Text Version

Remarks of FCC Commissioner Rachelle B. Chong

Bridging Digital Technologies and Regulatory Paradigms
Berkeley, California
June 27, 1997

"Interesting Times at the FCC"

Good afternoon. It s a great pleasure to be back on the beautiful campus of Cal Berkeley, my alma mater. I love how the Campanile soars into the sky, and I've missed the hustle and bustle of Sproul Plaza.

I will admit right away to being a dyed-in-the-wool Cal fan, trained at an early age to revere brown bears, wear blue and gold, and hate the color red. You see, three generations of Chongs have graduated from Cal. Not to toot our own horn, but three Chongs have played in the Cal Band!

I, however, lacked any obvious musical talent. So when I was here, I studied political science and journalism instead. It was here that I first became intrigued with First Amendment and media law issues. This interest prompted my rather fortuitous decision to pursue communications law. Later, this expertise brought me to my current post as an FCC Commissioner in a land far far away -- Washington, D.C.

Have you ever heard of that Chinese curse, "May you live in interesting times"? Well, it just so happened that I landed at the FCC during one of the most interesting times any body could have imagined.

Immediately upon my arrival at the FCC, I plunged into the work of setting rules for the first Personal Communications Service auctions. Then, the Telecommunications Act of 1996 passed. And if that intense workload wasn't "interesting" enough, we've also tackled the conversion of all U.S. televisions from analog to digital technology.

Given these interesting times, it's a fine time to hold a conference on the Clintonian-sounding topic of Bridging Digital Technologies and Regulatory Paradigms. I looked over your ambitious schedule, and I can see that you're engaging in an aerobic workout of your brain cells!

Your speakers are certainly tackling some very complex and technical issues. It s fair to say that in the next few days, you re not looking at the forest and the trees, but the acorns, the leaves, and even the underside of the bark . . . Given this level of detail, I wondered what a Washington regulator could bring to this party. I thought I would share with you a forest view of the communications landscape. First, I'll talk about what the FCC has been trying to accomplish in the telephone area since the passage of the 1996 Act. Then, I will touch on our recent digital television decisions, and answer the question I often get of "Why do I need to buy a new digital TV?"

Finally, I will briefly comment on an area of intense media interest -- Tiger Woods. Actually, I was referring to the other area of media interest -- the Internet. Yesterday's Supreme Court decision striking down most of the Communications Decency Act certainly made today's headlines.

The Telecommunications Act of 1996

Let's start with the FCC's biggest project for the last year and a half. After 60 years of monopoly regulation of the nation's telephone industry, Congress finally passed the Telecommunications Act of 1996. The 1996 Act broke down legal barriers that had inhibited competition in the telephone market for decades -- a real sea change. It was the greatest overhaul of the communications law since the Great Depression. We no longer have to regulate in a Star Trek-era, saddled with Gunsmoke-era laws and regulations!

One of the main tasks the Act assigned to the FCC was to open up the local telephone market to new competitors, now called competitive local exchange carriers, or CLECs. We hope CLECs will include players like cable operators or wireless telecommunications carriers.

As a carrot, the Regional Bell Operating Companies were given the opportunity to get into the long distance market, but only after they demonstrate that they have opened their networks to competitors.

For the last 16 months, the FCC and the state commissioners have worked to completely retool our regulations to be compatible with the Act's procompetitive spirit. We did this retooling in three major areas:


First, interconnection: For those players who wish to provide local telephone service, the 1996 Act opens up the local telephone network to and provides new entrants with unprecedented access to the local network.

The Act requires that incumbent LECs provide interconnection and unbundled network elements at just and reasonable rates. Further, LECs must sell their services to competitors at wholesale rates, thus fostering a resale market.

In our Local Competition Order last August, we set forth some minimum points of interconnection that will allow competing carriers to choose the most efficient points at which to interconnect with an incumbent LEC's network. We set out a short list of unbundled network elements that incumbent LECs have to make available to new entrants, upon request.

In this order, we also set forth pricing rules, based on forward looking economic cost principles, which would bind the states in arbitrating interconnection and unbundled element, wholesale, and transport and termination rates.

