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James R. Sweetman sweetman@netcom.com
Evaluator, Trans. & Telecom. Issues sweetmanj.rced@gao.gov
U.S. General Accounting Office (202) 512-3347 (voice)
Washington, DC 20548 (202) 512-3766 (fax)
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--------ABSTRACT---------

Historically, private investors have financed the building of the
nation's telephone system, the form of telecommunications that
reaches the most customers. Today, in order to provide advanced
telecommunications services like two-way video communications and
high-speed data connections, telephone companies would need to invest
billions of dollars in improving their infrastructure by, for
example, replacing copper wire with fiber optic cables and installing
advanced computerized switches. The telephone companies have already
begun making these investments, mainly in business districts and
high-density residential areas where there are opportunities to make
a profit. In rural areas, where there are fewer businesses and the
cost of delivering service is usually higher, the current profit
incentives are generally not high enough for companies to invest in
providing such services.

State and federal policymakers are looking for ways to promote the
widespread deployment of advanced telecommunications in order to make
the delivery of these services more cost-effective and promote
economic development. GAO reviewed the experiences of three states
that experts in the field consider to be leaders in the development
of statewide advanced telecommunications: Iowa, whose network
provides two-way video communications; Nebraska, which uses less
advanced technology to provide high-speed data connections and video
conferencing; and North Carolina, which provides two-way video
communications to several sites simultaneously using the most
advanced technology available. Officials in these states have worked
with the private sector and with potential users to encourage private
investment and ensure the availability of services in less densely
populated rural areas.


Iowa, Nebraska, and North Carolina encouraged private investment in
advanced telecommunications infrastructure by offering to become
major customers of these services from the telephone companies. In
Iowa, the telephone companies were reluctant in 1987 to make the
investment needed to provide these services because of doubts about
the profitability of such a system, so the state financed and built
its own network. However, by the time Nebraska and North Carolina
began their projects in the early 1990s, the telephone companies had
already begun upgrading their systems and were more willing to make
the investment the states wanted. They also decided that they would
rather have the states as customers than as competitors. As a result
of these states' efforts, the telephone companies made improvements
faster than they would have on their own.

To provide affordable access to a large segment of their populations,
all three states are making advanced telecommunications services
available through sites located in local public buildings, rather
than in individual homes. State and federal agencies are assisting
local organizations by paying some of the costs for the equipment and
connections needed to use these services. Two states--Iowa and North
Carolina--are making the services more affordable by charging the
same price for using the network at every location, even at remote
locations that are more expensive to serve. Nebraska has arranged
for local schools to get discounts on service from the telephone
companies. Each state has made advanced services available to
between about 100 and about 400 sites, but each is in the early
stages of its efforts and plans to connect many more sites in the
next several years. However, even though the three states have
focused on connecting high schools to the network, more than half of
the high schools remain unconnected. Rural counties contain more
high schools than urban counties, and more rural high schools have
yet to be connected.

The three states' experiences illustrate the importance of building
and maintaining consensus among the parties that will be involved in
constructing, financing, and using an advanced telecommunications
network--the telecommunications companies, anticipated users, state
legislators, and state executive branch officials. Addressing the
concerns of these parties can help prevent the construction delays
that can result from design changes and funding shortfalls.
Identifying a stable source of funding for advanced
telecommunications programs can also help promote widespread use by
local organizations.

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