Raymond W. Smith is Chairman and CEO of Bell Atlantic Corporation. Prior to that, he held the titles of president and vice chairman. According to his official biography, Smith has fashioned Bell Atlantic into a company widely cited as the most aggressive of the Regional Bell Operating Companies and a leading telecommunications company worldwide. A native of Pittsburgh, he joined the Bell System in Pennsylvania in 1959.
Smith serves on advisory boards of the House of Representatives for Renewing U.S. Science Policy, the Business Roundtable and the Library of Congress. He is a member of the National Information Infrastructure Advisory Council, advising the U.S. Commerce Department on telecommunications policy. In 1995, he was appointed by President Clinton to the President's Committee on the Arts and Humanities.
Educom Review: We don't hear the word "convergence" as much now as we did a year or two ago. There was a good bit of talk about a grand convergence of computers and TV and video and publishing and consumer electronics and so forth. What happened?
SMITH: Convergence is now such an accepted part of our lives we don't even use the term anymore. The Internet and broadband networks, along with low-cost microprocessors have produced a technological convergence that is proceeding at roughly the combined speed of Moore's and Metcalfe's Laws. What has not taken place is the convergence of companies. Bell Atlantic decided not to buy Tele-Communications, Inc., and Southwestern Bell decided to pass on Cox Communications, leaving only U S West in both cable and telephony, a fish-and-fowl combination yet to be proven successful. More importantly, though, technological convergence and product convergence did take place.
ER: What about the convergence of content and delivery?
SMITH: You can see that occurring almost every other day as Microsoft makes its bi-weekly announcements. Just today, Bell Atlantic announced a new approach to content delivery over the Internet. Although we are considered a transport company, our Internet access product has a lot of content with a Bell Atlantic label on it. A week ago, Microsoft announced the MSNBC venture, and a few months earlier, ABC-Disney combined content and delivery. When the term "convergence" was coined, it meant cable and telcos, but developments never take place exactly the way we think they will.
ER: Why do you say that? How has the notion changed?
SMITH: Well, the first time the industry thought about convergence, they looked through the rearview mirror, at where we had been. We thought of it as big companies coming together, when in fact it is parts of big companies coming together. NBC and Microsoft didn't have to merge to produce a joint product. Bell Atlantic has also partnered with Microsoft on our new Web service. "Marriages of convenience" may be a better term.
ER: Will there be any dominant partner in these marriages of convenience? Is there a "first among equals" in industry?
SMITH: Well, I believe in Arthur's Law, which is the notion that the first to market has an inordinate advantage not subject to the law of diminishing returns, but accelerating returns. Underwood, the company first to market with typewriters, introduced a very mediocre key configuration which remains today's standard, despite a number of attempts to dislodge it with ergonomically correct keyboards. The competitors all failed and we are still stuck with the pinkie-stretching Underwood keyboard. That's because they set the standard. The same thing was true about DOS, and perhaps Netscape. So the dominant players will be those who get in early, take the risks and put the money in. They will probably be able to hold on to more market share than normal economics would suggest. The Bell companies were first in Yellow Pages and when competitors emerged in the '80s, analysts assumed the market would be split equally; yet a decade later, we still have a very large percentage of the market.
ER: When you talk about alliances between companies and different industries, are you suggesting that Bell Atlantic itself will not be getting into other businesses all by itself?
SMITH: We are entering four new businesses this year - long distance, Internet access, PCS [personal communications services] and video. We are in the Internet business, partnering with both Microsoft and Netscape. We are in the video business with Nynex and PacTel. We are in the long distance business by ourselves right now, but at some point we will have others in with us as the merger with Nynex proceeds. In PCS, our partners are U S West and AirTouch. So in each case it has been appropriate to take on partners for risk-sharing and greater scope. That's sort of a convergence in itself.
ER: Comment on some of the other industries. Do you see a real future for broadcast TV?
