Mr Donald Upson, State Secretary for Technology,
The news has not been good but infrastructure companies
are sound and the effects of the AOL/Time Warner merger have yet
to be felt. The drop in the NASDAQ since the beginning of the
year is a temporary corrective.
Mr Upson is a strong supporter of Microsoft. Nineteen
states are not suing Microsoft and it is absurd that the Administration
is using a 110-year-old law to deal with a 20-year-old company.
There is no injury to consumers so how is it that anti-trust laws
are being violated? The government seemed in two minds: the National
Science Foundation had funded Microsoft and the Department of
Justice had charged the company with monopoly practices. This
was not the way to deal with the new economy.
Virginia wants to build the best environment for
e-commerce and North Virginia has become a cluster of new technology
companies. This success can be attributed to:
- Proximity to the Federal government and the funding
of research - but the government is no longer industry's biggest
- The State government has provided an e-friendly
- The privacy issue has to be dealt with but since
the number of websites have grown from 50,000 in 1994 to 1.6 billion
then people cannot be too worried.
- A good tax environment. Mr Upson produced statistics
purporting to demonstrate the tax advantages of Virginia over
Maryland and other states.
- The existence of Mr Upson's own position of Chief
Information Officer (which he attributed primarily to the dynamism
of the State Governor, Mr Gilmore who has a vision for Virginia
and is determined to make it the model for the whole US) and the
transfer of various States Agencies to him thus creating a new
Department which links management to policy formulation.
- The population of the Virginia (the 16th largest
state) is 7 million. It is third or fifth in the technology stakes
with 344,000 workers involved in new technology (more than Silicon
Valley), generating $20bn dollars in wages. However, 5,000 companies
have fewer than 5 employees. Virginia is 3rd in venture capital,
and 1st in the growth of venture capital and the production of
TRANSFORMATION OF GOVERNMENT
There was discussion of Virginia's ability to implement
widespread bureaucratic change when the Federal government could
not. The co-ordination level in the Federal Administration is
at deputies/assistant/secretary level and these are not people
who have the power to make quick decisions. Governor Gilmore's
reconstruction of the Virginian administration had put e-governance
at the heart of it in the face of vested bureaucratic interest.
A senior level inter-agency council is responsible for masterminding
changes to state government procedures.
The citizen now has access through a single portal
to multiple transactions over multiple agencies, creating a new
The State government is proactive in contacting citizens
to inform them of issues in which they have registered an interest.
Driving licences are issued, citizens given an associated
PIN, and the police notified automaticallyall online.
The tax system has been modernised, providing registration
and advice online. This has been achieved by a deal with the AMS
corporation which collects formally uncollectable revenue, retaining
90 per cent of it, over a period of 6 years. The benefit to Virginia
is the 10 per cent of the revenue and a modern, re-engineered
taxation system. Such outsourcing is difficult in principle because
both State employees and the unions dislike it but this private-public
combination created, in effect, an outsourcing hybrid.
In contrast the Federal government has emphasised
the IRS, not the citizen, spending $4.5 billion on modernising
the system without any real success. In total the Federal government
has spent $36 billion on IT and is "still a mess". This
failure is on account of the "stovepipe" bureaucracy
with its poor co-ordination. In Virginia, the private sector component
is present in every meeting of the State government. Within 30
days (from the date of the Sub-Committee visit) a "completely
leased environment" will be in place. This will be overseen
by a Council for Technical Services and will incorporate a uniform
management system including e-procurement and an e-travel system
for all employees. Companies do this sort of thing as a business
and there is no need for the State administration to duplicate
PLANS FOR A FUTURE FEDERAL ADMINISTRATION
Mr Upson is a strong supporter of the presidential
candidate George Bush Jnr. who has been liaising with Virginia
over plans for his administration (if elected). Plans should include:
- A top level e-Minister to bring the Cabinet together.
- One-stop government, supported by an e-procurement
Mr Upson has participated in a Committee set up under
the Internet Policy Act to determine what should define a technology-friendly
environment. The answers included targets:
- e-Government: top 5 services online by the end
- Privacy: website privacy statements ie self-regulation,
but with the threat of a governmental intervention.
- Pornography: the national centre for missing
and exploited children has been involved, and the idea is to add
a penalty for using the Internet for pornography.
