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Uncertainty and inertia
Uncertainty and inertia A.A.L. Reid
The challenge, and justification, of long-term telecommunications planning lies in an acute conflict b e t w e e n uncertainty and inertia. A national telecommunications system faces great economic, social, and political uncertainties, yet it does so handicapped by a degree of inertia w h i c h precludes rapid changes of direction. Assessing first the sources of uncertainty and inertia, the author goes on to e x a m i n e ways in w h i c h the t w o can be reduced or reconciled.
The author is Deputy Director, Telecommunications Systems Strategy Department of the UK Post Office, Telecommunications Headquarters, 8 8 Hills Road, Cambridge C B 2 1PE, UK.
This article is based on an address given by Dr Reid at the Eurocon 77 Conference, held in Venice on 3-6 May 1977. 1 W.S. Baer, Interactive Television: Prospects for Two- Way Services on Cable, Rand Corporation, Santa Monica, CA, November 1971, Report No R-888MF. I. de Sola Pool, Talking B a c k - Citizen Feedback and Cable Technology, MIT Press, Cambridge, Mass, 1973. J. Martin, Future D e v e l o p m e n t s in Tele-
Prentice
communications,
Hall,
Englewood Cliffs, N J, 1971. IEEE Transactions
on C o m m u n i c a t i o n s ,
Special issue on 'Social implications of telecommunications', Vol COM-23, No 10, October 1975.
z Commission for the Development of the Telecommunication System, Telecommunications Report, Federal Ministry of Posts and Telecommunications, Bonn, 1976. Telecom 2 0 0 0 :
A n Exploration of the c o n t i n u e d on p a g e 2 0 8
TELECOMMUNICATIONS
The uncertainties which directly affect a telecommunications administration can be classified into three groups: demand, supply, and political. Lying behind each of these are two more fundamental groups of uncertainties - about the general economic development, and the general social development of the country within which the administration operates. That the economic future of any country is uncertain can be well illustrated by the wide historical divergences between the growth rate of national economies. The telephone service is so big, and so geographically extensive, that it cannot escape the effects of these macro-economic changes. As the telecommunications service extends into new services such as facsimile, information retrieval, videotelephone, mobile communications, and Cable TV, the rate of economic growth is even more important. For many of these new services are by today's standards luxuries rather than necessities, and compete for the disposable income that may or may not be left when more essential needs have been met. Beyond uncertainties about overall economic growth, there are uncertainties about the way in which spending power will be distributed: between business, sectors of government, and classes of private households. There are similar uncertainties about general social development. What will be the changes in the physical patterns of work and leisure? In attitudes to innovation and conservation, to technology and the natural environment? What will be the changes in lifestyles and purchasing preferences, both at home and at work? What new balances will be struck between privacy and access, between communication freedom and control? The new telecommunications services impinge on many areas of human activity - education, health services, entertainment, journalism, transport, urban planning, and the law. ~ The rate of development of these new services is tied to the wider social changes which they stimulate, and on which they depend. This is reflected in the reports of recent governmental enquiries into the future of telecommunications, 2 in technology assessments, 3 and in the current topics of communications policy debate. 4 It is also reflected in the key role which information technology plays in more general forecasts of the future, such as the Post Industrial Society foreseen by Daniel Bell, 5 or the frightening vision of George Orwell's 1 9 8 4 . 6 These broad economic and social uncertainties exacerbate the demand, supply, and political uncertainties which act directly upon a telecommunications administration.
