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In a remote slice of western Massachusetts known more for stunning scenery than high technology, accessing the New Economy was a daily challenge. For starters, local businesses were being charged significantly higher prices for telecommunications services than their counterparts in urban areas. Charles Podesta, CIO of Pittsfield, Mass.-based Berkshire Health Systems, which manages nursing homes, hospitals, clinics, visiting nurse associations and physician practices, says his company was spending about $85,000 a month last year for data and phone services.
But that’s about to change. Thanks to Berkshire Connect, a consortium of companies, government officials and nonprofit organizations, that bill will soon drop to $48,000 per month. The savings will allow Berkshire Health to build a new network, which in turn should translate into additional savings, such as cheaper long-distance rates for residents of nursing homes managed by the company.
In a region famous for independence and self-reliance, a group of frustrated people have banded together to address one of the nation’s most pressing issues: the digital divide. By convincing one of the world’s largest telecommunications companies to provide more affordable high-bandwidth service to local businesses, Berkshire Connect has ensured that this community will not get left behind in the rush to join the New Economy. Magnify Podesta’s story many times over, and—so the thinking goes—companies and residents alike will profit.
Although the digital divide involves both economic and social issues, Berkshire Connect has focused on development of a new telecommunications infrastructure and the delivery of better, more affordable service to local businesses. Supporters such as Podesta say fostering economic development is a good first step to ensuring that everyone in the county benefits from the digital revolution.
As communities everywhere scramble to ensure that they don’t get left behind during this period of explosive economic growth, Berkshire Connect offers some valuable lessons. Indeed, people are beginning to point to Berkshire Connect as a model for bringing rural and poor communities into the New Economy.
To ensure a thriving economy, companies need a technology infrastructure and skilled employees who can step into high-tech jobs. Yet for a rural community hundreds of miles from a major city or an inner city neighborhood struggling with poverty, gaining affordable access to the Internet or becoming adept with a PC is difficult, sometimes impossible. Telecommunications companies often focus on providing high bandwidth to corporations in cities, charging higher fees to rural and inner city communities or simply ignoring them. Meanwhile, new economy jobs usually require specialized training and education—opportunities that are often unavailable to low-income residents.
Five years ago the U.S. Department of Commerce released a report showing that inner city neighborhoods and rural households had the nation’s lowest rates of phone service and computer ownership. In an update last year, the department warned that the nation was facing a “racial ravine.”
The Clinton administration responded with a proposal for $2 billion in tax incentives for companies that donate computers and offer technology training. President Clinton then made his way across the country, speaking to communities such as the Navajo Nation and meeting with high-tech CEOs.
His message, however, didn’t come as a surprise to corporate America. Numerous companies had launched programs years earlier to get products, services and training into the hands of nonprofit organizations trying to create digital opportunities for their own communities. And with thousands of high-tech jobs unfilled and the debate over H1-B immigrant visas heating up in Washington, D.C., the digital divide is pushing its way into more boardrooms every day.
In the Beginning
But how does a company—or a nation—tackle a complex issue that involves questions of economics, race and poverty? Berkshire Connect began by learning to speak the language of the telecommunications industry. After launching the kind of market research common in the corporate world—measuring demand for service, assessing potential technologies and determining economic viability—Berkshire Connect made a sales pitch that any company would love to hear: Here’s a thriving market where you can make lots of money.
Three years later, Berkshire Connect’s approach seems simple and logical. But at the time, no one had a clear sense of direction—only a feeling that something had to be done. By 1997, the digital divide was already a familiar topic of conversation among business owners throughout Berkshire County. Since Bell Atlantic’s (now Verizon Communications) nearest point of presence was 65 miles away in Springfield, Mass., Berkshire companies were paying two to three times more than companies in Boston and New York City for telecom services.
“When I came here three years ago, a simple T1 line cost more than $3,000 per month,” says Brett McDowell, acting director of information and media technology at the Massachusetts Museum of Contemporary Art (MassMOCA) in North Adams, Mass., and a principal of interactive media consultancy Art Interactive. Podesta says Berkshire Health was paying $1,500 per month for T1 lines that in Springfield cost only $600. Service throughout the county was also poor. “Some people were waiting up to eight months for T1 lines to be installed,” says Podesta.
The high pricing hit especially hard in a region that had suffered recent economic setbacks, including the loss of several major employers and thousands of jobs. Home to about 140,000 people and numerous cultural attractions, Berkshire County is a major draw for weekend travelers. In recent years, the county has tried to foster economic development and wean its dependence on tourist dollars by courting new economy companies.
