the rapid introduction of new technologies and services;
the restructuring of the telecommunications sector; and
globalization of economies and of communications.
Together these developments are not only changing the world of telecommunications, but the ways people work, learn, and interact.
"The death of distance as a determinant of the cost of communications will probably be the single most important economic force shaping society in the first half of the next century." (The Economist) The death of distance could have profound implications for both individuals and organizations. The ability to work "anytime, anywhere" allows "road warriors" to work without offices on planes, in hotels, and at client sites, and enables information workers to telecommute from their homes rather than traveling to work. This flexibility can be two-edged for individuals, who can work wherever they choose but may never escape the "virtual workplace." (Alan, 1) Organizations may reduce their overhead costs and improve their productivity, but they must also learn how to manage their decentralized work force.
One major technological trend is the extension of "information superhighways" in the form of broadband networks (Bhargava). Another one is the increasing ubiquity of communications using wireless technologies (that will, however, initially provide access to squirts rather than floods of information) (Bhargava). Personal communications networks using microcellular technology will allow people in urban areas not only to talk on pocket-sized telephones, but to transmit and receive data using wireless modems. In rural and developing areas, these services may be available from low earth-orbiting (LEO) satellite systems.
On an international level, the death of distance has profound implications for the globalization of industries and national economies. Rural regions in Europe and North America may lure businesses with their pleasant environment and lower labor costs; however, they are no longer competing only with cities in their own countries. Companies may hire information workers in developing countries where labor is far cheaper, not only for data entry and word processing, but for writing computer programs (Hudson, 279). Conversely, developing countries now find themselves competing in global markets, where quality and suitability of products may be as important as price. (source essaymart.com)
For over a decade, empirical studies in the information technology (IT) value literature have examined the impact of technology investments on various measures of performance. However, the results of these studies, especially those examining the contribution of IT to productivity, have been mixed. One reason for these mixed empirical findings may be that these studies have not effectively accounted for the impact of technology investments that increase production efficiency and improve product quality on firm productivity. In particular, it is commonly assumed that such investments should lead to gains in both profits and productivity (Gundepudi).
However, using a closed-form analytical model, this underlying assumption can be challenged and it can be demonstrated that investments in certain efficiency-enhancing technologies may be expected to decrease the productivity of profit-maximizing firms. More specifically, it can be demonstrated that investments in technologies that reduce the firm's fixed overhead costs do not affect the firm's product quality and pricing decisions but do increase profits and improve productivity. In addition, investments in technologies that reduce the variable costs of designing, developing, and manufacturing a product encourage the firm to improve product quality and to charge a higher price (Gundepudi). Although this adjustment helps the firm to capture higher profits, it will also increase total production costs and will, under a range of conditions, decrease firm productivity. Finally, the direction of firm productivity following such investments depends upon the relationship between the fixed costs of the firm and the size of the market.
Telecommunications networks now link manufacturers with assembly plants, designers with factories, software engineers with hardware vendors, suppliers with retailers, retailers with customers. No longer is it necessary to have all the expertise in house. Software engineers in Silicon Valley complain that they are laid off while contractors transmit code from Russia and India (Stokes, 1727). Freelance designers can now send clothing patterns directly to an automated garment factory. Customers can order anything from airline tickets to winter clothing online and do their own banking and bill paying electronically. (source essaymart.com)
These trends open opportunities for innovative entrepreneurs around the world. For consumers, they offer more choice and lower prices because there is no overhead cost for sales clerks and order takers. Yet these changes pose threats to traditional businesses as well as to employees. Increasingly, companies that want to compete on price will have to "work smarter" to reduce costs and respond to market changes, while others will have to rethink how to add value to attract customers. High levels of customer service and individualized attention are likely to become more important. As Wells Fargo found (Parker), a bank that offers assistance from a human twenty-four hours a day in addition to online electronic banking can attract new customers. Computer vendors that offer free and easy-to-reach customer support may be able to charge a premium, or at least not lose customers to commodity discounters.
More than half the computers in U.S. offices are linked to local area networks (LANs). Increasingly, businesses are also linking into the Internet to reach counterparts in other organizations, specialized databases, and potential customers. Each month, some 2,000 businesses join the more than 20,000 that have already set up "virtual shop" on the Internet.
