NOTE: Pacific Bell is in Booth No. 4477 at Networld+Interop 95

NETWORLD+INTEROP 95, LAS VEGAS--(BUSINESS WIRE)--March 28, 1995--Pacific Bell President Dave Dorman painted a rosy picture--with a caution--of a work force conducting business in Cyberspace and consumers perched in front of PCs instead of TVs.

Speaking at the Networld+Interop 95 trade show, Dorman said the national trend in communications suggests a world in the near future prospering from the boom in data communications technologies.

`At some moment in the next 100 days, more than half of all business communications industrywide will be data--and that's a crossover of landmark dimensions,` he said of the 30-percent national annual growth in data communications among businesses.

He also foresees rapid growth among consumers. `Last year, Americans bought as many PCs as television sets,` he said. For the first time, more than half were for home use. But those who buy them are no longer content to stay home. The number of modem owners has doubled since May.`

However, he cautioned, to achieve that vision, the nation will require broadband and wireless networks, 100 million trained people and `a slug of wildly perfect applications` at a cost of $250 million.

He said that reliance on new data communications technologies is taking on global scope.

`When you notice that global rivalries are shifting from the military sphere to the economic, it becomes clear that what we're talking about here amounts to the new smart weapons of international competition,` he said.

The driving forces behind the trend are customer demand for better mousetraps` and falling prices.

`ISDN and the fast packet services are rising like a full moon,` he said. `Computer power has become about the cheapest thing on earth. The price of chips fell 40 percent last year. There's more processing power in any new car today than there was in Apollo 11. More in the latest Minolta camera than in the Apple 2E.`

Dorman was the keynote speaker at the opening of Networld+Interop'95, a data communications trade show, which runs through March 31.

Pacific Bell is a subsidiary of Pacific Telesis Group, a diversified telecommunications corporation based in San Francisco.

-0-

Remarks of Dave Dorman

Interop/95

March 28, 1995

Las Vegas

Getting Ready For The Historic Cross-over

Good Morning. It/s nice to visit a quiet little town where the

pace is slow and the risks are low.

If you believe that, I have some bottomland to sell you in

California -- where the sun always shines...NOT!

It's rained in the Bay Area almost every day this year. I

wanted to try my hand at the tables last night, but I had to

stay in and dry out my shoes.

The program says this talk is about the historic crossover --

data about to become the larger part of business communications,

and I definitely want to address that.

But the proper title of this talk is `Mr. Jones Jacks In To Data

Dial Tone` -- which I'm sure you'll agree is an absolutely awful

title.

`Mr. Jones Jacks In To Data Dial Tone.`

Terrible title -- but not a bad opening...because when I explain

what it means, I can get my whole premise out on the table in

less than 2 minutes.

Let me start by parsing it out:

`Mr. Jones Jacks In To Data Dial Tone.`

What's `data dial tone`? It's my shorthand for easy access to

the Internet or your favorite online service. Not by T-1 lines,

not by DS-3 special access, not through corporate servers. Just

plain old dial-up from a home office, or a classroom, or a small

business.

Or from home during prime time, if only for curiosity sake.

As soon as I leave her I'm going to the press room to announce

Pacific Bell's Internet access service. A gateway,

essentially. I'm not supposed to talk about it up here, though.

I'll just do one leak -- about convenience. It's going to be

about one-stop shopping. Quicker access. But I've said too

much already. They'll pull the plug on me if I don't get back

to general themes. OK. Sorry.

`Jack In`. What's that?

There's maybe a handful of people here who don't recognize that

term -- (and they've probably gone to get Security.)

`Jack In` is a phrase coined by science fiction author William

Gibson. It's from his novel, Neuromancer, and it means tapping

into `cyberspace` -- which is also a Gibson term, by the way.

Neuromancer is not 11 years old. Can you believe that? How

time flies when you're jacking' in.