Unfortunately, after all our hard work, the pricing rules were stayed by an 8th Circuit court that thought the FCC was barking up the wrong tree. The 8th Circuit still has not ruled on the pricing issues, but this morning, we had some good news. The 8th Circuit upheld our decision to allow incumbent LECs to collect access charges for a short transition period while we put our universal service rules in place.

I say this because the Commission regards interconnection as absolutely vital to the development of new communications services and the evolution of competitive markets. It is clearly 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 new services to subscribers.

Universal Service

Next, the Commission turned its attention to universal service. For the first time, the 1996 Act codifies the FCC s policy of trying to achieve universal telephone service. Our goal is to get every U.S. citizen affordable access to a basic telephone in their home. We are doing better than nearly all the world -- 94% of Americans have phones -- but we could still do better.

In the last year, the FCC worked closely with our colleagues in the State commissions through a Joint Board process to find a sensible transition away from our past "system" of universal service policies. Our old universal service policies relied on a patchwork quilt of both implicit and explicit subsidies at the federal and state levels.

Our new federal universal service system will be harmonious with the "procompetitive, de-regulatory national policy framework" mandated by the Act, because, for the first time, competitors to local telephone companies will be allowed to receive universal service support. In addition, a broader pool of telecommunications providers will be paying into the fund, so that the collection of universal service monies is more fair and competitively neutral.

This all sounds simple enough, but you see, in addition to wringing out the implicit subsidies that infest our current system, and making it more pro-competitive, we must also raise funds to implement some social programs. These include discounting telecommunications services to eligible schools and libraries, providing rural health care providers with rates comparable to urban areas, and enhancing access to the public telephone switched network by low income consumers and those living in rural, insular and high cost areas.

At the same time that the Commission is asked to accomplish all of these goals, however, we are also charged with ensuring that consumers receive quality services at just, reasonable and affordable rates.

In our universal service decision last May, we did the best we could to achieve all of these goals. We identified the services to be supported by the federal universal service support mechanisms and established a time table for implementation.

Not everything can happen right away. Universal service costs are very difficult to determine because they are intermingled with other costs, such as the costs associated with the provision of interstate access services. We have undertaken a process in cooperation with the states to identify implicit subsidies and to either remove them or make them explicit. This is a time-consuming process, but we have set forth a schedule to be done by January 1, 1999.

Access Charge Reform

Our third area of major retooling was to reform our access charge system. Because the gory details of access charge reform are very boring, I'm going to skip it. But in essence, we tried to make access charges consistent with the new competitive regime -- by making sure that the charges for these services better reflect the actual costs to provide access. In my view, I think we met that goal.

Looking Ahead

So what's next? Here's my guess of the headline grabbers:

I believe that the Commission will continue to receive applications from the RBOCs to get into the long distance market in several states. Yesterday, we rejected SBC's application to provide long distance service in Oklahoma because they failed to present evidence that any competitor is actually providing local telephone service to residential customers, as required under Section 271. Also, by early August, we will have addressed Ameritech's application to provide long distance services in Michigan.

Another hot issue on the FCC's radar scope for the coming months will be "OSS." No, not that clandestine World War II intelligence group, but rather whether competitive providers have non-discriminatory access to an incumbent LECs' "Operational Support Systems."

Competitive LECs frequently tell me that they must have comparable and non- discriminatory access to an incumbent LEC's OSS in order to compete in the local telephone market. What this means in English is that a customer should not be able to tell the difference between the incumbent or competitive provider when ordering service. If it takes two days to connect a BOC customer to the network, then a CLEC customer should also be connected in two days.

Finally, mergers have made the news quite a bit lately. SBC already merged with Pacific Telesis. And in the coming weeks, the Bell Atlantic-NYNEX merger will be a hot topic as the Commission gears up to rule on that application. Also, there has been much talk about a potential merger between the largest long distance company and the largest BOC. However, nothing has been filed on that one, and it's my general policy not to speculate about hypothetical mergers. I don't like to prejudge issues.

As a general matter, however, I think that the Act allows for communications players to seek out new business opportunities and develop synergies with others in order to better compete. However, a possible merger between the largest long distance company and the largest BOC certainly would raise different factual and legal issues for the Commission than previous merger requests. Consistent with my obligations as a decision-maker, I'm keeping an open mind until there is a decision to make.

Digital Television

I now wish to switch gears and talk a little about the decisions we made in the past year to bring state-of-the-art digital television to all Americans.

