October 14, 1999
I am pleased to be here in Minnesota.
Everyone in Washington asks me: Are you going to meet the governor?
This was the frontier one hundred and fifty years ago. Back then, people in Minnesota were proud to be Americans. They fought in wars, they did great deeds. But when they had difficult decisions to make, they didnít look eastward to Washington. They looked to themselves, to their families, to their local communities and they made decisions for themselves. Good decisions, bad decisions. They had to live with them. Two centuries ago, Washington was weeks away. Today, Washington may be technologically closer, but in many respects, it is still very distant. America is the greatest Nation of all time. We are at our greatest when individuals make decisions, not when governments make those decisions for them.
Individuals are faced with choices. They make decisions, they take risks. Sometimes they succeed, sometimes they fail. The role of government is neither to ensure success nor failure but to ensure that laws and contracts and property are enforced.
There is a relatively new law in the land, the Telecommunications Act of 1996.
On balance, I believe it was a very good law. Its implementation has been far from perfect. Some apologists say it guarantees a lot of "good" things. Some detractors say it guarantees a lot of "bad" things. Neither apologists nor detractors have it right. It guarantees nothing. Interpreted as it is written, it returns decisions to ordinary people to take risks for themselves, and not be told by government what they can and cannot do.
These are no doubt dizzying times for local telephone companies. New technologies, new laws, new competitors, are all coming at dizzying speeds. It would be easy to give up and sell out. It would be easy to look for government for help. It would be easy to blame government for all manner of ills. But there are opportunities here for those bold enough to seize them. Donít look to Washington. Donít wait for Washington. You are doomed to failure if you do. Look to your families and yourselves and your communities. You know them better than anyone and that alone is of immeasurable value even if you donít know DSLAM from body slam.
Technology is also part of the future. And you can bring new technologies to the
market more quickly and with an eye to consumer wants Ė better than most.
Some say that only big companies can win. If that is so, why do big companies spin off rural assets? Some say only new companies can win. Oh yea. Some say only governments can provide service. Some say only one group or another can win. The purpose of government, in my view, is not to pick winners and losers.
Not to predict the future.
Not to force the future by providing services
Not to do anything other than implement the law
I have a simple message Ė the law is on your side --- at least if it is followed.
What chance do any of us have if the government will not follow the law?
To whom do we turn to enforce the law?
I would like to briefly discuss two topics.
One related to the future Ė the internet
and one tied to the past Ė universal service.
Every politician in Washington knows his or her lines. We donít regulate the
Many of you are in the Internet business or are considering getting into it. I
simply want to remove any illusions you may have about the Internet.
The government regulates it every day. It just regulates it less than other media.
All of them need regulation.
Go into business, but donít listen to Washington politicians about it being unregulated.
And now my favorite topic: Universal Service.
Four years ago, Fed. U.S. cost about 2 billion.
Three fourths (ĺ )of that went to small telcos, about $1.5 billion. Most of the rest
went for low income. Some people in Congress wanted to preserve and advance
They went to a lot of trouble to write it into law.
They got more than they bargained for.
Federal Universal service has grown by well over 100 percent. But U.S. for small
telecos hasnít increased a nickel.
Letís see the priorities. First, $.2.25 for SLC. Then nearly a billion for low income.
Take a pass on rural health care. Big company high cost Ė say half a billion.
Court say put it all on interstate. I guess there is no room to increase high cost
Too bad. Is this what Congress intended?
How did we get in this mess? Try "cost models"
I spent much of my career making cost models.
Economic cost models.
I know how they work
Their strengths, their weaknesses.
Imagine 20 years ago creating a model of telephone cost structures.
It would have been a great model. Mainframe computer
IBM 370 500 K core. It would take 30 seconds.
We could have known much about cost structure in 1979.
There were not many choices
It would have been a grand model
Back in 1979
Few people would have believed it then.
Would anyone think that that model has any relevance today?
Oh, you say, that isnít fair.
How about 1989, 10 years ago.
We could have used an IMB PC.
Perhaps, 1 meg of ram. It might take 3 seconds to run. A few changes in
telephone technology a few new services , but not many. We could have made a
great model. It would have had its purposes and uses. Would you have used it to
divide up a few billion dollars in 1989? Probably not. You certainly wouldnít use
the same audit today.
We are in 1999.
Building a cost model for telephone service is harder today than it was 10 or 20
There are many more technologies and technical choices.
It could run in a nano second
Few people would really use it.
Now we come to the FCC
Most people could build a decent cost model that few people believe, that could
run in a fraction of a second.
Wouldnít want to use it for much.
The FCC builds a cost model that takes 180 nano seconds.
Not 180 seconds
Not 180 minutes
But 180 hours.
Thatís more than a week.
you know, I never had much confidence in computer models that took very long to run.
For most models, one minute is too long. Much less than an hour.
An ordinary 10 year old could go to school, eat, sleep, play watch TV do
homework, do all the relevant calculations for a telecom cost model and still
have 160 hours to spare.
Just imagine what people 3 or 5 years from now -- much less 10 years from now
will think of us.
It is embarrassing.
What are we getting for 180 hours?
UNE pricing for most conceivable un elements in every c.o. in the country?
Well now, isnít that interesting!
Countless tens of thousands of price calculations.
What does UNE pricing have to do with large company Universal ?
Of course, the answer is "nothing".
Itís just a coincidence.
But why are they there?
There are some who believe that the FCC wants to go into the business of one-
Stop price regulation.
One-stop in Washington, D.C.
You name it, we have a price.
And our price is right.
No need to check with your state.
No need to check with your customers or competitors.
We have a model in Washington that will give you a price for everything you ever
wanted to know.
And some prices you do not want to know.
I have had a simple universal service proposed that I have kicked around for a
couple of years.
It hasnít got much support, at least in Washington.
It goes like this in 5 simple steps.
No fancy model in Washington.
I can tell you U.S. recipients would do better under my plan than under the current
system. I canít tell you whether Midwest telecom would do better under my plan or
the FCC plan because the FCC plan changes every time they create out a new model run.
I have been told that many small telecom would do better under the FCCís 135%
benchmark model than they do under the current system. If that is true, I would
urge them to march on Washington and demand to be treated no worse than SBC,
BA, BS, U.S.West, or GTE.
At least until the next model run.
I remain firmly opposed to the model. I believe that it is intellectually
indefensible. But I would understand individuals using it to their advantage.