Remarks of FCC Commissioner Rachelle B. Chong at Telestrategies' Wireless Broadband Conference Washington, D.C. July 16, 1996 "Independence Day of the Telecom Industry" Thank you very much for inviting me here to speak to you today. It is a real honor to be introduced by Jim Quello, the Senior Dean of the FCC Commissioners. In our spare time, Jim still tears up the tennis court, and I enjoy surfin' the Net. But neither of us has had much time to do that lately. You see, our lives changed dramatically on February 8th, Independence Day for the telecom industry. Raise your hand if you've seen the hot new flick, "Independence Day." Now, I'm not suggesting that on February 8th, squid like aliens invaded the Commission. But like those in the movie who rallied to save earth, we FCC folks have rallied to swiftly implement the new Act, and to defend ourselves against the legions of Telecom Act lobbyists who are invading our hallways daily. In arming ourselves for encounters with this horde of lobbyists, we have established a new standard issue for FCC employees: 1. Always carry your Act. 2. Always carry a notepad with you in case a lobbyist traps you in the bathroom and you need to take notes. 3. Always carry some rations in case you get stuck in a long briefing. 4. And finally, always carry a defensive weapon in case an overly persistent lobbyist poses a threat to getting your work done. So, as you can see, I came here today, equipped for action. As you may be able to tell, the Telecom Act is monopolizing my life. Right now, I am focused on Sections 251 and 252 of the Act in particular. This is because we are now immersed in work on the hefty interconnection order, about 500 pages with 1,000 footnotes and counting. When preparing this speech, I thought about talking generally about the new Act, but I really wanted to talk more specifically about issues related to LMDS. Looking for inspiration, I looked over some of my old speeches. There are two goals I emphasize most when I speak: the need to increase competition, and the need to amend the FCC's regulatory frameworks to recognize the increasing convergence of the different sectors of the telecom industry. As I thought more about it, I realized that your industry, LMDS, can make both my policy goals happen. While I have been spouting these abstract concepts, you appear to have taken a certain sports ad to heart to "Just do it." You have been thinking outside the box to make competition and convergence happen through LMDS. And LMDS technology has the potential to make it happen in more segments of the market and more quickly than other wireless and wireline providers. Today, I wanted to discuss my policy goals for the industry and talk about why I think LMDS can help make them happen. I will also touch on what the FCC is doing to help make LMDS a viable competitor. Finally, I would like to talk about what I hope LMDS can give back to its community. Competition I believe that there is no more important policy objective than increasing competition. Congress clearly is in accord. The Telecom Act rejects the old public utility style of regulation, and promotes a procompetitive deregulatory framework. Congress recognized that competition is the well-spring from which many other benefits flow -- more consumer choice, lower rates, and innovation. Where there's effective competition, the need for regulation decreases, so that ultimately, the market will be the regulator -- not FCC commissioners like me. I have long advocated increased competition in two markets: the local telephone and the video programming markets. While the beginnings of competition have emerged in both markets, for the most part, these markets are still dominated by the local exchange carriers and the franchised cable operators, respectively. How should we deal with the conundrum of injecting competition in these markets? Traditionally, we have looked to existing players who have wired networks as the best new entrants. The thought was that the cable operators could upgrade their current cable system to enter the local exchange telephone market. And the local telephone companies could upgrade their telephone systems to be the newest entrants in the video programming market. Until recently, there were many legal obstacles to this approach. But no more. The Act has swept away these obstacles. Although the legal obstacles are gone, these incumbent wired providers still face significant obstacles to enter each other's market. One of the biggest hurdles is the cost and time needed to upgrade their physical plant. Industry estimates indicate that it will cost approximately $800 dollars per subscriber to upgrade a cable line for telephony. It will cost approximately $1,000 dollars per access line to upgrade a telephone line for video services. The bottom line is that the introduction of video or telephony competition by these wired new entrants will not be cheap, easy or quick. Now, as the LMDS industry well knows, you are taking a fresh, state of the art approach to entry into the video or telephone markets. You are getting rid of the wired mentality, and instead relying on the wonders of wireless LMDS technology. I'm excited about the LMDS' vision of offering its customers a rich package of services, things like telephone service, broadcast and interactive video, video teleconferencing, high speed, two way data transmission