Assessing Our Progress Since the 1996 Act
NARUC Annual Meeting
November 8, 1999
Good morning, and thank you for the opportunity to be with you today. Iím delighted to be here with my friends and colleagues from the state commissions.
In thinking about what to say today, I was struck by the recent Notice of Apparent Liability for slamming that the Commission issued against a national long distance provider. One of the complaints on which the Notice was based alleged that the provider had switched its customerís preferred long distance service on the basis of an authorization "signed" in the name of his deceased dog, Boris. For privacy reasons this subscriber had chosen to list his number in his dogís name in the local telephone directory. Well, that allegation was certainly startling, and it made me wonder. In a world where even a dead dog can get slammed, are consumers faring any better?
But seriously, I think all of us have been taking stock of what we have accomplished since the 1996 Act was passed. I know I have, and Iíd like to take this opportunity to reflect on how we have fared as regulators in implementing the 1996 Act and what we have left to do. What has happened since the Act passed? And, more importantly, what has been the impact on consumers, the purported beneficiaries of this landmark legislation?
The 1996 Act was aimed at reforming industries from long-distance phone service to cable television. It removed restrictions on cable companies and cleared the way for local and long-distance companies to compete against one another. For better or worse, I believe that the success of the 1996 Act will ultimately be judged on whether it gives rise to local phone competition. And it will judged on the deployment of advanced services Ė whether under the Act, all Americans can leap into the Information Age.
As we look back over the forty-five months since the Act was passed, thereís been some good news and some not-so-good news on both these fronts.
First, the good news. Many new carriers have entered the local services market, providing both switched voice and high-speed data services to customers. To date, these carriers have created more than 50,000 new jobs and attracted over 30 billion dollars of capital investment, not counting debt or private venture financing. The Commissionís Local Competition Report notes that revenues of local service competitors increased from $2.2 billion at the end of 1997 to $3.6 billion at the end of 1998.
Broadband deployment is also increasing. To date, two-way high-speed broadband via cable modems has been the technology most deployed across the country. Nationwide, there are more than 1 million subscribers to this service. The number of DSL subscribers grew to over 159,000 by the end of June, with analysts predicting that over 30 million telephone lines will be qualified to support DSL services by the end of 1999. Following its merger, SBC announced an initiative to serve 80 percent of its customers with faster DSL services than it currently offers by the end of 2002. CLECs focusing on the high-speed Internet market are taking off. And the adoption of DSL-lite increases the coverage area of DSL, allowing more customers to receive DSL over existing copper lines. Wireless and satellite technologies also show promise.
Internet access and use have soared exponentially. New products and services and additional network investment have made the Internet easier to use. In 1998, 37% of the U.S. population had Internet access at home or at work. By 2003-2005, e-commerce revenue is expected to top $1 trillion. Indeed the Commerce Department reports that the information technology and telecommunications sectors of the U.S. economy account for one third of the real growth of the GDP.
And now, the not-so-good news. Although there has been some real progress, I am concerned that most local competition and advanced services deployment has benefited business consumers, not residential users, and has occurred mainly in the densest, most urban areas of America. While some consumers are beginning to see more choices, many are not. And prices in many areas havenít dropped.
The Commissionís Local Competition Report found that competitive LECs are gaining market share but that Incumbent LECs retain over 96 percent of local service revenues. And NTIA reports that CLECs have captured a mere two to three percent of the local services market measured by lines, only a fraction of which serve residential consumers.
Competitive LECs have been most successful in the market for specialized services such as special access and local private line services, which are provided to business users. Competitive LECsí use of resold incumbent providersí lines predominates over their use of unbundled loops by a factor of about 10 to 1, and, according to data provided by the ILECs, the majority of resold lines serve business consumers. In addition, facilities-based competitive LECs appear to have concentrated more in urban areas. These statistics suggest that many consumers are being left behind.
In the long distance arena, Citizens For a Sound Economy Foundation recently stated that more than half of all residential long distance consumers are paying more for long distance now than they were two years ago. Moreover, although they do not cite the source for this data, the group further reports that consumers who make less than 60 minutes of long distance calls each month may pay upwards of 20 cents a minute, at a time when long distance providers are advertising 5 and 10 cents-per-minute calling plans.
