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Date: Tue, 20 Apr 1993 16:30:38 -0700
From: jkrey@ISI.EDU (Joyce Reynolds)
Message-Id: <199304202330.AA23840@zephyr.isi.edu>
To: wg-isus@rare.nl
Subject: An Interesting View of Information Infrastructure from Japan
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>From ietf-request@ietf.cnri.reston.va.us Tue Apr 20 16:27:08 1993
To: internauts: ;, ietf@CNRI.Reston.VA.US, iab@ISI.EDU
Subject: An Interesting View of Information Infrastructure from Japan
Date: Tue, 20 Apr 93 19:06:40 -0400
Sender: ietf-request@IETF.CNRI.Reston.VA.US
From: "Vinton G. Cerf" 
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>From the author Izumi Aizu

"I have written the attached article on Nihon Keizai Shinbun and it was
placed on the 16th of April.  Here's my own translation.

If you have any suggestion, let me know.

I am interested in seeing any possiblity of it published by
English media.

izumi"

Izumi also is affilated with Glocom and Nikkei is the Japanese Wall Street
Journal




Building Japan's Information Infrastructure

Create new user demands
through innovation that brings 'increasing return'


Original Japanese article appeared in 
Nihon Keizai Shimbun on April 16, 1993.

Izumi Aizu
Research Director
Institute for Hypernetwork Society


Summary:

The Japanese government recently announced the new economy stimulus package
which include "New Social Infrastructure" program that will support new
installation of supercomputers in universities, personal computers in
schools and optical fiber networks to the home.  But the proposed budget
package based on construction bonds and raising the local telephone tariffs
alone are not enough or appropriate.
        
In U.S. they have years of accumulated experience and expertise of the
Internet.  The Internet has increased its usage on the exponential growth
rate recently.  The aggressive use by the new Clinton administration staffs
represents the tip of the iceberg of the wider use of the Net.  And the new
administration's  emphasis on the information infrastructure as part of
technology policy should be interpreted as the reflection of this
explosion.
        
We in Japan should reposition the ISDN, lower the tariffs of leased line
services which is at least five times as much higher in Japan compared with
U.S., and build telephone-oriented networks and computer-oriented networks
in fundamentally different ways.        It is critically important to
create new demand and new market for the networking business that will
leverage 'increasing returns' from technological innovation.  As an
alternative to the national treasury bond or raising the telephone bill, a
new 'Digital Network Bond' is proposed.

* * *

Japan's "New Social Infrastructure" scheme "free-rides" the information
policy of Clinton administration 

Just recently from February to March,  as a part of new budget program to
stimulate Japan's sluggish economy, a "New Social Infrastructure"
initiative in telecommunications and information field has been proposed by
 a number of leading politicians and government officials of MITI and MPT. 
The Japanese Government officially announced the additional budget package
deal on 13th of April of some 13 trillion yen which includes this "new
social infrastructure" in a rather vague, very Japanese fashion that adds
up to a little less than 10 % of the total.
        
This sudden proposal of "new social infrastructure" is aimed to financially
support the computer installations to universities and research
institutions as well as schools, and the construction of optical fiber
networks (ultimately to the home), taking advantage of the sluggish economy
that requires any kind of government initiative to be stimulated.  As Mr.
Hayashi, President of NTT (Nippon Telegraph and Telephone) U.S.,  in his
article on Nihon Keizai Shimbun (equivalent of The Wall Street Journal) on
March 10 clearly articulated that new U.S. administration's information
policy is spurred, at least  in part, by Vice President Gore's "Information
Superhighway" proposal pursued at least for a couple of years. Japan's
government officials and LDP party leaders look like they are trying to
'free-ride' this external factor to introduce a new policy set in Japan. 
It is a kind of "Gaiatsu" technique often used to 'change' conventional
structure by introducing foreign threat or  pressure to suppress any
opposition.
        
