University of California at Berkeley Haas School of Business
Contact: David Irons / [email protected] / 510 642 2734
Collision or Convergence? Telecom Conference Reveals Unexpected Accords
What happens when faculty in economics, business, engineering, and information science come together with industry leaders from regional Bell operating companies, long distance phone companies, Internet service providers, computer and cable companies, and the FCC to hash out regulatory issues? A food fight? Far from it. The first conference co-hosted by the Haas School's new Center for Telecommunications and Digital Convergence (CTDC) and Berkeley's School of Information Management and Systems (SIMS) ended with unexpected areas of accord in an issue that's rife with difficult questions.
Once upon a time, regional Bell operating companies (RBOCs) like Pacific Telesis served customers who made voice calls averaging 4 or 5 minutes in length. FCC regulations kept the rates for these calls low, often below cost. Long distance carriers like AT&T and MCI paid comparatively high charges for their use of local lines but could pass these charges through to their rates for long distance service. And everyone was relatively happy.
Then along came the Internet. Now local telephone company customers are dialing up Internet service providers (ISPs) in data calls lasting an average of 20 minutes. This overburdens phone networks, causing delays in both data and voice calls. Long distance companies continue to pay high access charges, but ISPs pay no access charges. This is due to an FCC exemption designed to aid the emerging ISP industry that continues despite the fact that Business Week forecast a 700 percent growth in Internet users by 2001.
The RBOCs and long distance phone companies want the ISPs to pay access charges. The ISPs want to keep their exemption and want the local phone companies to develop technological solutions to the overburdened networks. The cable industry wants economic incentives to jump into the market to provide Internet access facilities. The economists want the FCC to set prices at cost. And the FCC wants the industry to work it out themselves.
With this clash of interests, it would seem impossible to get these parties all talking to each other outside of a regulatory hearing. But that's exactly what happened at the Haas School of Business on March 7. Michael Katz, Haas professor and director of CTDC, and Hal Varian, Haas professor and dean of SIMS, organized the one-day conference entitled "Collision or Convergence? Telecommunications Regulation and the Internet." Thirty-four of the most powerful telecommunications players -- including Dave Dorman, chairman, president, and CEO, Pacific Bell; Tom Evslin, vice president, AT&T Worldnet; Vint Cerf, senior vice president of data architecture, MCI Communications Corporation; Steven McGeady, vice president and general manager, Internet Technology Lab, Intel Corporation; Eric Schmidt, chief technical officer and corporate executive officer, Sun Microsystems; A. Richard Metzger, deputy chief, common carrier bureau, FCC; Joseph Farrell, chief economist, FCC, and Berkeley professor of economics; faculty from Berkeley's schools of business, information management and systems, and electrical engineering and computer sciences; and telecommunications writers from the San Francisco Examiner and Chronicle -- met in an off-the-record session to work out the issues.
"For an industry with billions of dollars on the line, there's surprisingly little dialogue," said Katz, who returned to Haas last fall after two years in Washington as chief economist at the FCC. "A conference like this plays to the university's greatest strengths. We can't tell people how to run their business day by day, or even quarter by quarter. But we can bring together people from the industry and academia to talk about long-term trends in technology and the economic and business implication of those technologies. And we can bring together people from different industries who might not otherwise talk to each other."
One area of accord discovered at the conference was that although local and long distance companies say they want ISPs to pay access charges, they don't want the charges to be as high as ISPs feared.
Said Dave Dorman of Pacific Bell, "It's extremely useful to have candid dialog between all the stakeholders. I think we gained new understanding of the motives and objections of ISPs being charged for local network use."
Another thing the players agreed on: the future of the Internet will depend on continual user access. That means economic incentives need to be assured for the development of new technology, be it by phone companies, ISPs, the cable industry, or new players not yet envisioned. The charge for creating economic incentives was laid at the door of the FCC.
FCC Chairman Reed Hundt joined the debate in a public speech delivered in the Andersen Auditorium at the end of the day. "My motto [is] åRead the law, study the economics, and do the right thing,'" he said.
He summed up the still very much undecided nature of the issues with a series of questions. What is the purpose of the FCC? What steps should be taken to assure that existing networks are open to competition and yet maintain their present financial and technological viability? What should be done about the Internet?
Hundt agreed that the first task for the FCC was to correct the access charge system and take steps to guarantee resulting decreases in long distance pricing. But he didn't think the commission yet had the data or the good practical ideas to accomplish this. He pointed out the lack of information about the costs of upgrading current telephone networks and about how different pricing regimes would affect Internet usage patterns. However, he was confident that the best bet for promoting Internet solutions would be the FCC's overall competition policy.
"Let's have the FCC and the states aggressively enforce the three rights of competition: resale, interconnection, and unbundling," he proposed. "In the meantime, let's have the FCC and the states aggressively deregulate certain services. Our national competition and deregulation policy depends on giving new entrants the right to lease capacity and unbundled network elements at a fair price ... If the prices for sharing the existing network are set on these efficient pricing principles, the marketplace will quickly select the technologies that relieve Internet congestion.
"Won't it?"
UC Berkeley Research Centers in Telecommunications and Technology
The Center for Telecommunications and Digital Convergence (CTDC) was established at the Haas School of Business last fall. Directed by Professor Michael Katz, the new center is working closely with the Consortium for Research on Telecommunications Policy (CRTP), directed by Professor Glenn Woroch of Berkeley's Economics Department, to sponsor a working paper series, the annual publication of a special issue of the Oxford University Press journal Industrial and Corporate Change (ICC), and an annual telecommunications conference. The CTDC will also host one-day conferences that bring together key members of business, academia, and government to discuss important business and policy issues in telecommunications and related industries.
Both the CRTP and the CTDC are administered by Haas School's Institute for Management, Innovation, and Organization (IMIO). The institute houses four related research centers including the Lester Center for Entrepreneurship & Innovation, the Fisher Center for Information Technology & Management, and the Center for Law and Technology/Intellectual Property, which was created in 1996.
"IMIO's centers have several common points of focus,' said Professor David Teece, the institute's director. "One of the most important is that they all examine current issues of corporate change, especially when that change is driven by technology. These are areas where questions are many and definitive answers are few; so it's a prime area for public-private partnerships between Cal, Haas and the business community."
Added Dean William Hasler, "Research institutes and centers unite faculty across the campus in the examination of important and topical business and policy issues. They also connect faculty to the world of practice."
There has been considerable activity at Haas on issues of telecommunications over the past few years. Faculty focusing on the issues include Professors Pablo Spiller, Robert Harris, Carl Shapiro, Michael Katz, Hal Varian, and David Teece. Said Teece, "That's more faculty with a working knowledge of developments in the telecommunications sector than most universities have. And with Katz back and Joe Farrell soon returning to Berkeley, we'll have two of the top former policy analysts and big thinkers about where the industry needs to go."
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