by John S. Niles
This essay written in 1998
On November 19-20, 1997, The Center for the New West, a Denver thinktank then headed by Phil Burgess, the Seattle-based research firm Global Telematics, and the El Pomar Foundation of Colorado Springs hosted an educational discussion forum to explore public policies guiding state and local government telecommunications activity. About 60 government officials, rural development activists, and telecommunications specialists participated in this Forum, held at the El Pomar Center in Colorado Springs. The names of some of the participants are in this report along with their words and ideas.
The title -- "Wired Communities, Smart States: Is Digital Infrastructure the New Public Works?" -- reflected the hosts' sense that there is a need for a critical examination of the state and local government role in telecommunications networks. This is the report of the Conference prepared by forum moderator John Niles in early 1998. It represents a view of the issues from diverse professional perspectives at that moment in the history of telecommunications development. This report uses some writing previously published as "Digital Infrastructure: The New Public Works?" by John Niles, in New Telecom Quarterly, Fourth Quarter 1997.
The digital infrastructure of telecommunications is a maze of glass fiber, copper wire, and invisible radio signals interspersed with specialized computers that direct the flow of information. The pathways and computers work together to move the streams of digital bits that encode all information and communications, whether voice, video, or computer data like World Wide Web pages from the Internet.
The Web's growing emphasis on delivering large documents, very detailed graphics, and high quality sound and video clips that are each transmitted as million-plus bit files is causing increasing attention to network capacity, that is, bandwidth. Higher bandwidth means faster and more error-free delivery of information. High-speed broadband is now the desired quality standard for digital infrastructure -- meaning billions and even trillions of ones and zeroes moving each second through the main arteries of the network, and millions of bits per second delivered to homes and businesses.
Most people concerned with the economic and social development in the United States now grasp the importance of high-speed telecommunications to the growing electronic commerce that is one foundation stone supporting the success of our New Economy. The expectations raised by the information superhighway hype earlier in this decade, the recent growth of content on the Internet, and the contrast between download speeds through local area networks versus dial-up outside connections is causing these same people to be troubled by the slowness with which affordable high bandwidth is becoming available to U.S. households and business locations. In fact, the pace of deployment of affordable broadband services to households and small businesses can be characterized as slow and slower, depending on their geographical location. In 1997 only about 354,000 U.S. households had digital connections providing 100,000 or more bits of reception per second .
State and local governments are beginning to play a role in accelerating broadband telecommunications deployment, even though telecommunications has not traditionally been a direct responsibility of government. This table provides the names of over 100 local government jurisdictions that have a government-owned telecommunications network or are developing one as of early 1998. Unlike government-maintained streets and highways for cars and trucks, the digital infrastructure is largely managed by the private sector. This report highlights the choices that governments have in their public policy for attaining high-speed telecommunications in more places, more quickly.
A primary motivation for governments becoming active in telecommunications development is to promote economic development within the geographic boundaries of their jurisdiction. In economic development circles, Forum participant Dave Roederer's claim that "the communications infrastructure of a community in this day and age is just as important as highways, electricity and water" is widely accepted. Other aspects of economic development and broadband telecommunications are covered in here.
State and local governments are stepping up to the perceived problem of inadequate telecommunications transmission and control facilities in several ways, to be detailed in the remainder of this report. We should note first, however, that we are not considering all of the ways that governments get involved in telecommunications. In particular, we are not focusing on government efforts -- sometimes called "electronic goverment" or "E-government" -- to build and expand the information content and functional applications of their own Internet web sites, functions like public access to city council minutes, or applying for licenses and permits.
These worthy efforts are at the applications layer of telecommunications, different than the several layers of technology -- cables, equipment, and services -- that let citizens have access to these and other web sites. A layering of telecommunications presented at the Forum by Kevin Taylor of U S West Communications is presented here. This model shows applications at the bottom, and the fiber optics that carry applications near the top. In between are the equipment and services that let the fiber optics transmit applications.
Government activity to improve the availability of high bandwidth telecommunications services encompasses a spectrum of involvement that divides into three categories:
1. Government networks: Governments make direct investment to construct and own digital infrastructure, usually fiber-optic cabling.
