San Diego and the Global Village
Executive Summary

The Information Age is a worldwide phenomenon. Japan is planning to create a fibered nation by 2015. Singapore has become a Pacific hub for many Western, including American, companies. France, England and Germany have taken significant steps recently, along with the European Community, looking toward communications leadership in the future.

In the United States, recognition of the competitive challenge has prompted a number of federal initiatives, such as the issuance of a major report on American telecommunications infrastructure needs and possibilities, and the introduction of Senate and House bills calling for creation of a coast-to-coast broadband network network by 2015 in direct competition with Japan. In addition, the FCC has acted to permit limited telephone industry entry into the cable television business, partly in the hope of providing an incentive for it to invest in the building of the broadband infrastructure. As of mid-1992, however, the vast energies and talents of the telecommunications field have not been harnessed behind the directing vision of a single, all-embracing national goal.

At the same time, there is widespread agreement over the growing importance of telecommunications to economic development, as we move from a manufacturing-based toward a service-based economy. Increasingly, the "product" of business tends to be viewed as information, Various studies conducted for different states conclude that a modernized telecommunications infrastructure will produce concrete, even measurable, economic benefits. One study projects a net new GNP growth of as much as $321 billion and 0.4% increase in annual U.S. productivity growth over the next 16 years from acceleration of private investment in the new communications infrastructure.

Studies conducted for New Jersey, Maryland, and Pennsylvania, point to significant increases in state revenues and employment arising directly and indirectly out of infrastructure modernization; particularly where communications-intensive industries are concerned.

The studies agree that telecommunications has grown in importance to a company's ability to compete in the current business environment. Although other factors, such as business climate, local labor and costs, are important in affecting business-location decisions, the telecommunications environment takes on ever greater meaning in this regard. The Tennessee Public Service Commission, for example, is able to point to an impressive list of companies whose decisions to locate in that state can be attributed in part to the attraction of its ten-year master plan of infrastructure development.

Small towns and rural areas can benefit from the removal of geographical barriers to competition that telecommunications represents. Realizing the importance of telecommunications infrastructure in a region's ability to thrive socially and economically, a number of cities and counties are taking steps to improve their infrastructures and turn them into assets for the area's future,  among them Charlotte, St. Petersburg, Oakland, Montgomery County, Md., Metro Dade County, Fl. Some cities have built, or are planning to build, institutional fiber networks, designed to serve government, education, health and safety needs, but looking toward utilization by private industry, as well. A number of states, among them New Jersey, Tennessee, Michigan and Connecticut, Kentucky, Minnesota, Nebraska, and Hawaii have been adopting, or considering, plans designed to provide universal broadband capability.

Tennessee is on track with a ten-year master plan, which looks to full deployment of "intelligent network" capability by 1993,Integrated Service Digital Network (ISDN) capability by 2000, and a broadband capability that year reaching a 10% urban penetration, 5% suburban, and 2% rural.

New Jersey is embarked on  a road which other areas are eying with interest. In January of 1992, the state legislature passed a bill authorizing the New Jersey Board of Public Utilities to follow a flexible program geared to providing incentives to the telecommunications industry to invest in a modernized infrastructure. The Board is considering an incentive rate regulation plan submitted by  New Jersey Bell, which has also filed a plan with the announced goal of modernizing the network quickly with advanced switching and transmission technologies, and completing  a publicly switched broadband fiber-to -the-curb network by the year 2010.

Telecommunications technology can play an integral role in many arenas outside of business. It can enhance social welfare by improving on the delivery of critical services, such as education, health care, and emergency services, and cut down on congestion and pollution by facilitating job or neighborhood based workplaces via telecommuting.

Government Operation and Services

Today's city and state governments are routine consumers of telecommunications. Most cities and states own, rent, or purchase a variety of telecommunications equipment and services: PBX or Centrex, inside wiring, telephone instruments, fax machines, data networks, traffic signal wiring, government cable channel, cable production equipment, public safety dispatch, voice mail boxes, paging devices, and cellular telephones. The potential exists, via use of telecommunications, for government institutions to be able to cut costs, increase efficiencies, and provide innovative solutions to problems. Areas in which telecommunications can play a significant role include: increasing administrative efficiency; helping to balance budgets; improving democratic governance; ensuring delivery of municipal services, especially to low and moderate income constituencies;  reducing air pollution, traffic congestion and energy consumption, and encouraging economic development within environmental constraints.

Education's Expanding Horizons

Telecommunications can be a powerful tool for delivering educational services to people in all walks of life. It can allow educators to reach out to non-traditional learners by shortening the distance between individuals or communities in remote areas to bridge the gap between those who have access to teachers and information and those whose access is limited. Technologies can link students in remote areas to the location where the education resources are located. By bringing students and resources together electronically, the traditional geographical barriers are broken down.

