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Freeing Cities From Telco and Cable Monopolies John M. Eger Mar 18, 2006 In the early 1970s I was part of an administration that helped break up AT&T ... because AT&T had become an impediment to the development and nurturing of a new knowledge-based economy and society. John M. Eger, of San Diego State University is the Executive Director of the International Center for Communications, and president of the World Foundation for Smart Communities. Eger headed CBS Broadcast International which he established, and was senior vice president of the CBS Broadcast Group. From 1971-1973, he was legal assistant to the chairman of the Federal Communications Commission, and from 1974-1976 served as telecommunications advisor to Presidents Richard Nixon and Gerald Ford and was director of the White House Office of Telecommunications Policy. Eger opened the California Broadband Roundtable on March 15 in San Jose with this presentation: I believe broadband today is as important as waterways, railways and highways were in an earlier era. Unfortunately, this concern, indeed urgency, is not widely held. From a policy standpoint, clearly, at the federal, state and local level, we have lost our way, much to our peril. In the early 1970s I was part of an administration that helped break up AT&T -- not because they didn't have the finest telephone system in the world, they did, but because AT&T had become an impediment to the development and nurturing of a new knowledge-based economy and society. Some of you may find this hard to believe, but in the 60' and even the 1970s, AT&T didn't allow French phones to be connected to its network. Such attachments, they argued, would destroy the finest telephone system in the world. It took many years of regulatory reform -- not to mention billions of dollars in litigation -- to get those French phones attached to the network to create the first specialized common carrier, known as MCI, and to give birth to teleprocessing to connect computers to the network and help usher in the modern-day Internet. Clearly we were ahead of the pack. Most countries had not yet deregulated or privatized their postal telephone and telegraph companies, or PTTs as they were known. In 1996, as you recall, we ushered in what was considered to be landmark telecommunications reform with the telecom act of that year that opened the regulatory floodgates to new entry. Wall Street quickly followed by opening its wallets to any business plan that had the word Internet attached to it. As we know now, after just a few short years, and some two trillion dollars -- more than it cost to build the interstate highway system -- most of the new competition went bankrupt, or simply died trying to find an opening. COVAD -- one of the new broadband local exchange carriers, as they were called -- said it died of a thousand cuts, referring to the difficulties they had getting the Baby Bells to sublease their facilities; a critical first step to competing in the marketplace for new information services. Today, according to the ITU or the OECD in Paris, we're either 13th or 15th, depending on how you interpret the report in deploying broadband communications. Smaller countries like Korea, Singapore or Japan, are leading the world by offering broadband [much faster] and at a fraction of the cost. Even in the Middle East, tiny Dubai -- which we've heard a lot about recently -- boasts the largest Internet facility in the world, which they practically give away as in incentive to the multi-national and global companies as an enticement to headquarter their Middle East/North Africa [operations] there. The telcos, and now the cable companies, are clearly fighting for leadership as America's next monopoly to dominate all telecommunications. If Ed Whitacre [AT&T Chairman and CEO Edward E. Whitacre, who led the merger of SBC and AT&T] has his way, even though the modern AT&T is quite different, he would put Humpty Dumpty together again and emerge as the single largest provider. Sadly, this is not much improvement in 30 years. Instead of one large telephone company, we now have, for all practical purposes, two large entities dominating the market. Clearly satellites and wireless communications offer the promise of changing the shape of the market. Even the electric companies might still enter the field and provide a third and fourth entity as a counter weight to the cable and telcos. For the present, however, the cable and telcos have joined forces and are blocking what I consider to be the single largest user that must retool and reinvent itself for America to succeed, let alone survive, in the new global economy. I'm talking of course about the city. Right now in state capitols across America, legislation is being discussed or enacted to prevent the municipality [from playing] any role whatsoever in shaping its new information infrastructure. Philadelphia, as you know, announced one of the first citywide wireless initiatives in the country. Within weeks the Pennsylvania Legislature and the governor signed a bill that would preclude any other Pennsylvania city from doing