Let Small Businesses Lead the Telecom Revolution

Startups and garage inventors have been a hallmark of American commerce since the days of Thomas Edison. But the current economic crisis is crippling the sector, which is largely made up of small businesses.

Technology firms last year slashed more than 180,000 jobs; the highest number since 2003, according to the Telecommunications Industry Association (TIA), which represents more than 500 companies. So far this year, the trend is continuing. Even tech giant Microsoft, largely immune from past downturns, has announced up to 5,000 layoffs -- the first in its history.

Another pipeline of innovation -- initial pubic offerings -- has also dried up. In all of 2008, just six companies went public, according to the National Venture Capital Association. That compares with 269 IPOs in 1999, the year before the Bush administration took office. In recent congressional testimony, Grant Seiffert, president of TIA, said, "These numbers illustrate the unwillingness of otherwise independent inventors to take personal financial risks in an uncertain marketplace."

Fortunately, President Obama has consistently mentioned the importance of the nation’s information technology infrastructure in speeches about the economic recovery. The president seems to understand that the nation’s global competitiveness hinges on robust development of low-cost, high-speed broadband and other telecommunications services.

What the president may not understand is the role small businesses play in the industry. More than 80 percent of the TIA’s members are companies that would qualify as small businesses under federal Small Business Administration guidelines.

Yet policymakers in Washington rarely see past the "Big Four" telecommunications giants: Verizon, AT&T, Sprint Nextel, and T-Mobile. Those companies dominate the sector and deploy an army of influential lobbyists in Washington to keep the playing field tipped in their favor.

During the Bush years, the Federal Communications Commission was a virtual captive of the big telecom players. In 2007, I wrote about the FCC’s auction of telecom’s "beachfront" property: the 700 MHz band of the radio spectrum for wireless broadband. Instead of taking us into the future, the FCC’s auction rules were tilted to take us back to the 1950s.

That’s when Ma Bell owned everything from the wires right down to the rotary telephones in our homes. It stifled innovation for years until a series of lawsuits broke open the market. But today, the wireless market is much the same as telephone service in the era of tail fins and bobby socks.

The major carriers don’t own the phones, but they dictate which ones can be used on their systems. As a result, they tightly control what services and innovations can be offered. That’s why countries like Japan and even France, which support "open access," are far ahead of the United States in telecommunications services.

If President Obama really intends to make an impact on the economic downturn, he needs to open up the telecommunications playing field much like a more enlightened FCC did in the 1960s. It wrenched the handset out of the hands of Ma Bell and paved the way for a host of innovations like answering machines, fax machines, and touch-tone dialing; all of which we take for granted today.

Most of those technologies were developed by small, innovative companies. In fact, small businesses generate five times more patents per research-and-development dollar than big businesses and 20 times more than universities, according to Ted Allison, president and chief executive of the St. Joseph Area Chamber of Commerce, in St. Joseph, Mo., who testified recently before the House Small Business Committee.

"The small business sector delivers a higher yield per dollar of public investment than big business and offers the greatest potential for rapid economic recovery and growth in quality jobs," he says. Yet Allison echoed an all too familiar refrain: "Public policy continues to give a disproportionate preference to the big business sector."

Today, the development of the nation’s broadband infrastructure spans fixed broadband, wireless broadband, satellite broadband, and attendant products and services. It’s a huge industry and the build-out has been something akin to the creation of the federal interstate highway system in the 1950s.

All told, the telecom, media and technology sector accounted for nearly 7 percent of U.S. GDP in 2006, and it was the largest driver of real U.S. economic growth between 2001 and 2006, according to Alan J. Roth, senior executive vice president of the United States Telecom Association, which represents the big telecom players.

Just a modest 7 percent increase in U.S. broadband adoption could create 2.4 million new jobs in the U.S. and generate $134 billion in new annual economic activity, according to a widely quoted 2008 report by Connected Nation, a nonprofit group that promotes the expansion of broadband to rural and underserved urban areas.

The president will have an array of options to choose from once he starts crafting his telecom policy. Many of these options are already pending in bills before Congress. The industry is lobbying for such things as a consumer broadband tax credit to make broadband service more affordable for rural and low-income households.

Some groups are calling for direct government grants to fund broadband in hard to reach areas. Still others want the government to offer a tax credit for small- and medium-sized businesses that purchase or upgrade their PCs, laptops, mobile handsets, broadband equipment, services and software. And there appears to be broad support for the Broadband Data Improvement Act of 2008, which has been enacted but not funded.

Among other things, this legislation authorizes states to map the extent of broadband deployment and to establish programs to improve computer ownership and Internet access for unserved areas in public-private partnerships with broadband service providers and information technology companies.

In the 1967 movie The Graduate, Mr. McGuire the businessman and Braddock family friend, pulls young Benjamin Braddock (Dustin Hoffman) aside and offers this advice about his future: "I want to say just one word to you. Just one word: plastics."

When it comes to telecommunications policy, I have just two words to say about the future to the new president: "open access." Without it, the new administration will just be reinforcing the status quo. With it, Obama will create a truly level playing field that will allow small, innovative technology companies to develop and get their products to market easily. Then just watch the economy grow.