1. Peter Cowhey Dean, School of International Relations and Pacific Studies UC San Diego pcowhey@ucsd.edu

2. Information and Telecommunications Technology Are MergingThis Creates A Brand New Market Dynamic Good Public Policy Will Facilitate the Growth of Modularity The Key Characteristic of the New Technology Architecture Modularity Opens Both Global Opportunities and Big Challenges for Latin America

3. The Traditional Model for ICT: Leverage a Dominant Position The Leverage Model: Use a Large Advantage in Critical Part of the Value Chain to: –Take leadership position in adjacent markets –Raise profit margins to build corporate war chest and research/investment funding to entrench leadership Traditional examples: AT&T before 1984, IBM in 1960s and 1970s, and Microsoft in 1990s New example: Google?

4. IBM Dominance Results in dominance in: Integrated hardware systems Mainframe software Integrated Services Interfaces not transparent Leverage: Superior performance in integrated processors yields highest MIPS integrated with systems software Bundled packages of products for enterprises

5. Microsoft Dominance Results in dominance in: Applications (Office) Enterprise Server software Collaborative software tools for enterprises Interfaces not transparent Leverage: DOS/Windows becomes the standard desktop environment Then offer a package of related applications and specialized software to large enterprises

6. AT&T Dominance Before 1984 Leverage: Control of Local Transmission Network "leverage point" Interface is transparent, but rivals cannot rent local network on competitive price and performance terms Results in dominance in: Long Distance Services Enterprise services Local Network

7. Can Google Do It Again? Leverage: Dominance in search as an information utility: Massive storage and computing infrastructure Large private communications network Syndicated ad network for entire Web Results in dominance in: Enterprise Applications markets Productivity software Social Networking Media and Content

8. Why Google Wont Dominate – Modular Revolution Technology plus policy have produced a new architecture for Information and Communication Technology (ICT) – Modular Architecture Modular: Standardized interfaces allow mix and match of ICT building blocks

9. How the Modular Revolution Evolved – Policy & 1 st Two Stages Carterfone in 1950s establishes freedom to choose equipment as long there is no harm to the network and transparent interfaces IBM antitrust suits in 1950s establish that IBM and rivals have to design plug and play hardware and software Diversified supply base of specialist firms Computing and terminals – the cheap revolution in computing and terminal equipment costs and performance AT&T break up: Ability to build your own network or rent network capabilities from dominant firm Wireless markets: FCC affirms principle of technology neutrality as long as calls can be exchanged between different technology networks Limited version of net neutrality: Telecom carriers cannot discriminate on user access to content or value added services Communications networks – growing bandwidth at plunging prices 1 1 2 2

10. The Cheap Revolution Scientific American, January 2001 Number of Years 012345 Performance per Dollar Spent Data Storage (bits per square inch) (Doubling time 12 Months) Optical Fiber (bits per second) (Doubling time 9 Months) Silicon Computer Chips (Number of Transistors) (Doubling time 18 Months)

11. Microsoft antitrust: transparent interfaces Web browser becomes the common translation device among operating systems Web 2.0: Growth of modular code that be recycled by other programmers Software and Web Services FCC forbids cable and broadcast networks from withholding content from rival transmission networks Audio and visual merge with data via Web Geographic markets merge via Web Costs of creating high quality content drops dramatically (special effects are radically cheaper) Content (Digital Media) – YouTube How the Modular Revolution Evolved – Policy & 2 nd Two Stages 3 3 4 4

12. Why Winners Dont Take All in the New Era Source: Gartner (August 2006) Figure 1. Percentage of OS-Specific (Generally Windows) vs. OS-Agnostic Applications Figure 3. Application Development Mix New Applications Figure 2. Number of OS-Specific (Generally Windows) vs. OS-Agnostic Applications in Our Model Organization (Installed Base)

13. Some Examples of Modularity and Market Evolution Apples iPod: makes its money on selling the terminal – the networked information is a commodity Salesforce.com: provides customers with on- demand computing that supports a powerful customer relations management platform – unlike Google, it simply rents the computing infrastructure Orkut (Brazil) vs. Facebook: Google has limited success in social networking Asian gaming market: Only one of top fifty networked games in East Asia are from U.S. vs.

