Remarks of Commissioner Rachelle B. Chong Before the Federal Communications Bar Association Midwest Chapter Chicago, Illinois February 15, 1996 "A Camelot Moment -- the Telecommunications Act of 1996" Good afternoon. I'm honored to be here and thank you for your kind hospitality here in beautiful Chicago. I come bearing tidings of great joy in Washington -- a new era has begun in communications. Our laws have been updated to catapult this country right into the Information Age. I'm speaking, of course, of the passage by Congress of the Telecommunications Act of 1996. With the speed of a rocket, it became law last week -- a law that touches the life of every American. As a regulator, I welcome this new law. You see, over at the Commission, we've been trying to regulate in a Star Trek-era, saddled with Gunsmoke-style regulations. People have been trying to update our trusty but well worn 1934 Communications Act for two decades. And after all those years of trying, it seemed like a new telecom law was a lot like the quest for the Holy Grail. Time after time, efforts failed. But this year, there was tremendous bipartisan resolve on the part of Congress to get a new law in place. That resolve extended to all parts of our great industry. Still, it was a real touch-and-go situation for many months. At one point, Congressman Mike Oxley publicly declared the bill as "dead as Elvis." But when the bill revived, he didn't miss a beat. At a speech to the telephone industry, he reported that he'd heard Elvis crooning "Don't Be Cruel" on the radio that morning. "The King still lives!" he declared, and so did the bill! Indeed, the sun, the moon and the stars all seemed to line up on the afternoon of February 1st. After agonizing months of wondering and waiting, the bill went like greased lightening through Congress in a matter of a few hours. We were all stunned and exhilarated at the Commission, sure that we had just witnessed a historic event -- a very speedy historic event. One week later, I was privileged to watch the President sign the bill into law. We were gathered under the ornate dome of the Main Reading Room in the Library of Congress. The mood was upbeat and triumphant, and the symbolism was powerful. There we were, in the nation's greatest library, the largest repository of recorded knowledge in the world and a symbol of the vital connection between knowledge and democracy. Our nation's leaders -- the President, the Vice President, and the Speaker of the House -- spoke of the tremendous impact of this new law on every American. The communications industry was acknowledged as having a huge economic, cultural and social impact on our country. The leaders spoke about how the new Act will pave the way for great advances in education and medicine. It will create new jobs and fuel economic growth. It will bring exciting new services and more choices to people in all corners of the country. A Vision of Camelot While much has been said about the new statute in the last couple of weeks, one comment in particular summed it up for me. After the bill passed in Congress, Senator Larry Pressler, the chief sponsor of the legislation in the Senate, said that for him, this was "a Camelot moment" in communications. I think with that one phrase -- "a Camelot moment" -- Senator Pressler captured what many of us in Washington have been feeling. Like King Arthur's Knights of the Round Table, there is a feeling in the communications community that we are all embarking on a great and momentous adventure together. This afternoon, if I could borrow Senator Pressler's metaphor, I would like to share with you my personal vision of Camelot in the realm of communications. For me, it is a world of fierce, but chivalrous, competition. I use the word "chivalry" in its dictionary sense meaning "bold, gallant, or honorable." In addition to a high degree of competition -- or more precisely, because of it - - Camelot to me is a world with significantly less government regulation than we have today. This is what I envision -- a world of increased competition and reduced government regulation. In this brave new world, consumers will have choices galore for their communications needs. Every home, business, school, library and health care facility will have access to multiple communications providers, at reasonable prices. The paths that deliver these communications services may be wired, wireless, or perhaps both. Providers will not fit neatly into traditional categories such as local exchange carrier, cable, cellular, or long distance company. Instead, they will likely evolve into full service communications companies, offering consumers a tempting smorgasbord of services. In this new competitive world, I believe that we can and should take a different approach to regulation. Finally, the law allows us to stop regulating these providers in isolation and stop relying on old labels for how we regulate them. Just as our communications players will view themselves as full service providers, regulators should also view them as competing communications service providers. Hopefully, when competition among these providers reaches a significant level, regulators can get out of the business of price regulation. Market forces will determine fair pricing levels. And if regulators no longer need to regulate prices, we won't need to worry about allocating costs among various services -- or prescribing depreciation rates for carriers. This is the future the law finally lets us build -- increased consumer choice, fierce but chivalrous competition, and, eventually, if we do our jobs right, no price regulation and little government intervention. Three Stage Roadmap to Competition We have quite a journey ahead of us to reach such a Camelot. You don't get to such a wonderful place overnight. It takes careful planning, plotting a course, and just in case you get lost in the forest, it's always good to bring along a map. Before the legislation passed Congress, I had spoken several times of a three stage roadmap that will lead us to more competition and less regulation. Why did this map have three stages, you might ask? Because two wasn't enough and four is too many to remember!  