Overview
by
Lloyd S. Etheredge 1
[A presentation for the World Bank Global Knowledge sponsor s group, New York City,
November 13, 199 7.]
Good evening.
My name is Lloyd Etheredge. I am a Trustee and Project Director at the Policy Science
Center, a nonprofit foundation founded at Yale Law School in 1948.
Several years ago I was a member of Joshua Lederberg s working group, supported by
UNESCO, that developed a framework for the future of international scientific communi-
cation. Two expert advisory committees (for the ITU and our own advisory committee)
have suggested that purchasing cooperatives could help to assure affordable access to
Internet-related services, especially in developing countries. O ur foundation has been
making an assessment of feasibility.
This evening I would like to ask your advice about a preliminary draft (Tab 2) based on
this work. I will discuss this draft and then, more briefly, a proposal (Tab 3) for a startup
package that brings everything - the cooperative and must-hav e applic ations - to life during
the next 18 - 24 m onths.
I. Overall Design
Purchasing cooperatives are a theoretically compe lling ide a. But as a practical matter,
three questions arise. Can they be organiz ed:
1.) To assure the lowest available prices for Internet-related eq uipment an d ser-
vices? ;
1
Policy Science Center Inc., 127 Wall St. - Room 314, New Haven, CT 06511-6636; (301)-365-
5241 (voice); (301)-657-4214 (fax); lloyd.etheredge@yale.edu (Internet). We gratefully acknowledge the
support of the Richard Lounsbery Foundation and private donors in this phase of the International
Scientific Networks Project.
1
2.) To elicit widespread confidence in the operation of the cooperative?;
3.) To provide enough benefit so that they justify the work (to somebody wh o can
act on the idea) to ge t them organiz ed?
A. Purchase of Equipment
Contractually, a coope rative could work. L eading companies are willing to write
contracts with clauses that assure the lowest available price. Th is guarantee is essential if a
cooperat ive is to appe al to ma jor organiz ations.2
Contracts also can be written as performance contracts to fit the de centraliz ed decision
making of a cooperative: a supplier will link a price to an estimated rate of sales. The actual
rate of sales is compared at negotiated intervals - for exam ple, every six months - and the
company has a right to renegotiate the price if there is a substantial deviation.3 There is no
need for a cooperativ e to organ ize purchases up-front or, itself, to undertake legal obliga-
tions to purchase fixed quantities.
Politically, a cooperative would want to carry products from several vendors and
countries. O ur solution is that, in principle, any company could list its product and price on
the cooperative s Web site, provided it is willing to offer the lowest available price ple dge. A
key requirement should be that members of the cooperative, themselves, want to buy the
vendor's product. There also might be add itional conditions that a cooperative would
require: for exa mple , evidence of quality and reliabilit y, willingness to provide 800-number
internation al tech nical support, mechanisms for dispute resolution, bundled software, etc.
As a first step, a good idea is probably to focus on entry-level packages and expand the
range and variety of products after the basic business is running smoothly.4
2
We have discussed this with re presentatives of Dell and Gateway 2000, among others.
3
All contracts have to be negotiated and there are many details and options - the shipping costs, the
languages in which bundled software and technical support is required, warranties, etc. - that will affect
the price. The contracts might be attractive for direct-sales manufacturers (e.g., Dell, Gateway 2000),
but companies with international dealership networks also could include small fees for their local dealers
in underdeveloped countries to handle purchases under the contract.
4
The cooperative could become large in annual sales through its contracts, but should not become a
new bureaucracy. Basically, the cooperative s central office shoul d remain small, negotiate contracts, and
2
At first, the cooperative s contracts would be used for purchases by its memb ers on
behalf of their own programs in underdeveloped countries. But, then, its members can
become agents for institutions in developing countries: for example, if UNESCO wants to
make the lowest available price options a vailabl e directly to universities in Nigeria, it could
do so. If the Soros Foundations (that already are major purchasers of Internet capacit y for
health an d science in E astern Europ e and the form er Soviet Union) want to join and add
their purchasing power and expertise, they could do so.
The coope rative cou ld, rathe r quickly, become one of the larger purchasers of com puters
and bandwidth. It would need a good management team.
