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March 31, 1999

TMF Radio Show Interview With John Koskinen, Chairman of the President's Council on Year 2000 Conversion

With David & Tom Gardner

David: John, welcome to The Motley Fool Radio Show.

Koskinen: Happy to be with you.

David: Thanks for joining us. What's the most recent status -- let's start there -- of the federal government's preparations regarding Y2K?

Koskinen: We just recently announced that the government now has 92% of its mission-critical systems totally Year 2000 compliant, so we're nearing the finish line.

David: OK, now that other 8%, let's focus on that. Is that spread out? Is that a single department? What's the other 8%?

"The government now has 92% of its mission-critical systems totally Year 2000 compliant, so we're nearing the finish line."
Koskinen: We monitor through the Office of Management and Budget the 24 major agencies of the government. Thirteen of them are now 100% done, another 10 are between 85% and 99% done, and then AID [U.S. Agency for International Development] -- which only has seven systems -- is still working on all of them. So the systems that are not done are spread through about 10 other departments.

David: OK, and I'm betting, just betting that part of that 8% is maybe Tom Gardner's tax refund for 1999.

Koskinen: We're looking into that. (Tom laughs.)

David: OK, good.

Tom: Now, John, I would assume that the corporate sector is a little bit ahead of that in the U.S., is that right?

Koskinen: Well, one of the great lessons in this is actually that the federal government's ahead of most of the corporate sectors.

Tom: Ah-ha. So there's some misinformation out there because a lot of people are saying that the private sector is ahead of the federal government, and it's not.

Koskinen: It's not. Well, the prediction for the last year, particularly from some in Congress, has been that the federal government would never make it -- not just by March 31 of this year, but wouldn't make it by January 1 of 2000. Therefore, the rap on the street has been, well, the government's way behind. And in a great tribute to a lot of dedicated, hard-working career federal employees, as I say, 13 agencies now are totally done. There aren't a lot of big companies that can make that statement. Most companies are trying to be done by June, and by that time, we expect virtually all of our systems in the federal government will all be done as well.

Tom: That's great, John. Now I want to pick three industries that a lot of people are focused on with the Year 2000 problem, and I want you to estimate whether you think there will be a significant problem there, what problem might exist if any. So both of those: Is it significant, and if there is a problem, what will it be? Let's start with finance. What will happen to the banking system, the public markets, on January 1, 2000, on the first public trading day?

David: You know, Tom, you're always going back to your own bottom line, your own wallet....

Tom: Hey, I remember Henry Kissinger. Didn't Henry Kissinger say he's going to pull his money out of the bank?

Koskinen: Well, that's what he's reputed to say. I was not there, but I've seen it on the Web, and a lot of interesting stuff is floating around on the Web. Our advice to people is, you're at greater risk carrying that amount of money around or sticking it in your mattress. I don't know what Henry's planning on doing with his. But the industries that are the farthest ahead in the United States are the banking and securities industries. In fact, the securities industry is right now in the middle of running what are called street-wide tests where they've got virtually all of the transaction processors for Wall Street every weekend for six weekends testing with each other to make sure the transactions will work in a Year 2000 context. So we are confident.

"The industries that are the farthest ahead in the United States are the banking and securities industries."
I kid the bankers -- we expect that at this point over 97% of every bank including the small banks are making satisfactory progress -- and I kid them as a testimonial to federal regulation because they've been working in a very creative partnership with the FDIC and the Office of the Controller of Currency and the Federal Reserve Board, who have oversight responsibilities. So those systems we think will work very well.

Tom: Telecommunications. What will happen to my long-distance telephone call that I try to make at 9:00 a.m. to wish my parents a happy New Year's Day?

Koskinen: Well, as a general matter, if you're in a large city using one of the large carriers -- local-exchange carriers, long-distance carriers -- there was a report this week by the Federal Communications Commission that they expect those carriers will all be done by June, and they handle 90% to 92% of the traffic. So from that standpoint you're in pretty good shape.

The concern we all have is about some -- not all, but some -- of the 1,300 small telephone companies because we don't have that much information about their state of preparedness. So if you're making a call from a small town, at this point you'd have to check with your small town telephone company and say, "Folks, how ya doin'?" Also to the extent you want to make that call, and your mom is in a developing country in the world, we're concerned that some of those countries won't be reachable by phone unless they do a whole lot of work between now and the end of the year.

Tom: Ah-ha. OK. Well, thankfully she's not, but she may be traveling. You never know. And Dave, chances are I'll be trying to bail Dave out of jail in a developing country somewhere on New Year's Day, so I may not be able to get in touch with you Dave, so please prepare for that.

David: I'll try to get in jail well before New Year's Day, Tom.

Tom: OK. Now, how about the world of power -- electricity, heat, etc.? What about my local utilities?

Koskinen: Power's a basic point of everyone's life. If you don't have power, it doesn't matter whether your systems are compliant or not, they're obviously not going to work. We formed a working partnership, a cooperative one, with actually each of the major industries in the United States that are important to people to try to work with them -- a lot of them don't have to listen to what we say, but they've been very cooperative -- to try to assess where they are and to provide support for their activities.

