Chairman William E. Kennard
Federal Communications Commission
New York Law Journal and New York City Bar Association
February 14, 2000
New York, New York
Thank you, Michael Cooper, for that warm welcome. And thank you Ruth Hochenberger of the Law Journal for inviting me here.
The New York Bar Association has been very gracious in hosting me today. And I appreciate the opportunity to address you this morning.
I am very honored to be here. It is not every day that I get to address one of the nation's oldest, most distinguished bar associations. It is also not every day I get to see my old friend from law practice, Michael Botein, a professor of communications law at New York Law School. Michael, it is great to see you again. And let me extend a welcome to some of his students, whom, I am told, are with us this morning.
A Brief Shining Moment: Competition Comes to New York
I always love coming to New York. It is a particular joy for me this week because I have been reading this wonderful Pulitzer-prize-winning book, Gotham, about the history of New York City. I have never come across a book quite like it. It is massive --well over 1,000 pages long -- and it describes in the most colorful, vivid detail the evolution of this city from its birth until 1898.
The other day I came across a story in the book that really resonates with me.
It is the story about the creation of the telephone business in Manhattan.
In 1878, a company called the Metropolitan Telephone and Telegraph Company built 33 miles of phone lines in this city.
It was the beginning of a primitive telephone network. It consisted of a single exchange (located at 82 Nassau Street), a single telephone directory (a small card consisting of 252 names), and to get phone service it cost a whopping 60 dollars a year.
To make a call, people had to turn a crank, lift up an earpiece, and, if they were lucky, they would reach an operator.
Now, the operators at the time were men who had been hired to send and receive telegraph messages. It was a rowdy bunch. They were young men who spent most of their time in the switching room, who were in the habit of drinking beer, fighting, and, with the advent of the telephone, swearing at their customers.
This was no way to run a business. The phone company knew that to lure consumers away from the telegraph industry, it would have to improve service. So it began firing the men and hiring proper, upstanding women who could give customers the respect and information they wanted.
So the phone company went out and hired a cadre of proper young women to operate the phones. These women were called--I love this name--"Hello Girls." And the Hello Girls became the face of the telephone service in New York City. They were polite; well mannered; and proper. They got to know their customers and kept them calling.
One Hello Girl--a woman named Miss Katherine M. Schmitt--recalled that she routinely fielded questions from consumers seeking information and help. Questions like:
"Where is the fire?"
"Did anyone call me while I was out?"
"How do I get to Central Park?"
The phone network grew with the new entrepreneurial and professional class in New York City, including, by the way, the emerging class of corporate lawyers in New York City.
The Association of the Bar of the City of New York was founded in 1870, which was the forerunner to the American Bar Association founding in 1878. But that, of course, is your story, and another speech.
The point is that the telephone network, like the data networks of today, became an essential component of commerce in this city. Businesses that could afford the phones started using them to order goods and services, and to communicate with coworkers. Managers began talking to foremen on shop room floors. Contractors on the ground communicated with foremen on the top of skyscrapers, hundreds of feet in the air. And long-distance service allowed companies to set up branch offices in far-flung locales like Chicago, Boston, and Philadelphia.
But soon phones arrived at the doorsteps of the average resident. This is interesting.
In 1894, the Bell patents expired, and independent companies rushed into the marketplace, sought out new clients, offered phone service at lower prices. They helped make phones a more routine part of people's lives. Here are two statistics: by the mid-1890s 12 exchanges were up and running; they averaged around 150,000 calls a day.
Switch-boards hummed, the Hello Girls wooed the callers, and for a brief shining moment, New York had competition in its phone industry.
The Beginning of the End of Competition
That moment did not last long.
In 1913, the federal government was considering an antitrust suit against AT&T. Faced with the unhappy prospect of a government suit, the company reached an agreement with the federal government. The agreement was called the Kingsbury Commitment.
It stipulated, basically, that AT&T had to interconnect with independent carriers, and open the phone network to competition. The agreement made sense in theory, but in practice it was a bust. AT&T and the independents agreed to divvy up their territory, and the companies soon had monopolies in the local and long-distance markets.
Eventually AT&T began to buy the independents, and for much of the 20th century, the story of the phone industry was a story of monopoly markets, high prices and no consumer choice.
Thus began a half century of monopoly regulation of telephones in the United States.
In 1978, however, forces were at work that once again would alter the future of communications in America. President Carter named Harold Greene to a seat on the United States District Court of Columbia. When he walked into his chambers for the first time, he found about 140 cases on his desk; one of them was the United States versus AT&T.
The case had been championed by Bill Baxter, then head of the Antitrust Division of the Justice Department, who fought to keep the case going, even when virtually everyone in the Reagan Administration was against it - the White House, the Defense Department, the Commerce Department.
Baxter kept the case alive. And Judge Greene threw himself into the case. He took charge of the case. He forced the parties to negotiate and forced them to speed up their deliberations. On January 1, 1984, Judge Greene issued one of the more courageous, landmark rulings in modern legal history. He approved the settlement that led to the break-up of AT&T.
Judge Greene died three weeks ago. Bill Baxter has also died. These two men, courageous lawyers, left an enduring legacy for the American public.
Since 1984, American consumers have saved over $200 billion in long distance charges because these two lawyers had the courage to bring competition to the long distance marketplace.
But even more important, they set in motion a movement toward competition that explains why we have in this country a telephone network that is the envy of the rest of the world. By allowing then upstart competitors like MCI and Sprint compete in long distance, they created the conditions for investment in the long distance marketplace - in the fiber optic capacity that became the Internet backbone as we know it today.
