, and for the advancement of this infrastructure the U.S. should continue to develop policies which foster private sector investment, ownership, and operation of global infrastructure facilities, and we think that progress along that line would be the development of a U.S. policy of leadership supporting the privatization of INTELSAT and INMARSAT. Thank you very much. MR. BEAIRD: Thank you very much, Mr. Zeger, and I'd like to thank each of the panelists for excellent presentations. I would call upon now Jon Baker from CEA to begin the questions from the panelists. MR. BAKER: Thank you, Dick. Thank you all for a terrifically interesting afternoon. Well, when I was listening to the speakers today, especially Mr. Phelps and Mr. Maisel, I got to thinking about what we economists call network externalities. Every additional library or business or hospital or university or private citizen who is online throughout the world benefits me, benefits every other firm or library or hospital or business on the network if we can communicate with each other, which is just a fancy way of saying that there are terrific benefits from interoperability. I think both of you were highlighting that, as were some of the other speakers. I want to highlight a difference I thought I heard between Mr. Phelps and Mr. Maisel in the form of a question. We all understand that setting standards promotes interoperability, which is something that's very valuable here, and it also promotes investment by reducing uncertainty and encouraging competition. Now I thought I heard Mr. Maisel suggest that the way to obtain interoperability is through setting specifications for standardized open interfaces and then letting competing firms sell products that meet those standards. Now we all know that buyers in procurement settings can write specifications that only one seller can meet; that is, that some specifications help some firms relative to their rivals. My question is: can we truly set standards without ever infringing upon or requiring access to the intellectual property of someone who's already created some sort of technological approach to the interface issue that we're addressing? Don't we have to be talking about nondiscriminatory licensing of intellectual property at least in some cases in this standards-setting process, as I thought Mr. Phelps was suggestion? And can we do this -- if that's so, can we do this without threatening the intellectual property protection that I thought Mr. Simon and Mr. Attaway, in particular, were so concerned about for software and video, for example? That's sort of a cluster of questions. It's mainly for Mr. Maisel, but for anyone else who would like to jump in as well. MR. MAISEL: I knew this was my lucky day. I think I heard -- I can reduce the cluster of questions down to two. The first was: can the government set standards or specifications fairly? You talked about wiring specifications. I guess I've got a slightly different twist on it. In talking throughout the industry I haven't found many people in favor of the government setting standards. There's general consensus that it's too new an industry, too new a technology. The industry itself, if forced to tomorrow set standards, couldn't do it because we'd be afraid we'd pick the wrong ones. The technology is too immature. We want to allow that technology to evolve and innovation to occur. When I suggested that we need specifications, I think what I'd like to see the government do is set the rules for barrier-free specifications. The rules are different than what the specs are. The rules might say, Jon, you used to be a professor at Duke -- Dartmouth you said, right? This is the old publish or perish. What I'd like to see the rules say is: publish barrier-free interface specifications, not the recipes for the products or the blueprints, but just agree to let other people use the specifications you publish to produce products that will interoperate on the GII, not build clones, but just things that will plug into your products, so that market sizes will be larger. You ask, can you do that, then, without intellectual property infringement? The literature and industry is replete with examples where you can do that. I'll admit to Marshall and Emory, if they were to pin me down, are there examples where, in fact, there is intellectual property in interface specifications? Yes, that's true, too. My goal would be to suggest that when the government sets the rules, it says that the interface specifications for the GII must be barrier-free. Let's develop interface specifications that don't have intellectual property in them. You can do it. Film is an example. Lots of things are examples. I mean, the list just goes on and on and on. MR. BAKER: Let me just follow up quickly, which is: suppose we happen to be in a situation where there are no standards, whether they're government set or voluntary standards-setting agencies, but one firm has created a terrific product and it happens to be not quite the de facto standard yet, but it's got widely used. Aren't we forced at that point into a choice of whether to -- and that firm has intellectual property protection for its standards. Aren't we forced at that point into a choice between either using attributes of that firm's approach for our standards, not requiring it, but perhaps requiring capabilities that it is best suited to meet because it's had experience and developed an approach, or else setting some other standard that it might not be able to meet, and then creating a problem for it or creating the potential for alternative, two different standards evolving? Aren't we in a bind at that point? MR. MAISEL: I know that Marshall would like to chime in on this one. I have a short one here. If somebody has achieved a market dominance position -- say we were to put this into the formal standards organization arena and say, "You guys figure this out," and they spend their typical three to four to five years figuring it out and reaching a consensus standard. In the meantime, somebody could sprint ahead and establish a de facto standard through market power. If that were to happen and you were to say, okay, the rules of the game are, if you want us to be using it for the GII, you have to publish your interface specifications, not your lines of code, just how we can connect with it, what would they be giving up? They wouldn't have to change their engineering. They wouldn't be giving up their market dominance. They would be allowing other people, minor players, to plug into their stuff. Is that a great cost? I would say no. MR. BAKER: Marshall? MR. PHELPS: Well, I'm not sure -- we have much of a problem with the whole issue of open interfaces, we'd all agree. The only difference that I would have is I think it's possible to have some proprietary code in those open interfaces. Then you face the question: is that going to be available at appropriate license rates, and what have you, in the commercial marketplace? Somebody who doesn't make it available, then the world's going to move somewhere else, is sort of the way I would look at that, and that's what will naturally occur. I think that's what the difference is. But as to the point I absolutely agree on, I think it is virtually impossible to take 15 experts and sit them down and say. go right today with those interfaces, because it would be a fool's errand for either the public or the private sector to try to do that, although you will hear about efforts to at least get started in that process, as you get going on that. But the success of that, the proof will be in the pudding, but it would be an extraordinarily difficult, if not impossible, task to start that today, it seems to me. MR. MAISEL: I'd like to add one innovation example we might all remember. Do you remember what a stereo looked like when you were a kid? It was a big piece of furniture and your dad had it, and it wasn't modular. And then do you remember when you were in college or high school, or sometime around then, you got your first stereo and it didn't look like that, and you could nowadays turn it into a home entertainment center? You could have a laser disk or replace your eight-track tape player. What made that all possible was the RCA phono jack on the back, the common jack, invented in 1950, plus or minus a year; the patent ran out in the second half of the sixties. When do you remember stereo sales taking off and innovation and all these new products happening? That's when it happened. MR. BAKER: Thank you both. That was very illuminating. CHAIRPERSON DARR: Thank you. I had a question I wanted to address to Mr. Casey. You had said that in a lot of the less- developed countries, particularly -- or maybe it was not just the less-developed countries -- that they believe that quick privatization is not sustainable because of the revenues they derive from the monopoly telephone companies. Do you think that they are correct in that assessment? And if they are, how do we persuade them to privatize? What arguments do we use? Or do you think that they're incorrect and there are good arguments? How do we deal with their belief that they can't sustain quick privatization? MR. CASEY: Well, I think there are a number of different factors that go into their conclusion. Some of them are economic and some of them are political. On the economic side, it depends in some measure on the extent to which they are using internal subsidies within the telecommunications sector to accomplish other purposes, whether that's to promote network construction in order to serve more citizens or whether it's to subsidize other parts of the budget. Part of it technological. If they have a totally outmoded network and a new entrant will come in at the facilities level with a technologically- sophisticated network, it will be very difficult for an overstaffed, inefficient, politicized PTT, essentially, to continue to compete viably against what is, in essence, a modern, privately-managed telecommunications enterprise. So I think there is some merit to the claim that, depending on the state of their existing networks, subjecting that network without some of the benefits of technology or management discipline or financial restructuring to competition against someone like that right away will be very threatening to them. How you get them to introduce privatization and liberalization, I think, again, involves a multitude of factors on their part. One is that by opening up markets incrementally, value-added services or mobile or satellites or other services other than the basic switch voice network infrastructure, you can, in fact, generate business and bring technology and financial improvement to the network itself, which if combined with reformation of their management structures and their own financial structures, sometimes by bringing private investors at that level, and if you set up a mechanism that the trend toward privatization is inevitable, that the monopoly franchise or the exclusive rights granted to the local network expire at some definite time in the future, then I think you get -- you begin to bring the benefits of competition, private investment, open markets into the nation; economic development begins to be promoted as a result, and the local underlying network has a chance to upgrade itself financially, managerially, and technologically. But it's a very difficult problem because for many countries telephone companies are, among other things, the source of their political power. I'm involved in a country right now where the union representing telephone workers is one of the principal unions supporting the incumbent government, and reformation of that company is going to result in reduction of jobs for those union members, who are, in turn, the constituents of the party. So it's not entirely on an economic basis, and I think the United States can promote openness, promote the attractive features of private capital -- that is, help for the budget, funding of other programs that are important to the nation, but do it somewhat more incrementally in those countries where there's a real risk that the political consequences will be unacceptable, because the alternative is that they'll stay closed, which I don't think is good for our interests, either, as one of the networks on the GII or as a manufacturer or as an exporter. CHAIRPERSON DARR: Thank you. Dick, did you have a question? MR. BEAIRD: I'd like to ask -- actually, I'd like to ask two questions, if we have time. But the first question has to do with how the government targets its activities. Governments, like companies, have limited resources and we want to make our impact as quickly as possible. I think we're doing a pretty good job in a number of international organizations, which has a kind of long-term view of implementing the principles of GII, which all of you have in one way or another enunciated. But the trick is always for government to know where to put its resources bilaterally. So I'd like to ask this group that, if you were to envision a GII community that could be brought together -- and here I'm using figurative language, but I think you'll get my impression, my reference -- if we are to bring together in the next two and a half, three years a GII community of five countries that we could all agree, more or less, adhere to the principles that you have spoken of, which five countries would you put at the top of the list for the government to undertake immediately bilateral discussions with? MR. PHELPS: Here's a quick thought: make it easy for yourself and make the number seven. MR. BEAIRD: Seven, all right. MR. PHELPS: Use the G-7. MR. BEAIRD: The G-7. MR. PHELPS: I mean, it's there and it's on the subject. MR. BEAIRD: Okay, everybody agrees that G-7 would be the start, would be the place to start and -- MR. MAISEL: That's where the money is. That's where the market is. It may not be where the friendliest group of people who adhere to that set of principles are, but that's the direction market forces will be pushing the companies here to deal with. MR. BEAIRD: Okay. MR. CASEY: I would add, just I think companies like China and India, which are enormous markets -- billions of dollars are going to be going in their regularly, and they are now committing themselves to a program of decades-long development. If the United States does not establish ground rules that permit U.S. companies and U.S. carriers to play in markets that are that huge, then we will be foreclosed from the economic benefits of that for a very long time, and my view is China is a third of the world, basically. I can't imagine that we would want to bilaterally concentrate on a group of nations and not include China in that group. MR. ZEGER: I agree with Tom on that. I think that's very important. Also, on the question of how to prioritize scarce government resources, I think a government initiative behind the privatization effort that COMSAT is now leading is key, because one thing we've learned as we've proselytized around the world is that almost every nation, large and small, is waiting to see how the United States reacts to this issue and waiting to see if the United States is going to push it. If the Administration believes that privatization is important generally to the GII and to its procompetitive and liberalization policies, U.S. leadership is going to be of critical importance. MR. BEAIRD: Thank you. Let me just very briefly ask Tom Casey a follow-up question to Carol's. We have been in government for some time following what I will call a trade model, which is to say we've been seeking market access through a variety of venues, whether the GATT or bilaterally, through regional trade or groupings like NAFTA, et cetera. But we've noticed particularly since 1989 or so is the privatization trend, and there have been a number of privatizations, and, Tom, I know you're involved in a number of those. And there's been a very subtle shift then from a kind of robust trade access model to more of an investment model. An investment model has as a component to it an attempt by investors to retain value of assets, which means, in your own words, phased-in competition. So what we had in our kind of purer days is a very procompetitive model. What we have in a more complex world, which combines privatization and liberalization, is a tradeoff. You can, I think, in virtually every privatization I'm familiar with see a carve-out in certain services to protect the value of assets and to assure that the investor gets a return on investment. My question to you, Tom, is, if you were sitting on the government side, rather than on an investor's side, if you were sitting on the government side -- MR. CASEY: I tried, Dick. I tried. (Laughter.) MR. BEAIRD: That's right. How would you articulate a government policy that could embrace both competition and privatization, recognizing that they are not synonymous? MR. CASEY: Well, I think that's a critical question, and it's the most difficult to answer. Therefore, I think it varies depending on the conditions of every country, which makes it hard. But, generally, I would say, that markets not essential to the functioning of the basic voice switched network can be opened up quicker. That includes, as I said, mobile; it includes value-added services; it includes satellite; it includes cable television and other video distribution sources. What happens as these markets open up is in many cases they become something of marketing agents for the underlying network. They rely on the underlying network for transport. I think it's also fair to say that the method of privatization affects that question. If the government is going to continue to hold 100 percent of the entity that runs the network, then there's no asset value that an investor has an interest in protecting. In that sense, it's possibly a tradeoff, that if the government is going to persist in holding 100 percent of the network, then the United States has no particular interest in seeing assets protected for investors; whereas, if they allow private capital to come in in the form of foreign investment, then the United States may have an interest for at least the investor. I think that puts pressure on the foreign government to open markets for private investment, which I believe is really, as I said, the key, because once you get private capital in there, and the government gets the revenue and begins to see the foreign exchange positive effects on their balances, begins to see jobs being created, begins to see economic development and new jobs coming from that, then they start down a road that requires them to move in the direction that we want to move. They have to adopt regulatory frameworks that are clear and predictable. They have to begin to separate the roles of the government. So, in my view, getting private investment in is really very, very important to accomplishing the objectives that we have as a nation with respect to these issues. So that if you can trade off a pressure for letting private capital in for one of these other things, I think personally that that's a fair tradeoff, particularly given the political consequences of governments that try to do it all too fast. I've already been thrown out of several countries by new governments who said, look, you know, the old government lost because they wanted to do all this; we shut down this program. MR. BEAIRD: Thank you, Tom. CHAIRPERSON DARR: I believe Diane Cornell as a question. MS. CORNELL: Yes, actually this is a followup on Dick's scarce resources question. I'm not sure who would be appropriate to answer it. But I think you folks are quite familiar with what we do from the government perspective in terms of advocating GII principles and multilateral contacts, bilateral contacts, you know, and a variety of mechanisms. Are there things that we could be doing that we're not doing or are there areas that it is more effective to focus our energies than not? You mentioned the G-7, but is it appropriate to work things through the G-7? Is it more appropriate to work on sort of the more liberal countries that already are sort of more our side, so to speak, in terms of an agreement on principles? That's sort of one part of the question. The second part is, continuing on the scarce resources themes, are there ways in which we could be using the private sector more effectively than we are? I mean, are there ways that you folks believe you could be helping us, helping advocate the principles that I think we're all sort of onboard for that we're not doing? MR. ATTAWAY: Simply recognizing these issues is very important and including them in your dialog with foreign governments. I remember the time at the FCC when I absolutely could not convince the Commissioners and staff why it was wrong to grant satellite authority to serve the Caribbean without regard to whether the copyrights in the programming being transmitted were being respected at the other end. They kept saying, "Well, this is free flow of information. This is good. We don't know about copyrights and we don't care about it." That was the response I got for years. Now that's changed, fortunately. MR. ZEGER: Before Diane arrived. MS. CORNELL: Yes, before my time. (Laughter.) MR. ATTAWAY: But just simply recognizing these issues and including them in your list of subjects that you take up with foreign government will go a long way toward at least achieving the purposes or the objectives that I listed in my testimony. MR. ZEGER: Diane, I know you place great importance on this, but I'll underscore the point anyway. We think it's very important that the FCC and the other agencies involved continue to work very hard to acquire adequate spectrum to support new technologies and new services. In particular regard to the forthcoming WRC in 1995, there is the issue of allocating spectrum for the new mobile satellite technologies, and, certainly, a focus and a priority on the spectrum wars, on getting adequate spectrum, is important because, without it, the new wireless technologies and the new digital services will fall short of their potential. MR. CASEY: Just if I might add one other suggestion, and that is -- actually, two. One is, a lot of these countries, as they begin the process of liberalization or market opening or whatever, because it has been a state-run sector, there's no differentiation between the asset, the owner, the state as enforcer of rights, and so on. So there's no legal framework at all. There's no regulatory framework within which they can attract capital and that give investors or others the ability to predict how their operations are going to go commercially. That's very difficult for these governments to get over. They have to go out and educate themselves frequently on legal principles that are just inherent in all our method of doing business, but that are totally foreign to them. If the Commission or the Department or some other organization within the government could set up some sort of instructional program to talk about the principles of regulation or the principles of the enforcement of rights in private property or things like that, you could just run delegates from the ministries of telecommunications of nations around the world into the United States; you could talk to them for a week; you could give them outlines of regulatory laws and what's price cap and what's licensing and what's spectrum management, how do you do all that -- those are just practical details of creating these things which I think are very important. The other aspect is sort of a related one, and that is one of the organizations in the world that promotes these kinds of efforts is the World Bank or the IDB or the other multilateral funding agencies. I think they play a very important role. If the United States could use its good offices with those organizations to have them be even more active and more concrete about moving people forward and funding these efforts and conditioning the availability of developmental funding on these kinds of infrastructure programs, I think that's going to -- that would also have a large effect. MS. CORNELL: I think we saw exactly the issues you were talking about in your first point in Russia last week. Dick and I were there, and it's quite clear that they very much need just basic education in terms of the concepts that we're talking about, what we mean. I guess your points are very helpful in terms of the best way to get those issues across. CHAIRPERSON DARR: Don, did you have a question? MR. ABELSON: Turning back to the identification of the G-7 as a focal point for our work, if we look at those countries and we compare their policies and our list of GII principles, we find that there's not a match. So the question is, what do we do as a government? What policy would you recommend for us? Should we lead with our pure policy and expect them to follow? Should we apply the rules that they apply to us to them in our market? Or should we just basically say, until they change, they don't get into this market, or any other alternatives? What policy would you recommend us to take? This is for anybody on the panel. CHAIRPERSON DARR: You ask the easy questions, right, Don? (Laughter.) MR. ABELSON: Yes. MR. BERRY: I guess I could start. I think the G-7 is the core, but, as you say, there is a diversity of practices, and I think that if you just look at patterns of investment flows, you'll see that the investment relations are not balanced between all of these countries, but I do think, for example, with relation to Europe that there are very positive aspects of that relationship on which you can build. The idea this morning of reciprocity I think is counterproductive in this area. I think there can be certain kinds of national treatment commitments which people can work for. If you go the reciprocity route, you end up with a patchwork rather than the possibility of some kind of seamless network or network of networks. So I don't believe that reciprocity will work, but I think that there are some goals and I think that the private sector has an important role to play in working with the government on establishing those goals. I think that a lot has been going on in this area. I think there have been discussions, as was mentioned in the CBEMA testimony, between the private sector here and the private sector in Europe and the private sector here and the private sector in Japan, and I think that what can be accomplished there should not be underestimated. But I don't believe that the idea of reciprocity will get you where you want to go. MR. SIMON: One of the things you always need to be careful about is in any kind of international discussion -- and Dick calls it the trade model; it's the one that I have the most experience with -- you've always got to know what you want before you go to the table asking for it. I think part of the trick here is for us to get our own house in order, for us to figure out domestically what all of this means and how the various policies fit together, and how we can carry on the integration of telecommunications policy, standard-setting policy, intellectual property policy, a whole series of other things which, frankly, have existed in compartments until now. We're trying to figure out how to take them out of those compartments and put them into one basket, shake them up, and see what happens. It's hard to go knocking at the door of the Commission or the French or the Germans or the Japanese and say, do X, Y, and Z, because the first thing they'll ask is, "Well, what have you done? What does your law say on these things?" And if you don't have a very good answer, you don't have much of a negotiation. So I guess before I would advise you to go talk to a G-7 or anybody else about any positive agenda, trying to get them to do something, first, we should try to figure out what is that we want done. But there is something that is important for all of you to do, which is to watch out for bad things that they're doing. Part of the role, basically, of government in this area can be two. One is the problem anticipation by trying to have positive things that avoid problems arising, and the other one is problem resolution. Well, you've got to be real smart and forward-looking to be able to figure out the right thing to do, but it's not that hard to figure out when somebody's closing their market to you or somebody's enacting rules that prevent you from being able to participate, or where there are investment policies or market access policies or other things that are doing harm to you. So part, just to finish a thought, part of what I would suggest to you is there's lots of discussions going on on these issues in lots of different fora, and one of the most important things is that all of you talk to all of your counterparts elsewhere in government, so that you basically try to have at least some information flowing from each other to each other, so that things don't happen in the abstract and one day you wake up and forgot that, gee, how did that happen? MR. ABELSON: You, in your comments, you already gave us a prescription at least for two things that we should not do -- well, one thing we should not do and one we should do. We should avoid compulsory licensing and we should apply national treatment as a principle. So there if we're going to do both of those, you've already set a path for our treatment that we're going to provide others. That is a policy guidance that you've suggested to us. MR. SIMON: And I believe that both of those -- I disagree with those who would argue that reciprocity is a point of leverage. Reciprocity, ultimately, I believe turns against you. I mean, we have had experiences in the U.S. law with reciprocity rules, and while they may be good short-term kinds of things, in the long term they don't work terribly well. CHAIRPERSON DARR: Mindel? MS. DE LA TORRE: I'd like to follow up on the issue that the Secretary brought up this morning on universal service. I guess universal access to even basic information services is a prime concern to most of the world. One-half of the world has never even made a phone call before. My question would be, how can the GII close this gap? Mr. Phelps this in his testimony, that letting the market help these countries -- can help these countries develop. But how well do market mechanisms actually work to identify and help user needs in developing countries, especially countries that are different from our own that have different needs and different levels of development? MR. PHELPS: I'm not sure. I'm trying to think of a good way to answer that question. CHAIRPERSON DARR: Can you speak up a little, Mr. Phelps? MR. PHELPS: It's an awfully broad question. I can't -- MS. DE LA TORRE: I mean, in other words, how do markets tend to -- do markets tend to widen the gap between haves and have-nots? MR. PHELPS: Yes, sometimes they do, and that's why you have things like the universal service rules that came out in the '34 Communications Act. All I was trying to say is that there are untold number of services that we're talking about here, and it's not a simple question to decide which ones fall in what bucket and which ones are mandated and which ones aren't. It's going to take a shakeout to determine what those are going to be. That's really what I was trying to say. So it isn't quite as simple as it was in 1934 to say this is mandated for that. The second question is, of course, that almost nobody ever addresses is, how does