SMITH: Yes, I do. I think that digital broadcast TV will be with us well into the 21st century and the brands of ABC, NBC, CBS and Fox will still be important 10 years from now.
ER: Because they are brands?
SMITH: Yes. Not just because they broadcast over the air. They may not have as large a market share as they have today, but they will be very important players. But besides being good brands, they have spectrum and production facilities.
ER: What about cable? Is cable going to put the telephone companies out of business?
SMITH: I don't even think cable is going to get into the telephone business in any meaningful way in the next four or five years, despite what they have been saying. That doesn't mean we won't have competition - MCI, AT&T and others will definitely get into the business in 1997, as will MFS, Teleport and others. But at the most recent cable TV conventions, all you heard was "cable modem," not "cable telephony." Sooner or later they will upgrade their systems, but not in the very near term.
ER: Is that just because they are so far behind, or is there some other reason?
SMITH: Well, number one, the technology does not exist right now for reliable, high-quality, low-cost telephony over cable. It's been a flop, demonstrated not just by cable companies but by telephone companies that have tried it. They were fooled by the experience in the United Kingdom, into thinking that they could take existing coaxial cable and easily deliver high-quality telephony. But it is a little trickier than that. The network in the United Kingdom is brand new, with a telephone line wrapped right around the coaxial cable. It will take some years for cable to compete - the architecture is very poor for telephony - and by that time we will have built a broadband switched network.
Existing cable plant accumulates noise, like a 500-person party line. You can imagine a telephone system as a grass rake - the kind that has the spines that stick out in an array - with the wooden handle being the fiber-optics. The spines sticking out like the fingers on your hand are the lines into a house, so each house has its own line. The cable system is like a butterfly hoop without the net, and the customers are arranged around the edges of the butterfly hoop with one powerful signal traveling around it. Each individual's conversation would have to peel off the hoop - a most difficult technical problem, requiring very, very high-speed lasers that need environmental protection. I don't mean they harm the environment; I mean, the environment harms them. So it turns out to be very expensive and very difficult construction, and it hasn't been successfully done anywhere in the country with an existing cable system on any scale. The talk about it continues because some folks hope their stock will be positively affected.
ER: And when you say this about the next five years - would you say the same things for 10 years out?
SMITH: I don't know. The industry may invent some sort of technological solution. But another problem for the cable companies is that their current systems are outdated, requiring a tremendous amount of money to upgrade. Many are heavily leveraged and have low stock prices for the very reasons I'm describing, so they will have difficulty raising the money for modernization. At this point most companies cannot even deliver a cable modem service, which they promised in 1995. My lone voice in the wilderness is now being joined by analysts saying that cable telephony, while theoretically possible, will not take as much as two percent of the telephony revenues in the year 2000. I'm waiting for someone to call and say, "Ray, you were absolutely right all along," but I won't hold my breath.
ER: Let's go down a short list of some other industries. What do you see as the role of print newspapers, if any, 10 years from now?
SMITH: I think the newspaper will continue to serve as an excellent out-only terminal device. They are portable, inexpensive and use very little power. They can't record and can't network, so print is a limited display terminal, but their portability, foldability and wide-scan screen has not been replicated by any computer. When you open a normal-size newspaper and scan from the left border to the right, you are doing something not possible on a computer. So newspapers are still going to be around for awhile.
ER: What do you think of the wisdom of all these experiments that traditional newspapers are doing now in terms of developing Web sites?
SMITH: Oh, I think it's very wise that they do so, because although newspapers will survive, they will lose advertising and face competition from online services - the first real live competition they've had since television. There are no cities with four or five newspapers any more, as there were before television. Online services will give us the ability to obtain information in new ways, so it's very smart of them to get into online news services to hedge their losses.
ER: A number of people seem to think that the real distinguishing characteristic of online newspapers is interactivity. Do you think that's important?