2. Market facilitation: Governments facilitate and organize the marketplace in a variety of ways, including leveraging government procurement and various forms of technical assistance.
3. Regulatory intervention: Governments implement new telecommunications regulations, or work to improve the existing regulations, including eliminating regulations.
Sometimes governments utilize a combination of two or even all three of these approaches. A municipal government that builds a multi-purpose fiber optic network in its own right of way, sells transmission capacity on that network to private telecommunications companies, and then uses regulatory powers to put restrictions on how other private sector companies build telecommunications infrastructure, is using all three of the approaches.
Individual Forum participants from the government, from the telecommunications industry, or elsewhere, had opinions on the effectiveness of each of these three general approaches. However, the participants in the Forum reached no consensus on whether any of these approaches is especially right or wrong, or which is most cost-effective to accelerate broadband deployment. The Forum discussion did illustrate that there are specific activities in each of the three categories that are more or less controversial.
Less controversial: Building specialized networks for use only by the government agency itself as a means of achieving the most-effective telecommunications.
More controversial: Governments building multi-purpose networks for use by many government agencies, or even non-government users.
Less controversial: Supplementing procurements of government services with conditions on vendors that benefit the economic development of non-government users.
More controversial: Creating sweeping public-private telecommunications partnerships that channel competitive market suppliers into government-mandated patterns such as shared cabling.
Less controversial: Eliminating outdated, obsolete regulations that only those with the perspective of narrow special interests think have any justification.
More controversial: Eliminating regulations that some affected parties judge to be outdated and obsolete, but that significant interested parties believe are still justified because of the actions they stimulate or prevent.
Government networks have usually begun as efforts to achieve efficient high capacity for the needs of government agencies and their employees or clients. Examples of these needs include employee access to local area networks, electronic mail, and the Internet by government employees, and citizen access to information kiosks, lottery tickets, and distance learning from colleges and universities. Uses and users beyond the original conception are then sometimes added.
In some cases, governments suffer from an historical legacy of uncoordinated network and applications development by individual agencies such as human services, transportation, and the university system. Duplication and overlap then lead governments to pursue a more coordinated government-wide telecommunications solutions. Examples of state government-owned networks are CalNet in California, ED-NET in Oregon, and the Iowa Communications Network (ICN).
ICN -- the most extensive and well-developed example of a multi-use state government network -- was described in the El Pomar Forum by David Roederer. It is a 3,000-mile fiber-optic wide area network with points of presence in all 99 Iowa counties, at over 500 universities, schools, government offices, hospitals, and National Guard armories now, and over 800 sites by the year 2000. ICN was built with approximately $350 million of state money, and costs $20 million annually for operations. The ICN has generated ongoing political controversy and media coverage stemming from widespread misgivings over the State of Iowa's role in owning and operating this network .
Iowa's network is now a rare example of state governments owning and operating networks, according to Forum participant Jack Gault, Executive Director of the National Association of State Telecommunications Directors (NASTD). The tendency now is for state government networks to be procurements of service from private telecommunications carriers, such as the K-12 network in Washington State, the North Carolina Information Highway, and soon-to-be privatized CalNet in California.
Starting even before ICN, the grandmother of all government-sponsored data communications networks is the French Minitel system, the assessment of which split Forum participants. Some would praise Minitel as a source of training for a generation of citizens to appreciate and use the online data communications that are the essence of the Internet. Others would condemn Minitel as delaying the time when those same citizens actually have access to the Internet. Go to here for more on Minitel.
In the U.S., only at the local government level is there continuing interest in government ownership and operation of telecommunications infrastructure.
The telecommunications needs of municipal electric power agencies or substate regional public utility districts are often the starting point for city governments branching out into a broader set of telecommunications offerings. Electric utilities are gaining experience using telecommunications for load management and meter reading, but a system that meets these requirements can be expanded to have ample bandwidth remaining for other functions. Forum participant Steve Rivkin is a leading national advocate of this approach. He explains that four factors make electric power distribution and telecommunications a natural fit:
>Shared infrastructure elements such as poles and right of way;
>The telecom requirement for electric power to be distributed to equipment throughout the network;
>Integration of information flows with energy management;
>The opportunity for improved customer service by integrating these two basic utility services.
