Talking Points of Commissioner Rachelle B. Chong to the Los Angeles Chamber of Commerce Los Angeles, California October 11, 1994 Good afternoon. It's a great pleasure to be back in my home state, the great and blissfully sunny State of California. I can't believe it's October and 85 degrees here. I am often asked in Washington DC whether I like my job and whether I miss California. I love my new job although I am working very hard. As to whether I miss California, the answer can only be "Of course!" I've been at the Federal Communications Commission for a little over five months, but in that short time, we've done some tremendously exciting work. Telecommunications, as I'm sure you know, is an industry that is changing as fast as anyone can keep up. And even though I've specialized in telecommunications matters as a regulatory lawyer for the last decade, I've been racing to keep up with this industry. The FCC is trying to encourage innovation through its policies. As a part of the effort to reinvent government, we're doing our best to tailor our regulations to the rapidly changing needs of the industry, while at the same time ensuring that the public's interest is adequately represented. Our main theme is to create competitive markets and to continue our work to introduce competition to all communication markets. By far, the most exciting thing I've been involved in -- and I think one of the most historic moments in our telecommunications history in the past several years -- has been the first auctions of the public radio spectrum. Auctions have never been used before to allocate the scarce radio spectrum, so many in the world were watching these auctions closely. I know because two weeks ago, I attended the International Telecommunications Union conference in Kyoto, Japan. Everywhere I went, telecom ministers of other countries were pulling me aside me to ask about our first auctions. Why this interest? It's simple. In our first auction, we raised a huge amount of revenue for the federal government and other governments want to know how we did it. The spectrum we're auctioning is to be used for Personal Communications Services, or PCS. (I apologize -- those of us at the FCC are prone to speak in telecommunications acronyms. Just stop me if I slip into telecom-babble.) Some say that PCS is the next generation competitor to cellular telephones. PCS is expected to open the door to a whole new world of small wireless communication services and devices. The introduction of PCS promises to connect tens of millions more people to the Information Superhighway. My fellow Commissioners and I are very interested in encouraging more innovation and competition in the wireless telephone industry because it continues to be a robust and growing field. We're moving rapidly to the next phase of wireless communications, which brings me to the point of my talk here today. I will first talk about PCS and our innovative auctions of the spectrum. Then, I would like to touch on the Information Superhighway concept -- what it means and how it can change your lives. Finally, I would like to talk about one aspect of the Information Superhighway -- using advanced telecommunications to improve our education systems. I will pause for questions between each section of my speech; please feel free to ask me questions. Vision of PCS Now, I'm sure many of you have heard about PCS and the spectrum auctions, but the term PCS -- Personal Communications Services -- gets tossed around a lot in the press and in conversations, but not everyone is exactly sure what the term means. So let me share with you the vision that many people in the industry and I have for PCS. The FCC has defined PCS broadly as a new family of mobile or portable radio services which can be used to provide voice, data, and other information services to people. Now, when I say these devices will deliver information "to people," I literally mean to the physical person, to me, not to my home, office, or car. And you will have choices about how to send the information -- through a voice mail, an Email, an old fashioned voice transmission, or by transferring a document or chart through a wireless data transmission. Now, there are really two different types of PCS technology -- broadband and narrowband. Broadband PCS is the service which is expected to be the big competitor to cellular telephones. These PCS devices are expected to be even smaller than current cellular phones -- small enough to fit in your shirt pocket. It is called "broadband" because a broader amount of spectrum is allocated to each licensee for this service. So, more information can flow between the service provider and the consumer. This broader band of spectrum is needed to provide two-way voice communications, as opposed to the narrower amount of radio spectrum required to send data, for example, a signal to a pager. We expect broadband PCS licensees to use their spectrum to provide a whole new family of portable communications devices. These devices will include small, lightweight, multi-function portable phones, new types of multi-channel cordless phones, and advanced laptop devices with two-way data capabilities, that will let you get your Email, news, stock quotes, and surf the Internet no matter where you are. Narrowband licenses, on the other hand, can be used for technologies which do not require such a wide spectrum allocation. Examples of narrowband PCS technology are advanced voice paging, which will send a voice mail message to a pager, two way acknowledgement paging and a variety of data transmission services. There's even a Dick Tracy-like watch now that receives pages, weather reports and currency conversion rates -- constantly and wirelessly. Yes, it's pretty Space Biff type stuff. The FCC has chosen not to dictate to licensees exactly what type of PCS service they should provide. We want these entrepreneurs to use their imagination and develop an