SMITH: Well, I think the number one aspect is that they are edited continuously, in real time. Interactivity is useful, but secondary. When I go into a newspaper, I probably get yesterday's news. If I go into my Bloomie, the news is two minutes old. My New York Times sits there on my desk all day and nobody brings it up to date - shameful! So that's number one. Another factor is the computer's ability to search by subject.
ER: Is it correct to infer from what you said earlier that you would apply to newspapers the same comment you made about broadcast TV - that brand name is important, that the established brand-name newspapers like the Wall Street Journal and the New York Times will survive?
SMITH: If they maintain quality and refresh their format, they will be around 10 years from now, doing well. There is a generational inertia in markets. It took a long time for fountain pens to phase out because older people had grown used to them. It will take an entire generation to move on (to use a euphemism) before some of the old institutions see the full magnitude of the change that is upon them.
ER: The newer generations have been called the Nintendo generation and the MTV generation. Is that the way you see them?
SMITH: I would characterize them as the e-mail generation, perhaps the literate generation. People who use e-mail today write an order of magnitude more letters than people in the previous generation. E-mail traffic is growing 50 percent a year because people are writing each other.
We may be quite surprised in a few years that our children can write and spell - we may see an amazing rise in real literacy. For example, in the Christopher Columbus School in Union City, N.J. which Bell Atlantic supported for the last five years, kids wrote one or two sentences a week until we put computers into their homes and their teachers' homes and connected them to servers and e-mail. Those kids, headed for early dropout, are now excellent students. The kids just e-mailed each other every day till they learned to write.
ER: You seem to have a very optimistic view of the positive impact of technology and education.
SMITH: I do, yes. I've seen it in Union City, where the aspiration level went from almost zero to 100 percent in three years, while test scores and self-esteem soared. Every student and teacher in that school thinks that this was the most important educational change that they had ever seen.
ER: What do you think about higher education?
SMITH: Paraphrasing Churchill, I would say that the universities today are not good enough, not accountable enough, not smart enough. But they are the best in the world.
ER: What would you tell a young person - let's say a 12-year-old - about education?
SMITH: Number one, get a computer immediately. You are already five years behind if you don't have a computer and are not online. It's absolutely vital, and if it isn't second nature to you, like riding a bicycle, by the time you are 15, you are going to live below your potential in this country. If you are not on a computer by the age of eight, you will be tremendously disadvantaged. This is the new core competency, an absolute requirement. And as distance learning, faster computers, faster networks and online commerce come about, this competency will become even more important.
ER: Do you worry about the gap between the information technology haves and have-nots?
SMITH: Yes, I do. And I worry about it from the point of view of the allocation of resources by the school districts. Most school districts today allocate insufficient resources to technology. Less than one percent of their budgets is earmarked for technology, whereas in a company like ours, it's 70 percent. We do that because we are good educators. Our people can learn many skills very quickly when they have the right facilities.
My worry is not that there aren't enough resources. There are. What I worry about is the allocation process - the conservative nature of school boards, administrations and unions in not recognizing that the computer is a minimum requirement. The computer tutors without judgment, students learn without peer pressure not to learn, a kid can make his or her mistakes in a closet. There was a tremendous backlash when writing and printing were first developed, from those who felt the only way to record thoughts was in the oral histories they had grown comfortable with. They predicted that writing was going to destroy our ability to memorize and think. They missed the point. Writing and printing extended our minds, enabling us to store, record and reason much better. We must overcome these Luddites - allocation is the key problem we must resolve. The issue is not haves and have-nots; it is choose and choose-nots.
ER: Tell us about Bell Atlantic's approach to training its own people.
SMITH: Well, all our programs are computer-based. Of course we have coaches, teachers and tutors. The courses are individual-need-paced, just-in-time education. But I don't think what we're doing is unusual. I think there are many companies that have changed their own internal educational systems. And we are not perfect. But compared to traditional training or education, our systems are well organized, supported and computer-based.
ER: Let's talk about management. Do you have any general feeling about the state of management style in America now?
