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A Look Back
The Information Superhighway
by Kent Lewis

Introduction

What is this new "information highway" sweeping the nation, and effecting virtually every aspect of our modern day lives? Some people still disagree as to the exact definition and scope of the highway. The ramifications of this enormous undertaking will never be fully comprehended. As of today, the superhighway covers: local and long-distance telephone services, telecommunications equipment, broadcast and cable entertainment, computers and software, printing and publishing, banking and brokerage services, movies, catalog shopping, and satellite services. There are many aspects and dimensions to the highway, so just the surface will be scratched in the following pages. Let us explore some of the technological innovations, problems, which some of the major players are, what some of the important mergers and alliances are, rights and regulations, and the implications of it all.

Innovations

Many interesting innovations have been made recently, which will allow the highway to become a reality. HDTV, a product that has been under continuous development for the past ten years, will allow new vivid clarity that will be essential to serve as the anchor product to the end users. New improvements in telephone and cable lines have increased the amount of information capable of traveling through the lines. Fiber optics, a product that has rather small distribution, is by far the most effective medium for information travel into the homes. CD-ROM has greatly increased the amount of information that can be stored and readily accessed. New satellite services have been proposed which would allow any person to be accessed anywhere on the globe by satellite using a beeper-size PDA (6). New computers containing the RISC chip are faster than current Pentium chips. These high-speed, cool running chips will revolutionize future computer capabilities. All of these and more innovations will combine to allow a new unprecedented age of interactive TV.

Problems

There are many problems that will easily delay if not halt the completion of the information superhighway. Some of the problem areas are: data compression, servers, conduits, set-top boxes, and user interface.

Data compression and storage is a problem area. Currently, our nation does not have the storage capacity that would allow for the digital processing of thousands of pieces of data, movies, catalogs, shows, publications, and other valuable and necessary information. The transfer devices used between points, known as servers, are currently incapable of serving thousands of homes at once (6).

Companies will be fighting over which conduit- phone, coaxial, or fiber optics, to send information over. Phone companies want to use existing phone lines, cable companies want to use existing coaxial lines, and the optimal solution is fiber optics, which offers the greatest capacity with the least interference or quality reduction. The larger problem with this is who will supply the costly rewire, and who will supply the services through those lines? This has yet to be determined.

The set-top box is another major challenge. This box must be able to receive, store, decode, and transmit the necessary data. The size and cost of this box is currently unfeasible (8). User interface is a problem that seems simple, yet may be the biggest challenge. If the information highway does get through miles of wires, servers, set-top boxes, and appears on the screen, how will the consumer learn to use the system? Currently, U.S. residents have enough trouble dialing long-distance.

Even if the consumer figures out how to surf through the proposed 500 channels, how will billing be conducted? Software is the hidden difficulty that will be needed to run the show. Who will develop this information superhighway, and at what cost to businesses as well as the consumer? Nobody seems to know the exact answers.

Major Players

Because of the scope of this undertaking, many companies are involved. The costs are only a fraction of the potential profits. Many businesses realize this, and are feverishly trying to get a toehold in their respective industries. There are three distinct segments that cover the superhighway: content, delivery, and manipulation.

The content, or media, are what is going to fill the highway with information and entertainment. Some of these major players are: Paramount, TimeWarner, and Disney (6). Paramount specializes in the conversion of movies, textbooks, and other software into digital format, and purchasing the digital rights to any new material it acquires. TimeWarner has interest in the installation of fiber optic cable lines, construction of an advanced computer network with the help from Microsoft, Silicon Graphics, and US West, and the testing of a PC-based system with CDMA digital technology. Disney will stick with their animated pictures. The battle between these companies for a piece of the pie is heating up.