14. Challenges and Opportunities for Latin America Modularity is the potential of the digital technology frontier, but it requires –Smart competition policy to be effective –Support for technology innovation Latin American communications/media infrastructure is low bandwidth and high priced by global standards Latin America does not invest enough in innovation capabilities – people and research facilities

15. Opportunities The rise of modularity and decline of leveraging opens many global opportunities The costs for being a global media and content provider are declining rapidly The ability to innovate specialized global applications for consumers and enterprises is disseminating rapidly

16. Four Examples to Consider Web 2.0 applications driven by ad revenuesbut Latin America is spending only about $1 out of every $30 on digital ads while North America is spending $1 out of every $6 Networked medical innovations Environmental policy depends on good data breakthroughs on networks of air monitoring sensors The implications of high end research networks for economic growth and modernization

17. The Real Digital Divide: Latin America and the Digital Advertising Market (by format, category and region) (Page 1 of 2) FormatCategoryRegion20062007200820092010 Digital Paid Listing LA101134173215259 APAC2,0412,6483,3834,1724,989 EMEA3,2664,2415,3766,4927,530 North America6,7488,31210,09711,74813,306 Paid Listing Total 12,15615,33519,02922,62726,084 Display ads LA81104127154179 APAC1,6322,0422,4832,9833,451 EMEA2,6113,2703,9464,6425,209 North America5,3966,4107,4128,4009,204 Display ads Total 9,72011,82513,96916,18018,043 Local search (incl. Internet YP) LA517092117145 APAC1,0381,3851,7912,2702,786 EMEA1,6622,2182,8473,5324,205 North America3,4334,3475,3476,3927,431 Local search (incl. Internet YP) Total 6,1858,01910,07612,31114,567 Classified LA4052668197 APAC8101,0341,2871,5761,875 EMEA1,2951,6562,0462,4532,831 North America2,6773,2463,8424,4395,002 Classified Total 4,8225,9897,2418,5509,806 CGM ads LA1117284468 APAC2133375378451,302 EMEA3405408531,3151,965 North America7031,0581,6022,3793,472 CGM ads Total 1,2661,9533,0204,5826,807 Mobile advertising LA919314764 APAC1873736069081,242 EMEA2995979621,4131,874 North America6181,1701,8082,5563,311 Mobile advertising Total 1,1122,1583,4074,9246,491 Digital Total 35,26245,27956,74169,17381,798 Source: PwC, analyst reports $ Millions

18. The Real Digital Divide: Latin America and the Digital Advertising Market (by format, category and region) (Page 2 of 2) FormatCategoryRegion20062007200820092010 Physical TV network advertising LA7,7518,2599,3489,87511,299 APAC33,43435,37739,45741,20044,862 EMEA41,73344,05747,38750,08153,751 North America75,00077,61984,52886,42092,163 TV network advertising Total 157,918165,312180,720187,576202,075 Newspaper Advertising LA3,8214,0974,3714,6464,920 APAC23,70024,83227,13828,00929,636 EMEA38,84640,13841,50242,91844,369 North America47,57547,82748,32148,34749,016 Newspaper Advertising Total 113,942116,894121,332123,920127,941 Magazine Advertising LA1,1271,2191,3111,4021,498 APAC6,6987,0547,4937,7728,121 EMEA21,16422,00022,94023,89024,838 North America25,30726,60128,12529,28930,084 Magazine Advertising Total 54,29656,87459,86962,35364,541 Radio and out-of-home advertising LA264285309332356 APAC5,4035,7156,1616,3696,767 EMEA8,3859,0559,76710,454 North America7,1217,6818,3228,9829,763 Out of home ads Total 21,17322,73624,55926,13727,340 Physical Total 347,329361,816386,480399,986421,897 Source: PwC, analyst reports $ Millions

19. Diabetes Phone In May 2004, LG and HealthPia introduced a Worlds First Diabetes Phone in Korea under KTF Wireless Service. More than 700 Customers are currently using the Diabetes Phone in Korea with a high satisfaction.

20. Breakthroughs on Environmental Air Monitoring Systems through Laboratories on a Chip Source: Greg McRae, MIT and ANL Cement Sensor

21. An Innovation Vision for the Future: Towards Gigapixel Displays Source: Jason Leigh, EVL, UIC Augmented Reality SuperHD StreamingVideo Gigapixel Wall Paper 1 GigaPixel x 3 Bytes/pixel x 8 bits/byte x 30 frames/sec ~ 1 Terabit/sec!

22. Predicting Bandwidth Utilization and Innovation The research networks lead high end commercial use by about 7 years The research networks lead high end consumer use by about 12 to 15 years The leading edge use for pictures and sound today is illegal sharing of movies and music The leading edge tomorrow will be interactive visual and data applications for work and personal uses

23. The Rise of New Network Uses Source: Krishna Nathanson, IBM, 2006

24. Global ICT Spending by Technology ($US Billions) Source: WITSA's 2004, Digital Planet: The Global Information Economy. 200720062005200420032002200120001999 1,800 1,500 1,200 900 600 300 0 HardwareSoftwareServicesCommunications