One of the focuses of this 'New Social Infrastructure' is the
"Fiber-to-the-home (FTTH)" project.  Under new budget proposal, MPT is
planning to start a 'pilot project' as a test bed to the nationwide FTTH
under their own initiative.  In my observation, MPT intentionally
'misunderstood" that during the election campaign the Clinton/Gore team
officially committed to build the FTTH, and therefore required that Japan
should also start a similar project in order not to be left out. As I
understand from the other side of the Pacific, the new administration has
not committed to lay the FTTH by the government, but they have committed
the high-speed computer networks to link research and education community
under NREN and NII(National Information Infrastructure) initiatives. It
looks like rather than having the government money pouring directly into
the FTTH, even if they have such money at all,  the new administration is
planning to stimulate the private sector's investment by the telephone
companies as well as cable TV and computer companies.  There are strong
opinions that new digital wireless technology will require far less money
than laying the fibers. 
        
In March Japan's MPT submitted a proposal for FTTH policy to be discussed
by the "Telecommunication Council", an official committee composed by
selected industry representatives and scholars as well as other opinion
leaders.  MPT's underlying thinking is that "new information infrastructure
should be built by the government, not by NTT which is suffering from
decreasing profit".  That means that MPT wants to reposition its leadership
in the telecommunication field, not losing its control as happened after
the deregulation in 1985.  NTT on the other hand was reported that they
counter-argued against MPT by claiming that "NTT alone can invest the FTTH
all by itself, yet to do so we first need to 're-balance' the telephone
tariff structure, ie raising the unprofitable local charges".  

Ministry of Finance (MOF) joined the debate to support NTT to some extent
so that they can 'raise' the once hopeless stock price of NTT, which
certainly gained by more than 60% of its price within less than a month,
which then vastly contributed to activate the entire stock market of Japan.
For MOF, the scheduled opening sale of JR(Japan Railways) East's share
which is owned by MOF is the foremost concern and unless the stock market
is improved their fate is gloomy. Who should bear the cost of information
network of the future?  National bond or taxpayers or users of local
telephone?  None of them seemed to be enough or proper.


Reposition ISDN first,  before talking about  "FTTH"

Let's look at the down to earth reality.  The main player of the next
generation networks used to be ISDN(Integrated Service Digital Network). 
Where are they now?  In Japan the commercial ISDN started in 1984, one of
the first in the world.  Despite the vast investment already made, the
usage of ISDN in Japan is not as promising as once expected.  ISDN was
positioned as an alternative to existing analog telephony, yet in reality
actual uses have been centering around the computer-to-computer
communication. It's a matter of fundamental concept of a service.  A very
important issue by itself.
        
First of all, we should reposition this ISDN.  Whether we will position
ISDN as part of computer digital network service or digital alternative to
existing  telephony should be the question number 1.   My opinion is, at
least for the time being, the former.  Even though they say it's the same
'digital', telephone and computer networks require different optimum
economic set of solutions and too simple integration/mixture is
questionable.  The distribution of demand or traffic on telephone and
computer network cannot be one and the same at all.
        
In Japan, there have been too many 'regional informatization programs'
which created much confusion.  Although quite a few 'third sectors' which
provide CAPTAIN (Japanese version of videotext service) or CATV business
were established, few made the balance sheet meet the original expectations
if any.
        
The Hi-Vision (Japan's HDTV) project initiated by NHK and supported by MPT
and MITI was late to catchup the digitalization and their proposal
submitted to U.S. FCC was finally turned down this March.  Direct Satellite
Broadcast business as well as Satellite Communication business are both
suffering and facing a very critical moment.  Their demand forecast was far
less than original hopes and there are little expectation that their
capital investment will be paid off in near or far future. 

Why are there so many failures?  One answer is that they did not really
discuss the relationship between 'contents' and economy of services, that
is, to objectively analyze the simple demand and supply dynamics of rather
'unknown' kind. There have been one successful case.  PC communications
service, such as NIFTY Serve or PC-VAN, similar to Compuserve or Prodigy in
U.S., made a significant growth despite low expectation or predictions.

        For the Japanese, a humble, open and objective retrospect is
essential. If not we may follow the trouble of JR, which constructed too
many local tracks where economically effective demand was non-existent and
defeated by the increase of automobiles and the road.


Understanding the dynamics of the Internet is the key.  
Even the White House is now using it!

