Chairman Reed Hundt
                     Federal Communications Commission
                 National Conference of Editorial Writers
                            Baltimore, Maryland
                              October 2, 1996


                     "THE COMMUNICATIONS REVOLUTION:  
                            STOP MAKING SENSE"


       What a wonderful thing to be an editorial writer.  I imagine it as heavenly to show up
at work everyday with this mission:  be honest and be fun to read.
       
       At the FCC for more than half a century, people have shown up with the aim of doing
an honest job. But have we ever been fun to read? That's debatable.

       More specifically, the agency has had the important mission of reading the law,
looking at the economics, and doing the right thing.

       And historically the agency has performed its mission with competence and a general
lack of publicity.

       This has been in part because those who must write in a way that is fun to read have
been naturally somewhat daunted by, for example, making a pricing formula such as total
elements long run incremental cost sound interesting.

       Or by the treatment of JSAs and LMAs under our proposed new attribution rules.

       Or by sentences like:  NGBT within WTO may turn on ECO.

       But, but, but . . . things change.

       Our labors, it seems, more and more, seem to be in the newspapers, and  occasionally
even on the editorial pages.  

       One example: we recently passed three pages of new rules on children's television. 
This has already led to what USA Today called a "feeding frenzy" among producers for
educational shows.  Just yesterday, CBS announced a venture with the venerable Children's
Television Workshop to create quality educational programming.

       But these new developments would never have happened without your editorial pages. 
No one in Washington thought rules requiring more educational television had a chance.  This
decision happened to some degree because newspapers let the public know what was being
debated.  Your pen moved mountains, or at least broadcasters.

       After many years of writing critically acclaimed but obscure work from her
comfortable Parisian exile, Gertrude Stein was visited by her publisher Carl Van Vechten. He
informed her that her works had at last found an American audience.  He said she was, at
last,  popular in her home country.

       Her response was, "interesting, if true."

       So it's pretty interesting if the country is becoming interested in the FCC.  And it
would be more interesting to the degree that it is true.

       It might be true, since it seems you can't go a minute without reading that the
information highway is about to pave you over, the communications revolution is about to
turn you upside down, or the media age is about to take over your brain.

       The interest level for most people, however, is still not too high.  Many people are
unaware that for 60 years a government agency has existed for the purpose of serving the
public interest in communications.  Now, as anxiety and curiosity about the information age
mount, we at the FCC would love to have you help explain what we do and why we do it,
and judge whether we do it well, so that the American people can better understand, at least
with respect to the communications sector of our economy and society, what Lincoln said
nearly 150 years ago:  The purpose of government is to do what needs doing but none of us
can do so well acting alone. 

       Can anyone acting alone end the reign of the most monopolized sector of our
economy, the $250 billion worth of sunk cost in the local exchange markets, also called the
local phone business?

       Can anyone acting alone give Ross Perot a fair and non-political decision on whether
he should be able to buy access to the networks this fall?

       Can anyone acting alone figure out how to open world markets to communications
firms from the U.S.?

       All these topics, which are on my desk right now, call for government action, so that
the people's interests can be represented.

       To make our decisions well, one of our major tasks at the FCC, and the task in which
you are essential for our success, is engaging the American people.

       When I got my job, an experienced and able reporter from one of the finer magazines
in our trade press told me that there were just 75 people in Washington who mattered to the
FCC.   Most  of the 75, I learned, were lobbyists for industry.  None were reporters for the
general press; and none were representatives of the public.

       That this group of 75 were the only ones who mattered was, perhaps, an accurate
statement. 

       But I hope it's not true anymore.  Thanks to you, little by little we are attracting some
interest, at last, outside the Beltway, and outside the group of 75.

       It is vital that all Americans recognize the importance of the issues that we deal with
every day; the role we have in representing the public interest; and the importance of
participation by everyone in the country.

       At least this will be vital until the Internet puts us out of business.

       Don't laugh.  When that happens, you're going with us.
       
       One of the great pleasures of my job has been visiting editorial boards wherever I
travel.  From the Seattle Post Intelligencer to the Dallas Morning News to the Raleigh News
and Observer to the New Orleans Times Picayune, I've always enjoyed the dialogue.  

       In these editorial board meetings the question is always "what's the right thing to do?" 
That's the right question.  Asking it is the only way to get the right answer.

