SPEECH TO THE U.S. HISPANIC CHAMBER OF COMMERCE
Greetings and thank you for your warm welcome. Special thanks to Jose Nino, the President and Chief Executive Officer of the United States Hispanic Chamber of Commerce, to Ronald Montoya, Chairman of the Board of the Chamber, and to all the members and friends of the U.S. Hispanic Chamber of Commerce.
I am pleased to be here with you at the U.S. Hispanic Chamber's first Annual International Business Opportunities Conference. I am also honored to share the podium with the U.S. Secretary of Commerce, William Daley, the Chilean Minister of Economy, Dr. Alvaro Garcia Hurtado, and the Mexican Secretary of Commerce, Dr. Herminio Blanco Mendoza.
I am especially pleased to be here because this is a time of tremendous growth and opportunity throughout the world. Telecommunications has been an important engine for growth both here and abroad. It is one of the fastest growing sectors in the U.S. economy. Eight million of the 12 million new jobs created under the Clinton-Gore administration have been in the telecommunications and information sectors.
Yet, the communications network remains out of reach for most of the world's inhabitants. Half of the people in the world today have never made a telephone call. Half of the world's population lives two day's walk from a telephone. In some countries, the waiting list time for installation of a basic wireline telephone is ten years--or more. This is the legacy of monopoly in the telecommunications industry.
More and more people are recognizing the damage this legacy has caused and are changing the rules to foster new opportunities. Countries around the world are realizing the importance of competition and private investment to an efficient and widely accessible telecommunications network. As countries open up to private investment and competition, we will see dramatic improvements in access by the dawn of the next millennium.
The agreements reached by the World Trade Organization in December 1996 and February 1997 will facilitate those developments and vastly increase opportunities for trade and commerce in telecommunications. Development of the telecommunications networks will in turn increase opportunities for business of all kinds.
Today, telecommunications is a $600 billion dollar industry. Under these Agreements, it can double or triple over the next ten years.
WTO is guided by four basic principles: trade without discrimination; predictable and growing access to markets; fair competition; and encouraging development and economic reform.
Translating these principles into real-world practice, membership in the WTO enables a nation's companies to gain access to markets in foreign countries.
It permits firms to do business in foreign countries on the same terms and conditions as the domestic companies that operate in the same sector and that provide the same goods or services.
The two WTO Agreements, finalized in December 1996 and February 1997, respectively, opened international telecom markets around the world to competition, investment, and development. The WTO Agreement on Basic Telecommunications Services and the Information Technology Agreement make that possible.
The Agreement on Basic Telecommunications Services is the first multilateral trade agreement ever reached in the field of telecommunications and development. The 69 signatory countries comprise the world's major telecom markets, and account for more than 90% of the world's telecommunications services. The services covered in the Agreement account for 85% to 90% of all telecom service revenues.
Before this Agreement, only 17% of the top 20 telecom markets were open to U.S. companies. Now they have access to nearly 100% of these markets.
The Agreement on Basic Telecommunications Services covers local, long distance, and international voice telephone services, including cellular, paging, personal communications services, mobile data and fax services, and satellite services. It does not apply to broadcasting.
Signatories to the Agreement on Basic Telecommunications Services have committed to treat international services suppliers the same as domestic suppliers. Under the Agreement, you will not have to pay extra duties or fees for the privilege of doing business in member countries, and you will not have to pay more for your overhead costs or have your profits more heavily taxed.
Through the Agreement, 52 countries guaranteed access to their markets for international services and facilities, with 5 more countries open for selected international services. 56 countries will also open up for all or selected services supplied by satellite suppliers.
Additionally, the Agreement on Basic Telecommunications Services creates new and special opportunities for investing in telecommunications facilities and services in foreign countries.
44 countries will permit full foreign ownership or control of all telecom services and facilities, and 12 countries will allow foreign ownership or control of certain telecom services. The remaining 9 will permit some degree of foreign ownership in their telecom services market.