Stage One: Government tears down existing barriers to entry, and reduces inherent advantages for incumbents. I foresee Stage One as much of the work mandated by the new Telecom Act to break down the current barriers to entry. This stage will be a time of discombobulating transition, with government playing an active role to sweep away regulatory underbrush and build the foundations for competitive markets everywhere. As the walls come down, new players will enter all communications markets. Consumers will have to get used to the idea that their local telephone company may be offering video services and long distance services, and their cable company may be offering local telephone service. As competition builds, we can then begin to move to the next stage.  Stage Two: Government measures how competition is faring, and tailors regulation as needed to boost competition. In this stage, government will be assessing the work we did in Stage One. No matter how well laid your plans, no doubt there will be unexpected developments that will have to be addressed. We may tighten some rules in places, and hopefully relax or remove others where competition is thriving. How much fine tuning we have to do really depends on how successful we are in Stage One in adopting sensible procompetitive rules that can be administered efficiently. But in contrast to the intense work in Stage One, Stage Two should be a cakewalk.  Stage Three: Government steps back and lets the market work, only stepping in as necessary. By Stage Three, competition should be vigorous and thriving. When it does, I think the FCC should step back, get out of the way, and let the market work. Market forces will take the place of most regulatory "solutions." Government involvement and oversight should be limited to a light regulatory touch, with such things as cost allocation, depreciation prescriptions and price regulation relegated to the history books. In Stage Three, I forecast a reduced role for the FCC -- sort of a referee or umpire. Our job would be to do things like protect against interference, adjudicate complaints among competitors, or address consumer protection issues. Are there any sports fans in the room? You know that the mark of a good referee is that the ref doesn't steal the spotlight. The fans go away from the game talking about all those great jumpshots by Michael Jordan and not about controversial calls. Like a good referee, I think the FCC should step in only when necessary, and not intrude unnecessarily on the marketplace action. In the 1996 Act, Congress gave the FCC the discretion to determine when to reduce its oversight. The Act allows us to forbear from enforcing specific common carrier provisions of the Act if we determine that enforcement is not necessary to protect the public interest. Thus, if competition increases to a substantial degree, we now can, and should, seriously consider exercising regulatory forbearance. Getting back to the journey, I mentioned it's good to bring along a map. Now, Chicago is a city that knows something about maps. After all, a famous mapmaker is based here. And compared to my humble little road map, which I had kind of scribbled down on a napkin for an earlier speech, Congress just gave us a deluxe, color Rand McNally Atlas, complete with an index and explanatory text! I like to think that the new statute dovetails rather nicely with my three stage roadmap. But the 1996 Act gets us more rapidly through Stage One, where we break down barriers of entry and introduce competition in all markets. Implementation of the Telecom Act of 1996 Well, the fancy ceremonies are over, and the Commissioners and our staff have rolled up our sleeves and have already begun the implementation work. Our staff prepared a very helpful implementation chart spelling out what we need to do under the Act and when. I brought along copies of the chart which will be made available by the good officers of your chapter. The chart shows each separate issue, the bureau or bureaus assigned to the task, the proceeding (new or existing) in which we intend to deal with the issue, and an estimated timetable by which we intend to release the Notices and the Orders. I emphasize this is just a working draft and is subject to change without notice. Also, these are only the tasks we must do pursuant to the new Act. There are many other tasks in the normal course of our business that we are working on that are not listed on the chart. Now, I'm often asked whether the Commission thinks it can achieve all of the many tasks on its plate within the statutory deadlines. My answer is that we are ready and up to the task. We intend to meet all the deadlines. In the seven days since the bill became law, we have already taken three actions: * A mere four hours after the law was signed by President Clinton, the Commission took its first action pursuant to the Act. Because the Telecom Act eliminated a thirty day public notice and comment period for private fixed point to point microwave stations, we were able to provide expedited licensing for this service. * We already have chartered a neutral numbering administrator -- the North American Numbering Council -- and are close to naming the members of that body. We had initiated this process before the bill became law. * Yesterday, we issued a Notice of Proposed Rulemaking on the topic of BOC entry into out of region, interLATA services. Finally, we expect to issue within the next week an order in the mass media area implementing the statute's elimination of the national caps on radio and television station ownership. As a side note, I wanted to mention that the new Act includes 21 proposals that came from the Commission's own staff. In our recent internal reinventing government process, our staff came up with dozens of ideas of