States Use Muscle to Spur Telecom Investments

By Steve LeSueur, EditorState governments increasingly are using their buying power to stimulate the building of a broadband telecommunications infrastructure that will attract high-tech businesses and support a thriving Internet economy.Pennsylvania is the latest state to use telecommunications policy as a tool to spur economic growth. The state March 15 awarded a five-year, $228 million telecommunications services contract to a consortium called the PA Team, headed by Adelphia Business Solutions Inc. of Coudersport, Pa.The PA Team will manage nearly 4,500 route miles of fiber optic cable and be responsible for providing voice, data, video, basic digital transport and Internet service to all three branches of Pennsylvania government.The PA Team is expected to push the high-tech infrastructure to all corners of the state, building "a statewide advanced telecommunications network that will help our businesses compete globally," said Secretary of Administration Thomas Paese in announcing the award. As part of the effort, the PA Team has agreed to provide $10 million in investment funding to support entrepreneurs in new technology, facilitate private and public partnerships and promote the use of abandoned or downsized defense locations.The consortium will increase that amount to $100 million if these investment programs receive an equal amount of federal and state matching funds. Adelphia Business Solutions, a majority-owned subsidiary of cable company Adelphia Communications Corp., is a competitive local exchange carrier with about 1,600 employees and $155 million in 1999 revenue. Other members of its team include Electronic Data Systems Corp., Lucent Technologies Inc. and Qwest Communications International Inc.Pennsylvania previously had up to 22 separate contracts with various tele-communications vendors that provided a wide range of services, including local and long-distance phone service, videoconferencing, wide area networks and broadband backbone communication links throughout the state.By combining these services in a single contract with the PA Team, Pennsylvania will save at least $100 million over five years, Paese said.Local governments, public schools and public libraries also will be able to buy telecommunications services off the state's contract with the PA Team, a benefit not previously available.The consortium is slated to begin work in July after contract negotiations are completed.Four other states ? Georgia, Illinois, Michigan and North Carolina ? have shown a strong interest in emulating some aspects of the Pennsylvania telecommunications services acquisition, said Nick Giordano, the state's project director for the effort. The Pennsylvania project represents a significant win for Adelphia Business Solutions, said Mel Collins, senior director with government and educational markets. By beating out a team led by industry giant Bell Atlantic Corp. of New York, the small telecommunications provider demonstrated that it could be a major player in large government contracts.The company is now looking at other government opportunities, said Collins, who declined to specify the projects.Pennsylvania is not the only state that has flexed its political muscle to stimulate broadband telecommunications services in both the private and public sectors. In December, Virginia Gov. Jim Gilmore unveiled the VirginiaLink program that offers Virginia businesses advanced telecommunications services at discounted rates.Under the program, businesses would join a "buyers' consortium" that would give the businesses access to bandwidth and state-of-the-art services at affordable prices. While VirginiaLink is solely a commercial undertaking, the state acted as a catalyst and facilitator to persuade telecommunications companies to provide network services to the private sector at affordable prices.Virginia officials believe the network will open up increased opportunities for the telecommunications companies while also boosting economic development and attracting new businesses to the commonwealth.Tennessee is another state that revamped the way it buys telecommunications services. In April 1999, the state awarded a five-year, $100 million-plus contract to a team lead by BellSouth Corp. and Qwest to consolidate and manage the state's telecommunications infrastructure.The contract calls for the consortium to purchase part or all of the state's existing telecommunications network. The idea of buying services from a consortium also appears attractive to North Carolina, which will be soliciting proposals for the state government's local and long-distance service in a few weeks, said Jim Broadwell, director of state telecommunications.Currently, these services are provided in separate contracts by about a half dozen companies, including BellSouth, Sprint Corp., GTE Corp., AT&T Corp., BTI Telecom Corp. and Qwest. But Broadwell said awarding a single contract to a consortium could provide the best value to the state, and so both options will be examined."The general trend is toward simplification," he said regarding the advantages of dealing with just one prime vendor.The contract will be worth about $40 million to $50 million annually, he said. North Carolina likely would award the contract for only two to three years, with options for additional years, in order to have more flexibility in dealing with a rapidly changing industry, Broadwell said.Flexibility is important to other states as well, said Thomas Davies, a senior vice president with Current Analysis Inc., a business intelligence firm in Sterling, Va. "You have to be able to accommodate the huge changes in telecommunications that will be happening in the next 12 months," Davies said.Iowa is one state that followed a different path. The state began planning a statewide network in the late 1980s and building it in the early 1990s. Total cost of construction for the Iowa Communications Network was about $300 million, according to ICN officials.Today, states such as Pennsylvania and Tennessee can act as "anchor tenants" that can spur telecommunications vendors to build the fiber optic infrastructure. Because the Internet has become an integral part of the economy, vendors know that private sector customers will also want to use the new network.But this was not the case when Iowa started its network, and so the state could not persuade vendors to install all the necessary fiber optic cable lines for the ICN, said Richard Varn, the state's chief information officer.The state began laying its own backbone network in 1991 and today owns and manages more than 3,000 miles of fiber optic cable in the network."This was the most cost-effective way to do this at the time," Varn said. "We couldn't get the high bandwidth we wanted."In 1995, the ICN was supplemented by leased networks that added video sites to public and private school districts, libraries and other entities.As an owner of networks, Iowa is responsible for maintaining the networks and keeping the technology current, no easy task for a government entity. But ownership also has advantages, said Varn. The state, for example, can experiment with new technology and techniques on its own network, he said. In addition, the state could outsource some of its telecommunications services, using its own state-run services as a baseline to compare prices. "Iowa can move between ownership and paying for services," he said.