In this ligh t, a small technic al clause in the contracts of the World Bank and UN
agencies, to permit recogniz ed NGOs to use the price nego tiated b y your orga nizations for
purchases on behalf of health, science, and education in the Third World, could open the
door to a revolutio n. With these open-ended contracts, if UNDP is able to negotiate a price
for its programs in India at 35%-45% le ss than locally-quoted prices, CARE or a local
hospital with any tie to the Aga Khan Development Network or a designation from WHO
could see the price on the Web site and use it.5
- Politically and ec onomic ally, it also is worth mentioning the long-term advantages that
a purchasing cooperative could assure for small and startup companies in many countr ies
who, in the years ahead, may offer good products at good prices to local, regional, or
international markets. A coop Web site could bring their products to the attention of
interested purchasers, and they would not require the advertising budget of the large
companies that now control most of the market share in advanced industrial countries.6
B. Purchase of Internet Connections
A cooperative also would be worthwhile to purchase inexpensive Internet connections,
run a Web site: the flow of paperwork should be directly between vendors and purchasers.
5
For scientists, it would be worthwhile for UNESCO to invite the International Council of Scientific
Unions (Paris) which is an umbrella organization for scientific societies, and hundreds of thousands of
scientists in all countries; and for WHO to create an umbrella for physicians and public health workers
in all countries.
6
It would be attractive to assure markets for companies that wish to sell in the underdeveloped world
and use 8088, 286, 386, 486, and lower-end Pentium processors.
3
especially to take advantage of changes in the market. Here are three strategies:
1. Collective Purchasing from LEOs
There is an attractive option on the horizon as the new low-earth-orbit (LEO) and
other satellite nets start to become operational next year. [Iridium already has several dozen
satellites in orbit, in test mode.] The world will launch more communication sate llites in
the next five years than have been launched in the forty years since Sputnik.7 Many will
offer point-to-point global communications, anywhere to anywhere without asking
permission. They can leapfrog m any of the terrible problems in underdeveloped countries,
ranging from government bureaus that restrict control of information to poor or nonexis-
tent telephone communications, that were discussed at the Global Knowledg e mee tings in
Toronto.
The LEO s could provide another opportunity for the underdeveloped world because
the LEO satellites are too low to be in a stationary orbit. To build enough satellites to serve
peak capacity demands of the ad vanced industrial nations, companies necessarily spend
billions of dollars to build substantial capacit y that is unused as the satellites pass over the
underdeveloped world. If the capacity doesn t secure revenue on this pass over the underde-
veloped world, the possibility of revenue is lost forever.8
If you are a single clinic in rural A frica, or a local school in Latin America, you probably
have to pay commercial rates at about $4/minute. But if there is a cooperative that can
make wholesale purchases for nonprofit institutions on a large scale, then there might be
real savings, especially for Internet digital connections at a small fraction of this cost.9 10
7
John Montgomery, Fiber in the Sky, Byte, (November, 1997), pp. 58-61, 64, 66, 68, 70, 72.
Forecast at p. 64.
8
For technical reasons, major systems are often designed to have two (and sometimes three) of their
satellites overhea d at all times. Thus, for any arbitrarily selected site in Africa there will be, at any time,
at least two Iridium satellites overhead, mostly doing nothing - and securing no revenue.
9
W hat will be the price of this magical universal service? Surprisingly, on a per-bit basis, every
company I talked to said it will be probably not much more than what you re paying for your land line
services. That may seem like a pretty amazing statement, considering the investment required to get
some of these systems running - Teledesic, for example, is forecasting a $9 billion start-up charge . . .
But Teledesic president Daggatt thinks it s reasonable. It s a very high-capacity system. And unlike a
wire-line network, where all the capacity of the infrastructure is rigidly dedicated to locations and users
regardless of whether they are actually using it at a given moment, Teledesic offers bandwidth on
4
And the pos sibilities for negotiating sho uld grow as more systems are laun ched .
2. Contracts with Private Data Networks
A second option - again, not open to individuals - is to purchase unused capacit y from
the many private data networks. One example is SITA, the nonprofit cooperative in Paris
that operates the world s airline reservations network. Essentially, it is in every country.
Wherever there is an airport or on-line reservations terminal, there is a ded icated 24
hours/day data link. And there is substantial unused capacit y in the Third World.11
Recently, SITA s Board voted to seek revenue by resale of its spare capacit y. It is now
used by several UN a gencies (e.g., UNDP, High Com missioner for R efuge es). 12
There are many other private data networks that are global, or nearly-so, and open to
discussion of selling spare capacity. They can do this so long as they remain a private data
network se lling to organizations - not to individual consumers. A cooperative would be a
necessary agent.
