[ Text Version | News Release ]

Remarks of Commissioner Rachelle Chong
to the Communications Committee of the
National Association of Regulatory Utility Commissioners

February 26, 1997

Washington, D.C.

"A Forest View from the Mystery Commissioner"

Greetings. I am the Mystery Commissioner of the FCC. For nearly two years, I was able to labor quietly away at my job, sight unseen to NARUC's Communications Committee. But alas, in March of last year, Commissioner Andrew Barrett left me as the lone Republican on the Commission. And suddenly, I was appointed to serve on not one, but two Joint Boards -- Universal Service and Jurisdictional Separations.

I'll be frank, when my appointments were publicly announced, I started getting messages that were more sympathetic than congratulatory in tone. I suddenly realized that I was the object of great pity.

One person was so bold as to ask me if I had seen Dave Letterman's top ten list entitled "Signs that You Have No Friends." Let's see, Number 3 was, "You get no phone calls from salespeople pushing the Friends and Family calling plan." Number 2 was, "Your idea of a party is to dress up your dogs and tie them to the living room furniture." And of course, the number one sign that you have no friends was, "You are an FCC Commissioner appointed to both the Universal Service and Separations Joint Boards."

Although the Joint Board process will never be mistaken as the perfect model for efficient-decision making, it is an essential tool to inject a sorely needed state perspective into the FCC proceedings. I actually enjoyed my universal service Joint Board work, which is sort of like admitting you had fun during your recent root canal.

Well, I enjoyed the Joint Board work for two reasons. First of all, we were aware that we were doing a very important, very difficult job -- trying to reform the nation's universal service system in light of the new Telecom Act.

Second, I enjoyed it because I learned a great deal from the state commissioners I served with. We came from very different backgrounds. We held many different political and regulatory philosophies. Yet, we enjoyed frank and productive conversations about the complex issues facing us. I believe we all came away with a greater mutual understanding of our key concerns.

What were those key concerns? Well, some worried about schools and libraries being connected to the Information Superhighway at a reasonable price. Others worried about the impact of high end-user charges on our universal service program. Many of us were worried about important jurisdictional issues, and whether we were interpreting the Act correctly in that regard.

I know that I cared a great deal about getting basic and advanced telecommunications services to all of America, including the very remote, rural and insular areas like Alaska, Puerto Rico, and Guam. I went up to Alaska last year and many people who live in the bush told me they can hardly get reliable basic telecom service.

Before we get too carried away with some of these more ambitious social programs, we had better keep an eye on Job One. And by that, I mean that our first priority must be to get basic phone service to all Americans, no matter where they live. Without affordable access to a basic phone line, higher level services like Internet access simply aren't possible.

A Joint Board colleague said to me after the recommended decision, "I sure enjoyed working with you. But, gee, you are so fiscally conservative!" Well, if the truth be told, I guess I am. Maybe I'm a little old fashioned in that I worry about Aunt Tilly, the fictional low volume user. What extra will Aunt Tilly pay once we put this universal system in place?

Make no mistake about it; the cost of providing universal service will be passed straight through to the nation's consumers. Our universal service fund will have an impact on the average bill of all telecom ratepayers. What troubles me so far is that no one can yet tell me how much that will be. I sure want to know that answer before I cast my final vote on our new universal service plan in May.

Another question that the FCC must answer is -- on what revenue base shall we fund universal service? If the FCC funds the schools, libraries and health care piece on interstate and intrastate revenues, but funds the remainder of the program on interstate revenues alone -- then the FCC will have little option but to contribute less federal dollars to support your state's low income consumers, as well as those consumers in rural and high cost areas. That means each state will have to make up the difference through its own intrastate universal service mechanism.

In reaching your state's position on this issue, all I ask is that you approach it not only from a legal perspective on jurisdiction, but that you give equal weight to the economic and policy implications of a decision to rely solely on interstate revenue. If each state has to pull its own universal service wagon, some states will have heavier wagons than others. But if we collectively pull the nation's universal service wagon, it will be an easier job.