anybody make any money on this darned thing and why are they going to provide it if they don't make any money on this darned thing? That question still remains to a great degree in many instances. There are going to have to be cases where we look at public facilities as access points. I don't feel very -- that that's bad. I think public libraries are a wonderful thing, and public schools are a wonderful thing, and all of that. So that model does exist in this country. Now in the other 200 countries of the world, you've got the alpha and omega. It would be impossible for me to give you a good answer on how market forces work. Some places they work well; other places they're just experimenting with them, like the Soviet Union, the old Soviet Union; I don't think they have a clue yet how market forces work. China is certainly an interesting case in point where they don't have market forces at all yet. So you've got a whole range of things. One thing, though, we have learned is that markets do get sorted out eventually, and companies do have a desire to provide services that people generally want, and this is just a case -- my whole point was we have to look before we leap on a lot of these things. We don't know what's going to be out there and what's going to be necessary, and that was really all I was trying to say. I don't really have an answer on how markets work in every country in the world, in an area like this where technology is just still unfolding. I do know that anybody who thinks they're smart enough to figure all of that out is a very special human being. (Laughter.) Five years ago in Washington, it was an article of faith that the only way we were going to get a national network was if the government sunk a whole bunch of money into building a backbone spine through this country for a national network, and everybody saluted that and said, yeah, verily, that's what we have to do with the money that we have. That dream has sort of evaporated as unnecessary in just a very short period of time. Yet, if you look back five years ago, that was an article of common faith. So I'm sort of against trying to pigeon-hole this too early, I guess is what I would say. MR. CASEY: I think that one of the motivating forces for private -- for marketplaces in other countries that are being opened up by government fiat is the desire to expand service and expand access, both what we would call residential as well as to business. And with technological developments, particularly wireless and satellite, it's a lot cheaper and a lot faster to do that. Many of these countries have imposed a condition on the process of issuing a new license or accepting an investment, that the new party, the entering party, either as an investor or as a licensee, has to expand the product, expand the availability of service over some deployment schedule. I mean, several countries I've been involved in actually had benchmarks that if you did not cover so much of the country by this period and more by the next period, and so out, out to basically universal access, then your license was forfeited. So it becomes a part of the deal going in that companies come in with it as one of the conditions of the arrangement, and then they negotiate whatever arrangement they can over it. So I think that it's not incompatible at all to have private investment coming into nations and expand universal service or expand access, because it promotes technology and promotes competition and can be made a part of the deal, and all of those things, I think, are constructive ways of expanding access to telecommunications. MR. ZEGER: We're in the satellite business, and we think universal service makes very good business sense, probability based on the distance and sensitivity characteristics of delivering units of communications via satellite, and we're prepared to step up to that and maintain universal service in the future as the organizations evolve. We also recommend that it's important to rely mainly on market forces rather than government mandate, keeping in mind Tom's earlier observations. The goal of universal service has always been a principal mainstay and rationale of maintaining government-controlled monopolies as the service providers in their country, and then you have to worry a little bit about that. We think that the market conditions are there in terms of global communications, given the trunking capabilities of cable, for satellite to step in and provide the universal service without regulatory prodding. CHAIRPERSON DARR: Thank you. I'd like to turn to the open mike now. Two people have requested the ability to make comments. One is Lynn Gallagher of Telecom, International. Is she here? MS. GALLAGHER: Thank you. I, too, have just returned from Russia. I was there the first two weeks of this month. I would like to echo what I was hearing from the various panelists there. I was at a conference on distance learning, Russians and also people from 27 other countries, the potential and the existing global information infrastructure, and the State Committee on Higher Education and all the educators from Russia were extremely interested in the kinds of technologies that existed both within their own country and globally. I was describing the program we started six years ago to provide training courses to PTTs and the ministries and regulation, policy, management, technology, and the countries in Asia, Latin America, Africa, and Central Europe. In fact, the Ministry of Communications in Russia is interested in participating in these courses taught by U.S. people. So we are exploring how we can do that using the global infrastructure, but also the national infrastructure of the data network throughout Russia for disseminated courses there. So I think that the idea of using what we have now in terms of a rudimentary GII to, in fact, provide this sort of training and education not only to the Russians, India, and the Chinese, but to all of the ministries and PTTs, and the users and other network operators in these various countries, presents a good opportunity. The message that we delivered in Buenos Aires to the various countries for market opening, for liberalization was also repeated by their requests for technical assistance from the developed countries to help them both in the policy area, as well as the technology development area. So I guess what I would propose is that what we were hearing today, is that there is a need for educating the policymakers, the network operators in these countries to the requirements for liberalized policy, and there's also an opportunity there to get them into the GII by, in fact, using it. I would like to echo the comments made by some of the previous panelists about the need for the education. Thanks. CHAIRPERSON DARR: Thank you very much. Lynn McLean Delaney from Orion Satellite Corporation? Is she here? MS. McLEAN: Hi. It's April McLean Delaney. Anyway -- CHAIRPERSON DARR: I'm sorry. MS. McLEAN: No, it's my writing. CHAIRPERSON DARR: Sorry. MS. McLEAN: And, actually, it's funny because I have like this sheet full of notes because, as I have been writing things have been -- I've thought of more and more issues I want and I'm two minutes. I will be submitting written comments to you all, but I just had a couple of follow-up points. On the first follow-up point, with respect to the government mandate and in terms of universal access and trying to go overseas, and what have you, to developing countries, I just want to make the point that it's hard for regulators. They're always behind the eight ball in a way because technology is so evolving and so fast, that it's hard for you to keep up in a way and it's hard to harness the government, and for the government to harness the marketplace. I just would like to say that in a way I think that the marketplace is a way to close the gap. We're a private company that's also going in the FSU in Eastern Europe, and we're finding that we are providing new services in a way that we're going to remote sites, dealing with something, and we're providing things that, in fact, foreign customers are coming to us and saying, you know, there is a dearth of services; you're closing the gap, and we feel that the marketplace is a hard thing to harness in sum. That was my first point. With respect to satellites, I just wanted to make the point we concur with PanAmSat regarding the elimination of rarified privileges and immunities. We're a small entrepreneurial company that's competing against a Goliath in a way. We are looking at these competition, open access, universal service, private investment goals that you are promoting and we agree with them. And we want to say that we think the key important thing is competition. This competitive environment that we're trying to promote includes some re-analysis of our current international telecommunications regulations, and we are really promoting -- while the '62 act is admirable in achieving its goals, we think that the time is right to do away with some of this legislation. Right now we are questioning COMSAT in the fact that it's saying it is a private company, but we are kind of questioning what guise of a private company it's evolving into. We're not sure if we like this phased-in competition, and that's something we've been questioning as: what is phased competition? How is it going to be achieved? My two minutes are up. We would like to just say that in phasing it in, make sure that there is a time limit on it of a ten-year time or three-year time. We'd like to -- please read my comments. Thank you. CHAIRPERSON DARR: We will. Thank you very much. I'd like to close this session by thanking, first, the panelists for your testimony and for your very interesting comments. This is very useful to us as we go forward in trying to fashion a GII agenda. I'd thank the audience for their attention and participation. We'll meet again here tomorrow at one o'clock, the same place. I invite you all back for a second day. Thank you very much, everyone. (Whereupon, at 4:18 p.m., the proceedings adjourned, to reconvene at 1:00 p.m., the next day, Thursday, July 28, 1994.) UNITED STATES OF AMERICA - - - - - DEPARTMENT OF COMMERCE - - - - - INTERNATIONAL TELECOMMUNICATIONS HEARING - - - - - THE EMERGING GLOBAL INFORMATION INFRASTRUCTURE Thursday, July 28, 1994 The hearing was held in the Grand Ballroom, Georgetown University Conference Center, Washington, D.C., at 1:00 p.m., Carol Darr, presiding PRESENT: CAROL DARR, Chairperson, DOC DIANE CORNELL, FCC DAVID LYTEL, OSTP TOM SUGRUE, DOC MIKE NELSON, OSTP BILL CLEMENTS, OSTP I-N-D-E-X Opening Remarks 3 Larry Irving 3 PANEL 4: PRINCIPLES OF THE GII Nanette Di Tosto, Manager 12 U.S. Council for International Business Daniel C. Duncan, Sr. Advisor for Global 19 and Industry Affairs, Information Industry Association Randy May, Partner 26 Sutherland, Asbill & Brennan Leo Mondale, V.P. of Government Affairs 35 and Strategic Planning, Iridium Russell Daggatt, President 42 Teledesic Lon Levin, V.P. & Regulatory Counsel 51 American Mobile Satellite Corporation Comments and Questions from Hearing Board 54 PANEL 5: LOOKING FORWARD TO THE GII. Thomas J. Tauke, V.P. for Government 76 Affairs, NYNEX Jeffrey Winston, Manager of 84 Telecommunications, Unocal Corporation Claiborne Johnson, EDS 93 Richard M. Hayden, Director, Information 101 Infrastructure Programs, ANSI Ellwood Kerkeslanger, Vice President for 110 Technology and Infrastructure, AT&T Mike Roberts, Vice President of 118 Networking, Educom Comments and Questions from Hearing Board 126 P-R-O-C-E-E-D-I-N-G-S 1:17 a.m. CHAIRPERSON DARR: I'm pleased to open the second day of hearings of International Telecommunications Working Group of the NII Task Force. That committee working group is a subcommittee of Larry Irving's full Committee on Telecommunications Policy. We'll have a panel this afternoon, two panels, one on principles of the GII and the final panel looking forward, how do we get from here to there and where is there? I'd like to start off this morning introducing Larry Irving. He certainly needs no introduction. Most of you all know him already. He's the Assistant Secretary of the Department of Commerce for NTIA. He just returned from a trip to Russia and I'm sure he'll have some things to tell us about that. Larry Irving? MR. IRVING: Thank you, Carol. It's a pleasure to be here. I apologize in advance that I won't be able to stay the entire afternoon. I did just get back from Russia and I did just have a hearing this morning before Congressman Markey on Global Information Infrastructure Initiative, believe it or not, and so I'm going to have to run back to the office and take care of a few things, some homework that Congressman Markey gave us today. I want to commend Carol and the International Telecommunications Working Group for putting together these two days of hearings. I know that the Secretary very, very much enjoyed being here yesterday to open these proceedings and I'm delighted to be here as kind of a pinch hitter for him on the second day as we begin. There's an incredibly distinguished group of panelists that are appearing today and have appeared yesterday and we really do appreciate the hard work of the panelists as they bring their insights and intelligence to these extremely important issues involved in the development of the NII. I'm encouraged by the response that we've received from private sector with respect to the GII. Seven months ago there was no such thing. No one ever heard of it, it didn't exist, it wasn't even, I don't think, a germ in even the Vice President's brain at that point. But since the Vice President talked about the GII in Buenos Aires in March, we have seen a tremendous outpouring both domestically and internationally toward progress in creating that global infrastructure. The Clinton Administration appreciates the input of the private sector into the policy making process. The testimony and the comments that we're receiving today will help us as we draft the agenda for cooperation. It will be critical to our developing cooperative joint ventures with other nations around the globe. Let me talk a little bit about why we think the GII is so important. We're only beginning to realize what telecommunications can mean in the global marketplace. On Tuesday, the Los Angeles Times reported that telecommunications is now the world's largest economic sector. The L.A. Times said that telecommunications has strategic importance that surpasses that of oil or steel or even the motion picture industry. Anderson Consulting estimates that global telecommunications will represent a $1.1 trillion industry by the year 2000. That's about double its current level. I know that most of you know that CEA estimates that domestically our GDP in the telecommunication information sectors will grow from about ten percent presently to about 20 percent, particularly with passage of the bills pending before the respective bodies of Congress. It's becoming increasingly apparent that countries without access to telecommunications and information networks will have trouble competing in the world economy. Advanced LAN line, mobile, satellite telephone systems are being installed in record numbers. This year as many as $100 million phone lines will be conducted to the expanding web that is the world's telecommunications system. We're going to see incredible and amazing growth in the telecommunications infrastructure in countries such as China and India. China's working on how to wire a nation of 1.2 billion people to phone and data services. It plans on quadrupling the number of phones it has in service by the end of the decade. I think I heard Chairman Hunt say this morning that there are -- or Chairman Markey, I'm not sure which one, that there are one billion -- it was a chairman. I don't know. I don't get a title of chairman. I'm just an assistant. That there are one billion people in China and 10 million phones. If that's the case, that's an incredible statistic and clearly there's a lot that needs to be done in China. India similarly. It's committed to spending $15 billion to modernize its telecommunications sector. While the economics of telephony and telecommunications is important, I think it's important that we also factor in the human points, what it means for average people around the world. It's striking when you think of two statistics that I recently found. One is that one-half of the world's population has never used a telephone. Approximately approaching two billion plus people have never used a telephone, and roughly one-half of the world's population lives two or more hours from a telephone. It's incredible that those of us who have instant communications, who walk around with small phones or cellular phones or beepers or PCS items, which are selling for something approaching $1 billion for the PCS auction right down the street here, that there are literally one out of every two people in this world have never used a phone or are two hours away from the nearest telephone instrument. It lets us know that there's a lot of work that we have to do and we have to think about beyond just the economics, what can we do about using these technologies to improve the lives of people around this globe. At the ITU World Development Conference in Buenos Aires, Vice President Gore talked about what we should do and can do to develop the GII. He basically enunciated five fundamental principals, encouraging private investment, promoting competition, creating a flexible regulatory framework to keep pace with technological and market changes, providing open access to network to all information provides, and ensuring universal service to all the peoples of the world. The Vice President also has proposed cooperative efforts among ITU member nations to create a global digital library involving the interconnection of schools and libraries in every country with the Internet. These proposals were incorporated in the Buenos Aires action plan, reflecting with the ITU development sector and its members will undertake over the next four years. Secretary Brown similarly has taken concrete steps to develop the EII. At the end of June, I traveled with the Secretary to Latin America and there he signed an MOU with the Chilean government establishing cooperative joint ventures in the telecommunications and information fields. The MOU with Chile will foster telecommunications-related trade between our two countries. It will also encourage development of Internet and other electronic networks on libraries, schools, hospitals and health clinics in the United States and Chile. Chile has taken a leadership position with regard to telecommunications technologies, liberalizing the markets and working closely with this nation as they go forward in developing their structure. But other nations, including Argentina in Latin America also see the benefits of liberalizing their markets, working closely and are eager and anxious to work with our country and other countries around the world to help create the GII. Similarly, Deputy Assistant Secretary or Ambassador-designate McCann, Chairman Hunt and I were part of a delegation that went to Russia where we had bilateral talks on telecommunications. At the conclusion of those bilateral discussions we also signed an MOU for scientific, technological and regulatory cooperation between Russia and the United States on telecommunications, an important step, incredibly important step for our nation, but similarly important for Russia which needs to improve its telecommunication infrastructure as it tries to become a greater participant in the world economic marketplace. Congress is increasingly interested in development of the GII. It is not an accident that these hearings are being held on roughly the same time frame as the Hill has begun to become involved. Both the Executive Branch and Congress recognize that when you're talking about things that are going to create jobs, improve lives, determine how we educate people around the world, we have got to come up with a strategic plan, both domestically and internationally. This morning, in testifying before Chairman Markey's subcommittee, holding hearings in international satellite communications policy, we all seemed to have the same idea, that the same things we've done in this market with regard to liberalizing markets and opening up those marketplaces should and can be done with regard to international satellite communications. I don't want to monopolize the time this afternoon. There are a lot of people who know a lot more about these issues than I do who will be spending time talking. I do want to thank Carol for her outstanding leadership in pulling this together. I know that the government representatives here today have a lot to add, but I also know that we all have a lot to learn and I'll look forward to working with the people here today and I want to thank you for your attention this afternoon. CHAIRPERSON DARR: Thanks, Larry. I'd like to introduce the hearing panel. To my far left is David Lytel from the White House Office of Science and Technology Policy. To his right is Tom Sugrue, the Deputy Assistant Secretary at NTIA. My name is Carol Darr. I'm at the Office of the General Counsel this week and next week will be at NTIA myself. To my right is Diane Cornell, who is the chief of International Section of the Common Carrier Bureau of the Federal Communications Commission. I'd like also to introduce our first hearing panel. As I do, I would ask each of them to stand up so that the audience can see them. The first is Nanette Di Tosto, the U.S. council for International Business; Daniel Duncan, Information Industry Association; Randy May of Sutherland, Asbill and Brennan; Leo Mondale of Iridium; and Lon Levin of the American Mobile Satellite Corporation. The first panel is a continuation of yesterday's panel on the principles of the GII, which is private investment, competition, flexible regulatory schemes, universal service and open access. The first person to testify today is Nanette Di Tosto. MS. DI TOSTO: Thank you very much. Thank you for this opportunity today to present to you a business perspective on the policy foundations for the NII and the GII. My comments today are drawn from a more elaborate U.S. Council position paper entitled "Private Sector Leadership: Policy Foundations for the NII," which is being printed as I speak. So, I'm sorry I don't have it for distribution. By way of background, the U.S. Council is a New York based private sector organization with a membership of some 300 multinational corporations, trade associations and law firms. The U.S. Council uses its unique affiliations with global business organizations to advocate American business views to key intergovernmental institutions that influence international business, such as the United Nations, the General Agreement on Tariffs and Trade, the GATT, the Organization for Economic Cooperation and Development, the OECD, and the European Union. The Government's Agenda for Action Report published last September has provided the government's vision and suggested direction for the future development of networks and the information that they carry. The NII is, in fact, well into development and will, if encouraged by sound government policy, fulfill its role as an engine for economic growth and a catalyst for continuing improvements in U.S. competitiveness. The U.S. NII is, of course, an integral part of the global information infrastructure that permits users today to conduct business on a global scale. In expressing our views on the international aspects of the NII, it would be misleading to assume that there is a clear distinction between the national dimension and the international aspects of such a dynamic sector of commercial activity. The U.S. Council's policy recommendations are equally applicable to the national and international aspects of information infrastructures. The U.S. Council believes that the ongoing development of the NII should be primarily driven by the private sector and we are gratified at hearing the repeated view from government officials that the private sector will remain the major driving force. In our view, the single most important role for the government is to craft a legal and regulatory environment conducive to competition. This in turn will enable private industry to develop the NII and the GII more rapidly and efficiently. Government may also productively support some forms of pre-competitive research and conduct or support selected demonstration projects. Additionally, the government should be an informed consumer in its efforts to apply communications and information technologies to the challenges of operating government and serving citizens. Furthermore, it's our view that the government should not attempt to develop or mandate network standards concerned with interconnectivity, interoperability or security. Solutions to these problems should be market driven, commercially accepted and internationally proven. I would like to mention a study that this Board might find of interest that's being conducted on standards since there was a great deal of discussion on standards yesterday. That's a study being done by the National Research Council entitled "Standards Conformity Assessment and Their Impact on U.S. Trade." That study, among other issues, will examine the role of government in the standard-setting process and it should be available during the first quarter of 1995. Government plays an important supportive role by setting down the official rules of the road under which many private sector decisions are made. Four areas have been identified as central to the NII and I would like to highlight our views in each of these four areas, being telecommunications, information security, privacy and transporter data flows, and fourth is intellectual property. In the area of telecommunications, to derive the maximum benefits from the development of a global telecommunications marketplace, government policy should promote an environment characterized by open competition. Rates for services provided by dominant carriers should be based on the cost of providing the services and such services must be offered on non-discriminatory and transparent basis. Access to and use of public telecommunications, transport facilities and services must be offered without usage restrictions or other conditions. The certification and type approval process for telecommunications equipment should be non- discriminatory, should be based on no harm to the network criteria, and should be open to any manufacturer or agent. Regarding universal service, the U.S. Council believes that it would be premature to expand the concept of universal service beyond the prevailing notion of simple two way voice grade access to public switch telecommunications networks without a thorough consideration of all of the costs and benefits that may be associated with a more expansive definition. In any event, competition in the marketplace should be relied on in the first instance and to the maximum extent possible to provide universal access or universal service. Turning to information security, government policies should promote information security and the preservation of the confidentiality and integrity of the users business proprietary information. The NII and the GII should embrace certain important principles in information security as follows. First is standards. Standards must be internationally developed and accepted. Second is free choice. Users should be free to choose from available security methods, including encryption, that best fit their needs. Third is flexible implementation. Vendors and users should be free to make technical and economic choices about modes of implementation and operation. Fourth is accountability. Owners, providers and users of security methods should agree on the responsibility, accountability and liability for such methods. Fifth is export controls. With the exception of encryption methods specifically developed for military or diplomatic uses, encryption methods should not be subject to export or import controls or other restrictions. While the U.S. Council welcomes the government's efforts to develop a comprehensive security policy, the Administration's initiatives threaten to restrict legitimate commercial interest in information security and hinder the competitiveness of U.S. based multinationals. These initiatives, commonly known as the clipper chip, capstone, testra and the digital signature standard, are very much alive and still part of the Administration's policy on security despite recent accounts in the press that have indicated otherwise. Were these to become standards for the NII, however, they could well create a number of serious obstacles to the development of the NII as part of the GII. In the area of privacy, government policy should promote the protection of privacy in three international information flows. The U.S. Council endorses the approach that is consistent with international practice as delineated by the 1980 OECD guidelines on the protection of privacy in transporter data flows. We support the continued sectoral approach to privacy and data protection. Codes of conduct, contractual relationships and U.S. laws directed at specific data activities have consistently safeguarded privacy while ensuring the free flow of information that individuals have come to expect. Fourth is intellectual property. Government should craft sound government policies to promote and encourage the protection of intellectual property rights. The U.S. Council believes that reliance on individualized licensing will encourage flexibility and promote the widest possible economically feasible dissemination of information. Voluntary collective administration and collective licensing arrangements are useful tools in these voluntary arrangements should be encouraged as ways to foster the continued development of an information marketplace. The U.S. Council opposes any efforts to institute compulsory licensing as these would inhibit information dissemination. Also, piracy of copyrighted materials is running rampant in some countries and the Council supports government's efforts to combat piracy through bilateral and multilateral agreements. These longstanding U.S. Council views have been expressed in various forums to the U.S. government, to foreign governments and to international institutions. We encourage the government and governments around the world to adopt policies that encourage competition. We also encourage the U.S. government to work with other governments as well as industry around the world in open forums to develop internationally accepted policies that will in turn enable private industry to develop the GII more rapidly and efficiently. Thank you. CHAIRPERSON DARR: Thank you. Mr. Duncan? MR. DUNCAN: Thank you. Thank you for the opportunity to appear today on behalf of the Information Industry Association. My name is Dan Duncan. I'm the Senior Advisor for Global Industry Affairs at IIA. Our association appreciates the opportunity to work with the Administration's Information Infrastructure Task Force. We're particularly pleased the task force has expanded its focus to consider how the NII will relate to the global information infrastructure. IIA is the trade association of leading companies that develop and distribute information products and services to meet the needs of businesses, professionals, researchers