"I didn't expect to be trying to organize the world when I took this job, but nobody else has been doing it, so we actually now are working around the globe with national coordinators in 140 countries."
There's a group called the Northern American Electric Reliability Council, which is the umbrella group for most of the power industry in the United States. They've got, count them, 3,080 power companies in the United States, and they've got over 3,000 of them working with them, not only to test systems and share information, but to fill out assessment forms. According to the latest forms they think that again the larger companies are doing well enough that there are no risks to the grids generally. If there are going to be any problems, again, they are going to be with some of the smaller power companies that may be starting late and may be a little more challenged.

But from the standpoint of the survivalist saying, "Well, we're not going to have power in the Eastern Untied States," there's no evidence at all that the grids are going to go down. So, again, we're putting all of our time and effort with the industry on trying to make sure that the local municipal power company and the local rural utility has paid attention to this problem, taken advantage of the information that the large companies are now making available and doing everything they can to be ready for the end of the year.

Tom: Now, John, if I'm in this small rural market, should I just be getting on the phone right now and starting to hammer my local phone provider, my local utilities and say, "Guys, I hope we're going to be on board with this, right? You guys are doing the work?"

Koskinen: That's where we're all going to go. We're going to run an initiative this summer called Community Conversations in which we hope to encourage the mayor of every small- to medium-sized city and county to hold conversations with the local banks, the local power companies, the local utility companies -- not only to work together and make sure they're prepared, but to involve the public and share information with them. Because ultimately what everyone wants to know is what you guys want to know and that is: Well, gee, it's great the power grid's going to hold, the phone systems in the country generally are going to work, but tell me about my phone company, my power company, my bank, my hospital.

David: My world.

Koskinen: My world. And we think that's important information for people to have. We're not going to be able to do that across the country company by company. So what we hope to do with the working relationship we have with the major industry groups is get them to encourage all of their members to participate at the local level in these conversations, to get all of the elected public officials to talk not only about what they're doing with public safety and all of the other services they provide, but to in fact provide forums where instead of everybody in the country having to call their telephone company there'll be places to go to get information in some detail about how they're doing and when they're going to be done.

Tom: Now, John, I've read that you have said that you will be flying in an airplane on New Year's Eve. You're going to be the guinea pig for America. You believe there's not going to be any problem with air traffic control, you've said, am I right, that you're going to fly from D.C. to New York on New Year's Eve?

Koskinen: You've got it.

Tom: Now, what if we were to ask you to fly from D.C. to Moscow on New Year's Eve. Would you make that flight?

David: Ah, so Tom, you're asking John what about the international community and its preparedness for Y2K? What about the so-called Third World?

Koskinen: It's a real risk, and we've been concerned from the start about the low level of activities of a lot of countries around the world. When I started, the estimates were three-quarters of the countries of the world hadn't done much of anything. And, as I've said recently, I didn't expect to be trying to organize the world when I took this job, but nobody else has been doing it, so we actually now are working around the globe with national coordinators in 140 countries trying to share information, get them focused in their regions on the problems they confront.

"Bottom line is you don't fire a missile without human intervention, so there will not be an inadvertent firing."
I think they're not only going to have problems if they don't do work on their telephones, they're going to have power problems, they'll have air traffic problems, and it'll be difficult for them. Fortunately for the American economy, we do the vast majority of our trading with major developed countries, and so our economy's going to be OK. But for a company that relies on a developing country for raw materials or particular finished products, they could have problems.

David: Earlier, John, you gave us that figure of 92% for the federal government -- 92% of mission-critical systems compliant with Y2K. Could you just toss out a number that estimates for the international community at large what percent you think are actually prepared right now?

Koskinen: Well, there's no way to know. You're talking about close to 200 countries, and they run the full gamut of countries that are doing almost as well as we are to countries that are at square one. And there's no way to easily average that, but I would say the vast majority of countries are still very challenged on this problem.

Tom: Now, what about the missile question? What's going to happen with missile systems around the world and the Year 2000 problem?

Koskinen: Well, some of the websites early on had predictions that weapons would start firing themselves, there'd be mistakes in the systems, and magically we'd have nuclear missiles flying all around in the air. Bottom line is -- and it's true in Russia as well as here, and we've worked with other countries -- you don't fire a missile without human intervention, so there will not be an inadvertent firing. What we are concerned about -- particularly with Russia -- is their early warning system, which is heavily computerized, as ours is, but in some ways collapsing of its own weight. We're concerned not that the weapons will go off automatically, but that if those early warning systems go dark, the level of anxiety could go up when you don't know what's happening to yourself, and we could then create a greater situation of risk.

So we've started through our Defense Department and their Ministry of Defense a series of conversations aimed at trying to make sure that we share information with each other as we move across the threshold into the Year 2000. So if their systems do malfunction in the early warning system, they'll be able to get information from us.

Tom: It's an unbelievable amount of communication around the world. I mean, you are, John, I'm pretty much getting the sense, you are Ma Bell on legs. You're the Little Train that Could, though, also. We think you're probably going to make it up over the mountain, but there's obviously a lot of work to be done, and we're thankful you could take some time out this week to talk to people across the country about what's happening with the Year 2000 problem.

Koskinen: Well, I've been delighted to have the opportunity, and it's been good talking with you.

David: Thank you very much, John Koskinen, chairman of the President's Council on Year 2000 Conversion. A man that we wish the best of luck to because his work benefits all of us.

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