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The May 23, 2005 Issue Provided by System Dynamics Inc.
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New Jersey and Telecom: Can this Marriage Be Saved?

New Jersey's Shrinking Industry

The telecom industry in New Jersey has been shrinking --> Click for larger pictureQuestion: What do direct distance dialing, cellular technology, wireless LANs, transistors, lasers and optical amplifiers all have in common? Answer: New Jersey and Bell Labs. New Jersey has been home base for the first high-fidelity sound recordings, the first demonstrations of facsimile pictures sent over telephone wires, and the world's first triple-terabit long-distance data transmission.

But nothing is forever. From 1997 until 2002, New Jersey lost 37% of its employment in wired telephony. In a period of just seven years, wired telecom employment in the state declined by one half.

This precipitous decline and how to reverse it were the subject of a recent day-long "Summit on Shaping New Jersey's Telecommunications Future", sponsored by the NJ Legislative Caucus, NJ Commission on Higher Education and Princeton University. The goal of the Summit was to provide legislators and regulators with background information to help them understand the complex telecom issues they face.

Although we live in New Jersey and are immersed in the telecom industry, we were startled to realize that we probably had more up-to-date knowledge of the industry status in other cities and parts of the world than the one we call home. Thus we were delighted to be invited to participate in the Summit. Our role was to provide an overview of advances in video technology and what those could mean from the perspective of the telecom industry and also to New Jersey's citizens.

Those who have seen little of New Jersey beyond the area around Newark airport might be surprised by its complex demographics. Here are a few factoids courtesy of James Hughes, Dean of Rutgers School of Planning and Public Policy and a Summit speaker.

  • In 2003 New Jersey had the highest median and family income of any U.S. state (indeed, it would be the richest country in the world if it were independent).
  • It ranks first in US population density with more than 1000 people per square mile (by comparison Japan has 835 and India has 914)
  • It has the most horses per human in the US and the highest percentage of land covered by forests.
  • It has the 3rd largest percent of foreign born (1 in 5).
  • It is second in mass transit but alas third in length of commute.

Video’s Hi-Tech Future: TV and More

Dave presented our talk Video's High-Tech Future: TV and More (PowerPoint, 1.0 MB), which highlighted the transition that is taking place in video. In the past, the term generally conjured up an image of broadcast TV. But video communications in the future is moving from:

  • Analog video to digital video
  • TV to PC, cellphones and other mobile devices
  • One-way to interactive
  • One place in the home to networked throughout the home
  • Video in the home to untethered video everywhere
  • Limited sources of video to lots of commercial and personal sources
  • Limited number of players to an increasing number with everybody potentially a video creator
  • Highly regulated to lightly regulated

In terms of broadband penetration per household, NJ ranks number 3 among US states, behind Hawaii and Massachusetts, but ahead of California.

Lessons From Korea?

One of the discussion topics was the correlation between New Jersey's high per-capita earnings and broadband penetration with the high percentage of the population historically involved in the telecommunications industry. One concern is whether the rapid decrease in telecom employment is a negative indicator for future income levels and broadband penetration.

Inevitably, the subject of high Korean broadband penetration came up and the extent to which it was influenced by government policies. Korea's policies both encouraged the underlying industries as well as broadband's wide deployment and affordability within the country. The question is what can be learned and transferred from Korea's example, recognizing that the US favors market forces rather than industrial policy as the determinant of what technologies and prices will prevail.

FCC Commissioner Abernathy: Nascent Services Doctrine

One of the day's highlights was a presentation by FCC Commissioner Kathleen Abernathy, "A New Regulatory Paradigm for Telecommunications". Commissioner Abernathy, always a compelling and delightful speaker, explained the tremendous difficulties in trying to fit today's communications services into yesterday's regulatory categories. Because of the complexity of interpretation, she observed that "Lawyers are in seventh heaven. The rest of us are confused."

In examining the question of an appropriate regulatory framework concerning broadband, she sees the FCC's job as promoting broadband deployment and encouraging investment. Government should play a role only when it is necessary to promote social goals, as with the subsidy funding for schools, libraries and poor areas. Another example is in the recent requirements for VoIP when it is being sold as substitute for wireline voice. In these instances, Abernathy says VoIP should have the same rights and responsibilities as wireline voice. That mean it needs to provide emergency calling services (E911 as an obligation) and it should have the right to interconnection and to getting telephone numbers.

Abernathy has been trying to develop what she calls her "nascent services doctrine". Its premise is that to the extent possible, new non-dominant competitors in services should not be compelled to comply with old regulations which were put in place for a different set of market circumstances. As increasing competition occurs in such arenas, the original players should also be relieved of abiding by the original rules.

In talking about legacy rules which present the greatest challenges today, Abernathy focused on inter-carrier compensation and what it should mean in an era where VoIP calls don't have clear jurisdictional boundaries. Another hot topic is the universal service fund which helped the US get very high phone penetration. However, today's changed industry structure raises the question of who should contribute and how much.

These are tough issues -- no one at the FCC is likely to get bored!