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WHITE PAPER The Importance of Telecommunications And Information Services For Businesses in Arizona
Prepared By:
Advanced Information Communications Infrastructure Foundation Group of the Governor's Strategic Partnership For Economic Development
With Special Thanks to Nancy Welch of the Morrison Institute Supported by Lex Smith of Brown and Bain
October, 1994
AICI-GSPED 225 West Orchid Lane Phoenix, AZ 85021 602-944-8557
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PREFACE The approaching transformation of telecommunications and information infrastructure promises to bring many benefits to American society, delivering effects that will be felt locally, nationally and across the globe. As technology drives us toward a national information infrastructure, few segments of society will be as greatly affected as the business user of advanced telecommunications and information technologies. Today, businesses, small and large, realize that these technologies will dramatically reshape and redefine the work place and the methods by which business is conducted. AICI, the Advanced Information and Communication Infrastructure foundation of the Governor's Strategic Partnership for Economic Development (GSPED), is committed to making sure that Arizona's business users of telecommunication and information services and products are part of this transformation. The Advanced Information Communications Infrastructure Foundation was formed as a result of the Arizona Strategic Planning for Economic Development (ASPED) project, a statewide economic development planning effort which involved thousands of volunteers from the public and private sectors. To develop a comprehensive economic plan for the state, ASPED identified the primary components of Arizona's economy, called "clusters.' Also identified were economic "foundations," (including AICJ) that serve as building blocks and provide the support and infrastructure necessary for businesses to operate effectively and grow. (See Appendix "B" for descriptions of clusters and foundations.) Since its inception in 1991, AICI has supported telecommunications and information activities which have benefited the public and private sectors throughout Arizona. AICI was an early advocate for the Arizona State Public Information Network (ASPIN) and Economic Development Information Centers in public and community college libraries across the state, and it continues to support these initiatives. In addition, AICI has participated in AZTEL 2000 and the Governor's Telecommunications Conference, and members have volunteered their time and expertise to research business leaders' opinions on telecommunications and information issues. The foundation group has also maintained a dialogue with GSPED's cluster leaders and reviewed other business-oriented studies on telecommunications and information. Through its meetings, AICI provides an ongoing forum for a broad variety of viewpoints from throughout Arizona on the development of telecommunications and information services. AICI offers this position paper as an indicator of the outlooks of the Arizona business user. As technology changes require new responses and regulations, the hopes and concerns of Arizona businesses must be considered and understood.
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1. BUSINESS EXAMPLES During the last twelve months, the AICI foundation group has focused on private sector issues in the rapidly transforming telecommunications and information services arena. Other studies, reports and "town halls" have addressed the effects of the transformation from various perspectives such as public education and international trade. Appendix A lists a few of the more recent reports and studies that have emerged. Although AICI has a broad range of interests in telecommunications and information services and an appreciation for the needs of the public sector and the vital relationships among government, education, and business, there needs to be equal emphasis on business users. Thus, this paper focuses on business and related regulatory issues in Arizona. Advances in technology and today's competitive realities are forcing regulators to consider far-reaching changes. How those changes come about and what they entail are critical to the well-being of Arizona's business community. For example: A major metropolitan hospital thinks that a local communications company could help solve the problems it has with sharing information among various offices. Using the capabilities of existing networks could help lower their costs and improve access to information. However, current telecommunications policies prevent this company or other communications providers from offering such direct services to customers in Arizona. An entrepreneur wants to learn about the possibilities for obtaining a range of network connections and services for a new business. Although the information and help needed are available, getting the necessary facts, figures, and support is not easy. Business people have to spend hours figuring out how to get "connected." A growing data management firm with customers in Arizona and California views high-capacity lines as the best way to connect its office with a client's remote branch facilities. However, the relatively high price in Arizona of advanced telecommunications lines and their less than statewide availability force the company to use lower quality "dial-up" services for the transfer of information.
2.