The medium focuses on the delivery of the entertainment. The major players include: AT&T, TCI, and The Baby Bells (12). AT&T will build a system of computers and advanced switches that will store and send digitized video programs. They will also offer the True Reward Plan that offers frequent long distance users cash discounts. TCI is planning to supply a majority of the 500 proposed channels. Some of those channels will include pay-per-view on demand, home shopping, specialized channels based on psychographics profiles of consumers. TCI will horizontally and vertically integrate into all aspects of the delivery(6). The Baby Bells will become a programming powerhouse by supplying such novelties as the Star Gazaar- a TV shopping mall, as well as home education, health, and fitness programs (11). It is yet to be seen which of these major players will gain control of the conduits.

The manipulation consists of the hardware and software necessary in carrying out the highly technical aspects of the highway. The major players in this segment consist of: Microsoft, Intel, General Magic, Apple, and IBM (12). Microsoft is a powerhouse in the software industry. Bill Gates, President, is highly involved in the development of the highway. He plans to provide a great deal of the software needed in various areas of the highway, as well as introducing PDA software next year. Microsoft and Intel plan to develop digital "smart" phones, personal data communicators, digital converters for interactive TV, and extending the range of the PC to include cable TV (1). General Magic is designing a common language allowing digital services to talk to each other. Apple will specialize in hand held computers like the Newton. Apple and IBM are teaming up to design digital converters and networks needed to manipulate video, voice and data over interactive TV (1). This area of the highway has the most competition, which is advantageous to the consumer.

Major Mergers and Alliances

While there are many arguments against mergers and alliances, there are also many benefits. Some of those are: they help build technical standards while reducing costs and risk, it allows more diversity in the development stage, and can undertake R&D which is impossible for one company to finance. The drawback is decidedly ominous: huge monopolies are created which virtually weed out all competition. The major mergers and alliances that are worthy of mention are the following: TCI-Bell Atlantic, TimeWarner-US West, AT&T-McCaw Cellular, and Paramount-Viacom.

The TCI-Bell Atlantic merger failed due to rigid Government regulation of the cable industry. This proposed merger would have boosted TCI to the leadership position on the interactive TV market (1). This failed merger has set a precedent for future merger attempts between these two industries. Our Government decided to put a stop to the excess power that would have been gained by this monopoly.

US West currently owns a 25% interest in TimeWarner, giving it a share of future profits. TimeWarner received $2.5 billion in return to expand its fiber optic network. This is a good example of a mutually beneficial alliance. These two companies are also working with Microsoft to develop software for interactive TV (12).

AT&T recently paid $12.6 billion for McCaw Cellular to aid in the transfer from wirelines to wireless over the next 15 years (6). This merger may allow for the development of a nationwide personal communication services that would challenge the Baby Bells. This move will foster competition in the long-distance service area. AT&T has also allied with General Magic to develop communications software for this communications network.

The Paramount-Viacom deal will allow Paramount to provide movies and TV programs while owning theme parks, publishing services, and Madison Avenue Square Garden. Viacom, one of the nations largest cable companies will retain 61% of its equity (11). This deal will be mutually beneficial due to the vertically integrated nature of the merger.

Rights Vs. Regulation

Government regulation of the information superhighway has created controversy due to the sensitivity of the American people on issue of rights. Some people favor deregulation, others want more government involvement, and still others are fervently undecided as to the best route to take. The largest and deepest disagreement is over the "Clipper Chip," our governments answer to security on the information highway (4). The dilemma has boiled down to the citizens' willingness to volunteer a degree of personal security for the added convenience and expansive possibilities of the superhighway.

The Clipper Chip, as designed by the NSA, will provide the Federal Government with a "key" to the back door of all encrypted programs (9). It was created to give the government easy access into all aspects of information transfer. The government will be able to watch over the business and private sectors for any wrong doers. The key will only be allowed after a court order is issued, much like a search warrant in today's world. Internet is currently regulated in this manner.

There are many opponents to this chip, and each for a different reason. Some say it is Unconstitutional, others say it is a hassle, still others say it is foolish, financially unfeasible, inflexible, and defeatible (9). The cons of the Chip greatly outweigh the pros. All things considered, the chip is destined for the scrap heap.