and Internet access. It's going to be an attractive offering, no doubt about it. Wireless technology gives LMDS many advantages over traditional wired options. With LMDS, you don't have to dig up the streets and run wires. With LMDS, your capital costs are lower, and you can establish service to customers very quickly. LMDS also gives you tremendous flexibility to serve your customers needs faster and better. You can hone in on what they want, and -- using wireless technology -- target certain areas, new emerging needs, or specific customer segments. LMDS operators also have an advantage over other wireless technologies because of the amount of spectrum that will be available for it. You have the potential to put together some unique offerings that other players will have difficulty matching. Convergence My other consistent theme has been update our regulations to recognize convergence. When I first arrived at the Commission two years ago, I spoke about how technological advances had brought us to a point that many industries were converging. I saw that in the future, providers would no longer fit neatly into the traditional categories of local exchange carrier, cable, cellular, or long distance company. Instead, many of these players seemed likely to evolve into full service communications companies, offering consumers a tempting smorgasbord of services. In this new convergent world, I was worried that our regulation was not keeping up. I argued that we ought to stop relying on old labels for how we regulate telecom providers. Just as our communications players would be viewing themselves as full service providers, I felt that regulators should also view them that way. Well, the future got here a little sooner than I thought. The new Telecom Act lets everybody get into everybody's else's business! And it s my view that LMDS -- which embodies the notion convergence -- is poised to take full advantage. You have the potential to be a "one stop shop" for a broad array of communications needs. What LMDS Needs from the FCC: Now, for LMDS to become a viable competitor and to be able to offer these one stop shopping packages of services, there are some things that I think the FCC has to do: Spectrum First and foremost, the FCC should license enough spectrum to give the LMDS industry the spectrum it needs to offer its services. I know that some in the industry have despaired of the FCC ever adopting a bandplan. I share your frustration with what must seem to you the neverending NPRM process. Our proceeding has taken so long in part, because we have been working incredibly hard trying to develop a way to accommodate all the terrestrial and satellite services proposed in the 28 GHz band. Our goal was to maximize spectrum efficiency through sharing and other arrangements. Unfortunately, it appears that some of the sharing arrangements we were originally exploring with the industry are not possible. So now we have some hard choices to make about the band plan. I wanted to give you two assurances that I hope will help. First, the FCC is committed to getting a decision out on the bandplan as soon as possible -- our goal is to adopt a decision by week's end at the latest. Second, the Commission is committed to getting the LMDS community enough spectrum to allow it to provide a wide range of two-way and interactive technologies. If the band plan we adopt this week does not have enough spectrum at 28 GHz to easily accommodate the proposed technologies, we will find other spectrum to use for LMDS. We are considering a proposal to allocate an additional 300 MHz of spectrum to LMDS at 31 GHz. On a separate track, we are also pursuing possible sharing with, and/or retrieval of spectrum from our friends at NASA. While a quick NASA study concluded that sharing was problematic, further study does appear warranted. Again, I wanted to acknowledge and apologize for the fact that LMDS has been subject to what must seem like excruciating delay so far. Bearing this delay in mind, the FCC has committed to issue the 28 GHz bandplan and allocate any needed additional spectrum to you as quickly as possible. Our goal is still to have auctions of the spectrum by year's end. Flexible Spectrum Use Let's turn our discussion now to the issue of spectrum flexibility. I know you want it. Unlike the old way of the FCC mandating what the use of the spectrum will be, we have proposed to allow licensees to decide what services they will offer. I support this proposal. I believe that we should let the market rather than regulators determine the best use for spectrum. Spectrum flexibility has lots of benefits. It encourages competition, promotes spectrum efficiency and enhances customer choice. Consistent with this philosophy, the FCC recently issued a decision where we allowed providers of commercial mobile radio services the flexibility to use their spectrum for any mobile or fixed use, except for broadcast. We expect to issue a decision addressing this issue and other LMDS service rules this Fall. Flexible Regulatory Scheme The next thing you need to compete is a flexible regulatory scheme. We proposed several regulatory options in the notice we issued last Fall. One option I thought had some appeal, I call "licensee's choice." Under this option, successful bidders specify the types of services they expect to offer and indicate the regulatory status under which