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USTA Annual Convention
Remarks by Commissioner Kathleen Q. Abernathy
October 7, 2001

Good afternoon. Itís great to be here in this beautiful setting. Now that I have a new job I have many new friends and I get invited to lots of conventions, but Iím especially glad to come to the USTA meeting, because I always enjoyed attending when I was in the private sector, and itís great to catch up with so many friends. Iíd probably enjoy it even more if I didnít have to get up here and give a speech, but I guess thatís part of my new job description.

Since Iím still relatively new at the FCC, I thought Iíd spend some time today discussing my regulatory approach. Iíve developed five core principles that I will rely on to guide my decision making during my time as a commissioner. Against the backdrop of these broad principles, I will share some of my views on various proceedings that are currently pending before the Commission or soon will be on our agenda.

My first guiding principle is that Congress determines the FCCís responsibilities in the Communications Act, and our job is to implement the statute, rather than to pursue our own policy preferences.

Second, where the Act gives us discretion, we should rely wherever possible on market forces, rather than prescriptive regulation. My experience in the private sector ó working for several different providers of wireline and wireless services ó as well as my past experience at the FCC have taught me that competitive markets do a far better job than regulators of delivering benefits to consumers.

Third, we should regulate with enforcement in mind. Donít cringe. What this means is we should adopt a small number of clearly written rules and enforcing them vigorously. It also means refraining from enforcing aspects of rules that exist only in the minds of regulators, and not within the clear text of the rule itself.

Fourth, the FCC needs to be humble and recognize the limits of what it knows and can achieve, especially during this time of rapid technological change. We need to reach out to companies and trade associations, to consumer groups, state regulators, and others to improve the flow of information into the agency. And we also need to improve the flow of information out of the agency, so that our processes are more transparent to the companies we regulate.

Finally, the FCC is a service-based organization and we should act like it. What I mean by this is that the FCC should strive to provide you ó our customers ó with the same degree of timeliness and responsiveness that for-profit businesses strive to provide.

Iíll discuss each of these principles in turn. And you should feel free to ask questions at the end of my prepared remarks.

1.Implementing the Agenda Set by Congress in the Statute

My first principle ó looking to the Communications Act to determine our responsibilities and agenda ó may seem obvious. Of course we should take our lead from the statute, right? Well, surprise, it is very tempting for Commissioner to elevate their own policy preferences above those established by Congress in the Act.

But we must not do so. While we have discretion to prioritize among congressional mandates, we must not turn this discretion into a license to define those mandates.

Another surprise, the Act doesnít always tell us precisely what to do. It does however contain some relatively specific mandates. For example, section 251(d)(1) of the Act instructs: "Within 6 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall complete all actions necessary to establish regulations to implement the requirements of [section 251]" ó that is, the Commission shall implement the provisions concerning interconnection, unbundling, resale, collocation, and the like. Section 254 contains a similar mandate to carry out congressional policy with respect to universal service. I call these sorts of provisions the "shalls," and that means there is no discretion as to whether or not we take action.

There are other provisions in the Act that say the Commission may take a certain action. For example, section 273(c)(3) says that "The Commission may prescribe such additional regulations . . . as may be necessary" to carry out the purposes of that section, ó as that section which concerns Bell company manufacturing of customer premises equipment. I call these kinds of provisions the "mays."

And there are other areas where Congress did not speak at all ó that is, where the statute is silent regarding the Commissionís authority.

I take this hierarchy very seriously when it comes to determining the FCCís priorities. I believe we should concentrate on fulfilling specific mandates (the "shalls"), and responding to decisions sent back to us by the courts, before we devote significant resources to proceedings that are solely within our discretion (the "mays") ó and certainly we should take care of the mandates before we launch any initiative an in area where the statute is silent. Since the FCC has a finite amount of resources, devoting resources to discretionary matters before we have implemented mandatory provisions has the potential to subvert congressional priorities.

