Telecom Reform Creates Melting Pot
Market sharing and business crossovers are just the beginning of the technology revolution
P> President Clinton and Vice President Gore dressed California casual -- polo shirts and khaki trousers -- for a Silicon Valley campaign event held in early March. They visited a small grade school just outside of San Jose and helped lay fiber optic cable connecting the institution to the much vaunted information superhighway. Casual, confident and ever so slightly nerdy -- it's the image they and, increasingly, other politicians and industry executives want to project.
The Warp Speed Economy swiftly is supplanting the Industrial Era, and everyone is scrambling to take credit for its creation or position themselves to succeed in the new era. Propeller-heads -- from computer hackers and Internet gurus to purveyors of libertarian ideology -- are the new economic and cultural hipsters.
Earlier this year, Congress passed a landmark telecommunications deregulation bill, though House Speaker Newt Gingrich and others initially had hoped they would institute a free-market free-for-all in the communications industry. Freydrick von Hayek and Ludwig von Mises, the long-dead Austrian economists revered by the Congressional GOP, would have been pleased with the plans. But political realities forced them to accept a lesser model.
The U.S. phone industry would be deregulated -- not immediately -- but over a period of a few years. Local phone companies, such as Bell Atlantic or NYNEX, would be allowed into the long distance business by the late 1990s. Long distance companies, such as AT&T, MCI and Sprint, shortly would be allowed into the local phone business. And cable TV companies, such as Continental Cablevision or TCI, would be allowed to offer phone service.
It may sound confusing, but there is a rationale to the deregulatory scheme: By letting these companies compete wildly, prices will decline, in theory at least. Technological innovation would accelerate. And soon everyone from grandmothers in Topeka to toddlers in Toledo, would have access to telecommunications power that just a few years ago would have made the Pentagon swoon -- broadband connections linked to powerful Internet-only computers, bringing gigabits of data downstream into the home for educational and entertainment purposes.
Not only would it be fun for the whole family, it would create an era of sustained economic growth unseen since the days of the so-called Robber Barons. "We see a future in which digital commerce plays a far larger role, and the world is transformed by computing and telecommunications and a cluster of technologies emerging in nascent industries -- to an extent that accompanied the invention of writing," said Gore in a recent interview. "This will take place very rapidly, and it is in the interest of the United States to move swiftly to prepare our people and our firms to lead the revolution."
Communications and computer companies already are moving forward with deals to take advantage of the deregulation outlined by Gore and Gingrich.
AT&T recently began offering free, local Internet access to its long distance customers. It was a crafty way of getting into the local market before offering purely local phone service. And it gives the company access to customers eager to flee local phone monopolies.
Other blockbuster deals promise to transform the very idea of entertainment. A few years ago, before MCI Communications Corp. founder Bill McGowan died, Bert Roberts' neighbors in suburban Washington, D.C., didn't know who he was. Now they do.
For about 20 years, MCI CEO Roberts labored anonymously as the hard-charging, hard-drinking entrepreneur, while McGowan garnered the headlines and gnawed at the market once monopolized by AT&T. But now Roberts has given media mogul Rupert Murdoch $2 billion and free reign to create a new kind of medium, a hybrid of television, telephony and the Internet, as long as $10 billion MCI got a major slice of the profits.
And while phone companies and Hollywood moguls such as Murdoch are aligning, computer companies are trying to make working with computer networks as easy as placing a local phone call. Novell Inc., the $2 billion software company, second in size only to Microsoft Corp., has made deals with Deutsche Telekom, Nippon Telephone and Telegraph, almost every PTT on the earth, to integrate computer networks into the telephone system more effectively.
"I'd say that the largest single set is making networking easy, whether it's wide or local area networking. Networking is still very difficult," said Bob Frankenberg, CEO of Novell. "Using a personal computer is difficult. Using a network is even more difficult. It is not only difficult for the user, but it's also difficult for the organizations. So finding ways to reduce or eliminate or export the complexity is really important. This is not unlike what happened in the telephone industry in roughly the 1930s or '40s when you had to have an operator to make long distance calls. It was a human switch. But that is not acceptable anymore. And with computers, we now have the same expectations that we do of telephones. But, some work needs to be done to make the links seamless."
This seamless infrastructure is what Gore and others mean when they chatter about the information superhighway. Many changes already are here. In Chicago and San Francisco, for example, you can order your groceries over a computer network and have them delivered in a few hours.
Look for these innovations to spread in the next few years to smaller hamlets, and for computing to become as pervasive as telephony. The Warp Speed Economy demands it.
But, the recently passed deregulation bill is just a first step in freeing telecom. Many conservatives on Capitol Hill think the telecom bureaucracy is still a significant barrier. Last July, Federal Communications Commission Chairman Reed Hundt issued a surprising edict that may shape the size of each American's future long distance telephone bill.
A plan by Deutsche Telekom and France Telecom to invest $4.2 billion in Sprint Corp. had been approved earlier by the Justice Department. But Hundt said the FCC would proceed with its own antitrust investigation, effectively postponing Sprint's plans to bolster its telephone service offerings and compete more effectively against AT&T and MCI.
"The government is still operating with an outdated legal framework for communications," said Jay Keyworth, former White House science adviser in the Reagan administration. "If America wants to be competitive in the global race to build the digital infrastructure of cyberspace, then wholesale changes in current policy must occur."
Keyworth and an array of think tanks led by the Progress & Freedom Foundation unveiled a proposal called the Telecom Revolution: An American Opportunity, which called for scuttling of the FCC and replacing it with a smaller agency called the Office of Communications Policy.
"The market is a better regulator than bureaucrats," said an aide to a leading Republican senator.
"Deregulation has worked in railroads and trucking, and it has been beneficial to consumers. The same thing could happen in communications. That's why we are interested in eliminating the FCC."