Intelligent Transport Systems - Telenor

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may be fields where absolute control of larger
chunks of the value creation is fine or even necessary
for some initiative to get momentum, and
fields where it is detrimental to some or all of
the stakeholders.
The rationale behind less control over the value
creation system is not purely economical, but
also political: According to prevailing normative
regulation theory (Tirole & Laffont 1993), the
price that the holder of any monopoly business
should pay, is to provide it for society as a utility,
i.e. free for all to build business upon.
One of the most valuable growth initiatives a
network operator can take is to initiate the creation
and spread of services to increase traffic.
If its value creation has the character of natural
monopoly, the network operator should in the
long run fight for being accepted as one, with
the implications it has on margins and openness.
Lesson from ICT Development
Trends: ITS is Just Applications
of What Happens Anyhow
In retrospect, the integration of telecom and IT –
coined “telematics” by the French – was in its
infancy ten years back, and has since then developed
enormously. Some main changes and
lessons learned are set out below:
• Costs for bit transport continue to fall due to
technology development and capacity build
out, and there are no ends to either development
in sight. Pressure on widening the bottlenecks,
i.e. mainly the access networks, is both
a cause and a consequence.
• Bottlenecks are widened or circumvented with
technologies driving the industry towards
commodity business models, vanishing business,
and low margins (e.g. dark fiber, XDSL,
WLAN, and “spontaneous networks”).
• It has become rational to move services out of
the networks: After a few decades of increasing
intelligence embedded in the networks
(the era of IN), the networks now become
“stupid”, in the sense of them knowing next
to nil of what applications they carry, for
whom, and between where.
• Mesh structured networks, through which the
traffic flows – split in packets routed indepen-
dently by decentralised decisions (packet
switch the Internet way), replace the old trunk
structure with its central control over reserved
communication circuits (circuit switch the
telco way).
• With the descent of circuit switching and the
arrival of abundant capacity, the historical justification
and practicality of duration and distance
as pricing parameters for network
access, lose ground. What can be priced in a
competitive network market is the (percieved)
value of access to / use of the network, in
terms of how much it contributes to the admission
and attractiveness of specific services.
Under a monopoly anything goes, as long as
the regulator does not do its job; i.e. to enforce
“cost plus a reasonable margin” pricing –
whether achieved by competition or by ex
ante provisions 2) .
• The network concepts of telco business made
service level guarantee technically and practically
feasible (like PSTN, ISDN, XDSL, VPN,
etc) – to the price of vertical integration and a
high degree of monopoly.
• This advantage is, however, increasingly
unsustainable as QoS can be achieved in many
ways, e.g. bandwidth affluence, in quality
mechanisms outside the networks, and in network
segregation – all mechanisms that
restrain the role of the telco network operator
and the traditional telco business model.
Hence, as “stupid” and “empty” mesh networks
take over, a classic within social economic
theory – “the problem of the commons” 3) –
seeks for new technological as well as regulatory
foundations within tele- and datacom.
• As applications are increasingly based on
interaction between computers – with the
network as a passive utility, computing gets
increasingly dispersed and mobile. In other
words: interacting IT subsystems are increasingly
movable and moving, and hence dependent
on communication between variable
locations and over a variable distance, i.e.
on some variety of radio communication.
• Ever more of the activities of daily life (ADL)
are ported to the digital networks. Which
means more traffic, as well as demands for
better functionalities at the network, platform
2) The possible products involving telecom as input factor are unlimited in range, but their possibilities to carry involved telecom costs would vary
enormously. Uniform pricing kills many growth opportunities, as willingness to pay for some product or service is not related to the cost to offer the
service through the network, but to the attractivity of the end-user application it enables. In a network economy, i.e. marginal cost being nil, pricing
the telecom input factor should reflect the end-user’s willingness to pay. It is good business as well as good regulatory practice to fill up the network,
i.e. through service creation making ADL (Activities of Daily Life) ever more net based. It may also mean a different regulatory scheme, permitting
differentiated pricing – even for basic services.
3) I.e. how to maintain quality of services in a natural monopoly infrastructure owned by all, but supervised and maintained by no explicit control system.
Telektronikk 1.2003