Dialing D.C. for Dollars

Talent, the commercial real estate market and proximity to the federal government make Washington a player in telecom

P> Why does Nextel Communications CEO Daniel Akerson want to move to the Washington area? Because of the talented labor pool, the reasonable commercial real estate market, favorable tax incentives and proximity to the federal government -- all the same reasons every major telecommunications company sets up key operations in the region.

"The Washington, D.C., area is becoming a center of gravity for telecommunications and technology," said Akerson. "In the D.C. area, we'll be in a good position to further our strategy of serving the integrated wireless communications needs of the mobile work force." About 250 to 300 people will move by mid-summer from Rutherford, N.J., to the new headquarters, which likely will be in Northern Virginia, said Nextel spokesman Paul Blalock.

In the coming year, Nextel and other telcos will lobby harder than ever to affect the implementation of the most radical reforms to hit the telecom industry in more than five decades. And the new rules will come out of Washington.

In writing the new regulations, "the [Federal Communications Commission] lays the groundwork for competition in the telecom industry," said Jay Markley, FCC policy adviser.

As a result, telcos are adding lawyers, associations are hiring new lobbyists and some telecom companies such as Nextel are even relocating their headquarters here.

"To be a telecom player, you must be here in Washington," said Matthew Flanigan, president of the Tele-communications Industry Association.

And while the FCC writes the new rules, the Federal Trade Commission and the Justice Department will decide when companies can enter certain markets. Anne Bingaman, assistant attorney general for antitrust at the Justice Department, will add three lawyers to her division's Telecom Task Force, increasing the division's legal team to 50.

That means a plethora of associations and lobbying groups have planted themselves in the area. Some are decades-old institutions, but others have sprouted suddenly around the reform debate. They include the Personal Communications Industry Association, the Cellular Telecommunications Industry Association, the Competitive Telecommunications Association, the Multimedia Telecommunications Association and the United States Telephone Association. Washington is also home to the Federal Communications Bar Association. Of its 1,800 members, 1,500 are based in Washington, clearly a hot bed for telecom lawyers.

"The telecom bill has been the hottest topic for our members over the years," said Flanigan. But that's only the beginning. "The bill will continue to make opportunities," he added.

Besides its work on telecom legislation, the FCC plays an instrumental role in the wireless market by holding spectrum auctions for personal communications services, a new mobile phone technology. In fact, the first company to launch a PCS product, American Personal Communications, Bethesda, Md., has been selling Sprint Spectrum for the past five months in the Washington area.

Industry experts said PCS had to come out first in Washington to prove to the FCC that it can be a successful market. Sprint Spectrum has signed 60,000 customers, qualifying it as a resounding success. "It's no coincidence that Sprint Spectrum was the first," said Markley. "[The purpose] was to see the fruits of our labor."

But it's not just regulators who attract the telecom industry to the area. Telcos can also count on the world's greatest concentration of upscale users -- both in government and the private sector. For instance, of the 20 largest metropolitan areas in the nation, Northern Virginia had the highest median income in 1990 -- $53,305. Northern Virginia and Maryland are also home to the world's most sophisticated telecom users in the intelligence community. For the industry, these users have become a testbed for cutting-edge applications such as asynchronous transfer mode switches and frame relay.

This is another instance where the government can influence emerging markets, not as a developer of technology, but as a consumer with much deeper pockets than any other customer. That consumption attracts bidders and technology developers, and combined with the region's other growing high-tech industries, it creates critical mass that inevitably attracts telecom companies to the region.

Although Congress and the FCC are the biggest draws to the Washington area, the presence of large divisions of AT&T, Bell Atlantic, Sprint and the world headquarters of MCI doesn't hurt. In fact, telecom companies in the area have an average of 156 employees, according to a study by the Greater Washington Initiative/Greater Washington Board of Trade.

The presence of the industry's major players has attracted smaller firms. The Washington area has at least 100 telco service providers, showing not only that the area is a connectivity center, but that it will play a huge role as communications manufacturing and services become even more ubiquitous in business and at home.

And as the Washington region struggles to get better recognition as a private sector business hub, the telecommunications industry leads the charge. "The movement of telecommunications firms into the area is significant because most of their business is commercial. It shows that the area can be a competitor outside of the government arena," said Olga Grkavak, vice president of the Information Technology Association of America.

Area companies bring the Netplex international recognition as a telecom hub. Other companies in the area are forming world-class alliances or making international acquisitions. For example, Cable & Wireless, Vienna, Va., wants to merge with British Telecom, and Primus Telecommunications Group Inc., McLean, Va., recently purchased Axicorp, Australia's fourth largest telecom company.

And don't forget telecom equipment manufacturing. Newbridge Networks, one of the world's leaders in high-speed digital communications, is based in Herndon, Va. Netrix Corp., another leader in data communications, also calls Herndon home. Fastcomm Communications, Sterling Va., provides high-speed data telecommunications equipment, as do Microdyne Corp., Alexandria, Va., and Penril Datacomm Networks, Gaithersburg, Md. Together, these companies were responsible for generating about $350 million in 1995 revenues.

The blockbuster telecom industry also has relatives in satellite telecom and the Internet market. Both Washington area markets have become worldwide centers in their own right, attracting some of the most important companies in those niches and gaining reputations for vast communications knowledge.

Although Washington is where much of the real telecom work goes on, not all of it is going smoothly. The FCC faces a tough battle to restore its budget, which Congress cut dramatically at a time when the agency is working harder than ever.

"It's ridiculous that I have to worry about whether I can pay for air conditioning for public servants who are putting in 15-hour days in our airless, cramped, tumble-down building...," said FCC Chairman Reed Hundt at a recent conference. Hundt also pointed out that writing the rules during a presidential election year will make for endless partisan bickering at the FCC. But as telecom executives know, that's just part of Washington life.

Bell Atlantic and NYNEX, the two Baby Bells that recently announced plans to merge, should also plan to spend much of the next year -- the time it is expected to take the merger to go through -- in Washington.

The Department of Justice and the Federal Trade Commission must approve the deal, making sure it does not violate antitrust laws. The Federal Communications Commission must ensure that the merger is in the public's best interest, and approve a transfer of radio spectrum. All 13 states served by Bell Atlantic and NYNEX also must approve the alliance. Although the merger does not require the blessing of the Securities and Exchange Commission, the agency does have to approve all proxy statements and financial documents filed for the merger. Welcome to Washington.

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