Nine months ago, amid the worst bear market since the 1970s, Boston hedge fund manager Treyton L. Thomas and a few buddies ginned up a plan to get telecom stocks moving again. The idea: Find a sympathetic soul in the White House and get him to encourage President Bush to endorse an accelerated rollout of high-speed Internet service to public schools and libraries.
Thomas, his pals and a separate Silicon Valley group of technology executives known as TechNet have spent many hours lobbying for Bush to put this idea in his State of the Union address on Jan. 29, but with two weeks to go, they still have no clue whether they've been successful. I'm rooting for them to win. I'm sold on the notion that the one silver bullet Bush can shoot at the recession right now that would have both a short- and long-term impact is one that would provide low-cost, universal access to broadband Web services to every man, woman and child in every hamlet in the nation.
If a high-speed Web were as universally available as electricity, it's a fair bet that immediate spending plus multiplier effects would spark the U.S. economy to boom as never before. A recent Brookings Institution report pegged the potential benefit at $300 billion a year.
The good news at the moment is that U.S. broadband users reportedly hit 20 million in November -- a 90% increase over the same month in 2000. But Thomas, chairman and chief executive at Pembridge Group and a frequent Harvard Business School lecturer, believes that there needs to be an order-of-magnitude acceleration in access to high-speed connections to have an effect on the economy. He's got four reasons:
Broadband users spent 67% more for online purchases than their dial-up counterparts. If you build it, they will spend.
High-speed information delivery is the great leveler, crashing down barriers that separate young and old, rich and poor, urban and rural, east and west. If you build it, they will learn.
The prospect of widespread high-speed broadband would kick-start a virtuous cycle of content development. Suddenly, film and music powerhouses such as
AOL Time Warner
-- and thousands of smaller companies -- would be encouraged to create and sell vastly more streaming video, movies on demand, music on demand, interactive financial services and all kinds of stuff we've never heard of, ranging from betting to science. All of which would spark increased use of broadband, more content development and more creativity. If you build it, they will entertain.
Telecommunication carriers and equipment providers who have been rocked by the recession would boost capital expenditures dramatically to meet demand for universal broadband. That would spread money throughout their supply networks and the rest of the economy, rejuvenating the dare-to-succeed attitude that is critical to innovation and entrepreneurship. If you build it, they will innovate.
Focusing on a build-out of the high-speed Internet could be one fail-safe way for the Bush administration to repudiate the Clinton era's uneven technology track record and forge a new path. It's also likely to have few vocal opponents. It can be sold to Congress and to the public as a relatively inexpensive way to enhance education and security and to prepare the country for the rest of the millennium.
Moreover, it has historical resonance with the currently revered Eisenhower administration, which helped spur the nation out of its post-Korean War economic sluggishness by pushing Congress to build a coast-to-coast network of freeways. Says Thomas: "We think that broadband as a catalyst for growth has got to be embraced by the Bush administration just as the interstate highway system and rural electrification were embraced by earlier Republican administrations."
Broadband backers dispute skeptics' hand-wringing over the question of whether excess telecom capacity was created during the dot-com bubble. Boosters liken the capacity issue to a textbook case of a "socialist famine," in which a government has food stacked in a warehouse but an insufficient distribution system to deliver it to the needy. "I think you have an enormous market for broadband, but people can't get it even if they're willing to pay for it," says Thomas. "Someone has got to break the logjam and get it into people's hands."
Why hasn't it happened before now, if there is such a good business case? It's a long story, but essentially the Telecommunications Act of 1996 -- which was supposed to do all of this and more by opening up U.S. phone lines to competition -- was torpedoed by the powerful Baby Bells, such as
. They feared that opening their infrastructure to competitors would jeopardize their regional monopolies, so they dug in their heels and prevented DSL providers such as
Covad Communications Group
and "competitive local exchange carriers" such as
from taking lawful steps to gather and service customers. The Bells paid fines and suffered some public obloquy for their stance but ultimately they won; Covad, and many of their kin were forced into or near bankruptcy.