- Spamming: This is a felony and should be pursued
either by the individual attacked or by the ISP. A corollary to
this is that equipment specifically designed for spamming should
Telephone service. It is highly taxed but local (ie
sub-state level) governments cannot bring in new taxes. The system
is bizarre: local companies are debarred from the long distance
transmission. Virginia has introduced a project to link these
companies and introduce broadband very quickly. These measures
will lead to reductions in telecommunications changes of between
30 and 70 per cent.
- Local loop. The state is holding 6 major workshops
with chambers of commerce to advise on the new technology for
both B2B and B2C.
- Mobile telephony. Mr Upson acknowledged that
Europe is ahead, simply because its embedded infrastructure is
not so rich as that in the US. There are difficulties for mobile
telephony in the US because the siting of cell towers generates
environmental opposition. Virginia is planning for a state cellular
70 per cent of the Virginian workforce is in IT.
Mr Upson was not clear on where new IT workers will come from,
admitting that more than half of the technology graduates produced
in Virginia leave. A further problem is the premium that has to
be paid to hold the best. Virginia pays the second highest wages
in the US and new IT workers generally want to be in either Silicon
Valley or Virginia. Nevertheless, there are still 30,000 unfilled
The key factor in the growth of Internet clusters
is the availability of venture capital in certain areas. In California
it is Silicon Valley, in Boston MIT, and in Virginia, North Virginia.
The trend is now running in Virginia's favour. The number one
venture capital firmFreeman Billings Ramsayhas confirmed
that 7 out of 8 deals now take place in Virginia. Venture capital
follows successful clusters.
Stock options are also critical and this is an area
where the public sector cannot compete. Senior civil servants
are keen to embrace the new technology but find it difficult to
stimulate the lower levels. Mr Upson's solution is that government
should behave more like a business and this means that old ways
of working have to be abandoned. He has sold e-commerce to the
workforce "on the lines of a Hollywood production".
He has attracted more private sponsorship than he can spend. "Worry
about the rules and you will miss the vision."
Mr Upson commented that he was delighted that the
EU moved at such a sluggish pace: "your delay is the closest
thing to investment in the US economy".
Dr Robert Pepper, Federal Communications Commission
Dr Pepper described the FCC (Federal Communications
Commission) and agreed to e-mail an organisational chart. The
- Was created from the old Federal Radio Commission
and the Radio Telecommunications Agency.
- Has 2000 employees.
- Shares responsibility for telecoms tariffs with
- Combines duties of OFTEL, ITC and RA in UKexcept
for spectrum management, which is split between the government
and the private sector.
- Acts as strategic planning agency and independent
- Is not part of the Administration: its budget
derives directly from the Treasury on the recommendation of the
- Is governed by five Commissioners (not more than
three from same political party), appointed by the President,
but confirmed by Senate. They serve their terms in a rotation
system, which ensures continuity. The chairman is normally a member
of the party in power.
Historically, the FCC was a backwater, which merely
regulated the AT&T monopoly. With convergence this has changed
and the organisation has become the subject of controversy. Its
structure is changing to reflect changes in technology but such
changes are limited by statute and have to be technology/competition
neutral. It has created an enforcement bureau. It focuses on consumer
information protection in the telecommunications sector and is
in the process of consolidating all licensing functions online.
If these changes succeed, the staff could be reduced to 500. With
the new revolution, organisations like the FCC will lose their
best people. This is being countered by offering two-year contracts
in the public service for bright young people, with the hope of
providing a continuous rollover. Unfortunately, they are leaving
faster than Dr Pepper can recruit. Stock options are the lure.
Dr Pepper is in close touch with counterparts in
the UK. In his view it is clear that OFTEL, the ITC and the RA
should be combined because all telecommunications assets should
be used to drive competition in a digital world. The Chairman
of the FCC bangs heads together and prioritises. This would not
be possible if the agencies were all separate.
Investment in networks has been doubled since 1996
and network usage doubles every 100 days. Dr Pepper quoted from
a FCC handout to demonstrate the rates of investment and the ability
of new services to soak up capacity. Opening up telecommunications
is the necessary prerequisite to the expansion of the Internet
and the new economy. The next most important factor is the availability
of venture capital.
Congress has ruled that if there is competition at
local level then those companies are permitted to move into long
distance transmission as well. But if there is a local monopoly
then the companies are not entitled to provide long distance services.