INPUT FROM BUSINESS USERS Telecommunications and information services are often discussed only in general terms because of the rapid development of new services and applications of technology. Throughout its existence, AICI has sought to communicate the concrete uses and benefits of telecommunications and information services. But, details about companies
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2 and attitudes are often difficult to find. Over the past year, AICI completed two research projects specifically to gain a deeper understanding of companies' needs and outlooks. First, members interviewed selected companies in the fall of 1993. Then, AICI, with technical assistance from Morrison Institute for Public Policy (School of Public Affairs) at Arizona State University, developed a survey for some of the state's largest employers as well as selected small, medium and large companies in each of the 10 industry clusters. Survey data were collected from nearly 60 large and small companies throughout Arizona. Nine out of ten respondents had multiple facilities. While some had more than one office in Arizona, many also had facilities across the United States and around the world. Businesses from each cluster plus other sectors of the state's economy participated in the survey. `While not statistically representative of all Arizona business, the responses from the selected companies provide valuable insight into today's business environment. More than 80 percent of the respondents stated that telecommunications and electronic information services are "very important" to the future success of their business. These firms and many others are depending on telecommunications for competitiveness today and in the future. Unfortunately, for a number of reasons, business people often find it difficult to get the services that make the most sense for their companies or the information that will help them plan for the future. Throughout AICI's research, many business people report being frustrated with Arizona's current environment. They are put off by what they perceive as a lack of access, obstacles to innovation among providers and users of services, and high costs. In fact, only a quarter of those in the AICI survey said that they were taking "full advantage" of the telecommunications and information services available at this time. They also reported facing difficulties created by: Cost of telecommunications and information services. Accessibility of services where, when and how they want them. Insufficient knowledge of available services and their benefits. Inability to assure security of data. Incompatibility of networks and technologies. Insufficient time to keep up with technology. Not being able to adequately identify the return on investment from technology expenditures. Besides looking for knowledge, time, and solutions to technical problems, companies are searching for choices in telecommunications providers, products and
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3 services (e.g., "inexpensive speed") and better connections to information services, corporate facilities, clients and vendors. Table 1 shows how AICI survey respondents perceived barriers for their individual companies and for Arizona businesses in general. TABLE 1 Barriers to Using Telecommunications and Information Services Barrier A Company Barrier For All Arizona Businesses State and federal regulations currently do not permit access to more than one provider for some 81% 75% services. There is a lack of choice of providers for services desired. Not enough time to keep up with technology. Not enough knowledge of what services could be used and their benefits. Cannot adequately identify the return on investment from technology expenditures. Do not have access to services in their locale. Technology is too difficult and complex to use. Trouble with incompatibility of networks, communication protocols and data bases. Cannot assure security of their data. 74% 86% 81% 69% 79% 80%
81% 67% 68% 93%
71% 67% 72% 83%
84%
76%
Source: From a Business Perspective: Outlooks on Telecommunications and Information Services, MCI and Morrison Institute for Public Policy, September 1994. The inconsistencies are obvious. Firms are seeking more telecommunications and information services now and are anticipating an interconnected future. To reach
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it, however, we must transcend the current tumultuous environment for telecommunications and information services to one that encourages innovation, flexibility and adaptability of technology for all Arizona companies. Reflections of Reality According to the AICI survey, companies are expending substantial resources on basic issues--such as security, reliability and accessibility. Businesses are also spending far more than they would like for telecommunications and information services. Plus, a new "major" issue for many companies (nearly half of the AICI respondents, for example) is keeping up with federal and state regulations on telecommunications. This situation indicates the changing nature of the telecommunications and information world. But, it also emphasizes the importance of access to telecommunications and information services and how a broad range of such services has become vital for business. Because many companies depend on telecommunications and information services and desire to do more business electronically, federal and state regulations have taken on a new relevance for private companies. The Arizona Trade Corridor Study and the recommendations from the Governor's 1994 Telecommunications Conference identified some of the same issues as the AICI survey. Trade Corridor results showed that representatives of industry, education and economic development had concerns about the lack of information and communications infrastructure in rural Arizona. From basic telephone to video-conferencing and data transmission, business people in nonmetropolitan areas felt that they had insufficient access to services which would allow their businesses to take advantage of international trade opportunities. Moreover, a lack of infrastructure was coupled with a lack of awareness. Participants said that many businesses in Arizona either did not know about existing telecommunications services or were frustrated by their inability to use them because of inaccessibility or high costs. An open market for telecommunications and information services will enable infrastructure to expand in rural areas of Arizona as demand develops. Such development should help stimulate economic growth in these areas. The Heart of the Matter Arguably, barriers to using telecommunications and information services make Arizona's businesses less competitive than they could be. Each barrier, from lack of choice of providers to not knowing what is available, has a regulatory facet. Some telecommunications and information regulations that made sense in the past now appear to be obstacles to Arizona's businesses. Over the last 15 years, advances in telecommunications technology have created new economic realities in the industry and have presented opportunities for the development of alternatives to substantial regulation. New providers can now realistically consider entering markets which have been traditionally dominated by monopolies. As competition develops, the need for regulation to protect consumers will decrease. A period of transition from a heavily
