HELLERSTEIN TELECOM & TECHNOLOGY REVIEW- Impact of Terrorist Attacks on Telecom

Networks - September 2001

_________________________________________________________________________ ___

Welcome to the September 2001 issue of the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW, a free semimonthly newsletter covering significant industry, marketing, and regulatory developments in the telecommunications and technology industries. This newsletter is published by Hellerstein & Associates, www.jhellerstein.com, a telecommunications and technology research group which provides its clients with a competitive edge through market research, competitive intelligence, and regulatory analysis of broadband access, competition policy, and wireless issues.

Subscriptions are free so if you know anyone who would like a subscription, forward this newsletter and encourage them to sign up via the online subscription form on the Hellerstein & Associates website, www.jhellerstein.com. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com.

As I write this newsletter, the effects of the terrorists attacks on the World Trade Center and the Pentagon continue to mount. Besides the enormous loss of life, over 6,400 are missing or dead in New York alone, these attacks have significantly impacted all aspects of life, from the havoc wreaked on the US economy and on the psyche of all Americans, to the immense damage done to the telecommunications and broadband networks. Several people have commented on the loss of broadband connectivity resulting from the severe damage to the Verizon Central Office facilities at 140 West Street, however, few people have commented on or suggested what type of remedial steps can be taken? What changes will need to be made and how will the actions likely to be taken impact different segments of the telecommunications sector, specifically the wireless sector.

Click here to see photos of the damage to Verizon’s facilities http://www.fcc.gov/commissioners/powell/mkp_wtc_1.html

As Verizon rebuilds its New York network and as telecommunications functions are restored to essential Government facilities in the downtown area, such as the Courts, City Government and State Government offices, the opportunity exists to create a network for the 21st century, with fiber and copper available to everyone. History has shown us that telecommunication’s companies growth is closely tied to the economic health of their communities, which is why many telcos have led significant development efforts to revitalize these communities. These telcos have often stated that it is this relationship with their local communities, that has been the key to their success. In a speech to students at NYU, Verizon’s co-CEO, Ivan Seidenberg, stated that “the key to success is our desire and willingness to give back—to return to our roots and replenish the soil.” One sure way of enhancing this relationship with the community, as well as helping spur economic growth, is to speed the deployment of broadband throughout New York.

Price concessions may also be likely as a way to encourage an increase in demand and therefore speed development. Dropping the price of broadband access to $30 would not only increase penetration, but also would stimulate the economy. Broadband access is a powerful tool that can lead to increased economic growth as consumers regain confidence in the economy. Inexpensive broadband access can reduce social costs by allowing for an increase in remote learning capabilities, telecommuting, and telemedicine. Other countries, including our closest neighbor, Canada, offer their citizens cheap broadband access. According to DSL Prime, broadband access costs between $22-$32 in Canada, Germany, and Japan; Canada has twice the broadband access penetration that the US has; Moreover, Japan and Germany, despite starting two years later than the US in deploying DSL, are projected to have twice the US penetration rates by mid-2002. The increased popularity of video conferencing, video and data collaboration, and other productivity tools that require broadband access can help spur the creation and growth of new industries dedicated to video and multimedia. We at Hellerstein & Associates realize that delivering inexpensive broadband access will not erase the fear in people’s minds or soothe the loss of a loved one, but it will help spur the economy as consumer spending increases.

Another strong consequence of the tragedy of the World Trade Center attacks is the changes to the wireless sector. The attacks on the World Trade Center showed the importance of wireless services in warning others of impeding danger and by connecting people either by allowing them to say their goodbyes, telling loved ones that they are safe, or by alerting rescuers of where trapped people may lie under the rubble. The inability of the cellular network to function because of heavy congestion also exposed all to the shortage of spectrum held by the major wireless carriers. The World Trade Center attacks exposed these growing tensions between the private sector and its need for additional spectrum and the needs of the Government for additional spectrum for national security and safety of life. For now, safety of life and national security appears to have won the battle.

The attacks on the Pentagon and the World Trade Center brought home both the need to develop and install a type of monitoring technology for the nascent wireless data markets as well as the necessity to speed up the process of having location identification information on all wireless phones. As a result of higher security and public safety concerns carriers are now resolved to Government monitoring of the Internet, wireless, and wireline networks as well as other issues that the Government is promoting as necessary for national security. Since technology to monitor wireless data communications is not commercially available, the FCC is requiring that all carriers create an alternative mechanism for FBI surveillance.

The issue of spectrum allocation and the needs of the wireless industry to gain additional spectrum for the third generation wireless services was the focus of a recent Center for Strategic and International Studies seminar on whether the current allocation of spectrum to the military is appropriate or whether some of this spectrum could be transferred to the private sector to be used for third generation (3G) wireless services. The swath of spectrum between 1755 and 1850 MHz in other countries besides the US has been reserved for 3G wireless communications services. Currently much of this spectrum in this frequency band, 1755-1850 MHz, is unavailable in the US. The US Defense Department has a large amount of spectrum in this band. While the Catholic Church, broadcasters, and Multichannel Multipoint Distribution Services (MMDS) and Instructional Television Fixed Service (ITFS) hold spectrum in the other bands the world has set aside for 3G. DOD has 3,670 frequency assignments within this band, while other Government Agencies have a total of 4,807 frequency assignments. The FCC has stated that it will not asked the MMDS and ITFS spectrum holders to relocate. Thus, obtaining enough spectrum for 3G wireless in any one particular band remains problematic.

