Institutional arrangements of technology policy and management of diversity: The case of digital switching system in France and in Italy © Springer-Verlag Berlin Heidelberg 2005.

Abstract

The importance of the development of a Digital Switching System (DSS) lies in its positive effect on the entire telecommunication network. DSS has provided greater reliability and speed, and enabled the introduction of new value added services, all of which have benefited the entire economic system. This chapter focuses on the development of DSS in France and Italy. We analyze how the 'organization' of a public research and development (R&D) programme can influence the relative success of a policy. By organization we mean coordination of the actors involved, and also the different technological options involved in innovation in telecommunications, which emerge, and should be publicly supported. Based on previous theoretical development, we state that the organization of a mission-oriented programme (such as the DSS) depends mainly on the learning ability of the policy maker and its proximity to the participating firms and institutions. Moreover, the management of technological diversity may have important impacts in terms of timing, costs, competition, technological diffusion and lock-in phenomena. The purpose of this chapter is to use this dynamic framework and evolutionary concepts to assess the relative success of the French and Italian DSS public programmes.To understand the importance of DSS development and, thus, the critical role of technology policy, we will briefly set it within the broader context of technological developments in telecommunication, i.e. the paradigm shift from electromechanical to digital technologies. Between the mid 1950s and the end of the 1980s, the telecommunication industry was at the centre of a technological revolution with the shift from the electromechanical to the digital paradigm. Electronic devices were gradually introduced in the three main sub-sectors of the telecommunication industry: transmission, switching and terminals. This chapter focuses essentially on the switching part of the network. The possibility of introducing electronics into the telecommunication network w as first conceived in the 1940s. But it was not until after the Second World War that the Bell Laboratories in the US and the research laboratory of the UK Post Office began to work on an electronic switching system. The discovery of the transistor by the Bell Laboratories in 1948, as a by-product of this research, was a fundamental step. However, it was over 20 years before a completely digital switching system was realized. The main problem was the reliability of the electronic components. In England, the first ambitious attempt in 1962 to introduce a totally electronic switching system failed. The research path followed by the US Bell Labs was more successful. Instead of being oriented towards a completely digital switching system. Bell Labs incrementally introduced new sophisticated devices in a traditional electromechanical switching system: the first prototype of a semi-electronic switch (ESS 1) was installed in 1965. To understand the technological choices made by Italy and France it is worth describin briefly the two main trajectories within the digital paradigm: the space division and the time division trajectories. A space division switching system is characterized by a physical connection between the entry and the exit of the signal. It is thus possible to follow the path of the signal through the space by the means of contacts that are generally electromechanical, but may also be electronic. This was the technological option adopted by the US and Germany. In a time division DSS the signal is "translated" into a digital code and then transmitted through purely electronic devices. In France and in Italy, time division was the preferred trajectory, but was arrived at by different routes (Libois 1983). The aim of this chapter is to compare the technological developments in France and Italy. The evolution of the technology related to the introduction of digital switching had various consequences for both the service provider and the manufacturer. For the telecommunication service provider, the technologi c l shift meant, first of all, a reduction in costs: these were the result of overall size, maintenance and numbers of personnel employed on installed lines. This shift allowed improvements in the capacity of the switching systems and offered greater reliability and improved quality Finally, it opened up the opportunity for the introduction of new services and offered the possibility for digitized transmission of data and images in addition to voice (i.e., an ISDN-Integrated Services Digital Network). For the service providers it can be claimed that: "the advantages of electronic systems towards electromechanical ones undoubtedly exceed the risks connected to the management and organization of the technological conversion and the costs connected to the qualification of the personnel" (Bragho 1988). For the manufacturing firms, this technological evolution meant a shift fi-om a labour intensive technology (electromechanical) to a competence intensive one (digital). This shift involved a change in the number nd type of people employed, the need for them to accumulate new competencies, and increased economies of scales, especially in R&D (Zanfei 1990). The progression from the electromechanical to the electronic paradigm involved a radical process of restructuring of the workforce, an increase in fixed capital investment, and the introduction of new flexible production technologies. Moreover, manufacturing firms were forced to accumulate upstream competencies in new and different fields, such as microelectronics and software, in order to develop and incrementally improve new products. Finally, the economies of scales in R&D increased. R&D investments need to be high in terms of the minimum efficient threshold, and they tend to remain high throughout the entire product life cycle, which eventually becomes shorter. Thus, it can be seen that technology policies have a tremendous impact on the fiirther development not only of an industry-in this case telecommunication-but also of the whole economy. The two cases described in this chapter are the development of the ElO in France and the Proteo/UT family in Italy. The time period spans the 1950s to the 1980s for France, and the 1960s to the end of the 1980s for Italy. Based both on theoretical hypothesis and on empirical facts, we show that the relative success of the efforts in France can be explained by the ability of policy makers to appropriately coordinate the actors in the telecommunication innovation system, and the various technological options. However, political decisions related to competition entailed some failures, such as the demise of one national company. The Italian R&D programme, on the other hand, suffered from a lack of coordination between the actors involved. After a long period of experimentation, national resources were finally pooled and Italian firms cooperated with foreign companies. The delay in this collaboration induced high costs and significant delays in the development of the technology, thus explaining its relative lesser success, comp red to France. The first part of the chapter focuses on the institutional set up of the telecommunication systems in each country. The analysis mainly compares the characteristics of the two information structures and highlights the coordination mechanisms used to develop the DSS. The specific institutional arrangements had some consequences for the dynamics of DSS diffusion. We then go on to analyze the policies in terms of coordination failures, diversity exploitation, and lock-in and diffusion effects. This allows us to assess the relative success of each country's policies. © Springer-Verlag Berlin Heidelberg 2005.