and consumers worldwide. For over a quarter century, our members have been instrumental in the creation and development of information resources that have made the United States a recognized world leader in this field. IIA member companies include both the pioneers in commercial on- line services as well as those companies, both large and small, who continue to provide innovative products to meet the demands of a global economy in which the value of timely and accurate information is growing exponentially. IIA has long recognized the global nature of the information marketplace. Over six years ago the Association became a founding member of the Global Alliance of Information Industry Associations, known as GAIIA. GAIIA counts among its membership nearly 50 counterpart associations in 29 countries. In addition to opportunities that have provided for business development, GAIIA serves as a forum for these associations and their member companies around the world to recommend policy initiatives that will encourage the unhindered flow of information products and services within and across national borders. In doing so, GAIIA, through its counterpart associations and their member companies has already helped lay the groundwork for the GII. In 1992, GAIIA formally adopted 15 public policy principles known as the GAIIA guiding principles which were attached to my written statement. They set out general guidelines for national and international entities to follow when shaping laws and regulations affecting the flow of information, whether on a national or on an international basis. IIA subscribes fully to these principles and commends them to the working group as it studies how government can contribute most effectively to development of the United States infrastructure. Since our counterpart associations throughout most of the world have also endorsed these principles, they provide a good foundation for approaching issues involved in the global information infrastructure. The principles speak to issues involving intellectual property, private/public partnerships, development of networks and privacy. The written statement I've provided addresses particular concerns of our industry about each of these areas and I'll take only a few moments today to outline the general focus of the principles. In general, we believe the main role of government should be to foster competition in all facets of the information marketplace. In regard to intellectual property, this goal can best be accomplished by maintaining strong protections for copyrighted materials in the national information infrastructure in concord with the recommendations recently put forward by the Information Infrastructures Task Force's Working Group on Intellectual Property Rights. The relationship between private industry and government in disseminating government information is a crucial one for consideration in designing the NII or the GII precisely because government is itself such a large supplier and user of information products and services. Government must be cautious not to exert undue control over its information, nor to displace private sector providers who bring benefit to society at large by offering a diversity of sources for government information. The question of developing transmission and distribution systems for information is another area in which the government and its citizens would be best served by increased competition. Government's should actively pursue policies that open up current monopoly networks to effective competition and acting in this arena, however, government should promote but not itself set standards that ensure service quality and availability. There should also be a clear distinction made between providing universal access to facilities and guaranteed access to information services. IIA has special concerns about the continued use of terms like digital libraries, a concept which we believe is not economically feasible and will not further develop innovation in either the NII or the GII. IIA has already filed detailed comments on privacy concerns and the private sector use of telecommunications-related personal information before this agency. The Association supports continued adherence to the norms established under the 1980 OECD guidelines. Privacy may be the most difficult policy concept to harmonize in the context of the GII, but IIA would encourage our government to strong uphold the longstanding U.S. approach to privacy. Among its strengths are respect for the First Amendment principles, a focus on restraining intrusive government activities, and a pragmatic sectoral approach that seeks to empower individuals to protect their own privacy rather than relying solely on government powers of regulation and enforcement. In relation to extending the benefits of the NII to a global infrastructure, IIA believes the U.S. government can be of great assistance in using its official contacts with other nations and regions to advance the sound policy principles established in our own country. These include all aspects of the development of an effective GII, providing continued strong protections for intellectual property, promoting availability and use of government information, fostering competition and provision of transmission and distribution networks and striking the delicate balance between privacy and the benefits of the free flow of information. The government should uphold such positions as part of trade negotiations, as well as making the development of an effective GII an agenda item in the activities and programs of international governmental organizations like United Nations and the Organization of American States. The U.S. can also achieve greater influence in helping other nations establish policies and practices competitive with the Administration's vision of NII through foreign assistance programs. Many nations without other resources will need help in developing their own information infrastructures and it would be appropriate for the United States to provide such assistance in some cases. Such proposals and their implementation will require careful monitoring, however. The establishment of a private sector advisory board to aid U.S. assistance agencies in making such determinations could be of great value both to our government and to those who would receive our aid. In conclusion, I would note that Americans enjoy variety and richness of information products and services that are the envy of the world. IIA will continue to work closely with government and the public to ensure that policies are developed that maintain our country's leadership role and competitive advantages in the global information marketplace. An active policy dialogue with the private sector, as exemplified by this very proceeding, is a crucial ingredient and maintains the generally favorable balance that has been struck between public and private sector interests and responsibilities. We would encourage this process to continue both on the national level and the international level. The full support of our government in various bilateral and multilateral fora will be a tremendous aid in realizing the development of an effective GII. Thank you. CHAIRPERSON DARR: Mr. Duncan, thank you. Mr. May? MR. MAY: Thank you, Madam Chair. My name is Randy May. I'm a partner in the Washington, D.C. office of Sutherland, Asbill & Brennan. I'm presenting this testimony on behalf of Capital Cities ABC, CBS, NBC and Turner Broadcasting System. As major users of international video, voice and data transmission services and facilities, the networks welcome this opportunity to submit their views on some of the international policy issues related to the development of the GII. The networks applaud the Administration's vision concerning the creation of a global information infrastructure as presented in Vice President Gore's March 1994 speech in Buenos Aires. The five principles enunciated by the Vice President has underlined the Administration's vision of the GII in general provide a sound framework for considering more specifically the development of GII policies. The networks use international telecommunications facilities in a variety of ways to achieve their missions. They use international satellite services to bring fast breaking news, sporting events and other programming from overseas back to the American public. Over the past decade, as U.S. viewers have come to expect up to the minute coverage of news events occurring across the globe, the demand for international satellite services to support such services has been growing very rapidly. The networks also increasingly use international services satellite facilities for the export overseas of U.S. news, sports and other programming. For their international video space segment requirements, the networks primarily reply upon the facilities of INTELSAT. They also utilize, but to a much lesser extent, the international video and audio transmission services of separate international satellite system providers, such as PanAmSat and, under certain circumstances, U.S. domestic satellite services for transporter transmissions. For technical, operational and economic reasons, the networks presently do not use underseas cables for video transmissions. To meet their earth station requirements for international video services, the networks generally utilize on the U.S. side the fixed up-link and down-link services provided by U.S. international common carriers or their own licensed earth station facilities. In many foreign countries, however, the networks do not have a choice of earth station facility providers and are required to utilize the facilities of the PTT administrations that not only are monopoly terrestrial carriers, but typically are the signatories and exclusive operating agents of INTELSAT and INMARSAT. In those few countries where PTTs have been privatized and/or the restrictions on the operation of non-PTT earth station facilities have been eased, the networks may be able to utilize the facilities of competitive earth station providers. In overseas locations where they are able to obtain the necessary regulatory authorizations, the networks also sometimes utilize their own transportable satellite news gathering facilities that cover events that require rapid and mobile response or that occur in locations where either fixed earth station facilities are unavailable or where it is economically infeasible to use such facilities. As technology has advanced and SNG units have become ever more compact, lightweight and cost effective, their use by broadcasters has permitted the coverage of news events occurring in remote locations that in the past could not have been covered because of the lack of availability of alternative facilities or would not have been covered because of prohibitive cost. Unlike international video services which are provided almost exclusively over satellite facilities, the international voice and data services utilized by the networks are provided over a combination of satellite and terrestrial facilities. In operating their program transmission networks, ABC, CBS, NBC and TBS rely on the availability of various types of international services and facilities. Therefore, the networks have a very real interest in the development of a global information infrastructure that allows all broadcasters throughout the world to cover news and other events and distribute their programming on a cost effective basis with a minimum of technical and regulatory constraints. The networks historically have been strong supporters of U.S. government efforts to encourage the entry of new competition in the international telecommunications marketplace to increase the availability of end user options, to promote cost- based pricing and to eliminate restrictions on the provision and use of international services. In those international service markets were effective competition does not yet exist, however, the networks have recommended the maintenance of regulatory scrutiny over the rates, terms and conditions of international services. Specifically, for example, until COMSAT's provision of international video transmission services become subject to effective competition, the networks continue to support application by the FCC of dominant carrier, cost of service regulation for COMSAT's international video services. Effective competition also does not yet exist in the international video services marketplace. Historically, most countries of the world have not separated the regulatory and service provider functions with regard to telecommunications, but rather have consolidated both functions in the government-controlled PTT, making it very difficult for effective competition to develop. The networks recommend that the U.S. government encourage the development in other countries of independent regulatory authorities that will play roles similar to that played by the FCC in this country as an integral component of the transition to an effectively competitive international environment. Without effective independent regulatory oversight from national administrations, the GII principles of encouraging private investment and promoting open access realistically cannot be implemented to bring effective competition in overseas markets. Thus, although the network support in principle, proposals for the ultimate privatization of INTELSAT and INMARSAT, they caution that privatization in and of itself will not benefit end users. Vice President Gore expressly recognized this reality when he stated in Argentina that, "Privatization is not enough, competition is needed as well." Even if the international satellite organizations were privatized tomorrow with the accompanying loss of treaty-based privileges and immunities and the like, INTELSAT would continue to possess dominant market power in international video and audio transmission services, and INMARSAT would continue to possess dominant market power in the marketplace for mobile satellite services. Thus, it is necessary for a substantial number of foreign administrations to effectuate separation between regulatory and service provider functions. Here in the United States, for example, upon privatization of the ISOs, international satellite organizations, it will be necessary for the FCC, through the Section 214 certification process and tariffing process to continue to exercise jurisdiction over international satellite organization transmissions originating or terminating in the United States, as well as maintaining regulatory oversight of COMSAT, which resells international satellite organization transmission capacity. The exercise of FCC jurisdiction over a privatized INTELSAT and INMARSAT is necessary because the FCC cannot evaluate whether the rates, terms and conditions of COMSAT's retail provision of international space segment meets the Communications Act standard to be just and reasonable without being able to examine the underlying wholesale cost of the privatized entity of which COMSAT is a shareholder. It will be necessary for other countries as well to exercise this same type of jurisdiction over a privatized international satellite organization. Moreover, in order to be beneficial to end users, the transition to international satellite organization, privatization must be accompanied by a substantial number of administrations in the world, changing their policies to allow access on an unbundled and competitive basis to international satellite organization's space segment. In many countries now, broadcasters are required to pay bundle charges to the ISO signatory for space segment and earth station services, even when the broadcaster is allowed to use a competitive earth station provider or its own equipment. Such a bundling requirement obviously has the effect of deterring the development of a competitive environment. In any event, with or without privatization of the ISOs, consistent with ITU regulations, the U.S. government should take all appropriate measures to promote the development of cost-based rates by foreign administrations for the end user video and audio transmission services provided to and from their jurisdiction. The rates currently charged to U.S. broadcasters by many foreign administrations for earth station and space segment access, are substantially above the costs that are charged by COMSAT in the U.S., and thereby add to the U.S. net telecommunications trade deficit and hinder the development of the GII. How much time does that mean I have? CHAIRPERSON DARR: None. MR. MAY: If I could just take a minute or so to wrap up. The next point that I wanted to make is a very important one. The Vice President also, of course, spoke about open access as one of the underlying principles of the GII. For broadcasters, open access has a very important significance, which transcends sort of unbundling the physical facilities. We think that one of the primary goals of GII should be to try and implement and open skies policy as part of the GII such as we had, of course, in this country with our domestic satellite policy. Then, more specifically, and this is a very important point for the broadcasters in terms of the GII. It's very important for the U.S. government to work to eliminate foreign ownership restrictions abroad that currently hinder the U.S. networks from using their satellite news gathering equipment in many countries. I think yesterday someone spoke here about the European Commission for Foreign Ownership proposal that relates to their mutual recognition of satellite licensing policy. In order to do that, increasingly broadcasters are hearing about our policy in this country under Section 310. We would urge and specifically with regard to satellite news gathering facilities, if we're unable to tackle it in a larger way, that specifically the Administration support as part of this GII program the proposal that's been in the FCC's legislative package for the last couple of years to amend Section 310 of the Communications Act, Section 310(a) of the Communications Act, to exclude the operation of satellite news gathering facilities. That's currently in the FCC's package and we think the Administration would support it. But in sum, and in general, the model that the FCC used in this country of open skies, which mean in effect multiple entry in terms of both space segment and in terms of ground segment, is a very good model to use abroad. We appreciate the opportunity to be here with you today and thanks for this opportunity. CHAIRPERSON DARR: Mr. May, thank you. Mr. Mondale, representing Iridium. MR. MONDALE: Thank you. It is a pleasure for me also to address this panel and we have a large number of detailed items we would love to go over. But I think instead we're going to try and stick to the mission here, which was to discuss the principles of GII. CHAIRPERSON DARR: Thank you. MR. MONDALE: As a consortium of global partners who have already pledged over a billion dollars to launch the concept of global voice and data services to hand held devices, we of course have a direct interest in this initiative and we are very encouraged to see the NII being recharacterized as the GII. But before you get to the five principles, you've got to analyze the slogan. GII stands for Global Information Initiative in our parlance, but I can tell you that some of our friends across the water are starting to go around the world speaking on behalf of developing countries saying that global information invasion is what it really stands for. They're talking about industrial invasion. They're talking about invasion of services. And they're talking about invasion of political influence. I think it's going to be important as we carry the GII message around that it not be perceived that way and that in fact we turn that kind of concept back on the people who are suggesting it, and we have at Iridium a couple of ideas on how to do that. We could start by taking apart the expression GII. Initiative it certainly is. The Congressional hearings that some of us were at this morning made it very clear that we have a very broad buy-in on this information initiative. We've heard from this panel today and yesterday about the various points of view there can be with regard to information, so we have a very broad concept that covers media, computers, telecommunications, a large number of information paths. What I think we don't pay enough attention to is perhaps global. What does global really mean? It's not a physical concept only. It's also a political concept and a regulatory concept, and I'd suggest that there are a couple things that global means that we need to take into account. Global means that you're in the one country, one vote environment. The ITU, the works, the plenipots work on a one country, one vote system. And that means the developing world has more than half the votes. Add them up, 54 countries in Africa, 21 in the Middle East. You've got a majority right there, and we've seen at Work '92 how that can influence policy in the rest of the world. I would say that when you're dealing in that one country, one vote environment, there are two things you've got to respect. One of them is national sovereignty. We're big respecters of our own sovereignty, but I think our GII had to respect every national sovereignty somehow. And then equity I think is the other aspect. People have to see what is in it for our country and for ourselves, and so as we go around the world trying to sell GII we'd better have answers to those questions. I think what's missing from the GII, at least as I've heard it, is really something to address this developing world concern. What I suggest is that what we need is a model for telecom's development. Going all the way back to the ITU's Maitland Commission report, we have tremendous statistics and anecdotes about the need for telecommunications and what it can do to economic development. I heard Irving this morning mention that half the world's population has never used a phone and is more than two hours or more from a telephone, but I think we need to sit back and recognize that that doesn't mean that half of the world's population is ready for fully interactive two-way virtual reality games. You know, I think that we've got to start somewhere and give them a model that makes a little bit of sense to someone who doesn't know what a telephone is and has no idea how it's going to help them. Same goes for television. Same goes for computers, et cetera. We find similar statistics there. Our interest, of course, is in the telecommunications area, so I would address that leg of the GII, if I might, in a little more detail. I think the question is, what could the model be. Again, you come back as a first rule, sovereignty, and I think there are a couple of guiding principles there that we'd better find ways of living with. The first is you have to obey national rules. That means if you need a license to operate you have to go get that license, and that applies to satellite news gathering as well as to a suitcase phone as well as to a hand-held phone. It's coming up a little bit in terrestrial, but satellites really illuminate this point and we at Iridium of course recognize the challenge we have in front of us of trying to get 200 plus national licenses around the world in the same band for the same type of service. The second point I mentioned earlier was equity, and frankly the best way we've found to address the equity question is to talk about revenue sharing, at least tackle it from an economic point of view to say that we're not just going to come in and provide services. We're going to share revenues and we're going to try and develop a local value added industry, whether it's a basic services provision industry or whether it is in fact a value added to the basic transmission means. But it's our feeling that if we don't have this kind of offer a lot of countries are going to back down. I would also mention in the context of the discussion regarding the international satellite organizations that that is one area, as kind of off- shoots of the United Nations, where they've had a huge advantage. In fact, private operators have to pick up part of that mantle of public service, universal service, if we're going to be sold by this kind of ITU culture that says telecom's development has to be conducted in the public interest. Another perhaps more important point as to what a model for telecom's development could be that could help us sell the GII is to start with a dial tone first. Again, I'm not in any way critical of broad band global systems, whether they're wire line, wireless, et cetera. I'm not critical of any band width approach from the commercial point of view. All I'm saying is that you're going to have to get these developing countries to understand what you're offering them and it's very hard to skip too many generations. It took America, you know, 80 years to get to where the telephone became ubiquitous and necessary and no longer a rich man's toy. Cellular, that process, has happened much more quickly, and surely the developing world is going to skip some of that step, but it's not going to skip all of it. I would still suggest that one thing we really should do is consider a very simple explanation of how you're going to start joining the information infrastructure. And my suggestion is dial tone, because dial tone includes what we consider the basic personal communications services: voice, first of all, which still predominates; data, at least to the extent it's needed for fax and for personal computer communications. I think those things can have a real impact and immediate interest to large numbers of people. If we can make that dial tone available on a somewhat universal basis, I think then we're in a good position to recruit support at the Plenipotentiary Conference at the Works '95, et cetera, for this overall initiative of GII, which I think has caught the imagination of a lot of people. They do appreciate the initiative, but our message here is that we think we have to back off of that, simplify the message going into these two conferences. Let's not forget the Plenipot is a very important conference from a lot of points of view and that it will determine the role of the ITU, if you will, in regulating the global environment, which of course is central to the concept of a global information initiative. So, again, our message is we think that in order to garner the support that's needed to have a truly global information initiative we're going to have to back it down and come up with a telecommunications model that appeals to the majority of the countries around the world because that's the way the system works, one country, one vote. Thank you very much. CHAIRPERSON DARR: Mr. Mondale, thank you very much. Mr. Russell Daggatt from Teledesic. MR. DAGGATT: Thank you. On behalf of Teledesic, we appreciate this opportunity to contribute our views in this forum. I should begin by stating emphatically that we endorse the Clinton Administration's Global Information Infrastructure Initiative and the five principles around which it seeks to focus that effort. The Administration has identified universal service as the most important of these principles and it's on that that we'd like to elaborate. Most of the people on this plane do not have access even to the most basic voice service. To cite a few examples, in India, with a population of 860 million people, there are about six million telephone lines, virtually all in a few large cities. More than 80 percent of the villages in Africa have no telephones. This problem is even more acute with respect to advanced information services. In this country the universal service principle that underlies telecommunications policy is one of the great success stories of modern government. Over 94 percent of U.S. households have access to basic voice service, one of the highest percentages in the world and extraordinary for a territory as vast and diverse as the United States. But, as access to more advanced information services becomes increasingly essential to economic development and social welfare, there's a danger that the gap will increase between those who have affordable access to such services and those who do not. Perhaps the central telecommunications policy dilemma is how to reconcile the twin objectives of, on the one hand, expanding the scope of universal service, and, on the other hand, placing greater reliance on competitive market forces. In the wire line model, you cannot do it affordably in the absence of some form of subsidy scheme. The longer the local loop and the fewer people it serves, the higher the cost of access. In this model, the cost of access for remote rural subscribers can run ten, 20, even 30 times or more what it costs to serve the average urban subscriber. This apparent conflict between deregulation and universal service underlies the challenge we set for ourselves at Teledesic. The company was formed over four years ago with the objective of providing a means of affordable access to the widest possible range of information services to rural and remote parts of the U.S. and the world that would not be economic to serve through traditional wire line means. We seek to do this in a manner that's economic in its own right and at costs comparable to current urban wire line prices. That's a tall order and the means we've proposed are ambitious, a global constellation of 840 satellites in low earth orbit, but that same kind of ambition is reflected in the inclusion of the universal service principle and the agenda for the global information infrastructure. Whether it's a legal mandate or simply a social aspiration, the scope and importance of the universal service principle will increase as information becomes increasingly essential to all those things we associate with quality of life, including education, health care, economic development and public services. Satellites have a unique role to play in expanding universal service. Satellites can cover vast areas and provide service at a cost that's indifferent to location. Satellite terminals can be deployed much more quickly and flexibly than cables may be laid. Moreover, because satellite network assets are not rigidly and exclusively dedicated to particular users, utilization rates can be optimized over many users all sharing the same satellite resources. The comparative advantages of satellites generally increase with the distances between users and the variability of the traffic. Satellites have the additional advantage of being invulnerable to surface calamities such as earthquakes, floods, fires, and hurricanes that cripple terrestrial communications systems. Of course, there's great diversity even among satellite services and systems. Motorola deserves considerable credit for familiarizing many people with the concept of a large low-earth orbit satellite system with its pioneering Iridium project. Others since have proposed similar mobile voice services based on LEO systems. Teledesic has taken a different approach focusing on broad band services using a higher part of the radio frequency spectrum but also employing a low- earth orbit satellite system. For certain applications these LEO systems have some inherent advantages, including low transmission delay and the ability to use smaller terminals and antennas requiring less transmission power. With this approach, Teledesic seeks to provide global access to low cost band width on