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CIO
MAGAZINE
The
Road Less Traveled
By
Lousie Fickel
October
15, 2000
IN
A REMOTE SLICE OF WESTERN
Massachusetts known more for stunning scenery than high technology,
accessing the New Economy was a daily challenge. For starters,
local businesses were being charged significantly higher prices
for telecommunications services than their counterparts in
urban areas. Charles Podesta, CIO of Pittsfield, Mass.-based
Berkshire Health Systems, which manages nursing homes, hospitals,
clinics, visiting nurse associations and physician practices,
says his company was spending about $85,000 a month last year
for data and phone services.
But that's about to change. Thanks to Berkshire
Connect, a consortium of companies, government officials and
nonprofit organizations, that bill will soon drop to $48,000
per month. The savings will allow Berkshire Health to build
a new network, which in turn should translate into additional
savings, such as cheaper long-distance rates for residents
of nursing homes managed by the company.
In a region famous for independence and
self-reliance, a group of frustrated people have banded together
to address one of the nation's most pressing issues: the digital
divide. By convincing one of the world's largest telecommunications
companies to provide more affordable high-bandwidth service
to local businesses, Berkshire Connect has ensured that this
community will not get left behind in the rush to join the
New Economy. Magnify Podesta's story many times over, and—so
the thinking goes—companies and residents alike will profit.
Although the digital divide involves both
economic and social issues, Berkshire Connect has focused
on development of a new telecommunications infrastructure
and the delivery of better, more affordable service to local
businesses. Supporters such as Podesta say fostering economic
development is a good first step to ensuring that everyone
in the county benefits from the digital revolution.
As
communities everywhere scramble to ensure that they don't
get left behind during this period of explosive economic growth,
Berkshire Connect offers some valuable lessons. Indeed, people
are beginning to point to Berkshire Connect as a model for
bringing rural and poor communities into the New Economy.
To
ensure a thriving economy, companies need a technology infrastructure
and skilled employees who can step into high-tech jobs. Yet
for a rural community hundreds of miles from a major city
or an inner city neighborhood struggling with poverty, gaining
affordable access to the Internet or becoming adept with a
PC is difficult, sometimes impossible.
Telecommunications companies often focus on providing high
bandwidth to corporations in cities, charging higher fees
to rural and inner city communities or simply ignoring them.
Meanwhile, new economy jobs usually require specialized training
and education—opportunities that are often unavailable to
low-income residents.
Five years ago the U.S. Department of Commerce
released a report showing that inner city neighborhoods and
rural households had the nation's lowest rates of phone service
and computer ownership. In an update last year, the department
warned that the nation was facing a "racial ravine."
The Clinton administration responded with
a proposal for $2 billion in tax incentives for companies
that donate computers and offer technology training. President
Clinton then made his way across the country, speaking to
communities such as the Navajo Nation and meeting with high-tech
CEOs.
His message, however, didn't come as a surprise to corporate
America. Numerous companies had launched programs years earlier
to get products, services and training into the hands of nonprofit
organizations trying to create digital opportunities for their
own communities. And with thousands of high-tech jobs unfilled
and the debate over H1-B immigrant visas heating up in Washington,
D.C., the digital divide is pushing its way into more boardrooms
every day.
In the Beginning
But how does a company—or a nation—tackle a complex issue
that involves questions of economics, race and poverty? Berkshire
Connect began by learning to speak the language of the telecommunications
industry. After launching the kind of market research common
in the corporate world—measuring demand for service, assessing
potential technologies and determining economic viability—Berkshire
Connect made a sales pitch that any company would love to
hear: Here's a thriving market where you can make lots of
money.
Three years later, Berkshire Connect's
approach seems simple and logical. But at the time, no one
had a clear sense of direction—only a feeling that something
had to be done. By 1997, the digital divide was already a
familiar topic of conversation among business owners throughout
Berkshire County. Since Bell Atlantic's (now Verizon Communications)
nearest point of presence was 65 miles away in Springfield,
Mass., Berkshire companies were paying two to three times
more than companies in Boston and New York City for telecom
services.
"When I came here three years ago, a simple
T1 line cost more than $3,000 per month," says Brett McDowell,
acting director of information and media technology at the
Massachusetts Museum of Contemporary Art (MassMOCA) in North
Adams, Mass., and a principal of interactive media consultancy
Art Interactive. Podesta says Berkshire Health was paying
$1,500 per month for T1 lines that in Springfield cost only
$600. Service throughout the county was also poor. "Some people
were waiting up to eight months for T1 lines to be installed,"
says Podesta.
The high pricing hit especially hard in
a region that had suffered recent economic setbacks, including
the loss of several major employers and thousands of jobs.
Home to about 140,000 people and numerous cultural attractions,
Berkshire County is a major draw for weekend travelers. In
recent years, the county has tried to foster economic development
and wean its dependence on tourist dollars by courting new
economy companies.