There are plenty of areas where Congress has told the FCC to take action, yet the Commission has dragged its feet. A prime example is unsolicited faxes. You may think this is not such a big deal but consumers and Congress disagree. Even though Congress enacted the Telephone Consumer Protection Act in 1992 to prohibit that practice, it took the Commission seven years to bring its first enforcement action. There may have been lots of reasons for that delay. I hope that none of them was that the Commission was busy devoting substantial resources to purely discretionary proceedings, because then the Commissionís allocation of resources ignored the priorities established by the statute.

This hierarchy of "shalls," "mays," and statutory silence doesnít just determine the order in which the FCC should initiate proceedings; it also should give us pause in addressing matters that Congress has not spoken to. The ongoing debate over cable "open access" ó or "forced access," as opponents would call it ó provides a good example here. While parties have made some persuasive arguments on both sides of this issue, a key threshold question concerns our legal authority to regulate cable modem services. Some proponents of open access have argued that we donít need to figure out whether cable modem services fall under Title VI or Title II, or what the legal constraints would be under each Title, because the FCC has the requisite statutory authority under section 4(i) of the Act to reach out and regulate ó our version of the Constitutionís "necessary and proper" clause. Iím not going to get into the question of whether cable modem services should fall under Title II or Title VI, and Iím not going to address the merits of the open access debate. But I will say that I do not support reaching out and asserting jurisdiction under section 4(i) alone. If a fair reading of the Act denies us authority under Title VI, or Title II as the case may be, we should not grant ourselves supplemental authority through an expansive reading of section 4(i). I do not think the courts will tolerate such an approach, and, more fundamentally, I believe we overstep our bounds as an independent agency, and encroach on congressional prerogatives, when we look past the Actís substantive titles and rely on general grants of authority as the sole basis for a major policy initiative.

2.Relying on Market Forces

My second core principle comes from my faith in the ability of market forces to maximize consumer welfare. Despite our best intentions, regulators cannot duplicate the ability of markets to allocate resources efficiently, to spur innovation, and to induce companies to improve services and lower their prices. Therefore, where Congress has given the FCC the leeway to choose between market forces and prescriptive regulation, I will look to market forces to promote consumer welfare.

My experience working in the wireless sector has played a large part in developing my skepticism toward relying on regulatory mandates as a means of promoting consumer welfare. When Congress passed Section 332 in 1993, the FCC faced a key choice of how to regulate PCS and other new wireless services. It could have imposed strict Title II common carrier regulatory constraints on pricing and service terms and conditions. Some advocates called for such regulation based on the supposed entrenchment of incumbent cellular providers. But instead the FCC opted for a deregulatory framework that freed carriers from traditional regulatory constraints on pricing and service offerings. The consequences have been explosive growth, unparalleled choices for consumers, improved calling plans and service quality, and dramatically lower prices.

I think the Commission has been wise in recent years to apply a similarly deregulatory framework to cable-based Internet access services. By refraining from imposing common carrier duties on cable operators, the FCC has contributed to rapid broadband deployment. Indeed, despite some hand-wringing in Congress and among some advocates about the supposedly slow pace of broadband deployment, the reality is that broadband services have been deployed as rapidly as any other breakthrough communications technology ¾ including radios, televisions, and wireless phones.

Of course, the Commissionís hands-off approach with respect to cable modem services contrasts sharply with the Commissionís relatively heavy regulation of advanced services provided over the local loop ó specifically, the decision to require line sharing. The FCC exercised discretion in extending the unbundling obligations in section 251(c) to the high-frequency portion of the loop, and it is fair to question whether its decision to do so has helped or hindered the overall deployment of DSL services. Thatís a difficult question to answer, and Iím not going to try to answer it here, particularly since the Line Sharing Order is currently on appeal in the D.C. Circuit.

But I do want to emphasize that, as a general matter, I believe itís important to focus on the costs of forced unbundling, in addition to the purported benefits. As Congress recognized in section 251(c)(3), some degree of unbundling was clearly necessary to introduce competition to local markets, because incumbentsí control of bottleneck facilities otherwise would preclude entry. But Congress also enacted the impairment standard in section 251(d)(2) so that the FCC would consider whether the costs associated with forced sharing of incumbent LECsí facilities were warranted.

