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Remarks of William E. Kennard
Chairman of the
Federal Communications Commission
to the
National Association of Regulatory Utility Commissioners

Orlando, Florida
November 11, 1998
(As prepared for delivery)

I am very pleased to join you today and to appear with Chairman Hoecker and Chairman Butler to discuss our shared goals and to discuss how to ensure that the relationship between federal and state authorities furthers those goals.

Maintaining and strengthening the federal-state relationship is essential to our success. In my own personal experiences, I have learned one cardinal rule about relationships: remember your anniversary.

And this is an anniversary. It was a year ago yesterday that I gave my first speech as Chairman of the FCC, at last year's NARUC annual convention. So this is our anniversary, yours and mine, and I am happy to celebrate it with you in person.

In a moment I will talk about some of the things we have accomplished and what we have learned in the last year, and talk about the challenges in front of us. But before I get to all that, let me observe the cardinal rule of relationships and just say: Happy anniversary!

The first year of my chairmanship has been the most fascinating year of my life, and one of the things I am proudest of is that I believe the federal-state partnership is as strong as it has ever been. In the area of communications, as in some many other fields, the world is shrinking. We must all work together if this country is to maintain and improve upon its position as the world leader in innovation, competitiveness, and in serving the consumer.

For this reason, I deeply appreciate the enormous efforts of so many of you that have worked with us at the FCC and helped us to achieve our mutual goals. I hesitate to single people out, because I know I will forget some, but at a minimum, I must commend the outstanding work of Lynn Butler as President of NARUC.

I feel very lucky that my first year as chairman coincided with Lynn's presidency of this organization. You have helped me in ways to numerous to count. Your colleagues at NARUC and your constituents back in Ohio are lucky to have you too. Thank you, Lynn, for your support and wise counsel during the last year.

And a hearty welcome to Jim Sullivan as the new President. Jim has some big shoes to fill, but I know he is looking forward to his new responsibilities, just as I am looking forward to working with him.

There are many other folks who have made my first year as FCC chairman much more productive and enjoyable, so let me offer my thanks to Bob Rowe, Pat Wood, Julia Johnson, Joan Smith, Peggy Welsh, and the guy formerly known as Brad Ramsey, but who for the last year has been known as Brad NARUC.

These folks and many others have made many sacrifices this past year and I applaud them for it.

And speaking of sacrifices, I want to take a moment on this important holiday to honor our nations' veterans who have served our country. Today we salute veterans across the country for keeping our Nation strong and protecting our freedom. My father served in World War II and I know how proud he was of his service to his country. Those of you who have served in our nation's armed forces have a lot to be proud of too. Thank you for keeping us strong and free.


The freedoms we enjoy in this country manifest themselves in many ways. In the past year, I have certainly learned a lot about how open and competitive markets are the key to creating freedom for innovation and advancement in communications.

And I also have been impressed by the extent to which all of us share the same basic goals and principles. All over the world today, telecommunications regulators are working to develop competitive and deregulated markets.

It is true that the devil is in the details. And let's be candid about the fact that we are not always going to agree on every substantive issue. But we can and must agree to work together, to maintain an open dialogue for addressing our differences and resolving them as best we can.

We have different perspectives on some of the challenges before us, and that will inevitably lead to differences of opinion. We must discuss those differences, not ignore them. We must consult with each other and explain our positions, and not let our differences interfere with the pursuit of our shared goals and principles.

I think we have been very successful in the past year, and I believe we will improve, as long as we maintain an open and running dialogue.


Our shared goal of competition is one of the biggest ways in which we are on common ground -- over the past year, the enemies of competition and change have learned that they are not going to profit from legalistic disputes about jurisdiction. We at the FCC are committed to competition, but what gives me strength is the knowledge that I am but one soldier in a united crusade for competition. I am so proud to be working with each and every one of you -- I am very impressed and pleased by many of the decisions that you have made this year and the foundation that you have created for competitive telecommunications markets.

Competition is not a new idea. In fact, it is ingrained in all aspects of our lives. Competition is about the "invisible hand," where customers have choices and producers compete for customers' business. One reason this competitive process produces better results than do alternative models like natural monopoly is that the competitive process can more quickly and effectively respond to change, particularly technological change.

I know that State commissions share this belief in the value of competition. Our common vision is embodied in the Telecommunications Act of 1996 -- a pro-competitive, de-regulatory framework for telecommunications. This means that consumers must have the power of choice.

In the market for local telephone service, we are making inroads, but our work is far from done. Congress wisely determined that consumers must be given the right to choose among local phone providers, and therefore we at the FCC have dedicated ourselves to opening the local market. And I know that local phone competition has been a priority for you too, as well it should be.