Municipal electric utilities that are taking on telecommunications include Longmont, CO; Glasgow, KY; Anaheim, CA; and Tacoma, WA. The interest of many Iowa municipalities to build their own systems is said to be spurred by the rural electric cooperatives that are looking for alternative revenue streams in the face of electric deregulation.
Municipal electric utility Tacoma City Light in October, 1997 obtained approval from their city council to build a 1,100 mile fiber-optic system covering all of Tacoma and some of its suburbs at a capital cost of $96 million. The core function is to provide for the management of the electric power system, providing such functions as notifying the control center of outages and allowing for load management by monitoring and controlling the electric machinery of customers. However, the functioning will go beyond power management, according to City Light, to also include:
>Providing space for Internet access providers
>Carrying telephone services from private carriers that lease capacity on the fiber
>Offering high-quality cable TV services in competition with existing franchised cable TV companies like TCI
>Handling high-speed data transfers for financial institutions and data-oriented companies.
The utility has already leased space on an early leg of the network to a large investment and management consulting firm.
Tacoma City Light proclaims that its "super strategy for telecommunications ... will pay big dividends for Tacoma households, businesses and the economic health of the community." A spokesperson asserts that offering customers a choice will yield significant price and service benefits.
Interestingly, both State of Iowa and City of Tacoma report that they tried early in their development -- but ultimately failed -- to work out business arrangements to meet their public goals by purchasing services from existing telecommunications carriers.
For example, Iowa's director for state and federal relations has been quoted as saying "If carriers would provide the same capabilities at similar cost, we'd take it in a minute. But the services are simply not available, because there is no business case for the telephone companies to provide high-capacity fiber links into sparsely populated areas. So we're assuming the risk." 
Regional public electric utilities have also been exploring offering telecommunications, including several in Washington State. A project in Oregon is called CoastNet. This is a non-profit consortium of economic development agencies in Lincoln County, Oregon that organized themselves to sell bandwidth available from excess capacity in fiber-optic lines already installed by a public utility district for its own power-management needs. With support from incumbent telephone companies including U S WEST Communications and GTE, the Oregon Public Utility Commission has blocked this project. The CoastNet organizers have appealed the Federal Communications Commission to preempt the PUC's decision as creating an illegal barrier to telecom competition.
Incumbent local telephone and cable television companies, coming from the historical position of being heavily-regulated monopoly providers of services, are now trying to be more market-driven and competitive in response to new entrants. These incumbents are especially sensitive to state and local governments acting like telecommunications companies themselves, or taking action like laying down new cabling to be leased to newer competitive entrants. Incumbents will work hard to stop government networks from being created, including lobbying for legislation to block such activity, as in Texas and Nevada.
As shown in this list, for every potential benefit that is claimed for government networks, there is a counter argument.
While government network ownership is very controversial, there are a number of more widely acceptable ways that government officials can facilitate and organize the telecommunications marketplace: Two general approaches to market facilitation are leveraging government procurement, and providing technical assistance. Leveraging of government procurement can be a matter of placing firm requirements on vendors, or simply an attempt at influencing vendors.
In strongly leveraged procurement, governments organize the marketplace by setting conditions in contracts that require telecommunications carriers to build new, underlying infrastructure that will support telecommunications capabilities for customers outside of government.
These arrangements are typically characterized as strategic partnerships that amount to the government making a major commitment of resources to a private company for the provision of infrastructure, and in exchange the carrier makes this infrastructure explicitly available to both the government as well as a wide range of non-government users.
The North Carolina Information Highway (NCIH) is the leading example of this approach in the U.S. More on the NCIH is presented here.
As described by State of Utah's Chief Information Officer Gordon Peterson, Utah is trying as of late 1997 to implement a different model: a common broadband infrastructure running along state highways containing many fiber strands that can be leased to and utilized by many different telecommunications carriers, both incumbent and new. Utah goal's are economic development, better telecommunications for all, and better educational applications.
