HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT AND TOURISM March 20, 2000 5:03 p.m. COMMITTEE CALENDAR E-COMMERCE OVERVIEW, PART 1 TAPE 00-5, SIDE A CALL TO ORDER Chair Phillips called the House Special Committee on Economic Development and Tourism meeting to order at 5:03 p.m. MEMBERS PRESENT Committee members present at the call to order were Representatives Phillips, Cissna, Halcro, and Dyson. Other representatives in attendance were Representatives Berkowitz and Kemplen. SUMMARY OF INFORMATION CHAIR PHILLIPS opened the meeting with remarks about E-commerce and how E-commerce was not even a word that would have come to mind 10 years ago. The world is changing fast due to technological advancements, and this committee wanted to take up the issue to keep the legislature at its forefront. On a historical note, this will be the first time a legislative committee meeting will have been broadcast over the Internet. "There will be a lot of technological firsts in the coming years, and I'm sure that this committee will be trying to continue in that direction along with Fran Ulmer who has seen a few firsts as chair person of the Technology Information Committee (TIC)." REPRESENTATIVE CISSNA stated that she was pleased to finally have this meeting and that she was concerned that all Alaskans have access to a "road", not just those along a paved road, and that the Telecommunications Highway can be that road. REPRESENTATIVE CISSNA mentioned a few details about E-commerce: It's on the rise (in 1999 - $111 billion, in 2003 expected to be $1.3 trillion); Alaska ranks high in technology at the foresight of the TIC; Alaska's high-tech industry has 400 businesses, which equals only 4 percent of state gross product; wages are higher in the high-tech industry and average $20,000 higher than the average private-sector wage. LIEUTENANT GOVERNOR FRAN ULMER gave an overview of E-commerce and how it relates to E-government but realized that there are many spokes to the wheel of E-business: 1) E-education - needed to develop workers capable of working in the industry; 2) E-infrastructure - needed to get the services to rural users includes bandwidth issues; 3) E-investment - money needed to spur the development of the industry; 4) E-research and development - must have source of new innovation like Austin, Texas; 5) E-regulation - Regulatory Commission of Alaska; 6) E-enabling - taxation issues enter into this; 7) E-government - what can the government do to encourage the industry? LIEUTENANT GOVERNOR ULMER talked about E-government and the TIC, which was created by legislative resolve in 1988 at the request of Red Boucher. The TIC is a coordinating mechanism for the delivery of voice data and video information for government. Committee includes members from the University of Alaska, government, and executive branch. The TIC does its work by committee and subcommittees, meeting quarterly. There is a Technical Advisory Committee, Emergency Communications Committee, Geographic Information System (GIS) Committee among others. The TIC plan, created in 1996, states what are the technology areas of priority for the state, both short term and long term. An updated plan is on the way. The TIC was responsible for the state a web page where people can register their vehicle, get a hunting license, find out who's running for office, and find the status of their permanent fund dividend applications. The web erases distance as a barrier. LIEUTENANT GOVERNOR ULMER noted the TIC is currently working on, for the year 2000, online reservations for the Alaska marine ferry system, Denali KidCare applications and payment of fees, leases and hunting permits. LIEUTENANT GOVERNOR ULMER said another important part of the TIC is to set standards for state government to simplify and streamline government processes for both state workers and the public they serve. State workers can get specific training to improve their skills in their job. The Lieutenant Governor is particularly proud of this. LIEUTENANT GOVERNOR ULMER indicated the state has received many awards regarding its forward thinking in the field of technology such as second in the nation in the Digital State Award and other very prestigious awards. LIEUTENANT GOVERNOR ULMER said the TIC cooperates with other organizations such as the Alaska Science Technology Foundation (ASTF). The TIC has used money from ASTF to wire the schools for Internet (NET-days), teacher grant programs and others. LIEUTENANT GOVERNOR ULMER announced an FCC [Federal Communications Commission] sponsored, Federal-State Joint Conference on digital connectivity is coming to Alaska. Some portions of the state are not adequately connected. The commission is interested in small pockets of unconnected rural and inter-city areas. The FCC conference on advanced services will be in Anchorage on April 17. The FCC has become aware that they have to reach out to states as partners to create greater access to E-commerce. LIEUTENANT GOVERNOR ULMER reviewed the cyber-crime bills that may be important to the state and mentioned that Governor Knowles has introduced some legislation to address this. The committee members are recommended to look at that at and are urged to move them ahead this session. LIEUTENANT GOVERNOR ULMER said once the e-rate regulations were in place, the TIC was told that it needed to have a mechanism to use the Internet in the school before the applications would be granted. Karen Crane of the