Federal Express's 30,000 employees around the world are linked via the Internet to "intranet" sites within the company's Memphis headquarters; some 12,000 customers a day track their own packages using Federal Express's Internet Web site, rather than calling a human operator (Cortese). Ford Motor Company engineers in Asia, Europe and the United States worked together electronically to design the Taurus automobile. Pharmaceutical company Eli Lilly uses information compiled on its intranet sites to schedule clinical trials and submissions for approval of new drugs in countries around the world. Visa International provides an information service called Visa Vue for its 19,000 member banks on an internal Web site (Cortese).
As electronic security improves, in the form of "firewalls" to prevent unauthorized access to private networks and encryption to protect the privacy of personal and financial data, more companies will use the Internet to sell products and services as well as to link their employees (Au). The Internet opens a global market to the small business and lets low budget nonprofit organizations reach interested parties across the country or the world. While Reuters and Dow Jones are repackaging financial information for electronic subscribers, a startup company in Silicon Valley called QuoteCom is selling financial information over the Internet for as little as $10 per month. The Future Fantasy Bookstore in Palo Alto, California, put its catalog on the Internet and suddenly became a global firm (Thatcher).
Telecommunications networks are creating a global information workforce, as employers seek the cheapest labor, ranging from clerical work, such as data entry, to software programming and research and development. American Airlines uses key-punch operators in Barbados to enter data from its flight coupons, which are then fed by satellite and telephone lines back to American's central computers in Tulsa, Oklahoma. American reportedly saved $3.5 million on data processing in its first year. Mead Data Central, a provider of database services, hires overseas workers primarily in Ireland, the Philippines, and South Korea to enter documents in its databases. There are now at least seventy U.S. data processing firms with overseas facilities.
As demand for these services grows, users will need access to more bandwidth to speed searches, download software, and transmit video and graphics. Some telecommunications companies, such as AT&T and MCI, are becoming Internet service providers, concluding that the Internet must be viewed as an opportunity rather than a threat. Others fear that the Internet will steal traffic, as users opt for flat rate voice and video transmissions rather than paying for time or bits.
Traditional telephone companies will have to respond to the demand for new and cheaper services as an opportunity rather than a threat if they are to survive. Rather than local monopolies providing telephone services over copper wires, in many countries we may find cable television companies, electric utilities and wireless operators competing with telephone companies to reach the end user, offering a combination of voice, data, and video services.
Global information infrastructure's (Gill) technological and economic trends have led policy makers to call for the construction of "information highways" linking communities and nations. The phenomenal growth of the Internet as an information resource, communications tool, and electronic marketplace has focused attention on the need for national and global 'information infrastructure" (NII and GII) to bring the Internet and other forms of electronic communications within reach of people around the world.
Against this background, why all the hyperbole about electronic superhighways? Several themes recur in these information infrastructure initiatives. There are dual assumptions that converging technologies will result in information services with both social and economic benefits, and that both public and private sectors must be engaged to ensure the installation of national broadband networks. Yet these assumptions need to be carefully examined. Each new communication technology has been heralded as offering numerous benefits. Satellites and cable television were to provide the courses taught by the best instructors to students in schools, homes and workplaces. Videoconferencing was to largely eliminate business travel. Telemedicine was to replace referral of patients to specialists. Computers were to replace traditional teaching with more personalized and interactive instruction (Schwankert, 112).
To some extent all of the prophecies have been fulfilled, yet the potential of the technologies is far from fully realized. In many cases, it took institutional change and incentives to innovate in order for these technologies to have much effect. In North America, the more remarkable change is in these incentives rather than the technologies. As school districts face shrinking budgets and new curricular requirements, as spiraling health care budgets are targeted by governments and insurance companies, and as business realizes that people must "work smarter" to compete in a global economy, they find new and compelling reasons to turn to telecommunications and information technologies.