It is no secret why America dominates the Internet, and the Internet economy. It is because the Internet is the function of a privatized, competitive telephone network. And Harold Greene was instrumental in making it happen.
The Spirit of Judge Greene Lives
Four years ago, on February 8, 1996, lawmakers gathered in the Main Reading Room of the Library of Congress to finish the work started by Judge Greene. That day, President Clinton signed the Telecommunications Act of 1996.
The spirit of Judge Greene was in the Reading Room that day. President Clinton surely sensed it when he took two pens and signed the Act into law. The first pen was the same one used by President Eisenhower to sign the Federal Highway Act of 1956, the great law that built miles of interstate highways to create one of the most impressive road networks in the world and to speed the flow of commerce and culture in our country.
The second was a digital pen - the first ever used to sign a bill into law. President Clinton signed the Telecommunications Act of 1996, then launched his digital signature into cyberspace, a strange but fitting fate for the final step in the law's passage.
In one fell swoop, the Act ended the monopoly franchise of the traditional local telephone companies, and empowered the FCC to break open these historic monopoly markets.
Last week, to mark the fourth anniversary of the Act, I issued a report about the state of competition in the country. The report contains a graph that shows New York remains the country's bellwether for local competition.
Nowhere is local competition taking root faster than it is here.
In December of last year, the FCC, by a vote of 5 to 0, approved the application of Bell Atlantic to offer long-distance service in New York. It marked a historic moment in communications history. It was a tribute to the vision of Judge Greene and the wisdom of the 1996 Act.
Why did the FCC approve that application? The answer is fairly simple: this state is leading the country in local phone competition.
Bell Atlantic had taken a number of steps, required by the law, to open its local markets to competition. Long before the 1996 Act, New York state required incumbent networks to interconnect with new entrants. And local competition began to take root.
What is happening today in New York is not unlike what happened here in 1894 when the first telephone patents expired, and independent carriers rushed into the marketplace. They drove down prices, spurred innovations, and made phone service accessible to average residents--no longer simply a perk enjoyed by businesses.
The numbers tell part of the story.
Today, competitive local carriers serve over 1.3 million business and residential phone lines. Over 55% of those lines are delivered over the competitors' own facilities. Competitors have deployed nearly 6,000 network fiber miles and 47 local switches in New York. Nearly 40 local competitors hold numbering codes. They also have access to more than 10 million local phone numbers in New York.
The competitive future in local phone service is now on the doorstep of every citizen in this state.
This has been a collaborative effort here in New York. Everyone is working hard to make the law work for New York -- Bell Atlantic, the New York Public Service Commission, and many new telephone competitors. All are doing the hard work needed to make competition a reality - opening those networks and designing the interfaces that allow competitors to use the incumbent's network.
It is ironic that a law that is fundamentally all about competition, is also fundamentally about collaboration and cooperation. A member of the state Public Service Commission, Tim Zakriski, heads up something called the DSL collaborative. DSL is a service that brings high-speed data service the consumers over the existing copper phone lines. Every two weeks Tim convenes a meeting of the incumbent telephone company and the new entrants to work out how DSL will be competitively deployed using portions of the incumbent's network. Thanks to Tim and the work of the New York Commission, the '96 Act is working to bring choice to New York consumers.
Just like 100 years ago in New York, competition in telephone service is taking root. But what makes today different is that today there is no turning back. Consumers are beginning to enjoy the benefits of competition from multiple technologies: wireless and wireline. Our economy is reaping the benefits of competition and we simply cannot turn back. At the FCC, we will not allow the clock to turn back. We have worked to hard to get where we are today. There will be no backsliding on my watch.
This is one of Judge Greene's great lessons. He taught us that bringing competition to monopoly markets is hard work, and there is no turning back.
These are the two ways to break up monopolies.
There is the structural solution invoked by Judge Greene by divestiture of AT&T. Then there is the regulatory approach, embodied in the Telecommunications Act of 1996. The 1996 empowers an independent regulatory agency to do the hard work of prying open historic monopoly markets. Both approaches involve courage and hard work. And there are no shortcuts.
It is interesting, that, in the wake of Judge Penfield Jackson's decision last year in the Justice Deparment's antitrust case against Microsoft, the debate about remedies is essentially a debate about a structural versus a regulatory solution.
Some support a structural solution--the so-called "Baby Bills" approach - which would mean breaking up Microsoft. Others favor a regulatory approach, in which Microsoft would have to make its programming interfaces available to competitors.
Congress decided to invoke a regulatory solution in passing the '96 Act. It could have opted to divest the Bell companies into their wholesale and retail businesses. But instead, it directed the FCC to make the incumbent network accessible to competitors.
It is a tough job, but we will get this job done. We must get this job done.
We must get it done because competition in this sector is not just about lower prices and more choices for consumers. It is about building the foundation for the New Economy. Just as the emerging phone network fueled commerce in this city 100 years ago, the telephone network of today is the foundation for the Information Age economy.
Judge Greene understood its unleashing power. President Clinton and Vice President Gore and the drafters of the 1996 Act grasped its potential for this country. And I feel very privileged to have the opportunity to build on their historic work, and implement their vision.
And we will implement it such that 100 years from now, people will not look back on our work - as they did with the Kingbury Commitment in the first decade of the 20th century - and regret that a brief shining moment of competition did not endure.
Our challenge is to unleash competition everywhere, in every sector of the communications marketplace, to keep this engine of growth and innovation humming. And to tell those around the country and around the world that competition is working.
And once again, we will say that New York is leading the way.