3. Purchases from Governments
A third option is to purchase spare capacit y from such government sources as the US
Information Agency. For example, USIA ha s a global television ch annel , WorldNet, that
demand, whe re the system capacit y used is limited to that required by a particular user and a particular
application at a particular moment. . . . Other system operators agree. Savatiel [Karl Savatiel, Vice
President for Broadband Systems at Lockheed and President of Astrolink] says, The price can compete
with underutilized T1s, like 25 percent utiliz ed T1s. Astrolink will be in the range of 20 to 25 cents per
minute for 64 Kps, but remember that you only pay for what you use. . . .Cyberstar s Maehl [Ron
Maehl, President of Cyberstar]. . . sees Cyberstar s service coming in at about $20 per month for basic
service. However these are wholesale price s and the charges to individual end-users (i.e., without
purchasing cooperatives) could be much higher. ibid., pp. 70, 72.
10
There is a competitive advantage that any computer company would have in securing initial
footholds for science, education, and health in the developing world. Once a good relationship (with the
lowest available prices) is established, it becomes attractive to stick with the company for upgrades,
expansions, etc.
11
There are technologies (e.g., wireless modems) that eliminate difficulties of local telephone systems
within a radius of 20 - 30 kilometers.
12
It is my understanding that SITA also is open to contracts that would involve expansion of their
system, as a non-profit entity, for health, science, and education for underdeveloped countries.
5
operates 24 hours/day outside the US with downlink sites at 300 locations worldwid e, every
Embassy and Legation. The pro gramm ing budge t for WorldNet has been cut sharply since
the end of the Cold War and there is abundant unused capacit y.
USIA s system is not highly interactive: It is a legacy from the past era of international
relations when America was in transmit mode. But it should be easy to purchase spare
capacit y on WorldNet s satel lite tra nspond ers (e.g., INTELSAT) for part of a global
Internet backbone for health, education, and science if there was a cooperative, with
recogniz ed standing, with which USIA could m ake a deal.
As well , if there was a core package of must-have programming - Internet programing
and app lications that are so beneficial, so widely, for health, science, and education that
everybody would want them - then it actually becomes attractive for the USIA and many
others to donate the global band width as a foreign polic y or phil anthr opic initiative. 13
In other words a purchasing cooperative - but especially a purchasing cooperative made-
up of leading institutions in this room, with a degree of moral standing to be creating must-
have a pplications that benefit health, science, and education in all nations - actually might
not have to purchase much of the global bandwidth for a startup package.
C. A Working Model
Finally, I want to bring good news to you r atten tion. Seventeen years ago three visionary
foundations - also cu rrent members of your Global Knowledge sponsors network -
Carn egie, Ford, and Benton - saw the benefits of purchasing cooperativ es for nonprofit
institutions. They founded TCN (Telecommunications Cooperative Network) to purchase
long-distance and related communication services for nonprofit (mostly, domestic US)
institutions. T he idea has worked sple ndidly for 17 years and TCN now has 5,000 mem-
bers and a great deal of experience. They are certainly available as a model. They might add
(overnigh t) 5,000 organiz ations to the purchasing power you are able to leverage, and
13
The leverage of Internet technology is extraordinary: The prototype 1 hour Global Grand Rounds
colloquium at Yale Medical School (the first implementation of the Lederberg Report) results in about 5
- 7 megabytes/week of compressed digital files for audio, slides, and text. USIA s Worldnet is a standard
30 frames/second analog system with a capacity of at least 7.5 megabytes each second. Thus, roughly, 1
regularly-scheduled weekly global research colloquium requires only about 1 second per week on this
(one of several) US government system. Ten minutes per day of USIA s unused capacity would deliver
4,200 1-hour global research colloquia each week to local Internet service providers worldwide. Etc.
6
might be helpful in other ways.14
Let me turn to a discussion of a startup package:
III. A Startup Package
To get a purchasing cooperative - and everything else - moving quic kly, several pieces
need to come together. Right now, it does not make a great dea l of sense to in vest in
programming and resources for the Third World, that depend upon the Internet, until the
Third World has basic infrastructure and low-cost con nectivit y. And it is difficult to make a
compelling case, in the Third World, to invest in hardware and fight for affordable Internet
connections until there are resources on the Internet that can make a real difference to meet
their first priorities.
The startup package is outlined at Tab 3. It includes two ideas.
1. Must-H ave App lications
The first idea is "must hav e" applic ations - i.e., that are so beneficial, so widely, that
once created everybody w ill want to hav e them.