demand that can accommodate a wide range of services from basic voice channels to high rate data transmission and interactive multi- media applications. LEO systems with satellites moving in relation to the earth are inherently global in their coverage patterns. While these systems offer great promise for the future of commercial satellite communications, they require a global coordination spectrum. If satellite spectrum is allocated randomly from country to country, no LEO system could operate. As the leader in developing these innovative global satellite systems and the source of most of the technology underlying them, the U.S. should take a leadership role in the spectrum coordination process. Certainly the United States should take care not to unilaterally authorize incompatible terrestrial services in the bands internationally allocated for satellite use. To do so would cripple the development of the U.S. commercial satellite industry. We would also be setting a bad precedent for other countries who might be inclined to ignore international spectrum coordination efforts in favor of more parochial domestic interests. It's not a foregone conclusion that the U.S. will remain in the lead in these advanced technologies which have important commercial and defense applications. In fact, as a recent study undertaken by NASA and the National Science Foundation documented, we're being challenged or surpassed in many of them. With the end of the cold war and ensuing cut-backs in government aerospace programs, a robust commercial satellite industry is essential to continuing U.S. leadership in these advanced technologies. While we're on the subject of policy recommendations, we'd like to offer one more. We must adopt more dynamic regulatory structures that are more compatible with the pace of technological advance. The U.S. leads the world in information technologies in general and satellite technologies in particular, but that lead will be meaningless if it takes years for the licensing of a satellite system. In today's world, any competitive advantage is tentative and short-lived. If we're slow, we'll lose, and potential users in the U.S. and throughout the world will lose if the benefits of these systems are delayed or lost altogether. Of course, the value of systems like Teledesic ultimately is measured by their ability to enhance the quality and meaning of our lives. The benefits to be derived from the advanced information services they enable are as vast as the areas of need to which they can extend. With universal access to interactive broad band capabilities, information can flow freely between people creating wider communities of interest and support. In the field of health care where remote access to x-rays or other diagnostic images is required, broad band capability can literally be a matter of life and death. For example, transmission of an x-ray image over an ordinary 9.6 kilobit per second phone line would take more than 20 minutes while the same image can be transmitted over T1 channel of the kind that Teledesic could accommodate in less than eight seconds. Band width also determines the video quality that can be supported by a communications channel. Many medical specialists will not perform critical care diagnosis unless the video signal is at least of the VCR quality that can be supported by a T1 channel. In the area of education, the Administration has adopted as a goal the interconnection of all classrooms to the National Information Infrastructure. Yet, as Chairman Hunt has observed, only one-eighth of all classrooms currently have telephone lines in this country. Many of those classrooms are a long way from the nearest trunk line and the cost of providing them wire line access would be astronomical. The interactive broad band capabilities of the Teledesic network coupled with its wireless access technology hold the promise of delivering distance learning services to the most remote parts of the United States and the world, thereby offering meaningful educational opportunities to people who would otherwise be cutoff either economically or geographically from traditional centers of learning. Advanced technologies have revolutionized the way people exchange and process information in urban areas of the United States and other developed countries, but there is a broader unmet need. Today the cost to bring modern communications to poor and remote areas is so high that many of the world's citizens cannot participate in the global community. Yet the benefits of the information revolution should be extended to all people, including those who do not reside in or near centers of commerce or industry who do not have ready access to doctors, hospitals, schools or libraries, and who are at risk of being left behind. Compared to the magnitude of the need, the role that any one company can play in the solution is infinitesimal, but Teledesic is committed to doing its part and hopes to address some of the most difficult and problematic areas of need. The Administration deserves praise and enthusiastic support in it's global information infrastructure. The goals are ambitious, but we will all benefit when they are achieved. Thank you. CHAIRPERSON DARR: Mr. Daggatt, thank you. Mr. Levin from the American Mobile Satellite Corporation. MR. LEVIN: Good afternoon. My name is Lon Levin and I am Vice President and Regulatory Counsel, American Mobile Satellite Corporation. AMSC is the FCC licensee to provide domestic mobile satellite service throughout the United States. Next year AMSC will launch and operate the most powerful commercial mobil satellite system ever built. AMSC will provide wireless telephony and data services to the entire United States. For the first time, many rural and remote areas not now covered by terrestrial facilities will have the benefits of mobile services. Additionally, AMSC will make available for the first time nationwide dispatch for point to point mobile services. Thank you for this opportunity to provide AMSC's views on the U.S. global information infrastructure initiative. My comments will be brief, focusing on the immediate opportunity for the United States to promote its interests at the upcoming International Telecommunication Union Plenipotentiary Conference to be held this fall in Kyoto, Japan. In reaction to U.S. global initiatives, including U.S. low earth orbit or LEO mobile satellite system proposals, some countries are proposing the creation of a separate policy forum within the ITU to develop guidelines to deal with emerging global telecommunications efforts, including the GII as well. Other countries are promoting aggressive strategic planning within the ITU which could in turn result in greater centralized global telecommunications planing and standards setting. Now, these proposals must be studied carefully. They should be opposed, however, if they lead to greater international regulation, particularly by the ITU. This does not mean, however, that these issues should not be debated at the ITU. The ITU is a natural forum for the discussion of new global telecommunications ideas. The U.S. policy position should be that whatever the outcome of the international debate the sovereignty of each nation to develop telecommunications policies should be respected. Each nation should be encouraged to develop it's version of a national information infrastructure according to its own vision and its own regulatory regime. Differences in policy and implementation can be worked out through bilateral or, as appropriate, multi-lateral efforts. One particular outcome to be avoided is global standardization. Traditionally the U.S. government has avoided setting a single domestic technical standard, instead relying on the marketplace to develop an industry standard or to form multiple standards. Currently the ITU uses the concept of recommendations to reach a political consensus on one or more global "standards" without mandating the adoption of a particular standard or standards. We believe this practice should continue. Additionally, there is no need to establish new ITU organizational structures to deal with these new global issues. The ITU's current structure which was recently modified in December of '92 has ample forums, whether it be world radio communications, study groups, or other existing forums to deal with these matters efficiently and effectively. Any new structure will reduce the effectiveness of these existing established forums and unnecessarily increase costs at the ITU, the later being a result that's contrary to the U.S. goal of zero real growth in the budgets of international organizations. A final specific immediate action at the '94 Plenipot is for the U.S. to assure that the ITU officials elected at the upcoming Plenipot share the U.S. interest and vision of the global information infrastructure. The five top posts up for election are secretary general, deputy secretary general, and the directors of the three operating sectors, radio communications, standardization, and development. Of course, we should be promoting as best we can the election of Hal Kimbell, the U.S. nominee for Director of Radio Communications Sector, as well as others that we believe will be responsive to U.S. initiatives. Their leadership will be critical as the GII develops. Thank you for your attention. CHAIRPERSON DARR: Mr. Levin, thank you. Mr. Lytel, do you have questions? MR. LYTEL: I do have a question. I wanted to agree with Mr. Mondale that foreign governments must see equity. They cannot see the Global Information Infrastructure Initiative simply as a new way of casting an attack on their domestic PTTs which I don't need to remind you are among the most powerful organizations in each nation, many times the largest employer and the largest domestic investor. It's for that reason that we have in the proposal that the President had accepted at the G-7 meeting, put on the agenda for GII discussions, the idea of a global digital library initiative on the idea that the British through the British Museum and the French Bibliotheque Nationale and other nations would see something that they could contribute as well as receive. So my question is really to Mr. Duncan. What's not to like about a national digital library initiative? MR. DUNCAN: Well, I don't think that per se the Information Industry Association would say that it's improper for government libraries to provide certain kinds of information on a wide open basis, but I think it's also important to remember that those libraries contain a great deal of copyrighted material that that copyrighted material has been developed as a result of a great deal of investment and time and effort on the part of the providers and there are laws certainly within this nation that allow for and encourage those people to continue producing because they can get a return on that investment. I think the concern that the Association has and that it's expressed many times in discussions on the NII and the GII is that to make such information available wholesale and free to large populations without consideration of how to reimburse the people who own that property will in essence destroy the basis of the information you are trying to get across for a national information or global information infrastructure. CHAIRPERSON DARR: Can I follow up on that? Do you see any way to accommodate their interest and have any kind of widely available information? How would you do it? MR. DUNCAN: I am not a copyright expert, so let me put that caveat out first, but I can say that many of our members certainly see the libraries as some of their best customers. Many of our members are traditional publishing companies who have gotten into electronic or on-line information of some nature. They are very used to dealing with libraries. They're used to dealing with licensing agreements, contract agreements. Most libraries, I would say, are used to dealing with publishers and providers in this nature. I don't believe that our industry is taking or wants to be viewed as taking an attitude that we are not going to make our information available. Our information is available. It works well. We have a very well developed on-line information system in this country. Many of our companies provide digital library services themselves, companies like Dialogue for example. I think that we are willing to and continue to work with those customers even in the library community who are trying to seek more and better information sources for their customers and thus far have done so very successfully. MR. SUGRUE: Could I follow up on that? I mean, is the basic problem, then, that the enhanced access provided potentially through an information infrastructure and a digital library could essentially eviscerate the worth of the copyrighted material? MR. DUNCAN: Yes, especially in a digital environment. Many of our companies have already encountered cases in which they have lost control of the information once it's sent out on an electronic network, especially a network like the Internet for example. If they cannot control how that information is used and redistributed, that's a problem from their perspective in maintaining quality and ensuring the timeliness of the information. They also cannot guarantee a further recipient on down the line that the information that that person received is accurate. That is a big part of what stands behind the good name of many of our firms in our association. MR. SUGRUE: Do you have any specific suggestions? For example, if I -- now a library system wants to buy a book, each library buys the book or whatever, how many are going to have it. One of the economies or efficiencies presumably from this type of a digital library might be that there'd be less direct sales like that and more people could tap into -- receive access to that book. Are there any specific -- and I take it the problem would be there'd be fewer sales or sales may not be the relevant concept. Are there specific proposals for compensating the copyright owner? MR. DUNCAN: Well, many of our companies and the Association itself have been working on some proposals. I think we see many of these things are going to be resolved through technology itself. There are tracking mechanisms, metering mechanisms, ways of allowing for further distribution under specific contract terms within a limited digital environment which are already out in the marketplace and being tested. I think this is an area in which we would again emphasize the need for the free market to allow to work. Customers will let us know if they feel that they are not getting the information they need at the cost they wanted in the manner that they wanted, and the simply way of letting us know is that they don't buy it anymore. So if we are not successful in delivering our product on to the consumers and the businesses that use them, they will let us know immediately that we have to redesign them in a way that is most effective for them to use. CHAIRPERSON DARR: Diane, did you have some questions? MS. CORNELL: Yes, actually, I would like to ask, since we have an interesting group here, we have a couple of -- I guess you could call yourselves users collectively, even though you also have some enhanced service providers and satellite providers. I guess I'd like to ask Don Abelson's question from yesterday. What do you folks think is the best way to encourage competition and encourage other countries to introduce competition into their markets? Do we take a reciprocity-like approach or do we just sort of the proverbial lead by example with appropriate safeguards, making sure that market power is not inappropriate? What do you folks -- I mean, all of you are trying to get access to other markets and I know I've had discussions with several of you on this issue off-line, so to speak, but I'd be curious to get your views on this issue. MR. MAY: I'll start and maybe I can even, if I reserve the right to come back if someone says anything that I want to follow up on. We always have led by example and I think that that's important on the reciprocity issue that I mentioned in my statement, specifically with regard to Section 310, for example. You and I, I think, have talked about this off-line, but that's a good example of where in other countries they, I think, with some merit-- you know, we always have got to be careful and not assume because we are generally the leaders in having developed competitive environments and market places that that is uniformly true and that there aren't some further things we can do. That's a place that's an example where countries I think correctly can point to us and say that you should do something further and I think we should in that regard. I think from a user's point of view, because a lot of times on these types of panels -- and I really do commend you for throughout this hearing actually having the user viewpoint so adequately represented, and I mean that. That's very helpful. A lot of times the users are not represented and this point I think gets lost a lot from our point of view. We've got to be careful not to equate competition and having a competitive marketplace with the existence of one other provider in the marketplace or maybe two other providers. And that happens a lot domestically and internationally and that's why from the network's point of view I pointed out that having a PanAmSat in the market that someone can point to and say there's another provider, and we're happy to -- we actively supported the development of the International Satellite Policy and are happy PanAmSat is there, but that's not really a competitive marketplace. So the other side of your question, until we get to a competitive environment, is that it's important really not to equate another entrant with competition or privatization with competition as well. MS. DI TOSTO: The U.S. Council does support the Administration's adoption of the two- pronged approach to liberalization of basic services and network infrastructure: first being the multi- lateral negotiations under the auspices of the GATT to open foreign basic services markets, and the second prong being the bilateral agreements which I think the Administration is gearing up to proceed. We don't -- the Council does not support mirror image reciprocity as a way to open up foreign markets. Beggar thy neighbor policies will only build higher walls and not break down the barriers to trying to get companies into foreign markets to provide the services that their users and the customers are really demanding nowadays. Education -- so, leading by example is certainly a good approach and so is education. The International Chamber of Commerce a few years ago, which represents business views in over 110 countries, came out with a position paper entitled "Towards Greater Competition in Basic Services and Network Infrastructure." This paper led or sparked a debate at the OECD, the Organization for Economic Cooperation and Development on infrastructure competition, and recently, as this Board knows very well, the OECD adopted a statement on the benefits of infrastructure competition. And that statement is extremely important because the OECD is comprised of 25 governments, so it was sort of a ringing endorsement for infrastructure competition for basic services competition that each government, including the telecom ministers in those PTTs, adopted. It's been a slow process to get the governments to come on board for competition in sort of the last area of telecommunications, but now that we have those governments endorsing this approach the time now is ripe to go out and pursue, as you are doing so well, the bi-lateral and the multi-lateral agreements and negotiations. MR. MONDALE: I'd like to say that the example has got to be where you start, because that's where you get the proof that you can use with other administrations that they should do it. I think there are a couple things that we run into as we go around the world trying to espouse the American competitive example and I would cite particularly this question of foreign ownership, and that's becoming -- I think has the potential of becoming an Airbus level trade issue between the United States and Europe. I think they treat it as an extremely unfair and one-sided area, particularly when that concept was perpetuated in a recent reclassification or creation of this kind of public mobile service provider. That's really got the Europeans upset, no question about it, so it makes it very hard for us to try and sell the example abroad when they've got something, basically a sore thumb issue that they think is a really bad example, so that's a problem we have. We would like to see the example set for licensing of service such as our own, and then we would accept the responsibility of selling that case on a national level as we go around the world. We think that in every case that we've encountered so far we can make a case that competition will lead to more revenue for national governments, better service for national populations, possibly in many cases even more traffic for the PTT. You can make a pretty good case with these new services in just about every national level. That's what's ultimately going to break the door down. I don't think that the U.S. needs to espouse a policy of reciprocity, but I think it needs to be ready to use that club in cases where you've got, say, a private entity that might be willing to take on the PTT in a particular country. The PTT enjoys, perhaps, competitive rights here in the United States. I think there will be cases when it will be appropriate to invoke reciprocity, particularly in this area of global operators who can play games with PTT relationships on the one hand and put a different face forward here in the United States. MR. SUGRUE: Mr. Mondale, you're endorsing reciprocity as both a carrot and a stick? MR. MONDALE: I think that the carrot has to be principally the example and then I think the government also is not necessarily the best advocate of a competitive marketplace, that perhaps the private sector is the one that has to go make the case. The competition is going to be good in the various national markets around the world and we have that responsibility, but then I think in some cases we're going to find that all the elements of introduction of competition are there and are being stymied in a way that only reciprocity can resolve. That is, after all, the only tool just about that the U.S. has come up with that works without really violating national sovereignty. All you're doing is exercising American sovereignty in an effort to urge them to effect their own policies. MR. SUGRUE: But, specifically, does Motorola support the FCC's use of 310(b) to permit foreign owned companies into the U.S. market in radio services on a reciprocal basis? MR. MONDALE: Well, I don't speak for Motorola. I speak for Iridium Incorporated. MR. SUGRUE: Excuse me, Iridium. MR. MONDALE: But, I'd have to say yes, we do, because otherwise we're going to encounter that exact same problem and we already are in Europe, European legislation that's being proposed, and that can just have a disastrous kind of waterfall effect. MS. CORNELL: I'm not so sure I'd necessarily agree with Tom's characterization of what the FCC has done, but -- MR. SUGRUE: Well, not what the FCC has done. I thought if the FCC were to do that -- MS. CORNELL: Yes. Certainly, yes. Okay. I'll take that. Did you have another question? MR. SUGRUE: I do. MS. CORNELL: Go ahead, Tom. MR. SUGRUE: I just wanted to ask a question on universal service. It seemed to be a theme in a number of remarks. Often when people talk about universal service, they sort of treat it as a motherhood issue and no one criticizes it. I heard a few negative things along the way here, so I'd like to explore that a little bit. Nanette, you start off by saying, "limit it to two-way voice," for example. That sounds a little bit, you know, like a wet blanket for a national information infrastructure with all the possibilities out there. Why should we start off -- I mean, we have it for two-way voice, at least in this country. Are your remarks limited to the international arena, or are they meant to apply to domestic policy as well? MS. DI TOSTO: Well, they certainly applied to domestic policy and we do support that as an international policy as well. We do believe that there are some serious considerations and some principles regarding universal service and universal access that must be addressed before expanding the concept that we have today. MR. SUGRUE: And your concerns about expanding the concept are based on what, cost? MS. DI TOSTO: Yes, based on cost. There's a great deal of merit in that. The longer the loop, or the wider the loop and the fewer people there are to service that or to pay for it, the more you see your revenues going down the drain. At first, we do believe that competition in the marketplace should be relied on for providing universal service and universal access. And to the extent that subsidies are needed as sort of a margin or at the fringes, they have to be specific and targeted. MR. SUGRUE: Mr. Mondale and Mr. Daggatt -- I don't know whether there was a little debate going on. I seemed to pick out different themes. Mr. Mondale, you were saying let's define it as dial tone, voice dial tone types of services. Mr. Daggatt seemed to be suggesting that without some form of broadband interconnectivity, you've missed the boat a lot and it's available with today's technology. Not to sort of caricature your statements, but certainly, we don't say, "well, the developing countries should start with telegraph because we did and therefore, we'll have to build out a national telegraph system. Then we'll go to an analog voice system, and then maybe we'll consider digital." I suspect if you're putting a new switch even int he least developed country, you put in a digital switch right now. I'm not sure major manufacturers even make large analog switches anymore. So, I don't know if there's a way to harmonize those two statements, or whether you've just got different business plans and that reflects what you're saying. But if you both could address that? MR. DAGGATT: Well, I believe that universal service should be an aspiration and we should not abandon it as an aspiration. In fact, it should be expanded to include the full range of advanced information services. Those information services, the broadband applications, are going to become increasingly essential to education, health care, economic development, public services. If we exclude those broadband applications from the scope of our universal service aspirations, we really are condemning most of the world and large parts of this country, to falling further and further behind. So, I think it should remain an aspiration. How you achieve it is ultimately a matter of economics. To be accessible, the cost has to be affordable. That's why we focused on developing a means of driving the cost down in a manner that's indifferent to location. That lead us ultimately to a large satellite base solution. I think the U.S. can play a role in encouraging a dynamic competitive environment because that will drive the cost down and lead to more creative solutions. The approach Teledesic has taken, we believe, helps address sort of the chicken and egg problem of economic development. Increasingly, you can not have any kind of really advanced dynamic economic activity taking place without access to broadband capabilities. And yet, people will not build in a terrestrial infrastructure to accommodate those in the absence of manifestation of existing demand. The advantage of a satellite base solution is it is inherently ubiquitous and therefore, the capability exists over all areas, whether you want it to or not. And it can address a lot of other issues which I won't get into, but social issues. How do you keep them down on the farm? It allows rural areas to diversify their economies away from agriculture and to have access to not only the essential things like health care and education, but even the things that are also sort of essential to the soul, the cultural amenities as well. In a lot of areas, the broadband applications may not be intended really for individual use as much as they are for institutional use: for hospitals, schools, libraries, government offices, and businesses and the like. But clearly, if the more remote areas, if the rural areas, including most of the developing world -- if you're not going to condemn them to falling further and further behind, then I think it should remain an aspiration and the Administration deserves praise for putting that foremost. MR. MONDALE: If I may, I'd address your question head-on. I don't think there's a difference in our approach here. I thought I went out of my way that I wasn't critical of broadband approaches. What I'm concerned about is how you can sell this to the developing world. And again, it's kind of a crawl before you can walk situation. I agree, of course, that telex and telegraph are probably not appropriate technology. And you probably know that appropriate technology is a very big, important catch word in the development community around the world. So, I would maintain -- and I think this is borne out by the data -- that voice is perhaps the building block of telecommunications and the place to start. It accommodates all forms of verbal communication. It doesn't matter what language people speak and I think you've got to start there. But my point was really directed toward how can you market the GII to the developing world? I'm concerned that X.25 networks and broadband go over the head of a lot of these countries, frankly. I'm not accusing them of being unsophisticated or intelligent. Many, many of them are. But you've got to recognize that the politics back home are still very basic, and so you've got to have a very basic type of approach to it. So, I would still maintain that we need a model that we can show to the majority of countries of the world that shows us enhancing their capability to have voice communications nationally. MR. SUGRUE: Well, I agree that we have to have a goal in the model that the rest of the world, and the developing world can buy into. It's just a matter of defining that. I think part of the tradeoff is if -- describe it sort of two-way voice service, there's the concern that you're relegating them to the past. Meanwhile, you know, the U.S. will sort of surge past that -- all the developing world surges past that -- and you're pushing us off on the older technology. I know it's a balance. But just as you say you hear some of the things you're describing, I hear the other side of the coin sometimes. MR. MONDALE: Sure. I would just counter that by saying that, you know, this telecom development issue is not a new one. And in 20 years, if the pace of technical development were what we thought it was 20 years ago in this country, it would already have phones for half the population of the world. The fact is, they still don't. So, we still ought to address that underlying issue before we move on to the more sophisticated one. MR. SUGRUE: And one final point. I hadn't heard the GII described as an invasion and I have heard Iridium described as invasive. I guess we're in the same boat now on some of that. CHAIRPERSON DARR: Diane, if I could just make one? I'm mindful of the time, so I'll just make one very quick comment just to pick up on Mr. Mondale's marketing