Thus, investment in technology alone will not likely result in major social benefits. Policymakers in these countries appear aware that public sector stimulus is needed to foster new educational and social service applications; there is widespread belief in the need to fund trials and demonstration projects (The Commission of the European Communities). Yet seed money for pilot projects may not ensure long term implementation. Schools with International Services Digital Network (ISDN) access will benefit if the services they can access turn out to be cost-effective means of achieving their educational priorities. If the services are perceived as frills, or if there is no budget allocation to buy computers or pay monthly usage charges, connection to the information highway will mean little.
Similarly, if insurers will not authorize payment for teleconsultations, or physicians are not authorized to practice beyond their borders, telemedical applications will remain limited. And if prices for connection and usage are beyond the reach of low income and rural residents, small businesses and nonprofit organizations, the much-heralded information society will be very narrowly based. (source essaymart.com)
The U.S. communications industry has adopted the banner of the "information superhighway," with the assumption that there is an enormous new market in information services. While these applications are generally viewed in the United States strictly in business terms, in other countries cultural impact is also a major concern. Both Canada and the European Union stress the need to use these networks to strengthen their own cultures (The Commission of European Communities). Yet, the proliferation of cable- and satellite-delivered channels in Canada and western Europe tells a different story: the demand for content is so great that operators turn to inexpensive sources of content to fill them, and this content is overwhelmingly American.
Another recurring theme is the "we will be left behind" argument. In the late 1980s, U.S. telephone companies sought to convince American policymakers that the United States was at a disadvantage because its citizens did not have Minitels, small computer terminals provided to French households by France Telecom. Yet Americans had much of the functionality of the Minitel through widely available facilities, including telephone access to audiotext services and growing access to personal computers equipped with modems.
Today, Canada, the European Union and Japan are all concerned that they will be left behind the United States if they do not implement their own information infrastructures. Notably, the report to the European Union states: "The first countries to enter the information era will be in a position to dictate the course of future developments to the late-comers." (The Commission of the European Communities) But is this really so? It may be that their technology companies will have an advantage if they have a ready market for fast packet technologies, such as Asynchronous Transfer Mode (ATM) servers, set-top boxes, and multiplexers that can also be exported. However, the real payoff for users will be from the application of these technologies to access and share information that can contribute to the development of their own societies and the competitiveness of their economies.
Most researchers who use the theories and methods of economics in Information Systems research know that there is much to be learned from constructing analytical models when it is impossible or impractical to collect data on a specific phenomenon. In "Should We Wait? Network Externalities, Compatibility and Electronic Billing Adoption," Yoris A. Au and Robert J. Kauffman of the University of Minnesota examine competitive strategy related to technology solution adoption in electronic bill payment and presentment, at a time when widespread diffusion has yet to occur in the United States. The authors analyze institutional relationships in e-billing and find that the current industry structure precludes adoption decision-making without the consideration given to building in option and contingencies to defray the risks of a rapidly changing marketplace.
The authors find that there are multiple intermediaries (i.e., banks and bill consolidators) between biller/vendor firms (i.e., electrical utilities and department stores), and the consumers who buy from them. This "multi-partite adoption" problem makes electronic bill payment and presentment technology adoption more a matter of "rational expectations" about market developments and emerging standards, than a precise capital-budgeting calculus. (sourceessaymart.com)
With this industry backdrop in mind, the authors employ a welfare-economics modeling perspective to portray how firm adoption patterns are likely to vary in the presence of non-sponsored and sponsored technology e-billing solutions. Their model characterizes a number of conditions under which exercising an "adoption option" is a first-best strategy, as originally suggested by Choi and Thum. The present authors' partial equilibrium modeling perspective delineates some of the key issues that the marketplace will need to overcome in the next several years, as e-billing technologies become more widely adopted.
Controversial research from a Butler Group associate has found no correlation between IT spending and profits. Associate Paul Strassmann's research shows only a random correlation between IT spending per employee and return on shareholder equity (ROE). For example, Smithkline Beecham has an 86.8 per cent ROE while spending only a fraction of what Centrica spent on IT per Employee - yet Centrica reported a negative ROE of 36.2 per cent.
Strassmann comments: "Spending money on IT guarantees absolutely nothing. The absence of a demonstratable relationship between profitability and IT spending should be seen as evidence that other influences, such as strategic advantages, competitive positioning and leadership effects are likely to be more decisive than information technologies. Technology has been over-valued by companies involved in an arms race of IT spending, trying to match and outdo each other's capabilities."