those services would be offered. We will specify the type of regulation for LMDS in our decision on the service rules this Fall. As I consider this issue, I think it is important that we keep in mind the following: First, LMDS will be a new entrant competing with entrenched monopolists, the local telephone company and the cable operator. Accordingly, I think that we should generally employ as light a regulatory touch as possible over LMDS. Some good news is that in the 1996 Act, Congress gave the FCC the discretion to determine when to reduce its oversight over parts of the industry. The new Act allows us to forbear from enforcing certain provisions of the law if we determine that enforcement is not necessary to protect the public interest. Second, I think we should strive where possible for regulatory parity. What I mean by this is that we should aim to regulate similarly, providers who are providing similar services. This is important to create a level playing field and make it fair for everyone who is competing. Third, as I mentioned before, the Commission and our state colleagues are in the middle of a complete overhaul of our regulation of the telephone industry pursuant to the new Act. If telephone service is in your business plan, I strongly suggest that potential LMDS operators ought to be participating in our major implementation proceedings so that your interests are represented. Specifically, I suggest you closely follow our universal service, interconnection, number portability, and dialing parity dockets, and our upcoming access charge reform docket. If you do that, you will have a thorough understanding of our implementation when you file comments on our LMDS service rules. Fair and Reasonable Interconnection Let s focus for a moment on interconnection. If your business plan includes telephony, you cannot compete in the local exchange market unless you can interconnect with the public switched network. And you will need to do so on rates, terms and conditions that are just, reasonable and nondiscriminatory. The Commission regards interconnection as absolutely vital to the development of new communications services and the evolution of competitive markets. Without question, it is in the public interest for communications traffic to pass between networks freely and transparently. This will help our nation achieve the full benefits of a seamless "network of networks" and bring nifty new services to subscribers. In my view, timely and reasonably priced interconnection is the lifeblood of competition. To the extent that alternative service providers are able to terminate traffic on other networks at reasonable rates, they can offer competitive retail rates to customers. If, however, the interconnection rates are too high, it will discourage new entrants and competition will be hindered. The 1996 Act imposed strict interconnection obligations on incumbent local telephone companies to unbundle their networks and to permit other carriers to interconnect at any technically feasible point. These LECs are required to negotiate in good faith and charge reasonable and nondiscriminatory rates. Soon after the Act passed, we initiated a proceeding to implement these sections of the Act. There are a number of complicated issues to be decided in this proceeding, including the respective roles of the state and federal government in administering this section. By law, we must issue our decision in this proceeding no later than August 8, 1996. So, by the time you are bidding for your LMDS licenses, you should have a good idea of how the interconnection process will work and can make your business plans accordingly. Number Portability I also wanted to touch on number portability, which I know will be crucial to your ability to compete head to head with the local telephone companies. Customers are less likely to change providers if it means they have to suffer the inconvenience of changing their telephone numbers. The new Act imposes an obligation on all LECs to provide, to the extent technically feasible, number portability, in accordance with requirements prescribed by the Commission. Last month, the FCC issued a decision implementing this section of the Act. The decision requires LECs to begin to implement number portability technology in the top one hundred MSAs no later than October, 1997 and to complete deployment by the end of 1998. We hope this policy will help LMDS operators enter the telephone market. Responsibilities as a Competing Telephone and Video Service Provider Well, it is clear that LMDS will finally have its chance to have its day in the sun in the coming years. As you move forward with your business plans, I urge you to consider how your company can do its part to bring all Americans into the new Information Age. I'm talking here about corporate responsibility and the spirit of volunteerism. Suppose you plan to offer telephone service as part of your LMDS package. Now, I have always believed that many unserved or underserved communities could more efficiently be served by wireless telephone service. Congress agreed, because in Section 254 of the new Act, any communications provider -- not just a wireline telco -- is eligible to become a universal service provider. In unserved areas, Section 254 allows the government (state or federal) to choose a universal service provider and order them to serve an unserved