Who's Mr. Jones? Only about half-a-million of 'em in the L.A.

phone book. Which one do I mean? I mean Bob Dylan's Mr. Jones

-- as in `something's happening and you don't know what it is,

do you, Mr. Jones?`

Mr. Jones represents the great, un-wire masses. But Mr. Jones

is NOT clueless. He knows something's happening because he, like

Ms. Jones, can read. Things like the current TIME special

edition -- the whole magazine on cyberspace. Three weeks ago we

had cyberspace covers on Newsweek, Business Week and Forbes all

at the same time.

Mr. Jones has a sense that the PC is no longer a glorified

typewriter. And it's no longer just for a technological elite.

It's now clear that the PC will change the world -- not only for

Mr. Jobs, but for Mr. Jones as well. Last year Americans bought

as many Pcs as television sets. For the first time, more than

half were for home use. The number of modem owners has doubled

since May -- to more than 50 million.

If Mr. Jones still doesn't know what's happening, at least he

has a good hunch. By the year 2000, any business that can't

reach out over computer networks will struggle to be competitive

-- probably in vain. The same goes for students, city halls,

hospitals, volunteer organizations -- and, for that matter,

members of Congress.

That's the challenge our country faces, and here's all we need

to do:

- Build a ubiquitous broadband network.

- And a ubiquitous wireless network.

- Train about 100 million people.

- And develop a slug of wildly perfect applications.

I say `Wildly Perfect` because `Insanely Great` is taken.

The national price tag? 250 billion bucks should buy us a good

start.

Is that a big investment on a national scale? Here's some

perspective: Fortune estimates that Information Superhighway

investment will have twice the impact on economic growth over

the next decade compared with the Interstate Highway program in

its heyday. Maybe 3 trillion dollars worth of commerce by the

turn of the century. So, yeh -- this is big.

Maybe you remember that week about 18 months ago when the

internet hit the cover of TIME and Newsweek the first time

around. A lot of people thought the clock had started on our 15

minutes of fame. Well, here we are, still going. Mr. Jones is

still interested. There has not been such durable Page One

interest in a technology story since the splitting of the atom.

For the telephone industry, it's clearly our moment of

`re-invention.` And it was past time.

While the voice market is huge, it's growing slowly. In fact,

with faxes, voicemail, credit card authorizations and e-mail,

the fraction of calls that last less than one minute is not up

close to 50 percent -- double the fraction of 10 years ago. And

yet, over the same period, the annual usage of Pacific Bell's

network has more than doubled. Something is growing -- and that

something is data.

For years the industry has reported annual growth rates of data

traffic in the neighborhood of 30 percent per year. But such

growth rates on a relatively small base are not terribly

unusual, and when it had to compete for investment with voice

traffic -- growing at 2 percent on a colossal base -- data took

a backseat in the industry's planning.

But you grow anything 30 percent annually for 10 years and it

get real big. Fast forward to the present. This year,

something historic will happen. At some moment in the next 100

days, more than half of all business communications

industry-wide will be data -- and that's a crossover of landmark

dimensions.

The upside potential in existing data application is very large,

owing to lopsided adoption rates so far. The vast bulk of data

traffic today is generated by large corporations and government.

An even more important indicator that we've only scratched the

surface on data is this: most of today's data traffic stays

within the boundaries of the organization that generated it. We

are about to see the flowering of something very different. The

era of inter-enterprise data communication is at hand. And not

just for big users. Small and medium-size business, and

individual users -- Mr. Jones. They're getting curious about

data communications, too.

Some of the Joneses will be anxious as well as curious. That's

a reasonable frame of mind when looking at new technology. But

customer anxiety is nothing but opportunity for a company that's

well known for getting the job done -- as you'll hear from

hundreds of thousands of Californians who've recently gone

without power for days while the phone worked.

Not to put too fine a point on it -- but when you run the voices

of loved ones into millions of homes for generations, you can

build a pretty fair name for yourself.

That's not theory. I'm talking about actual results. In the

last few years, we've approached the Mr. Jones segment of the

business market with powerful but potentially intimidating data

products, ranging from ISDN to Frame Relay and ATM. And it's

real clear that reputation means a lot to Mr. Jones.