innovative service so that they decide the market needs, not what the FCC thinks the market needs. So those examples I gave are really only examples. As the technology improves, I imagine we will get even more efficient uses of the limited amount of radio spectrum that is available. So, there may be no limit to what the technology may bring in the future. All of this new technology has profound implications for consumers. I predict that within about a decade, you will soon carry a personal communicator, no larger than palm size, which will be your primary method of receiving communications. You will no longer require a wired phone at home or at the office. People won't call a location to reach you; they will call you where ever you are. Of course, this personal communicator can be turned off when you don't want to be disturbed. Your calls will then go into voicemail. Your personal communicator will have a pager built into it, so those who need to reach you (your secretary, your family, or your talking parrot) urgently can. It may even be able to receive your Email, as well as any information service you desire, such as news, stock quotes, or weather. All wirelessly. Auctions My very first task upon becoming a Commissioner was to help figure out the rules for allocating the spectrum for PCS. Using what the Wall Street Journal described as "cutting edge economic theory," the FCC designed procedures which for the first time allowed us to auction licenses to use the radio spectrum to provide PCS service. In the past, licenses had been given away for free through comparative hearings or by lottery. In retrospect, neither of these license grant processes were satisfactory from the FCC's point of view. The comparative hearings required a tremendous amount of staff resources to determine which was the "best" applicant, often a far from clear choice. In the 80's, the FCC tried a lottery system for some of the early cellular licenses. Unfortunately, lotteries resulted in some licenses being awarded to speculators who then re-sold the licenses to the highest bidder, and delayed service to the public. The new auctions and spectrum allocations have been designed to encourage as much competition as possible, both within the new PCS industry and between PCS and currently existing technologies, such as cellular and paging services. What this means for consumers is undeniably positive -- lower prices and better service. Research in the past few months suggests that cellular rates have already come down slightly in anticipation of PCS service. We held our first round of PCS auctions last July for ten nationwide narrowband licenses. By all accounts, it was a smashing success. We raised 617 million dollars, six to eight times the initial projections. The Interactive Video Data Services auction raised another two hundred million dollars. The FCC auction team even won the coveted Hammer Award for Reinventing Government presented by Vice President Al Gore. The licenses went to well-established telecom companies such as Bell South, McCaw Cellular and AirTouch. One purpose of introducing the auction process was to ensure that the licenses go to the firms that value the license most. It is believed that such firms will have the incentive and capital to build the system's infrastructure quickly, thus ensuring a speedy introduction of service to consumers. The narrowband auction was a "win-win-win" event for all parties involved.  First, consumers won because the auction heralds the start of greater competition for wireless and wired telephone services. That means there will be lower prices and better service as these providers compete vigorously.  Second, the telecommunications industry won because the licensing process will be faster. That means service providers will be able to get new PCS services to consumers faster.  Finally, taxpayers won because auction revenues go directly to the U.S. Treasury. This means the Federal deficit is reduced. The FCC is in the process of getting ready for our second set of narrowband PCS auctions to be held later this month on October 26. Broadband PCS auctions will begin December 5, and will conclude sometime in early 1995. Let me emphasize that we are not yet experts in auction methods. With each auction, we learn new things. So we'll keep tweaking our rules to improve them. But so far, we are pleased with how the auctions are going. We hope to have more to teach the other foreign regulatory agencies by the end of our PCS auctions. Designated Entities Now one of the things Congress was concerned about when it gave the FCC permission to auction the spectrum was that the auctions may have the effect of awarding licenses to those with deep pockets and of excluding certain groups, such as small businesses, businesses owned by women and minorities and rural telephone companies. Congress directed the FCC to ensure opportunities for these four groups to participate in the PCS auctions. In response, the Commission carefully crafted a number of mechanisms to allow these "designated entities" to have the greatest participation possible. We have set aside two "entrepreneur's blocks" of broadband PCS spectrum to be auctioned only to those companies that qualify as small businesses -- under our rules those with less than $125 million in gross revenue and $500 million in total assets. We've also awarded bidding credits to women and minority owned businesses -- in effect a discount for those businesses that qualify. Women and minority businesses may also qualify for installment payment of the license fee, as well as a lower initial down-payment. There are also mechanisms for deferring capital gains upon sale to a designated entity and special provisions for rural telephone companies. As a sidenote, in 1992 -- before auction authority had been granted to the FCC by Congress -- we awarded four licenses to some of the technological pioneers in the PCS field, called "Pioneer's