point, so-to-speak, and also a point that Mr. May made earlier. From what we've seen -- and I expect you folks have seen the same thing -- one of the most important things that we can do is to educate the users in other countries. You know, your customers and your counterparts, essentially, as to the benefits that they can get from an introduction of competition, lower rates, et cetera. We have been hearing this from regulators in other countries, that users are beginning to talk to them and talk to the telephone companies. That's having much more of an impact than anything any of us can do for the immediate future. I would very much urge all of you to give some thought as to what we can do to sort of mobilize, particularly the sophisticated users. Obviously, that's going to be the first step. But to mobilize the user communities in other countries and give them a better appreciation of what they're missing, so-to- speak. So, I think that's going to be one of the most important things we can do to really put pressure on governments and on the PTTs abroad. MR. DAGGATT: I would agree. I mean, ideas have a lot of force in the Administration's Global Information Infrastructure policies, an excellent example of our ability to set the agenda. Merely framing the issues goes a long way toward shaping the outcome. CHAIRPERSON DARR: Mr. Daggatt, thank you. Why don't we take about a 15 minute break and then we'll be back for the final panel on where do we go from here? Thank you. (Whereupon, off the record at 2:46 p.m., until 3:12 p.m.) CHAIRPERSON DARR: We have our final panel here on where do we go from here? It is thought to be one of the most interesting discussions and presentations we've had so far. I'd like to introduce the hearing panel again. Tom Sugrue on my far left. The Deputy Assistant Secretary of Commerce for NTIA, Bill Clements on detail to the White House, the Office of Science and Technology Policy; and Diane Cornell, Chief of the International Policy Division of the Common Carrier VERO of the Federal Communications Commission. My name is Carol Darr. Before we start, I'd like to take a minute to thank some of the people who have put this hearing together. Hearings like this, particularly when they're done well, look easy, look simple and very much hide the enormous number of hours that go in to providing the packets, to getting the room, to organizing the phone calls. I'd like to publicly thank some of the people who have worked on this. I'd like to thank the NTIA interns: Jack Suffi, Paul Deesa, Noai Jerraro, Derek Claufin, and Sean Kennedy. I'd very much like to thank Larry Irving and his staff: Greg Francis, and particularly RoAnn Robinson who has done a wonderful job helping us organize this. My staff: Nicole Brown and Angie Mitchell. I'd like to thank Meagan Griffins, Michelle Farquier, Suzanne Settle, Jim Wasalouski, Larry Williams, Paige Darden. I'd particularly like to thank Randall Cooke who is behind me, who has quarterbacked this entire effort. I know a lot of you all have spoken with him and I'd very much like your applause for Randall. He's done a wonderful job. Thank you. Let's start with the first panel. As the panel is introduced, if you'd stand up so that the audience can see you? Thomas Tauke from NYNEX, Jeffrey Winston from the Unocal Corporation, Claiborne Johnson, Jr., from EDS, Richard Hayden from the American National Standards Institute, Woody Kerkeslanger from AT&T, and Mike Roberts from Educom. They will be speaking to the issue of where do we go from here? First, Mr. Tauke? MR. TAUKE: Thank you very much. Although our distinguished chairperson alluded to the fact that there has been a lot of duplication of messages today, and that if she had any advice for me it was that I shouldn't say "if they build it," or "if they build it, they will come," I am compelled to note that I was born just a few miles from the field of dreams in Dyersville, Iowa. And so, as a result, it seems like an appropriate thing for me to say. However, I believe that it is a bit simplistic to suggest that if we build it, they will come. The fact of life is that as we look to the future of the Global Information Infrastructure, we don't know what it will look like. We don't know precisely what it is the consumers want. And certainly, we aren't sure precisely what the role of either NYNEX or the government ought to be in the development of the Global Information Infrastructure. I guess the point is, we're all feeling our way a little bit. Nevertheless, despite the fact that we are feeling our way, we believe that there are some fairly clear objectives that we should have as a company and some fairly clear goals and activities which the government should embrace. First, let me observe that NYNEX applauds the Administration's Global Information Infrastructure initiative. We have learned from our experience in the international marketplace how important sound U.S. policy is in promoting the goals of the GII. In our judgment, Vice President Gore captured the core issue of GII policy debate. That is that sensible regulation is key, that sound policy is based on private investment, competition, and flexible regulation. Recent developments in the International Telecommunications marketplace merit the review of U.S. policymakers. All the mergers, alliances, the market liberalization, globalization -- these things have profound implications for us domestically, but they also have great implications for our activities around the world. In our view, what happens in the NII has a major impact on what we are able to do and what will happen in the GII. NYNEX supports a collaborative effort among the nations. This can not be an American- dominated effort. We think America has a leading role to play, but we have to have a collaborative effort among the nations. We have certainly learned that in our own experiences. We applaud the Administration's effort to initiate international dialogues such as the upcoming Telecommunications Summit. What is it that the U.S. government can do to promote the GII in the future? First, the government, in our view, ought to promote international trade in services. Being blunt, the U.S. economy is now 73 percent services based. But we wouldn't know that, in our judgment, from the way in which the United States trade negotiators approach the international marketplace. Trade in telecommunication services creates jobs for U.S. workers who support international operations of U.S. companies. From a macroeconomic perspective, the establishment of the GII will spur overall global trade and a better climate for U.S. job creation across all sectors of the economy. We believe that U.S. trade negotiators who have had, frankly, more experience in trade matters relating to manufacturing and goods and things you can put your hands around, need to become more familiar with and aggressive when it comes to promoting trade in services, in dealing with the issues that are involved in trade in the service economy. I might observe that while it's a little tougher to point to the exact number of jobs created from the improvement of trade and services, that nevertheless, there are huge numbers of jobs created and huge benefits that flow to the U.S. economy. We all have to figure out a better way to get a handle on that and to get the focus on that aspect of trade because so much of our economy is based on it. The second observation we have is that the U.S. government can promote the GII by improving the regulatory environment at home and working for reasonable regulatory structures abroad. I can comment further on that in questions, or you can look at my written testimony. Third, we believe that the U.S. government can promote the GII by encouraging appropriate international standards. Probably not by trying to have government set those standards, but by ensuring that there are appropriate consultations among industry groups and governments in order to establish standards where they will foster economic growth and the development of the GII. Again, I refer you to my written testimony. The last point, and the one I want to dwell on a little bit is that we believe that the U.S. government can promote the GII by acknowledging that commercial interests will drive deployment by recognizing that private investment is key and by facilitating that private investment. NYNEX's international ventures I think highlight the fact that private investment is key and perhaps can give some clues as to how that investment can be leveraged and encouraged. We have used a lot of our own capital to help build the GII. But we also have brought other capital into it from players who are not necessarily otherwise involved in the communications arena. Our international activities have taken on many different forms: strategic alliances, build, operate and transfer kinds of agreements, and dual servicing provisioning. Let me touch on a few of these projects in order to demonstrate the way in which we have leveraged capital. First, Fiber-optic Link Around the Globe, or FLAG. FLAG will be the world's longest undersea cable, 30,000 kilometers. It will connect Europe, the Middle East and the Far East. The construction of it will be completed in 1996. It will be a GII backbone, where it will offer competitive transmission, foster efficiency, and give greater consumer choice to people around the world. NYNEX Network Systems is the managing sponsor of FLAG. We are the ones, if you will, who have the expertise in the communications business. We have partners who are equity partners in this enterprise: Dala al Baraqa group which is in Saudi Arabia, Gulf Associates from New York, and the Marobini Corporation from Japan. They are players who have taken a major interest in this, but they are not engaged so much in the operational side, if you will, of FLAG. We believe that this kind of partnership which brings others into the efforts to raise the capital to support the necessary investment in the GII is important. TelecomAsia in Thailand, our effort there is another one that we believe illustrates the way in which private capital can be brought to bear on GII projects. In 1992, NYNEX formed a partnership with a Thai company, TelecomAsia, to construct a two million line network in the greater Bangkok metropolitan area. That's the equivalent, for example, of the telephone system in the state of Louisiana. TelecomAsia has secured a cable franchise which will now serve as an outlet for American programming through that infrastructure. In TelecomAsia, we have an 18.7 percent equity interest. Again, we are the managing partner. TelecomAsia has become the largest capitalized company in the Thai stock exchange, so it's become quite popular. Our structure in this case is a build-transfer-and operate scheme. NYNEX, TelecomAsia builds the two million line network by 1997. Once the network is built, ownership is transferred to the telephone organization of Thailand. TelecomAsia then, i.e. NYNEX, operates the network for a period of 25 years and retains 84 percent of the revenues generated from the network. This is a method which makes, frankly, the country in which the infrastructure is being built reasonably comfortable. It allows the American company to have an equity interest and return value to share owners. And it allows us, if you will, to share our expertise with the rest of the world, which we believe has long- term implications for our economy. We have engaged in other projects. For example, NYNEX CableComms in the United Kingdom where the favorable regulatory climate, frankly, encouraged the very liberal investments on the part of NYNEX and many other international players. While we have talked about wire line services, obviously wireless services, various information services are also part of the Global Information Infrastructure. On an international basis, we have those things too. For example, we are publishing the telephone directors in Poland and the Czech Republic. We believe that they are part of the activity which allow people around the world to communicate. The bottom line is that we think that U.S. companies have a lot to offer in helping people around the world develop the GII and communicate better. We believe that the U.S. government can play a role in facilitating the entry of U.S. companies into the GII business. And we believe that when that happens, that that will leverage additional investment from outside the communications industry to achieve the goals for which we are here today. Thank you. CHAIRPERSON DARR: Thank you. Mr. Winston from Unocal. MR. WINSTON: Good afternoon. My name is Jeffrey Winston. I'm the Manager of Telecommunications for Unocal Corporation, headquartered in Los Angeles, California, a company which produces and sells a broad array of energy resources, petroleum products, chemical fertilizers, and specialty minerals worldwide. My responsibilities include the planning, design and operation of Unocal's data and voice communications networks worldwide. I have implemented systems for Unocal based on a wide variety of communications technologies including a company-wide virtual private voice network, an extensive high-speed multi-protocol wide-area data network, video- conferencing systems, telephone systems utilizing advanced ISDN features, and a satellite network for interactive point-of-sale and remote field operations. I am also the Chairman-designate of the American Petroleum Institute, or API Telecommunications Committee. In short, I am not sort of an end-user, not kind of an end-user, but I am very much an end- user of telecommunications services. The petroleum industry has become increasingly global in nature. Many large petroleum companies are U.S.-based multi-national corporations engaged in exploration, production and distribution activities around the globe. API member companies are engaged in exploration and production activities on every inhabited continent and in virtually every country in Central and South America, Africa, and the Middle East, as well as in the Pacific Rim. In addition to maintaining operations in traditional oil production areas such as the North SEa, the Middle East, Venezuela and Mexico, many American petroleum companies maintain substantial distribution and refining operations in South America, Western Europe and part of the Far East. A pointed example of our challenge was the need for Unocal, in particular, to install specialized and very expensive satellite communications equipment to support plain old telephone service as well as fax service from a hotel suite in Baku, Azerbaijan. To add insult to injury, electromagnetic interference from a nearby television transmitter made this task all the more complicated. And that's not to mention a $10.00 per minute price point for these services. A substantial portion of petroleum exploration and production activities take place in developing countries lacking a sophisticated or, in some cases, even a basic communications infrastructure. Sophisticated communications are essential to petroleum companies to enable them to transfer and process substantial volumes of data that are necessary for successful exploration and production activities. I might suggest that international locations are not necessarily truly international. Unocal recently established a data network connectivity to chemicals plants in Kenowic, Washington and Kenai, Alaska. Our T-1 data circuit to Kenowic was the first such data circuit ever installed by the local telco. The reliability and availability of our connection to Kenai was so poor that we may as well have transported data using a dog sled. The development of the Global Information Infrastructure, or GII, will have a direct and lasting affect on the nature, quality, and affordability of telecommunications available to petroleum companies in connection with their expanded global operations. Accordingly, API appreciates this opportunity to present its vision of the GII. API agrees with the Administration that a truly Global Information Infrastructure will provide numerous benefits to the domestic and world economy. In order to bring about such benefits, any policy driving the development of the GII should embody the following key elements. (1) Cost-based rates for telecommunication services. (2) Availability of specialized communications worldwide. (3) Removal of Export/Import controls. (4) Equipment standardization. (5) System protection and privacy. In the area of cost-based rates, API strongly supports the global implementation of cost- based rates for telecommunications services. A major impediment to a robust global information infrastructure is the cost underlying communications transport and switching. Excessive accounting rates underlie non-cost leased International Message Telephone Service sales to many countries. There is no incentive for significant investment in telecommunications infrastructure on a global basis if rates are not cost-based. Indeed, so long as these rates are set well in excess of ascertainable costs or benchmarks, development of a truly "global" information infrastructure will be relegated to the distant future. The petroleum industry needs access to sophisticated voice and data services. In developing countries, as well as many industrialized nations, the telecommunications infrastructure is nowhere near as developed as it is in the United States. The problem of an antiquated communications infrastructure is particularly acute for petroleum companies that have extensive operations in such countries. The existing infrastructure in many countries is simply unable to support the telecommunications requirements of large U.S.-based petroleum companies. For example, in Chad, Vietnam and the South China Sea, the lack of fiber optic facilities directly impedes petroleum exploration and transport operations. Petroleum companies must therefore rely on specialized service arrangements to provide the communications necessary to support their sophisticated voice and data requirements. For the near term, and at least through the beginning of the next century, specialized communications such as international satellite services and INTELSAT's IBS will constitute the only infrastructure capable of supporting a given service and provide the most practical solution to meet the petroleum industry's requirements. The overriding near-term challenge in the global market is to confront this lack of specialized communications capability. Any GII policy must recognize the importance of specialized communications, and in particular, the critical need for such communications capability in less developed areas of the world. Many foreign nations currently restrict the import of customer premises equipment, or CPE, in reaction to U.S. export controls. Such restrictions directly affect petroleum companies which routinely move CPE from country to country based on shifting levels of exploration activity. Restrictions on transborder movement of CPE limit users' communications equipment options to outmoded technologies, and hinder the ability to implement global communications systems. Indeed, in some developing nations, import restrictions amount to sentencing their international corporate inhabitants to life imprisonment in the technological dark ages. A recent opportunity that Unocal had to relocate a telephone switch from a Unocal office near Chicago to a facility in Indonesia was plainly prohibited by Indonesian import controls. Elimination of export controls is a win- win situation. Opening up borders to the flow of telecommunications equipment and services promotes market-based technology standardization. It also enables the host government's economy to benefit from the economic efficiencies generated by the installation and use of advanced equipment. Finally, because the U.S. still retains its leadership in telecommunications equipment manufacturing, a reduction or elimination of export controls should enable the U.S. to retain its lead, while stimulating the sale of U.S. manufactured equipment in overseas markets. Equipment standardization is the crux of a successful, interoperable GII. API supports the proposition that the standardization process must not be government-mandated. The process must be market driven, technology neutral, and developed by international consensus. A GII policy that allows marketplace forces to work will facilitate the most efficient and advanced global information infrastructure. Such a policy will also allow American telecommunications equipment manufacturers to compete on a level playing field. Lastly, but by no means least, the security and privacy of communications must be a basic element of the GII. Information security and system reliability are critical to the successful operation of a business. API believes that users must be absolutely confident that business can be conducted over communications systems without the threat of compromise or artificially induced system dysfunction. In order for the GII to reach its potential as a vehicle for expanding global commerce, the international business community must have confidence in the security and privacy of communications traversing that infrastructure. The utilization of encryption technology is a critical means of ensuring information protection and system security. API supports providing users with the ability to encrypt and decrypt communications, with encryption equipment of the user's choice and preferred design. In the absence of evidence that particular encryption equipment is being sold for illegal uses, commercial encryption products and technology should be free of export or import controls. In addition, restrictions should not be placed on the use of encryption equipment solely to facilitate information gathering by law enforcement authorities. An effective GII will provide unfettered access to networks and prohibit denial of service by governments or other entities. In addition, private networks should not be unnecessarily burdened with regulations designed for common carrier services. Private networks should be afforded maximum regulatory flexibility in contrast to the multiple and multi- faceted regulation typically imposed in other countries on providers of domestic and international service. In today's increasingly global marketplace, petroleum companies and other U.S. corporations operating abroad, rely on the sophisticated communications available at home to successfully manage their businesses. For petroleum companies, which operate largely in developing nations, a mature telecommunications infrastructure is critical. To ensure the development of such an infrastructure and its integration into a truly global information infrastructure, a GII policy must ensure the availability of specialized communications equipment, communications at cost-based rates. Export and import controls must be eliminated or reduced and policies must be adopted to effectuate equipment standardization and to ensure that the information making up the GII remains secure and private. Only by ensuring that these elements are integrated into the GII can the U.S. government help ensure that the GII reaches its true potential. Thank you again for the opportunity of addressing the panel. CHAIRPERSON DARR: Thank you, Mr. Winston. Mr. Johnson from EDS. MR. JOHNSON: Madam Chairwoman and members of the working group, I am Claiborne Johnson, one of the Corporate Vice Presidents with EDS. EDS, or Electronic Data Systems, is a major information technology services provider and our services include consulting, systems development, integration, maintenance, and processed management. Our revenues were about $8 billion in 1993, and our markets include health care insurance, communications, manufacturing, transportation, financial services, energy, government, and retail services. We employ 70,000 people in over 30 countries for about 7,000 customers. We operate one of the largest private digital networks in the world. So, even though we did not collaborate beforehand, I'd like to echo Mr. Winston's motions that I am here as a user, a rather gigantic user in fact. We're pleased to be here to discuss issues related to the Global Information Infrastructure. But first, let me compliment you all on holding this hearing and listening to such a wide range of interested parties. We're particularly pleased we were selected to participate because of what I said. We do feel we represent the business users, and that group is not necessarily always particularly visible in this kind of a process. We and our customers are users of the GII today, insofar as it exists. And we certainly feel like we'll be on the forefront of using it as it develops. And so, we think we have a particularly good perspective on representing that view. There are several technological areas, such as standards, interoperability and so forth that must be addressed to achieve our collective vision for the future. But today, I've chosen to focus on three policy inhibitors that must be resolved quickly and effectively with our United States global partners if we're going to establish a truly Global Information Infrastructure to the level that's possible. I am relatively confident that the technical issues can be resolved fairly expeditiously. We need though that the policy inhibitors also get resolved in time for the GII to move forward at a pace consistent with technology. The U.S. government needs to play a role in the global community to resolve these issues. I will briefly summarize for you all, the three issues that we believe are among the most critical in this development. (1) Intellectual property rights need harmonization and enforcement. (2) Consensus is needed on principles for global security and encryption systems. (3) The government should take a broader view of the international telecommunications services marketplace in negotiating market access. Now, in slightly more detail. First, intellectual property rights. Strong intellectual property protection for our nation's innovations are critical to our future and ultimately, to the success of the Global Information Infrastructure. So far, I think the body of U.S. copyright and patent law that has served U.S. innovators well to date is probably sufficiently flexible for the future needs of the digital revolution. But the type and level of copyright protection afforded to technology innovation needs to evolve as the technology matures to insure that the protection moves with the work, regardless of its form or method of communication and distribution. In nations that have weak protection of or enforcement of laws protecting proprietary work, a real disincentive, obviously, is created in using the highways simply because content providers will not be assured payment for their work. Just as the GII provides new opportunities for innovation, it also creates new opportunities for infringement of protected intellectual property on a truly massive scale. The second point, the consensus on principles for security encryption systems. As the economies of all the nations become more global, business is increasingly dependent on international telecommunications networks to conduct its daily affairs. And vast amounts of sensitive and proprietary information are flowing freely around the world so encryption is becoming an important component in efforts to protect that information and restrict its access to authorized users. As a basis for discussion with foreign governments, we recommend further consideration of seven principles that will serve as both an underpinning of policy regarding encryption, and a touchstone on which to evaluate various encryption methodologies. These principles are also generally consistent with those articulated last week in Vice President Gore's letter to Representative Maria Cantwell. We enthusiastically applaud the Administration's willingness to work closely with industry to find solutions that will provide for the needs of law enforcement and national security while not undermining U.S. competitiveness. Now that principles have been crafted to guide U.S. policy development, we encourage U.S. officials to seek a global consensus on those principles, especially with our largest trading partners. Briefly, the seven principles as we see them are: (1) Variety. There needs to be available for use a wide range of encryption methodologies and techniques so that it will permit the user to scale his security requirements to a particular encryption strength. (2) The algorithms ought to be public. In order to ensure international acceptance and public confidence, I think it follows that the algorithms must be available for public scrutiny. (3) International acceptance. The methodologies must be widely acceptable within the international community and remain essentially free of export or import controls. (4) Implementation flexibility should be available. For example, the user should be free to implement either hardware or software solutions depending on what he thinks he needs. (5) User Key Management. Users must retain the ability to change keys for their own piece of mind, if nothing else. (6) But along with that goes key escrow, and the principle of key escrow is acceptable with the following conditions: (a) In obtaining wiretapping access to a transmission, at least one key holder must be a non- governmental trusted third party. (b) Keys must be made available for specified, limited time frames. (c) The process for obtaining and using keys for wiretapping purposes must be auditable. (7) And finally, the seventh and last principle on encryption is liability. The unauthorized disclosure of keys will generally have economic consequences. So, if a key is disclosed through fault or negligence during the wiretapping process, there must be acceptance of liability by the parties involved. Now, back to the main part of our thesis, that the government should take a broader view of international telecommunications services marketplace in negotiating market access. EDS, like other large service providers, has a continuing need to communicate and manage information on a global, real-time basis for our customers and for ourselves. And in looking for ways to satisfy our needs in an efficient and innovative manner, we and our customers want and need the full range of alternatives that are available in the marketplace, to include regulated and unregulated service providers. Regulated carriers are the most significant group of players in the international services marketplace. But customers increasingly look to private carriers, systems integrators, and enhanced service providers such as EDS, to satisfy their communications and information management needs. Often, there is no single marketplace solution, and solutions must be pulled together from both regulated and unregulated providers to develop customized solutions to global communications needs. This seems to be especially true of the more innovative leading users such as Mr. Winston, who just spoke before me. So, EDS recommends that the U.S. government focus more attention on improving the lot of unregulated carriers and services in negotiating market access to international markets for U.S. service providers. In addition to the General Agreement on Tariffs and Trade, we submit the United States should aggressively pursue the liberalization of the international services marketplace whenever and wherever the opportunities arise, also to include bilateral approaches. Rather than viewing private carriage, private cables, and