The Cost of Not Acting Now
To get the broadband business recharged and headed the right direction will probably take another act of Congress or executive order; TechNet, for instance, is pushing for Congress to pass the Internet Freedom and Broadband Deployment Act, a bill sponsored by Reps. Billy Tauzin and John Dingell that would relax rules requiring Bells to provide competitors with cheap access to their broadband investments. Will Bush take it on as a political issue in his drive toward success in the 2002 midterm elections and his 2004 re-election?
It's hard to say, as the president has never shown enthusiasm for technology or the Web. He has spent the past nine years of his life in public housing in Texas and Washington, a privilege that has permitted him to sidestep the bittersweet curiosity of discovering the Internet as a homeowner with a 9,600-baud dial-up account, and then the elation of progressing on to speeds of 14.4k, 28.8k, 56k - and now, with broadband, 256k, 768k and up.
The Internet has achieved a modest amount of success today largely because Congress effectively drove down costs of high-speed connectivity for businesses, governments and high-income consumers in urban areas. But the Web is still constrained from becoming a mass medium for commerce, communication and entertainment in the suburbs and rural areas because fully 80% of Americans are still shut out from high-speed access as a result of of high costs and insufficient deployment. No one knows how great and lucrative this thing can get, because the real Web -- the fast Web, the cool Web, the always-on Web -- hasn't been experienced on anything like the scale of television or radio.
The cost of not acting now could actually have a lasting harmful effect. Todd Dagres, general partner at the venture capital firm Battery Ventures, says he believes communication carriers' budgets are expected to decline 20% in 2002, after already plunging in 2001.
Because capital expenditures drive companies' research and development budgets, he's seeing the spread of what he calls an "innovation depression" in the U.S., as businesses and venture capitalists are not funding high-risk/high-return projects that require a lot of capital -- and are instead sticking to small, incremental projects. "Companies are trivializing their research and development," he said. "As engineers get laid off and good plans are abandoned, we are in danger of losing a whole generation of science and enterprise that could lead to the loss of our technical superiority on the global stage."
Is that view too alarmist? Not to tech-fund manager Mark Anderson, who says that "delivering information in large bits is absolutely critical to the next stage of our economy." Without universal access to broadband, hundreds of technology companies' business models will be ruined. With them will go the rest of the economy they serve. The issue: When you have slow dial-up access to the Web, studies show you tend not to use it. Consumers' behavior changes when access is "always on, real-time, anywhere" -- AORTA, in Anderson's patois -- and a lot more business gets transacted at lower cost for all concerned.
Anderson's proposal to Bush: Set a five-year timetable for universal broadband access and compare it to President John F. Kennedy's vow to put a man on the moon within the decade. Use every trick in the book, including tax incentives for telephone carriers, grants and loans to rural communities, and the sort of rules that require auto manufacturers to keep auto emissions down to certain limits or face very large fines. "The amount of money made on the back end will pay for the cost many times over," he forecasts. "And if we don't do it, the United States will fall way beyond much of the rest of the world -- just look at China, Sweden, Spain and Japan, which are already ponying up for high-speed wired and wireless access in the public interest."
Thomas, the Pembridge Group chief, noted that the country doesn't actually need more interstate networking gear; the bottleneck is the lack of exit ramps for high-speed data from those networks to the PC in your den. "The biggest hurdle to high-speed connectivity is the last mile to your home," he said. "Sophisticated all-optical networks face the same problem of physics as a F-18 fighter jet: They have to slow down for final approach."
In the mid-1950s, President Eisenhower lobbied the nation for his treasured interstate highway system in speech after speech, telling the nation in February 1958, for instance, "The united forces of our communication and transportation systems are dynamic elements in the very name we bear -- United States. Without them, we would be a mere alliance of many separate parts."
The old general tirelessly battled recalcitrant automakers and oil companies, who blasted his campaign to tax car and gasoline buyers for construction funds. But he won, and that is the same fight Bush must wage now. The transportation of goods and ideas today travel the same digital light path. If we are to sustain and embellish our advantages in science, leisure and enterprise, Bush must seize the moment on Jan. 29 and follow in Ike's historic footsteps toward the future.
At the time of publication, Jon Markman owned shares in none of the equities mentioned in this column.