Intelligent Transport Systems - Telenor

• transportation undergoes a fundamental reform
where ITS is the name of the enabling
technology;
• ITS applications are based on a network economy
value creation mode; and that
• ITS draws heavily on a dichotomy – essential
in the future of the ICT business: The omnipresent
stupid network – wether fixed or
radio-based, stable or spontaneous, and, on the
other hand, the technically independent applications
– getting born, living and dying outside
the net.
Derivation from Economists’
Thinking – ITS as a Third Party
Income Booster
Essential practical experience of economists,
theoretical views on network economic value
systems and regulation of natural monopolies
are presented below:
• Monopolies become inefficient as time passes,
and should be forced into competition (even
the threat of introducing competition may
help).
• In a perfect competitive market, product price
would be equal to marginal cost. Hence in a
perfect competitive market – should it exist –
business is uninteresting. To make a real
profit, some degree of monopoly (i.e. market
imperfection) is needed.
• In network economic value creation systems
(like telco, bank, airline companies and similar
network operations), marginal costs are
next to nil, as almost all costs are fixed. Competition
therefore easily destroys such value
creation systems.
• Hence, network economies have the characteristics
of “natural monopolies” and should be
protected against such destructive competition.
• To hinder a network monopoly to reap a
monopoly profit, it must be under some regulation
as to permissible margins. The network
operator must accept it as a business of –
in the long run – relatively low, but stable,
margin.
• To be permitted to “live” from the monopoly,
the network operator must open up for third
parties, both upstream and downstream.
Hence, as demand is created by upstream
value addition (applications), the network
operator should stimulate upstream value
addition by third parties, and their access to
infrastructure at fair prices.
Telektronikk 1.2003
• Telco networks are traditionally built to meet
peak demand, and to carry the costs for that
capacity through income from the mean
demand. The unused capacity has a cost that
must be carried somehow.
• Added network use that fills up the gap from
mean consumption to peak consumption,
means net income to the operator. To fill this
gap seems a smart move for the network operator.
Alternative ways to achieve it are:
- Under the old innovation regime it meant
in-house development, integration and control,
preferably by using network elements
to produce the application (called “VAS”,
i.e. Value Added Service).
- Under the prevailing innovation regime it
means helping 2nd and 3rd parties to create
services and develop markets. This must be
done by a high degree of co-operation, i.e.
concerted action, complementary partners,
and competition at all levels. Absolute control
or domination is as destructive as is
absolute competition.
- Some parts of the telco business are under
the old innovation regime, juridically, technologically,
as well as mentally – some
parts are under the new. Hence, both strategies
are needed, but they are not equally
suitable or equivalent in any given situation:
The new regime offers new opportunities,
which do not exclude the old one.
These views are not all generally accepted, but
they increasingly seem to gain ground. Even the
present liberalistic era is being reshaped.
Respected authorities and NGOs claim that the
societal costs of exposing natural monopolies to
competition, whether they be roads, jails, water
and power supply, or telcos, railroads and airlines,
may by far exceed the advantages (e.g.
Stiglitz 2002). Also, it is increasingly understood
that the same kind of value production may be
suitable for competition in the urbanisation of
California, Brazil and the Netherlands, but may
be a natural monopoly in rural India, the US
Midwest, Northern Norway, and in the French
countryside. The long-lasting debate on how
telco networks should be owned – by business,
by government or as commons – is a derivative
from these very same points.
Accordingly, in the economists’ perspective, ITS
is just one of many possible areas for such business
growth initiatives, and just one of many
possible application markets that might thrive on
the top of an open natural monopoly infrastructure:
Initiatives can be in-house, by helping partners
or 3rd parties develop the market. There
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