December 26, 1996 The Hard Road Ahead -- An Agenda for the FCC in 1997 Reed E. Hundt, Chairman Federal Communications Commission Preface In early 1996, Congress and the President handed the Federal Communications Commission its fundamental agenda for 1996: implementation of the Telecommunications Reform Act of 1996. Implementation of the Act remains at this time our primary day-to-day agenda. But that Act is part of a larger movement to a competitive communications marketplace, to equitable public benefits from communications and to a smarter, slimmer Commission. During the next year this Commission will take numerous actions designed to move us toward that competitive marketplace in communications and that general enjoyment of public benefits from communications. In consultation with many at the Commission, I put together this document as a way of setting forth a plan for the Commission to follow over the next year. We welcome the input of all others, at the Commission, in Congress, within the Administration, in private industry and among public interest groups, as to whether and how this plan should be modified. This is not an exhaustive list; there will be literally hundreds of Commission decisions that are not described here. But it is my hope that this document will describe the broad parameters and critical decisions that the Commission faces on the hard road ahead. Introduction For the last three years everyone has told me that I've been very lucky to be Chairman of the FCC in the most exciting time in its history. Everyone has been right. But next year will eclipse the last three for interest, excitement and importance. Our hopes are very high, but as Keats wrote, "There is a not a fiercer hell than the failure in a great object." And we constantly feel the flames lapping at our feet as we try to climb the ladder of success. Of course, the great comfort about the future is that it is inevitable; and many aspects of the future in communications are inevitably going to be positive. Job growth, increased investment, greater consumer choice, rapid innovation, and even a clutch of stock market high performers -- all these are to a degree inevitable. But none of us is on earth only to accept the inevitable. What I'd like the Commission to do in 1997 is to focus on what's not inevitable but is important, beneficial and necessary for our information economy (soon 1/6th of the total economy) and for our information society. Then let's make that happen. And let's remember that nothing is impossible in this age of wonder, this new dawn of imagination, this millennium that can mark our arrival in a new world of realized dreams. Our principles are straightforward: 1. Make sure that the discovered truth about competition is nowhere frustrated by the chronic urge to monopolize. Like a Hindu tale of the struggle between good and evil, the battle between competition and monopoly will last as long as markets exist. And government should always be on the good side: the side of competition. 2. Guarantee that necessary public benefits from communications are distributed fairly and efficiently. The two means we should use are (a) competition and, where that doesn't work completely or equitably, (b) proactive social policies structured to be sustainable in a competitive environment. 3. Get rid of all the rules not necessary to reach these other two goals. We want to have a red-hot rule burning party every chance we get. 4. Make sure our operations are smart, simple, straightforward and slim. Our goal is to have the FCC be as fair, dedicated, responsive and effective as the best organization in the private or public sector in the world. The Telecommunications Act of 1996 and the Communications Act of 1934 together state our charter. Congress said it sought to establish a "procompetitive, deregulatory" national policy framework for communications. "Procompetitive, deregulatory" -- that is our mantra as we try to wake all markets from the slumber of monopoly and retail price regulation. By the 1996 Act, Congress broke down the barriers that inhibited competition. The 1996 Act enabled local telephone companies to enter the video business, let cable, wireless, and long distance companies into local telephony, established conditions for the Bell telephone companies to enter long distance, and moved broadcasting from a business with a 1950's technology into the twenty-first century digital world. There should be no mistake about any of these steps: Congress wants competition, not co-competition. We want a full competitive war, not a standoff in which incumbent companies warily eye each other, but never really enter each other's markets. When I got to the Commission three years ago, everyone told me about inevitable and imminent "convergence" in which cable would provide telephony and the telephone companies would offer cable service. We still hope that eventually cable companies and telephone companies will compete with each other in all geographic markets, but as of now expectations for a full front two-wire war are not being met. Financial markets have concluded that the telephone companies' threats to cable's video business have almost disappeared. According to Merrill Lynch, even if multi-channel video penetration increases to 85%-90% by 2005, the telco share is likely to stay about 1%. And just this month, there have been numerous announcements that phone