From competition to cooperation:
the road to e-commerce:

Packing the kids into the minivan for a trip down to the local mall or stopping by the bank to cash a check after work may one day become as quaint as a Saturday stop at the corner drugstore for a malted milk. With the Internet revolution in full gear, experts predict that electronic shopping and services will witness exponential growth over the next few years.

From near zero sales a few years ago, consumers are starting to make a habit of buying their books, making airline seat reservations, and purchasing stocks electronically. According to the consultancy group Forrester Research, Internet sales in the United States alone are expected to double each year over the next five years, with total Internet-based commerce leaping to US$327 billion by 2002.

However, the electronic commerce revolution is dependent on several key preconditions. The first is the widespread availability of the Internet. The Internet user population is already predicted to grow from just over 77 million people worldwide in 1997 to nearly 280 million by the year 2000. More importantly, the Internet is set to become truly global as more people from outside the U.S. hook up to cyberspace. While the number of American Internet users are expected to triple between 1997 and 2000, those from the Asia-Pacific region are projected to quadruple over the same period while European cyber surfers will see their numbers increase nearly six-fold.

Just as important as the numbers is the technology. Recent advances in encryption techniques have made it possible to ensure the safe transmission of credit card numbers and other sensitive information needed to ensure payment electronically. Another key development has been the agreement on a common technical standard for the new generation of V.90, 56 kilobits-per-second PCM modems hammered out through the International Telecommunications Union (ITU). With the World Wide Web becoming increasingly multimedia and information dense, fast and reliable on-line access to Internet shopping sites through high capacity modems is considered crucial for the future uptake of the new trading technology.

The agreement on the V.90 standard not only fosters the establishment of a global industry norm which guarantees compatibility among new 56k-compliant modems put on the market, it also allows manufacturers to upgrade existing 56k modems to the new standard so that the different models now on sale will not become obsolete. The benefit for consumers is faster and more dependable connections to the Internet and the assurance that future improvements in 56K modem performance will be based on the same technical specifications. And faster connections cuts down the time needed by computers and fax machines to transfer information, resulting in lower telephone bills.

Despite these advantages, agreement on the standard was far from guaranteed. Two rival proposals complicated the job. On one side was the x2 proprietary technology, on the other the K56flex standard. The proponents of both proposals saw the new generation modems as the key to seizing an increased share of the entire modem market.

"The firms were keen to protect their market share," noted Les Brown, a member of Motorola’s technical staff who serves as rapporteur for the ITU’s expert group on PCM modems. "There was also a lot of hype in the media about who’s technology was going to win, which made it difficult to reach a compromise."

Compounding the difficulties were intellectual property battles. "Intellectual property is ultimately the name of the game," argued Neil Clemmons, vice president of product marketing for 3Com. "Companies want a piece of their technology in the standard so that others will have to pay a licensing fee for the use of the technology." "As is often the case in the ITU process, there are the technological debates and the business positioning debates," he admitted.

As the bickering continued, 56K users and prospective users were faced with two unappealing prospects. One was that the two rival standards would remain incompatible, meaning that Internet service providers using the x2 or K56flex standard would be unable to transfer data to users with the other technology, thus dividing the Internet world into two incommunicable camps. The other was that a completely new standard would eventually emerge, making the new 56K modems already on the market useless.

Work on the common standard initially began in the Telecommunications Industry Association (TIA), the U.S. standards-setting body. Soon thereafter, the ITU was called in to broker an agreement on a worldwide basis. In March 1997 the global body formally entered the fray when it set up an experts group on PCM modems with the aim of securing an international agreement on a 56K standard as soon as possible

With 188 Member States and some 500 industry representatives, reaching an agreement on a common standard seemed a daunting task. Pressure was growing among manufacturers and users for a speedy resolution. "There was a lot of confusion in the marketplace, with Internet service providers forced to go one way or another," said Brown. "A split between the two technologies was there for a short time."

"The market was drying up," added John Magill, a consultant to Lucent and vice chairman of the ITU’s Study Group 16, where work on the modem standard was carried out. "People had stopped buying 56K modems waiting for a resolution. There was an urgency to get the job done and clean up the problem."