Prior to the terrorists attacks on the World Trade Center and on the Pentagon, the Defense Department was under heavy pressure by industry and others to move some of their operations onto a different frequency band. Today public safety and security concerns are on a much higher level, than any desire or goal of creating a single frequency for 3G wireless communication services throughout the globe, or other issues. Allocating spectrum among competing national needs, national security, economic growth, technological progress, and public safety, continues to poses a difficult challenge for all policymakers. Technological change and a growing demand for wireless communication services has placed spectrum allocation in the US under pressure.

According to James Schlesinger, a past Secretary of Defense and the first Secretary of Energy, the division of US Government spectrum responsibilities among State, the FCC, and the Department of Commerce is what has precluded the creation of a long term national spectrum policy. The US is unique among all other industrialized nations in that it lacks a mechanism, to formulate a national spectrum policy that balances traditional national security issues with new commercial uses of frequency spectrum. According to Dr. Schlesinger, spectrum management issues are not a priority for the State Department, which is responsible for representing the US at International Organizations, such as the International Telecommunications Union (ITU). As a result, work on spectrum issues only occurs prior to international meetings or during a crisis. In contrast, Europe is one of the most organized regions. What Hellerstein & Associates found most interesting was that the US’s allies in Europe are often its opponents at ITU conferences. At the World Radiocommunication Conference, the US has many conflicts with Europe and Canada on spectrum issues, but often finds itself in agreement with countries such as Russia, Syria, and even China.

As the nation heads into a possible war, this is not the time to be asking the Department of Defense to give up any spectrum. Spectrum limitations, it is feared, would limit US military capabilities. A spectrum based information infrastructure lies at the heart of US’s military superiority. RF spectrum is particularly essential to all military operations. Moreover, the need for spectrum is growing rapidly as much of the newer equipment requires access to spectrum. The world is moving towards a network centered environment and this environment is very dependent on spectrum access. As such, access to spectrum has become even more critical than ever. The Defense Department estimates that by 2006 spectrum access requirements will be ten times greater than they what they were in Kosovo and much higher than they were in the Gulf War. A recent Government Accounting Office (GAO) report on Defense Spectrum Management found that without proper technical and operational analyses, DOD risks a reduction in military preparedness or a degradation of systems in the 1755-1850 MHz band which it uses to support mission capabilities. GAO found that DOD faces and unknown risk of operational degradation to its satellite operations that could include actual loss of control of its satellites and an undetermined risk to its warfighters.

Hellerstein & Associates is interested in hearing what its readers think of these ideas. Should the Defense Department be forced to give up spectrum or move spectrum assignments to another frequency band in the name of having one global frequency for 3G wireless communication services? Is their another alternative?

Several industry commentators proposed that Government Agencies be able to lease spectrum assignments they currently own to industry and then use the money obtained from these leases for other programs or to pay for a variety of benefits that particular Agency’s constituents otherwise could not have been afforded.. Currently, the Office of Management and Budget frowns upon any Agency having an outside revenue source. All revenue gained from Government sales or auctions must be sent to the Treasury Department. However, not allowing Government Agencies to keep the money they earned from spectrum leasing agreements eliminates any incentive that particular Agency might have to be more efficient with its resources. This idea of Government Agencies being allowed to lease spectrum they are not actively using appears to be a great idea in that it allows a scarce resource to be used in a more efficient and productive manner. Agencies could then decide whether they wanted to channel their resources for a particular set of projects and then could lease unused spectrum assignments to others who place a higher value on that spectrum.

Should Agencies be allowed to lease spectrum to other interested parties in return for lease payments which they are allowed to keep and use at their own discretion. How should the price for this spectrum be determined? Should the US follow the UK model and assign prices to all Federal Government spectrum?

Lastly, why is it a bad idea for Federal Agencies to have their own income source? Should not the Government be rewarding these Federal Agencies who come up with innovative and creative ways of funding new programs or initiatives.

Please send all comments directly to Judith Hellerstein at Judith@jhellerstein.com. If you would like more information on this topic please e-mail Judith Hellerstein at Judith@jhellerstein.com.

________________________________________________________________________________________________

To subscribe to, or unsubscribe from, the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW, please e-mail Judith Hellerstein at Judith@jhellerstein.com or sign up via the Hellerstein & Associates website's newsletter subscription form at www.jhellerstein.com. For past editions of the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW please visit the Hellerstein & Associates website at www.jhellerstein.com.

Hellerstein & Associates is a telecommunications and technology research group that provides its clients with a competitive edge through market research, competitive intelligence, and regulatory analysis on broadband access, competition policy, and wireless issues. We look forward to hearing from you and will strive to meet all topic requests. Redistribution of this newsletter is encouraged provided it includes this paragraph.

Topics covered in the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW were chosen because of their interest to the work of Hellerstein & Associates. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com.