Tech Industry Seeks Its Salvation In High-Speed Internet Connections
By SCOTT THURM and GLENN R. SIMPSON
Staff Reporters of THE WALL STREET JOURNAL
High-tech executives think they've found a cure for the industry's deepest slump in a decade: High-speed Internet access for everyone.
For years, telephone and cable-TV companies have been promising to build high-speed "broadband" networks, which let consumers and small businesses tap the Internet 20 or 30 times faster than conventional phone lines, yet the rollout has been slow. There's little agreement, even within the tech world, on the ground rules for building such networks, which would cost tens of billions of dollars. But suddenly the topic has rocketed to the top of the technology industry's agenda in Washington, where traditionally distant tech executives are asking for help.
The chairmen of International Business Machines Corp., Intel Corp., Motorola Inc. and others last week met with key lawmakers and National Economic Council officials to support bills that would provide tax credits for building high-speed networks in rural areas and economically depressed inner cities. Other executives propose broader tax breaks, comparing broadband Internet links with the government-financed interstate highway or rural electric systems.
Likening the task to the 1960s effort to put a man on the moon, John Chambers, chief executive of Cisco Systems Inc., is asking that the federal government commit to making broadband connections available to every home by 2010. A Cisco lobbyist calls the effort "our No. 1 goal" (although a spokesman says Mr. Chambers doesn't think the government would be the one to build the network).
Some tech executives argue that extending broadband networks would help revive the national economy, because tech spending contributed such a large share of economic growth in recent years. "The stimulation would go well beyond hardware and software providers," says Phil Bond, Hewlett-Packard Co.'s top Washington lobbyist.
High-Speed Hopes
U.S. households with DSL, cable modem and telephone lines, in millions
1998 1999 2000
DSL N/A 0.3 1.5
Cable modem 0.4 1.3 3.7
Telephone 98.0 99.1 100.2
Source: The Yankee Group
But some analysts are struck by the sudden change in an industry that previously distanced itself from Washington. Technology companies "are going to Washington looking for a bailout," says Scott Cleland, chief executive of the Precursor Group, a Washington-based independent research company. "That tells you their situations are awfully bad because when times were good they were telling the government to stay away."
Monday, more than 40 tech executives are set to meet at H-P's Palo Alto, Calif., headquarters to rally behind the broadband effort and discuss possible policy initiatives. Other tech groups have similar efforts under way. Last week's lobbying was orchestrated by the Computer Systems Policy Project, which represents big computer companies. "The administration is listening carefully to all segments of industry and working with lawmakers and regulators to assess policy alternatives to accelerate broadband deployment," a White House spokesman says.
The renewed push for broadband stems from widespread disappointment with the Telecommunications Act of 1996, which was supposed to encourage competition, particularly for local phone service. But many of the upstarts that challenged the Baby Bells couldn't make profits and got hurt in the collapse of the high-tech bubble. And companies that built data networks to carry an expected flood of Internet traffic are starving for business.
Tech executives fear that broadband deployment will slow even further. A year ago, the pace was a secondary concern for big tech companies. Then the dot-com bubble burst. Companies cut their purchases of tech gear, and executives of tech companies faced declining sales, losses and layoffs. Now, potential sales resulting from a new wave of high-speed Internet connections look like a port in a storm.
When Mr. Chambers broached the subject before 50 executives at a February meeting of TechNet, an industry lobbying group, 20 hands shot up, according to a person who was in the room. TechNet quickly assembled a "working group" on broadband policy, including Mr. Chambers and executives from Intel, Microsoft Corp., 3Com Corp. and ExciteAtHome Corp. Its recommendations are expected in September.
Executives hope ubiquitous high-speed links can ignite another "virtuous cycle" of innovation and spending on tech gear, like the one that accompanied the first phase of the Internet in the late 1990s. Telecom-gear makers would sell equipment to build the networks. PC- and chip-makers would sell consumers new computers to keep up with faster connections. Software makers and content creators would update programs. "We're convinced now more than ever that broadband is crucial to our industry," says Peter Pitsch, an attorney in Intel's Washington office.
A unified tech industry could be influential in the national debate. "I've always felt the computer folks would tip the balance if they ever came into the thing in a serious way," says Jeffrey Eisenach, president of the nonprofit Progress and Freedom Foundation, a group backed by the Bell phone companies that is sponsoring the meeting at H-P.
But there's little agreement in the industry about how to get the job done. The differences are apparent on the central telecommunications question facing Congress this year: whether to relax 1996 rules limiting the role of Bells in building and operating data networks. Until recently, big tech companies were reluctant to take sides because they had customers in rival camps. Now, their reluctance may be fading.
In a speech last week, Intel Chairman Andrew Grove endorsed loosening some of the restrictions. That was a bit of a shift for the chip giant, which had invested in several Baby Bell challengers in the heady days after the 1996 law was passed.
"If we want to see broadband, we have to follow the money, as cruel and unfair as it sounds," said Mr. Grove, who lunched with Ivan Seidenberg, chief executive of Baby Bell Verizon Communications Inc., the following day. Mr. Grove called for "a new approach" in which the Bells "should be allowed to invest with the fair expectation of making a lot of money."
Others blame the Bells for stifling competition, then dragging their feet. "I'm afraid if we leave it to existing incumbents, the speed at which broadband will progress would not be satisfactory," says 3Com Chairman Eric Benhamou. He suggests government-subsidized loans, or tax rebates for signing up broadband customers. Most tech lobbyists, though, consider it politically toxic to mention those ideas.
Write to Scott Thurm at scott.thurm@wsj.com and Glenn R. Simpson at glenn.simpson@wsj.com |