The ITU experts group agreed to work towards initial approval of a common standard in September 1997, with a final decision by the beginning of 1998. Close cooperation soon developed with the TIA’s TR30 committee where the initial work took place. ITU meetings were aligned with those of the TIA, with experts meeting held every month. The two sides also shared web sites and established common documentation numbers.

In May of 1997 more than forty experts met in San Diego to advance the work. With representatives from the major modem and modem technology suppliers in attendance, agreements were sealed on several key technological points. The process looked on track for a final decision by the following January. But at an ITU meeting in Oregon the following September, hopes of securing initial approval were dashed. The protagonists were digging in their heels over two technical points concerning the training and start procedures for the modem as well as data mapping.

"The mapping scheme to be used in the data mode was seen by both sides as a big win or lose issue," noted Brown. "The x2 camp wanted their modular compression for mapping while the K56 flex camp was pushing for their shell mapping."

The window of opportunity was closing quickly. Failure to secure an initial agreement by the next ITU meeting in February meant that further progress would be delayed until at least the following spring. Fears grew that modem makers would shelve the ITU talks and focus their efforts on securing a deal on an interim standard through the TIA, thus threatening the development of a common global standard.

The ITU experts group redoubled its efforts. In October a compromise was reached on start-up procedures, which helped to clear up a large chunk of the draft text. And at a key meeting in December the final barrier was scaled when an agreement was hammered out allowing both data mode mapping functions in the final standard.

Brown admitted that some arm-twisting helped in the final stages but added that the deal was the product of the manufacturers themselves. "It’s the participants who determine when a compromise can be reached and an agreement comes to closure," he insisted. "I think the companies felt an enormous amount of market pressure which eventually compelled them to work together."

Events moved quickly thereafter. In February 1998 a complete V.90 standard was adopted in principle by ITU’s Study Group 16. This adoption locked the technical specifications into place, opening the way for modem manufacturers to already begin shipping V.90-compliant modems and upgrades for existing 56k modems during the first quarter of the year. And on September 15 the ITU formally adopted the new standard, bringing the process to a rapid conclusion.

The agreement could not have come at a better time, for both business and Internet users. Already, more than 1,500 Internet service providers – including more than 800 in the U.S. – are offering live V.90 service, including major ISP firms such as America Online. An estimated 20 million V.90 modems are now in use.

"The ITU formalizes procedures and provides a forum for companies to mediate their differences," said 3Com’s Clemmons. "Technology is about compromise. There are lots of smart people with different ideas on how to approach a problem."

"Once an ITU procedure starts it’s rare to have a stalemate," he added. "The only question is, how long is it going to take to get an agreement." Magill pointed out that efforts to secure an international agreement on the V.90’s predecessor, the V.34 (33.6 kbs), lasted more than three and a half years. The ITU approval process for the V.90 standard lasted 16 months from start to finish. "When the V.34 standard was drawn up there was no World Wide Web and no great Internet activity," said Magill. "The market for modems wasn’t that big. With the V.90 there was enormous market pressure which forced people to work together and get an agreement quickly."

"Sixteen months is as quick as any standards organization," he noted with pride. "Not only that, we reached a quality level which allowed manufacturers to start shipping V.90-compatible modems within 12 months." "It was," added Brown, "an unprecedented approval time."

With the international standard in place, the market for 56K modems is now expected to skyrocket. According to the research firm Dataquest, global sales of 56K modems are expected to leap nearly 250 percent in 1998 over 1997 sales.

One industry publication, Point Topic, predicts the total value of worldwide 56K modem sales will top more than US$18 billion from 1997-2002, with annual sales topping out at US$4.3 billion in 2000-2001. At its peak, the publication adds, two-thirds of dial-up Internet access are expected to be via 56K modems.

While the ITU and its industry partners might be expected to rest on the laurels of the 56K achievement, the fast-paced world of the Internet is already providing standards-makers with new challenges. For example, a successor to the V.90 standard is already in the works.

The technology, known as digital subscriber loop (DSL), will allow for all-digital data transmission over standard copper telephone lines rather than the digital-to-analogue conversion for which PCM modems are designed. DSL modem users will have access to high-speed multimedia services such as video-on-demand, video phoning as well as super-fast access to regular Internet services.