Across the board, these things are selling faster than we can

install them -- five and ten times original sales projections in

some markets. And yet, even while Mr. Jones is catching up, the

gap still widening -- because early adopters show no sign

they're running out of zeal. Demand for new products remains

intense, and much of the applications development is

customer-led.

Gone are the days, ladies and gentlemen, when the phone company

cooked up all new applications and then ran around trying to

explain to people why something they never thought of is now

essential.

In fact, gone are the days when the phone company unilaterally

determined which technologies are adopted. User forums have a

much greater role today. I can be very specific about that.

Some of you may have heard of CalREN, the California Research

and Education Network. Two years ago we put out the challenge

to people with a pioneering spirit in education, health,

business, government and others that we wanted to support

experimental applications development.

To date we've made $25 million in CalREN grants to over 55 teams

all over the state, trying new ways to use high-bandwidth data

communications--from distance learning to early warning for

earthquakes. That, I think, is one model for the future.

Here's another model -- a story from the annals of ISDN

illustrates how pivotal a role the customer can play in

technology deployment planning. When it was first rolled out of

Bell Labs in the early '80s, ISDN was envisioned as a workhorse

for data-intensive business centers and research parks. Not

unreasonable. That's where the computers were in the early '80s.

So the long-range deployment strategy called for early

introduction in targeted data districts. And the rest of the

network was supposed to be upgraded over a fairly long period of

time.

OK. Enter some entrepreneurial telecom managers at Lawrence

Livermore National Lab. After getting ISDN installed, the Lab's

telecom staff decided to survey a thousand scientists for ideas

on applications.

Pacific Bell people said, hey -- heavy duty data users? We want

in on this survey. So we helped out. They though maybe the

users would want the Livermore computers tied in with those of a

sister facility at Berkeley. Or maybe something in image

processing, which was getting hot at the Lab.

The answer was a stunner. Far ahead of whatever placed second

was telecommuting.

Now it seems obvious. Work at home for Livermore people

typically demands downloading large, complex files, often with

lots of graphics. The difference between ISDN and 9600 baud is

the difference between minutes and hours -- or, more to the

point, the difference between easy and completely infeasible.

But here's the point: with the homes of Lab people spread out

over seven or eight counties, this application three the whole

industry's ISDN deployment concept into a cocked hat. What's a

`targeted data district` when your telecommuters are scattered

-- in this case -- from Sacramento to Carmel, over 8,000 square

miles.

That survey and its validation elsewhere touched off a massive

acceleration in ISDN deployment -- to the point where we rolled

out home ISDN service last summer. It's got a good pricing

feature -- unlimited free local usage after 5 p.m. It's $22.95

a month and right now we're fighting the FCC to keep user access

charges out of the tariff.

But I'll tell you frankly that we need to do even better than

that if we intend to make ISDN a bonafide mass market product.

We've got to find a way to cut that price down to less than 20

bucks a months. In the case of ISDN, we learned some important

lessons. With both Frame Relay and SMDS, we aimed to make them

available to over 90% of our territory in the first year and we

hit both targets.

But the big lesson is this: A great voice company has a lot to

learn before it can become a great data company. I'm not afraid

to admit that we're in a learning phase.

When I look at the galloping growth of data, I see two key

drivers. The more important one is customer eagerness, or

impatience -- however you want to look at it.

For example, the old X.25 portion of the public data market is

melting away. It was 90% of the market 5 years ago. Less three

quarters today. It was a good 2400/4800 baud technology--9600

tops. But better mousetraps have come along. In fact, only the

online services like America On Line are keeping X.25 alive.

ISDN will be 20 percent of all data traffic in 4 years and fast

packet services are taking off like rockets. I can see why when

I use these things myself -- but I don't trust that data point

because I'm not Mr. Jones. I was doing this stuff before I'm

willing to admit.

What I do trust is the reaction of my kids -- 10 and

12-year--olds. They go out into the Web for hours at a time.

Homework help. Project research. Entertainment. E-mail to

friends--locally and across the country. They just found a

great rollerblading home page with video clips. 2 meg files.

