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High Tech Trend Still Looks Promising for Hawaii,
but Time is Running Out

By Robert Kay and Richard Moody

It's been a year since we last gazed into our crystal ball predicting Hawaii's high tech trends. Frankly, last year was a mixed bag. Legislatively we were very disappointed. We predicted (erroneously) that our friends in the Hawaii State House and Senate would pay increased attention to the high tech industry. Senate Bill 208 was written to provide a tax incentive to attract software firms to our shores. The bill was supported and passed through the various legislative committees. At the last moment, however, it went into committee and disappeared into a giant black hole. When it came out, the contents of the original bill were gutted and SB 208 was transformed into a tax break for hotel owners. For those of us spent hours in stuffy chambers testifying, this was maddening. Giving a tax incentive to high tech companies would have sent a message to mainland companies that this state was serious about attracting business. As such another year was lost in growing a critical industry.

Ok, now that we've got that off our chest let's look at the technology sectors one by one...

Telecommunications Wars

Telecom continues to be one of the more vibrant growth areas in our state. The wireless providers (GTE, Voicestream, Primeco, Hawaiian Wireless and Honolulu Cellular) continue to shoot it out for the very limited market that Hawaii offers. In the meantime, two more wireless providers, Sprint and AT&T (which already has wireless service of Maui) plan to join the fray on Oahu in the near future. How any of these providers can and will make a profit is questionable but that's for the shareholders and management to wrangle over.

Bottom line: Competition among the wireless providers is good for the consumer. Prices will inevitably fall for mobile phone users and service can only get better.

What about the future of local exchange carriers?

These are the companies that sell phone service to your home or business. GTE is of course the 800 pound gorilla in this market but with deregulation, competitors such as GST, AT&T, Sprint and Oceanic Communications are nipping at its heels. Oceanic plans to roll out local telephone services for business customers in January and it is our understanding that AT&T and Sprint would also like to provide both residential and business services at some point in the near future. However there are regulatory and operational hurdles before these two giants can inaugurate service.

How will this all shake out?

The rules of the game are still being written and hashed out between the industry, the PUC, the Consumer Advocate and consumer groups. The outcome of this battle royal will determine who you will be able buy basic phone service from, what kind of services will be available, how much competition there will be and how much you will be paying. The immediate fallout from deregulation is already obvious. GTE is now advertising inter island rates as low as seven cents a minute. Not too long ago it was in the neighborhood of 40 cents. It goes without saying that telecommunications policies (such as those that made the inter island price drop possible) will have a direct bearing on Hawaii's place in the evolving digital economy. Yet no one seems to have a clue what our telecommunications future will be.

Bottom line: Some of the smartest people in the industry are unclear as to what will happen. Will GTE remain the dominant player in this state? Will customers stay with the provider of the last 100 years or will they move to other companies? What new technologies and innovative services will be available for business and residential customers? Stay tuned--this is real important stuff.

Hawaii, the Virtual Office

The rapid advance of data communications technology may work in our State's favor in another area. One trend that we see beginning to occur here is the migration of technology-savvy mainlanders who want make Hawaii their virtual office. The scenario is simple. People who have the money and means can now live anywhere they want so long as they are "wired". These include writers, stockbrokers, financial planners, software developers, graphic artists, etc. All these people need are a phone jack and a computer and they are in business. This small but affluent sector could make a substantial contribution to our state in the way of creating new jobs, a new tax base and helping to train our labor force. As the cost of communications goes down, these people will increasingly want to set up shop in Hawaii. We need to attract this crowd but as long as our business climate remains hostile this will be difficult.

Bottom Line: We need to create incentives that will encourage the use of the Internet by small business people and provide incentives to small business who are willing to relocate to our state. The state needs to get the message out that if you're doing business on the Internet, you should be living in Hawaii. Unfortunately, as the laws are now written, those who do export services from Hawaii (such as selling products over the Internet) are penalized. To its credit, the Governor's task force has recommended that exported services be exempt from general excise taxes. If implemented this would be a very good start at putting Hawaii entrepreneurs who do business outside the state on equal footing with their counterparts on the mainland.

Diversifying the Economy

The Governor's task force recommendations discussed the importance of diversifying the economy but with the exception of exempting GE tax for those who export services, nothing was offered in particular to Hawaii's nascent technology sector. This oversight may haunt us. With the Asian Contagion threatening to wallop our tourism industry, the need for establishing alternatives to the tourism sector couldn't be clearer and more pressing.

Bottom Line: We urge the governor and the legislature to act decisively to help create a vision for the growth of the technology and telecommunications industries by providing the industry with incentives just as other states do. The Governor could also create a (politically neutral) telecommunications/technology advisory board to counsel him on these topics. The board could be made up of Hawaii people both here and those who have migrated to Silicon Valley. As it is the State seems to have no clear direction in this area. In an age where the digital economy will soon dominate the world stage, inaction or the wrong policy could leave us in the dust. We're optimistic the state can move forward this coming year but it will take leadership at the highest levels.
Robert Kay runs a public relations firm specializing in high technology clients.

The Honolulu Advertiser

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