This is primarily a political issue. There is plenty of fibre
and co-location of routers and this enables competition to develop.
The fear of competition drives innovation.
Gerard de Graaf and Patricia Moll, of the European
Commission Delegation to the US, hosted by Mr Nick Westcott, Minister-Counsellor
(Trade and Transport), at the University Club
US VS EU
In the US the e-commerce phenomenon constitutes a
real revolution. Fundamental changes in technology and society
are taking place. The US is strong in technology and entrepreneurial
spirit. It has a dynamism, which would be difficult to replicate,
and it willingly embraces risk. Other advantages are the availability
of venture capital, low tax levels, a hard working workforce,
share options and greed. (Mr de Graaf cited Michael Sayler's $13bn
personal wealth as "excessive".)
The EU is behind but since 1998 IT penetration in
Europe is growing at a faster rate than in the US. The US perception
is that Europe:
- has not yet woken up to the opportunities offered
- has a Pavlovian reflex to over-regulate
- has a rigid labour market. For example, the French
insistence on the 35-hour working week is cited as an example
of the rigidity which frustrates ecommerce.
Europe is not the US. Its culture and lack of venture
capitalism are obstacles. Banks always want to see collateral,
especially in the Mediterranean countries, and the nature of new
IT companies means that collateral is not available. However,
Europe is making some progress. For example the position over
tax breaks has improved although Europe has yet to match the US
system of business angels and business incubators. And some Member
States actively work against any move in the direction of share
options. Extreme disparities in wealth and education which are
found in the US would be unacceptable in Europe. On the other
hand, in the US there is a strong sense of community and the voluntary
sector is strong.
The US system demonstrates that to be successful
in e-commerce, government and business has to work hand in glove.
There has been an ideological debate over the past two years but
the need for some government role is now acknowledged. For example,
there are 37 different laws at State level over digital signatures,
a field where the EC Directive represents a considerable advantage.
The EC's second great strength is the development of the Single
Market although derogations by certain Member States make this
a less-than-perfect instrument. The final factor contributing
to US success is the flat telecoms rate as opposed to the European
The EU has other advantages in terms of its Directives.
The EU is ahead with the electronic signature and e-commerce framework
Directives. Only two months ago President Clinton was forced to
ask his Administration what the US legal framework was. The US
came to a painful compromise on the privacy issue, and cannot
understand why this is not adequate for Europe. The EC response
is that not only is it not adequate for the EC but it also fails
to meet OECD standards. There has to be a right of access for
individuals and some control of data sharing. In the US there
has been a backlash, for example an attempt to control pharmacies
selling prescription information to drug companies. Nor are the
pharmacies alone. The Department responsible for motor vehicles
sells driving license information. In Maryland the State government
earns over $100 million a year for this sort of activity.
This has acted as a wake-up call. Member States should
- Liberalising the telecommunications infrastructure
- Establishing a predictable legal framework, including
self-regulation and co-regulation.
- Protection of Intellectual Property Rights
- The establishment of liability
- Bringing about changes in professions
The issue in the US is political. The administration
focuses on minority populations and on external issues such as
special programs for Africa and work through G8 via the Transatlantic
Business Dialogue (cf. Lord Brittan). The EC should review its
aid and technical assistance programs to join the US in these
Europe has a head start over the US because of the
GSM standard, which provides the essential platform. The Internet
will go mobile and wireless technology will be more than the current
use of mobile telephones. Looking ahead to WAP and third-generation
equipment, standards can also slow down innovation. Companies
are international and it is not a question of national boundaries.
As the revolution rolls on, it will become increasingly difficult
to set standards.
US companies express considerable concern about taxation
in Europe. They argue for country of origin rules. In the EC the
objective is neutrality and the EC has in effect achieved this
through the 6th VAT Directive (if companies sell into the EU,
they do not pay tax, but inter-Europe trade is tax-rated). 25
per cent of the revenue of US websites comes from outside the
US so there is an incentive for the US to compromise with the
EU on tax. In the US taxation is complex and a future administration
will have to confront this problem. In doing so there could be
conflict between the US and the EU.