The prior Commission, in my view, was overly focused on the anticipated benefits of unbundling, without considering the costs. Unless properly circumscribed, forced unbundling can impose costs and distort investment incentives. Unbundling requirements that are too broad destroy an incumbentís incentive to invest in facilities. This is because incumbents will avoid risking capital on new infrastructure if rivals can piggy-back on their facilities risk-free. By the same token, new entrants will have diminished incentives to invest in their own facilities if the incumbentís network is readily available at below cost rates. Obviously, pricing is key: If TELRIC rates turn out to be set below realistic cost estimates ¾ which the Supreme Court will soon tell us ¾ then the distortion of investment incentives are significant.

Where I believe the prior Commission went awry was in effectively defining the impairment standard out of the Act. The Commission ruled that a new entrant was impaired, and thus had a right to purchase an incumbentís network element at TELRIC rates, whenever a lack of access to the network element in question caused any increase in cost or any decrease in quality to the competitorís service. This of course led to the forced unbundling of the entire network. The Supreme Court rejected that analytical approach, requiring the FCC on remand to give some content to the impairment standard. The revised standard adopted by the Commission was not quite as expansive, yet still remains quite broad. The D.C. Circuit is presently considering whether that revised interpretation is consistent with the Act.

I donít want to suggest that there is some easy answer regarding the appropriate scope of the unbundling requirements in section 251(c)(3): There is not. But when reviewing this section of the statue, I will focus both on the benefits we hope to achieve and the costs of any regulations we impose. I believe that the impairment standard in section 251(d)(2) of the Act was intended to ensure that the Commission would not impose unbundling without engaging in this sort of cost-benefit analysis.

I think we will be forced to grapple with these questions most immediately in the proceeding involving combinations of high-capacity loops and transport, otherwise known as enhanced extended links, or EELs. The Common Carrier Bureau has yet to give me its recommendation on the ILEC petition to eliminate the obligation to unbundle these elements or the related question of whether, if these elements must be provided, there should continue to be prohibition on their use for providing interstate access services. So I have not yet formulated any firm views on the appropriate outcome of that proceeding. We may not yet be at a point where the costs of unbundling these network elements is greater than the benefits associated with promoting competition; and I am skeptical of assertions that there is now a competitive market for loops, particularly in light of the economic downturn we have seen in recent months. But, in analyzing these questions, I will consider not only competitorsí espoused need for unbundled access, but also the long-term economic impact on facilities-based competition.

I will apply the same preference for market forces when considering the continued availability of UNE-P and individual network elements. I may be persuaded that the market is not yet mature enough to eliminate UNE-P ó and therefore that continued regulatory intervention is warranted despite the costs. But I will take those costs very seriously into consideration in making these judgments because I am confident that, in the long run, consumers are best served if our policies preserve incentives for facilities-investment by incumbent LECs and CLECs alike.

Before I move on to my next principle, which concerns the importance of enforcement mechanisms, I want to point out that adopting a presumption in favor of market forces applies not only to my consideration of new regulations, but also to the Commissionís review of existing regulations through the Section 11 biennial review process and in the context of Section 10 forbearance petitions. There is a tendency for regulators to expand and defend their turf, even after the narrow justification for regulatory intervention in the marketplace has long since disappeared. Congress enacted Sections 10 and 11 as an antidote to this bureaucratic inertia: These provisions actually require us to eliminate outmoded regulations.

Our biennial reviews to date have resulted in some significant streamlining of outmoded regulations, including the elimination of significant portions of the Part 68 rules governing the connection of customer premises equipment to the telephone network and the detariffing of long distance services. We will soon add to these accomplishments by adopting an order that eliminates a significant number of Class A accounts required under the Uniform System of Accounts and various ARMIS reporting requirements. And to the extent you identify regulations that you think are no longer necessary, filing a forbearance petition is always an option.

