DIsruptive technologies show the need for a flexible policy approach

This post was co-authored by Alison Nemeth, who has joined Verizon as an intern this summer.

McKinsey & Company’s Global Institute recently published a report, “Disruptive Technologies: Advances that Will Transform Life, Business, and the Global Economy,” in which it identifies several breakthrough technologies that have the potential to “disrupt the status quo, alter the way people live and work, rearrange value pools, and lead to entirely new products and services.”

Of the twelve disruptive technologies that McKinsey identified, four of them are in the communications space, with mobile Internet taking the top spot. Two of those technologies, the Internet of Things and the “Cloud,” coupled with mobile data services, have the ability to enable advancements in other areas, such as in health care. Similarly, innovations like gene sequencing, autonomous vehicles, and 3-D printing are enabled in a substantial way by advancements in communications networks. Verizon’s businesses – from Verizon Wireless to Terremark to Hughes (now Verizon) Telematics – play major roles in many of the disruptive technologies outlined by McKinsey.

Putting this topic in context, the report compares today’s disruptive technologies, which raise productivity and provide enormous consumer and business benefits, to the development of the Illinois Central Railroad’s high-speed freight service, which did the same in the early 20th century. A more recent example of this is the advent of digital imaging. Kodak, a once-booming camera-film company, actually invented the core technology used in digital photography, but couldn’t bring itself to cannibalize its largest revenue streams in the film and film-processing businesses for the new, digital technology. As a result of Kodak’s failure to see the “big picture” (as it were) and adapt to new competitors and changing consumer demands, one of the most iconic brands in the latter half of the 20th century is a bit of an after-thought today.

Although change can be at times discomforting – often upending companies, leaving some to struggle or even fail – change can also bring enormous economic benefits, particularly in regions or countries that have the human and educational capital in place to take advantage of a fast-evolving marketplace. McKinsey sees such opportunities with “Cloud” innovations. Cloud computing is the machinery that powers nearly all mobile services and applications. Of the two- to three billion new Internet users in the developing world that McKinsey forecasts will get online between now and 2025, most of them will be connecting via a smartphone or mobile device.

In addition to the overall estimated economic impact of communications technologies, McKinsey includes estimates of the distribution of this impact between developed and developing nations. The huge economic benefits McKinsey projects in things like cloud services disproportionately benefit developing nations. Both the mobile Internet and cloud technologies are projected to benefit developing nations far more than other technologies, as the network effects of the billions of users coming online for the first time will blow open the doors to new economic opportunities. Because developing nations have so much to gain from these advancements in information technology, they should seek to avoid heavy-handed government regulation, which will suppress investment in these technologies and stifle new innovation.

Another important component to take advantage of disruptive trends is to have the proper policy framework in place; one which allows businesses and policy makers alike to quickly adapt to emerging innovations, business models and consumer needs. Costly regulations that govern how network operators operate will affect cloud services because they rely on advanced network connectivity. Cloud technologies are efficient, flexible and capable of giving even the smallest businesses the capability to offer services that only large companies could have offered in years past. A prescriptive and outdated regulatory framework could destroy the benefits that citizens of developing economies stand to gain.

Verizon’s Senior Vice President of Global Public Policy, Craig Silliman, recently gave a talk explaining the roots of our existing communications policy and why we need an entirely new framework that fits the disruptive nature of the 21st century communications market. It reflects many of the themes laid out in the McKinsey report. As Craig suggests, the Internet is still in its very early stages, even though we already use it extensively to communicate, entertain ourselves and gather information. Entirely new sectors of our society – from health care to smarter transportation – have only begun to tap into the solutions that that Internet and communications technologies can provide. As the transformation of these sectors by new technologies continues to cause disruption, the U.S. needs a new policy framework that encourages innovation and protects consumers, without all of the outdated 19th-century communications regulations. The new policy framework will, as Craig noted, “create a spirit of innovation and a sense of limitless opportunities.”