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UocertainO' attd inertia continued from page 207 Long Term Development of Telecommunications in Australia, Australian Telecommunications Commission, 199 William Street, Melbourne 3000, December 1975. Department of Communications, Instant World. a Report on Telecommunications in Canada, Information Canada, Ottawa, 1971. 3 E.M. Dickson and R. Bowers, The Videotelephone: Impact of a New Era in Telecommunications, Praeger, New York, 1974. R.C. Harkness, 1976 Technology Assessment of Telecommunications/Transportation Interactions, Final Report, Prepared for Office of Exploratory Research and Problem Assessment, National Science Foundation, USA, Contract No NSF-C1025, Vols 1 and 2, Stanford Research Institute, Stanford, CA, September 1976. 4A Project to Appraise Communications Policy Making, Aspen Institute for Humanistic Studies Program on Communications and Society, 1785 Massachusetts Avenue, NW, Washington, DC 2 0 0 3 6 . D. Bell, The Coming of the Post Industrial Society, Heinemann Educational Books Ltd, London, 1974. 6 G. Orwell, 1984, Penguin Books, London, 1974. 7 D.C. Engelbart, R.W. Watson and. J.C. Norton, The Augmented Knowledge Workshop, Augmentation Research Center, Stanford Research Institute, Stanford, CA, Report No A R C - 1 4 7 2 4 . 8J.M. Nilles et aL The Telecommunications-Transportation Tradeoff: Options for Tomorrow, John Wiley & Sons, New York, 1 9 7 6 9A.A.L. Reid, The Impact of Telecommunications Innovation on the Demand for Passenger Transportation, PhD thesis, University of London, February 1974. 10L.H. Day, 'Factors affecting future substitution of communications for travel', paper presented at the Joint Meeting of the Operations Research Society of America, and the Institute of Management Sciences, San Juan, Puerto Rico, October 1974. A.G. Derringer, A Prospective on Information Resources, Program on Information Technologies and Public Policy, Harvard University, Annual Report 1 9 7 4 / 5 , V o l 1, 1975. ~ A.A.L. Reid, "The grey area between telecommunications and broadcasting', Television, Vol 16, No 3, May/June 1976, pp 26-28. lZj.H. Rohlfs, 'Theory of interdependent demand for a communications service', Bell Journal of Economics and Management Science, Vol 5, No 1, Spring 1974. 13 E.M. Rogers, Diffusion of Innovations, Free Press, New York, 1962. 14 G.J. Stigter, 'The economics of information', in The Organisation of continued on page 209
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Uncertainty Uncertainty about future demand is particularly great in the case of new telecommunications services such as facsimile, information retrieval, video-telephone, mobile communications, and Cable TV. Such services may be associated with revolutionary rather than evolutionary change in patterns of activity; for example in the conduct 7 and location 8 of office work. Demand for them may thus arise through diversion of expenditure from the neighbouring but hitherto separate technologies of transport, 9 computing, ~° broadcasting, j~ and the press. The complexity of this forecasting problem is compounded by the fact that the net benefit of a telecommunications service to the individual user is a function of the number of other users. In the simple case of a one-way system (such as broadcasting, or information retrieval from a computerised data bank) this arises from the large fixed costs, and relatively small marginal costs, of providing service. Thus, as the number of users grows, the cost to each is reduced. In the case of a switched two-way service, such as telephone or facsimile, the net benefit to the individual user increases with the number of users not so much because of falling costs, but rather because of rising benefits: the greater the number of other people with whom he can communicate, the more useful the service. ~2 These effects may combine to produce a negligible level of early use, followed by a sudden and unpredictable "take-off" of demand. ~3 Finally, for a monopoly telecommunications administration, there is the problem that absence of competition removes the information about markets which could otherwise be inferred from the judgements and actions of one's competitors. ~4 Uncertainty about supply refers here to the technological and human resources required by a telecommunications administration. Uncertainty about the future costs and capabilities of telecommunications technology arises mainly from the rapid rate of advance, and the large manufacturing economies of scale, in electronics. ~5 As a result of the rapid rate of advance, the rational pursuit of maximum expected return is likely to lead to decisions involving high risk - like betting in a race where the bookmaker gives relatively good odds for the outsiders, and relatively poor odds for the favourites. The large manufacturing economies of scale (specifically in integrated circuits) produce an uncertainty about the timing of technological take-off similar to the uncertainty about the timing of demand take-off. There is less uncertainty about the future costs and capabilities of human resources; but there are still questions about the real cost of labour in the long term, and about changing attitudes to various types of w o r k . j6
Political uncertainty is particularly relevant to the nationalised telecommunications administrations. Government policies will influence the amount and cost of investment borrowing; the levels and patterns of tariffs: the degree of competition in telecommunications provision; the procurement of telecommunications equipment; and the boundaries of the business the telecommunications administration may pursue. ~7 These policies may be altered at short notice, and where governments change every few years they are extremely difficult to predict in the long term. TELECOMMUNICATIONS
P O L I C Y June 1977
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Inertia
con tinued from page 208 Industry, Irwin, 1968, pp 171-90. 15R. Turn, Computers in the 1980s, Columbia University Press, New York and London, 1974. 16 j . Glover, Long Range Social Forecasts: Attitudes to Work, UK Post Office, Telecommunications Headquarters, Long Range Studies Division, Intelligence Bulletin No 8, January 1975. ~7A.W.C. Ryland, 'The Post Office as a business', paper presented to the Institution of Electrical Engineers, 4 March 1971. 18 For example, the UK Post Office Telecommunications Business had in March 1976, a net book value of £5640 million. 19 J.H.H. Merriman, 'Engineering innovation in a service industry: Post Office telecommunications', Electronics and Power, Vo120, No 18, October 1974, pp 809-813. CostsArising from Variations in the Design of Telephone Exchange Equipment, Report No 1 of the Advisory Group on Systems Definitions, UK Post Office, Telecommunications Headquarters, 2-12 Gresham Street, London, September 1970. 20 A.A.L. Reid, 'Degrees of integration in local line networks', paper published in the proceedings of the conference 'International Symposium on Subscriber Loops and Services', London, 1976.