Whether the Clipper Chip becomes a reality or not, encryption continues to be a large growth area for software. Countries like Taiwan and Israel lead the world in encryption technology. A current U.S. ban has put a stopper on the profitable export of encryption technology for U.S. manufacturers. The encrypted programs will allow added privacy with the ability to send mail in an "electronic envelope" which is currently impossible on Internet (3). Some of the areas affected by possible electronic crimes are: personal medical or credit information, and shareware. Hackers are able to break into system files and alter, copy, or destroy information. Encryption will be the only way to keep these criminals out.

Currently, Internet, a Government initiated network with 20 million users, has been broken numerous times by organized hackers. CERT, an agency located in Pittsburgh, monitors Internet for holes. When holes are found, warnings are posted, and the hole is repaired. CERT currently employs only 15 programmers, who work around the clock (10). Some skeptics believe that the break-ins are staged by the Government to increase demand for the Clipper Chip (9).

The FCC is the most prominent regulatory agency involved in the information superhighway. The agency has been accused of being a sluggish, ineffective beaurocracy(7). While these allegations may be true, it is also true that the FCC is extremely under funded, understaffed, and underestimated (8). The FCC headquarters had rotary phones are recently as five years ago. Some of the FCC's problems can be rectified soon, however. Many of the approval processes date back 50 to 100 years (2). There is currently a huge backlog of interactive test approvals. The FCC's funding has been increased, and will continue to improve with the help of big business. The FCC was able to wield their regulatory power effectively by imposing a 7% rate reduction of monthly cable bills, which greatly decreased the value of the companies for mergers.

There has been much Government regulation and proposed legislation over the recent months. Much of this is due to the fact that current Government regulations concerning communication were developed at the turn of the century to deal with the rapid expansion of railroads (3). Times have changed, and due to the rapid changing nature of the superhighway, new regulations are needed. Since the amount of regulatory activity has been overwhelming, only the most important actions will be covered.

On August 23, 1993, the Federal Courts struck down an Unconstitutional portion of the 1984 Cable Act that barred Baby Bells from creating, owning, or packaging video programming inside telephone regions. In May of 1994, legislation was passed which will allow cable companies to compete directly with phone companies. The Government is hoping this will foster competition as well as avoid monopolies.

New legislation is proposing a five member Privacy Protection Commission that would act as a watchdog, set policies, and check abuses. The Fair Health Information Services Act would protect medical information with civil and criminal penalties for misuse. The Consumer Reporting Reform Act would guarantee access, accuracy, and privacy of consumer credit information. An administrative task force is proposed to enforce the regulation of R&D, intellectual property, privacy, and universal services. The Telecommunication Infrastructure Act will speed up the implementation of inexpensive communications (5). This newly proposed bundle of legislation should effectively protect citizen's privacy while speeding up the development of the superhighway.

Implications and Recommendations

Although only the tip of the iceberg has been revealed so far, we can at least get a taste of what is in store for us. On one hand, we will be able to play video games against our friends on the other side of the globe, and on the other, you may come home one day to find your life savings has been electronically transferred to an unknown account in the Bahamas. We must be able to concede a degree of our personal privacy in exchange for the benefits of technological advances. The roll of Government is important, and must be well balanced in order to be effective.

We must decide as a people if deregulation, resulting in rapid and dynamic changes in the industry is the answer, or if a slower, well-regulated approach should be taken. Universal standards must be adopted in order to maximize the effectiveness of the information superhighway. We must also be aware of the most heated battle of all- the war for access to the end user, and who will supply it. Will it be cable, phone, independent, or public utility?

The most important question of all is: who is going to pay for all of this. Even with all of the mergers going in, big business has scarcely enough resources to carry out the funding necessary to complete the superhighway. If this is true, will we, the consumers, be stuck with the bill as taxpayers and users? If a toll bridge is constructed on the information superhighway, and the toll is too large for us to bear, we may end up walking.