how to update our processes and the law to better serve the industry. Twenty one of them were accepted by Congress and included in the Act. I am very proud of this and wanted to commend our Staff and Congress on this good teamwork. I didn't think it was fruitful to try and review the entire Act because it is sweeping in scope, but I wanted to highlight a few key issues. Let's start with convergence issues, because I think one of the most important things the 1996 Act does is to let everybody get into everybody else's business! Convergence/CCB Issues The provisions of the 1996 Act related to telephony are all about competition -- in particular, how to bring more competition to segments of the market that currently are not fully competitive. It also specifically recognizes that the trend in the market is towards convergence. Roughly, these statutory provisions fall into four broad categories. First, competition in the local loop: In a section aptly entitled "Development of Competitive Markets," the 1996 Act addresses a host of issues designed to encourage new competitors to enter the local telephone business -- specifically what we call in the business "local loop competition." The statute directs the FCC to draft specific rules fleshing out a number of general requirements for all local exchange carriers. These include important issues like resale obligations, number portability, dialing parity, access to rights-of-way, and reciprocal compensation arrangements. So-called "incumbent" local exchange carriers -- the current local telephone companies -- have additional obligations: the duty to negotiate in good faith with other carriers; to unbundle their networks and permit other carriers to interconnect at any feasible point; to permit resale of their services at wholesale prices; to provide notice of network changes; and to offer physical collocation to interconnectors. You are probably wondering what our timetable is for this rather ambitious assignment. The FCC must adopt rules defining these requirements within six months. That means we must release numerous notices of proposed rulemakings in March and April, with an eye toward completing final rules in July and early August. Even as we speak, our staff is working on these notices. Second, what about more competition in the long distance market? The statute provides a path for the Bell operating companies to push into the interLATA market, an area that has been fenced off from their reach since divestiture. As of the date of enactment, the statute permits the Bell companies to provide interLATA services originating outside of their local exchange regions. As I mentioned earlier, just yesterday the FCC adopted a notice proposing streamlined regulatory safeguards for this activity. Our intention is to have final rules in place for out-of-region services within a couple of months in order to facilitate quick entry by new competitors. But the real action will be when the Bell companies want to provide interLATA long distance telephone services within their local exchange service areas. They may enter the long distance market once they demonstrate to the FCC that they meet a 14 point checklist of requirements spelled out in the Act involving interconnection, unbundling of the network, number portability, dialing parity, structural separation, and other issues. The FCC has 90 days to review and act upon these petitions once they are filed. It may take a while for the Bell companies to meet the so-called "checklist" of requirements. And the Commission intends to consult with the Department of Justice on these applications. But eventually, it is possible that we will have as many as seven new, muscular competitors jousting in the interexchange market, competing with the likes of AT&T, Sprint, MCI and WorldCom. Third, the statute prescribes an entirely new way of regulating competition in the video market, specifically, provision of video programming services by the new kids on the block -- the local telephone companies. Essentially, telephone companies will now have four options in this area. They can enter the market as a traditional cable operator pursuant to Title VI; as a radio- based provider of video programming under Title III; as a common carrier providing video transport services under Title II; or as a new animal, called an open video system -- OVS, the newest in Commission acronyms. Under this last category, OVS, the Commission must adopt rules within six months that provide a streamlined method for telco provision of video. Finally, what is the impact of all this new competition on a long time principal in telephony -- universal service? We should be proud of our extremely high telephone penetration rate in the U.S. achieved through the principles of universal service over the years. The new statute calls for a complete overhaul of our existing universal service regulation. There are two main thrusts to the task given to the FCC and the states under the Act. First, we must define what universal service means in this day and age. Second, what advanced services should be supported by universal service mechanisms, and how? We must examine whether a broader group of competitors should contribute to universal service programs, and which competitors will be eligible to take from the fund. In order to implement this, the Commission must convene a Joint Board by March 8th, and within eight months thereafter, the Joint Board must prepare its recommendations on these issues. The FCC then has an additional six months to adopt final rules. One final point on universal service. Congress gave us clear direction that schools, libraries and health care facilities should have access to advanced communications services at discounted rates. This should help our teachers and children to get excited about learning and technology, and enhance the delivery of health care across the country. Congress has spoken; our mandate is clear. The Joint Board and the FCC have much work to do in the area