Many studies indicate that education using various forms of telecommunications technology is as effective as classroom teaching. The elderly, the disabled, working parents, all of whom might be unable to attend classes in the traditional educational environment (classes conducted during the day at a centrally located campus) can avail themselves of the benefits of learning in the new electronic classroom. It can also allow educators to utilize their resources more effectively. In these times of economic uncertainty and budget constraints, telecommunications technology can be integrated into the traditional education setting so that students at multiple sites can benefit from the same shared educational experience. There is a great gap, however, between the proven advantages of telecommunications technology and its actual deployment, which, in the nation at large, is miniscule.

Health Care

Spiraling health costs and increasing demands on the health care system are leading to a serious investigation of how telecommunications can be used to reduce administrative costs and improve the quality and cost-effectiveness of health care services. Among the promising trials are those involving medical imaging, which makes it possible for x-ray findings to be distributed to distant locations without delay, for use by consulting physicians, and to bring together widely separated surgeons during operations.  Telemedicine is a new area of service with exiting potential, offering the prospect of remote diagnosis and treament, and post-operative patient monitoring.

Telecommuting

Telecommuting, the use of telecommunications to work at home, is already making a difference in many lives, and as the results of studies of its effectiveness are analyzed, it becomes clear that telecommuting is a valuable tool in addressing many problems currently facing employees, employers, and society at large. Some of the benefits realized by employees: reduction in daily commuting time , savings on work-related transportation, food and clothing; telecommuting can help parents balance work with child or elderly care and can create opportunities for persons with disabilities, the elderly and rural residents.

Employers benefit by retaining skilled workers who want to change their work schedules, or who must be with their children, or those with disabilities. Companies can reduce operating costs reduce overhead expenditures, maintain smaller staffs.

A California study showed that an effective telecommuting program did not require major capital investments, productivity of home-based employees exceeded that of a non-telecommuting control group, the quality of employees' lives was enhanced, costs of office and parking spaces were lowered; the results also showed significant potential for reducing traffic congestion, air pollution and energy usage. An Arizona test led the Arizona Energy Office to estimate that telecommuting by only 1% of the employed in Maricopa County one day a week would save an equivalent of 41 years of rush hour traffic.

The Road to Broadband Capability

Fiber optic technology has changed the face of communications systems, enabling tremendous amounts of information to be transmitted at high speed over a fiber the thickness of a human hair. Instead of electricity traveling through copper wire (the way it's done with conventional telephone wires), with fiber optics, light pulses travel through glass fibers. These pulses are generated by a laser flashing on and off at high speeds and are converted to electrical signals at the receiving end. The difference in transmission capacity between fiber optic cable and conventional technologies is truly amazing. Three inch-thick conventional cable can carry 10,800 conversations on 1,800 copper wires. A half-inch thick fiber-optic cable can transmit 1.35 million conversations on just 144 glass fibers.

Fiber optic cable, because of its tremendous signal carrying capacity and low signal loss, is clearly the medium of choice to meet the developing needs for transmission of information.  Coaxial cable, which has traditionally served the cable industry, requires extensive use of signal amplifiers, creating electronic noise. But over short distances, of 300 feet or less, coaxial cable does not call for amplifiers. This makes possible the combination of fiber for distance, capacity transmission, and coaxial cable from a point outside the office or residence--the system generally referred to currently as fiber-to-the-curb.

Fiber-to-the-home is generally considered too expensive to install under present conditions. Fiber costs are coming down, expected to match copper for POTS (plain old telephone service) this year for fiver-to-the-curb, and 1994-5 for fiber-to-the home. The telephone companies maintain that they need the income from cable television service to provide revenue for investment in a fiber system and are seeking removal of the legal restrictions which now prevent them from offering cable television service.

Because of cable's historic configuration, it is easier and more economical for the cable  companies to upgrade their systems with fiber than it is for the telephone companies.  And in recent years, they have been actively engaged is such upgrading. Cable's fiber mileage will hit 22,000 by the end of 1992.

Leading cable companies see new services offered the  business and  residential consumer through their upgraded services, particularly as they  shift from their traditional tree-and-branch style of signal distribution to the telephone style star configuration: high speed computer communications, or Personal Communications    Service (PCS), videotex services, as well as any kind of entertainment service.

At the same time, the head of U.S. West advocates joint ventures between telephone and cable companies.  Unable to justify a full-blown fiber-to the curb buildout throughout his company's extensive territories, U. S. West President Richard McCormick proposes that two industries find ways of working together in order to save on costs of building and maintenance.

Public Policy Considerations

How the turf struggle between cable and the telephone companies turns out, will depend largely on the Washington scene of legislative and regulatory decision. In projecting investment in a modernized system, the telcos maintain that the only way they can justify such investment is by tapping the revenue lode represented by television service to the consumer, and they have been actively seeking relief from the provisions of the Cable Act of 1984, the edicts of Judge Harold Greene, who administers the Modified Final Judgement under which the Bell system was dismantled, and the Federal Communications Commission's prohibition against cross-ownership.