Without question, free broadcast television is an important and even unique part of our American culture. Free TV gives us shared national experiences, entertains us, inspires us and informs us. Given the freedom of speech and of the press, television is fundamental to our democratic society. This is why the FCC believes it to be very important to preserve free TV for all Americans, especially as we enter a digital age.

Digital is the technology of the future. Without it, I fear that broadcasters will not be able to compete with other video providers and free television could be threatened.

Three recent FCC decisions were essential to our DTV transition. The first, which we adopted last December, was the DTV Standards decision. There, we set the technical ground rules for DTV. In that docket, some argued that the FCC should not adopt any standard. I disagreed because I believe that in the context of free television service, a standard is needed. This standard will give Americans a reasonable assurance that the DTV sets they purchase will work no matter where they live in the U.S. It also will speed deployment of DTV.

Contrary to the arguments of some, I don't think that the standard we adopted will stifle innovation. The DTV standard reflects an agreement between both the computer industry and the broadcast industry. It does not contain requirements with respect to scanning formats, aspect ratios and lines of resolution, and thus permits enough flexibility to facilitate the inevitable convergence of computer and television technology.

Last April, we completed our work by releasing the DTV service rules and allotment decisions. These decisions set up rules for transitioning to digital television from our current analog broadcasting system, and identified 6 MHz of loaner spectrum for all current broadcasters to use for DTV.

Having a second channel ensures that every broadcaster will have the opportunity to make the transition, and that they will broadcast both an analog and a digital signal during the conversion period. The Act does require a broadcaster to return one 6 MHz channel at the end of transition period. I think this was a sensible plan.

It is true that the upshot of these decisions will be that eventually, every American who watches television will have to either buy a new Digital TV or to buy a set top converter box that will convert the digital signal so it can be seen on an analog set. While there seem to be some skeptics, I believe the improvement will be worth the change and will help preserve free television.

The FCC has set forth a reasonable transition period of nine years to make the change over easier. I also expect that the industry will find ways to help viewers make the digital leap. It is in their interest, after all, to maximize the audience for digital programming -- they make their money by selling eyeballs to advertisers.

The set manufacturers have a dog in this fight too. I recently saw that Zenith is offering to give full credit for the price of any TV purchased now toward the price of a future digital set. No one should underestimate the power of the marketplace to smooth the transition.

The ultimate bonus of this DTV conversion is that, at the end of the transition, we will be able to recover the spectrum being used for analog broadcasting, pack the broadcast spectrum closer together, and free up some spectrum -- potentially for other uses. To adapt a California Gold Rush phrase: "there's gold in them there spectrum" -- and the time has come to free it up! The FCC's decisions will do just that.


We have finally worked our way to my final topic -- the trendy Internet that is headline news everywhere today! Three cheers for the Supreme Court for according cyberspace the maximum First Amendment protection!

Yesterday, the Court voted nine to zip that the Communications Decency Act, or CDA, was unconstitutional. The CDA, which was part of the 1996 Telecom Act, criminalized "knowing" transmission of obscene or indecent material to minors over the Internet. The CDA's goal was to protect children from indecent materials on the Net, but, as the Supreme Court and the lower courts before them recognized, in reality, it restricted adults' access to material that they would otherwise be entitled to see. In other words, it went too far.

Justice Steven's opinion for the Court expressed concern that the CDA would "chill" free speech on the Net. "As a matter of constitutional tradition," he wrote, "we presume that government regulation of the content of speech is more likely to interfere with the free exchange of ideas than to encourage it."

The Supreme Court further made a point of noting that the CDA's burden on adult speech is unacceptable if less restrictive alternatives would be at least as effective in achieving the Act's legitimate purposes. In the CDA case, the Court found that the CDA imprecisely pursued the interest of protecting children from potentially harmful materials on the Net by suppressing a large amount of speech adults have a constitutional right to send and receive.

I wholeheartedly agree with the Court's sentiments, not just in the context of Internet regulation but in other areas of media regulation as well. For years, I have argued against quantification of public interest obligations of our licensees on these First Amendment grounds. More recently, I have raised First Amendment concerns about a proposed FCC inquiry into whether we ought to ban hard liquor advertising on TV in order to protect children.