enhanced services, things like that as threats to regulated carriers, they should be characterized by the U.S. government as important alternatives for users that enhance competition. And indeed, usually, drove the entire communications services pie rather than trying to redivide that pie. So, simply stated, our government should view any proposed restriction on the availability of regulated or unregulated services as contrary to the public interest. So, in conclusion, EDS stands ready to work with this committee in shaping future policies that will ensure success in building the global information infrastructure. We applaud your efforts to examine these important policy issues. Thank you very much for listening to our inputs. CHAIRPERSON DARR: Thank you very much. Mr. Hayden from the American National Standards Institute. MR. HAYDEN: Madam Chairman, Members of the Panel, my name is Chic Hayden. I'm here today as Director of the Information Infrastructure Standards programs of the American National Standards Institute. Thanks very much for the opportunity to be heard. ANSI is a private, non-profit membership organization that coordinates the U.S. voluntary standard system, bringing together interest from the private and public sectors to develop voluntary standards for a wide array of U.S. industries. This federation's membership includes approximately 1,300 national and international companies, 30 government agencies, 20 institutions, and 250 professional, technical, trade, labor, and consumer organizations. In addition to responding to the questions, we would like to comment on point one of the six areas highlighted by the Technology Policy Working Group. That first point was U.S. participation in international and regional organizations in standard setting bodies. ANSI is the sole representative and dues paying member of the two major non-treaty organizations, the ISO -- which is the International Organization for Standardization, and the IEC, the International Electrotechnical Commission. ANSI helps to govern them through membership on their policymaking council and also represents the U.S. in other regional and other international standards bodies such as the Asia Pacific Area Standards Congress, PASC, and the Pan American Standards Commission, COPANT, which essentially covers South America as well as the Eastern European Standards Forum. Through these international and regional organizations as well as country standards organizations, ANSI covers virtually the entire spectrum of global voluntary standards activity. Let me now go to the specific questions which you've asked in your report. Question three, are there U.S. government and private sector preparatory processes? Are they adequate to promote U.S. interests in international standards activities? Because of the conversions of technologies and the increasing number of organizations developing standards, and realizing the urgent need to facilitate and accelerate a process that addresses the information and communication revolution in full progress, ANSI has recently established an Information Infrastructure Standards Panel, so called IISP, within the National Voluntary standards system to support the accelerated deployment of both the NII and the GII. This panel was formed at the request of its members. Participation in the IISP is open to representatives of all directly and material effected parties of the GII and is seen as the best way to proceed. Involving a large number of standard- setting organizations, both from the voluntary and the regulatory standards process, allows for a full spectrum participation of the private sector counterparts and the participating government agencies that relate to both domestic and international information infrastructure issues. IISP's specific mission is to promote, to accelerate, and to coordinate the timely development of required GII standards within both a national and international voluntary standard systems. Its specific task is outlined in IISP's terms of reference which I attached to the hearing document. It was available outside. (1) To catalog requirements for implementing the NII and the GII, the critical interfaces and other attributes. More, just translated, "what do we need to make this work?" (2) Catalog existing national and international voluntary standards and de facto standards that we already have. Networks aren't new. What standards do we already have that apply? (3) Obtain agreement for the standards developing organizations -- the appropriate ones -- to do the work and to do it on an accelerated basis. (4) Agree on work plans and schedules that emphasize the priorities for the standards and creating of the new work that's required. Newer, modified standards work. (5) Promote ongoing collaborative efforts between the standards developing organizations to work jointly or complimentary on standards to maximize their efforts. (6) Accelerate standards through appropriate investment of resources, which means apply the resources and the people necessary for the critical standards that are identified. (7) A cross-industry program involving all the various sectors, whether it's voluntary, the regulated, the ad hoc groups that may well become the standards that are part of this, and bring them into the central process. (8) Establish a liaison with national, regional, and international organizations to ensure that what we do is harmonized on an international basis, since we're talking about a Global Information Infrastructure. (9) Make widely available what the panel does, which means an open publication process involved for all. The first working meeting was held last week on July 19th. We had representatives from standards developing organizations having both national and international responsibilities. We had government, consortia, cross-industry representation from computer, communication, cable, broadcast, cellular, satellite and several other industry groups. Because this was a work planning session, we limited the attendance to 65 organizations. But we recognized the importance of the topics to the U.S. interest and the need for full representation of all of the materially effected parties, so a broader general meeting with 200 to 300 participants is scheduled for September 27th and 28th here in Washington. The IISP will be coordinated directly with many of the international standards organization, some of whom will be attending this meeting in September, to ensure that worldwide efforts, again, are focused on harmonization. As we all know, there are many efforts around the globe and which effort or which direction is taken is not critical as long as we are coordinated with each other. Promoting the active awareness and participation in IISP is one of the best ways to facilitate the effective involvement of the U.S. government and private sectors in the international standards process. Next question, how should the U.S. government address compulsory licensing of intellectual property rights by international standard setting bodies? I think that has been hit on several times, and I think I would just echo the others. The U.S. government ought to take a strong position opposing that because it is just directly opposed to what's in the best interests of not just the standards process but U.S. industry, all industry. How can the process of developing international standards be enhanced to ensure their interconnectivity and interoperability of an NII and ultimately, a GII? Again, ANSI's strong view is that the initiative that we have taken, the IISP initiative, with a private sector lead, cross-industry, voluntary process is the best vehicle to coordinate and accelerate NII and GII standards development. The standards work is ultimately done at the standards development level within the specific organization. But the IISP, with the direct involvement -- as I said, there are 30 government agencies directly involved. With direct government involvement will facilitate communication and coordination on critical information infrastructure standards efforts that will impact interconnectivity and interoperability. Another question is what should the U.S. role be in developing the GII? One of the most important roles the government can play is to actively encourage the key players, the participants both of government and of industry, to participate in the overall standards process. Because without direct involvement and participation, this process will not hear from all sectors involved. The same is true of the private sector. Another question was with regard to the NII, the Administration has clearly indicated that a government's policy should remain technologically neutral. Should this approach also be adopted for the GII? The government should stay neutral with regard to technology, but should be proactive in the need for standardization. The government's role is to support the U.S. voluntary standards system in the international forum. It can't be a neutral observer to the GII while other governments and other regions are having strong support to their own constituents. The precedent for partisan sponsorship that was evident in the State Department's objection to the ETSI proposal is the type of thing I think that is appropriate, when and if it is called for. ANSI wants the government to be an active participant of global process, injecting its expertise and lending its full support for a global voluntary standardization process. In summary, some of the points I am about to summarize I did not address in this testimony, but I've chopped them out for interest of time. (1) The U.S. is well positioned in the international and regional standards setting process through ANSI's affiliations and leadership positions in these international standards organizations to encourage standards development leading to the GII. (2) The Information Infrastructure Standards Panel is the most effective means to accelerate deployment of the NII and GII, and support of the government is vital. (3) ANSI's concerns in the foreign trade barriers to the GII relate to potential non-tariff trade barriers such as foreign governments misusing practices such as product testing and certification programs. (4) ANSI has and will continue to promote effective standardization in developing countries to make them more competitive and to open markets for U.S. products. (5) Compulsory licensing of intellectual property rights should continue to be posed gently by the private sector and the U.S. government. (6) The U.S. role in developing the GII can best be performed by encouraging even greater participation in the standardization process in fully supporting the IISP initiative. The same is true of the private sector. (7) An effective standards process is one method of encouraging private investment in the NII and GII. (8) The U.S. government should remain technologically neutral, but continue strong support for the U.S. voluntary system as a standards system is vital to achieving the GII. ANSI and the members of the U.S. voluntary system are fully committed to a cross-industry, international standards effort focused on interconnectivity and interoperability leading to the GII and NII. Thanks very much. CHAIRPERSON DARR: Mr. Hayden, thank you. Woody Kerkeslanger from AT&T. MR. KERKESLANGER: Thank you, Madam Chairwoman. It is a pleasure to be here today to testify on the international aspects of the NII and the Global Information Infrastructure. My name is Woody Kerkeslanger. I am Vice President of AT&T, Technology & Infrastructure. As a leading corporation involved in building and operating the national and global information infrastructures, we applaud the vision articulated by the President and the Vice President, and the leadership of Secretary Brown, to enhance the NII and GII as engines for economic and societal progress. We particularly value and support the consideration of key international telecommunications issues by the members of the International Telecommunications Working Group, because we believe it is on the threshold of a major growth in this area. Industry restructuring and convergence of technologies are creating unprecedented demands and opportunities for change and providing the stimulus for industry efficiency and growth worldwide. We've heard from industry representatives here as users. An earlier panel spoke about the insistence of change in their industries outside the United States. The importance of the National Information Infrastructure in each country of the world is hard to underestimate, hard to overestimate. We believe that while the NII and GII are important to the United States, we need to recognize that each country has its own NII. Our interest is in working cooperatively with those countries in the evolution of those NIIs towards a global GII. We do not believe it is the role of the United States government or U.S. industry to dictate to those countries' issues such as universal service within those countries. We in AT&T, as well as others in private industry in the U.S., are well equipped to address the opportunities the NII and GII represent. We are making, and will continue to make, the necessary investment in research, technology development and deployment to support the rapid evolution of a global information infrastructure. The pace and effectiveness of our investment is, however, influenced by several external factors that impact the speed and scope of the realization of these opportunities. I would like to elaborate on some of them. (1) Open markets for telecommunications and information technology products. (2) Open markets for telecommunications services, with symmetry of market opportunities especially with respect to interconnection and use of existing infrastructures at reasonable costs. (3) An environment supporting, and indeed encouraging, private investment and competition. (4) Interoperability at various levels among information appliances, communications networks, and information sources based on global standards. (5) Protection of intellectual property, individual privacy, and security of information as more information is stored and distributed electronically. The U.S. government can play a key role in helping to open foreign markets for telecommunications and information technology products and services. Key to this process is a belief in the need to compete with other countries on a level playing field with products and services. The U.S. leadership in these areas can be best preserved and enhanced by ensuring that as foreign products have the freedom to enter the U.S. market, U.S. technology and products have equivalent access and comparable market opportunities in foreign markets. Following the divestiture of AT&T when the United States unilaterally opened its communications infrastructure equipment markets, the largest telecommunications trade deficit ever, emerged. We need to strive for mutually beneficial market opportunities with foreign governments to avoid its recurrence. We need to note that GATT explicitly excludes telecommunications products and services, and that most nations outside the U.S. continue to have government-owned telecommunications monopolies to which U.S. companies have very limited access. In addition to ensuring that foreign markets are open to U.S. companies, the government should continue to ensure that we do not impose undue limitations on ourselves in terms of export of products and services. The Administration has a laudable record of relaxing outdated restrictions on the export of technology, leading to a growth in U.S. exports and jobs. We would like to see the momentum, which has been gathered, to continue towards freer trade and removal of artificial trade barriers, especially in the key growth area of information infrastructure products and services. As evidenced by recent announcements, foreign telecommunications carriers, and indeed foreign governments, are seeking significant participation in serving the U.S. telecommunications market while their own markets, especially with respect to services, are closed or restricted for U.S. companies. The U.S. government needs to work with U.S. industry to ensure that symmetric market access is a basic principle that is both preached and practiced. As an example, a call from Washington to Tokyo costs 20 to 40 percent less than a call of the same duration from Tokyo to Washington. This is largely due to the competitive industry environment we have developed in the United States. This is true for many other countries as well. Clearly, foreign carrier access to the open and competitive U.S. market should be conditioned on comparable market access for U.S. carriers in foreign markets. Without a coordinated effort to ensure symmetric market access for services as well as products, we risk losing major market growth opportunities worldwide. We also risk sustaining major distortions of the market evidenced by the existence of discriminatory and non-economic accounting rates, resulting in a drain of billions of dollars -- currently about $4 billion a year -- and a huge number of potential jobs lost from the U.S. The above issues are best addressed in an environment that supports private investment and encourages competition in the development of information infrastructure worldwide. While the success of such a model has been effectively demonstrated in the United States, especially in the competitive areas of equipment, software, and long distance communications, we recognize that many nations of the world still have government monopolies and key segments of the industry. However, the financial resources to build and continually update the infrastructure are best brought to bear by private industry, making economically rational investments in a competitive market. The U.S. government should continue to promote and facilitate a migration to private sector environments where practical, to build upon the Information Infrastructure in each nation at a pace consistent with the nation's broader goals. Clearly, progress in market access and open competition abroad should be a condition for foreign access to the United States market. In brief, we view the true success of the United States NII as depending on the effective evolution of the GII, and by extension on the cooperative, successful evolution of other countries' NIIs. This will require governments to embrace in a symmetrical manner: open, competitive markets; infrastructure competition; fair interconnection and cost-based access; open, public, voluntary, global standards. Our vision of the GII requires free trade in information infrastructure products and services when we recognize that that evolution to free trade may require fair trade arrangements along the way. While open access is a major policy imperative, the effectiveness of the GII will hinge on the interoperability among the component parts, including networks, devices and information sources. The private sector is engaged in an effort to address the standards and interoperability issues that are critical to a smooth GII evolution, especially in the context of changes in technology and the convergence of previously disparate fields. We believe that the private sector is effectively equipped to deal with these issues as mentioned by ANSI, and we fully support the efforts of ANSI and the other standards bodies in the United States. The protection of intellectual property rights is a key enabler if people are to create knowledge resources and make them available to other electronically. Any decrease in intellectual property protection will decrease the private sector's incentive to develop innovative products and services. This, in turn, will significantly hamper the enhancement of the GII, as companies, entrepreneurs and other innovators will not accept the costs of new development coupled with little chance for a reasonable financial return. In my comments, I have addressed all the issues you have raised in this hearing. My written testimony specifically answers the 13 questions you have proposed. I thank you for the opportunity to testify before you and look forward to a continuing dialogue while we wok together to derive major socio- economic benefits from one of the most exciting areas of opportunity in the world today. Thank you very much. CHAIRPERSON DARR: Mr. Kerkeslanger, thank you very much. Mike Roberts from Educom. MR. ROBERTS: Good afternoon. It's a pleasure to be with you. I'm Michael Roberts. I'm Vice President for Networking at Educom which is an association of 600 colleges and universities. I'm a founding member and a trustee of the Internet Society, and it's a pleasure for me to testify on behalf of the Society today. Without any doubt, the Internet is one of the great technology success stories of our time. Federal leadership, accompanied by relatively modest investment of federal research funds, has enabled the computer and communications industries, and some of our brightest research minds, to transform a computer data network concept intended for defense purposes into a worldwide phenomenon that serves more than 20 million people with an ever broadening array of advanced networking products and services. We, in the Internet community, are a constituency of the GII and we're very interested in helping build it and to shape its future. In view of the extensive expert testimony that you have received yesterday and today, I shall be brief and focus my remarks on highlights. I think that you'll find that many of our points mirror comments made by my fellow panelists. First, the international aspects of the information infrastructure are as important to the United States as are the domestic aspects, and should be given an equally high priority by the Clinton Administration. The internationalization of business and industry creates the same incentives for a global information infrastructure as it does for national information infrastructure. Businesses need to buy and to sell as easily and efficiently abroad as they do at home. As international competitors seek out production advantages on a worldwide basis, we also need to be able to identify and utilize those same advantages ourselves. As we make investments in infrastructure for business purposes, we will leverage a wide variety of other uses. Research, education, and a host of necessary public services will all benefit from and add to the bottom line gains from the GII. Although short term investment returns to U.S. business from the GII may be primarily from G7 markets, such infrastructure investment is no less critical in developing countries, where it not only serves a variety of humanitarian needs, but promises to accelerate markedly the process of economic development and the improvement of living standards. For these and other reasons, it is essential that the modernization of telecommunications and an agreed upon path to the information infrastructure be given priority in our policy negotiations with other countries. Point two. Although the creation of the global information infrastructure will proceed from the base of products and services which exist today, the technical and economic structure of future networks will be fundamentally different from those of present systems and will require new policy perspectives and priorities. Major changes are taking place in the technical structure of the telecommunications world. Analog systems are being replaced by digital systems. Circuit switched systems are giving way to packet and cell switched systems. Perhaps most importantly, the original function of telecommunications, which was to connect two human beings together in a voice conversation, is being supplanted by connections between and among computer systems. In the future, nearly all human interaction with networks will be computer mediated. That is, we will use many different information appliances ranging from portable digital phones, to computer work stations, to interactive televisions, to accomplish our communications needs. These devices will use increasingly sophisticated hardware and software technology in order that we may enjoy, simultaneously, both high functionality and ease of use. Perhaps the best articulation of the design of future broadband, multimedia networks may be found in the recently issued report of the Computer Science and Telecommunications Board of the National Research Council, which is entitled, "Realizing the Information Future." The distinguished panel which issued the report call for an open data network architecture with interoperable and evolvable interfaces. In the overall architecture, which spans the lowest level transmission of digital signals to the highest level applications and human interfaces, four separable layers of function are defined. The significance of the layered approach to data network architecture, which contrasts with the vertically integrated design of previous telecommunications networks, is that it provides both the need and the opportunity for innovative solutions to the evolution of network functions at each layer. Linked together by open interfaces, each layer offers hundreds, if not thousands, of new market niches for products and services. The experience of the computer industry over the past decade has been that the combination of open markets with open architectures creates new business opportunities and a high growth rate. As telecommunications moves out from under generations of monopoly regulation, the same potential is possible. The record of the Internet is illustrative. Originally a small but unregulated island in an ocean of telecommunications rigidity, it has consistently experienced growth rates in sales of products and services of over 100 percent per year. An open data network architecture in a competitive marketplace requires a different approach to government oversight. The government as regulator must be replaced by the government as referee and ultimate arbiter of competing social and economic interests. New tools are needed to ensure that low barriers to market entry and a level playing field for competition are really achieved. Foremost among these is an open and collaborative process for the adoption of open and easily accessible standards. Point three. Non-tariff barriers to rationalization of international telecommunications and the advancement of infrastructure are as significant as trade barriers. Their elimination will require a timely, aggressive, and carefully developed U.S. policy agenda. Creation of this agenda will require a unified GII policy organization within the Administration. The high rate of change in communications technology and economics has rendered much of the worldwide related policy structure obsolete. Because large markets are at stake, there is considerable resistance to policy modernization by entrenched providers, and this will continue for some time. The number one priority for new policy should be to create competitive markets with incentives for new investment. Possible measures to be taken, depending on individual national circumstances include -- and I'll only mention two points here -- reduce the wide disparity between price and cost of telecommunications facilities and services which inhibits demand distorts investment opportunities. And second, reduce or eliminate telecommunications taxes and subsidies that are not connected to the services on which they are levied. As the IITF considers new U.S. policies for the GII, it must also review the means by which the Administration develops and adopts policy in this area. Much of the U.S. policy apparatus is still organized for the Cold War and traditional international telecommunications regulation. In contrast to the present situation, there must be a single unified policy voice if our GII interests are to be effectively represented in an international arena which is changing on almost a daily basis. Point four. The Internet, already functioning as a major networking and infrastructure test bed in most of the developed economies, provides a useful model and a possible means for advancement of new international telecommunications policies. We believe the Internet furnishes an ideal vehicle on which to develop and refine a new generation of international telecommunications policy. Our reasons include: (a) It is based on a technically advanced digital packet switched architecture which is quickly adaptable to new and more powerful technology as these technologies become available. (b) It is delivering services now, today, on a worldwide basis in a variety of difficult operating environments. (c) Its international community of developers, providers and users is working together to address current problems and prepare for future needs. (d) Its international governance structure is collaborative, decentralized and unbureaucratic. The activities of the Internet Engineering Task Force meeting this week are representative of the qualities noted above. More than 600 engineers assembled in Toronto to work in more than 60 groups on current technical issues and design challenges for the Internet. At the first plenary session which was televised using packet video on the Internet itself to hundreds of additional locations on five continents, an architecture for the next generation, broadband Internet was adopted after two years of intensive work. The new architecture is designed to permit the connection of up to 100 million networks and the use of up to 100 billion addressable computers, televisions, telephones and other information devices. This progress was achieved through consensus means without formal balloting and with the participation of essentially every major international computer and telecommunications firm. It his Buenos Aires speech, Vice President Gore declared a U.S. commitment to five principles for the GII: encourage private investment; promote competition; provide open access; protect universal access; and maintain flexibility. We in the Internet community are also committed to these principles and we look forward to working with you to achieve them. Thank you. CHAIRPERSON DARR: Thank you, Mr. Roberts. Let's turn now to questions from the panel. Mike, do you have a question? MR. NELSON: I was unfortunately not here for the first two witnesses, so I'm at a little bit of a disadvantage. I had a couple of questions. One is on the killer applications. We've been talking about what the GII is, and sometimes I think it's good to focus a little bit on what the GII does. I'd like your assessment of what the GII will be used for in ten years? What is going to be paying for the international links that will make the GII work? Is it going to be voice? Is it going to be data? Is it going to be one-way video transmissions? I'm curious to know how you perceive this and what the predominant use of the international links of the GII will be? I imagine there are different answers as we go down the row here. MR. WINSTON: I'd be happy to take a stab at that. From the petroleum industry's perspective, I don't know that there is a killer application. There are a base set of applications that I see mostly in the data arena for transmitting upstream business data to large computers, centralized computer facilities for further processing. The killer application from our perspective is simply the one that supports our core business, and our core business is extremely data intensive. We have the applications today. We definitely don't believe that it's a build it and they will come kind of a