Don't bother at 9600 baud.

You don't need ISDN for applications like these -- if you're

willing to wait for 20 minutes between screens. But for most

people, that is simply not competitive with television. And I,

for one, would rather have my kids Net surfing than watching

TV. I know where they've been -- based on system logs..

So -- customer eagerness, or customer impatience is Driver No. 1

behind this snowballing in data traffic. The second drive is

falling prices. Consider this: You can buy a 486-class computer

today for about $1000. That purchase represents the computing

power of 100 million transistors. Hey -- you can't buy 100

million of anything for a thousand dollars. A hundred million

sheets of toilet paper would run you over a hundred grand.

My point is that computer power has become about the cheapest

thing on earth. That's why there's more processing power in any

new car today that there was in Apollo 11.

Videoconferencing equipment that came on the market at $250,000

per end now costs $40,000 per end. Connection fees that were

$1000 an hour are now under $15 an hour. Let me pause for a

minute to point out that, if it sounds like I'm blithely mixing

business and consumer applications, I am.

You've heard the `convergence` thesis -- that computer,

telecommunications and software technologies are converging --

the boundaries between them are blurring. Well, I think, by the

same logic, that we're going to also see the blurring of market

segments, so that terms like `business market` versus `consumer

market` will have less and less meaning.

When my kids get up on the Net and buy software, is that `the

business market` or the `the consumer market`? Looks like both

to me. So that's my spin on the convergence theory. It's not

just the marriage of phones and computers, but the convergence

of user interests as well.

Anyway-- back to the high growth rates in data: It shouldn't be

a big surprise. The combination of customer eagerness and

falling costs is a powerful thing. And yet -- no matter how

cool the technology, no matter how good the price, people don't

stay excited about keeping up with the Joneses unless it proves

to fill a real need. And the value proposition across the board

in networking shakes down to this: Faster networks means better

information, and that in turn means smarter decisions.

That has always been true. Bad information makes for lousy

decisions. The Battle of New Orleans in 1815 was fought for

only one reason: They didn't know the War of 1812 was over. So

crummy information is an old problem. My point is that now we

have the means to do something about it. In business, better

information can cut out enormous amounts of waste. For example,

General Electric technicians no longer go to the parts depot in

the morning.

You're asking yourself: Where do they get their parts? Here's

the new routine. Each night when the techs get home, they use

their laptops to jack in to the company computer and order any

supplies they need. Their trucks are re-stocked in their

driveways while they sleep. In the morning, they go right to

the first service call. It saves up to 2 hours a day per truck.

Just-in-time delivery is a proven winner when it comes to

inventory-cost reduction. It obviously depends entirely on data

networks. And Motorola has honed it to a fare-thee-well.

When Motorola retailers need more beepers, they go to their

terminals and order. So many blue, so many yellow, so many

shocking pink. Some that beep, some that buzz, some that play a

little tune. Any combinations. Such flexibility would normally

mean a big inventory, which means big inventory risks. No such

thing at Motorola.

?Where's the magic? The things are not even made until the

order comes in. And yet they're delivered to the retailer - for

the most part -- that same day.

I know we've all heard similar anecdotes. What's new and

exciting is that they're no longer confined to the General

Electric's and Motorola's of the world. Mr. Jones is getting

inventive, too. Like beepers on dairy cows -- to call them for

milking. Timed. Phased. Orderly. Cuts labor costs.

The Golden One Credit Union in Sacramento put loan application

terminals in about 80 auto dealerships. They're linked up by

ISDN lines to the office computer. Loan preparation used to

take 3 days. Now it takes 15 minutes.

Let's go to Paradise, a small town in Northern California. Mr.

Jones fits comfortably into the Paradise scene. But if you look

beneath the quiet village appearance, you'll find a big

Information Superhighway offramp feeding right onto main street

and into the offices of the Paradise Post, the town newspaper.

The Post also publishes urban tabloids, like the San Francisco

Bay Guardian. For years that depended on couriers. Now they've

put together 4 ISDN lines and they're downloading big files at

megabit rates.