People throughout the area were getting involved in the revitalization effort. For example, The Berkshires Capital Investors (BCI), a Williamstown-based venture capital firm that specializes in funding early-stage technology companies in western Massachusetts, reports that nearly half of its $20 million in funds has flowed in from local residents. Meanwhile, part of MassMOCA’s strategy to help revitalize the local economy was to provide affordable, wired office space to high-tech businesses such as computer animators Kleiser-Walczak Construction and startups such as newsletter publisher Streetmail.com and retailer eZiba.com. Of course, new-media companies and Internet startups crave high bandwidth. Berkshire County residents became increasingly worried that their inadequate telecommunications services might drive out existing companies and discourage others from moving to the area.
Berkshire Connect began with a phone call in the fall of 1997. After a meeting hosted by the Berkshire Entrepreneurs Forum, Peter Larkin, state representative from Berkshire County, and Don Dubendorf, a Williamstown, Mass.-based attorney, contacted Larkin’s brother Pat, senior vice president of the Massachusetts Technology Collaborative (MTC). They asked that the MTC work on the area’s telecom problem and suggested that the MTC also contact the Berkshire Regional Planning Commission (BRPC) in Pittsfield, Mass. Asked if the BRPC would be willing to act as an impartial convener for a new group, Nathaniel W. Karns, executive director of the commission, agreed. Two months later, a task force with representatives from local schools, health care and nonprofit organizations, companies and cultural groups was up and running.
The group’s first task: Identify “critical” users (companies with at least one dial-up connection to the Internet) and gauge the level of demand for high bandwidth in the region. These critical users immediately began discussing different technologies for a new infrastructure. Technical discussions soon bogged down, however, as some of the critical users argued for their own favorite technologies. “This group [had gone] as far as it could, so we created a steering committee composed of technical people and people with community leadership and business backgrounds,” says Karns.
This decision proved to be crucial. It was the 12-person steering committee, chaired by Dubendorf, that recognized the need for a methodical, impartial review of available technology and a business plan that quantified demand. Not only would the group learn more about different potential technologies, but by aggregating demand, Berkshire Connect could also make a stronger argument to prospective providers about the benefits of coming to the region.
Berkshire Connect hired Flack and Kurtz, an engineering consultancy based in New York City, to research the technology, make recommendations and write a business plan. Based on the task force’s earlier survey, Flack and Kurtz helped estimate and aggregate demand into an initial usage of 17 T1-equivalents that might grow to as much as 425 T1-equivalents within five years. The company recommended a network consisting of a combination of microwave backbone, leased dark fiber (existing fiber-optic lines that aren’t currently being used) and leased services. Based on this technical model, the company then developed a business plan that addressed numerous business issues such as marketing and economic feasibility. This business plan formed the core of a request for proposals (RFP) that was sent to a variety of telecommunications providers.
Seven providers responded to Berkshire Connect’s RFP. Dubendorf and others attribute the high response rate to two rounds of state funding that came early in the process: $500,000 to cover the cost of consultants and Berkshire Connect staff, and an additional $1 million for potential capital expenses and future work such as trying to solve the issue of the “last mile” (the distance between a telecommunications company’s access network and the final point of service). “We needed state funding to be credible,” says Dubendorf.
The proposal from Global Crossing, a Bermuda-based telecommunications company, was the one that best met all of Berkshire Connect’s criteria: equal access throughout the entire county, universal pricing that was competitive with major urban areas and unbundled service that would allow members to choose only the services they needed.
Under the terms of the three-year contract, signed in February, Equal Access Networks (formed for this project by Global Crossing and New England Digital Distributors, a telecommunications consultancy and systems integrator based in Woburn, Mass.) will build the network, and Global Crossing will provide Internet, voice, data, video and phone service.
Berkshire Connect members are quick to say that no public money has been used to build infrastructure. In fact, the venture capital arm of Global Crossing agreed to invest several million dollars to build out the network.
The new network, expected to be operational by the end of this year, will deliver advanced telecommunications services at rates up to 70 percent lower than what local businesses had been paying. Pricing is tiered, with discounts kicking in as demand grows. Meanwhile, Global Crossing began offering service in April by leasing lines from Verizon. (The company is absorbing the difference between its own rates and Verizon’s.) About 30 companies and nonprofit organizations have already become members of Berkshire Connect, with more companies saying that they plan to join in the future. Members pay annual dues to Berkshire Connect that are based on monthly telecom usage and a sliding scale of $75 to $7,500. In exchange, member companies are eligible for Global Crossing’s rates and for its services.