A telecommunications administration faces these uncertainties handicapped by great inertia; inertia arising from its plant, from its people, from its suppliers, and from the monopoly nature of its activities. The plant comprising a national telecommunications system is of immense size ~8 and of immense and growing complexity. ~9 The system is a live one, operating 24 hours a day, whose parts are highly interconnected; changes in one area may have complicated effects on other parts of the present system, and on options for the future. 2° The need for every new development to be compatible with those that have gone before is a severe constraint. These delicate interdependencies within a national telecommunications system are paralleled by a similar interdependency with the global telecommunications system. The size of the system, its complexity, its live and interconnected nature, the need for compatibility, all militate against rapid change, as does the fact that much of the plant has a practical working life of 40 years or more. The inertia within the staff of a telecommunications administration is somewhat similar. The UK Post Office Telecommunications Business, as an example, lays down procedures for its 237 000 staff in the form of 11 112 separate 'telecommunications instructions' varying from 1 to over 100 pages in length. Just as the provision of a telephone call requires the simultaneous operation of dozens of pieces of equipment, so the taking of major decisions in a telecommunications administration requires the participation of dozens of individuals, each responsible for, and knowing about, one aspect of the problem. Although this diffusion of decision making may be avoidable in the peripheral parts of the Business, it is an inescapable feature of the planning of the telephone system. To these sources of inertia is added the fact that the staff, like the plant, have working lives of 40 years or more - usually within the single organisation. Their skills and attitudes, like the organisation structure within which they work, can be adapted, but cannot be changed at short notice. Indeed this kind of inertia is right and necessary; a large organisation which was continually changing its organisation structure and the demands which it put upon its staff would run the risk of inefficiency and confusion. The telecommunications manufacturing industry has its own inertia. The rate at which it is feasible to introduce new technology may be dictated as much by the rate at which manufacturing resources can be redirected as by the speed with which new technology can be absorbed into the telecommunications system. There is, finally, inertia arising from the monopolistic nature of telecommunications. Unlike a competitive private firm, which can pursue the interests of one narrow sector of the market, a monopoly must seek to create and maintain a national consensus of support. Any change will tend to benefit some at the expense of others. This threatens the consensus, for the opposition of those who are disadvantaged is unlikely to be outweighed by the support of those who gain. For this reason, it is always easiest to build consensus around the status quo, and there is a heavy onus on the proponent of change to prove that everybody gains by it. In a monopoly whose policy is to provide universal service at universal tariffs this will be
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particularly difficult to prove; for the significant changes must, too, be universal. This makes it difficult to experiment with service or tariff changes on a small scale.
Reconciliation
2~ G. Wills, Contemporary Marketing, Pitman, London, 1971. 22 Long Range Intelligence Bulletins Nos 1 to 10. UK Post Office, Telecommunications Headquarters, Long Range Studies Division, Cambridge, UK. 23 B. Thorngren, 'How do contact systems affect regional development?', Environment and Planning, Vol 2, 1970. 31J.B. Goddard, Office Linkages and Location, Progress in Planning, Vol 1, Part 2, Pergamon Press. Oxford, 1 973. 24 The Effectiveness of Person-to-Person Telecommunications Systems: Research at the Communications Studies Group, University College, London, UK Post Office Telecommunications Head-quarters, Long Range Studies Division, Cambridge, UK, Long Range Research Report No 3, May 1975. J. Short, E. Williams, and B. Christie, The Social Psychology of Telecommunications, John Wiley and Sons, New York, 1976. See also Roger Pye and Ederyn Williams, 'Teleconferencing: is video valuable or is audio appropriate?', Telecommunications Policy, Vol 1, No 3, 1 977. 25CEPT Long Term Studies Working Group, Final Report of the Business Communications Studies on Demand for N e w Person-to-Person Interactive Telecommunications Systems, Vol 1, Aims and Methods, and Vol 2, Summary of Principal Conclusions, produced by the Subgroup Demand for New Services of the CEPT Long Term Studies Working Group, available from the author. 26 D.L. Benson, 'Local-exchange renewal strategy: formulating a strategy', The Post Office Electrical Engineers" Journal, Vol 67, October 1974.