The Agreement will create over a million jobs in the U.S., and many more throughout the world, in the next ten years. Companies in the United States and abroad will need people with experience in marketing, construction, real estate, securing land use permits, product and technology development, software development, distribution and many other skills to deploy telecommunications networks.
There will also be opportunities for resellers. Resellers buy minutes of telephone usage in bulk at wholesale prices, then resell them to the public. They are often able to provide lower prices than the telephone companies because of their low overhead. Resale is new in many countries, but resellers have a right to enter and compete, and can provide specially tailored services to consumers.
Opportunities abound for small businesses who can identify and fill market niches, as well as for large firms. Hispanic-American businesses are well poised to take advantage of these opportunities. The U.S. Hispanic Chamber of Commerce has led several trade missions to Latin America. The ties formed through those missions can help forge partnerships that will lead to mutual benefit.
Many of you have also capitalized on opportunities at home to help develop telecommunications networks and apply them to business needs. I encourage you to let us know how we can such foster opportunities, and to comment on the FCC rulemakings which develop the framework for competition. Cathy Sandoval, Director of the FCC's Office of Communications Business Opportunities, Eric Liang Jensen, OCBO Deputy Director, and Bob Calaff, Senior Counsel to the International Bureau are just a few of the dedicated FCC staff members who can help you through the regulatory process.
Many countries are changing their regulatory systems to facilitate competition. 65 signatory countries, representing 93% of the world's telecommunications markets, have pledged in a binding Reference Paper to adopt regulatory principles that promote competition in the telecom services market.
The Reference Paper commits foreign countries to establish independent regulatory bodies, guarantees that companies will be able to interconnect with networks in foreign countries at fair prices, forbids anti-competitive practices such as cross-subsidization, and mandates transparency of government regulations and licensing.
As markets open to competition and private investment, new businesses will find themselves competing against companies which were former monopolies and are dominant carriers with power to resist foreign competition. The regulatory system will be your best protection against the lingering power and extensive market share of such companies.
The Agreement on Basic Telecommunications Services will go into effect on January 1, 1998. The United States has begun to work with its major trading partners so that on the effective date, all countries can honor their commitments.
Chile, for example, has made some of the most extensive commitments to open its market to competition. We look forward to developing a partnership with all countries in the Americas to facilitate implementation of our mutual WTO commitments.
The WTO Information Technology Agreement will have a major impact because it will lower or abolish tariffs levied on information technology around the world. The 41 countries signing the Information Technology Agreement account for over 93% of world trade in Information Technology (IT) products. The Agreement covers computer hardware and software, semiconductors and other electrical components, and most telecommunications equipment.
Tariff cuts have already begun. Tariff reductions began on July 1, 1997. Tariffs will continue to fall in stages over the next 2 and 1/2 years.
Eliminating tariffs on IT equipment is critical. Some member countries impose tariffs of 15% or more. A number of countries in the developing world impose tariffs of 50% or higher on IT products. Lower tariffs will sharply reduce the costs of building out telecommunications systems, and dramatically reduce the costs of communications and information services to the user.
In today's information-oriented economy, communications and information products and services are increasingly becoming a necessity. A recent study by the National Federation of Independent Businesses found that 77% of all U.S. small businesses have a computer, and that 40% have access to on-line services. The average U.S. small business has 4 telephone lines, and many have multiples of that number.
The average retail price in 1997 for a computer in the United States is $1,800. A ten per cent tariff would increase that price to $1,980. Peru has a flat tariff for all sectors of 12%; Bolivia has a flat tariff of 10%; and in Venezuela, the tariff on telecom goods/computers is 5%. In West Africa, Ghana has a 10% tariff on computers; Nigeria's tariff on computers is 15%.