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5 regulated environment to a more open one is, of course, necessary. The result of the transition will be access to new options, improved service, and lower costs desired by users. Arizona's policy makers, legislators and regulators should bring down the barriers that prevent Arizona businesses from having access to many providers of products and services. An environment in which providers compete in the marketplace for business users will promote lower service costs and enhance innovation of products and services that are available for all. Arizona's businesses require extensive use of telecommunications and information services; they are concerned about remaining competitive in their respective businesses; and they want a diversity of options to fulfill their requirements. 4. BENEFITS AND OPPORTUNITIES Few changes in our day-to-day life patterns have generated more attention and investment than the so-called information superhighway. Yet, there is still no precise definition for this new medium, and it is difficult to comprehend all of the possibilities for actual, concrete uses. Its initial users have been from academia and "heat-seeking" technophiles. This is about to change. Alliances among telecommunications companies, cable, computer and software companies are accelerating the pace for technologies to provide communication links across the nation. New ways of cooperating to blend telecommunications and computer technologies will lead to innovative uses of the resulting information infrastructure. The technologies' implicit benefits of faster and more efficient communication will provide cost benefits irresistible to the business user. Consider the: 1� 2. 3. 4. Creation of new opportunities for economic development by growing, attracting and retaining businesses in Arizona. Enhancement of family life and reduction of vehicular traffic for employees through telecommuting from either their home or a nearby telecommuting center. Faster product development cycles and reduced cost for manufacturers through interactive video transmission and computer-assisted design. Access to worldwide electronic commerce and vast stores of current data and information with a significant reduction of time and cost.
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6 5. 6. Reduction in time, paperwork and cost in transactions between businesses and government agencies. High quality employee development from our schools, colleges and universities available anytime, anywhere with individualized methods that match the pace of the learner. Management training at an affordable price and in the convenience of the small business person's office. Enhancement of employee medical care and cost containment through remote diagnosis and consulting with X-ray and other images and video, plus accessible electronic records for patient care. Access to employment, education and training in rural areas of Arizona.
7. 8.
9.
As Arizona business users recognize new needs, the state's providers and enterprises must be positioned to serve them. This depends, in large part, on the ability to research and test potential services. By providing a regulatory environment that also supports market trials of new telecommunications products from innovative entrepreneurial companies, the state can be positioned as a leader in developing and adopting new technologies. Telecommunications and information technology can become one of Arizona's leading industries. Also, by building alliances of businesses to create a high quality, innovative information infrastructure, we will be able to attract the most advanced business processes and tools. Training and support to use the advanced information infrastructure must be provided to our citizens and employees. If innovations are to succeed in the market, the providers will have to train the users, both business and consumer, to be information literate. Business users choices should help drive the development of the most efficient infrastructure possible. Allowed to develop, telecommunications companies will emerge to serve the needs of the Arizona business user. Businesses clearly will be beneficiaries (along with government and education) of an open marketplace of telecommunications and information products and services.
5.
CALL TO ACTION In the field of telecommunications and information services, any "call to action" has to be addressed to a variety of players. Because of the importance of these services to the state's economy and the traditional division of oversight responsibilities, the Arizona Corporation Commission, the Arizona Legislature, and other state-level policy makers all have a part to play in improving Arizona's environment for telecommunication
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and information services. Cooperation among these same entities is also of vital importance. As quickly as possible, AICI recommends that Arizona's policy makers: Establish a regulatory framework that encourages competition in the telecommunications marketplace and provides opportunities for newcomers to participate. Barriers that prevent these objectives from being realized should be removed. Expand business choices for current and emerging technologies such as telecommunications devices that provide digital information, audio, video, graphics and text. Allow and support innovative approaches to the development, application and use of the telecommunications infrastructure. Promote and insure the availability of advanced communications and information technologies throughout Arizona. Encourage fair and open interconnection and operation of multiple public and private telecommunications networks statewide, including the Arizona NAFTA trade corridor, while ensuring network interoperability, standards, reliability and security.
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APPENDIX "A"
Telecommunications and Arizona's Economic Development: The Role of Regulation, November 1992. Last Mile Standards: Communications Review for Public Education, 1993. Arizona-Sonora Strategic Planning for the North American Trade Corridor: Telecommunications for Economic Development, June 1993. ARIZONA. The State of Telecommunications for the 21st Centuiy, October 1993. Enhancing California's Competitive Strength: A Strategy for Telecommunications Infrastructure, November 1993. Governor's Telecommunication Conference, April 1994. AZTEL 2000, Strategic Plan for Arizona's Information Infrastructure, April 1994. From a Business Perspective: Outlooks on Telecommunications and Information Services, MCI and Morrison Institute for Public Policy, September 1994.