       I haven't always come out of these meetings having made converts, particularly in my
four meetings with The Wall Street Journal editorial board.  That was demonstrated today by
a wildly wrong-headed piece on that paper's editorial page  But the public can benefit even 
from the fallacies and falsehoods and fictions of that Journal piece -- provided that rebuttals
are also printed.  

       That Journal piece relates to the first issue I want to cover today -- the state vs. federal
tensions in telecommunications today.  Next, I want to discuss  my favorite less-than-
thoroughly covered stories from our field.  

       It's normally thought that the federal government wants to regulate and that states are
willing to deregulate; that if you are for what is called devolution to the states you are for less
government, not more. This is the general sense of the argument. 

       But in communications, it's the FCC that wants to deregulate and the states (with a
few exceptions) that don't.   

       The Telecommunications Reform Act of 1996 is one of the most significant laws
passed by Congress in many years.  As required by this law, we at the FCC have laid out 48
pages of rules, to replace thousands of pages of state rules that block competition, limit
investment, restrict job growth, regulate incumbent companies, and burden new entry.  

       In passing the 1996 Act, a  bipartisan Congress and the President asked the FCC  to
write rules that open to competition the largest remaining monopoly sector of our economy. 
With a few exceptions, the states favor the status quo.

       Congress wrote a statute that called on both federal and state regulators to work
together to introduce competition.  We were supposed to write the basic  pro-competition
rules; the states were supposed to administer them.   

        Our common, ultimate goal for communications should be:  no rules.  The only
exception should be the rules that get us to this goal.  Telecommunications policy historically
embraced monopolies because economists taught that telephone networks are natural
monopolies.  Innovation and insight has revealed that networks do have vast economies of
scale and scope, but the only thing natural about communications monopolies is that naturally
the companies with market power will try to keep that power unless we have rules that
constrain their potential anticompetitive impulses.

     But tomorrow in the Eighth Circuit Court of Appeals, four states seek a stay of our
rules.  They want to stop our country's commitment to competition in communications for the
simple stark reason that each wants to limit competition in its own state.  Some states want
the right to adopt a pro-monopoly, anticompetitive, pro-regulatory regime.  Maybe, like most
foreign countries, they think it's a convenient way for their governments to work with the
existing telephone companies.  But that approach is inconsistent with economics,
entrepreneurship, and the freedom of any American to start up an business in our bright new
communications sector.  

     In today's Wall Street Journal piece against competition, the author complains that our
rule don't allow telephone companies to recover historic costs.  To some this is arcane.  To
new entrants, it's critical.  But economists will tell you that the only companies who price on
the basis of historic costs are monopolies.  Fred Kahn, a brilliant and famous economist,  put
it this way:  "Economically efficient pricing looks not to the past -- not to how we got where
we are -- but to the future; efficiency requires that prices tell customers what incremental
resources society will use if they take more of the good or service in question, what resources
society will save if they consume less of it."

     If the incumbent  telephone companies are permitted to charge for access and
interconnection to their networks whatever they want to generate a return on their past
investment, new entrants will not be able to afford to compete.  They will be in effect paying
a tax to today's monopolists.  

     The Wall Street Journal piece -- like the argument of the four states in the Eighth 
Circuit -- is bad policy, bad economics, and bad law.  It's also interesting and true that Wall
Street agrees with me (not the Journal, but the investment community).  Merrill Lynch said
that our interconnection order "has smoothed the way for . . . local market competition." 
Morgan Stanley called it "evenhanded."  CS First Boston said that "the FCC order hits the
mark," and that "the FCC is set on the right course." 

     I'm also pleased that last month Congressman Bliley, Chairman of the House
Committee on Commerce and primary author of this legislation, said "Congress asked much
of the Federal Communications Commission when it passed the Telecommunications Act of
1996.  The Commission has delivered in full and on time. . . .    I am somewhat disappointed
that some feel the need to appeal the efforts of the Commission in court and other
proceedings, in effect delaying the development of competition in the local telephone market."

     I'm disappointed, too, but not surprised.  Many states foster regulatory bureaucracies
that feel threatened by the deregulatory, procompetitive rules written by the FCC and
mandated by Congress. 

      Some are clearly exceptions to this criticism.  In fact, most of our rules are borrowed
from the few states that began deregulating communications before the law was passed. 
Illinois is a leading example.  Under the leadership of PUC Chairman Dan Miller, Illinois'
pathbreaking deregulation is one of the reasons for that states' economic success.   Illinois, of
course, didn't ask for a stay.  In the main our rules ask Illinois to do what they're already
doing or intend to do. 