The situation in U.S. gives a good contrast.  There is massive amount of
experience of using the computer networks in U.S.  Learning from the
history and current situation of Internet, which developed mainly in U.S.,
make a big difference in understanding the information policy strategy of
the new administration.
        
Even from Japan we can now obtain the raw and rich information related to
the information policy of new Clinton administration by using Internet. For
example, when Mr. Clinton announced the economic policy for the first time
in February from a 'town meeting' in Silicon Valley, only a couple of hours
after its closing we could obtain the full transcription of questions and
answers of the President and Vice President with the participants at the
Silicon Graphics via Internet.  We learned that the new administration's
staff are seriously using the network extensively so that they could 'feel'
the power and the potential of the Net, thus making full effort to
implement the information policy.  As far as I know our government along
with the party leaders are far behind with the rest of the world.

Now, for the Japanese to learn, let us go back the history a while. The
Internet has its roots from the ARPANET which was started in early 1970s to
link research organizations that were working on military contracts.  In
the 1980s CSNET was built with initial funding from National Science
Foundation, then NSFNET was started in order to, as officially stated, link
supercomputer centers nationwide which become the core of the vast 'network
of networks' that interlink research centers, private companies as well as
libraries and schools.  All of these were mostly done by the open and
voluntary collaboration of users who interact each other, exchange
information and share the resources and results of research activities. 
This is the Internet today.  And the new administration's information
policy is also built around the Internet.

The Internet has increased its users exponentially over the past few years.
 Now there are more than 120 countries interconnected with estimated number
of more than a million host computers and more than 10 million users.  It
is by far the largest computer network on earth.  It used to be rather
science oriented, or computer engineering dominated,  but recently the
coverage and contents of the services as well as user communities underwent
a significant change.  Use of humanity or social science community,
education, private business or ordinary citizens are all increasing by
leaps and bounds.  Not only the advanced countries of the North, but
developing countries of the South from Africa to Asia as well as former
Eastern socialist countries are all entering into the Net community.


Where to begin for the Japanese?
First, lower the price of the leased line services

In this massive explosion of the Internet, Japan was left behind.  Almost
10 years after the U.S., Japanese version of Internet was started to link
universities, national  as well as private companies' research centers. 
The core of this effort was done mostly by a pure private, voluntary
research program named WIDE (Widely Distributed Environment) with Japan's
networking guru Jun Murai of Keio University.  WIDE has its own leased line
trunk, but the speed of this 'backbone' is only 192K bit per second, almost
1/200th of American backbone of 45Mega bit per second, and the capacity is
far less than that.

Why is that?  The biggest factor is the expensive leased line service cost
in Japan. Internet has developed by linking computers directly via leased
line services.  However, in Japan, the leased line services cost
prohibitively expensive thus offering the bottleneck for the computer to
computer networkings.  One example shows that the price of 1.5 Megabit line
costs 5 time or more in Japan compared with U.S. counterpart (see table).
There may be some difference in market competition or quality of the lines,
as Japanese service providers try to defend, but this difference is far
from understandable.

The leased line services in Japan is making huge profits. If we take NTT
for example, the leased line division at NTT accounts only 7 % of the total
sales revenue last year, but contribute to some 15% of the whole profit of
the entire telco business.  The gross profit as well as profit ratio of
leased line service are second to long distance telephone service.  NTT is
asking for 'rebalancing' the telephone price structure by raising the local
telephone tariffs, but if that is allowed then this highly profitable
leased line service should also be significantly rebalanced.

By doing so, many regional universities, research institutions or private
companies of small sizes can also utilize high speed network circuits so
that Internetworking in Japan could also enjoy the rapid expansion.  This
should be the information infrastructure today.  NTT and other carriers can
expect a vast new demand creation.  This will spur the R&D efforts and
innovation of technology with significant increase of revenue and profit of
leased line services at the same time.  It will be a healthy win-win game
for sure.