People throughout the area were getting
involved in the revitalization effort. For example, The Berkshires
Capital Investors (BCI), a Williamstown-based venture capital
firm that specializes in funding early-stage technology companies
in western Massachusetts, reports that nearly half of its
$20 million in funds has flowed in from local residents. Meanwhile,
part of MassMOCA's strategy to help revitalize the local economy
was to provide affordable, wired office space to high-tech
businesses such as computer animators Kleiser-Walczak Construction
and startups such as newsletter publisher Streetmail.com and
retailer eZiba.com. Of course, new-media companies and Internet
startups crave high bandwidth. Berkshire County residents
became increasingly worried that their inadequate telecommunications
services might drive out existing companies and discourage
others from moving to the area.
Making Connections
Berkshire Connect began with a phone call in the fall of 1997.
After a meeting hosted by the Berkshire Entrepreneurs Forum,
Peter Larkin, state representative from Berkshire County,
and Don Dubendorf, a Williamstown, Mass.-based attorney, contacted
Larkin's brother Pat, senior vice president of the Massachusetts
Technology Collaborative (MTC). They asked that the MTC work
on the area's telecom problem and suggested that the MTC also
contact the Berkshire Regional Planning Commission (BRPC)
in Pittsfield, Mass. Asked if the BRPC would be willing to
act as an impartial convener for a new group, Nathaniel W.
Karns, executive director of the commission, agreed. Two months
later, a task force with representatives from local schools,
health care and nonprofit organizations, companies and cultural
groups was up and running.
The group's first task: Identify "critical"
users (companies with at least one dial-up connection to the
Internet) and gauge the level of demand for high bandwidth
in the region. These critical users immediately began discussing
different technologies for a new infrastructure. Technical
discussions soon bogged down, however, as some of the critical
users argued for their own favorite technologies. "This group
[had gone] as far as it could, so we created a steering committee
composed of technical people and people with community leadership
and business backgrounds," says Karns.
This decision proved to be crucial. It
was the 12-person steering committee, chaired by Dubendorf,
that recognized the need for a methodical, impartial review
of available technology and a business plan that quantified
demand. Not only would the group learn more about different
potential technologies, but by aggregating demand, Berkshire
Connect could also make a stronger argument to prospective
providers about the benefits of coming to the region.
Berkshire Connect hired Flack and Kurtz,
an engineering consultancy based in New York City, to research
the technology, make recommendations and write a business
plan. Based on the task force's earlier survey, Flack and
Kurtz helped estimate and aggregate demand into an initial
usage of 17 T1-equivalents that might grow to as much as 425
T1-equivalents within five years. The company recommended
a network consisting of a combination of microwave backbone,
leased dark fiber (existing fiber-optic lines that aren't
currently being used) and leased services. Based on this technical
model, the company then developed a business plan that addressed
numerous business issues such as marketing and economic feasibility.
This business plan formed the core of a request for proposals
(RFP) that was sent to a variety of telecommunications providers.
Seven providers responded to Berkshire
Connect's RFP. Dubendorf and others attribute the high response
rate to two rounds of state funding that came early in the
process: $500,000 to cover the cost of consultants and Berkshire
Connect staff, and an additional $1 million for potential
capital expenses and future work such as trying to solve the
issue of the "last mile" (the distance between a telecommunications
company's access network and the final point of service).
"We needed state funding to be credible," says Dubendorf.
The proposal from Global Crossing, a Bermuda-based
telecommunications company, was the one that best met all
of Berkshire Connect's criteria: equal access throughout the
entire county, universal pricing that was competitive with
major urban areas and unbundled service that would allow members
to choose only the services they needed.
Under the terms of the three-year contract,
signed in February, Equal Access Networks (formed for this
project by Global Crossing and New England Digital Distributors,
a telecommunications consultancy and systems integrator based
in Woburn, Mass.) will build the network, and Global Crossing
will provide Internet, voice, data, video and phone service.
Berkshire Connect members are quick to
say that no public money has been used to build infrastructure.
In fact, the venture capital arm of Global Crossing agreed
to invest several million dollars to build out the network.
The new network, expected to be operational
by the end of this year, will deliver advanced telecommunications
services at rates up to 70 percent lower than what local businesses
had been paying. Pricing is tiered, with discounts kicking
in as demand grows. Meanwhile, Global Crossing began offering
service in April by leasing lines from Verizon. (The company
is absorbing the difference between its own rates and Verizon's.)
About 30 companies and nonprofit organizations have already
become members of Berkshire Connect, with more companies saying
that they plan to join in the future. Members pay annual dues
to Berkshire Connect that are based on monthly telecom usage
and a sliding scale of $75 to $7,500. In exchange, member
companies are eligible for Global Crossing's rates and for
its services.
Global Crossing's decision to pursue Berkshire
Connect was based on several factors, according to Dan Boynton,
regional vice president for New England and the Midwest at
Global Crossing. "We were impressed with how Berkshire Connect
had pulled the county together and with the endorsement of
10 major [local] CEOs," says Boynton. (Companies included
Berkshire Health, KB Toys and Berkshire Life Insurance.) "With
our financial model, we felt conservatively that we could
meet projected revenues. Plus, we did line-of-sight engineering
before we responded to the RFP to ensure that we could extend
our network to meet all of their specifications."