Well, despite our different perspectives, the Joint Board did manage to forge a consensus agreement on most issues in the end. I know it must be a good compromise, because most of us are still a little unhappy about what we had to give up. My arbitration teacher always said that was the sign of a fair compromise.

I am also pleased to count as new friends the dedicated state group who served on the Joint Board. They were a tough team, marvelous advocates, and of course, their legacy to the nation is their lasting impact on our new universal service policy.

I would like to thank the state commissioners and the consumer advocate who served with me on this Joint Board. Special thanks goes to Ken McClure of Missouri, for his steady leadership throughout the lengthy process. To Sharon Nelson of the State of Washington, who single handedly improved our deliberations by sharing her extensive experience and expertise and guiding us towards consensus.

To Laska Schoenfelder of South Dakota, for her tenacity and steadfast commitment to the principle of promoting universal service in a fiscally prudent manner. To Julia Johnson of Florida, for her tireless efforts in helping forge a consensus decision. And finally, to Martha Hogerty of Missouri, who in the face of great personal adversity, was a forceful advocate for our nation's consumers. They were the Dream Team for NARUC and I salute them all.

The Forest
I looked over your NARUC agenda for the week, and I saw that many hefty telecom topics are scheduled. The range of issues were impressive -- universal service, jurisdictional separations, telecom mergers, RBOC entry into long distance, and service quality issues. Whew, how many brain cells do you expect to work out at once?!

But rather than talk about a few of those topics in sleep-inducing detail, the recent one year anniversary of the Telecom Act made me think it might be more fun to take a broader, more forward looking view at the regulatory landscape we are building together.

I thought I would address questions like the following: Where are we going as a country with our new procompetitive, deregulatory telecommunications policy? What trends are evident as we move forward? What hot issues will occupy the FCC's attention?

Where are We Going with Our New Procompetitive Deregulatory Telecom Policy?
Let's start with where we are going with our new telecommunications policy. I wanted to start there because, for many of us state and federal regulators, our implementation work have us so focused on the nitty gritty details that it is easy to lose sight of the forest for the trees. In fact, some of us have been so intent on the details that from now on, we prefer to be known as the "leaf people."

For just a moment, travel with me upwards, above the forest floor, to enjoy a bird's eye view of the forest from high atop a mountain. From up here, you can see the emerging telecom forest below. This is the telecom forest which has sprung to life in the fresh air and sunlight of the 1996 Act.

From up here, what we can instantly see is how the Act has made competition the driving force for all the activity below. The Act has torn down the artificial fences that used to separate the local telephone area, the long distance area, from the wireless area, and the video programming area. As a result, cross fertilization is starting to occur.

New invaders may be coming from elsewhere too. Broadcasters, utility companies, satellite companies, Internet access providers, and foreign carriers are poised to invade the lucrative telecommunications marketplace.

On the one year anniversary of the Act, the press pointed out that cable and telephone rates haven't fallen, and that the hoped for cross fertilization between telco and video hasn't yet occurred.

Of course, those of us in the know realize that Rome wasn't built in a day. The Act did not mandate immediate lower rates or order telcos into cable and vice versa. We know that the Act ordered us regulators to tear down the barriers to competition, establish a level playing field, and then step back and let market forces work their magic.

We know that competition will take time to take root, but once it does, as it did in the long distance area, it will do well. Prices will fall, consumers will see new choices, and the world will be a beautiful place. My final thought on this topic is to note that the FCC intends to stay the course on competition. We are dedicated to it, we meant it, and we will not waver.

What Are the Emerging Trends?
Let's move now to trends that are emerging as we move forward in our work. Of course, a look at the forest floor reveals that the seeds for competition were sown last August when the FCC adopted rules to implement the local competition provisions of the Act.

