Should L.A. Be in the Telecom Biz? Maybe, If Done Right

The notion that government needs to be more entrepreneurial is a popular one in this age of triumphant high-tech capitalism, but the proponents of this idea may not have figured on a little-known agency in the city of Los Angeles bureaucracy taking them quite so seriously.

The Information Technology Agency, formed two years ago by the consolidation of three other agencies and led by a veteran information systems manager named John Hwang, is charged with improving city agencies’ computer and communications systems, and with using technology to improve the delivery of city services and spur economic development.

And Hwang and his deputies aim to accomplish these tasks, in part, by getting the city into the telephone business.

Already, the city owns an extensive fiber-optic communications network--some of it installed by the Department of Water & Power to manage utility operations, some of it built to connect city police stations, and some of it designed to improve communications among other city agencies and offices.

Now Hwang and his deputies are taking it to the next level, developing plans to create partnerships with the private sector and extend the network to new parts of Los Angeles. It’s an effort that puts the city at the forefront of a national trend, and it could both enhance city services and lead to new communications choices for both residents and businesses.

But does it really make sense for the city to do something like this?

Pacific Bell, for one, doesn’t think so. “You have to question whether it’s a proper use of taxpayer dollars,” says John Donner, PacBell’s area vice president for Los Angeles. “There is a pretty robust telecom infrastructure in L.A. Why would the city want to enter a very capital-intensive marketplace?”

Donner would say that, of course. For the city’s likely partners are companies that hope to compete with PacBell in the local telephone services business. Companies like Worldcom Inc., which recently acquired MFS Communications--a national leader in developing local phone systems to compete with the entrenched Bell operating companies. PacBell’s new parent company, SBC Communications Inc., has already shown its willingness to play political hardball in blocking municipal telecom projects.

Los Angeles’ current foray into the telecommunications business really began in the early 1990s, when it struck a deal allowing MFS to use an abandoned, city-controlled oil pipeline as a fiber-optic cable route in exchange for giving the city some of the circuits.

Hwang says the city needs to look at expanding its network because the private sector alone isn’t doing the job. The federal telecommunications law passed last year was supposed to spur competition in local phone markets, but the results have been very disappointing. And PacBell has abandoned an ambitious effort to build a state-of-the-art high-speed network across much of the region.

“If you leave it to the private concerns,” Hwang adds, “they’ll perpetuate the distribution problem,” building networks only in wealthier parts of the city and widening the gap between the information haves and have-nots.

Some people cringe at the idea of public officials second-guessing the market-driven decisions of private businesses. But building telecommunications networks isn’t as distant as it seems from the traditional functions of a municipal government.

Cities build and maintain all kinds of infrastructure, from roads to ports to electricity grids; in a few places they even own the cable TV system. Fiber-optic communications networks, which use lasers to carry voice and data and video communications at extremely high speeds, are increasingly vital for many types of economic and social activity, and there’s no reason in principle that local governments shouldn’t be involved.

Although the upfront investments can be substantial, there are also plenty of potential revenue sources and financing options.

“It’s really very similar to municipal utility planning,” says David Rozzelle, president of Media Connections Group, a San Francisco telecommunications consulting firm that has worked extensively with cities. The ability to move information is now as essential a service as providing water or power, he argues, and it’s logical for government to help build the facilities.

A few small California cities are already demonstrating some of the possibilities. Palo Alto, the headquarters of Silicon Valley, is about to complete a 26-mile fiber-optic network that will serve the needs of city agencies and also offer capacity for lease to private businesses.

The city of Anaheim has partnered with a San Diego-based start-up company called Spectranet in a remarkably ambitious effort to use a 50-mile fiber-optic network built by the municipal power company as the backbone for a completely new telecom network connecting every business and residence in town.

Big cities, though, have declined to take the plunge. San Diego several years ago set out to build a municipal telecom network, but by the time it was ready to go forward, officials concluded that the phone companies had already installed plenty of capacity.

In Austin, Texas, the city was forging ahead with a plan to build a municipal fiber network when it collided head-on with the formidable political power of the local phone company. The state legislature--acting at the behest of Southwestern Bell, according to Paul Smolen of Austin’s office of cable and regulatory affairs--passed a law that barred any city from owning and operating a telecommunications network.

Since Southwestern Bell’s parent, SBC, now owns Pacific Bell, the maneuver in Austin stands as a warning to officials in Los Angeles and elsewhere in California that they’d better move carefully.

Politics aside, though, the basic question remains: Would the Information Technology Agency’s initiative be good for Los Angeles? The agency is preparing a series of requests for proposals from the private sector for various phases of the network, with the first one expected to go out within 60 days.

Without knowing a lot more about the exact state of the various communications networks--both public and private--that already crisscross Los Angeles, and until companies respond to the ITA’s request for proposals, I can’t really offer a very strong opinion on what the city should do.

But there are a few general guidelines that might be useful in evaluating the effort as it progresses.

First, all parties should avoid the temptation to cast the issue in ideological terms. Municipal governments, and especially those that already own power utilities, have a legitimate role to play in developing communications infrastructure. A business that is still heavily regulated and heavily dependent on public rights of way--such as the local phone business--isn’t entirely a free-market enterprise anyway, and could use some intelligent prodding by government.

Second, the city should define clearly what pieces of the project are designed to serve what ends. Improving city services, providing good infrastructure to attract businesses, and increasing the range of telecom services available to businesses and residents by spurring new competition are very different goals.

Finally, the various political decision makers, as well as the public, to the extent possible, will have to sweat the details on all this. There are many possible levels of city involvement, ranging from simple lessor of raw fiber-optic capacity to full-blown network operator and telecommunications service provider.

If the ITA can be both ambitious and realistic and find exactly the right balance, all Angelenos will benefit, both as taxpayers and as customers.

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Jonathan Weber (jonathan.weber@latimes.com) is editor of The Cutting Edge.