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The coexistence of uncertainty and inertia is, prima facie, alarming. There are three ways in which the problem can be tackled: by reducing uncertainty, by reducing inertia, and by planning in ways which attempt to reconcile the two. Each of the uncertainties that have been identified can be reduced by long-term studies. For example, in the case of uncertainty about demand for new services, it is possible to carry out, in addition to relatively conventional market research 2~ and market intelligence,22 a systems analysis of the extent to which expenditure is likely to be diverted from existing media to new telecommunications services. Recent joint work by Denmark, Federal Republic of Germany, France, Italy, Norway, Sweden, and the UK, on future demand for teleconference services (carried out through the Long Term Studies Working Group of the CEPT) provides an example of this approach. The method (developed originally by the Communications Studies Group of University College London and the Long Range Studies Divisions of the UK Post Office) relies on computer-based mathematical models for its execution. It involves, first, the survey (using self-completion questionnaires) of the nature and frequency of face-to-face meetings within and between organisations. 23 Data are gathered on the duration and function of the meeting, the number of people taking part, and the use of audiovisual aids and documents. Together, the seven national surveys gathered data on 26 000 meetings from 6000 office-based staff in over 1000 establishments. The meetings are then allocated into 'type' categories (or the face-to-face category) such that each meeting is assigned to the cheapest teleconference system (eg videotelephone or studio-based audio conference system) which would be adequate for the purpose. This allocation was based on previous research at the Communications Studies Group on the effectiveness and acceptability of teleconference systems. ~4 On the basis of relative forecast costs, the proportion of such meetings which would be likely actually to transfer to telecommunications at various dates in the future is estimated. 25 Together with reduction of uncertainty, long-term planning should seek to reduce inertia. To take two examples from work in the UK Post Office, there may be economic justification for accelerated replacement of existing plant which is still in good working order, and it may be possible to design new systems in ways which facilitate future evolution. Economic studies have led, in the UK, to a programme of accelerated replacement of electromechanical (Strowger) telephone exchanges. 26 The replacement of this equipment as it wore out would have involved a process stretching well into the next century. The alternative approach, of planned replacement of all Strowger plant within a specified period (involving scrapping some equipment before it had worn out), incurs higher capital expenditure for many years, but reduces operating costs in the long term. The costs, of equipment purchase and acceptance testing, and of operating and maintenance,
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27 C.R.J. Shurrock et al, 'Local-exchange renewal strategy: maintenance man-hour requirements', The Post Office Electrical Engineers'Journal, Vol 68, July 1975. K.R. Crooks, 'Local-exchange renewal strategy: a model for decision', The Post Office Electrical Engineers" Journal, Vol 67, October 1974. 2s LR.F. Harris, 'Electronic switching in the United Kingdom', paper presented at the International Switching Symposium, Kyoto, Japan, October 1 976.
were estimated and were varied to reflect likely future changes in real cost, and to reflect various production volumes. These estimates, together with data on the existing plant and on growth forecasts, were processed by a computer model to produce rankings of alternative strategies on a discounted cash flow basis; 27 these showed that the service benefits of accelerated replacement could be achieved without economic penalty. The design of new systems in ways which facilitate future evolution is another method of reducing the inertia of the system. It is one of the primary aims of the UK development programme for a family of standard switching and associated systems, known as System X. 28 It is achieved by designing a coherent set of subsystems, which can be assembled in varying ways to produce the different exchange applications (eg trunk, local, international, and data). The overall system strategy, based on processor control and common channel signalling, is flexible and adaptable. The subsystems, designed to be adaptable in themselves, have clearly defined external interfaces; they are therefore 'black boxes' whose internal technology may be progressively improved without upheaval of the system as a whole. By these means uncertainty and inertia can be reduced, but not eliminated. There remains the need to plan for uncertainty. Recent UK studies of long-term strategy for the local line network provide one example of how this can be attempted. Ten different technological strategies for the local line network in the period 1976 to 2006 were established; these included analogue and digital schemes, using pairs, coaxial cables, or optical fibres, with varying degrees of multiplexing within and b e t w e e n services. Sections of exchange areas, representative of the various types of residential and business district, were selected from the UK as a whole. Three widely different forecasts (known as 'telefutures') were made for penetration of new and existing services up to the year 2006. Because of the great uncertainty in future penetration of new services such as videotelephone and Cable TV, the penetrations varied between telefutures by in some cases as much as 100:l. The representative territories were then planned up to 2006, in accordance with each technological strategy, and each telefuture. The plans, when combined in a computer costing model with estimates of current and future costs, produced discounted cost estimates for each territory/strategy/ telefuture combination. This use of widely differing telefutures is a form of planning for uncertainty, since it leads to the selection of a strategy which may not be the best under any one telefuture, but which copes adequately with each. The conflict between uncertainty and inertia is an inherent feature of telecommunications. It is no cause for embarrassment or despair. The problem must be recognised, and must be attacked by reducing uncertainty, by reducing inertia, and by adopting versatile plans.
