Why is this Man Laughing?
How Baltimore missed the on ramp to the information superhighway.
Baltimore magazine, June 1994
It started with a subterranean land grab. In the summer of 1988, an Omaha firm began leasing conduit space beneath Baltimore’s streets frantically, in chunks, as much as the Department of Public Works would rent.
First, company workers laid yellow nylon rope through the tunnels to mark them. Then, by night, they went manhole to manhole, yanking the rope out and snaking thin gray fiber-optic cables through instead. Some linked the telephones and computers of downtown firms. But most were what’s called “dark fiber”: They didn’t connect anything.
In six years, MFS Communications Company had dumped $10 million worth of the cable into 91 miles of tunnels Pens in hand, company agents returned again and again to the public works office, where workers signed leases and scratched their heads.
The city’s hundreds of miles of duct tunnels were built a century ago. Some carry water pipes or traffic light cables. The rest, the city rents cheap. The gas company leases some, as does cable TV. But until MFS got to town, leftover tunnel space had never been a hot commodity. To many observers, the company seemed to be grabbing at fool’s gold. But some suspected otherwise.
Recalls Cedric Crump, head of the city’s cable and communications department, “The word around the office was that they knew something we didn’t.”
What MFS knew was that whoever wired the city for data transmission stood to make a fortune. Like Cornelius Vanderbilt, the industrial-age robber baron who got rich by snatching up railroad rights-of way, MFS was speculating that data rights-of-way--betting that someday, someone would pay to run information through their cables.
Economists have lone predicted a time when information would be the chief commodity. Now phone, cable, and software companies are setting up to deliver this product— though each has a different idea of how to do it: video-conferencing, the “virtual office” where everyone works at homes movies on demand, home banking, electronic mail, 500 TV channels.
In each of these concoctions you’ll find one common element: The information they generate must be broken down into zeros and ones and sent quickly from point A to point B. Much of it can travel via satellite, and cellular technology is improving all the time. But for the massive amounts of data that industries like investment firms must shuffle over secure routes within seconds, fiber-optic cable’s virtually unlimited capacity makes it an indispensable part of the coming information economy.
In Baltimore, one company had a head start at forming a fiber-optic network: Bell Atlantic, the good old phone company. Bell Atlantic has strung 150,000 miles of fiber-optic cable in the Baltimore area. It’s got access to 96 percent of the homes here, plus a name customers trust. But several entrepreneurs are nipping at Bell Atlantic’s heels, trying to be ready when the promised money rains down. And what do these visionaries all have in common? They’re not from here.
Royce Holland, president of MFS Communications, is a Texan who got a taste for monopoly-busting during the energy crisis of the 1970s. He invested heavily in solar power and other forms of alternate energy. Capital and political support for alternate energy ended when the crisis did, leaving utility monopolies safe from Holland. But when AT&T broke into regional Bells in 1984, Holland recognized the smell of blood.
Watching small telecommunications companies outsmart and underbid the Bell companies for wireless phone service, inter-office hook-ups and other services, Holland had one question: Why should telephone companies reap all the fruits of the bust-up?
Holland had a plan. First, he persuaded his parent company, Peter Kiewit Sons construction, to saturate Baltimore (and 22 other cities) with fiber-optic cable. Then, he developed a local reputation for providing cheaper, faster, more reliable inter-office phone and data lines than Bell Atlantic’s standard issue. Last July, he petitioned the Maryland Public Service Commission for “co-carrier status”--the right to offer customers a dial tone and connect to Bell Atlantic’s switching stations. In April, Maryland became the third state in the country to grant that status, effectively ending a century-old monopoly.
But whether MFS uses its miles of cable right-of-way to carve itself a profitable piece of Bell Atlantic’s pie is anybody’s guess. Competition, fierce right now, will certainly get fiercer.
MFS has powerful allies, including MCI and Sprint, two long-distance companies looking for a better deal than they get from Bell Atlantic. (For every dollar the carriers make on long-distance service, they must pay 45 cents for local connections at either end of the call.) MCI has already worked out connection deals with MFS for some of its business customers.