As for broadband services, build-out has occurred to a greater extent in some communities than in others. While middle-class Americans are rapidly approaching the next wave of new technology, the previous technology cycle may have already bypassed the inner city and low-income families. This technological bypass limits individuals' -- frequently minorities' -- access to telecommunications services.
The Commerce Departmentís latest report on the digital divide confirms that poorer families have much less access to computers and e-mail than families with more money. In fact, in 1997 there was an even wider gap in computer ownership levels between upper income households and lower income levels than there was in 1994. The Report further states that "even though all racial groups now own more computers than they did in 1994, Blacks and Hispanics now lag even further behind Whites in their levels of PC-ownership and on-line access than they did five years ago." White households are three times as likely as Black or Hispanic households to have on-line access. This gap holds true even at income levels greater than $75,000 a year.
What can we as regulators do for the consumers who have been sitting on the sidelines waiting for the Actís promise to be fulfilled? How can we make sure that itís not just businesses and certain urban areas that have real choices? How can we close the digital divide?
For starters, we can and are working to provide greater regulatory certainty. Since the Act passed, the Commission and the states have worked hard to make local competition a reality. But, as we all know, instead of fighting it out in the marketplace, some of the major telecommunications carriers have been fighting it out in courts Ė challenging our competition rules and thereby delaying implementation of a final regulatory framework. While I am disappointed that consumers do not yet have more choice, I am hopeful that now that we have our new unbundling rules in place competing phone companies will find it more profitable to serve the residential market. As the Commission addresses the remaining local competition issues, such as line sharing, we must provide as much clarity as possible regarding our requirements, while simultaneously ensuring that states participate in implementation as contemplated under Section 252 of the Act.
In addition to creating certainty in our rules, we also need to enforce them vigilantly. I consistently hear from CLECs that the FCC has put necessary rules on the books Ė such as the collocation rules we issued last March Ė but they must be implemented and they must be enforced. Increased enforcement efforts are also necessary to combat one of the negative side effects of competition: there will always be competitors who take advantage of uninformed consumers.
In this regard I commend Chairman Kennard for his diligent efforts in creating both the new Enforcement Bureau and the Consumer Information Bureau. These new bureaus will facilitate the Commissionís enforcement efforts and maximize the ability of consumers to obtain accurate information about their rights. Moreover, I applaud the unprecedented public forum that the FCC held jointly with the FTC last week to address truth-in-advertising and carrier marketing practices. Enforcement and consumer education efforts must go hand in hand. Chairman Kennardís focus on educating consumers Ė his so-called "Market Sense" program Ė recognizes that informed consumers are the first line of defense against unscrupulous providers.
As regulators, we also must remember that we regulate both in our actions and our failure to act. For instance, in the broadband context, the best way to ensure continued deployment may be to refrain from acting. I also believe the Commission properly decided not to unbundle packet switching, except in limited circumstances. Because competitive LECs and cable companies are leading the incumbent LECs in their deployment of advanced services, I would not want to do anything to discourage investment. In another context, the Commission has initiated a Notice of Inquiry regarding end-user charges. Like Chairman Kennard, I am concerned that charges resulting from our competitive reforms and carrier billing practices have disproportionately impacted low-volume consumers. Accordingly, we need to think about whether Commission action is appropriate.
Another context in which we can help level the playing field for consumers is through universal service. I know that many of you are pleased that Chairman Kennard recently announced that he will ask the Joint Board to review the scope of services covered by universal service. I am too. As the Act makes clear, universal service is "an evolving level of telecommunications services" that the Commission must establish periodically, taking into account advances in telecommunications and information services. In an industry as dynamic as telecommunications, that definition is certainly worth another look before 2001, the previous deadline.
In addition, in August the FCC initiated two rulemakings to address the problem of unserved areas Ė those areas with low telephone penetration such as certain portions of Alaska and Indian tribal lands. Getting these consumers connected is necessary before they can possibly gain access to the advanced services other consumers enjoy. Based on the record in these proceedings, I hope we can better understand what regulatory barriers there may be to providing these areas with basic phone service, so that we can amend our rules as necessary and create the proper economic incentives for the telecommunications industry or other industries to provide service.