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The challenge, and justification, of long-term telecommunications planning lies in an acute conflict b e t w e e n uncertainty and inertia. A national telecommunications system faces great economic, social, and political uncertainties, yet it does so handicapped by a degree of inertia w h i c h precludes rapid changes of direction. Assessing first the sources of uncertainty and inertia, the author goes on to e x a m i n e ways in w h i c h the t w o can be reduced or reconciled.
The author is Deputy Director, Telecommunications Systems Strategy Department of the UK Post Office, Telecommunications Headquarters, 8 8 Hills Road, Cambridge C B 2 1PE, UK.
This article is based on an address given by Dr Reid at the Eurocon 77 Conference, held in Venice on 3-6 May 1977. 1 W.S. Baer, Interactive Television: Prospects for Two- Way Services on Cable, Rand Corporation, Santa Monica, CA, November 1971, Report No R-888MF. I. de Sola Pool, Talking B a c k - Citizen Feedback and Cable Technology, MIT Press, Cambridge, Mass, 1973. J. Martin, Future D e v e l o p m e n t s in Tele-
Prentice
communications,
Hall,
Englewood Cliffs, N J, 1971. IEEE Transactions
on C o m m u n i c a t i o n s ,
Special issue on 'Social implications of telecommunications', Vol COM-23, No 10, October 1975.
z Commission for the Development of the Telecommunication System, Telecommunications Report, Federal Ministry of Posts and Telecommunications, Bonn, 1976. Telecom 2 0 0 0 :
A n Exploration of the c o n t i n u e d on p a g e 2 0 8
TELECOMMUNICATIONS
The uncertainties which directly affect a telecommunications administration can be classified into three groups: demand, supply, and political. Lying behind each of these are two more fundamental groups of uncertainties - about the general economic development, and the general social development of the country within which the administration operates. That the economic future of any country is uncertain can be well illustrated by the wide historical divergences between the growth rate of national economies. The telephone service is so big, and so geographically extensive, that it cannot escape the effects of these macro-economic changes. As the telecommunications service extends into new services such as facsimile, information retrieval, videotelephone, mobile communications, and Cable TV, the rate of economic growth is even more important. For many of these new services are by today's standards luxuries rather than necessities, and compete for the disposable income that may or may not be left when more essential needs have been met. Beyond uncertainties about overall economic growth, there are uncertainties about the way in which spending power will be distributed: between business, sectors of government, and classes of private households. There are similar uncertainties about general social development. What will be the changes in the physical patterns of work and leisure? In attitudes to innovation and conservation, to technology and the natural environment? What will be the changes in lifestyles and purchasing preferences, both at home and at work? What new balances will be struck between privacy and access, between communication freedom and control? The new telecommunications services impinge on many areas of human activity - education, health services, entertainment, journalism, transport, urban planning, and the law. ~ The rate of development of these new services is tied to the wider social changes which they stimulate, and on which they depend. This is reflected in the reports of recent governmental enquiries into the future of telecommunications, 2 in technology assessments, 3 and in the current topics of communications policy debate. 4 It is also reflected in the key role which information technology plays in more general forecasts of the future, such as the Post Industrial Society foreseen by Daniel Bell, 5 or the frightening vision of George Orwell's 1 9 8 4 . 6 These broad economic and social uncertainties exacerbate the demand, supply, and political uncertainties which act directly upon a telecommunications administration.