SMITH: I think America is in a terrible accountability crisis. Companies, municipalities, universities have yet to establish clear accountability. Systems are not sufficiently aligned to allow individuals in large organizations to express themselves creatively and act on their own behalf. And by systems I mean compensation, training, selection, promotion. We are, I think, in the earliest stages of management science. For example, there were hundreds of companies and institutions with quality programs that amounted to nothing more than executive fairy dust, in which managers did not define their terms, their output or their metrics. They did not establish accountabilities, and didn't align the systems to make sure that those accountabilities made sense to the individual. We are still in the very early stages of understanding how to adapt large organizations to human motivational patterns.
ER: What about colleges and universities? Do your same comments apply?
SMITH: It's a different problem. One difference for sure is that at Bell Atlantic, for example, we are an organization of people attempting to be a team. And even when we're just muddling through, it's clear that is what we're attempting to do. Whereas a university isn't even trying to be a team, it's trying to be a league, a federation of teams - the engineering department, the fine arts department and the business school are the teams. So a university is like the NFL, and no one would ever call the NFL a team. It's a different management problem.
ER: Are you suggesting that it couldn't be dealt with at the NFL level?
SMITH: No, the NFL doesn't make play books. The NFL doesn't make player selections or coaches. The NFL doesn't do any of those things. The NFL holds the federation together, tries to keep order and keep it from exploding. And that's what a college administration does - it sets some general ground rules and regulations, acts as an arbiter, raises money, and tries to keep things in rough coordination.
ER: Well, that's an imperfect introduction to the idea of the FCC, but we'll use it anyway. We can't finish this interview without getting you to comment on regulation and the FCC.
SMITH: My basic difficulty with the FCC is always that they will try to make rules that will fit Wyoming and Kansas, West Virginia and Florida. And that's too tough to do. I think it is an old-fashioned, centrist, programmatic approach.
ER: Do you still see a role for the FCC?
SMITH: Oh, yes. Someone's got to control the spectrum. It's a very valuable commodity and one operator has the capability of interfering with another. So we need the FCC to adjudicate differences. But we don't need them to set rates or prescribe detailed rules.
ER: Do we need them to say that there should be three hours of children's programming a week on network television?
SMITH: They did not order three hours of children's programming - they jawboned and the networks agreed. I think that Reed Hundt has the perfect right and obligation to use his position as a bully pulpit and that may be what he did. If he ordered it and enforced it through the law, I think that would be a mistake. But to jawbone your way home is a good way to go about it.
ER: Well, one final question. As an advisor to anyone who will listen - as an advisor to the President, to the Congress, to the principals and school superintendents, what would your advice be?
SMITH: I believe that every child in this country should have an education equal to the best private schools. In private schools, all the students have a computer in their homes and the teachers have a computer in theirs. They are on the Internet, they e-mail each other, and they use all the word processing, spread-sheet capabilities of a computer. They know the dog can't eat the computer so they do their homework. A minimal level connection online to servers, and the Internet, with a computer in the home and in the school is the minimum we should have for each child. These are the pencils and paper of today, and every school in this country should have those "pencils and paper."
Now let's figure out how much that costs. My students - they are not my students, but I think of them as my students - in Union City have the same computer we gave them four and a half years ago. The whole setup cost us, in today's dollars, about $1,800, assuming they keep the computer for eight years. It amounts to two or three hundred bucks a year. We put them online. That's another hundred dollars a year. We gave them software and we gave computers to their teachers - another hundred bucks. We are talking about only four or five hundred dollars a student to revolutionize their lives!
What percentage of the students at Harvard have their own computers? One hundred percent. That is what are we talking about. Everybody deserves the basic pencils and paper of the 21st century. Shipley, Haverford and Baldwin - the best private schools have them, so shouldn't the kids in Wannamaker School in Center City, Philadelphia, have the same? I think it is criminal that we don't give all students, everywhere in this country, the basic educational tools to compete!