Department of Education & Early Development (EED) worked hard so that the schools would be ready once the money began flowing. Combined with the ASTF grant money the Department was ready to move ahead with getting the districts wired. REPRESENTATIVE DYSON asked whether people with disabilities who need to be able to access state services are on the radar screen of the TIC. LIEUTENANT GOVERNOR ULMER replied that yes, these problems are being looked at. In fact, there are computers that have Braille interaction and computers that recognize voice interaction, so as the technology becomes more common place, the cost will come down and will see more of this available for those in need here in Alaska. REPRESENTATIVE DYSON inquired to find out if the opportunity to have Alaska's courts allow video-conferencing court appearances for testimony. LIEUTENANT GOVERNOR ULMER says this is now working and tele- health initiatives are also progressing. The court system is pioneering this bail hearing and court appearances are being done for children over the Internet. REPRESENTATIVE DYSON asked the Lt. Gov. what she thought the state would need in bandwidth for the future. LIEUTENANT GOVERNOR ULMER replied "a lot!" but her crystal ball was not clear enough to say for sure. REPRESENTATIVE BERKOWITZ asked if there has been any thought of Internet cost equalization. LIEUTENANT GOVERNOR ULMER said both the states of Washington and Minnesota have proposed legislation that attaches fees to phone bills that will help to buy down the cost of rural Internet access, but these bill are not moving. They are really only for the purposes of discussion. REPRESENTATIVE KEMPLEN asked if there have been any telecommuting initiatives for the state of Alaska. LIEUTENANT GOVERNOR ULMER said she is not aware of state of Alaska employees doing this now, but there has been some discussion of this and certainly there has been some benefits recognized in the private sector. DR. KENWORTHY, Alaska Science Technology Foundation, stated four points: Alaska's technology economy is small per capita but has one of the fastest growing rates across the country. E-commerce represents both an opportunity and a threat to existing businesses. In a survey of information technology employers, they felt finding quality, information technology employees is the most important challenge. This eclipses the connectivity issue. It is important for industry and education to be able to talk in technical terms about what is needed in workforce. High-tech business council funded for $600,000 for 16 months to drive information technology strategy for state and industry. This will help fund the education of workers, whether 18 year olds or mid-career types. The private sector is responding to e-commerce initiatives; it will be driven by the large companies of the world. Businesses will have to conform to paperless ordering procedures or the big companies' business will go to other suppliers. As a state with a web site, it must decide whether putting applications on the net is something it wants and can handle. DR. KENWORTHY mentioned that these four points are important to create the capital and technology needed to grow high-tech businesses. Bidco has been funded for Alaska growth capital, which provides early stage risk capital for pre-bankable deals. InvestNet helped launch entrepreneur and investors matching organization. DR. KENWORTHY said three of four unwired schools will be wired. $5 million matching funds went into a fund that was for wiring schools. Digital divide is not within the schools. The problem is in the rural area where the distance for the wire to the places off the road system is one of small markets and too few people to spread the investment over. This is the challenge. The good news is that young people are leading the way here; in many cases, students are teaching the teachers. The next issue is one of professional development of teachers and using the access for good education. REPRESENTATIVE KEMPLEN asked whether the ability to provide affordable bandwidth by the state, as an anchor tenant to provide public services, is a solution to the digital divide. DR. KENWORTHY replied this is a partial solution, this is not an across-the-board subsidy, and there should be a degree of competition. There will be an attempt to provide user-driven services instead of access provider-driven content. The effort the state put into making the state services available on the Internet will positively affect the digital divide. REPRESENTATIVE CISSNA said she does not want a lot of physical state intervention in the industry but wants to know if TV cable will play any role in the scheme of things. DR. KENWORTHY stated that it was excellent that they are developing the technologies, and the competition is good. The different organizations that regulate old services are antiquated. But those people offering similar services are able to offer through different regulatory methods. Companies are hedging their bets to which method will pull ahead. REPRESENTATIVE ROKEBURG stated that Mr. Kenworthy should not give up on DSL [Digital Subscriber Line] cable. It will be more than competitive with cable modems and other broadband technology because of new developments. ED NEUMAN said he was looking at becoming a full-fledged teacher and found out that he couldn't get classes over the Internet for his teaching certification. He found out that Southeast Alaska is less