P O L I C Y June 1977
207
UocertainO' attd inertia continued from page 207 Long Term Development of Telecommunications in Australia, Australian Telecommunications Commission, 199 William Street, Melbourne 3000, December 1975. Department of Communications, Instant World. a Report on Telecommunications in Canada, Information Canada, Ottawa, 1971. 3 E.M. Dickson and R. Bowers, The Videotelephone: Impact of a New Era in Telecommunications, Praeger, New York, 1974. R.C. Harkness, 1976 Technology Assessment of Telecommunications/Transportation Interactions, Final Report, Prepared for Office of Exploratory Research and Problem Assessment, National Science Foundation, USA, Contract No NSF-C1025, Vols 1 and 2, Stanford Research Institute, Stanford, CA, September 1976. 4A Project to Appraise Communications Policy Making, Aspen Institute for Humanistic Studies Program on Communications and Society, 1785 Massachusetts Avenue, NW, Washington, DC 2 0 0 3 6 . D. Bell, The Coming of the Post Industrial Society, Heinemann Educational Books Ltd, London, 1974. 6 G. Orwell, 1984, Penguin Books, London, 1974. 7 D.C. Engelbart, R.W. Watson and. J.C. Norton, The Augmented Knowledge Workshop, Augmentation Research Center, Stanford Research Institute, Stanford, CA, Report No A R C - 1 4 7 2 4 . 8J.M. Nilles et aL The Telecommunications-Transportation Tradeoff: Options for Tomorrow, John Wiley & Sons, New York, 1 9 7 6 9A.A.L. Reid, The Impact of Telecommunications Innovation on the Demand for Passenger Transportation, PhD thesis, University of London, February 1974. 10L.H. Day, 'Factors affecting future substitution of communications for travel', paper presented at the Joint Meeting of the Operations Research Society of America, and the Institute of Management Sciences, San Juan, Puerto Rico, October 1974. A.G. Derringer, A Prospective on Information Resources, Program on Information Technologies and Public Policy, Harvard University, Annual Report 1 9 7 4 / 5 , V o l 1, 1975. ~ A.A.L. Reid, "The grey area between telecommunications and broadcasting', Television, Vol 16, No 3, May/June 1976, pp 26-28. lZj.H. Rohlfs, 'Theory of interdependent demand for a communications service', Bell Journal of Economics and Management Science, Vol 5, No 1, Spring 1974. 13 E.M. Rogers, Diffusion of Innovations, Free Press, New York, 1962. 14 G.J. Stigter, 'The economics of information', in The Organisation of continued on page 209
208
Uncertainty Uncertainty about future demand is particularly great in the case of new telecommunications services such as facsimile, information retrieval, video-telephone, mobile communications, and Cable TV. Such services may be associated with revolutionary rather than evolutionary change in patterns of activity; for example in the conduct 7 and location 8 of office work. Demand for them may thus arise through diversion of expenditure from the neighbouring but hitherto separate technologies of transport, 9 computing, ~° broadcasting, j~ and the press. The complexity of this forecasting problem is compounded by the fact that the net benefit of a telecommunications service to the individual user is a function of the number of other users. In the simple case of a one-way system (such as broadcasting, or information retrieval from a computerised data bank) this arises from the large fixed costs, and relatively small marginal costs, of providing service. Thus, as the number of users grows, the cost to each is reduced. In the case of a switched two-way service, such as telephone or facsimile, the net benefit to the individual user increases with the number of users not so much because of falling costs, but rather because of rising benefits: the greater the number of other people with whom he can communicate, the more useful the service. ~2 These effects may combine to produce a negligible level of early use, followed by a sudden and unpredictable "take-off" of demand. ~3 Finally, for a monopoly telecommunications administration, there is the problem that absence of competition removes the information about markets which could otherwise be inferred from the judgements and actions of one's competitors. ~4 Uncertainty about supply refers here to the technological and human resources required by a telecommunications administration. Uncertainty about the future costs and capabilities of telecommunications technology arises mainly from the rapid rate of advance, and the large manufacturing economies of scale, in electronics. ~5 As a result of the rapid rate of advance, the rational pursuit of maximum expected return is likely to lead to decisions involving high risk - like betting in a race where the bookmaker gives relatively good odds for the outsiders, and relatively poor odds for the favourites. The large manufacturing economies of scale (specifically in integrated circuits) produce an uncertainty about the timing of technological take-off similar to the uncertainty about the timing of demand take-off. There is less uncertainty about the future costs and capabilities of human resources; but there are still questions about the real cost of labour in the long term, and about changing attitudes to various types of w o r k . j6
Political uncertainty is particularly relevant to the nationalised telecommunications administrations. Government policies will influence the amount and cost of investment borrowing; the levels and patterns of tariffs: the degree of competition in telecommunications provision; the procurement of telecommunications equipment; and the boundaries of the business the telecommunications administration may pursue. ~7 These policies may be altered at short notice, and where governments change every few years they are extremely difficult to predict in the long term. TELECOMMUNICATIONS
P O L I C Y June 1977
Uncertaint.v and inertia
Inertia
con tinued from page 208 Industry, Irwin, 1968, pp 171-90. 15R. Turn, Computers in the 1980s, Columbia University Press, New York and London, 1974. 16 j . Glover, Long Range Social Forecasts: Attitudes to Work, UK Post Office, Telecommunications Headquarters, Long Range Studies Division, Intelligence Bulletin No 8, January 1975. ~7A.W.C. Ryland, 'The Post Office as a business', paper presented to the Institution of Electrical Engineers, 4 March 1971. 18 For example, the UK Post Office Telecommunications Business had in March 1976, a net book value of £5640 million. 19 J.H.H. Merriman, 'Engineering innovation in a service industry: Post Office telecommunications', Electronics and Power, Vo120, No 18, October 1974, pp 809-813. CostsArising from Variations in the Design of Telephone Exchange Equipment, Report No 1 of the Advisory Group on Systems Definitions, UK Post Office, Telecommunications Headquarters, 2-12 Gresham Street, London, September 1970. 20 A.A.L. Reid, 'Degrees of integration in local line networks', paper published in the proceedings of the conference 'International Symposium on Subscriber Loops and Services', London, 1976.