Preference licenses." These licenses were granted for free -- no hearing, lottery or auction. The rationale for granting pioneer preference licenses was to encourage research and development and to reward those firms who first brought the new technology to market. When Congress realized how much these licenses were potentially worth after our July 1994 auctions, it asked the FCC to consider charging a fair price. We have recently adopted rules to require the four technological pioneers to pay 90% of the winning bid for the same type of licenses in the largest markets. I did not participate in this decision, as I was recused, so I am unable to discuss how the FCC came to this decision. In all, the Commission believes the special treatment of these Designated Entities will help ensure a diversity of ownership in the telecommunications industry, and that a diversity of ownership will encourage greater innovation and greater competition. When that happens, everyone benefits. Information Superhighway Now the most exciting thing about PCS technology is that it promises to be one of the lanes on the so-called Information Superhighway. I have a vision that many in the industry share, of a network of computer, telecommunications and information networks. This network of networks will permit a free and rapid exchange of information throughout the country, and indeed throughout the world. This Information Superhighway will permit a global exchange of information and ideas that will enrich all of our lives by allowing information to be shared between businesses, educators, hospitals, scientists and government. This will allow businesses to become more productive and to better adapt to changing conditions, thereby increasing competition and benefitting the consumer and our economy as a whole. The "Information Superhighway" is another phrase that gets thrown around quite a bit even if people don't really understand what it is. What I mean when I talk about the Information Superhighway, and I think what others mean, is not just an interconnected system of wires and wireless paths. One of the telephone company CEOs describes the "Information Superhighway" as a short hand way of talking about the concept of connectivity in the future -- the collective expectations we have for how technology can bring people closer together in the 21st century. This goes beyond wires and radio waves and embraces the ideas and information we will share. I think he is right. I believe that the Information Superhighway will bring us benefits that we are only now beginning to grasp. But we do know it will make us more productive, better informed and enhance our quality of life. For example, distance learning can bring the best teachers in a nation to all students, no matter where they live -- whether in the San Fernando Valley, Maui, Maine or Anchorage. We will be able to connect every school and library to create a Global Digital Library so every child has the riches of the world's library at the click of a computer mouse. Imagine the impact on a child in a developing country to have such a capability at her fingertips. Another example of what the Information Superhighway can bring us: With the advent of PCS and satellite based telephone service, people in remote areas will finally have access to a telephone. Right now, a person living in a remote area -- say, Death Valley -- may not have a phone because it is prohibitively expensive for the local telephone company to string a wire to his house. So, new wireless telephone services like PCS or satellite telephone systems may mean that people living in the remote Death Valley or high in the Sierras will finally be able to afford a telephone and get on the superhighway. Another example: Telemedicine will minimize health-care costs and improve the quality of care by allowing a patient to be examined by a far-away medical specialist via interactive television. X-rays and cat scans can be delivered via high-speed data lines. A final example: For the world's citizens, the Information Superhighway will improve their quality of life by providing early warning systems for natural disasters like hurricanes, volcanic eruptions, floods, and earthquakes. It will allow experts around the world to share knowledge to solve international problems like global warming and to collaborate on public health projects, like finding an AIDS vaccine. We do not propose to construct this Information Superhighway as a new government project, funded by taxes. Rather, the FCC hopes to be cheerleaders and referees as we shepherd the process along by encouraging private investment, fostering competition, ensuring a flexible regulatory framework, ensuring that all information providers have access to the network, and that its riches are available to all. Tele-Education I would now like to focus on one aspect of the Information Superhighway just as an example of how this concept could be used to improve education, an area of concern for many of us these days. Picture for a moment, the vision of every school and library in our nation linked to each other by a network of wired or wireless paths. What flows over the pipe is not just transmissions of data or voice, but images. Not just still images, but moving video images that will capture your child's interest and imagination. Instead of reading a dry chapter in a textbook about volcanos, imagine your child in science class being able to watch, close up, an erupting volcano in slow motion -- or in a paused mode, as the teacher explains each phase. Or, suppose the most inspirational science teacher on volcanos is located in Seattle. Your child could have an interactive television session with this exceptional teacher and benefit from this teacher's enthusiasm and expertise. I note at the outset that the FCC is charged with regulating the radio waves in the public interest; our charter does not extend to education. I see education as