If there truly are such ap plications, they would get everybody s attention. And there
would be an attractive synergy: they would help to bring together the founding coalition for
the purchasing cooperative and line-up custome rs.
The Lederberg Report recommend ed five initial projects. At Tab 3 you also will find
sample pages from a Web site at Yale M edical School that is the first regularly-scheduled
global research colloquium. Each week, it brings current information about developments
in emerging infectious diseases to several thousand researchers a nd public heal th worke rs in
14
It might be attractive to put this new cooperative solely in the foundation world. But a founding
coalition with a wider set of institutions in this room also might be attractive: 1.) the World Bank has a
comparative advantage in leaning on governments in the Third World to assure competitive prices and
straighten-out inhibiting tariffs - and both of these are, as the Toronto conference demonstrated, sources
of considerable frustration and blockage; 2.) UN agencies have a special standing that permits them to
purchase global bandwidth at net-net prices; and 3.) INTELSAT rates, and especially the creation of a
global Internet backbone for he alth, science, and education, are determined by a political process in
which the World Bank and UN agencies would have a special standing to be heard.
7
15
140+ countr ies. And there is opportunity for Email discussion with present ers.
I bring this pilot project to your attention because it is a mod el for other must-have
projects that are under development. 16 For example, I have included in this section a must-
have startup project from MIT (pending with UNESCO) to improve the teaching of
foreign languages wor ldwide, especially by the use of new technologies. It would begin on
the Yale M edical School model, using MIT and two partner universities (in Europe and
Latin America) as capture points. In turn, it could be a prototype for similar projects in a
startup package. Many elementary and secondary school subjects in the world are generic
(high school chemistr y, algeb ra, reading, etc.) and would benefit from research, shared
resources, and teaching aids. 17
And also, at the World Bank, the Vice President for Sustainable Development will be
15
The pilot project has been supported by UNESCO, WHO, and the Sprint and Lounsbery
Foundations.
16
For example, we are beginning to work with WHO and other institutions to develop a core group
of Global Grand Rounds Channels that would involve the world s leading medical schools, on a rotating
basis, in providing the latest information to physicians worldwide. In the United States, the National
Institutes of Health will shortly begin two global colloquium series using this model: the Director s series
of weekly lectures in basic biomedical research, and the Clinical Center Grand Rounds, with the best
and latest ideas in the practice of medicine. Both series are already funded to bring leading researchers
from many countries through the NIH campus and - like the project at Yale - they provide efficient
capture-points for researchers, physicians, and students to be connected to what is occurring in their
fields without constraints of distance or money for travel.
The Lederberg Report suggested that the impact of selected projects on the rate of scientific
innovation might be spectacular, and this is one of the propositions that is being tested.
17
Concerning distance learning: a good idea for a startup package is provided by The Teaching
Company in the United States. They identify sup erstar teachers, based on teaching awards at leading
colleges and (now) high schools. The teachers are invited to give a series of their lectures to audiences at
the Smithsonian Institution in Washington, DC. The lectures are taped and sold. It might be an
attractive part of a startup package to develop the idea and make the course lectures of other outstanding
teachers available without charge on the Internet.
Teaching courses at a distance requires higher bandwidth than is now available to most users of the
Internet. These may not be the best projects for a must-have startup package. A key issue in distance
learning is the social relationship, and the possible weakening of student motivation without the
immediate relationship to a teacher. Colloquia series for research professionals or graduate students with
a career commitment may be more effective. Or supplementary programs like Sesame Street or Vice
President Gore s GLOBE project that now links several thousand elementary schools in 55 countries in
projects with American environmental scientists.
8
starting two similar projects. The first will make the professional research colloquia at the
Bank concerning sustainable development available wor ldwide. The second will develop
state-of-the-art global colloquia to accelerate agricultural research, especially applic ations
of biotechnology, and related technolog y transfer.
Must-have programming is going to drive the acquisition of Internet-based technolog y
for health, science, and education in the Third World. I hope that your institutions can
develop the list.18 19
2. 100,000 x $2 00 = $20 m illion
The second idea for a startup package is that 100,000 x $200 = $20 million. This is a
large sum - or very little - depending upon where you come from. (From where the World
18
There are three features of this EIINet example that might be desirable features for other projects
in a startup package:
First, it is not wildly enthusiastic about technology or seeking to put everything on-line. It meets a
specific need for specific people. It is problem-oriented and provides current information, and state-of-
the-art science, in this medical specialty to people who can use it. It is being done in a field in which
people are passionate about being effective and everybody is aware of basic measurements of the
problems they are trying to solve [e.g., the AIDS epidemic is an example of an emerging infectious
disease, as are Ebola outbreaks (etc.)].