3.Enforcement-Oriented Regulation

My third principle concerns the importance of enforcement. I believe it is critical to the FCCís effectiveness and credibility to enforce all of its rules vigorously. Failure to enforce rules sends the inappropriate signal that companies may engage in anticompetitive or otherwise unlawful conduct with impunity. As I mentioned previously, years of inaction in the face of repeated complaints regarding unsolicited faxes ó in violation of section 227 ó provides a perfect example: Until the Commissionís recent enforcement proceedings, such faxes could be sent without any fear of penalty. If we succeed in eliminating unnecessary regulations and are left with fewer regulations that implement our core responsibilities, it becomes all the more important that we enforce those remaining rules strictly.

Compared to prescriptive rules, which prohibit whole categories of conduct, only some of which may be problematic, enforcement mechanisms have the advantage of being narrowly tailored. By relying more on enforcement mechanisms, the FCC can tailor its intervention to particular circumstances, thereby allowing markets to operate with minimal regulatory distortion.

There is clearly some tension between the goals of streamlining our rules and beefing up our reliance on enforcement mechanisms: While refraining from micromanaging carriers has the advantage of making our rules simpler and more concise, the absence of detail can create gray areas that may sometimes make enforcement appear unfair.

I believe we can resolve this tension in large part by crafting our rules with enforcement in mind. If we commit to strict enforcement of all of our rules, I believe we will end up adopting complex rules only when doing so is necessary to carry out our core statutory responsibilities. So one aspect of an enforcement-oriented approach to rulemaking is restraint: We need to be sure weíre willing to devote substantial resources toward enforcing a rule before we decide to adopt it. If we are sure that a rule is worth this effort, then we must not shy away from full enforcement.

Another aspect of this enforcement-oriented approach is that, where we donít spell out detailed expectations in a rule ó and instead adopt broad, generally worded principles ó we cannot insist on specific forms of compliance. While Commission staff may have particular expectations, we cannot base our enforcement policy on such expectations unless they are clearly articulated in the text of the rule.

One example of what we should not do occurred in a case involving a radio station called Queen of Peace. The FCC has a rule that requires broadcast stations to maintain a "main studio." In various orders and footnotes ó but not in the rule itself ó the Commission stated that a main studio must maintain full-time managerial and full-time staff personnel during normal business hours. Because the staffer at the main studio for Queen of Peace radio was absent from the office after 3:00 p.m. each day, the Enforcement Bureau fined the radio station for violating the main studio rule. To its credit, the Commission later vacated this fine, but this episode illustrates the danger of broadly worded rules becoming empty vessels for regulators to fill with their own expectations. Going forward, I will attempt to ensure that we do not bring enforcement actions unless the carrier had sufficient notice that the conduct in question failed to comply with our rules.

Notwithstanding this incident, Iíve been very encouraged by the performance of our new Enforcement Bureau. The Chairman is committing substantial resources to enforcement activities, and the Bureau has established several complementary enforcement approaches. These include formal complaints, some of which can be decided on a "rocket docket" basis; structured mediation, which has yielded many settlements; and confidential investigations, which may lead to substantial forfeitures. While formal complaint proceedings still move too slowly, the Bureau has done a terrific job substantially reducing its backlog.

4.Government Humility

My fourth principle is that the FCC should be humble about what is knows and can achieve. We need to recognize that we cannot possibly duplicate the vast knowledge base of the industry we regulate. The communications industry is perhaps the most technologically advanced sector of our economy. Regulators cannot keep up with the myriad developments and innovations by the thousands of communications providers. For example, we cannot know all the latest research on advances in next-generation digital loop carrier systems or optical switching. But we can put structures in place that maximize the information available to the agency in charting its regulatory course.