primarily the job of local communities and the states, although the federal government does have an important role, for example, establishing national standards for education. The FCC does have regulatory authority over some of the key players who may be the architects and financiers of this ambitious national project: telephone providers, cable companies, satellite service providers and other wired or wireless telecom providers. I would like to make three points on the topic of using advanced telecommunications to further education. First, the FCC's Chairman, Reed Hundt, has suggested that a public private partnership needs to be formed to address this tremendous opportunity to revolutionize education using telecommunications. We envision this as a partnership among all those interested -- educators, all three levels of government and relevant agencies, the communications industry, Congress, business, manufacturers, software developers, and parents -- working together towards this worthy goal. While we in government can write the rules that affect the entities we regulate, the collective wisdom of all people with an interest is needed to work together to realize this ambitious goal. Second, I believe that we -- especially business -- should want to bring tele-education to our nation. Why? Because it makes good business sense in the long term. It will result in a better educated workforce of the future that can help companies better compete in the global marketplace. You see, in the Information Age of the future, the workplace will increasingly rely on information and communications systems. To keep a competitive edge in a global market, companies will demand up-to-the-minute market data and world news. We need to prepare our children for the workplace of the future. We need to modernize our education as quickly as we modernize our office systems to keep up with technology. As markets increasingly become global, America's ability to compete effectively will be determined in part by the technical competence of our children. We've got to produce new employees who are "technology smart" and able to function in an Information Society. Third, how do we move forward on an ambitious project like tele-education? I think we first must focus on and determine what are the issues that must be decided. To this end, the FCC is participating in a Task Force with the Department of Education and NTIA to study the job of connecting all the nation's schools and libraries to the Information Superhighway. This group is just getting started, but many states are already on the tele- education bandwagon and have done far more. On a panel before a group of telephone executives yesterday, Commissioner Greg Conlon of the California PUC noted that a task force has been formed by the state legislature which is studying this issue. In addition, he reported that the California PUC has begun an investigation into an education grant program. In talking about the telecommunications in education program yesterday in San Diego, the critical question discussed was who should pay for the costs of this ambitious tele- education projects? CPUC Commissioner Conlon provided an estimate that it will cost two to two and a half billion dollars to wire 7,500 California schools. Yes, I said "billion." Educators and librarians noted that they were suffering from huge budget cutbacks as it was. They suggested that business (and not just the telecom industry) may wish to help and invest in the employees of the future. If I wrote this down right, Commissioner Conlon said that four possible sources of funding has been proposed in the CPUC's investigation: first, a general fund appropriation by the state legislature; second, a bond offering; third, a surcharge on telecommunications services bills; or fourth, other programs such as ratepayer refund funds. I would welcome thoughts on these options, and any other options that might be possible. In addition to the tough question of who should pay, there is also the question of what tele-education should be. Educators who participated in yesterday's panel emphasized the need for early and frequent input by teachers in the design of the systems. Interactive educational software, virtual reality field trips, 24 hour access to libraries, 24 hour adult education classes, and distance learning are some of the techniques being discussed and tested in our schools. We should also think creatively about the advanced tele-education systems that can serve schools. Wireless systems or systems using existing cable lines in the schools could be the most cost effective. Already the Cable in the Classroom program has gotten cable television to many of our classrooms. Many telephone companies are already deeply involved in tele-education trials with very promising results. I will leave you with two last points based on statistics. Universal service -- which refers to the number of people in America who currently have basic telephone service -- is at about 94%. But only 1/8 of our classrooms have a basic telephone line. So, teachers cannot get help in an emergency, or be contacted by their school administration in an emergency. What a difference a simple telephone line with voicemail could make to a teacher. It could promote accurate information going to parents about their child's homework assignments and field trips. Voicemail could facilitate communication between teachers and parents. Yesterday, I challenged the telephone industry to put a phone in every American classroom. A last statistic that I got from the FCC's chairman: Of the average $6,400 spent per pupil per year, only $35 is spent on technology. Yet studies show that interactive computer based instruction is a cost effective way to increase educational achievement. I urge you to get involved in this issue and help us improve education with one of our shining achievements -- excellent high technology. Thank you for your attention.