When you talk about pioneer in Frame Relay, you have include a

family-owned business in Southern California -- Dunn-Edwards, a

chain of paint stores. In the last year they leap-frogged from

analog lines and modems to a 46-port frame relay inventory

management network that's operationally indistinguishable from

EDI networks that cost companies like Motorola millions just to

install.

Lassen Research is a software company located in a rural part of

northern California. Remote. The polar opposite of where you

are now. And that's just the way they like it. But these guys

aren't backward. They use Sparc-10 workstations. They have

clients all over the world. And, until recently, they software

upgrades at their client locations. That meant a lot of

travel. Now, they used ISDN to load their software onto the

Internet, and by Internet, to client locations overseas.

Let me say a few words about business on the Internet. That's a

hot topic. The London Economist opened an Internet subscription

desk -- and then reported in a big huff that they only get about

3 signups a week. ?What did they expect?

Ask yourself -- like any shopping mall tenant would --

WHO ARE THE CUSTOMERS HERE?

Let me give you a clue: According to the U.S. Census Bureau, 60

pct of American computer users are under 18. That's SIX-ZERO

percent.

Now in my experience -- and check me on this -- teenagers would

not necessarily buy a lot of subscriptions to the London

Economist. Just like the mall tenant, the Web sites need to ask

themselves - what king of traffic passes this way? And -- at

this stage -- it's predominantly students. These students are

privileged in ways they can't realize, given the blinders of

youth. They're privileged in terms of opportunity, savvy and

resources.

Unfortunately, there are many other who are not.

This industry maybe can't change the world, but it can make a

big difference -- by joining in the effort to get technology

into our schools.

Pacific Bell has earmarked $100 million for free ISDN and free

usage for one year. After that, school usage will be heavily

discounted.

But $100 million is a small dent in a big problem. I can't pass

the opportunity to urge every company here to get in the game

and help us over the Info Rich/Info Poor challenge -- starting

with school technology.

At the end of this wonderful story of opportunity, I place a

cautionary tale. It's a caution about health and balance -- not

for our economy, but for us -- you and me and everybody who uses

the tools of this industry.

You see, information technology has given modern managers the

means to wipe out most forms of business waste -- and most forms

of family life.

That's the paradox of information technology -- the tools that

lift the burden can, after a while, start to look a little like

-- well, addiction.

Last fall, Information Week ran the provocative story of Mary

O'Brien, director of Quality for an Illinois hospital. I want

to read you a quote: `She always checks her voicemail right

before she goes to bed, and she often has 30 or so messages.`

The person being quoted is not Mary O'Brien's MIS guy. The

person begin quoted is Mary O'Brien's husband -- if you get my

drift. Mr. O'Brien is not happy that his wife is too tied up

with her information tools to turn out the light. I know my

wife can relate to that. I'm a habitual, late-night e-mailer.

We must guard against the servant that strangles.

So let's keep reminding ourselves and our colleagues --

borrowing the tag line of a respected company that is no doubt

represented here: Information should serve people, and not the

other way around. I don't surface this caution to scare

people. I raise it with the confidence that we can hold on to

-- and build on -- the constructive positioning that information

technology has so far achieved.

We are creating something wonderful on our watch. Something we

should be genuinely proud of. Let's not lose sight of that.

The Information Superhighway will change the world, not only for

early adopters -- like the Jones kids -- but for Mr. Jones as

well.

It will lift burdens, extend benefits, serve as the channels of

knowledge and the wings of truth. All of that is within reach,

and we should expect to not only use these wonders, but also to

enjoy them.

I thank you for your kind attention, and I hope you enjoy

Interop.

--30--lw/sf.. slw/sf

CONTACT: Pacific Bell Scott E. Smith, 415/542-0597

KEYWORD: CALIFORNIA

INDUSTRY KEYWORD: TELECOMMUNICATIONS COMPUTERS/ELECTRONICS

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AP-NY-03-28-95 1304EST

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