A State of Utah Request For Proposal document provides this overview of the State's intent: "The State is committed to a vision of broadband interactive networks which inter-operate with one another by adhering to Open Network Architecture standards. Although there are a number of communications companies that have begun building fiber-optic transport networks in the State, there currently is limited choice for government or the private sector to purchase these broadband services. It is the State's vision to create a homogeneous environment that will stimulate competition and increase access for both the private and public sectors of the State. The State intends to select a partner or partners that will address public sector telecommunications needs directly and, through subleases of planned excess capacity, foster development of private telecommunications services as well."
According to State of Utah, the benefits to telecommunications customers will come about as follows: "Telecommunications customers will receive benefits in the form of increased services at competitive rates. Customers will also ultimately benefit from increased operating efficiency as telecommunications firms incur fewer transaction costs for ROW acquisition and as the primary partner subleases infrastructure capacity to other telecommunications providers, taking advantage of economies of scale and coordination in infrastructure construction encouraged by the partnership."
Jeff Ritter, a state government telecommunications specialist from Oregon, described how his state tried to leverage its procurement of a backup computer site for the State lottery into a fiber optic connection from urban western Oregon to the rural eastern town of Burns, near Idaho. The state issued an RFP, but there were no takers, according to Ritter. He noted wryly, "it is sometimes difficult to achieve private user benefits through purchasing behavior of governments."
Forum participant Lou Higgs commented: "It's really hard to partner with government, because government doesn't play by the same rules that other people have to play by. They can change their minds. They can muscle you in ways that you can't muscle them....Government has public interests, companies have private interests, and there's a lot of differences in working out those interests."
Consultant Bruce Egan noted that his experience in telecommunications and other fields tells him that "grand plans with too many moving parts never work. Make a solution a customer will pay for today. Positive cash flow in the shortest period of time is where it's at; so-called integrated solutions are not the future."
In mild leveraging of government procurement, government buys telecommunications services with the general intent of indirectly influencing infrastructure development to support new telecom capabilities for customers outside of government.
The State of Oregon frame relay net is an example of a government telecommunications service procurement that influences broadband availability to businesses. (Frame relay is a telecommunications service that uses "packet switching" to move information at megabit speeds through telecommunications networks for many simultaneous users. Packet switching breaks each user's stream of information into small strings of bits that are mixed and transmitted with the information of other users, and then reassembled at the receiving end so that the received information content is exactly the same as what was transmitted.) Oregon consolidated a number of separate state networks when it signed a five-year contract for frame relay service with a consortium made up of most of the local exchange companies in the state. The $35 million magnitude and five year timeframe of the contract led to these companies increasing the number of frame relay switches in the state from 14 to 28, thus extending the service to remote corners of the state. Even though businesses don't get the prices offered to government agencies, frame relay connections for businesses in rural Oregon are shorter and less expensive than formerly . In the State of Utah, similar frame relay build out by U S West included the provision that government and business paid the same rates.
Three general areas of technical assistance by government came up in the Forum: working with users to aggregate telecommunications demand, educating business and household telecommunications users to stimulate and expand their interest, and providing assistance to the marketing efforts of telecommunications companies, especially competitive entrants.
Jeff Ritter described how as a state government representative he assisted the Klamath Falls, Oregon Chamber of Commerce to set up a 40-member citizen task force to organize a detailed inventory of telecommunications usage and potential future demands. The task force used the results to provide justification for U S West Communications to invest $10 million laying a new 83 mile fiber-optic cable over the Cascade Mountains that connects the former logging town to Medford and the rest of the national telecommunications network. This infrastructure in turn helped convince Florida-based Sykes Enterprises to build a 400-employee calling center in Klamath Falls.
One result of the effort in Klamath Falls was a great deal of new learning about telecommunications applications on the part of business operators and household consumers. This tends to build demand for new telecommunications services, in the same way that the Agricultural Cooperative Extension Service has built demand for farm equipment and supplies. The demand becomes orders for service, and in turn creates justification for telecommunications carriers to invest in infrastructure and the services that use the infrastructure.