In the first of the "trilogy items," we sought to promote competition by setting forth rules that would give competitors the ability to enter into the local market. Congress gave us clear direction on how to do it. A competitor can (1) enter the local market either by building its own facilities, (2) buy unbundled piece parts of an incumbent LEC's existing network, or (3) purchase an existing ILEC's retail service at wholesale rates.

The Commission set forth its new interconnection rules in August of last year. But alas, after all the late night hours we burned, the pricing rules were stayed by a court that thought the Commission was barking up the wrong tree. The court last month heard oral arguments in this case. I hope the judges will get to the root of this issue as soon as possible, so that competition can ultimately branch out.

This points me to the first rather disturbing trend, which is the increasing litigation being filed by the players. I am concerned about this, because I fear that competition will be held up by protracted and bitter litigation.

While of course, all players have a right to seek judicial review of regulatory decisions, litigation will delay the benefits of competition. If the players continue to file suit against virtually every federal and state ruling, jurisdiction will be taken out of the hands of us expert agencies, and will be put back in the hands of dozens of U.S. district and appeals courts. This may lead to a patchwork quilt of legal interpretations that will not only slow competition but interfere with market forces.

What should regulators do about this? I believe we have a common cause -- to continue to work together to put forward decisions that are generally consistent in approach, with our rationale clearly stated for the benefit of the courts. I am grateful to the many states that have generally followed the FCC's interconnection approach. Let me be clear, what I care about is not who is ahead on some jurisdictional score sheet, but rather that we share the goal of competition that Congress envisioned.

The next trend I wanted to mention is competitive and technological neutrality. In its recommended decision, the Joint Board added "competitive neutrality" as a guiding principle for the Commission as it moves towards implementing final universal service policies.

The Act makes clear that all telecommunications carriers will pay into the universal service fund. The Joint Board has recommended that eligible telecommunications carriers -- wired or wireless -- be allowed to receive support from the fund if it offers all the elements of universal service.

I feel strongly that competitive and technological neutrality should be the fundamental cornerstone of FCC universal service policy. In my view, neither consumers nor service providers should be shackled by outmoded regulations from a bygone era.

So whether you are a low income rural subscriber eligible for assistance under a revised Lifeline program -- or an urban school administrator seeking discounts on telecom service, you should be free to choose a service provider based on price, quality, and convenience. Your provider ought not be selected for you by regulatory fiat or by rules that inadvertently force you to a particular type of carrier.

This concept of competitive neutrality is nothing short of revolutionary in telecommunications policy. For over six decades, federal and state policies have focused on connecting consumers to the public network through one carrier, the "carrier of last resort."

Well, I think the Joint Board sent out a clear message that in the future, all telecom providers should have a chance to be a universal service provider, and let the best competitor win.

As regulators, we have learned that market forces create two things, the expected and unexpected. The expected is consumer choice. We learned through our long distance experience that choice brings down prices, spurs demand, improves customer service and quality. Alternatively, let's look at how consumers have fared. Fifteen years ago, they could only choose from one flavor of plain vanilla long distance. Simple, yes, boring, yes, and expensive, you bet it was.

But now, with competition reigning in the long distance market, you can choose to presubcribe, dial around, form a calling circle, pick a flat rate, be billed in six second increments, or even befriend the dime lady if you choose. And not only can you do all of this, you can make these choices at 3 in the morning! That's what competition brings us.

Of course, competition can also bring surprises. Competition forces service providers to innovate by creating new technologies and offerings that may be unexpected but beneficial. For example, few could predict the societal impact that wireless telephone services would have on our nation.

I remember when cellphones were first introduced. They were expensive and bulky. "Who needed them," many said. But today, the wireless phone industry is a true success story.

The industry has matured, and with the added competition injected by the new PCS entrants, rates are going down, such that middle America can afford a wireless phone. The result is a mobile phone revolution that is nothing short of breathtaking.