desirable and less profitable than Uganda, Zaire and other parts of the third world. A new GCI satellite, with the ability to service all of Alaska is operational, but it is offered to our schools at $800 per month with an already realized 85 percent discount. Small communities operate at $0.74 to $1.20 per minute. Mr. Neuman sees Southeast Alaska's schools and infrastructure falling farther and farther behind as the connectivity issue escalates. CHAIR PHILLIPS asked if he knows the status of Southeast Alaska's fiber optic cable. MR. NEUMAN said no he didn't and nobody mentioned that to him. Hollis has line from Klawock Lake for power and telephone but was told by AT&T [American Telephone and Telegraph] "they got what they got" and should be thankful for it. PAULA SCLERA, Special Staff Assistant, Office of the Lieutenant Governor, stated that there was not fiber optic cable to Sitka and Ketchikan. ROBIN NAUGHTON, Engine Interactive, began by stating she is excited by this topic and the topic of E-commerce from a web development firm's perspective. Engine Interactive started in early 1995 working with Dairy Gold, USWest and the Salt Lake Olympic Committee. They do the web development to make the web sites look good to the user but also the back-end work to make sure the web page interacts with the database. Washington is a great place because of its proximity in location to other technological firms, the university and the technology talent pool. They are having the challenge of a lack of qualified employees, as would be the case in Alaska. MIKE SHORE, Engine Interactive, stated that it would be harder for them to do the business in Alaska because of the proximity they currently have to the tech companies. CHAIR PHILLIPS stated that once the state was fully wired up that would make no difference. ROBIN NAUGHTON said that initially that was why they went to Seattle because face-to-face communication was still thought necessary but now it's not as critical. It is now moving toward more international business. TED QUINN, Cubed International, Capital Office Systems and Capital Office Supply, oversees Capital Office Supply. It started in Juneau in 1946 as a mom and pop office supply store. Mr. Quinn's father bought into the business in 1976 and in 1984 his brother and he moved to Anchorage to open Capital Office Systems. It's been a family business for a number of years. In 1993 they took the business over from his father. Last December they moved the headquarters to Anchorage into a true showpiece facility with modular flooring, modular lighting and modular furniture. A new way of working, in the new millennium, there are no offices, everyone has laptops and they can work wherever they want. Last summer he and his brothers met to discuss the desire to change the office supply business. His retail stores were costing 60 percent of their overhead but only bringing in 20 percent of their revenues. The barriers of transportation have been reduced with the advent of Fed Ex and UPS [United Parcel Service]. So they moved (not closed) the stores to the Internet. MR. QUINN said they have lowered overhead dramatically and increased the level of customer service by using the online order system and shipping freight into Juneau overnight from Anchorage. They have made a successful transition to the Internet age. MR. QUINN noted on the flip side, after the close of the retail outlet in October, revenues dropped initially, but revenues were down only 2 percent. Internet use is now 28 percent of their business. In September, 71 customers used the Internet; 161 in October; 205 in November; 220 in December; 380 in January; and 521 in February. There is not much growth in the Juneau market, but the Internet opens up other business opportunity. MR. QUINN told the committee that state supply contract is a non- mandatory contract based on a discounted list price. The state still bids contracts for $100 or $200 dollars. Pick and click process can change the process, by reducing the hassle factor and lowering costs. MR. QUINN mentioned that after the state awards that Lieutenant Governor Ulmer mentioned, the state web site got 200,000 hits a month. Pat Costello at JuneauPhoto.com is getting 500,000 hits per day. That is a success story he hopes to follow by doubling his volume in the coming year. CHAIR PHILLIPS asked for a written synopsis of the state procurement idea to submit to the Legislative Council. REPRESENTATIVE CISSNA asked whether there is more flexibility in job hours. MR. QUINN replied yes, they can work anywhere, they are open at all times. ANDY KLINE, state webmaster, stated that it is exciting to be a part of the historic first Webcast. The Webcast is a streaming video technology played across a realplayer video at four frames per second versus 30 frames per second for Gavel-to-Gavel. There are some technological limitations, but there are lots of other ways to distribute this kind of information. COMMITTEE ACTION The committee took no action. ADJOURNMENT CHAIR PHILLIPS adjourned the meeting at 6:44 p.m. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tape and log notes may be obtained by contacting the House Records Office at 129 6th Street, Suite 229, Juneau, Alaska 99801-2197, (907) 465-2214, and after adjournment of the second session of the Twenty-first Alaska State Legislature this information may be obtained by contacting the Legislative Reference Library at 129 6th Street, Suite 102, (907) 465-3808.