Another ally is BG&E, whose 237 miles of cable in the suburbs dovetails nicely with MFS’s downtown strong-hold. Although the fiber was originally installed to monitor the use of electricity, it also works for sending other data. BG&E has been marketing business-to-business phone and data hook-ups, many times in conjunction with MFS.
But MFS’s new co-carrier status may hurt instead of help it. Now that the state has approved one such request, the precedent is set—other companies will surely follow. And the telecommunications industry is notorious for changing allies into competitors in a day’s time.
Two cable TV companies that serve the area, for instance, have the potential to compete for dial-tone service. With metal coaxial cable running to roughly 90 percent of area homes, all they’d have to do would be install high-volume fiber paths into each neighborhood and switching stations for two-way communication. And unfortunately for their potential competitors, both of these companies have would-be Vanderbilts at the helm.
Ralph Roberts, head of Comcast cable in Philadelphia, saw the future 30 years ago, quit manufacturing men’s clothing accessories, and began to invest in cable. Three hundred and fifty million dollars later, he’s head of the fourth-largest cable company in the nation. Comcast is putting $100 million into system upgrades in the counties that surround Baltimore.
United Artists Cable, which serves Baltimore City, is owned by Denver-based TCI, America’s largest cable company mainly the creation of electrical engineer John Malone, whom Esquire in 1993 labeled the scariest map of the year. Notoriously aggressive, he’s been called “Darth Vader” by the press and the “godfather” of the cable industry by Vice President Al Gore.
Like Comcast, Unite Artists is upgrading into fiber here. In Chicago, it's testing a 124-channel cable TV service. It’s also aligned with Microsoft, the world’s largest software company, to develop interactive software.
And so, sleepy Baltimore finds itself in the middle of the telecommunications baffle. The ensuing lower phone bills and high-speed data transfer systems may well attract other outside business.
But what about the business of moving information? The underground conduits are filled now, and outsiders control the rights-of-way into our business districts. While local investors were fretting about the loss of heavy industry--and waiting for a still-to-materialize biotechnology hub they missed the on-ramp to the information superhighway. How could this have happened?
“There just wasn't any vision [in Baltimore] as to what the telecommunications industry was going to be,” says Baltimore native Frank Knott. Knott should know. In the late ‘8Os he had big plans for a videoconferencing firm in Baltimore. But local banks were indifferent to his idea; he ended up moving to Atlanta, where funding flowed more freely. (Knott recently moved back here at the governor’s request, to head a board on how Maryland can prevail in the information age.)
Other local entrepreneurs found similar frustration. In 1991, Frank Huebner’s Fiber Optic Design & Distribution Corporation tried to expand, but his plans were rejected by six different banks. “They seemed to be more interested in the bio-tech industry,” he notes. investing out of his own pocket, Huebner started two successful branch offices in Pennsylvania.
Admittedly, investing in the infobahn is risky--fiber-optic installation costs can run from $15,000 to $30,000 per mile. Says Liam Burke, an analyst for Ferris, Baker Watts,”You have to make some serious investment, and the payback is very slow.”
But not investing has its risks as well, says Knott: “If the capital is not risk available in Maryland, we’re going to continue to be a branch-office town. We’re going to be bought up by all kinds of outside entities.”
One local firm ripe for bold investment is BG&E, whose access to local homes makes it yet another possible phone company. But as BG&E planner George Dieter notes, even if it were projected that a fiber-optic network would eventually pay for itself, BG&E would still have to convince its shareholders to foot the tremendous installation bill something they are far from sure to do.
There it is again: the wait-and-see stance Knott and others have found so stifling. “Look at the B&O,” Knott says, referring to the Baltimore-based railroad company’s brave expansion into Western Maryland coal country in the mid-1850’s. “The people of Alex. Brown and the Garrett family put a huge amount of capital at risk to create these opportunities.”
And their willingness to risk wasn't based on plans and projections, he adds, but on faith in the coming technology.
When they were plowing through the Allegheny mountains, he says, “I’m almost certain the B&O didn’t have a detailed five-year marketing plan that defined everything everybody on the other side of the mountain was going to use the railroad for,” Knott says. “Give me a break.”
Addendum: MFS was purchased by WorldCom in 1996.
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