Forum participant Brenda Trainor -- participating in the Forum while transitioning from telecommunications manager for Clark County, Nevada to a consultancy -- observed that she has seen private telecommunications carriers be resistant to the idea of governments organizing the marketplace to aggregate demand and negotiate for discount pricing of larger quantities of service. At the same time, Flo Raitano has seen that state and local governments have a hard time coordinating their telecommunications needs with each other and with the K-12 and higher public education segments of the market.
Still, there are examples of success as well: Jack Ries described for the Forum a coordinated procurement of private carrier services called the Minnesota Collaboration Project. A number of state and local agencies -- police, health, transportation -- saw that they would need bigger and bigger data pipes in the future. By joining together in leasing shared T-1 lines, they were able to replace existing slow networks, and all came out winners.
The incumbent carriers have traditionally built strong relationships with government and other community leaders, which of course gives these companies a leg up in maintaining their market share in the face of competition. The City of Long Beach, California has long maintained excellent relationships with incumbent carrier GTE, and in fact buys most of its own telecommunications service from them. Still, the City is trying to stimulate competition in telecommunications.
Forum participant Wally Bobkiewicz, Telecommunications Manager for Long Beach, reported that his city facilitates competition by making sure that municipal telecommunications procurements include full consideration of the services of new competitive carriers. He has also taken time to introduce these companies to community leaders and businesses, and expedited their permitting to use the municipal right of way for putting in their infrastructure.
Governments have a variety of angles for writing telecommunications regulations of their own, or else they can work to influence the regulatory activity of other branches and levels of government, including advocating the revision or elimination of regulations.
Early on in the Forum, Center for the New West president and Forum chairman Phil Burgess stated the assumption, not challenged, that Forum participants agreed that affordable, high-capacity, high-speed digital should be made widely available as soon as possible. He continued, "The public policy issue needing resolution is how best to make this access happen." Burgess posed a distinction: Should governments participate directly in the telecommunications business by coordinating infrastructure placement, reselling services, or otherwise managing competition? Or should governments work to fix the regulatory problems that impede the private sector from making the needed infrastructure and service development investments?
Burgess's analysis of government network building, and even much of market facilitation, is that governments are turning away from grappling with the challenges of understanding how the private telecommunications market can be fixed through public policy changes. Instead, governments are deciding to jump into the market and offer the services that the private companies are blocked from providing.
Burgess noted, "If we had a public policy that encouraged and took the obstacles away from investing, we would have private investors all over this country putting infrastructure in rural areas. Instead we have governments building overlay system which spread out into the community and destroy the economic basis for private sector providers to continue to play in that area."
Burgess's view of rural investment, shared by Forum participant Bruce Egan, was challenged by several Forum participants, namely, Flo Roitano, Sev MacPete, Brenda Trainor, and Lou Higgs, whose sense was that urban areas provide more customers in a more compact geographic configuration, thus more cash flow and return on investment, and thus a better business case for both the more regulated incumbent companies and the less regulated new entrants.
There are numerous issues that incumbent telecommunications companies say deter them from investing faster in broadband telecommunications infrastructure and service. These include
1. The rules governing interconnection of existing telecommunications systems to the networks of new competitors
2. The lack of a coherent state/Federal-sponsored subsidy system that reduces the price of service for those relatively few customers in the high-cost rural areas by offsets transferred from revenues paid in by the majority of customers in urban and suburban markets
3. The speed at which incumbent telecommunications companies are allowed by state regulations to depreciate and replace obsolete physical infrastructure in their networks by using customer revenue that compensates them for the depreciation of equipment over its useful service life
Although states and localities could work in various ways on state and federal regulatory reform, the assertion that reforms would lead to more investment and faster deployment of broadband was not proved or even demonstrated in the Forum. The claim was widely made earlier that the Federal Telecommunications Act enacted in February of 1996 would unleash a floodgate of competition, new services, and lower prices, but that has yet to happen.