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APPENDIX "B" GSPED: Primary Elements
CLUSTERS:
An economic cluster is a geographic concentration of competitive firms in related industries that do business with each other. Each cluster includes companies that sell inside and outside of the region as well as support firms that supply raw materials, components and business services. Clusters develop over time and often stem from economic foundations, existing companies and local demand for products and services. Clusters become a powerful magnet for companies to locate in an area and create a spawning ground for start-up companies. They create large, diverse pools of experiences workers; attract suppliers who tend to congregate in their vicinity for increased efficiency; and foster a competitive spirit that stimulates growth and innovative strategic alliances. Examples of highly developed clusters are California's Silicon Valley and the Midwest's Auto Alley. GSPED has identified 10 key clusters in Arizona: agriculture, food and forestry; business services; environmental technology; bioindustry; mining and minerals; optics; tourism and experience; transportation: software and high-tech manufacturing. FOUNDATIONS: Foundations provide the support and infrastructure that allows business to run. They are the building blocks of the community and the healthier they are, the easier it is to attract and maintain healthy economic environment. Foundations include a well-educated population, capital resources, information networks and transportation systems including roadways. GSPED has identified seven foundations for Arizona: human resources; capital resources; quality of life; technology; tax and regulation; advanced information and communication infrastructure; physical infrastructure.
CLUSTER-FOUNDATION RELATIONSHIP �THE VITAL CYCLE:
Foundations help clusters become more competitive. When community foundations help clusters become more competitive, businesses within the clusters grow, creating wealth for the community from new jobs, taxes, purchases, volunteers and contributions. Community reinvestment in its foundations helps clusters to become even more competitive sustaining a healthy and thriving cycle.
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SPECIAL ACTION GROUPS:
Special action groups form to address issues of particular importance to specific constituencies. These groups may be involved with either a single project or a process. Current special action groups include: Arizona/Mexico (NAFTA), defense restructuring, minority small business, libraries, benchmarking, labor, university consortium.
GSPED Clusters
HIGH-TECH MANUFACTURING:
Semiconductors, electronic equipment industries, telecommunications and professional services, products and systems for commercial aeronautics, space markets and the military. Industries also include aircraft and aircraft parts, aerospace instruments, missile systems, defense communications and detection systems, materials and component suppliers to other manufacturers.
AGRICULTURE. FOOD & FORESTRY.
Growth, processing and distribution of plant and animal products including edible crops, wine, cotton, livestock, processed foods and forestry products.
BUSINESS SERWCES:
Office and administrative functions that enable business to operate. Encompasses information processing; data, reservation and customer service centers; financial transactions and related support services.
BIOINDUSTRY.
Products and services to provide health care in Arizona and medicines, devices, technologies and research for export.
MINERALS & MINING:
Development, processing and supply of natural mineral resources and energy.
OPTICS:
Business and research of optical science and engineering for applications in health, space, military, manufacturing and environmental science. Strongly allied with university research programs.
TOURISM & EXPERIENCE:
Recreational and visitor facilities and services built around Arizona's natural beauty. Includes cultural, historical and natural attractions, amusement parks, eating/drinking establishments, lodging and resort facilities, film production, entertainment services, sports and recreational attractions and traveler and transportation services.
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TRANSPORTATION & DISTRIBUTION:
Physical infrastructure, capital goods and services needed to carry passengers and deliver tangible products locally, regionally and globally via air, rail, roadway and pipeline.
ENVIRONMENTAL TECHNOLOGY.
Business that create and provide products and services that utilize technology to (a) monitor, eliminate, control, treat, and prevent pollution, and (b) conserve and restore natural resources.
SOFTWARE
Software development.
GSPED Foundations
HUMAN RESOURCE�
A quality workforce that meets the managerial, technical, administrative, professional, entrepreneurial, entry-level and labor needs of the economy. It also addresses the educational and training needs of the workforce from early childhood to retirement.
CAPITAL�
The money necessary for new businesses to form and existing businesses to grow and expand.
QUALITY OF LIFE:
The attractiveness and desirability of an environment as a place to live, raise families and do business.
TECHNOLOGY.
Basic research, innovation and tools that lead to new products, services and methods of production. TAX AND REGULATION: The financial and operational business climate established within the state by direct action of the government.
ADVANCED INFORMATION AND COMMUNICATION INFRASTRUCTURE:
The computers, databases, networks, software and facilities management that allow transmission of voice, image and data world-wide.
PHYSICAL INFRASTRUCTURE.�
The fundamental public facilities such as roads and mass-transit, water and sewage systems, airports and railways, and power and phone lines, which transform raw land into a quality place to live and do business.
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