And we all know that true competition in local phone service requires a commitment to cooperation between federal and state authorities. And thus, when I appeared before you last November and gave my first speech as FCC Chairman, I suggested that we could reduce to writing the core principles that would form the foundation of our coordinated efforts to open the local markets. I called it a Magna Carta for Competition.

Over the past year state commission staff and FCC staff have worked hard to create a Magna Carta -- a united federal-state affirmation of core principles.

These principles include a commitment to competition, by ensuring that new entrants have maximum flexibility to design their own entry strategies. I am encouraged by the work of so many state commissions that have endeavored to make sure that network element pricing and nonrecurring charges are not barriers to competitors seeking to enter through the purchase of unbundled elements.

More broadly, the Magna Carta reflects our continued embrace of the notion of nondiscrimination. We must work together to decide what standards and policies are needed to ensure that incumbents treat new entrants on a par with themselves.

The Magna Carta also reflects our steadfast commitment to the evolving concept of universal service, while at the same time promoting innovation and investment by incumbents and new entrants alike.

And we must redouble our efforts in our role as enforcers of the rules of fair play, since free and open competition depends upon swift and certain enforcement by those of us who serve as referees on the playing field.

That is what the Magna Carta stands for. It is, like our Constitution, an evolving document, and I look forward to continuing to work on it with you. And I hope you will join me as in investing the effort necessary to show that we are united in our commitment to certain core principles that transcend whatever differences that may exist between us.


This process of dialogue and consultation has played itself out in the weeks leading up to this convention as we have grappled with some important and complex issues relating to the Internet and jurisdiction and payment of compensation between carriers.

We must tread very carefully in this area. The Internet may be the most important service that has ever travelled over our telecommunications networks. It is often referred to as a network, but it is more a network of people than a physical network. It links people together through e-mail and chat rooms. It allows schoolchildren to learn in an exciting environment, it is crucial to the development of telemedicine, and it has produced a booming economy known as e-commerce.

The genius of the Internet is that it can run over many different kinds of physical networks. And it does not need expensive and limiting circuit switches -- it is just as compatible with the newest, most efficient packet-switched networks that now encircle the globe.

The ubiquity of the 'Net is one reason e-commerce is growing at a phenomenal rate, and transforming our entire economy. Some sectors in particular, such as computer sales, travel agencies, consumer banking, and booksellers are already seeing dramatic changes in the way consumers use Internet services to do their business. It cuts transaction costs so much that consumers can enjoy the kinds of services in our homes that only businesses could afford a few short years ago. And, as retailing costs plummet, our economy grows -- the resources can be used to do other, more productive things. This means more jobs, and a better standard of living for everybody.

Forrester Research is one of the most frequently cited sources for statistics about e-commerce. At the end of this past summer, they predicted that e-commerce will grow to $327 billion, which would equal 2.3% of our entire nation's gross domestic product. The CEO of Forrester personally thinks that e-commerce could go as high as 6% of GDP by 2005.

And as I said, the Internet is not just about e-commerce. It's about educating our children and training them for the 21st century. It's about delivering quality health care to rural areas. It's about keeping America -- and the world -- connected.

The Internet has thrived in this country and around the world because of what we as regulators have done, and because of what we have not done. Let's be clear -- our approach is a deregulatory one.

We should promote certainty and stability, growth and innovation. We at the FCC have sought to further those goals by, among other things, exempting the Internet from per minute access charges. We have had that policy in place for as long as there has been an Internet. It has been a great success and it is a policy from which we will not deviate.

For reasons that escape me, there are those who regularly suggest that the FCC is considering the imposition of per minute charges on Internet providers. The forces behind these rumors are doing a disservice to the American consumer, because in fact nothing could be further from the truth. But somehow these rumors keep arising, often on the Internet itself. I know, because I receive hundreds and thousands of e-mails every time this rumor arises.

I know that many of the e-mails I receive are from well-meaning, but misinformed, people who are concerned about the future of the Internet. I applaud their vigilance and I am glad to assure them that the FCC is not about to impose per minute charges on the Internet.

I know that a large number of states have already weighed in on the issue of reciprocal compensation between local carriers handling Internet traffic. I believe that those states have been right to decide that issue when it has been presented to them and I do not believe it is the role of the FCC to interfere with those state decisions in any way.

Parties should be held to the terms of their agreements, and if a state has decided that a reciprocal compensation agreement provides for the payment of compensation for Internet-bound traffic, then that agreement and that decision by the state must be honored.