In Francophone Africa, the tariff on computers in Senegal is 45% and in the Cameroon, 55%. In East Africa, Uganda and Kenya impose a 58% tariff on computers; Tanzania's tariff is 59%. An $1,800 computer would cost over $2,862 in Tanzania due to high tariffs. And that price does not account for shipping costs and distributor's mark-ups. High tariffs place a computer beyond the reach of all but the very wealthy.
Lower tariffs would make information and communications technologies accessible to more businesses, small and large. They would also help make these technologies more accessible to schools and health care centers in order to deliver services to people in rural and remote regions. Citizens of the 42 countries that have committed to reducing tariffs through the Information Technology Agreement, including Costa Rica and the United States, will reap the benefits of the Information Age more quickly as a result of these lower tariffs.
Charlene Barshefsky, the U.S. Trade Representative, did a great job in leading the U.S. team in the WTO effort. I am proud that the FCC was a part of the WTO team, along with the Departments of State and Commerce.
The leadership of the U.S. Congress and the Clinton-Gore White House was also crucial to the Agreements. Their vision in adopting the 1996 Telecommunications Act and committing the United States to competition encouraged these market-opening policies. The concrete steps of Mexico, Chile, El Salvador and many other countries to open their markets and increase competition helped to create the momentum that led to the WTO Agreements. It is wonderful to see the vision of greater communications access being realized.
During my first year as Chairman of the FCC, Vice President Al Gore and I traveled to Buenos Aires, Argentina in March 1994 to the World Telecommunications Development Conference. It was the first conference ever convened by the world's telecommunications regulators to focus on the developing world.
At that assembly, Vice President Gore called for the world to adopt five principles to develop telecommunications networks on a global scale: (1) competition; (2) private sector investment; (3) open access to the network for all information providers and users; (4) flexible regulation; and (5) universal service. The nations of the world accepted these principles as part of the Buenos Aires Plan of Action.
These principles were subsequently adopted at a series of international meetings. At the 1994 Summit of the Americas in Miami, a proposal was issued that the Americas should be a single Free Trade Zone by the year 2005.
In September 1996, the Senior Telecommunications Officials met inWashington as a follow-up to the Summit of the Americas. They issued a Declaration of Principles and Plan of Action, recognizing that telecommunications was a fundamental part of the establishment of a hemisphere-wide free-trade zone.
These reform efforts have long roots in the Americas. In the 1980's, Chile adopted broad market liberalizations. Chile also introduced competition into the local telephone market and established a new regulatory environment dedicated to facilitating competition.
Mexico privatized its wireline telephone system in 1990, and is now opening its telecommunications market to foreign investment. Foreign companies may own up to 49% of wireline telecommunications companies.
As a result, teledensity, the number of private wireline telephones per 100 inhabitants, has risen dramatically. In 1989, 6 out of every 100 Mexicans had telephone service in their home. In 1997, 10 out of every 100 Mexicans had such service. In 1988, Chile privatized its telecommunications sector. In 1989 only 5 of every 100 Chileans had a telephone. In 1997, 15 in 100 Chileans had a telephone, an increase of 150%.
Between 1991 and 1997, teledensity increased throughout Latin America, rising, for example, by 100% in Peru, 90% in Argentina, and 35% in Venezuela. These increases largely result from regulatory reforms which brought private investment into telecommunications in these countries.
We are also making progress with our international trading partners in reforming the international settlement rate system. Such reforms will lower international telephone rates by changing the system used to compensate telephone companies for the cost of completing an international call. Under the old system, callers in the United States paid well above the actual costs of the call to speak to someone in a foreign country. The rates were particularly high when calling Mexico. 12.3% of all international calls from the United States go to Mexico. Mexico is the second most frequently called country from the United States after Canada.
Yet, for every dollar U.S. callers paid for calls to Mexico, seventy cents represented a settlement payment subsidy to Mexico. Between 1990 and 1995, U.S. callers paid to Mexico an average of $501.9 million a year in settlement payments.