Verbal endorsements from Berkshire Connect
also played a role. "The most important thing we did was create
a structure that aligned their incentives with ours," says
Janette Kessler Dudley, a Williamstown-based business consultant
whose work with Berkshire Connect included participating in
negotiations and acting as treasurer. "We said, 'We'll tell
you what the market is here. If you can't beat the current
provider, we can't sell you to the market.' At the end of
the day, we all had the same goal: Sign up as many people
as possible."
In the end, wiring Berkshire County just
made good business sense for the telecom giant. "We're already
ahead of projections even before the network is completed,"
says Boynton. "This deal has resulted in introductions to
some very large corporations [prospective customers]. And
our phone has been ringing off the hook with calls from rural
America wanting to use this model."
While the immediate benefits of Berkshire
Connect are lower pricing and easier access to the Internet,
Berkshire Connect members anticipate a ripple effect. Ticki
Winsor, who owns the Eastover Resort in Lenox, Mass., is already
seeing savings; she expects to save up to 40 percent on phone
bills and eventually attract more business. "Because we'll
do more T1 lines, we'll be able to get more business from
our corporate customers who are asking for this technology,"
says Winsor. Another Berkshire Connect member, Dalton, Mass.-based
paper manufacturer Crane & Co., plans to get into e-business
for the first time. "We now have a lot of B2C e-commerce initiatives
under way," says Bill Perault, manager of MIS technical services
at Crane. "We've already added three new T1s and plan to add
more next year. Once everything is switched over [to Berkshire
Connect], we'll see a savings of six figures." With other
members also planning to reinvest their savings in more T1
lines, Equal Access has already revised its plans and tripled
original capacity to meet the increased demand.
Berkshire Connect has made the telecommunications
industry recognize for the first time that the region is a
lucrative market. As a result, Global Crossing already has
competition. For example, PaeTec Communications, based in
Fairport, N.Y., is one of several providers that recently
started contacting local businesses. "They have enough political
muscle to generate more competition," says Jeffery A. Williams,
executive technical supervisor at Kleiser-Walczak. "If not
for Berkshire Connect, maybe PaeTec wouldn't have come to
this area." (Although Kleiser-Walczak is a fan of Berkshire
Connect, the company has chosen to become a PaeTec customer.)
And as long as Global Crossing faces competition locally,
Berkshire County is assured of competitive pricing and service,
so it won't repeat its earlier experience with Verizon. "We
don't want to replace one monopoly with another," says Podesta.
A Model for Other Communities?
As the first initiative of its kind, Berkshire Connect has
captured the interest of a wide range of people. Massachusetts
Gov. Paul Cellucci and U.S. Sens. John Kerry and Edward Kennedy,
for example, have provided support along the way. Kennedy
also helped arrange a 1999 meeting between Berkshire Connect's
steering committee members and FCC Chairman William Kennard.
"[Kennard] was very encouraging and supportive," says Dubendorf.
"He said that he would help get [the telecommunications industry's]
attention."
Meanwhile, other communities in the United
States and Europe are thinking about launching similar initiatives
and have contacted Berkshire Connect to learn more. The list
includes the European Union, the Office of the Governor of
Georgia and the Federal Reserve Bank of Kansas City.
Yet the question remains whether Berkshire
Connect is a good model for other communities. While its members
don't claim that their initiative is a cookie-cutter solution
that can be replicated endlessly in other locations, they
believe some of their
experiences will probably apply elsewhere.
Perhaps one of the most valuable lessons
of Berkshire Connect is the story of a community working together
to change history. "From an economic point of view, Berkshire
County has often felt like it's at the end of the food chain,"
says Pat Larkin of the Massachusetts Technology Collaborative.
"We weren't going to miss this historic phenomenon called
broadband and the Internet. This community realized that we
had to take control of the future. And this was the event
that people rallied around."
If Berkshire Health is any indication of
where the rest of the region is headed, it looks as though
Berkshire County may finally be leaving its past behind. With
its annual savings of more than $400,000 and the improved
telecom service available through Berkshire Connect, Berkshire
Health plans to build a gigabit network that will allow the
county's 350 physicians to instantly review patients' X-rays,
lab results and other medical information for the first time.
Yet Podesta's story isn't just about corporate
profitability. "The ultimate outcome is better patient care,"
he says. If that is true—and if other local companies experience
similar growth—then Berkshire County will be among the first
communities to narrow the digital divide.
[Sidebar]
Tips for Wiring Your Rural Community
People involved in the birth of Berkshire Connect offer the
following advice:
Make
sure to include both technical and nontechnical people in
your discussions and planning efforts.
Work
closely with consultants who have experience with the technology
and the business issues.
Aggregate
demand. Otherwise, providers will ignore you.
Learn
to speak as one group with one voice so that you can establish
credibility with telecommunications providers and government
officials.
Leverage
the influence of your area's high-volume users.
Don't
try to tackle regulatory issues. Your opponent will far outweigh
you in terms of resources and experience. Concentrate instead
on creating a local solution.
Denver-based freelance writer Louise Fickel covers technology
and business. She can be reached at ricekid@ix.netcom.com.
Copyright
2000 CIO Magazine, CIO.com
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