Consultant Bruce Egan who has studied the effects of telecommunications regulations for many years claims: "Regulation is what prevents business cases from having positive cash flow in rural areas." He thinks that now would be a good time to find out through deregulation where market failures do occur. He says, "If you regulate markets, how could you know if there's a market failure?" Egan suggested that some geographic areas be deregulated completely to provide a proving ground for the effects of regulatory change -- Telecommunications Enterprise Zones is a name suggested in 1991 by Global Telematics for limited geographic regions which permit regulatory innovation without causing extensive damage if the innovations do not work as planned.
Another area of regulatory controversy is in how local governments regulate the municipal rights of way along which telecommunications cables are placed, either overhead on utility poles, or in excavated trenches. The Utah League of Cities and Towns has developed a model ordinance that outlines the right-of-way management costs of municipalities that need to be reimbursed. The model language does this in a way that does not discriminate against either incumbent companies or new entrants. At the same time, Forum participant Paul Johnson who drafted the Utah League' ordinance pointed out that local governments may see entering the telecommunications business and becoming network builders as providing far more local revenue, control, and ultimately public benefit from the right of way than assessing and collecting compensating fees.
The joker in all of this government interest in making broadband telecommunications happen sooner rather than later is the prospect of technology improvements that changes the nature of the game. Over and over in government network planning and activism one hears the necessity of installing more fiber optics. In fact there is a lot of fiber optics in the ground already, especially between the switching centers of the digital infrastructure. To get from the switching centers to homes and businesses with broadband speeds has seemed a barrier, because laying new fiber for those connections is expensive. However, confirming reports in the trade press, Joe Glynn of U S West described for the Forum the imminent prospect of obtaining two million bits per second out of existing copper telephone lines, something the telecommunications industry is working on in close cooperation with the computer industry, with accelerated deployment beginning in late 1998.
Another wild card is the prospect of delivering broadband megabit services through wireless means, including both satellite services and local antennas. As of 1998, satellite delivery of web pages is available from Hughes throughout America. The signaling to get those pages has to go through a telephone line, so uploading is slow. Also, the price of the small receiving dish is over $500 to install and a $100 per month to use. But these prices will likely drop, and other satellite services are coming in the future. Furthermore, other entrepreneurs are working on terrestrial wireless solutions, such as spread spectrum and local multipoint distribution service (LMDS).
As Richard Civille described in his presentation, we in this El Pomar Forum were grappling with the nature and level and timing of the public, social investments that governments should make in telecommunications. The nature of how people interact through networks makes the impact of network investments rise with the square of the number of connections in the network. The potential impacts whether good or bad thus become very large. What those impact are depends on who is judging. It became very clear during the Forum that two reasonable people could look at the significant government dollar investments in France's Minitel, in the Iowa Communications Network, or in the Tacoma City Light Fiber Network, and see two different outcomes. It is clear that large hard dollar investments by government entail political, technical, and economic risks that are growing over time. Large regulatory revisions and technology-choosing public-private partnerships entail large risks also. State and local government's incremental participation in the telecommunications revolution is thus more appropriate for a general purpose, taxpayer-funded organization responding to the fast-changing technology regime that we see. What works best, yielding the most bang for the buck with limited downsides, are regulatory modification experiments, community-level technical assistance, and ongoing efforts to understand market dynamics and technology trends first, before taking action.
The discussion at the Forum only scratched the surface of a contentious issue. An extended list of research issues includes:
* How could national public policy better motivate private investment in high-cost rural areas?
* What are other examples of facilitating approaches by governments?
* What is the perspective of competitive telecommunications carriers?
* What are the perspectives of State Public Utility Commissions?
* What are the constitutional issues that come into play when governments rather than private companies own or control conduits that carry information: freedom of speech, taking of property, and equal protection?
1. "Why Can't You Get Faster Web Access?" by Brad Grimes, PC World, February, 1998, p. 208
2. "A Collision on the Iowa I-Way," by P. Elstrom, Business Week, May 19, 1997, p. 44
3. "State of Envy" by Joanie Wexler, Network World, Nov 21, 1994, pp. 64-66
4. "Frame relay pact helps level playing field for rural Oregon" by David Raths, Oregon Business Journal, June 24, 1996
Hot Links (1998) to Information on Government Telecommunications Networks
Framing the Issues -- A Graphic
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