Telecommunications are revolutionizing the world.

• Author: Burnham, James B.

"... The falling cost of communications is likely to have as great an impact on the structure of human society as the introduction of electricity in the 19th century."

It Costs About 12 cents a minute to call London, England, any time of the day or night. That is a decline of 90% compared to the cost of $1.20 a minute 10 years ago--during a period when the expense of everything else rose more than 43%, as measured by the consumer price index. By the year 2005, according to a World Bank analysis, a cost of three cents an hour for a transatlantic high-resolution video call is a real possibility.

The precipitous drop in the costs of international telecommunications is setting in motion an extraordinarily powerful force for increasing the already fast pace of globalization. This force affects far more than the international distribution of entertainment programs. It is changing where jobs are located. This, in mm, is giving rise to the basis for higher rates of economic growth globally, but will subject many firms and some nations to heightened, painful international competition.

Two closely interrelated factors are behind the continuing fall in telecommunications costs--technology and deregulation. Advances in semiconductor, optical fiber, and transmission technology--and the manufacturing systems which produce the physical products--have combined to reduce radically the costs of international telecommunications.

Deregulation has been led by the U.S., but embraced by an increasing number of countries--from the developing world as well as the industrial nations. This process has let loose competitive forces, stimulating the introduction of the latest technology, driving down charges to telecommunications users, and creating entire new concepts in serving customers, such as international call service centers.

There is every reason to believe that these trends in technology and deregulation will continue, thus maintaining the strong downward pressure on international telecommunications costs and charges. This is particularly true in those parts of the world where government telecommunications monopolies are being privatized and subjected to substantially greater competition.

The key to understanding the growing impact of global telecommunications is to think of the expanding web of undersea optical fiber lines, satellite links, and electronic black boxes as a transportation system--not merely as a communications network. Viewed this way, it is on a par with the routes and facilities associated with transoceanic shipping and international air transport. Major changes in the technology and cost of transportation spark radical changes in peoples' lives throughout the world.

For example, in the steel industry, the traditional decision criterion for locating plants has been to find the site that minimizes freight costs in and out. The rise of the Japanese steel industry to global dominance in the 1970s owed as much to ingenuity in ocean-going ship and marine-engine design as it did to sophisticated steel plants and modestly lower wages. Thanks to innovations in transportation-related technology, the sizable costs of shipping heavy bulk materials fell dramatically. How else could Japanese steelmakers import coal, iron ore, and scrap from Australia, Brazil, and the U.S. and then ship finished steel back to these same countries at a profit?

The key transportation technology for the opening years of the 21st century will be telecommunications. What does telecommunications have to do with international transportation? The obvious linkage is helping ships and aircraft navigate more efficiently, cutting time and operating expenses. This means lower costs of imported goods and cheaper travel for business and pleasure. A less obvious connection is the ability of an apparel manufacturer, for instance, to know the exact location anywhere in the world of materials and finished goods so that inventories--and the associated transport, storage, and handling costs--are reduced sharply.

The most explosive aspect of the telecommunications/transportation revolution is coming in traditional service industries and functions: technical services, data entry, financial management, software programming, back-office processing, etc. Consider Fidelity Investments of Boston, whose British subsidiary sells shares in German companies to German investors by telephone from London. Cheap telecommunications provides the global transportation "highway" for the work that is performed by Fidelity's customer representatives, Irish call center technicians, Indian software engineers, and Jamaican data entry clerks.

These white-collar activities, many of them paying well above average wages, are becoming steadily more important in all economies. Moreover, they now are "contestable" by any country in the world that has a decent telecommunications system and an appropriately skilled labor force.

What this means is that the last major barrier to international...