Security at a price - US/Pacific Outlook - AT and T to develop secure network for CEOs

CommunicationsWeek International, April 1, 2002 by Elizabeth Biddlecombe

This month, chief executives of corporate America decided they needed their own secure communications network to keep in touch in the event of major terrorist attacks. The result is that AT&T is going to build CEOLink for the CEOs of Citigroup, Federal Express, General Motors, Lockheed Martin and as many as 150 other corporate chiefs.

It's a sign that 11 September has bitten deep into the American corporate psyche. It may look good for some network builders and software suppliers, but security paranoia comes generally at a bad time for the information technology and telecommunications (ICT) industries.

The ICT sector is already reeling from the downturn in high-technology trade. Exports from California's Silicon Valley fell in 2001 for the first time since the state began keeping records--nearly 11% across all industries. The value of computers and electronic exports--the state's largest export--fell nearly 20% to $50 billion, while the second largest category-machinery exports, including semiconductors--fell more than 22% to $11 billion.

Now, the economic emergency has been compounded by the same 9/11 factor that has banking and automotive bosses ordering online bulletproofing. The U.S. Department of Defense has proposed that foreign technology workers be excluded from working on non-classified military projects, though the proposal has been described by some commentators as a minefield.

Some concern is understandable: six months after the World Trade Center attack, student visa extensions have been sent to two of the dead hijackers. But government and military contracts are just one part of business in the Valley, and a strike at foreign information technology professionals is a strike at the core of the West Coast technology industry, according to Doug Henton, president of Collaborative Economics, a Mountain View consultancy catering to civic leaders.

"Foreign nationals are a very important part of the Valley," he says. "People on H1B [working] visas have always been part of the Valley," he says, pointing to the finding in The Index of Silicon Valley 2002 that 34% of the 2.5 million people living in the area are foreign-born.

For instance, Sunnyvale-based CPlane has a staff of 53. Two thirds of these are foreign-born, including South African-born Simon Crosby, the company's chairman, founder and chief technology officer.

Founded in 1999, CPlane is in startup mode, with its service network control software in trial with a number of players.

Companies such as CPlane are also prey to another characteristic of the region: high prices. According to the Boyd Company, a location counselling and consulting firm, San Francisco is the most expensive city in North America to do business, costing an average of $43 million a year for a company operating a 500-employee facility. It's not just San Francisco, either. Santa Clara county, which includes the city of San Jose, was second-most expensive, with costs of $41.7 million.

Boyd Company's president John Boyd says Baltimore and Washington, D.C. are becoming preferred destinations as a result.

"It is still a very expensive place to do business," says CPlane's Crosby. "We still haven't seen the salaries come down. There are lots of other places to build business, and for cost reasons I wouldn't do it here but for the skills available."

"Productivity [has] skyrocketed, even though the economy was in trouble," says Henton at Collaborative Economics. "Overall productivity is the highest in the nation by a factor of two."

Outside the seas of cubicles that make up American offices, the general public is more infused with technology in the United States. Laptops are frequently pulled out on public transport, while the second annual Hot Spots Report from HereUare Communications, a San Jose-based company that supports wireless Internet providers, found that San Francisco has 257 public wireless Internet access points, more than any other city in the country.

The infusion appears to reach a barrier when it comes to local government, though. According to research in "The Best States for E-Commerce" a report measuring how state laws and administration help promote Internet use compiled by the Progressive Policy Institute in Washington, D.C., California scored a measly 5.8-closer to the lowest score of 3.1 in South Carolina than to the highest of 16.6, achieved by Oregon.