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Tech memo to Team Obama

Yes, let's get broadband right. But the real stimulus will come from services.

By Stephanie N. Mehta, assistant managing editor
Last Updated: January 6, 2009: 2:05 PM ET

NEW YORK (Fortune) -- So president-elect Barack Obama wants to make the deployment of broadband Internet networks part of a sweeping stimulus package that he hopes would create new jobs, update the nation's hospitals, schools and other facilities, and lift the United States out of recession.

Who could argue with that?

Saying you're against broadband is a little like saying you're against world peace. Broadband, even the run-of-the-mill variety available in U.S. homes, changes the way people work, study, communicate and consume entertainment. (A recent study by the Communications Workers of America showed the average residential download speed in the United States is about 2.3 megabits per second, compared with 63 megabits per second in Japan.)

Indeed, lawmakers and lobbyists from the tech community already are trying to figure out the best way to motivate companies and communities to expand broadband in rural and urban areas. Ideas include tax credits, bonds and outright grants.

IBM (IBM, Fortune 500) this week said CEO Sam Palmisano has briefed the Obama transition team on possible ideas to stimulate the economy. IBM proposed a $30 billion plan that would create 949,000 U.S. jobs. IBM estimates than a one-year, $10 billion investment in broadband networks would create almost 500,000 new positions.

Fabric of the economy

But merely improving the availability of fast Internet networks isn't going to help the incoming Obama administration meet its economic goals. Rather, it is the utilization of broadband networks that tech executives think will stimulate the economy and help the president-elect achieve the broad policy goals he's set forth.

"He seems to look at broadband as part of the fabric of the economy," says Rich Nespola, CEO of telecom consultancy TMNG Global. "It's a fabric to be incorporated into medical enhancements, and education, which is a good thing."

Of course, getting U.S. consumers and businesses to take full advantage of broadband networks is a much more difficult proposition than doling out credits to get companies to build them.

For starters, there's the chicken-and-the-egg issue: If I'm a software developer interested in, say, creating a new distance learning application, I am unlikely to start creating that service until I have some guarantee that there are robust networks in rural areas that can run my software.

Similarly, Nespola suggests, even big systems integrators such as HP (HPQ, Fortune 500) and even IBM have not aggressively pursued services for healthcare and education.

"They are only nibbling around the edges because, in today's environment, no one wants to jump in with two feet unless they know the demand is there." (IBM's proposal includes a $10 billion investment in healthcare technology, which it says would create some 212,000 new U.S. jobs.)

But if government could help assure software developers that the networks and the demand would be in place, economists think that could unleash new businesses and jobs in the technology sector, while also achieving the policy aim of modernizing institutions.

"I see the stimulus package as an opportunity to get healthcare on the information superhighway," says medical economist Jeffrey Bauer of ACS Healthcare Solutions. 'If we don't, we are not going to have a better healthcare system."

Bauer advocates a 21st century version of the Hill-Burton Act of 1946, in which the federal government provided matching grants to communities building hospitals. Only instead of adding new beds, today's institutions would receive assistance for investing in automation of health records and delivery systems.

Net neutrality

In formulating its broadband policy for the United States, the incoming administration ultimately must address the thorny issue of network neutrality.

As a recap, private network providers such as Verizon (VZ, Fortune 500), AT&T (T, Fortune 500) and Comcast (CMCSA, Fortune 500) would like to monitor and control the content that rides across their broadband networks, prompting fears in the content community that the network operators would give preference to their own bits flowing across the network. Content and applications companies such as Google (GOOG, Fortune 500) have positioned themselves as pro-consumer, contending that end users should have unfettered access to anything on the 'net, even huge files that could potentially congest networks.

Obama has said he is a supporter of net neutrality. But any legislation that further regulates networks could deter the big network operators from aggressively building out more broadband services - and squabbling over the details of net-neutrality law could take years.

Meanwhile, the U.S. economy needs stimulus immediately. Eli Noam, director of the Columbia Institute of Tele-information and a professor of economics and finance at Columbia Business School, thinks the telecom companies, content providers and lawmakers need to acknowledge the net-neutrality issue in formulating any broadband stimulus package - thus far, few have mentioned it - and essentially forge a pact: "The telecom companies want their incentives, the Internet companies want openness, and citizens need stimulus," he says.

"If the government makes the stimulus strong enough for the infrastructure providers but makes it conditional on policies of openness, you can, in a way, have the government underwrite the openness."

In the past, such collaboration among government and warring tech and telecom factions would have seemed unfathomable. But with the U.S. economy in trouble, failing to do so would seem downright churlish. A little like arguing against world peace. To top of page

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