While we at the FCC can help create proper incentives, ultimately finding solutions to serve unserved areas will require cooperation and creativity on the part of industry and regulators alike. The FCC can support state and local efforts, but a single federally-mandated solution would not be right for every community. As we recognize in our rulemaking proceedings, unserved and underserved parts of the nation are diverse. They vary geographically, economically, and demographically. The communities themselves must ultimately contribute to developing solutions that are right for their own needs, and we urge them to participate in our proceedings and in more local efforts.
Section 706 mandates that the FCC "determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion," and, if the Commission concludes that it is not, to take immediate action to accelerate deployment. We cannot make our required determination without collecting sufficient data, an effort we began last month when we proposed to collect detailed information on the deployment of advanced telecommunications capability across the United States. But our recent action can only be the start of our data-gathering efforts, if we intend to make credible findings about deployment in our next 706 Report.
I am pleased that the FCC voted to created a Section 706 Joint Conference, something Commissioner Bob Rowe has worked hard to help develop. The Joint Conference will provide a useful forum in which to coordinate federal and state initiatives to spur advanced services deployment. By collecting and disseminating information on "Best Practices," for example, the Conference should help generate ideas about how best to accelerate the deployment of affordable advanced services to rural, low-income, and other under-served areas. Together with the Joint Conference, the series of field hearings in rural areas that Chairman Kennard has announced should greatly improve our assessment of the availability of advanced services in rural areas and how we can spur deployment.
What I hear from rural consumers and businesspeople is that they canít wait for the next technological advance to bring broadband to rural America. They need creative and cooperative solutions now, whether they find those solutions through their local telephone cooperatives, cable television providers, electric utilities, or wireless providers. Commissioner Rowe is correct when he says that strategies to increase broadband deployment are inextricably about economic development. Communities bypassed by broadband will inevitably suffer economic decline.
So, what can we do now to close the digital divide in rural America? Consider the experience of Larry Wetsit, a participant in the Senateís recent conference on serving rural areas, who was born and raised on the Fort Peck Indian Reservation. Mr. Wetsit is employed by the Nemont Telephone Cooperative, which provides telephone service to the Fort Peck Indian Reservation and a large part of the Crow Indian Reservation in Eastern Montana. Mr. Wetsit told, for example, how Nemont has been trying to address the excessive long distance charges incurred by Indians on tribal lands who must make toll calls to reach the nearest population centers. When customers are unable to pay high long distance bills, they may ultimately be disconnected from the network. Nemont has petitioned the Public Service Commission in order to implement extended area service (EAS) among Reservation communities and between the Reservation and nearby population centers that will make these calls local, perhaps even facilitating a local connection to an ISP provider. (Now Bob, I hope my comments wonít require that I file an ex parte at the Montana PSC.)
In another example, Mr. Wetsit testified that five years ago, Nemont and three other Montana telephone cooperatives became alarmed by the growing number of school closures in rural Montana. These business people recognized that since schools are often the lifeblood of very small communities, school closings can mean the decline, and sometimes the demise, of an entire community. The three cooperatives used their fiber backbone facilities and installed additional equipment to connect larger schools and universities to the small K-12 schools in the rural areas, allowing the schools to share educational resources. As Mr. Wetsit explained, this project Ė dubbed "Vision Net" -- represents a unique partnership among private companies and public educators. The schools used grant funding to build their studios. And the telcos offer reduced service rates in exchange for permission to use the school buildings in the evening for adult education classes taught over the Vision Net system. Although Vision Net pre-dated the Act, no doubt the FCC has made possible other such creative solutions for bringing broadband to our nationís schools and libraries through its e-rate program.
One rural telephone expert has suggested that cooperation among the users of telecommunications services can be as important as competition in producing investment in rural areas. The Vision Net experience is a splendid example. One way rural areas can take advantage of competitive opportunities is by leveraging local customer demand. States and local communities need to ask themselves if they can aggregate sufficient demand to make it economically viable for a provider to make the needed initial investment to serve unserved and underserved areas.
Today Iíve talked about a number of ways and a number of contexts in which we as regulators can work to make sure that the legacy of the 1996 Act is pro-consumer. Consumers are justifiably impatient. We must recommit ourselves to serving consumers by facilitating local competition and ensuring that no consumers (with the possible exception of deceased canines) are left on the wrong side of the digital divide.