Now the debate over reciprocal compensation of course raises the issue of jurisdiction. I fully respect the interests of state and local government and its regulators to protect the state's vital interests and consumers. At the same time, in this global economy, vital national interests are also at stake. We must not allow our mutual legitimate interests be used to divide us as we pursue our mutual and consistent goals.

I do not want to repeat our initially polarizing experiences in the realm of interconnection. We had to agree to disagree, and have spent years in litigation that is now before the Supreme Court for a final decision. But as the dust settles, two facts have emerged. First, there really has been very little difference in our substantive policy views, as demonstrated by the many states that have adopted the forward-looking pricing standards pricing standards that are the subject of the court's review. Second, the industry moves on. Granted, uncertainty chills investment and hinders innovation. But the fact is that the provision of communications does not respect political boundaries, and does not respect disputes over the significance of those boundaries. More importantly, we have learned that we cannot put the needs and interests of the public on hold simply because we are waiting for a court to decide how to parse the jurisdictional provisions of a statute.

So let's take a lesson from the world of interconnection and apply it to our discussion concerning access to the Internet. Because in a very real way, the Internet is bigger than any state commission, bigger than the FCC.

From time to time we may disagree on some matters. But consensus is also possible. We live in a nation that has been the leader in creating an unfettered and robust Internet that continues to transform the way we live and work and play. It will take our joint efforts to keep it that way. At the end of the day, we must take off our lawyer's hats and apply our collective common sense to make sure that the next chapter in the great American success story called the Internet is even grander than the previous ones.

We are not talking about regulating the Internet. The issue is access to the Internet over the public switched network. And the issue of reciprocal compensation is about inter-carrier compensation for calls that are delivered to the Internet. These are among the many issues we will face in this new world where the public switched network intersects with the Internet. We are here this week to discuss with you our respective roles in ensuring these goals on a prospective basis. I am pleased that so many of you have indicated that you share our desire, above all else, to ensure that the Internet remains a robust and productive force, strengthening our economy, enriching our lives, and connecting our communities.


Keeping America connected was a priority of Congress when it passed the 1996 Act, as reflected in its emphasis on universal service -- ensuring that all Americans have the opportunity to be connected and stay connected to our nation's telecommunications network of networks, and not just using the technologies of today, but also with the technologies of tomorrow. We all benefit from this because telephone networks, like many other kinds of networks, become more and more valuable to all customers as more people are connected to the network--we all have a more valuable service because we have more potential uses of the service we are receiving.

We therefore must commit ourselves to ensuring that there is sufficient support to maintain universal service as we always have. I am pleased by the mutual recognition that support for universal service is both a federal and a state responsibility.

There will be states that are net payers into the universal service fund, and states that will be net payees. But it's up to all of us to support universal service, because it's in all of our interests to do so.

You may want to circle November 23 in your calendars. That's the day when the Federal-State Joint Board on Universal Service will make recommendations to the FCC on issues we referred to the Joint Board earlier this year.

My thanks go to Susan Ness, Julia Johnson, and all the members of the Joint Board, as well as the Joint Board staff. These dedicated people have put a lot of hard work into some very challenging but critical issues surrounding universal service.

We still have a lot of work between now and next July, when the new universal service regime is implemented for non-rural carriers. But I am confident that, working together, we will rise to the challenge.


I can't speak about universal service without also talking about the deployment of advanced telecommunications throughout the nation. Ensuring that all Americans have access to advanced telecommunications services is one of the most important challenges facing your commissions and the FCC today.

As we learned from the report that Larry Irving described at the July meetings in Seattle, our country is struggling with a vast digital divide. It's a division between those who have access to modern information technology, and those who don't; a division between the well-to-do and the poor, the well-educated and those who did not finish high school; those of us who face no physical or cognitive impairments and people with disabilities; and a racial division, because African Americans and Hispanics stand on the wrong side of the divide--in all income groups.

I believe that we all want to conquer the Digital Divide. I know that I would rather live in an America that is united rather than divided by technology--it may be overused, but I believe the old adage "united we stand, divided we fall" is appropriate in this case. As part of the landmark Telecommunications Act of 1996, Congress expanded the concept of universal service to include not just ubiquitous voice telephone service, but also advanced telecommunications and information services, like the Internet, in all public and private schools, classrooms and libraries.

Universal service is not just a telephone to every home--it is, and it should be, universal access to advanced services from every community. The bottom line is that we must have the courage of our convictions to find ways to facilitate the deployment of new technologies and to ensure that these technologies are available to everyone--all Americans--particularly to the students from economically disadvantaged homes who don't have access to advanced communications technology, and who won't be able to compete with the students from affluent homes who do. And without these investments, we face the very real prospect that our high-tech economy will find itself without hundreds of thousands of desperately-needed skilled workers.