A telecommunications administration faces these uncertainties handicapped by great inertia; inertia arising from its plant, from its people, from its suppliers, and from the monopoly nature of its activities. The plant comprising a national telecommunications system is of immense size ~8 and of immense and growing complexity. ~9 The system is a live one, operating 24 hours a day, whose parts are highly interconnected; changes in one area may have complicated effects on other parts of the present system, and on options for the future. 2° The need for every new development to be compatible with those that have gone before is a severe constraint. These delicate interdependencies within a national telecommunications system are paralleled by a similar interdependency with the global telecommunications system. The size of the system, its complexity, its live and interconnected nature, the need for compatibility, all militate against rapid change, as does the fact that much of the plant has a practical working life of 40 years or more. The inertia within the staff of a telecommunications administration is somewhat similar. The UK Post Office Telecommunications Business, as an example, lays down procedures for its 237 000 staff in the form of 11 112 separate 'telecommunications instructions' varying from 1 to over 100 pages in length. Just as the provision of a telephone call requires the simultaneous operation of dozens of pieces of equipment, so the taking of major decisions in a telecommunications administration requires the participation of dozens of individuals, each responsible for, and knowing about, one aspect of the problem. Although this diffusion of decision making may be avoidable in the peripheral parts of the Business, it is an inescapable feature of the planning of the telephone system. To these sources of inertia is added the fact that the staff, like the plant, have working lives of 40 years or more - usually within the single organisation. Their skills and attitudes, like the organisation structure within which they work, can be adapted, but cannot be changed at short notice. Indeed this kind of inertia is right and necessary; a large organisation which was continually changing its organisation structure and the demands which it put upon its staff would run the risk of inefficiency and confusion. The telecommunications manufacturing industry has its own inertia. The rate at which it is feasible to introduce new technology may be dictated as much by the rate at which manufacturing resources can be redirected as by the speed with which new technology can be absorbed into the telecommunications system. There is, finally, inertia arising from the monopolistic nature of telecommunications. Unlike a competitive private firm, which can pursue the interests of one narrow sector of the market, a monopoly must seek to create and maintain a national consensus of support. Any change will tend to benefit some at the expense of others. This threatens the consensus, for the opposition of those who are disadvantaged is unlikely to be outweighed by the support of those who gain. For this reason, it is always easiest to build consensus around the status quo, and there is a heavy onus on the proponent of change to prove that everybody gains by it. In a monopoly whose policy is to provide universal service at universal tariffs this will be
T E L E C O M M U N I C A T I O N S POLICY June 1977
209
UncerlainO' attd inertia
particularly difficult to prove; for the significant changes must, too, be universal. This makes it difficult to experiment with service or tariff changes on a small scale.
Reconciliation
2~ G. Wills, Contemporary Marketing, Pitman, London, 1971. 22 Long Range Intelligence Bulletins Nos 1 to 10. UK Post Office, Telecommunications Headquarters, Long Range Studies Division, Cambridge, UK. 23 B. Thorngren, 'How do contact systems affect regional development?', Environment and Planning, Vol 2, 1970. 31J.B. Goddard, Office Linkages and Location, Progress in Planning, Vol 1, Part 2, Pergamon Press. Oxford, 1 973. 24 The Effectiveness of Person-to-Person Telecommunications Systems: Research at the Communications Studies Group, University College, London, UK Post Office Telecommunications Head-quarters, Long Range Studies Division, Cambridge, UK, Long Range Research Report No 3, May 1975. J. Short, E. Williams, and B. Christie, The Social Psychology of Telecommunications, John Wiley and Sons, New York, 1976. See also Roger Pye and Ederyn Williams, 'Teleconferencing: is video valuable or is audio appropriate?', Telecommunications Policy, Vol 1, No 3, 1 977. 25CEPT Long Term Studies Working Group, Final Report of the Business Communications Studies on Demand for N e w Person-to-Person Interactive Telecommunications Systems, Vol 1, Aims and Methods, and Vol 2, Summary of Principal Conclusions, produced by the Subgroup Demand for New Services of the CEPT Long Term Studies Working Group, available from the author. 26 D.L. Benson, 'Local-exchange renewal strategy: formulating a strategy', The Post Office Electrical Engineers" Journal, Vol 67, October 1974.