Second, it gets beyond the do your own thing and post it instinct of many Web sites. It is
interactive and building working relationships for international cooperation and joint medical research.
Third, it maintains quality and has an element of prestige. The invitations are, in a sense, peer-
reviewed and it is considered an honor to be invited to give the global briefing for your colleagues.
19
Before leaving the discussion of startup packages, let me illustrate how they are being organized in
these first implementations of the Lederberg Report. For example, the benefit of the startup at Yale
Medical School will be expanded because the Clinton Administration has recently agreed to develop,
and pay for, high-capacity global Internet links among research centers for emerging infectious diseases.
In turn, these can become elements in a hub-and-spoke system for efficient development of advanced
applications (e.g., videoconferencing or telemedicine.)
A second startup recommended in the Lederberg Report, for malaria research, also is underway. This
time, the pieces are being assembled in reverse: Harold Varmus at the National Institutes of Health
announced in June, 1997 that NIH would pay for Internet links among all of the world s malaria
research centers. An advisory committee with substantial representation from African researchers and
public health professionals will help to design the programming and on-line re source packages.
I also have inc luded in the briefing material (at Tab 3) a recent news story reporting the NIH
decision to eliminate inhibiting charges for the Index Medicus and related databases: the usage rate has
jumped tenfold and now is at a rate of 60 million hits/year. It is beginning to revolutionize the daily
practice of medicine worldwide - and it could do a great deal more if your organizations can create the
cooperative and begin to get the basic equipment and affordable bandwidth organized so this must-have
application can be available to physicians, researchers, students - and individuals - everywhere.
9
Bank comes from, it is very little.) The recommend ation is that a core group of partners
move boldly and put 100,000 entry-level Internet systems into the Third World for health,
science, and educational users during the next 18 - 24 mon ths.
I think this would capture imaginations, create a critical mass, and make it easy for any
internation al organization or found ation to use Internet connect ivity as a growing part of its
international programs.
Our advisers at MIT estimate that the manufacturing cost in the computer industry is
about 15%-25% of list price. If we think of the new network computers from Oracle, Apple
and others as retailing at less than $500, they would cost about $125 to manufacture. Thus,
I have suggested $200 per system - and a package to a cquire 100,000 at this price would
give the manufacturers of ne twork compu ters, overnight, a global beachhead, in their war
with Microsoft, for controlling the future of health, science, and educational ap plications
for most of the world. And it migh t provide a critical mass of users to begin what has been
(normally) exponential growth in global multime dia applications.20
The startup purchasers need not be only the World Bank or foundations or development
agencies. There are recent, bo ld billionaires who se em to en joy stirring-up things globally,
whether it is George Soros who is underwriting Inter net links for sc ience an d med icine in
Eastern E urope and th e former Soviet Union. Or Ted Turner, who has not yet said
specifically how his $1 billion will be spent. And $20 m illion is within the roundoff error of
the net worth of L arry Ellison at Oracle. Etc. [And, just to mention that under American
tax law 5 0% of any gift can be deducted , so $20 million to put 100,000 entr y-level systems
into the Third World and begin revolutionizin g the d aily practice of health, science, and
education worldwide is actually $10 million.]
[At this point, I simply want to bring to your attention the material at Tab 4, for your
later reading. Unless we are smarter, and can work tog ether to o rganize new sources of
revenue, it may b e difficult to pay for the expon ential growth of Internet-related infrastruc-
ture, and services. People with good ideas will need to struggle, forever, to get funding.
Tab 4 outlines how we can do better, using models that have been developed at MIT
20
Manufacturers of Microsoft-based systems also would be solicited for their best offer of entry-level
systems for a startup package.
10
(and are being used in the later stages of MIT s proposal) and the Industrial Liaison
Program in Japan. Having a purchasing coope rative for equipme nt and band width provides
an institution that might, in cooperation with other institutions, solve these problems along
the lines sketched at Tab 4.]
IV. Conclusion: Three Questions
Let me conclude with three questions:
- Would cooperation along these lines be in the best interest of your org anizations and your
goals in the Third World?
- How could these ideas and draft be refined and developed further?
- What should happen next?
11