Our mutual goal should be to make the price of communications services within this hemisphere dramatically lower. While we still have a way to go in the U.S.-Mexican efforts to reduce settlement rates, I know that business people like you and families on both sides of the border will benefit tremendously when these reductions are made.
Charlene Barshefsky estimated that within the next five years, the average cost of international calls in this hemisphere will drop by 80%, from approximately$1.00 per minute to $0.20 per minute. This will stimulate demand for international telecom services, and promote business opportunities throughout the Americas.
From our experience in the United States we know that competition brings lower prices and better service. In areas of the United States where Personal Communications Service (PCS) operators compete with cellular providers, wireless rates have dropped by 25%. In the wireline communications system, competition has also lowered prices.
In 1984, the United States had one long distance service provider - AT&T. Today, we have 500 long distance service providers. In 1985, the average price of a domestic long distance call was 22.6 cents per minute. In July 1997, it was 17.5 cents per minute.
The FCC has been working very hard during the past year and a half to implement the Telecommunications Act of 1996. The Act encourages competition by permitting competitors to access the most basic elements of the local telephone exchange network. It also allows companies to expand into new lines of business. For example, once the local network is open to effective competition, local telephone companies can enter the long-distance market.
On May 7, 1997, the FCC adopted orders regarding Universal Service, Access Charges and Price Caps. These orders establish a system to promote competition in the wireline telecommunications industry by establishing incentives to become more efficient and competitive. They also set in motion universal service policies that will ensure that all Americans, including low-income consumers and those who live in rural, insular and high cost areas, have affordable service. It will also connect schools, libraries and rural health care providers to communications and information networks through the universal service fund.
These orders will lower phone rates of U.S. consumers as access charges are reduced to long-distance callers. This Tuesday, American consumers began to reap the benefits of those reforms. Pursuant to the Access Charge Reform Order, on July 15, 1997, AT&T and MCI lowered their basic schedule domestic long distance rates by approximately 5% in daytime and evening hours, and by approximately 16% at night and on weekends.
I am very pleased to see these lower prices as a result of competition and pro-competitive policies. However, certain companies have sought to derail competition by suing the FCC to stop the pro-competitive policies adopted in our wireline competition trilogy. I am confident that we will prevail in that litigation and that American consumers will be the winners.
The FCC is steadfastly committed to establishing and maintaining free, open, and fair competition in the telecommunications industry. This week, I established an FCC Task Force to promote competition. The Task Force will investigate complaints by long-distance service providers that local exchange companies are impeding their entry into local markets. The Commission will investigate these complaints and take swift action to stop any anti-competitive conduct to ensure that competition will prevail.
I am also very proud of our Universal Service policies. Two months ago, the FCC adopted a universal service program that will provide $2.25 billion to connect schools and libraries to information networks. Beginning January 1, 1998, schools and libraries across America will be able to apply for these funds to help students access the Internet, the Library of Congress, the libraries of the Americas and the world. The Universal Service fund will also provide $400 million to connect rural health-care providers to communications networks.
I am disappointed that late last month SBC, the newly merged entity formed from the combination of Pacific Bell and the former Southwest Bell, filed a petition for stay pending judicial review of our Universal Service order, including the FCC's program to connect schools and libraries to communications networks.
Congress has clearly directed the Commission to make the benefits of communication and information technologies available to schools and libraries. In the Telecommunications Act of 1996, Congress told us to make advanced telecommunications services available to all Americans, providing "access to advanced telecommunications and information services for all public and non-profit elementary and secondary school classrooms, health care providers, and libraries." Yet, SBC questioned the FCC's action in adopting this program as allegedly arbitrary and capricious.
Only 9% percent of all classrooms had internet access in 1996, according to the U.S. Department of Education. Lacking such connections, students don't have the tools to develop the skills they need to become the next generation of business, educational and community leaders in this information economy. They can't access the extraordinary new data we are receiving from Mars this month. It takes just 10 and half minutes for these radio signals to travel from Mars to Earth. But if our Universal Service order is stayed, it will be many more months or even years before students in classrooms throughout America will have the technology needed to receive that data.