     The other states object only because they're asked now to do what Illinois has already
done.

     Another area where the FCC is pushing deregulation and competition is digital
television.  This new business will use the unused TV channels of today.  The unused
channels can't be used with an analog technology but with a digital technology we can have
dozens of new digital TV signals in every city and town.

     I think there should be at most only three rules for the new digital TV business: a) no
one can interfere with anyone else's signal; b) no one can own too much of the spectrum; and
c) anyone broadcasting digitally should promise to do at least 5% of their programming in the
public interest.

     But no tv manufacturer or  broadcaster has as yet embraced or requested this very
deregulatory regime. Instead they are asking us to pass rules that mandate technology, tell
them how many hours and with what resolution shows need to be shown.  

      I just hope they do not want us to incorporate all the old, out-of-date rules for analog
TV into the digital era.  

     There's a series of important questions that have to be answered about DTV but I
suppose the most important is that we are about to invent a brand new TV business in this
country --  digital TV -- and I'm not sure anyone but a few hundred people in the country
knows about it.  Yet 100 million homes should care about it, because tv , after all, is
important to all of us. 

     So what would be your answers to these questions:  what are the public benefits we
expect to receive from digital TV?  Do we expect to receive a certain amount of free over-
the-air television?  Do we expect to receive programming that can help educate our children? 
Will we expect to receive programming that can help solve the terrible problem of campaign
finance?    

     And how much will it cost the consumer to buy a digital TV receiver?

     DTV is not the only story in our area that is being underreported right now.  
     
     One of the most important parts of the Telecom Act is its mandate that the FCC
should connect all schools, classrooms and libraries to the information highway.  Interpreting
that provision will test our willingness to do the right thing.

     We must decide whether to provide support for schools building the networks all the
way to every classroom.  Will these networks be  high speed, high bandwidth connections that
put schools on the cutting edge of technology? 

     If we do the right thing with the powers Congress has given us, we can address
people's deep concern for the education of their children with the tools of the future.  But if
we don't give schools and teachers the tools they need, we risk making technology just
another tantalizing apple of education -- always just out of reach for many schools.  If, for
example, we adopt a policy that just gave every school the exact same amount of money, for
half the schools it would probably be more than they need and for the other half it wouldn't
be enough.  We need to have a policy that recognizes the disparities between schools and
helps to bridge the gap.

     Estimates are that it might cost up to $10 billion over five years to network every
classroom in the country. That may seem like a big number but it's actually less than two
tenths of one percent of revenues of the information technology industry.  

     Do you believe that's too much to invest in our children's education?  Do you believe
that corporate volunteerism will solve all these communications needs?  At least it would be
interesting to see that debate in print.  

     Another interesting issue is international telecommunications.  Telecommunications
networks are causing global economic integration; breaking down political barriers; helping us
attack many international problems more efficiently driving economic development. 
     Its interesting and true that there is a trade deficit of $5 billion in telecommunications
because of the absurdly high price of international phone calls for U.S. consumers.  The price
fixing scheme among international carriers is known as the accounting rate system --
dominant carriers agree they will charge each other for connecting a call in their home
market, precluding competition and keeping out new entrants.   We're working right now to
try to change this system.

     If we could junk that system, we would be free to find other ways to address  the
problem of development in the Third World.  The primary obstacle to development in the
Third World is the lack of an effective legal regime and a modern communications system. 

       The Vice President said in 1994 that the U.S. espoused the goal of building a global
information system.  Subject to the voters' actions  in  November, we will move at an
accelerated rate to fulfill  his vision.

     As we take on these issues about which I wouldn't mind more reporting, it will
continue to be crucial that we be guided not by only the 75 important people I was told about
three years ago.  We need to listen to, and be understood by, all Americans.

     If all our people know they can and do have representatives of their interests at the
FCC, then we will enriched the country's democracy.  You have the power to let everyone
know we're here.  Just by doing that you will benefit us all.

     And incidentally, you have the power to influence what we do.  I think you will agree
that that would be, as Gertrude Stein said, interesting, if true.  

     So let me close by thanking you for what you have done and all I know you are going
to do.

     Thank you very much.

                                  - FCC -