According to Illinois-based Westell Inc., a DSL backer, the modems already available will allow users to download the entire Encyclopedia Brittanica in 31 minutes compared to 54 hours needed with a common 14.4K modem.

"It’s seen as the next big step up in high-speed Internet connection," said Magill. "Data transmission speeds will increase at least ten times over 56K modems, perhaps reaching as high as 1-2 megabits per second." The ITU is already meeting the challenge and is now working with the industry on a global DSL standard. "We may see an ITU recommendation on a DSL standard this fall," noted Clemmons, whose company is also involved in developing the new digital modems. "A final standard could come in the first calendar quarter of next year. Once that’s in place people like the PTTs and the Bell companies can start deploying the technology and customers can go to the computer stores and buy a digital modem with confidence."

Another example is video conferencing. An ITU standard known as H.323 provides specifications for audio and video conferencing using terminal packets over IP networks. The distinct feature of this standard has allowed manufacturers to develop a new generation of lower-cost, easier to use equipment and applications.

Experts adopted a second revision to the standard through the ITU last February and are continuing to expand upon it. "There’s a lot of work going on at the ITU at this moment on H.323," said Magill. "We’re concentrating now on voice applications as well as adding a new annex to the standard to accommodate fax transmissions over Internet Protocol networks."

Originally intended for applications like videoconferencing, its capacity to provide real-time communication made it a natural candidate for telephony solutions over IP networks.

The standard quickly won the support of the industry because of the transmission issues and the interoperability among vendors’ products. This was a key motivation for the Internet telephony industry to abandon their own proprietary efforts and adopt the ITU standard.

H.323 thus provides for a range of applications from telephony-only solutions to complete multimedia applications, spanning multiple networks and guaranteeing interoperability at all levels of service.

With widespread penetration of PCs, growing Internet connectivity and integration with other Web services, the H.323 standard is creating new business opportunities for enriched communication in the broader Internet world. And because ITU standards are global and open, they significantly contribute to create a highly competitive marketplace.

Such success stories are repeated several times a year at the ITU and, combined together, provide a solid foundation for the Global Information Infrastructure and for a fast uptake of e-commerce which the GII will drive.

A further manifestation of the development of electronic commerce is the use of freephone numbers. ITU–T Recommendation E.169, a global standard adopted in 1996, defines a system of universal international free-phone numbers (UIFN) which create a truly global market-place for electronic commerce conducted over telephone lines. A supplier can register a freephone number which is unique throughout the world. This enables customers wherever they may be located to contact and deal with the supplier at no cost to themselves. Freephone improves and simplifies customer access and gives companies greater control over their call processing systems.

The benefits of the international freephone designed by the ITU are many. The Union worked closely with service providers in the development phase, and has gone to great pains to devise a system which is flexible and which best meets the needs of service providers and businesses who will offer the service to their customers. The new UIFN is portable, allowing businesses to retain their number if they choose to change carrier.

International freephone gives businesses the opportunity to operate internationally, and to offer 24-hour service to their customers. For businesses, providing a freephone number is the metaphorical equivalent of bringing the sales counter to the buyer or of opening a shop or office in every country you want to sell in. You can have as many ‘shops’ as you have phone lines, for a fraction of the cost. It also means being able to service an international clientele in their own languages through Call centres. And for service providers, international freephone represents a considerable opportunity to increase revenues.

In the US, where national freephone numbers have been in operation since the mid-1960s, it is estimated that around $US100 billion dollars worth of commerce is handled over freephone, representing revenues of some $US12-15 billion annually for telecommunications carriers. An estimated 100 million freephone numbers a day, and more than 40% of calls now carried by AT&T, the world’s second largest telecommunication operator in terms of revenue, are freephone calls.

Although the vision of an emerging global electronic market-place (for goods, services and money) has some appealing features, there are other aspects that are clearly more problematic. Apart from network and data security, the new global networks raise many fundamental concerns about the regulation of international commerce – whether it involves trade in goods, services, currencies, information or ideas – and the impact of these changes on national sovereignty, political institutions, and way of life.