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The coexistence of uncertainty and inertia is, prima facie, alarming. There are three ways in which the problem can be tackled: by reducing uncertainty, by reducing inertia, and by planning in ways which attempt to reconcile the two. Each of the uncertainties that have been identified can be reduced by long-term studies. For example, in the case of uncertainty about demand for new services, it is possible to carry out, in addition to relatively conventional market research 2~ and market intelligence,22 a systems analysis of the extent to which expenditure is likely to be diverted from existing media to new telecommunications services. Recent joint work by Denmark, Federal Republic of Germany, France, Italy, Norway, Sweden, and the UK, on future demand for teleconference services (carried out through the Long Term Studies Working Group of the CEPT) provides an example of this approach. The method (developed originally by the Communications Studies Group of University College London and the Long Range Studies Divisions of the UK Post Office) relies on computer-based mathematical models for its execution. It involves, first, the survey (using self-completion questionnaires) of the nature and frequency of face-to-face meetings within and between organisations. 23 Data are gathered on the duration and function of the meeting, the number of people taking part, and the use of audiovisual aids and documents. Together, the seven national surveys gathered data on 26 000 meetings from 6000 office-based staff in over 1000 establishments. The meetings are then allocated into 'type' categories (or the face-to-face category) such that each meeting is assigned to the cheapest teleconference system (eg videotelephone or studio-based audio conference system) which would be adequate for the purpose. This allocation was based on previous research at the Communications Studies Group on the effectiveness and acceptability of teleconference systems. ~4 On the basis of relative forecast costs, the proportion of such meetings which would be likely actually to transfer to telecommunications at various dates in the future is estimated. 25 Together with reduction of uncertainty, long-term planning should seek to reduce inertia. To take two examples from work in the UK Post Office, there may be economic justification for accelerated replacement of existing plant which is still in good working order, and it may be possible to design new systems in ways which facilitate future evolution. Economic studies have led, in the UK, to a programme of accelerated replacement of electromechanical (Strowger) telephone exchanges. 26 The replacement of this equipment as it wore out would have involved a process stretching well into the next century. The alternative approach, of planned replacement of all Strowger plant within a specified period (involving scrapping some equipment before it had worn out), incurs higher capital expenditure for many years, but reduces operating costs in the long term. The costs, of equipment purchase and acceptance testing, and of operating and maintenance,
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27 C.R.J. Shurrock et al, 'Local-exchange renewal strategy: maintenance man-hour requirements', The Post Office Electrical Engineers'Journal, Vol 68, July 1975. K.R. Crooks, 'Local-exchange renewal strategy: a model for decision', The Post Office Electrical Engineers" Journal, Vol 67, October 1974. 2s LR.F. Harris, 'Electronic switching in the United Kingdom', paper presented at the International Switching Symposium, Kyoto, Japan, October 1 976.
were estimated and were varied to reflect likely future changes in real cost, and to reflect various production volumes. These estimates, together with data on the existing plant and on growth forecasts, were processed by a computer model to produce rankings of alternative strategies on a discounted cash flow basis; 27 these showed that the service benefits of accelerated replacement could be achieved without economic penalty. The design of new systems in ways which facilitate future evolution is another method of reducing the inertia of the system. It is one of the primary aims of the UK development programme for a family of standard switching and associated systems, known as System X. 28 It is achieved by designing a coherent set of subsystems, which can be assembled in varying ways to produce the different exchange applications (eg trunk, local, international, and data). The overall system strategy, based on processor control and common channel signalling, is flexible and adaptable. The subsystems, designed to be adaptable in themselves, have clearly defined external interfaces; they are therefore 'black boxes' whose internal technology may be progressively improved without upheaval of the system as a whole. By these means uncertainty and inertia can be reduced, but not eliminated. There remains the need to plan for uncertainty. Recent UK studies of long-term strategy for the local line network provide one example of how this can be attempted. Ten different technological strategies for the local line network in the period 1976 to 2006 were established; these included analogue and digital schemes, using pairs, coaxial cables, or optical fibres, with varying degrees of multiplexing within and b e t w e e n services. Sections of exchange areas, representative of the various types of residential and business district, were selected from the UK as a whole. Three widely different forecasts (known as 'telefutures') were made for penetration of new and existing services up to the year 2006. Because of the great uncertainty in future penetration of new services such as videotelephone and Cable TV, the penetrations varied between telefutures by in some cases as much as 100:l. The representative territories were then planned up to 2006, in accordance with each technological strategy, and each telefuture. The plans, when combined in a computer costing model with estimates of current and future costs, produced discounted cost estimates for each territory/strategy/ telefuture combination. This use of widely differing telefutures is a form of planning for uncertainty, since it leads to the selection of a strategy which may not be the best under any one telefuture, but which copes adequately with each. The conflict between uncertainty and inertia is an inherent feature of telecommunications. It is no cause for embarrassment or despair. The problem must be recognised, and must be attacked by reducing uncertainty, by reducing inertia, and by adopting versatile plans.
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