of universal service to unleash the power of telecommunications to all Americans. Mass Media Issues As to broadcasting, the new telecommunications law changes the media world in a number of ways. I will highlight three areas: (1) the new violence or v-chip provisions; (2) the provisions that affect the coming broadcast digital technology; and (3) the provisions that revise the FCC's radio and television ownership rules. The V-chip provisions of the law have gotten a lot of media play, because violence on television is an issue that many Americans are concerned about. I know this from many discussions I have had with parent and educational groups. The V-chip provision is a section that appears to have been drafted with litigation in mind. Congress made a specific finding that there was a compelling government interest in giving parents technology that will allow them to block television programs that contain "sexual, violent or other indecent material" that they do not want their children to see. Congress also found that the "most narrowly tailored" way of giving parents this power was to require television manufacturers to put a device in televisions that can decode a rating signal transmitted with the television show. The rating would work like ratings on computer software and simply identify the program as "violent" or "sexually explicit." Any parent with the technical savvy to figure out how to work the V-chip program (all those whose VCR's are not still flashing "12 o'clock, 12 o'clock, 12 o'clock"! ) will be able to block TV programs they do not want their children to see. In sum, it's a parental empowerment tool. While this sounds fairly simple, the V-chip proposal requires the broadcast industry to develop a rating system for television programming. It is my earnest hope that the industry will do so voluntarily. If broadcasters do not voluntarily develop a rating system, after one year, the telecom law requires the FCC to establish guidelines and recommended procedures for identification and rating of video programming. The Commission is to set up an advisory committee to help with this process. The Committee will be made up of parents, broadcasters, programmers and cable operators. Another hot topic in the broadcast arena is the fight over digital television spectrum. The current law states that if the FCC decides to issue licenses for advanced television services, initial eligibility for those licenses will be limited to existing broadcasters. Recognizing that digital technology will increase the potential uses of this spectrum, the law allows broadcasters to provide non-broadcast services in addition to their broadcast signals, but they will be charged a fee for the nonbroadcast use. At the end of the transition period, they will also be required to give up their license for the analog channel on which they are currently providing service. The Commission will have to set a timetable for the transition through a rulemaking. Now, you may have noticed that I said the current law says broadcasters should have first dibs on these digital channels. Just as the bill was going to the floor of the Senate for a vote, there was an agreement in Congress that our legislators would take up the issue of digital auctions in the next few months and decide whether they should require the FCC to auction the digital channels. At this time, the Commission has no authority to conduct such an auction. Suffice it to say that we are awaiting further instructions from the Hill on this point. Another big change for broadcasters is in the ownership rules. The new law eliminates the national limits on the number of radio and television stations a broadcaster can own, but also says that no one can control television stations that reach more than 35% of the national audience. Depending on the size of the market, the new law also raises the number of radio stations one broadcaster can own in a given market. For local television ownership, Congress delegated that issue back to the FCC for further action. To allow further cross-pollination, the law eliminates the ban on cross-ownership of television networks and cable systems. The FCC will be adopting appropriate orders and rulemaking notices to implement these changes immediately. One order may come out as soon as tomorrow, with an omnibus Mass Media order planned for March. As a result of the rule changes, there has been a surge in radio ownership deals. This week alone, agreements worth about a billion dollars have been announced, including the acquisition of 19 radio stations from Shamrock by Chancellor, and Jacor's purchase of Citicasters, owner of 19 radio and two TV stations. As they say in the business, stay tuned. Wireless Issues The 1996 Act does not directly impact CMRS providers to the same extent as other regulated telecommunications providers. Congress must have decided that the wireless folks had had their fair share of legislation in 1993 when it put in place the new Commercial Mobile Radio Services rules! However, in addition to the interconnection provisions that I mentioned earlier, the Act does make some important changes in the way state and local governments regulate the siting and construction of wireless facilities. I know from my former life as a telecom lawyer representing cellular companies that this is a subject near and dear to the hearts of wireless providers. Section 704 of the Act places a number of limits on local and state government's continuing jurisdiction over siting and construction of wireless facilities. For example, state and local governments cannot "unreasonably discriminate" among wireless providers, nor can they adopt regulations that effectively prohibit the provision of wireless services. Another key provision states that state and local governments are prohibited from making siting decisions on the basis of concerns about radio frequency emissions, provided that the facilities comply with the FCC's standards concerning such emissions. The Commission