Beginning early next year we will be holding field hearings to examine what can be done to ensure that the most critically underserved areas are not left behind. We will need the support of the states to help us understand the problems, and work towards solutions, in rural America, in the inner cities, and among Native Americans.

And as long as I am chairman, I can assure you that I will focus on what we can do to enable our nation's 54 million Americans with disabilities become fully productive and participatory members of our society. Recent surveys confirm the sad truth that people with disabilities continue to be denied equal opportunity to learn, work, and earn promotions, despite technological advances that can eliminate many of the obstacles they face.

I urge you to join me in promoting policies that will enable people with disabilities to enjoy all that society has to offer, and to allow society to gain from the contributions that people with disabilities have to offer. Telecommuting, for instance, can be a very wise investment because it allows us to tap into a talent pool among folks who face physical barriers that make it difficult or impossible to commute to work in other ways.

We discussed the issue of advanced telecommunications out in Seattle last Summer, and at the FCC we have two proceedings underway right now that will establish new ground rules to promote innovation and investment. In my view, the key ingredients to success are loops and to collocation. New entrants must have access to these elements of the incumbents network on reasonable and realistic terms if they are to be competitive.

But the incumbents must be given every opportunity to succeed as well, whether on an integrated basis with their local exchange operating company, or through a separate subsidiary that obtains loops and collocation from the operating company under the same terms as new entrants. Nondiscrimination is crucial, because our job is not to pick winners and losers, but rather to set the stage for fair competition, and then let the market -- and consumers -- decide.

We hope to bring those proceedings home early next year, and let the industry players get down to the business of getting bandwidth to homes and businesses all across the country.


Finally, a word about consumer protection, one of the key responsibilities for the states and the FCC now and in the years ahead.

Consumer protection has always been an important part of our mission, but it is clear that with the advent of competition, we must adapt. Consumer protection means taking steps to ensure that competitors and the competitive marketplace are able to operate efficiently so that informed consumers get the services they want at the prices they are willing to pay. It is a basic principle of economics that free and full access to information is one of the most important pre-conditions for the operation of fully competitive markets.

I personally want to thank each of the states that has been aggressively going after slamming. We at the FCC have been vigorously prosecuting slammers, imposing million dollar-plus fines for the most egregious conduct . We will not stop until these slammers no longer have the incentive to engage in fraudulent business practices.

We also focused on cramming this year. I told the industry that it was a problem they had to fix, because if they didn't, we would. The result was an industry wide effort that produced a code of best practices to deter cramming. Although the jury is still out, I am optimistic that these practices will relieve consumers of the cost and aggravation of cramming.

We need to hear from you to find out if the industry efforts at self-policing has been successful. And if they have not been, then we need your help to decide on the next step.

One of the important initiatives we have undertaken at the FCC to combat a number of threats to consumers is what we call truth-in-billing. Consumer bills should be easy to understand. They should describe the services for which the customer is being billed, and they should provide a point of contact for inquiries and complaints. And a consumer bill should clearly highlight any new charges that have not previously appeared on the bill.

We are working on rules right now to give consumers these protections they deserve, and I ask for your support in these efforts.

Finally, it is the interests of consumers that must be at the core of our review of the several major merger applications that are before us. We are examining these mergers closely. We held an en banc hearing of the FCC last month at which we invited the merging entities to make their best case as to why these mergers would be good for consumers. Round two will be in December, when we will hold a second en banc to hear from other parties and groups to make sure that we have taken account of all perspectives on these proposed deals.


I have touched on a number of the issues that have been important to me this year. And I believe we have made great progress in the past year on each of these fronts.

We have laid the groundwork for implementing the new universal service regime next July. We have pushed forward on providing incentives for the deployment of advanced services. And we have cracked down on slammers and crammers and others who would victimize the American consumer.

And perhaps most importantly, we have learned the value of a shared commitment between federal and state authorities when it comes to promoting the public interest.

We have a lot left to do in the coming months and years. And while we should not anticipate universal agreement on all the issues we face, we should expect of ourselves a commitment to openness and candor in our dialogue and in all our work.

I have really enjoyed the last year. I believe the successes have outweighed the disappointments, and the results so far have made all of the long hours worthwhile. And I have certainly appreciated the cooperation and support I have received from all of you.

Here's to a great second year, and a second anniversary when we will have even more to celebrate than we do on this, our first anniversary together.

Thank you very much.