Strassman's report concludes that up to three-quarters of the potential decisive influences on profitability concern strategic choices that even very large investments in computing cannot address or solve. These include variables like market share, capital intensity and relative customer quality, which all display a clear correspondence with profits.
Matt E. Thatcher of the University of Arizona and Jim R. Oliver of INSEAD lead off this special section with "The Impact of Technology Investments on a Firm's Production Efficiency, Product Quality, and Productivity." Their study probes the reasons for the mixed findings on the business value of information technology associated with the "productivity paradox." The authors propose that there has been insufficient consideration given to the interaction of production efficiency and enhanced product quality in the realization of firm productivity. The authors present a model that allows for the possibility that improved profits and productivity gains may actually trade off, rather than both move in the same direction in the presence of information technology investments.
The explanation for this, according to the authors' analytical model, can be boiled down to whether the investments reduce the firm's fixed overhead costs-unequivocally leading to productivity gains-or the firm's variable costs of production. Changes to the latter lead to more competitive design, development, and production costs, and improve price recovery, product quality, and product sales margins.
What they do not always do, however, is prompt parallel gains in productivity. An exciting finding in this work is that the authors are able to illustrate when it is possible to predict that there will be a productivity gain or productivity decline due to information technology investment, and hence, a new interpretation of why there actually ought to be a productivity paradox.
New technologies and services are alluring, but they also present challenges and paradoxes for the telecommunications industry, users and policymakers. Consider the following:
Technological Trojan Horses
New technologies are introducing changes faster than policymakers can respond.
"Callback" services (where calls between countries with high international tariffs are actually reoriginated from a third country with much lower rates such as the United States) are undermining the traditional strategy of monopoly carriers in many developing countries that use high international rates to cross-subsidize domestic rates and generate income that can be invested in domestic infrastructure.
Satellite broadcasting has introduced foreign and commercialized programs in western Europe and in much of Asia, forcing domestic broadcasters to innovate to hold on to their audiences. The Internet, seen by many policymakers as an important tool for their industries to remain competitive, opens the door to unfiltered information that may be considered inappropriate or illegal in their countries.
Competition and Consolidation
While telecommunications services are increasingly being liberalized to attract competitive providers, there is also a growing tendency to consolidate. The result may be only a few major players or consortia in the international environment, as well as a few providers in major domestic markets. These new oligopolies will be able to offer a greater range of services than their predecessors and may make it easier for users looking for "one-stop shopping" to meet their telecommunications needs. The danger, however, is that they will form cartels that will prevent significant competition in price, service, or innovation.
Access and Control
Some governments that see information technology as critical to their economic development strategy are at the same time concerned about the socio-political implications of access. One of the most ironic examples of the simultaneously held goals of modernization and control is Singapore, which is staking its economic future on becoming an "intelligent island." The Singapore One venture intends to extend optical fiber optics throughout the island, to connect every business, home and school.
Yet Singapore has retained tight control over individual access to information. The government applies broadcast content regulations to the Internet, holding Internet service providers accountable for content accessible to their customers. Also, it is illegal for individuals to install satellite antennas, so that Singaporeans cannot watch satellite-transmitted programs from regional satellites, including those uplinked from Singapore's own industrial parks.
Universal Service as a Moving Target
New technologies and services are forcing policymakers to rethink their goals of universality. In both industrialized and developing regions, universal service has become a moving target, as policymakers must adjust their goals to make new services more accessible. For example, the U.S. Telecommunications Act of 1996 redefines universal service to include access to schools, libraries and health care facilities, and to include not only "basic" telephone service but also "advanced services," a term whose definition will evolve over time.
The World Bank estimates that investment in telecommunications in the developing world must double to meet the growing demand for telecommunications services. In spite of accelerated investment in many developing regions during the past decade, the vast majority of people living in developing countries still lack access to basic telecommunications. Yet there is cause for optimism. New technologies offer the possibility of technological leapfrogging, e.g., to reach end users through wireless local loops or small satellite terminals rather than stringing wire and cable. Digital transmission and switching are increasing reliability and lowering cost, as well as making it possible for subscribers in developing countries to use electronic mail and voice messaging, and to access the Internet.