hopes to release its order establishing its rules regarding the environmental effects of radio frequency emissions next month. I am hopeful that the Commission's rules will provide some guidance to local and state governments, who are grappling with these difficult environmental issues, and, at the same time, streamline and expedite the facility siting process for wireless providers. These actions, and many others, will lay the groundwork for a new golden era of competition. Merlin's Lesson I sure hope that the Commission will be hearing from many of you in the months to come. Due to the volume of work called for in the bill, don't be surprised if you see the Commission limiting how many pages you can file on a topic, or requiring pleadings to be filed on computer diskette in addition to hard copies. But there is another way you can be of help. And to illustrate this lesson, I would like to share with you a lesson I learned from Merlin. You know, the magician from the days of King Arthur. According to legend, Arthur was born the son of the King Uther Pendragon. It was a time of treachery between the minor kings of Briton as they battled for power, and this treachery extended to the murder of another of the king's sons. Because of the danger, upon his birth, Arthur was secretly given into the keeping of Merlin, a trusted magician. Merlin brought Arthur to Sir Hector who raised him as his own in safety and anonymity in a remote forest of Briton. As the boy grew, Merlin trained young Arthur in skills that would make him a great king that would one day unite Briton. Arthur studied subjects like tilting, archery, hunting, and chivalry. (In those days, chivalry was still a GOOD thing!) Given Merlin's extraordinary talents as a magician, Arthur's education was rather exceptional. Merlin cleverly used Arthur's love of the forest to teach Arthur skills that he would find useful as a future king. For example, one day, poof! Merlin turned Arthur into a fish, where he taught the boy what it was like to live in an alien underwater world. Another time, abracadabra! Merlin turned Arthur into an ant, to learn what it is like to work with a team. Finally, Merlin turned Arthur into a hawk. Merlin urged the startled boy to spread his powerful new wings and to fly. And so Arthur did, rising high into the sky and reveling in his freedom from earth. Once he mastered the art of flying, Arthur looked below him and was astounded at how different things looked from above. Merlin and Arthur flew to many places that day. Merlin showed Arthur the boundaries of the kingdom that would one day be his. Arthur saw that the forest -- which up to that time had consisted of his entire world -- was only a small part of a larger county. And this county in turn was a part of a larger country, whose interests he would have to keep in mind as a future king. What Merlin taught Arthur that day was perspective -- so that once Arthur was the king, he would remember that his job was to unite the country and to act in the interests of all his people, and not for just a few. Now, for a minute, I would like you to place yourself in young Arthur's place. With this new Act, we have a chance to soar like a hawk high above the telecom landscape -- giving us a new perspective, a nationwide view. As Arthur discovered, things can look different from this perspective. And that nationwide perspective is the perspective of an FCC Commissioner. I am charged with making decisions in the interest of ALL of the American people, not just one industry, or one geographic region. You can see that in this telecom act, there is the promise of doing some very great things for our country. We can continue our commitment to universal service, but realized in ways that are technology neutral, more efficient, and more fair. We can make the Information Age reality, by connecting our schools and libraries with state-of-the-art advanced technology to let our children learn in ways that capture their imagination and put the great libraries and museums of the world at their fingertips. We can save lives and improve the quality of our lives by connecting health care providers to advanced telecommunications and information services. Through our more competitive market structure, we can provide incentives for new innovative services, for lower rates for consumers, and for more choice of providers. So, when digging into the issues contained in our many dockets, I hope that all of us will avoid getting so bogged down in the details that we lose sight of our broader goals. While we grapple with individual issues, we have to remember, like Merlin taught Arthur, to keep an eye on the big picture. If we do this, I believe we can all keep our procompetitive perspective. I would like to ask that you, our licensees, do your part to help the Commission in doing its job. If I may be so bold as to suggest a few things to you as you prepare your comments. The Commission needs concise, constructive, and creative input from you. I urge you to focus early on the issues and to develop coordinated industry positions where possible. For every problem you identify, please offer constructive solutions. And don't wait until the reply comment stage to set forth your true position on an issue. Give us the benefit of your perspective early on, or it may be too late. Finally, be selective in the number of issues that you comment on; pick the ones that are most important to you and let the little ones go by the wayside. So that is my vision for a golden age in the communications realm -- a world of chivalrous competition and reduced government regulation. Congress has done its part by giving the FCC the statutory tools and a detailed roadmap to get us to our destination. Now as the spotlight shifts to the FCC, we are ready to pick up the gauntlet and meet this great challenge. Together, we have a chance to cast off the shackles of outdated laws and regulations and enter Camelot -- a Golden Age of communications. Thank you very much.