Interconnection & Interoperability Agreement: fundamental goal Disagreement: What is an interface? Which interfaces are critical? What is “open”? How should standards be set? Map out the debate

3 fundamental problems Clash of two concepts and of two debates: Interconnection (telecom) Interoperability (computing) Economics / Strategy: Technical merit Strategic interest of the parties Three policy domains: IP protection antitrust regulatory oversight No clear separation, many conflicts

Interconnection v. Interoperability Degree? Interop > Interconnect Two distinct traditions: Telecom Interconnection ComputingInteroperability What are the relevant Interfaces? What is the primary policy goal?

interfacetelecom interconnection computer interoperability appliance to network ·physical: modular phone or CATV plugs ·logical: standard signaling ethernet (10baseT) appliance-to- application (not a major concern of traditional Telecom) Windows and Intel-based machines v. MacOS and Motorola-based machines application-to- application ·interface between voic systems service provider to carrier interface (ONA's BSAs/BSEs as the network's APIs) ·file exchange between applications ·message passing among different services ·client/server compatibility ·APIs: OS to application interface network-to-networkMCI to PacBell, voice call [equal access] ·internet [TCP/IP]

Primary policy goal? Interconnection / Telecom: network effects, pursued through regulation Interoperability/ Computing: encourage innovation, pursued through IP protection Reflects inherent trade-off between integration and diversity

Policy trade-off diversity integration

Policy trade-off diversity integration (monopoly) (competition)

Policy trade-off diversity integration (monopoly) (competition)

Policy trade-off diversity integration (monopoly) (competition)

Policy trade-off diversity integration (monopoly) (competition) Virtual integration

Policy trade-off diversity integration (monopoly) (competition) Virtual differentiation Virtual integration

Policy trade-off diversity integration (Regulated Interconnection) (IP protection & competition) Telecom Computing

Policy trade-off diversity integration Virtual differentiation Virtual integration

Interfaces and Strategy which interfaces are critical? what is “open”? Fully open Fully Closed Most lie in between what is “proprietary”? how should interface standards be set? government mandate Voluntary consensus Market competition

Compatibility & interconnection

Users

Compatibility & interconnection Users Producers with locked-in, quasi-monopoly position (Microsoft, IBM, CATV)

Compatibility & interconnection Users Common carriers Suppliers without monopoly position Producers with locked-in, quasi-monopoly position (Microsoft, IBM, CATV)

Interfaces and Policy Primary concern: Telecom: encourage network effects. Regulatory oversight. Ex-ante (introduce competition within monopolies) Computing: encourage innovation IP protection. Ex-Post (grant IP protection -- monopoly -- remedies if abuses

Interfaces and Policy (cont'd) Intellectual Property: temporary monopoly Copyright Patents Trends? - Toward denying IP protection for interfaces - Increasing use of patent protection for software (as functional) Antitrust Counterweight to IP "Essential Facilities" Blunt instrument Regulatory oversight

Conclusion Should we care? Will private incentives serve the public interest? Is there scope for beneficial government action?

Conclusion Should we care? YES Will private incentives serve the public interest? Is there scope for beneficial government action?

Conclusion Should we care? YES Will private incentives serve the public interest? NO Is there scope for beneficial government action?

Conclusion Should we care? YES Will private incentives serve the public interest? NO Is there scope for beneficial government action? MAYBE…