scenario. We're knocking on our providers' doors today for a sufficient infrastructure in the locations where petroleum companies operate around the world, just to be able to support our business. MR. NELSON: And most of your international telecommunications costs are for data transmission as opposed to voice? MR. WINSTON: The vast majority are. MR. NELSON: Okay. MR. WINSTON: I'd say that it's not that voice is not a concern because in some areas, of course, it is but it is a lesser concern in most cases. MR. WINSTON: I would be interested to hear -- MR. TAUKE: I'm not sure, Mr. Nelson, exactly what you mean by the international links. If you are talking about the data -- or I should say, the transmission between countries, we believe that already the demand is growing very rapidly for a transmission between countries. If we look, for example, at the fiber optic link around the globe that we are building, we can see the demand in place before we have the project FLAG completed for the use. Part of that is data, part of it is voice. But I think the bigger challenge is not going to be having those links among the countries. When you're talking about the Global Information Infrastructure, we believe that the bigger challenge will be what will support the deployment of the infrastructure within, particularly, the developing nations. There, I suspect it is going to be much as it is within the U.S., that it is going to be driven in substantial part by entertainment and other things, not that dissimilar from what we have in the United States, voice and data. It's easy to see how that will drive the development in certain areas of the world and in certain places where there's high demand. It's a little more difficult to see exactly how the demand in more remote areas will support the development of the infrastructure. But we would observe that technology is offering some hope and promise, if you will. We don't need to have a broadband wire line infrastructure in all places of the world in order to be able to meet the needs of the customers in those areas, at least for the foreseeable future. MR. JOHNSON: I might take a little bit different cut at it. You're used to the term "killer app." It rang a bell with me. We, at EDS, have struggled for about two years to figure out what the killer apps and things ought to be, because it would be our business to go generate those things and get rich, and conquer the world, and all that. It turns out to be pretty damn hard to focus on any one thing as an application. What we finally came down on were three kind of directions to stretch in. Take whatever is going on right now -- and we're looking at the business use now, not individual people, mostly -- and try to stretch in the direction of making the activity or the application more global. That's one axis. Making it more individual, in the sense of tailored to that organization or that person or whatever the entity is. And we call that individualizing the application or activity. Then finally, the third axis is informationalizing, which is meant to go in the direction of understanding, as opposed to pure data. So, you take those three axes -- they're kind of ways to stretch. I was sitting here thinking, you could probably line up whether it's data, voice, video that would be used to implement stretches in these directions. You could argue that to some extent, all three would be useful in all three axes. But all I want to throw out really, was that was our approach to considering exactly this problem on a pretty massive scale, spread over a lot of industries and a lot of applications for whatever it's worth. MR. NELSON: Okay. Any other responses? Woody? MR. KERKESLANGER: A couple of points. The infrastructure exists and it was built by private industry. There's no problem with getting funds to build it. If you have an application, it will be built. There's plenty of funds there and as Tom Tauke noted, we put in a lot of cables, fiber optic cables, across the ocean because there's a lot of demand there. Second, there's no one answer. Every country is different. There is no one killer app that built the United States information infrastructure, but we have the best in the world. Voice is not an application. It is made up of hundreds and thousands of applications by itself. So, the sum total of many small uses is really what drives the bulk of the infrastructure. What will drive a lot of the new applications will be making a lot of things easier to use, making those PCs a lot easier to use; writing some decent software for applications that are needed already. Hundreds and hundreds of those applications will add up to be significant new demand. MR. NELSON: But if you had to forecast to the year 2005, would you foresee that most of the international traffic, traffic between countries, is still going to be commercial, corporate, or do you see a lot more individual, personal? MR. KERKESLANGER: Good question. When you talk international, you're talking several time zones, so you talk about several unique applications which gives you that time shift. Store and forward applications which are currently represented by fax, store and forward fax are just something you can read when someone gets there. Voice applications will still provide a lot of applications. And video, as an alternative to travel, will take a huge bite out of the capacity. So, those kinds of things, added together in a multimedia format, will drive a lot. MR. NELSON: Okay. Mike? MR. ROBERTS: I'd just like to say that the technology assessments that we all read say that over the next decade or so, the computer industry will deliver at least two orders of magnitude performance improvement over what we have today. The communications industry will deliver at least two orders of magnitude improvement over the communications performance we have today. It's hard for us to sit here and think about, "well, what does four orders of magnitude mean by 25?" But I think if you go back up to what kind of animals we are, it's pretty clear that we're much more adept at dealing from visual information than we are from our hearing and from voice. So, we'll obviously, given the opportunity, optimize against our own biology and our own senses, both in our work environment and in our personal environment. MR. NELSON: Okay, thank you very much. That was a tough question and five very good answers. CHAIRPERSON DARR: Tom? MR. SUGRUE: I've got two questions concerning competition and basic telecommunications services. I'd like the views of anyone, but the first one I'll address principally to Tom Tauke and the second one to Woody. And by the way, congratulations to both of you for not mentioning the MFJ in your testimony today. Considerable restraint -- you're on a streak now, don't blow it. We, in government, you know, our policy is to promote competition in foreign telecommunications markets, but that we have to draw a distinction between developing markets and developed markets. And that competition is not good for developing markets. It's not the way infrastructure gets built out. It's something that one can only afford or sign on to when you're further along. Developing -- developed in this case, might even be as high as a G7 split, or at least an OECD split. Tom, NYNEX has interests, as you recounted, in Thailand which would be, for these purposes, on the developing side of that curve, as well as in the UK. The new competitor in that, in taking advantage of an open market and delivering services. What's your view on that and what should U.S. policy in terms of encouraging open, competitive markets in basic services? MR. TAUKE: Very good question. First, I'm not sure I accept the premise of the question, and that is -- if I understood the premise correctly -- that the best model for developing markets is, if you will, the monopoly model and the best model for developed markets is the competitive model. Just looking, for example, at our own country, I think that when we look at some developing markets -- let's say, in the wireless world -- we didn't necessarily conclude and are not today concluding, that the monopoly model is the best way to get it developed. In fact, I think we are seeing instead that given the kinds of technology that we're talking about with wireless, that in fact, a competitive model is appropriate and will work. I believe that as we look around the world as well, we see that in some cases, there is an effort to use competition as a driver in developing markets. For example, China, which is a relatively undeveloped market when it comes to telecommunications, appears to be moving in the direction of developing alternative communication systems, competitive communication systems if you will, as a way to foster development of its telecommunications infrastructure. So, I'm not sure the premise is right. I think generally, the way technology is moving today, that it is going to be difficult to build and maintain a monopoly in any area of service. So, I don't think it would be right for us to foster that model anyplace in the world. At the same time, I think it's important to recognize that individual countries are going to have different models for the way in which they build. And as several of us have said in the panel, we can't dictate to those countries. We're going to have to work somewhat within the infrastructure -- or I should say within the rules, the game plan that they have put out. But where feasible, we should attempt to encourage, in my judgment, competition. That competition I think is helpful both in the developing and developed worlds. MR. SUGRUE: If I could just follow up on that a minute. One context in which the argument comes up is in developing countries in which U.S. companies, NYNEX and others -- and NYNEX, you happen to be here -- are, for example, bidding on a franchise to be the local telephone company, or the joint venture, or something like you're doing in Thailand. And the U.S. company, or the competing bidders, are saying, "we need protection from competition for 10 years, 15 years, 20 years in order to make the significant investment" and so forth and so on. And it puts those of us in government -- I mean, private companies are free to make that argument. We sometimes meet with representatives of the other government who essentially ask us, "now, should we sign up for this monopoly for 10 to 20 years, or is it better to have an open market, or whatever? And PS, some of your companies are arguing over here." For example, in Thailand, is there some arrangement on competition or open markets, or is there some understanding as to how that system will work? MR. TAUKE: First of all, I think that that is going to happen and it depends a little bit on the market that is being developed at any given point. If you have a market where it appears as if there is going to be a lot of business and there is a relatively concentrated area of the business, you can expect that competitors will serve that market. If, however -- just as in the U.S. -- you have a market where it is remote. There isn't a lot of business, there isn't a sufficient business to support maybe several different providers of service, it's going to be difficult to expect that there will be competition in that market. Having said that, it seems to me a little bit depends on the market itself. If there is sufficient business that will be generated in the market to support competitors, I think that that's the way countries should move. But if they can't make it fly that way, they probably are going to try to provide some protection. One other observation that I'd make is, you can have a competitive marketplace like we have, let's say, for McDonalds, Hardees, and Wendy's across this country, but there are a lot of towns with just one of them, okay, because that's all that it's able to support. I think that you can have the philosophy of open competition, while still recognizing that you may not have duplicate providers every place. MR. SUGRUE: By the way, my daughter is about to go off to college in a small town college in Iowa. As you know, there is no provider of fast food of McDonalds -- universal access for McDonald's hamburgers for college kids. MR. TAUKE: Listen, I know where she's going and I can tell you which restaurants she can go to. MR. SUGRUE: Woody, let me turn to you for a minute. Turning around the other way and entering to the U.S. market by foreign companies. I know you stated AT&T's position that that market access should be conditioned on comparable access in the foreign country. I hear the policy base of that argument is sort of on two grounds, and I just want to clarify which is which, or whether you're making both. One is that the foreign company will be able to leverage its position, monopoly position, in the foreign country to the detriment of competition and classic anti-trust kind of concerns. The other argument is quite apart from that. Let's say you can solve that. We're not concerned about that anymore. We should use it as sort of a trade or lever to open the market. That is, we should say, "you can't come in, even though we don't have any competitive concerns, because you don't let our companies into your market in a comparable way." Which of those grounds are you arguing, or both? MR. KERKESLANGER: I think the best way to answer that, Tom, is to just draw back and talk about different situations. It is possible that there is a country which has a monopoly market at present, and which we feel should reduce their accounting rates, their access to a cost base, but they're not attempting to export their monopoly position in any way, into the United States market. They're sitting there and their infrastructure is developing, but they're not attempting to buy into or move into the United States market from their monopoly position. That's a different kind of issue. The United States, multinationals, the United States government and consumers, have interests in virtually every country in the world to having their national information infrastructure accessible at reasonable rates, in having cost-base accounting so that we don't export money to that country. That's a broad statement. But if, in any one of those countries, there's a company that is owned by the government and is a monopoly, or is a government-sponsored monopoly -- that is, it's a privatized monopoly or a protected position in that market -- and they attempt to come into the United States, that is going to hurt the United States' competitiveness. Not only in terms of the ability of the United States' competitors in the United States, but what we can do, or what anyone else can do, in that country to let the companies there get the services at the prices they need and to basically keep the competitive marketplace balanced. So, in that answer, I've said some of both of what you said. That was the answer. But the reason for it is that we don't think of services -- and I think this was brought up in an earlier panel -- as a traded item. I think if we thought of services as a traded item, it would be easier for us to understand why it's inappropriate for Japan to ship apples to the United States for American consumption, but not to let Washington State apples into Japan. It's very easy to understand with a product. But with a service, it's harder to conceptualize the difficulties caused by technical requirements which keep you from the market, or even government regulations which keep you from the market. MR. SUGRUE: But we don't stop Japanese companies from buying apple orchards in the U.S. In fact, to some degree, we encourage that type of investment. MR. KERKESLANGER: Say that again, please? MR. SUGRUE: We don't stop Japanese companies from buying apple orchards in the U.S. In fact, to some degree, we encourage that for the employment purposes and so forth, domestic investment. So, I take it the answer is then that both grounds apply, and therefore, putting safeguards on such foreign company entry into the U.S. to protect against anti-competitive abuse only gets you halfway? Is that the position? MR. KERKESLANGER: It only gets you halfway. And to your statement that we do encourage investment in the United States, I think the answer there is, it's not the investment that's the problem. It's the investor. If it's an investor from a country which has an open market, that's quite fine. If it's an investor from a country which has a monopoly and you can't have a reciprocal market access, it is a problem. MR. SUGRUE: Well, we've exhausted my knowledge of the apple market anyway, so I think I'll stop here. MR. KERKESLANGER: That was meant to refer to -- as well. MS. CORNELL: Can I just follow up on this point very quickly? Several of the other panelists have addressed this -- not necessarily on this panel, but in other panels -- and basically seemed to be of the view that the kind of approach you're talking about would be counter-productive and indeed, might raise higher walls, I think was one comment. Several other panelists made similar approaches. I'd be curious to hear from other panelists as to, you know, whether you had any particular perspectives on this whole question of comparability, symmetry, reciprocity, equivalency, whatever label you want to slap on it. Does anyone else care to comment at all? MR. KERKESLANGER: While they're thinking about that answer, or if they want to answer, could I just say that -- MS. CORNELL: Please. MR. KERKESLANGER: -- there's very few markets in which we have had worldwide monopolies and then attempted to transition from those worldwide monopolies to competitive markets. There's a limited set. There have been some. Telephony is one example where everyone in the world had a monopoly. In the United States, we had a private monopoly. Over time, as the technology evolved, we gradually broke that into competitive markets, and it's still evolving as the technology allows it. So, I think even the comparison between the telephone industry and some of the other markets where we're relatively protectionists with this tariff versus that tariff, that is drawing a line which may not be appropriate. But that's just my input. It may help someone else get time to come up with an answer. MR. JOHNSON: Well, I don't know whether I want to answer directly, but this is an opportunity to remind everybody that the GII or the NII, or any II, is not an end in itself. The question is, what are you going to use it for? To increase your business activity, or make people closer together, or whatever. Arguments like this are really directed more at dividing up the pie of building and owning an NII or GII, as opposed to how to use it. So, what I'd like to do without saying those arguments are bad or anything -- and they still go on and they're correct in their sphere -- our perspective as a big user is, how do you get the job done somehow? I mean, can we get past the question of trading access to telecom markets and maybe substitute as a part of the carrot that we were talking about in the last panel -- sometimes a threat, sometimes a carrot -- by offering or asking for some way to do the communicating so that you can get on with whatever you want to use it for? Maybe that's a breakthrough point, or a way to get the discussions going at times even when the other side is fairly monopolistic in their outlook. It will be good for the monopolizing country to get more business, or get their people more connected to the rest of the world. If you can get that point through to them, then maybe a little bit later, you can get to some of the other. MR. SUGRUE: If I could just sort of bounce off of that? One of my concerns, and the reason I was asking these questions to my friend Woody is, the suggestion -- some of my friends in the trade area described the divestiture as unilateral disarmament. It was a disaster for the country. And of course, now that our trade deficit even in equipment is -- I mean, we don't have a trade deficit. We have a surplus now, even in equipment -- that argument takes on a little less force. But it was made certainly four or five years ago, and there's a little bit of theme of that in your remarks. I think it has been a great success. I believe it's AT&T's view it has been a great success in terms of promoting the competitive market here. It did create a lot of trade opportunities in both equipment and services for foreign companies in the U.S. But to the overall economy, to our efficiency and productivity and standard of living, I think it has been a great success. I would not want to hold up the next step of liberalization, all right? If we said we're not going to introduce competition into the U.S., until all you other countries do, you know, it would never happen. MR. KERKESLANGER: That's right. MR. SUGRUE: We can't hold our domestic policy hostage, I think. I mean, as much as want to try to do what you say, we've got to keep moving, don't you think? MR. KERKESLANGER: I absolutely agree with that. I think Clay started the discussion along the line that I really like, that it's multinational corporations. It's the real applications of the NII which will convince a country whose companies are being hurt by the fact that their markets are not competitive. We have seen this in the EII, the European Information Infrastructure work, in which the greatest advocates, strong advocates, for opening the markets to competition and letting foreign competitors in were the manufacturers and the banks and the other multinational corporations in Europe, saying "we need competition now." So, I think Clay's point is right on. We definitely don't want to just sit there at a stand-off point. MR. WINSTON: I'd like to just add that from the petroleum industry's perspective, we tend to concentrate on the what and not so much on the how. So, I don't think I'm in a position necessarily to comment on how to provide infrastructure, especially in underdeveloped areas. But I would like to point out that in general, fair market competition is one of those goodness statements, and that the more competition, the better. I'd also like to point out that the petroleum industry, especially in underdeveloped areas, really provides an economic seed which ultimately will provide platform for growth of the local economy, which will, in turn, propagate the need for additional services. So, I think we need to really seriously consider the needs of our multinational U.S. corporations operating in many of these areas, and provide that infrastructure to allow that seed to occur and to be planted. MR. HAYDEN: The one element I think that will be helpful, a little bit more-so than in other kinds of international issues, is that the GII, if it's going to work, will have to have levels of compatibility around the world for interconnection. Now, as always, there's other ways you can freeze your markets and so forth, so it doesn't solve the whole problem. But at least, as we just said, if there are going to be pressures within the various countries, within the various areas for the multinational corporations, at a minimum, to want to interconnect. I chose not to answer Mike Nelson's question because since ANSI represents so many industries, I didn't want to pick a winner. But I think just one comment would be -- I was, a few weeks ago, at a session where people from the entertainment industry made the comment, broadcast and motion picture, that they couldn't project the winner. They didn't know for sure, which way those are going and that surprised me. I presumed that they would be able to project. The only comment I would make is that as you look -- again, coming from a standards perspective, once you define acceptable standards and you think about what has happened with some of our communication and some of the added-value services and so forth, I think the mere existence of standards that people can connect to will open ideas to entrepreneurial kind of activities that we may not be able to project, in terms of where this market may go; in terms of what kind of value-added services and which one, or collection of ones, will ultimately be the aggregate "killer kind of application." MR. ROBERTS: On this general point, I'd just like to make the observation that the investment aspect of what we're discussing here is changing in the sense that much of the technical progress we're going to see is now related to front-end investment in chips and in computer designs, because they're being heavily integrated into this whole deployment of advanced communication systems. That means that the people who are having to justify R&D investments to do that kind of design and you know, billion dollar bets on chips, on families of chips, can only afford to do it on a worldwide market. You know, I hear that from American companies. They feel as strongly about it as other companies do. So, that really suggests that what's going to happen here is that where that deployment is taking place becomes where everybody plays. If you have a national attitude or a national set of barriers that somehow or another keep you from playing, it isn't going to be long before somebody says, "hey, why are we doing that?" So, in the longer term -- in the five, or 10, or 15 year term here, these things are probably self-correcting if we play our cards right. CHAIRPERSON DARR: I think Bill Clements had one last question. MR. CLEMENTS: I'd like to thank the panel. I've heard six very thoughtful presentations and some very useful suggestions. I'd particularly like to thank Mr. Johnson for his elements of cryptography policy and information security. I think it's a very useful contribution to the collaborative effort between industry and government that the Vice President is trying to foster, and I'd like to take those back. To address a comment that Mr. Winston made, just so the information base is up to speed. At the beginning of April, the United States removed virtually all export controls on telecommunications equipment globally, with the exception of the countries that are supporting international terrorism. There are no restrictions on the export of telecommunications equipment to -- end-users around the world. The question that I've got really, may reflect some naivete on my part and if so, it's because I'm fresh to these issues. That is, clearly, when we speak about a Global Information Infrastructure, we're not talking about a monolithic market. The panelists have made it clear today that there are going to be different kinds and disparate kinds of user groups out there. Mr. Tauke made the point that in some developing countries, what may derive or fund the development of the infrastructure will be the demand for entertainment services. In the developed world, clearly, it's demand for business services and data communications. As we formulate policy, one of the things we need to do is sort of look off in the distance and try to identify potential problems. I was wondering whether the conflict, the potential conflict between disparate user groups may wind up translating into difficulties as we try to implement the GII, particularly in the standard-setting area? I mean, are there technological differences that one would approach a GII if one was focusing on one type of a user group as opposed to another kind of user group? MR. KERKESLANGER: I'd make a first comment that the direction technology is going removes or minimizes that as an issue because the common platform of digital technology in the networks and the information appliances and in the information makes that issue be driven up to the application layer. At the application layer, you then have the freedom to address the individual needs. So, I see that, if it ever was an issue --and it hasn't been a big issue in the U.S., but it if ever was, it should reduce over time. MR. WINSTON: I'd like to take the counter-point position, and that is, interoperability has been, and still remains, a problem even within the domestic telecommunications arena. To wave one's arms at a fairly high level and say that standards will be the panacea for solving that problem on a global basis is plainly burying one's head in the sand, so to speak. I mean, a pointed example of ISDN interoperability between local exchange carriers and inter-exchange carriers for applications such as video conferencing. That interoperability plainly does not exist today, and there are as many standards as you can think of in the world of alphabet soup standards. The situation plainly is not that rosy, and frankly, from a multinational corporations perspective, I have very serious concerns that even with the best standards in place, that there's going to be any measure of plug-and-play. We just hope to minimize the plug-and-pray problem because I believe that that's reality for today and for the foreseeable future. It's not one that I particularly enjoy endorsing and recognizing, but I believe it is reality. CHAIRPERSON DARR: Thank you. Mr. Hayden? MR. HAYDEN: Just speaking of the standards and in responding, the standards certainly don't solve a lot of problems. Because standards basically are developed by industries and by companies who are going in a set direction. I think one of the things that the GII or the NII now first, is helping -- as I indicated earlier, we've set up a panel which is cross-industry. As you look at how standards historically have been developed, by-and-large, they have been pretty much in a stovepipe kind of atmosphere. There are certainly many exceptions. But what I mean by that is cable has not really talked a lot with cellular, with satellite, with broadcast, with computer. There have been cross-talk. The most cross-talk probably has been between the computer and some of the others, and certainly, communications industries. But in the type of applications that are being discussed and so forth -- At this seminar that we had to get ready for this information infrastructure effort and the standards, we had presentations on architectures from cable. Cable was already having capability for voice, for data, obviously, video, et cetera. And so, what I'm seeing is happening is a cross-communication between the various industries, each one stepping into each other's turf. I think you will see far more standards developed that anticipate the kind of thing that wasn't anticipated before because as you indicated, the ISDN did not anticipate video conferencing. I think in the future, you will be. CHAIRPERSON DARR: Woody? MR. KERKESLANGER: I'd like briefly to agree with Mr. Winston that that's a good example of a kind of games that can be played with standards, whether they're analog or digital. The ISDN example you used happened to be a digital standard, but games were played by companies and by individual manufacturers to cause that disparity. In the United States, we have agreed on a single ISDN standard, but we learned some lessons going through that. Those are the kinds of problems that we were trying to point out, several of us, that need to be addressed at the governmental level between countries, so that it doesn't happen in the future. MS. CORNELL: I know we're trying to close up here, but you know, as I was listening to all of you, I was hearing, "you know, we don't want government mandated standards. We want market-driven standards," which I completely agree with, believe me. But at the same time, you want a certain level of standardization. You know, I know that we have all these regional standard-setting organizations that are growing up that have different slants than U.S.