Success story comes back to bite

The failure of a once-praised company highlights problems with the Advanced Technology Program.

By SARA FRITZ

© St. Petersburg Times, published May 14, 2000

WASHINGTON -- A few years ago, the Clinton administration went looking for a success story to help dispel Republican criticism of a program offering federal funds to private companies doing advanced technology research.

It found Accuwave Corp., a Santa Monica, Calif.-based firm that had received $2-million from the government to find a way to increase the number of signals that can be transmitted through a single strand of optic fiber.

Accuwave's early success was touted again and again by top administration officials as evidence that government money was being well-spent on such activities.

A fact sheet distributed widely by the Commerce Department in December 1995 said Accuwave had developed a "nifty technology" and the company was selling its products to major telecommunications companies in the United States, Europe and Japan. A year later, then-Commerce Secretary Mickey Kantor cited Accuwave as an example to prove the Advanced Technology Program, or ATP, was "the right program at the right time for the U.S. economy."

As a result, Republicans in Congress backed off efforts to kill the program they had condemned as unnecessary "corporate welfare."

But Accuwave's great success story has an unhappy ending, which only recently came to light. As it turns out, the company went bankrupt in November 1998 and with it went that nifty technology developed with $2-million in taxpayer money.

Former Accuwave CEO Neven Karlovac is philosophical about the firm's demise. "Things like this happen," Karlovac said in a telephone interview. "Some other technology won out in the marketplace. This is the essence of progress."

Critics of the program are less philosophical. The Accuwave story is being repeated by those in Congress who are reviving efforts to kill ATP.

Republicans on the House science committee recently issued a report saying there is no evidence ATP has improved American competitiveness in the technology field, which was its original objective. On the contrary, it said, ATP funding "may simply be displacing private investment capital."

Indeed, Accuwave's failure represents far more than a public relations strategy gone awry. The flaw that caused Accuwave's technology breakthrough to fail in the marketplace, according to a report by the General Accounting Office, is symptomatic of the major weakness in the entire Advanced Technology Program -- a program that will get $175.5-million in the coming fiscal year under the Clinton administration's proposed budget.

The problem is Accuwave's research -- like all of the technology research being financed through this program -- duplicates research being conducted by successful private companies that have no need for public money.

Although Congress has strictly prohibited the Commerce Department from funding any research already being done in the private sector, GAO investigators found it is impossible for Commerce officials to avoid funding duplicative research because private companies never disclose what they are working on.

At the time the government gave $2-million to Accuwave, according to GAO, many other firms were involved in similar research. In fact, Accuwave's competitors in this field where much bigger companies with ample resources such as Bell Labs, Nortel Networks and Ciena Corp.

As might have been expected, one of these big companies, Ciena, beat Accuwave to the market in 1996 with a 16-wavelength multiplexing system. Accuwave executives were unaware of Ciena's secret research on this topic until 1995, about two years after the Santa Monica company had spent the government's money.

Although Accuwave commercialized a device known as a "wavelength locker," which controls the frequency of a laser, its sales of that device never surpassed $3-million -- far short of the $40-million annual sales the company was predicting when it sought federal funds. At its biggest, according to Karlovac, Accuwave employed no more than 25 people, never reaching the 200-person payroll it predicted in the proposal submitted to the government.

Of course, when you consider that the total federal budget adds up to trillions of dollars, it is not a big deal for the bureaucracy to lose $2-million on a bad bet.

But critics note hundreds and hundreds of millions of dollars have been spent on similarly risky ventures since the program was created by the Bush administration in 1988. And many of the recipients have been companies with even less of a need for government funds than Accuwave -- companies such as General Electric, Ford and General Motors.

Although Republicans on the House science committee would like to kill ATP outright, they are proposing a $65-million cut in the money the administration has requested for next year. If Republicans maintain a majority in Congress after the November election, they have singled out ATP as a major target in 2001.

Meanwhile, even Democrats who have long supported the program are beginning to look at it more critically.

According to a report in New Technology Week, Commerce Secretary William M. Daley has instructed the program's new director, Alan Balutis, to take "a hard and honest look" at ATP.

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