We need to reach out as broadly as possible to improve the flow of information into the Commission. We need to reach out to consumers, licensees and other regulated entities, trade associations, and the Bar. I believe the Commission should only reluctantly invoke its authority to make proceedings restricted. I have found, based on my experiences at the Commission and in the private sector, that ex parte meetings are critical to ensuring a full understanding of all the relevant issues. I encourage all of you to come see me, or to communicate through USTA and other associations, when the FCC is considering action that affects your business. In addition, if a proposed rule would impose significant costs or burdens, it is extremely helpful if you can provide economic data for our consideration. Having worked for an ILEC, I know it can be difficult to compile such data on short notice, but it can often make a significant difference in rulemaking proceedings.

There are also a number of improvements we can make to speed the flow of information out of the Commission, in order to maximize the transparency of our decision making. For example, I would like the FCC to create an online tracking system to disclose exactly where in the agency a proceeding is pending ¾ whether in the Division, the Bureau, or on the Eighth Floor. This will cut down on inquiries at the agency and allow advocates to address the appropriate staff at the appropriate times. Another simple but effective measure is making sure my staff is available to discuss the items on our agenda and to answer any questions you may have. Please take advantage of them; and if you donít want to come to Washington, you are free to call us instead.

5.The FCC Is a Service-Based Organization

My final principle is that the FCC is a service-based organization, and we should act like it. Your companies, and taxpayers generally, are our customers. We should strive to provide you with the same high level of service that a for-profit business would provide.

Our customers deserve prompt, well-informed answers to regulatory inquiries. We owe you quality process, even if we canít always give you the substantive answers you seek.

When I was in the private sector, I worried most about long delays. Even if I got an adverse decision, at least my company or client could move forward and revise its business strategy as appropriate. It was regulatory uncertainty that was the most damaging and frustrating. Based on that experience, I will do everything in my power to push the Commission to deliver answers as promptly as possible.

I also understand that you may not always want the Commission to act. For example, the Commission has been planning to adopt an order in response to the MAG Plan regarding rural access reform. Once some carriers learned that the Common Carrier Bureau was recommending significant departures from the original MAG proposal, however, many carriers urged delay. In this case, I believe that we have a complete record, and there is no need for additional delay. Quite the contrary, Congress told us five years ago to remove implicit subsidies from access rates. So I have supported moving forward with an access reform order. Although this is a hard issue, we shouldnít shy away from it.

Another area where Iíd like to see prompt action concerns the EELs issue. Whether or not the statute permits usage restrictions on these UNE combinations is a legal question that we should be able to decide relatively quickly. Yet the FCCís interim rules remain in place two years after they were adopted. Just because an issue is controversial and difficult does not justify failing to address it.

On balance, despite the fact that there are some proceedings, like MAG and EELs, that you would rather us not tackle, I believe all carriers will be better off if the FCC substantially improves its timeliness. Even if you donít like the answer, you will have more certainty, and of course, you can always go to the court of appeals, if necessary.

Perhaps the area most in need of improvement involves petitions for reconsideration and applications for review. These have been known to sit at the Commission for interminable periods of time, and often for no good reason. Such recon. petitions or AFRs frequently present no new issues and could be decided relatively easily. But the failure to reach decisions can create needless uncertainty. And where a partyís access to judicial review is frustrated by the long pendency of recon. petitions and AFRs, delays are even more problematic.

One solution that I am exploring would involve the use of form orders to deny recon. petitions and applications for review within a fixed time frame where no new issues are posed. The appropriate Bureau would sort all petitions into two groups ó those that raise new issues, and those that donít. The petitions that do not raise new issues would be subject to a deadline of something on the order of 45 days, which would be suspended only in unusual circumstances. I have already begun discussing this proposal with the General Counsel, and I plan to work with the Chairmanís Office and the other Commissioners to see if we can adopt such procedures to cut delays substantially.

Well, this concludes my summary I will rely on these five principles as I make decisions as an FCC commissioner. Not surprisingly, all of the issues we face have at least two sides, maybe more the parties are represented by skilled lawyers who are very persuasive. And often the answers presented to us are less than optimal. So I think itís critical to rely on a consistent set of principles in our pursuit of the public interest. I welcome your feedback on these principles, more visits with all of you and I am happy to take some questions.