- oriented ones. We have the ITU which is, you know, molasses. I don't hear a particularly coherent sort of game plan out of all of that, just reflecting the kind of problems that you're raising. But anyway -- MR. ROBERTS: Pardon me. I'd just like to say that I think that I have a lot of sympathy for Mr. Winston as a telecom manager. I had a few years of that myself and it's very tough. But there's a lesson in this. The lesson is that in so many countries where we've let cost and price get wildly out of control, and so there isn't an investment incentive to modernize telecommunications systems. That means that the trailing edge on a worldwide basis is miles behind the leading edge. And from a structural and from a policy point of view, the best thing we can do is get those impediments to investment out of the way so that everybody can buy new technology and make a decent return on that investment. MR. HAYDEN: In terms of from an ANSI perspective, the government should be clearly a partner and jointly involved. On your specific example with the ITU or whoever it might be, it's a private sector-lead initiative and it's up to us, when we need your assistance, to specifically ask for your assistance or -- you as an involved partner see that something is required. So, by-and-large, we, the private sector, are not asking for abnormal kind of assistance or whatever. Stay involved with us and when we really need something to be done, we, the private sector, collectively, will raise our hand and say, "please give us a hand with this." CHAIRPERSON DARR: Mr. Tauke, would you like the last word on this? MR. TAUKE: The market does not solve all problems but the market, I think, is helping in this instance. I believe several people have mentioned already that we have more and more, in a sense, worldwide players -- a lot of new partnerships that involve major players from several countries. The more those things happen, the more we move toward a common view of what standards should be, a common view of how networks ought to be constructed, and the greater opportunity we have to overcome the hurdles that we're just talking about here. It doesn't apply directly to what user group you go after, but it suggests that the way the services are being delivered and the structures that are delivering them, are going to move us in a direction where we have more interoperability. That's why it's so important that we tear down the barriers, including our own, that allow those kinds of activities to occur. Every time a U.S. company can play a leadership role in one of those partnerships or endeavors, I think that furthers our economic position around the world. But it also facilitates the development of the GII. CHAIRPERSON DARR: One last final, final word. MR. WINSTON: I'd like to suggest that we look at what's happened in the voice market just briefly, and look at the fact that voice networks have truly become virtualized in the United States, as well as in some parts of the world. What that really means is that private industry does not have to build and operate its own private telecommunications network in order to get advanced feature voice-type services. From an industry perspective, and especially a multinational industry perspective, we would like to see the same type of initiative in the data networking arena, really, on a global basis. That we see a virtualization, a true plug-and-play type connection to a fully meshed data network fabric that everybody can play in, and that is totally interoperable. CHAIRPERSON DARR: Thank you. I'd like to thank the -- MR. NELSON: Carol, I had a real quick -- real quick. This isn't a question. This is really an invitation. Working at OSTP, I see a lot of reports and we work on a lot of reports. The most important meeting is always the one where you determine what the table of contents is. We've been talking here about a lot of different issues and this is incredibly helpful for us as we've put together our GII agenda, which was discussed earlier. I was wondering if the panelists and previous panelists, and anybody else in the audience, could give some time to thinking about what particular things we can do in this report that would most help you? One or two questions that really help you understand what this is doing and help move this process forward. This paper is designed to do lots of things: define our vision of the GII; identify issues; discuss who is working on which issues. But you know, what's the most important thing we can do? We're not going to write a 500 page report here. So, help us focus our attention, and just get back to us with answers. That would be very useful. CHAIRPERSON DARR: It really would. I'd like to echo what Mike said. I'd like to thank the panel. I think it was one of the most interesting we had, as evidenced by the fact that we went so far over our time limit. I thank the audience for your attention. Let's go home. (Whereupon, the hearing was concluded at 4:59 p.m.) SUMMARY NII Open Access Hearing Sunnyvale, California, May 13, 1994 Introduction In the Clinton Administration's policy blueprint, National Information Infrastructure: Agenda for Action, released September 15, 1993, the National Telecommunications and Information Administration (NTIA) was directed to convene a series of public hearings designed to "gather information on the best characteristics of an expanded concept of Universal Service." The first two hearings focused on the future of universal service. In Albuquerque, New Mexico, on December 16, 1993, NTIA focused on the needs of rural communities. Then in Los Angeles, California, February 16, 1994, NTIA shifted to an urban setting. The third hearing in Durham, North Carolina, on April 27, 1994, changed the focus of the first two hearings to discuss how to promote access to the National Information Infrastructure (NII) to best meet the information needs of our citizens. At each hearing, NTIA received testimony from state and local governments, public interest groups, industry and academia on issues relevant to an expanded concept of universal service. Summaries of these hearings are available on the Information Infrastructure Task Force (IITF) computer bulletin board. The IITF bulletin board can be accessed by calling (202) 501-1920 using a personal computer or modem. For access through Internet, point Gopher client to iitf.doc.gov or telnet to iitf.doc.gov and login gopher. Comments may be sent by e-mail to nii@ntia.doc.gov. Sunnyvale Hearing On May 13, 1994, NTIA and the California Public Utilities Commission (CPUC) conducted a public hearing on the topic, "Innovation and the Public Interest: Open Access to the Information Society." In this fourth hearing, NTIA changed its focus slightly from the previous hearing to examine how to promote open access to the NII to best include the public interest and entrepreneurial community. The hearing board for the Sunnyvale hearing included Deputy Secretary of Commerce David J. Barram and Assistant Secretary of Commerce for Communications and Information Larry Irving; CPUC Commissioners Norman D. Shumway and Jesse J. Knight; and Commissioner Andrew J. Barrett of the Federal Communications Commission (FCC). Over 250 public attendees were present, and the board heard testimony from 50 participants, including 20 scheduled panelists. Opening Remarks Serving as moderator, Assistant Secretary Irving opened the hearing by introducing the Mayor of Sunnyvale Frances Rowe. Ms. Rowe asked the federal policymakers and regulators to keep in mind the role of the city as "the frontline of public service" when developing the NII. Ms. Rowe then introduced the hearing board. Secretary Irving thanked Mayor Rowe and the City of Sunnyvale for their help in organizing the hearing. Secretary Irving also summarized the topics discussed in the previous hearings. He ended his opening remarks by posing the following questions: How do we ensure that providers (small, entrepreneur, public, corporate, and university providers) can meet the needs of the people that they serve? How can we ensure that consumers can exchange information and become providers? And, whether transport providers should be obligated to provide access and what are the legal and practical barriers to such access? Deputy Secretary Barram noted the importance of Silicon Valley as a large source of the technology. He explained the difference between universal service in the development of the NII, (making sure everyone is connected) and open access (how we use the connections). Also, he stressed the importance of open access as an important part of the long-standing national policy embodied in the First Amendment, to promote a diversity of ideas and fair competition in the free flow of information. Deputy Secretary Barram closed his remarks by posing the following questions for discussion: Who has access? Who does not? Who are the information providers today? How are they able to reach consumers? What factors help or hinder network access for information providers and users? How can we remove obstacles so information flows freely from information provider to transport provider to user and back again? And, what is government's role in ensuring access and spurring innovation? Commissioner Norman D. Shumway of the California Public Utility Commission noted the importance of the hearing. He said that the biggest challenge to the NII is how to offer maximum amount of choice and how to integrate different uses. Commissioner Jessie J. Knight presented three main points for consideration: foster relentless innovation, promote diversity in the range of services, and ensure affordable and widespread access to California's public network. Federal Communications Commissioner Andrew C. Barrett acknowledged NTIA's work in putting together the hearing. PANEL 1: Who has access? Who doesn't? M. Strata Rose, UNIX & Network Consultant, SysAdmin & Internet Information, Virtual City Network Project, stated that in terms of pure physics, bandwidth should be infinite. She noted that there are no physical laws, unlike with spectrum, that preclude creating additional bandwidth. She equated the personal computer (PC) to the telephone, but noted that a PC could supply a lot more, such as pictures and text, as well as audio signals. The question is "How much bandwidth does the average person need?" Should this person have access to full motion video, or is simple text adequate? Rex Mitchell, Vice President, Regulatory Planning and Policy, Pacific Bell, maintained that access was good and getting better. He called for free and open competition, to the maximum extent possible, in the provision of telecommunications services, and noted that legal and regulatory barriers that prevent competition should be removed. Where regulation is necessary, he believed it should be applied in an equitable manner. Furthermore, he believed that the one area where regulation may be appropriate is in interconnection, and in addressing what standards and functions should be used. He noted the enormous and beneficial effects of lifting the MFJ restrictions. Dan Pulcrano, President, Virtual Valley, Inc., equated a newspaper editor to a content provider, and called the "infobahn" both a threat and an opportunity. Small newspapers, when competing with large conglomerates, need a level playing field, according to Mr. Pulcrano. His newspaper had been denied access on many networks, so the paper bought its own server and started posting many different things, and had enabled many diverse groups to get on-line. He noted that the new telecommunications age should not shut out the small guy. Leslie L. Vadasz, Senior Vice-President, Intel Corporation, claimed that the most important access point was the PC, because of its interactive nature. More and more PCs are being used in homes, he noted. To more effectively use the PC as a communications device, however, more bandwidth is needed. He called for the rapid introduction of ISDN. Milton Chen, Ph.D., Center Director, KQED Center for Education and Lifelong Learning (CELL) KQED-TV, Inc., pronounced that public broadcasters are an essential component of the NII. He focused on some important questions, such as, what society intends to do with information technology, who are we, what do we seek to become? Mr. Chen asserted that the most important thing for information technology is community building. Legislation that mandates a public right of way on the NII is essential. Commercial use of the public switched telephone network and spectrum should help fund the public right of way. Other important questions that Mr. Chen pondered were on such matters as clearance of intellectual property rights, resolving difficulties in human access, and educating the public so they can see value in these services. Kari Peterson, Executive Director, Davis Community Television, Secretary Alliance for Community Media National Board of Directors, and President, Davis Community Network, noted the importance of the Public, Education and Government (PEG) channels in providing barrier-free communication for all groups. She cited as an example the fact that many immigrant and minority groups have produced programming, helping to create localism and build community. Ms. Peterson called for a ten percent (10%) set-aside of all bandwidth for PEG channels, as well as additional funding for outreach and training, and dedicated production facilities. Henry Der, Executive Director, Chinese for Affirmative Action, claimed that the current definition of "universal service" is inadequate, and should include "affordable access to the intelligent network." Also, he called for the term "services" to be defined by law. Mr. Chen noted that information technology can and should prevent further social stratification. If access is purely market-driven, however, then he feared that many will be disenfranchised. Without government intervention, according to Mr. Chen, information technology will not inherently foster access, and will continue to benefit only the rich. Thus, he called for more government subsidies and other types of support. Questions from the Hearing Board Deputy Secretary of Commerce David Barram asked the panelists how government would fund all these subsidies -- through an increase in taxes, or some other government fund? Chen recommended a statutory fee on commercial broadcast use of the spectrum and a tax on television and radios. Peterson suggested that the cable model was useful and advocated franchise fees. Audience Comments Liz Kniss, Mayor of Palo Alto, spoke about the City of Palo Alto being accessible to the public through the internet. Marianne Mueller, representing herself, stated that public access can be facilitated by funding libraries so that librarians can be trained to use the Internet and other services on the NII. Catherine Hung, West Valley - Mission Community College District, suggested that the government should help unite small service providers so that they may work together; recycle outdated equipment; and continue its social vision of focusing on the community. Bob Roy, Wireless Communications Alliance, expressed concern that one service may dominate the NII. He also believes that the convergence of cellular, paging, telephone, and other systems will lead to more efficient uses of the NII. Mark Roest, NGIN Research, expressed concern that there will be a division of information haves and have nots on the NII. He would like to see the NII architecture reflect reality and pointed to the Dewey Decimal System working for libraries, as an example. Dave Crocker, representing himself, stated that there needs to be a level playing field for consumers and service providers of the NII. He also recommends the Internet model for the NII. John Powell, Association of Public Safety Communication Officials International, expressed concern for state and local rights. He said that part of the spectrum should be allocated to state and local governments, so that public safety services, such as fingerprint scanning, may be utilized. Norman Jayo, Editor, Media Arts and Information Network, stated the need for everyone to be "media literate," in order to utilize the NII. He is especially concerned with training low income persons. Charles D. Evans, HFV-TV, Independent Rural Cable TV, expressed concern that the NII will take longer to implement in the rural areas because of the possible increased cost to connect a rural rather than a denser urban area. PANEL 2: What factors would help or hinder network access for information providers and users? John F. "Jeff" Rulifson, Director, Technology Development Group, Sun Microsystems Computer Corporation, stated that intellectual property rights are hampering the development of graphical user interfaces (GUI). He called for barrier-free access and barrier- free GUIs. Also, he believed that the industry standards-setting bodies will not be able to resolve this problem. Therefore, the federal government should use its purchasing power, post a list of barrier-free interfaces, and require agencies to buy from that list. Leslie Saul, Public Policy and Education Projects Manager, Smart Valley, Inc., called public institutions, like libraries and schools, "information equalizers," and noted that these institutions should be the focus of the NII. She claimed that there are attitudinal barriers to access and used the example that parents are worried that emphasizing information technology may degrade the "three Rs." She also acknowledged that children sometimes do access "bad things." Stephen Adams, Founder, Adamation, Inc., advocated a three-tier system of access pricing, similar to the first, second and third class tiers of the U.S. Postal Service. He stated that he would like to see a dialtone for high capacity use. In talking about access disparity, he noted that the PC may not be the proper metaphor. He noted that millions of inner-city youths, who had never used a PC, had similar amounts of processing power in their Nintendo and Sega games, and suggested that such devices might serve as a model for providing access. Susan G. Swenson, President, CEO, Cellular One, said that the cellular industry was replicating the landline network, but not replacing it. She noted that most of the barriers for the cellular industry have been regulatory and she used, as an example, the fact that it takes about 13 months to get a cell site permit. She also stated that standards are preventing access and that she was not sure of what government's role should be in setting standards. She noted that a cellular industry consortium worked to develop standards for data packet switching, which was a good example of industry overcoming barriers. Bill Mitchell, Director, Electronic Publishing, Mercury Center, San Jose Mercury News, declared that the big challenge is determining what type of compelling content will draw people to the NII. He theorized that once the content is compelling, people will be drawn to use the NII. Deborah Kaplan, Director, Division on Technology Policy, World Institute on Disability, expressed the need for equipment manufacturers to develop NII products for the disabled. She stated that, if such design factors are considered up-front, outfitting the NII for the disabled need not be expensive. She termed this concept "Universal Design." Lastly, she called for the Administration to encourage and promulgate guidelines for inclusion, and for the FCC to respond to disability concerns. Audience Comments Dianah Neff, City of Palo Alto, expressed concern that service providers and users will be hesitant to use the NII if security issues are not resolved. Also, she called for training, so that people can get comfortable with technology used on the NII. Edward J. Radkowski, Northern California Health Care Technology Alliance, stated that health care costs can be significantly lowered if there are interactive, on-demand networks on the NII, which can provide a patient's complete medical history. However, Mr. Radkowski would like the government to regulate the telephone companies so that they do not have access to highly confidential medical records. Gary Shultz, Multimedia Research Group, stated that a barrier to the development of the NII may be lifted by allowing telephone companies and cable operators to be broadband carriers. Also, he felt that entrepreneurial service providers should be encouraged on the NII. Dennis Bugdahl, College of Siskiyous, expressed support for the open access principle, but believes that the cost of phone service in rural areas is a barrier. Ralph Gillman, Sunnyvale, Calif., stated that one barrier to deployment of the NII is the conflict over whether telephone companies or cable companies will control access to the NII. Also, he believes that this problem can be solved by allowing more user control of regional projects. Judy Clark, Computer Professionals for Social Responsibilities, advised the panel to look to community and local networks, as well as large networks, when designing the NII. Helen Hernandez, representing an Encino government affairs firm, expressed concern that minorities and women will not have access to ownership of service providers. She also stressed the need for all Americans to receive training, in order to become familiar with the technology used on the NII. Solomon B. Hill, Computer & You program, Glide Memorial Church, expressed concern about what type of access the homeless will have to networks. He stated that providing homeless children with access to network technology will empower these children. However, the benefits derived from giving homeless children access will not be known until the children can engage in communication through the network. Peggy Lu, Net Manage Inc., stated that security on the NII is her primary concern. She believes that there must be development and implementation of technology that would guarantee that information and payment for services is kept confidential. PANEL 3: What is government's role in ensuring access and spurring innovation? David S. Holub, President of Operations, hooked (a small Internet Service Provider), called for the government to assure small businesses that they will have equal access to the mechanisms that deliver the information services to the public. Mr. Holub's main concern was that small businesses will not survive economically and technologically, if the federal government spends too much time working out rules to regulate telephone, video, and hybrid service providers. He stressed that the government has a role in maintaining competition among service providers, including competitive access providers (CAPS). Jim Bidzos, President, RSA Data Security, Inc., advocated the use of encryption and digital signature, in order to protect and authenticate electronically-generated documents. He urged the government to adopt this technology. Edward M. Spivak, Regional Vice President, First Pacific Networks, Inc., called for the government to pass and/or lift regulations, in order to allow full competition for two-way broadband services. He claimed that this would enable the service provider to bring down the cost of service, which will in turn result in the expanded deployment of services in rural areas. Specifically, Mr. Spivak called for unbundled rates for interconnection and for the government to expedite the rulemaking and appeals process. Lastly, he urged Congress to clarify the legislative intent of new laws (particularly, which are federal and state powers). Elaine Lustig, Staff Attorney, Corporate and Regulatory Affairs, GTE California, Inc., declared that government regulations should foster the development of a combined free enterprise/common carrier model in the telecommunications industry. She explained that this would require service providers to set their prices according to the underlying costs and market conditions for each service. She called for regulations to be lessened where there is competition. Where there are no service options, she called for the implementation of price caps, in order to prevent the service provider from pricing its services above the cost-based price. Ms. Lustig claimed that price caps would prevent the subsidization of other services, as well as allow other service providers to enter the market. She also stressed the importance of the following points: Regulatory parity; the common carrier model; assurance of open access to all information providers; and minimal regulations (in order to encourage service providers to deploy high capacity technology). John Siegal, Senior Vice President, Chris Craft/United Television and Chairman of the Television Board of Directors of the National Association of Broadcasters (NAB), stressed the need for the FCC to review and modify the national and local broadcast ownership rules, in order to promote competition amongst and between telcos, cable television operators, satellites, broadcasters, and other media. He expressed concern over the concentration of access to information and supports the "in-region buyout" prohibition (which prevents telcos from acquiring more than a five percent interest in an existing non-affiliated cable system in its service area). He also supported protection of competition through policing and imposing penalties on anti- competitive behavior; protection of regional programming; regulation of telcos as cable television operators, if they offer video programming; and provision of video programming by telcos on a common carrier basis. Dale Bennett, Regional Vice President, TCI Cablevision of California, Inc., stated that the government should encourage competition between multiple service providers, provide consumers with choice and access, protect consumers from monopolies, and spur innovation. He called for lifting all legislative barriers preventing competition in the local exchange market. Lastly, Mr. Bennett urged the government to establish the same regulations for telcos and cable companies providing the same service. John Gamboa, Executive Director of Latino Issues Forum and Co- chair, Greenlining Coalition, expressed concern that minorities, especially the Hispanic community, will be left out of the NII. He called for the government to make service providers demonstrate that low income persons will not be excluded from the NII. Summary Remarks by the Hearing Board Commissioner Jesse Knight CPUC asked the panel what the CPUC must do to prepare itself for the NII. Mr. Bennett expressed his desire for TCI to be able to enter the marketplace that the CPUC regulates. Mr. Siegal commented that he does not want TV signal carriage over cable or telephone wires to resemble MCI's struggle to enter the long distance telephone market. Ms. Lustig noted that the CPUC's regulatory process of long hearings with large participation is detrimental to the deployment of the NII, because it delays action. Mr. Gamboa stated that the CPUC must get input from minority grassroots organizations and believed that the CPUC's intervenor payment system has punished the Hispanic community, because it has not allowed the community to comment, as it wishes. Ms. Lustig added her desire for a less contentious system. Deputy Secretary of Commerce David Barram asked Mr. Spivak whether HFS allows cable companies to interconnect with other cable companies and telephone companies. Mr. Spivak answered that the technology is available and claimed that broadcasters, too, can interconnect with cable. Mr. Bennett commented that TCI can also interconnect, but regulations are holding up interconnection. He noted that TCI could not interconnect on a switched basis, because cable delivery of telephony remains impermissible. FCC Commissioner Andrew Barrett asked the panel whether there can be interconnection by satellite. Mr. Bennett said that it is technologically possible for one-way interconnection, but that two-way interconnection has not been explored. Mr. Holub expressed his interest in knowing whether newcomers will be able to interconnect. Assistant Secretary of Commerce Larry Irving asked whether there was opposition to the four principles Ms. Lustig presented. Mr. Bennett wanted to know how content will be treated. Mr. Siegal added that telcos carrying video programming should be subject to must carry regulations. He did recognize that broadcasters could pay a fee to video carriers in order for them to carry their programming. Also, he believed that all free programming services for consumers must be carried by all video providers. Mr. Irving asked Ms. Lustig what responsibilities should information providers have with regard to interconnection with classrooms and schools. Ms. Lustig responded that information providers already do offer free services to schools. Mr. Irving also asked the panelists for their thoughts on availability/provision of navigational tools. Mr. Bennett commented on the TCI project with Sega to develop less expensive navigational tools. Mr. Spivak commented about the need to have low cost navigational tools by pointing to the U.K., where First Pacific Networks sells their processor for $10. Mr. Siegal expressed his concern about where the device providing access to service is located. He said that he does not want there to be a headend gatekeeper; instead, access to information should be a memory device located at the home. Audience Comments Mr. Richard Pettinato, CEO of Media Captioning, expressed concerned over his eligibility for a NTIA/TIIAP grant as a for- profit organization. Mr. Irving addressed his concerns by encouraging him to form a partnership with a non-profit organization in order to qualify for the grants. Mr. Landon Noll, Council Member - City of Sunnyvale, encouraged the government to adopt cryptology and develop standards for its use. Mr. Stan Kawzynski, Sunnyvale City Council and League of Cities, expressed the League's support for competition, but would like cities to regulate providers in a way that is similar to the franchising agreements with cable operators. Mr. Kawzynski added that cities should be allowed to regulate video providers locally, because these providers use rights-of-way. Mr. Steve Cisler, Apple Library of Tomorrow, expressed concern about the lack of government attention to training novice users and to interfacing with low power providers. Ms. Lynn Purvis, Sierra Planning Organization, expressed concern that rural America will not have the economic resources to participate in the NII. Mr. Thomas Long, TURN, questioned what the cost of the NII will be and if it is worth the price. Mr. Michael Morris, TCG, stressed the need for local competition. Ms. Mary Clair Sprot, California Library Association, urged continued governmental funding for libraries, so that they can provide access to the NII, as well as training. Mr. Joe Hamilton, Fremont Union High School District, advocated that schools should have low, or no, cost access to the NII. Ms. Jean Kwan, Board of Directors of Oakland High School and representative of the Asian-Pacific Community, expressed concern about access to the NII by low-income schools and children. Mr. Tim Hyland, Oracle, encouraged government to include entertainment applications on the NII. He said that novice users, who fear technological innovations, will be drawn to entertainment applications and, eventually, may tap into educational applications. In closing, Mr. Irving thanked the panel and audience witnesses, members of the hearing board, and technology demonstration participants for their contribution to the hearing.