Innovation that leads 'increasing return' will boost dramatic lowering of
communication costs
That is not enough, however.  It is of critical importance to learn from
semiconductors innovations or recent price revolution of PCs based on these
chip innovations.  Technological innovations made it possible the 3 to 5
times increase in capacity and performance with significant reduction of
the prices, thus creating new products, new services, new demands and new
industries in a 'chain-reaction' manner.  The consumers of course welcome
this kind of competition that is based on "Increasing return and decreasing
cost", a new economic principle expanding the existing paradigm of
conventional economic theories.

That is so far what happened to the chip industry and micro electronics
industry including computers and consumer electronics.  But not as far as I
know of telecommunications industry,  at least in Japan.

The Network Industry of both telephone and computer networks should learn
and realize the same lesson.  By the innovation and evolution of chips,
inevitable 'downsizing' of switching machines and routers or other
communication equipments, breakthroughs in light wave communication
technology, the 'density' of networking will exponentially increase.  It
will result sharp drop of cost of transmission, switch or any other type of
carriages of electronic signals in mostly digital format.

We may not need many trillions of yens to invest for the new
infrastructure.  So called 'information appliances' and Digital mobile
telephones (Personal Communications Systems) will accelerate this trend. 
Just like what happened to the CPUs and memories in chip industry, all
sorts of telecommunication or networking prices may be easily dropped by
new comers, that lead the creation of brand new demand not existed before,
pay off the investment within reasonable timeframe for further expansion.

We can expect emergence of 'network publishing' that will provide
revolutionary low price of ample information all in digital format.  The
cost of information today mostly does not consist of creation of contents,
which should be the real value, but of storage and efficient delivery of
information, that is in essence the cost of paper, printing, truck,
warehouse and other physical distribution mechanism plus the cost of
personnel that is attached to these 'extra' services.  But if what is
demonstrated by Internet is the case, then the cost of constructing
electronic networks will allow net reduction of delivery cost by orders of
magnitudes while giving ample volume of paths to reach information the way
users want direct. The real significance of the explosion of Internet is
that it demonstrated the ability to allow anybody to tap into the vast
supply of information in a very very inexpensive way.  That is what our
government and industry people in Japan should learn from U.S.


Put the priorities to the users, invest the future with new kind of
'Digital Network Bond'

We must come to think of the users first, how and what kind of intellectual
infrastructure for citizens can be built, before laying the fibers as
hardware driven, lower the leased line services today to facilitate the
'network of networks' openly just like the Internet.  We must do everything
possible to lead this direction both in prices and technological or even
social and political environments. 

In doing so, like in U.S., new experimentation that may dissolve the
barriers between broadcasting and telecommunication will be tried with
users in mind, new networking technologies will be created one after
another, new demands are created by lowering price and raising performance.
These new movements will reveal, in more natural ways, what role the
government should (not) take and what role NTT and other communication
vendors should take.

As for the resources of new information infrastructures, I would like to
propose the introduction of new "Digital Network Bond".  In Japan,  after
the total destruction of telephone network during the World War II, 56
million subscriber lines were built in just 30 years.  How?  "Telephone
Bonds" were sold to the new customers and that financed the most portion of
 building the network . 

 This bond will allow direct borrowing from the new users of the new
services, not indirect subsidization from local telephone users.  We must
note that these user clusters are awfully different, at least during the
long early stages.  If they can issue a long term bond, then it will be far
more stable investment than speculating the stocks and be paid off in the
long run.  Nobody will lose the game.

In Japan, the public investment often goes through the special interest
groups of the limited corporations or industries, along with some
ministries or politicians. These are the sources of most of the recent
political scandals. We do not need this kind of investment in
communications business.  If we want to really learn from U.S., we must
learn much more deeply instead of making a free-ride on the surface.  Our
ministries should, like the White House, use the open network to provide
direct information exchange with the people,  make available the
information that the bureaucrats and large corporations tend to monopolize,
create open and frank debate by all parties concerned in front of the
public.

It will also be very important to promote more geographically distributed
design of networks.  Do not centralize the power around Tokyo, but base in
regional economies.  Realizing an autonomous distributed network society,
which is the real essence of the Internet, will be the most critical issue
for the success of the information and communication revolution of the
coming century or millennium.



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