When the global market is just a free telephone call away
Tuesday 18 February 1997
The downward pressure on phone charges, particularly international ones, has been enormous from call-back services and most recently from Internet telephony. But there is a difference between a world where buyers can obtain low charges by resorting to complicated schemes - even a call-back account takes time to set up - and low charges for everyone, but everyone.
How low? Well, the US representative at the talks, Charlene Barshefsky, reckoned that on average international phone charges would fall by 80 per cent. That may be an under-estimate. The actual cost of an international phone call to the phone company is a fraction of a penny; given the vast over-capacity of the fibre-optic cables across the Atlantic the marginal cost is zero. At some stage, now presumably by the turn of the century, this will be reflected in the pricing structure. Voice traffic will be more like data traffic on the Internet, where there is no relation between cost and distance.
It is impossible to envisage the scale of the changes that this will have on the world economy. We can imagine a world of low charges: where it costs no more to call a supplier in Santa Monica than it does to ring one in Salford; or a world where speaking to family in Japan is in effect free. But it is much harder to think through the social and economic consequences of this step change in costs, for what is happening is much more dramatic than any other decline in costs in human history.
The chart shows the falling cost of four communications technologies over the last 80 years. The two mechanical technologies, ocean freight and air-transport, have had enormous economic and social consequences, but these have been spread out over many years. For example, the northern European diet was transformed by the former, but it took the best part of half a century for that to happen. The cheap package holiday business was created by the latter, but that took 15 years to develop.
With telecommunications the fall is much faster, not so much in satellite charges which stuck in the 1980s, though they may now be falling again, but in international phone costs. Note that these charts, from the World Bank, are 18 months old. By now the cost of the transatlantic phone call has fallen by a further order of magnitude. We are getting a much larger change, in a much shorter period of time, than ever before.
So what might the consequences be? Here are five notions.
One: In five years most businesses will have global 0800 numbers. In other words, the cost of a call to a business from anywhere in the world will normally be carried by the business itself. In the US half the calls to businesses are on 0800 basis. Global 0800 numbers have just been introduced in the last month, but while international calls remain expensive it is rather dangerous to publish such a number: a small business does not want to be hit by too many calls from Japan, unless a reasonable proportion have an order close behind.
But the attraction of a business having a single free number, for use from anywhere in the world, is enormous. If costs come down enough, and most companies have such a number, anyone producing easily distributed products can reach a global market much more easily.
Two: Open lines: the idea that a small business, even a household, should keep an open line for its computers, would still seem a luxury outside of the US. But if telecom charges come down enough the normal way for a household to be linked to the rest of the world may well be though a continuous connection. If most people, at least in the developed world, have computers which are continuously connected to networks, it becomes possible to deliver a whole string of services to them for no additional cost.
Three: Fringe countries. There will be none. Any country, anywhere in the world, will be able to communicate with any other at zero marginal cost. It will be able to deliver any screen-based service at zero marginal cost, with the result that we might find financial or entertainment services coming from anywhere in the world. Location of industries which can deliver their output over the wires - software, computer games, audio- visual entertainment, financial services, etc - will therefore migrate to places where there is the best-value human capital available.
With manufacturing, people have to move to the jobs; with screen-based services the jobs can move to the people. But the jobs will only come if the people have the appropriate skills. Despite the frictions in manufacturing - the time it takes to build a plant and train the people to run it - we have in the last 30 years seen a massive migration of manufacturing jobs around the world. Expect now to see a similar, but much more rapid, migration of service industry jobs.
Four: Trading blocs. Expect them to become less important, not more. Present popular wisdom is that the world is gradually moving towards three trading blocs - American, European and East Asian - and that trade will tend to be ordered by negotiation between these. But if any country can communicate with any other for free (or rather as near free as makes no difference) and an increasing proportion of trade is simply shot down the wires, these blocs are irrelevant. As Danny Quah has pointed out, most recently in the February Bank of England Quarterly Bulletin, as countries grow richer an increasing proportion of their trade is "weightless", in areas like information technology. Arguably, edifices like North American free-trade association, Nafta, or even the European Union, are irrelevant in a weightless world.
Five: If very cheap telecommunications level the field between countries, they also level it between companies. If size and location are less important for the former, they will also become less important for the latter. Small business and sole traders will be able to enjoy many of the advantages of larger ones, just as small businesses can at present use the Internet just as effectively as large.
For many people, that will be the biggest liberation of all.
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