Information gaps show least signs of shrinking in the poorest countries, two-thirds of which have less than one telephone line per 100 inhabitants. Telecommunications is not a panacea for countries with populations near the subsistence level as well as urgent demands on foreign exchange for food, fuel and medicine. Yet, as these countries develop market economies and seek to take maximum advantage of scarce expertise, they will need to invest in telecommunications.
Of course, these regions are less attractive to investors than more prosperous economies; in general, they have also been the most reluctant to reduce their governments' role as monopoly operator. Their networks are also the least efficient, in terms of reliability and the number of lines per telecommunications employee. Restructuring their telecommunications sectors to improve productivity and encourage investment will be necessary if they are to begin to close the gap.
As investment in telecommunications infrastructure increases, the gap between information haves and have nots may become based on price and choice, rather than technology. Countries that continue to favor telecommunications monopolies, or seek to control access to information, may limit user access even where technology is available. In most of Europe, access to the Internet is much more expensive than in North America. As one commentator states: "Digital Europe has many medieval features: road tolls and extortion-like taxes, witch hunts, an oppressed citizenry, and powers-that-be in feudal towers." Access is much less affordable in many developing countries. Even professionals in many African countries cannot afford to use telecommunications services.
New technologies have eliminated distance for the international finance industry, which trades not only around the world, but also around the clock; for employees who collaborate on projects across time zones; for "footloose" businesses that operate from rural communities; and for students and researchers who can search libraries and databases beyond their borders. Yet in many parts of the world, to paraphrase Mark Twain, "the news of its death has been greatly exaggerated." Some people may live hours or days from the nearest telephone. Others have facilities available but cannot afford to use them. Still others may not know how to use these new tools to find the information they need, or how to reorganize their work to take advantage of the information available to them. These barriers must also be eliminated if distance is truly to disappear.
References:
1. Alan, C. (1995). "Transforming the Way We Live and Work," "International Telecommunications: Financial Times Survey," Financial Times, October 3, pp. 1-2.
2. Au, Y.A. and Kauffman, R.J., "Should We Wait? Network Externalities, Compatibility and Electronic Billing Adoption," University of Minnesota
3. Bhargava, H., Choudhary, V., "Information Goods and Vertical Differentiation," Carnegie Mellon University and Pennsylvania State University
4. Browning, J. (January 1995) "Joys of the Express Lane," Globe and Mail Report on Business Magazine, p. 103.
5. Commission of the European Communities, Growth, Competitiveness, Employment: "The Challenges and Ways Forward into the 21st Century", (White Paper), Brussels
6. Cortese, A. (February 26, 1996) "Here Comes the Intranet," Business Week, pp. 76-84.
7. Gregston, B. (November, 1995). "Power and Privilege," Internet World, p. 96.
8. Gundepudi, P., Rudi, N., and Seidmann, A., "Forward Versus Spot Buying of Information Goods," University of Rochester Press
9. Hudson, H. E. (1997). Global Connections: International Telecommunications Infrastructure and Policy, New York: Wiley, pp. 279-80.
10. Hudson, H.E. (Dec, 1997) "The Internet Wake-Up Call," Asian Telecommunications, New York: Wiley
11. Parker, E. B. and Hudson, H. E.(1995), Electronic Byways: State Policies for Rural Development through Telecommunications, second edition. Washington, DC: Aspen Institute
12. Schwankert, S., "Dragons at the Gates," Internet World, November 1995, p.112.
13. Stokes, B. (1985) "Beaming Jobs Overseas," National Journal, July 27, p. 1727.
14. Thatcher, M.E., Oliver, J.R., "The Impact of Technology Investments on a Firm's Production Efficiency, Product Quality, and Productivity," University of Arizona
15. "The Death of Distance," The Economist, September 30, 1995.
Michael O'neil is a freelance writer working for essaymart.com - on line Custom Writing/Research company. She specializes in Social sciences, Arts, History and English literature. During 2005, earned became one of 10 best writers at essaymart.com