Global Crossing’s decision to pursue Berkshire Connect was based on several factors, according to Dan Boynton, regional vice president for New England and the Midwest at Global Crossing. “We were impressed with how Berkshire Connect had pulled the county together and with the endorsement of 10 major [local] CEOs,” says Boynton. (Companies included Berkshire Health, KB Toys and Berkshire Life Insurance.) “With our financial model, we felt conservatively that we could meet projected revenues. Plus, we did line-of-sight engineering before we responded to the RFP to ensure that we could extend our network to meet all of their specifications.”
Verbal endorsements from Berkshire Connect also played a role. “The most important thing we did was create a structure that aligned their incentives with ours,” says Janette Kessler Dudley, a Williamstown-based business consultant whose work with Berkshire Connect included participating in negotiations and acting as treasurer. “We said, ’We’ll tell you what the market is here. If you can’t beat the current provider, we can’t sell you to the market.’ At the end of the day, we all had the same goal: Sign up as many people as possible.”
In the end, wiring Berkshire County just made good business sense for the telecom giant. “We’re already ahead of projections even before the network is completed,” says Boynton. “This deal has resulted in introductions to some very large corporations [prospective customers]. And our phone has been ringing off the hook with calls from rural America wanting to use this model.”
While the immediate benefits of Berkshire Connect are lower pricing and easier access to the Internet, Berkshire Connect members anticipate a ripple effect. Ticki Winsor, who owns the Eastover Resort in Lenox, Mass., is already seeing savings; she expects to save up to 40 percent on phone bills and eventually attract more business. “Because we’ll do more T1 lines, we’ll be able to get more business from our corporate customers who are asking for this technology,” says Winsor. Another Berkshire Connect member, Dalton, Mass.-based paper manufacturer Crane & Co., plans to get into e-business for the first time. “We now have a lot of B2C e-commerce initiatives under way,” says Bill Perault, manager of MIS technical services at Crane. “We’ve already added three new T1s and plan to add more next year. Once everything is switched over [to Berkshire Connect], we’ll see a savings of six figures.” With other members also planning to reinvest their savings in more T1 lines, Equal Access has already revised its plans and tripled original capacity to meet the increased demand.
Berkshire Connect has made the telecommunications industry recognize for the first time that the region is a lucrative market. As a result, Global Crossing already has competition. For example, PaeTec Communications, based in Fairport, N.Y., is one of several providers that recently started contacting local businesses. “They have enough political muscle to generate more competition,” says Jeffery A. Williams, executive technical supervisor at Kleiser-Walczak. “If not for Berkshire Connect, maybe PaeTec wouldn’t have come to this area.” (Although Kleiser-Walczak is a fan of Berkshire Connect, the company has chosen to become a PaeTec customer.) And as long as Global Crossing faces competition locally, Berkshire County is assured of competitive pricing and service, so it won’t repeat its earlier experience with Verizon. “We don’t want to replace one monopoly with another,” says Podesta.
A Model for Other Communities?
As the first initiative of its kind, Berkshire Connect has captured the interest of a wide range of people. Massachusetts Gov. Paul Cellucci and U.S. Sens. John Kerry and Edward Kennedy, for example, have provided support along the way. Kennedy also helped arrange a 1999 meeting between Berkshire Connect’s steering committee members and FCC Chairman William Kennard. “[Kennard] was very encouraging and supportive,” says Dubendorf. “He said that he would help get [the telecommunications industry’s] attention.”
Meanwhile, other communities in the United States and Europe are thinking about launching similar initiatives and have contacted Berkshire Connect to learn more. The list includes the European Union, the Office of the Governor of Georgia and the Federal Reserve Bank of Kansas City.
Yet the question remains whether Berkshire Connect is a good model for other communities. While its members don’t claim that their initiative is a cookie-cutter solution that can be replicated endlessly in other locations, they believe some of their experiences will probably apply elsewhere (see “Tips for Wiring Your Rural Community,” Page 222).
Perhaps one of the most valuable lessons of Berkshire Connect is the story of a community working together to change history. “From an economic point of view, Berkshire County has often felt like it’s at the end of the food chain,” says Pat Larkin of the Massachusetts Technology Collaborative. “We weren’t going to miss this historic phenomenon called broadband and the Internet. This community realized that we had to take control of the future. And this was the event that people rallied around.”
If Berkshire Health is any indication of where the rest of the region is headed, it looks as though Berkshire County may finally be leaving its past behind. With its annual savings of more than $400,000 and the improved telecom service available through Berkshire Connect, Berkshire Health plans to build a gigabit network that will allow the county’s 350 physicians to instantly review patients’ X-rays, lab results and other medical information for the first time.
Yet Podesta’s story isn’t just about corporate profitability. “The ultimate outcome is better patient care,” he says. If that is true—and if other local companies experience similar growth—then Berkshire County will be among the first communities to narrow the digital divide.