Broadband Seen as Cure for Economic Ills at Aspen Summit

But cable modems, DSL don't reach enough homes yet

Aspen, Colo.

Imagine that broadband is widely deployed. Millions pay subscription fees to watch movies and listen to music online, while corporations do more to encourage telecommuting and remote business activities because of the ubiquitous availability of always-on, high-bandwidth connections.

That vision was at the forefront of this year's Aspen Summit, and it's been a powerful tonic for the high-tech executives and policymakers who are ailing from the bursting of the dot-com bubble and the economic slump.

But that vision is blurred by a harsh reality.

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AT A GLANCE

What’s Broadband?

There’s some dispute about just what constitutes “broadband” high-speed access, but the term generally applies to DSL, cable and satellite wireless.

Availability: Cable and DSL services are spotty, even in large metropolitan areas.

Telecommuting: There are approximately 24 million telecommuters, according to the International Telework Association and Council, a Washington-based trade group. That number is expected to rise 10% to 15% next year. The rate of growth would increase if broadband were ubiquitous.

Current usage: About 9% of Internet-connected homes have broadband access, various industry watchers estimate.

High-speed connections via Digital Subscriber Line (DSL), cable modems and satellite currently reach less than 10% of all homes connected to the Internet, and new adoption of the services is growing slowly or even stagnating.

Mass-market adoption of broadband at a rate that's high enough to generate an economic stimulus by prompting companies to offer new Net-based services may still be years off, said those involved with its deployment.

Widespread availability of broadband clearly could have an impact on the way corporations operate. For example, telecommuting work that requires the online transfer of large files, such as the image files used by insurance underwriters, would become more practicable.

"That's where it is very advantageous," said Larry Erb, vice president and CIO at ING Re, a reinsurance company in Denver.

A Godsend

And for companies like Honolulu-based Fletcher Pacific Construction Co. that run expensive leased lines to remote sites, alternative broadband services would be a godsend, said Tim Llena, the construction firm's IT manager.

The lack of broadband access among workers "is the No. 1 stumbling block that employers face with telecommuting these days," said Gil Gordon, a Monmouth Junction, N.J.-based consultant.

Broadband deployment is spotty at best, even in large metropolitan areas. And the main reason for that is the high cost of upgrading network equipment, said Eric Rasmussen, a senior consultant at TeleChoice Inc. in Tulsa, Okla.

Broadband is also the subject of an ugly legislative battle in Congress that's pitting telecommunications companies against one another, with consequences for the technology's rollout.

The former Baby Bell telephone companies complain that the federal Telecommunications Act of 1996 is deterring broadband deployment. The act, which required the regional Bells to open their networks to voice competition, is being wrongly applied to broadband, said Tom Tauke, senior vice president at New York-based Verizon Communications.

"Competitors use our facilities at rent-control rates, and do so without investing a dime of their money," said Tauke, speaking at the conference, which was sponsored by The Progress and Freedom Foundation in Washington.

Tauke said Verizon is investing less in broadband than it might otherwise because it can't get the investment returns it makes on other services, such as wireless.

But David Dorman, president of AT&T Corp., charged that the local Bells "are engaged in a major offensive to dominate the broadband [market]" and are attempting to "eviscerate" the telecommunications act that ended the local telephone monopolies. AT&T has to lease local loops from the regional Bells for its DSL service.

Reps. Billy Tauzin (R-La.) and John Dingell (D-Mich.), earlier this year introduced a bill in the House of Representatives known as the Internet Freedom and Broadband Deployment Act of 2001. A similar measure has been introduced in the Senate.

Dorman said the bill, which is intended to reduce some of the legislative burdens faced by the Baby Bells, would "wipe out" AT&T's investment in DSL as well as that of other Bell competitors.

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Awaiting The Content

ASPEN, Colo.

There's no point in building a stadium unless there's a team to play in it, and that's about where Internet broadband is now. The content needed to drive consumers to broadband is still in the making, said high-tech executives at this year's Aspen Summit here.

In the view of some content providers, the big lure to broadband will be movies, interactive games and music.

"The movie industry welcomes the Internet," said Jack Valenti, president and CEO of the Motion Picture Association of America. "It has vast potential to be a wonderful new delivery system," provided that copyright protections are in place, Valenti said.

Konrad Hilbers is CEO of Napster Inc., the file-sharing service that was shut down by a federal court until it stopped the sharing of copyrighted music. His goal is to turn the Redwood City, Calif.-based company into a "legitimate business."

Napster plans to launch a subscription-based model for music later this year. It hasn't decided what to charge, "but it is quite obvious that we are challenging some of the music industry's business model, most particularly on CD pricing," Hilbers said.

No Relief This Year for High-Tech Firms

ASPEN, Colo.

The high-tech sector isn't expected to recover this year because of inventory buildups and slower demand by end-user companies, said economic experts.

Kathryn Shaw, a professor of economics at Carnegie Mellon University in Pittsburgh and a former Clinton administration adviser, said the downturn—which she called a "recession"—was caused by several shocks. The foreign exchange rate—the price of U.S. currency against other nations' currencies—rose, causing manufacturing to slump. Rising energy costs and a declining stock market also affected the economy, she said.

"The digital economy can't prevent these shocks," said Shaw, speaking last week at the Aspen Summit here.

Shaw also cited a soaring buildup of inventory that hurt the high-tech sector. "When [the downturn] hit, they didn't foresee how much their inventories had been overbuilt," she said. "Given this increase in capacity . . . that was way overdone, it will take some time to continue to pull down that inventory correction and to return to production again." She wouldn't predict when recovery would begin but said this year will remain weak.

"Certainly, things look grim," said Bruce Mehlman, assistant secretary in charge of technology policy at the U.S. Department of Commerce. "The collapse of the tech stock bubble has wiped out $5 trillion in paper wealth," Mehlman said. "Business rate of investment in new equipment and software has plummeted from a positive 18% to a negative 14.5% in just 18 months."

"Some of the current downturn is fairly representative of a natural correction that happens after the incredible activity of the last five years," Mehlman added.

But this correction "is not the same as an end to revolutionary changes brought by the underlying technology," he said. "Even as markets were plummeting last year, global Internet usage grew by more than 67%; B2B e-commerce grew 132%."

The Bush administration last week said the economy is expected to grow a relatively healthy 3.2% next year.

"I'm really bemused by the doom and gloom that's out there," said Thomas Siebel, CEO of Siebel Systems Inc., a San Mateo, Calif.-based maker of business application software. "We need to get a grip on what's happening here.

"We got into kind of a bubble situation, and now some sanity is returning to the world," said Siebel. "That's not a problem."

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