the same. Over 100 other American cities have expressed the desire to provide such municipal services. Their city councils, their mayors, as well as their state legislators have threatened them. They have been told in no uncertain terms that the telecommunications business belongs to the private sector. Read that: the existing cable or telecommunications firms. Most cities -- already subsidized in some small way by a cable franchise -- are not willing to make the investment and possibly lose that subsidy. I'm convinced most, however, are simply afraid to act in the face of such state and local obstacles. If this roundtable can do anything, we must find a way to free the cities. The city traditionally has been the center of all commerce and in the wake of a global knowledge economy, it is the cities who could be the incubators of creativity and innovation which will be the hallmarks of our success in the future. As I think you know, cities of the future aren't cities in the usual sense. As Kenichii Ohmae, author of The Borderless Economy has put it: "There are no national economies anymore; only a global economy -- which no one's in charge of -- and a constellation of regional economies with strong cities at the core." Given this devolution of power which has occurred worldwide and a redefinition of wealth -- which is information broadly defined -- renewing and reinventing our cities is a strategy that the state of California and the country must employ. California took an important step in 1997 when Caltrans created the Smart Communities program. As I understand from the Caltrans folks that idea came out of the Northridge earthquake. But for the cell phone and the computer, people in the Wilson administration observed, Northridge was cut off from the mainstream of economic development. Caltrans concluded then, rather than build more roads and bridges -- there wasn't any more room for those anyway -- maybe we could begin to build information highways to ensure that what happened in Northridge would never happen again to any other California city. Frankly, I think the Smart Communities program was successful in raising awareness. We ran out of time and we ran out of money as a new administration took the reins of power in Sacramento. But such programs can be reinstituted. Perhaps this time with more clarity and more muscle than before. Time is of the essence. As most of you know, particularly if you read Thomas Friedman's The World is Flat, Forrester Research predicts we're going to lose 3.2 million jobs over the next several years. The University of California at Berkeley says the figure is much greater. They predict a loss of about 10 percent of all white-collar jobs because of globalization. That two trillion dollars we spent building the new information highways that are connected to nothing here in the U.S., at least internationally are providing the grid for the outsourcing of low-cost services. Friedman says it's even cheaper to outsource the font end of your order at McDonalds to Bangalore, than it is to hire someone on premises. This outsourcing, however, is not limited to low-end service jobs alone. Radiologists are now finding that under pressure from the HMOs, more hospitals and clinics are sending their X-rays and MRIs to Bangalore for processing. A radiologist in Bangalore makes about $15,000 per year. Because they're working while we're sleeping, it's not only cheaper, but more efficient for them to do the analysis. I am only touching the surface of our dilemma. We need to act. California -- which if it were a country would be about the sixth largest economy in the world -- can and should take the lead. Let me throw out today just a handful of the things perhaps this panel can address to help us with an agenda for moving forward. Why doesn't the state aggregate demand -- by that I mean take the use of every state agency for telecommunications services and perhaps ask other local and federal agencies to join forces with it -- and begin creating a statewide network which others can link to provide statewide ubiquitous Internet service. I'm not advocating it do this itself, rather that it find a willing coalition of cable, telco and other service providers. Maybe a marriage with CENIC -- the University-controlled gigabyte-or-bust effort. Both from a regulatory and economic perspective develop statewide policies that develop, support and encourage municipal efforts. Cities not only need to know that it's all right to begin planning the new information infrastructure for their region, they need the economic and political incentive to do so and the support and counsel of the state. The electrics play a large and promising role in developing an alternative supplier. Here too, clarity from the PUC, the administration and the Assembly would do much to provide that support and guidance. --~--~---------~--~----~------------~-------~--~----~ TELECOM-CITIES Current searchable archives (Feb. 1, 2006 to present) at http://www.mail-archive.com/[email protected]/ Old searchble archives at http://www.mail-archive.com/[email protected]/ -~----------~----~----~----~------~----~------~--~---