Millions of children will be ill-served if SBC's appeal delays this Congressionally mandated program which will dramatically improve education. I am confident of the legal soundness and statutory basis for the FCC's universal service program to connect schools and libraries to the information highway. I look forward to a speedy and favorable resolution of this case.
The FCC has also sought to promote competition by creating opportunities for businesses, small and large, to acquire wireless telecommunications services licenses through auctions. To date, small businesses have acquired more than 2,300 licenses in the auction process.
We are currently examining how we can facilitate competition and service in the wireless industry through our examination of installment payment issues, and our Notice of Proposed Rulemaking regarding the general auction rules. Some licensees have told us they have received financing to build out their systems and bring new services to market. Many small Personal Communications Services (PCS) businesses plan to build systems this year in areas where the large companies that won their licenses in the A and B block nearly two years ago don't plan to reach for years, if ever. Other companies have told us they are close to closing their financing deals.
Some companies have asked us to take a look at our rules and consider restructuring their debt obligations for the cost of the license to facilitate capital investment and buildout. These are difficult issues and we appreciate your input in this process. We are guided by our commitment to competition and increasing service to all Americans as we decide these tough issues.
One issue should not be tough, however. Congress should make clear that even in bankruptcy, the licenses which make use of the public airwaves belong to the public.
Some of the FCC's auction winners and their lawyers claim that if we do not do massive workouts and forgive a substantial portion of their auction debts, the FCC will be forced to do so anyway (with a lot of delay) by the bankruptcy courts. Other lawyers say that we would have no problems in bankruptcy courts with debtors who default.
I know lawyers; I am a lawyer. Worse than that, I am a son of a lawyer. So I know how lawyers can make the simple complicated and the plain intent of Congress appear unclear. We should nip in the bud all legal shenanigans about bankruptcy and the government's rights to its licenses.
All we need to do is have Congress, in the context of the budget debates going on right now, spell out with the kind of unnecessary but superabundant clarity that will shut down even the most ingenious lawyer's creativity, the plain, irrefutable fact that the public's airwaves belong to the public, and any bankrupt licensee and its other creditors has absolutely no right whatsoever to hold, retain, litigate about, or delay the revocation of any license when that licensee has not paid monies it promised to the American people.
Let me explain in detail. Section 309(j) of the Communications Act (the Auction statute) explicitly mandates that the FCC:
Some lawyers in the private sector wrongly claim that several provisions of the U.S. Bankruptcy Code, and the delays associated with litigating issues arising under them, conflict with these mandates. We don't agree. But we don't want to spend time and resources debating the issue in chapter 11 reorganizations, in chapter 7 bankruptcies or even in our offices.
So, to spare us unnecessary trouble and to declare that the licensees are using the public's property which will always be owned by the public and no one else, Congress should make it crystal clear to even the most ingenious pettifogging lawyers that the provisions of the Bankruptcy Code: (1) are not applicable to any FCC license for which a payment obligation is owed; (2) do not relieve any licensee from payment obligations, and (3) do not affect the Commission's authority to revoke, cancel, transfer or assign its licenses. Director of the Office of Management and Budget Franklin Raines wrote House Budget Committee Chairman John Kasich on July 11 asking for a provision to do just this. I am sending Congress a letter today asking them to adopt such language in the budget reconciliation bill now in Congress.
The public airwaves are a tremendous resource we can use to create new possibilities for humankind. As Vice-President Gore said at the World Telecommunications Development Conference, the global information infrastructure can help us to "share information, to connect, and to communicate as a global community. From these connections we will derive robust and sustainable economic progress, strong democracies, better solutions to global and local environmental challenges, improved health care, and, ultimately, a greater sense of shared stewardship of our small planet."
I look forward to the possibilities you will create.
Thank you very much.