community. In my view, the provider chosen may well be a wireless provider such as LMDS, because your systems may well be the most economically efficient in rural, remote or insular situations. So be prepared to serve if this needs arises. But, this is not the only way LMDS can make a difference. LMDS has a unique opportunity as a wireless provider to be a part of helping prepare our students for employment in the Information Age of the future. Many telephone, cable and wireless telephone providers are voluntarily helping connect the schools to our communications infrastructure, and I hope LMDS will do its part too. For example, the Cellular Telecommunications Industry of America has a terrific program called CLASSLINK in which cellular operators donated wireless phones and some airtime for use by teachers and school administrators. Recently, I met some teachers and kids from Richardson West Junior High in Richardson, Texas. This junior high was the first school in the country to have Classlink cellular phones put in every classroom. The students and faculty conducted a study to see whether the presence of these phones made a difference. Their study found that they did. First, they reported that parents, teachers and students all reported that they felt safer with a phone in the classroom. They also found that the phones made a difference in other ways. For example, 96% of the faculty reported that the cellular phones helped them perform their jobs more effectively, and 75% said that the phones allowed greater access to outside resources. Slightly over 80% of the teachers said the phones had enhanced the curriculum too. For example, one teacher used the wireless phone to call a local judge and, with the use of a speakerphone, the students could talk with him about the importance of the Constitution. Now, to be fair, there are a few potential downsides here. More than 70% of the parents surveyed reported that they had gotten a call from a teacher. This may not have been so great from the parents point of view, depending on what their little angel has been up to! Moreover, teachers with cellphones can really cramp a clever kid's style. With a handy wireless phone, a teacher can immediately check out the story that "the dog ate my homework." Now, if your LMDS plan includes high speed Internet access, you may wish to help by volunteering to provide access to the Internet to our schools. Sixth grade science teachers nationwide can share innovative lesson plans, while administrators can share technology strategies and learning. A computer and a high speed modem allows students explore the world outside the four walls of the classroom via the Internet. Or, like the cable industry's Cable in the Classroom program, you could develop programming that will enrich student learning using multimedia presentations to capture their interest. Another possible application could be wireless local area networks that will link students and faculty. These wireless LAN networks could provide things like electronic mail, data sharing (say, between a central library and other libraries on campus or even another campus), Internet access and the like between administrators, teachers and students. These wireless networks devices would enable desktop access to the Internet for students without having a tangle of wires around the room or having to string wires through asbestos-filled walls. New broadband networks also have the potential to provide interactive distance learning opportunities. For example, a professor at an urban university could teach rural students from afar, and the interactive broadband network allows the teacher and students to see each other and talk in real time. Distance learning is very cost effective and could greatly enhance education throughout America, especially for those living in rural or remote areas. In this regard the University of Texas has submitted comments stating that it believes that LMDS provides a high quality and less expensive means of achieving distance learning. The university is particularly excited about the multi-point and two-way capabilities of LMDS technology. They believe that these features will allow them to reach out to more students in more remote sections of the South Texas. In sum, I hope the LMDS industry will remember to reach out to their communities to serve the public interest and to help get kids excited about technology. Conclusion Well, that s the end of the heavy lifting. I wanted to finish with a few jokes with advance apologies to TV comedian Jeff Foxworthy and his "You might be a redneck" routine. You might be an LMDS-er if . . . The first thing that comes to mind when you hear PFD is not Personal Flotation Device -- but Power Flux Density. You might be an LMDS-er if . . . You think NASA stands for No Available Spectrum Anywhere. You might be an LMDS-er if . . . You think that NPRM doesn t stand for Notice of Proposed Rulemaking but Nothing Proceeds Regardless of Merit. Finally, you are definitely an LMDS-er if you thought Hell would freeze over before the FCC finally gave it the go-ahead. Ta dum dum! I apologize for having to rush right back to the FCC, but there is a mountain of work waiting for me and I need to get back to it. I enjoyed having the chance to speak to you and it's kind of you to put up with my jokes, such as they are. Thank you very much for inviting me here.