Our push at the FCC for competition, and competitive and technological neutrality is not limited to the telephone market, however. Competition is also on the rise in the video programming marketplace.

Consumers who were once limited to service from free "over the air" broadcasters or their local cable television operator, can now receive digital video programming from right out of the sky -- with the help of a rooftop satellite dish. Open video systems may also provide new video competition along with other wireless video options -- including MMDS and LMDS.

Another notable trend has to do with getting rid of artificial market entry barriers. Section 253 of the Act gave the FCC the authority to tear down barriers to competition. The FCC is now looking carefully at the efforts of a few local agencies that have tried to block competition in telecom markets.

These efforts include the establishment of burdensome local telephone "franchise" requirements, or the imposition of high taxes on licenses that are not competitively neutral and which may dissuade market entry. The FCC is very concerned about these developments, and hope that you will join us in looking critically at them to ensure they do not defeat Congress' procompetitive intent.

What's Hot at the FCC?
Let's look beyond the forest for a moment. I thought you might like to know what I think is "hot" at the FCC in the coming year.

Access charges are definitely hot. You can tell they are hot by the full page ads running in our DC newspapers, on an almost daily basis. Needless to say, these ads take radically different points of view on this issue. Our recent notice reviews the current access rate structure and sets out two approaches to reform access.

We tentatively concluded that the current rate structure is full of economic inefficiencies and distortions that result from the mismatch between the way rates are charged and how costs are incurred.

As to price levels, we spelled out two very different approaches for access reform. On one end of the spectrum, the FCC would rely on competition to bring down access, while other end, we would, on our own, bring down access rates. As you can imagine, the incumbents and users of access services are not exactly in total agreement on what specific course of action the FCC should take.

Whichever approach, or combination of approaches we finally choose for access reform, my goal will be to implement a new system that is both fair and consistent with the goal of local competition and advancing universal service. I welcome your thoughts on how we can best reform the access charge system to reach these goals.

The Internet is also hot, despite our best efforts not to regulate it. Local exchange companies have asked us to get rid of the enhanced service provider exemption and make Internet providers pay access charges for using the network.

The FCC has tentatively concluded to keep the exemption in place while we reform our outmoded access charge structure. We also launched a Notice of Inquiry to identify policies that will facilitate the development of high-bandwidth data networks, while preserving efficient investment incentives in the voice network.

I also think spectrum policy issues will be very hot, not only at the FCC but also on the Hill this year. For one thing, the FCC held a spectrum en banc hearing about a year ago, and it's high time that we put together a comprehensive spectrum policy statement that we all agree on that will help guide us as we move forward.

The truth is that we have been doing spectrum policy on an ad hoc basis, and I think a more consistent approach is a good idea. There is much that the Commission agrees on in this area, and I am confident that we can put forward a sensible policy after getting public comment.

I note that spectrum issues are also high on the priority list for our friends in Congress. The House Commerce Committee has already held a hearing on this issue, and the Senate Commerce Committee isn't far behind.

I also believe that public safety issues will be hot at the FCC this year. We have received a detailed report from the Public Safety Wireless Advisory Committee with many good recommendations. It is now the FCC's turn to act.

I have personally put public safety towards the top of my priority list. I want to ensure that the public safety community and those private users who operate in a quasi-public fashion have the spectrum they need to deliver the very reliable communications that are necessary to save lives and protect property. I have encouraged our staff to act expeditiously on this docket, and I hope they will.

No one knows what tomorrow will bring. But I do know that our decisions in the upcoming year will shape the telecom landscape for decades to come.

I and my fellow federal commissioners need to know your opinion on federal telecom policy. So it's my policy to approach all these issues with an open mind and just as importantly, an open door. Please feel free to stop by and get to know the mystery commish. Every time I talk with a state commissioner, I learn something. Maybe you might learn something from me. But even if you don't, hey, I am fun to hang out with. I look forward to our continuing dialogue.

Thank you very much.