Patricia Moll agreed that the key factors contributing
to a successful e-economy are:
- Telecom infrastructure
- Predictable legal framework
- Consumer confidence (via data privacy, encryption
- Determining the obstacles and eliminating them
through education and access
We did not learn anything especially new from the
EC representatives. Rather they confirmed what we already knew.
However, meeting non-UK Europeans in the midst of a series of
meetings with Americans did serve to underline the differences
in attitudes and approaches that distinguishes the European and
American stances on e-commerce.
Elizabeth Echols and Ron Keohane, from the White
House Working Group on E-Commerce
THE ROLE OF FEDERAL GOVERNMENT
Ms Echols started by saying that the government's
role "is fundamental in a peripheral way"! Its role
is to encourage, help and enforce existing law but not to interfere.
There are gaps in existing legislation and the Administration
is concerned about a number of issues.
- Digital signatures
- Prescription drugs. The Federal Drug Agency wants
more authority and there is a debate about how this can square
- There is not a true single market in the US but
the Internet is forcing the US to create one.
- The Administration is awaiting the report of
the Special Commission (referred to by Mr Upson) in the hope that
this will simplify sales and telecommunications tax systems.
No Administration is willing to force States to act
against their own interests. They have to be persuaded to agree
to common codes. It is also important that industry receives benign
messages about the role of government and recognises that it has
a legitimate role, particularly in regard to issues such as digital
signatures and dispute resolution. On the former, it is important
that the draft Bill does not roll back existing protection; on
dispute resolution, it is surprising to hear that industry thinks
there might be a role for government. The preferred American approach
is empirical, on a case-by-case basis, and is not a question of
applying principle about the role of government.
Mr Keohane added that government moves more slowly
than business. It is government's role to assure a level of infrastructure.
However, views were changing and it is no longer possible to define
the relationship as simply as it might have been a year or two
GOVERNMENT USE OF THE INTERNET
A huge shift in how government conducts business
is just beginning. This will eventually affect everything the
government does. The first step was an e-gov Directive which had
been formulated in December 1999 and which set specific goals
to be achieved by the end of the year 2000. These included the
establishment of a government portal and the increasing accountability
of public officials. Research was taking place into the possibility
of expanding the new technologies to voting procedures and the
placing of certain government services online (some 500 by the
end of the year 2000).
The Administration is making huge efforts to co-ordinate
but the problem is that Congress allocates finance in a traditional
way to different "pipes". However, it is not possible
to fund "silo by silo". Systems have to be interoperable
and some form of cross-agency funding is essential. At the moment
each agency has ideas on the implementation of the e-gov Directive.
Each agency has a CIO and Ms Sally Katzen chairs the Committee
of CIOs and also the President's Management Conference. This is
a good start. The Y2K project was a useful pilot for cross-agency
funding. There is some cross-agency budgeting in counter-narcotics
but the whole issue is still very difficult.
Federal vs State government
The Federal government is moving in the same direction
as Virginia. It hopes to establish a portal, for example for the
issue of passports etc., but all large organisations have a similar
problem. It is accepted that government has to set an example.
One idea is that the agencies might retain part of the benefits
from effecting change.
The key to the EU's role will be its ability to persuade
Member States to agree on promoting e-commerce. Elsewhere in the
world, for example Africa and G8, the US and the EU must work
together. There has to be access to technology and the Internet
for all. The US has perceived a change of attitude and welcomes
the eEurope Action Plan. Some two or three years ago, dialogue
with the EU had been much more difficultprobably due to
a lack of experience and understanding on the part of the Europeans.
The EU Internal Market issues are probably easier to handle than
those which obtain in the US.
There has been considerable discussion in the OECD.
The US position is clear: that there should be no discriminatory
taxes. Collecting taxes from B2B and from the telecommunications
companies is easier than B2C but the problem is sales and use
taxes. The US is "pretty comfortable" with the OECD's
abilities to handle this.
There has been no focused inquiry into the growth
of media monopolies which results from the convergence of technologies
and the vertical integration of companies. All big mergers are
subject to monopoly and anti-trust review. One such case is that
of cable access which is not so much an infrastructure problem
as one involving the control of content. There could be concern
but the Administration is not contemplating a public inquiry.
Nor does the Administration seem to be making efforts
to look into the future. There is a general view about the pervasiveness
of the Internet but no attempt to devise scenarios.
This meeting should have been a final highlight of
the visit but was strangely lethargic. Nothing new came out of