The cable and newspaper industries argue that, as historic monopolies, the telephone companies threaten  their survival owing to the discriminatory anticompetitive practices they can be expected to pursue. From the telephone company standpoint, their entrance into cable television will bring competition into that field to the benefit of the consumer and will provide an incentive to stimulate their accelerated involvement in building the telecommunications  broadband infrastructure.

This is the view expressed in the Burns-Gore bill, which would set as a national goal the building of a broadband network by 2015. Competition is also seen by the Administration as the way to discipline the de facto monopoly cable companies, as opposed to re-regulation.

The Coming Struggle For Control Of Tomorrow's Communications

Cable spokesmen are already pointing to tomorrow's cable industry a fully developed communications service, competing directly with the Bell companies. Noting that Cox and TCI have purchased control of Teleport Communications Group of Staten Island, which has built networks in a dozen large cities, the New York Times reports: "Executives of Cox and Tele-Communications say they anticipate linking their cable systems to these networks, raising the possibility of extremely rapid expansion to suburban office parks, hospital, hotels and eventually, perhaps, to residential telephone customers as well. Given that plan, a collision between industries is inevitable--and imminent."

At the same time, it is TCI which turns out to be one of the leaders of the movement toward cooperation with the telephone industry, having entered into an 18-month trial of new services made possible by the new technologies, along with U.S. West and AT&T.

As for U.S. West's declared intention to work with cable, its president suggests consideration of a condominium approach to the building of a fiber network: each half of the single sheath would be owned by the phone and cable company, which thus would share its costs while providing its appropriate services.

How the Washington scene will look in the near future, is anyone's guess. The restrictions on the telephone industry may finally be lifted--in which case, the competition with cable for pre-eminence in the telecommunications field can be expected to intensify. There is no telling, moreover, what a possible change in administrations might produce.

The Changing Regulatory Scene

The telecommunications field is gradually moving to a condition of decreasing regulation. Rate of return regulation, which means straightforward approval of telephone rates by the state's public service or utilities commission, sets the profit level of the telephone company in terms of a fixed cost-price ratio. Under the newer approach, which is being adopted by an increasing number of states, the rate-setting philosophy is geared to providing incentives to cut cost and improve efficiency — presumably this should lead to an intensified search for technological innovation. The California Public Utilities Commission introduced an incentive scheme in 1989 for Pacific Bell and GTE, the state's two largest service providers.

The Idea of Competition

The 1980s saw an intensification of commitment and activity directed toward the goal of competition, in the conviction that the marketplace is a more effective regulator than the government. The commitment continues under the present FCC Chairman, Alfred Sikes. It is even time, according to the NTIA, for competition to reach into the local level. Whether a marketplace approach can lead to the building of the ubiquitous broadband network, is the question. Although the Administration agrees with the objectives of the proposed legislation, it stops just short of embracing what it sees as an industrial policy; its preference is for a policy of encouraging the forces of competition and innovation.

The Inevitability of Convergence

The turf conflicts between contesting industries may grow even more tangled in the years ahead, simply because technology is causing the boundaries between disciplines to fade and vanish. Thus cable moves into telecommunications, and the telephone companies struggle to enter cable television; the newspapers become electronic publishers, and telco initiatives spur a war over the fate of classified advertising; and digital electronics appears in more and more guises, blurring distinctions between the television set and computer.

Protecting the Rate Payer

Universal service has long been a cornerstone of U.S. communications policy. With passage of the Communications Act of 1934, the national goal was identified: "to make available, so far as possible, to all the people of the United States, a rapid, efficient, nationwide and worldwide wire and radio communications service, with adequate facilities, at reasonable cost." That goal has been largely achieved for telephone service.

Following divestiture, which meant the elimination of the long-distance subsidy of local residential service, there was concern about the practical survival of universal service, and a number of calling plans were created in response, such as Lifeline and Link-Up America.

As more services have become available over the public network, the definition of what constitutes basic service, as well as what the nature of the public network itself should be, is undergoing scrutiny. Where consumer groups are in favor of holding down consumer plain old telephone service costs, the NTIA argues that because of what technology is making possible, the traditional approaches no longer suffice as the goal for universal service. "Rather, universal access to the myriad services available in the competitive telecommunications marketplace should become the new standard."

 Conclusions

• Telecommunications and information technology will be major factors in defining tomorrow's world.
• The world is moving swiftly toward global interconnectivity. Economic and social rewards will go to the cities and regions that organize themselves to participate effectively in the information-led economy that is emerging. Those areas that do not choose to follow this path will be left behind.
• There is a tendency to see communications issues in national and state terms, to the neglect of the pivotal role of the city or region, where responsibility for the whole community is finally lodged. The city's purview encompasses all elements of the community: not only industry at large, but small business, the farmer, the average citizen and family, as well — to assure access to the business, professional, educational, health and social benefits that are the promise of a universally accessible, advanced communications infrastructure.
• San Diego has a choice: to let the future arrive as it will, shaped by events and circumstance, or to take on a leadership role and focus its  public and private sector  energies on the challenge of building its segment of the  Information Highway in its own corner of the Global Village.