But I don't want to get off my topic because of the CDA decision, so let me return to a question that I am often asked: Does the FCC have the authority to regulate the Net? The answer is primarily no, but occasionally a tiny bit yes.

I will first point out that the FCC was never designated as a enforcer for the CDA. Moreover, there is nothing in the Communications Act that explicitly gives the FCC jurisdiction over the Net. Having said that, the Net certainly relies on communications facilities and services over which the FCC has had longstanding and broad authority. Thus, there are a few issues that have come before the FCC that do impact the Net, for example, whether local telephone companies may charge enhanced service providers, including Internet service providers access charges. On that one, we tenatively concluded no, but we did launch an NOI into the issue of how we can encourage the growth of broadband networks like the Net while still ensuring the reliability of the public switched network.

In general, the FCC has shown somewhat uncharacteristic restraint with regard to Internet regulation. I think this is very wise, and that we ought not take on such authority absent Congress' express instructions.

It doesn't appear that Congress wants the FCC to get involved. The 1996 Act strongly states: "It is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation."

Nonetheless, there are those that keep trying to bring the FCC into the regulatory picture by drawing analogies between the Internet and some of the traditional industries the FCC regulates, such as television and telephone.

For example, there are those who argue that Internet telephony or Internet relay chat fall into the category of a "telecommunications service" under Title II of the Act. The folks in this camp allege that it is not fair to leave the Net free from regulation when their competitors are subject that burden.

They have tried to bolster their argument by pointing to our recent Universal Service decision. In that decision, the FCC decided that information and enhanced service providers (which includes ISPs) need not be required to contribute to the universal service funding mechanism, but that providers of Internet access services provided to schools and libraries pursuant to Section 254(h) may be entitled to withdraw universal service funds. They contend this is unfair when ISPs are competing with traditional telecommunications carriers who must pay into the universal service fund.

There are others who try to ensnare us in Net regulation by arguing that some Internet-based services are "broadcasting" under Title III of the Communications Act. In particular, they point to the real-time or "streaming" audio and video services over the Internet. For example, take some of the current Internet "radio" services. They offer continuous real time audio over the Internet. Similarly, we can forecast future Internet video applications that may be comparable in quality to TV broadcasting or cable transmissions.

While these analogies are popular, upon closer examination, they don't really hold true. Despite some similarities to traditional networks, I think the Net is unique. Its uniqueness partly derives from how it operates as a technical matter. As far as a lawyer like me can make sense of it, the Net functions as a series of layers, as increasingly complex and specific components are superimposed on, but independent from, other components. So, it is not just a pipeline like a telephone network.

I also think the Internet is distinguishable from traditional broadcast. And, I am in good company here. The Supreme Court came to this decision yesterday too. The Net's technical protocols are very flexible and open, so virtually any network can connect to and share data with other networks though the Net.

As a result, services provided through the Net, say the World Wide Web, are not linked to the underlying infrastructure, in the way that a broadcaster's content is delivered by transmission across certain radio wave frequencies. These transmissions are data packets just like any other traffic flows over the Internet network. In addition, just like the Supreme Court, I think it is significant that the Internet does not use the scarce electromagnetic spectrum in the FCC's broadcast band, only transmissions over the Net.

Moreover, even to the extent that you buy into these analogies, they do not, to my mind, justify FCC regulation. The Internet provides an environment for a competitive, vibrant industry. Some would argue that it has gotten that way because the government -- particularly the FCC -- has kept its mitts off. I, for one, have no desire to take a more hands-on approach.


As my parting shot, I will leave you with the thoughts of Ithiel de Sola Pool. Fourteen years ago, he wrote in Technologies of Freedom that, "computers [will] become the printing presses of the twenty-first century" and that "[n]etworks of satellites, optical fibers, and radio waves will serve the functions of the present-day postal system." Most importantly, he concluded that "[s]peech will not be free if these [technologies] are not also free."

He proposed four principles that he thought should guide freedom of expression in the digital age:
  1. the First Amendment applies to all media, electronic as well as print;
  2. there may be no licensing, no scrutiny of who may produce or sell publications or information in any form;
  3. any enforcement of the law must be after the fact, not by prior restraint; and
  4. regulation must be applied only as a "last recourse" and the burden of proof is for the least possible regulation of communications. I think we ought to listen and heed these thoughts as we move into the age of information.

Thank you very much.