companies are retreating from plans for offering wireless cable. Meanwhile, Time Warner has said it won't be doing much telephony in the near future. TCI is shifting resources from battling telephone rivals to battling satellite video competition. There are some exceptions, such as Cox and to a degree Continental and Comcast. But, for the most part, Sanford Bernstein analyst Tom Wohlzien got it right when he described the relationship of the cable and phone industries by saying "we may have the forming of a detente." Detente is not what the Telecommunications Act of 1996 was supposed to be about. So apparently it's no small job to create sufficient incentives for competition to dispense with the need for regulation of monopolies. Nor should we expect the transition to competition to be fully and voluntarily undertaken by the incumbent companies who see their "home" market positions threatened. Those companies will seek to respond in the competitive arena. That's okay. But they will also respond by testing the government's resolve to stick to a pro-competition path. Think of this as a chance for Congress and state legislatures and federal and state agencies again to be able to do the right thing. When incumbent monopolies hire advertising agencies and political consultants and lawyers and lobbyists to push their agendas, think of it as a chance for the people's representatives to just say no, thank you -- we insist on competition. The importance of our country's future maintaining a clear and sustained commitment to competition cannot be overstated. When Keats wrote, "Hear ye not the hum of mighty workings of a distant mart," he might have been anticipating the sweet sound of robust competition, innovation, and economic welfare gains. But the difficulty of maintaining the commitment to competition cannot be underestimated. After all it is, as Judge Bork said, the "paradox" of competition that although firms compete to win, the ultimate victory is monopoly. So the ever-present job of government is to write the rules that invent, revive and sustain competition, while inviting instead of deterring or inhibiting innovation, entrepreneurship and investment. We know all this by our own American history. Let me illustrate with a story. It is the middle of the last decade of the century. There are existing telephone monopolies. But the law changes, and within a few years the new entrants account for almost half the telephones. The incumbents respond with a three-part strategy of: (1) pricing below cost in response to entry; (2) denying the new entrants fair prices for interconnection; and (3) influencing local regulators to pass laws to institutionalize the prior monopoly. Within a few years the incumbents have reestablished and strengthened their prior monopoly. Then they hold it for 80 more years. This story is what actually happened in this country between 1894 and 1912. This history, brilliantly set forth by President Richard C. Levin and Professor David F. Wyman of Yale in their 1994 article in The Journal of Political Economy, is a sobering reminder about the difficulties of competition. They describe the booming competition as the South got phones, from 1900 through 1910, after the Bell patents had expired. But Southern Bell then eradicated competition. The techniques they used were the construction of a long haul toll network to which new entrants were denied access, the denial of interconnection in local LEC markets, and the use of discounts to high volume customers. After finishing off its rivals, Southern Bell allied with big volume callers to form a regulatory compact that barred competition from coming back. As Mark Twain said, history may not repeat itself but it does occasionally rhyme. It's a fin-de-siecle monopoly couplet that Congress absolutely does not want us to write in our rules. For the most part, the 20th century history of telcom policy is a nightmare from which we're trying to awake. The Telecommunications Act of 1996 is a massive dose of caffeine. After all, as good as our telcom system is, imagine what wonders would already be achieved if we had woken earlier to the benefits of competition. History rarely gives a country a second chance. As we get a grasp of what communications technology can do in the next millennium to improve all dimensions of life, let's maximize our potential economic and social gains by doing all we can not to let the urge to monopolize kill communications competition again. I.Promoting Competition in Communications For the FCC, 1996 didn't seem to be the year of easy cases, but by comparison 1997 will present the truly hard ones. The most difficult issues that the Commission will continue to face in the coming year have the common theme of eliminating economic barriers to competition. Congress addressed these economic barriers by giving new entrants in telecommunications three basic rights: (1) the right to pay a fair wholesale price so as to compete as resellers of an incumbent local exchange carrier's service; (2) the right to pay a fair price to lease and to combine elements of the incumbent carrier's network to create some of a new wire network (unbundled network elements); and (3) the right to pay and receive a fair price for interconnecting their own facilities to and terminating their traffic on the facilities of the incumbent. Why is each of these three rights important? Because Congress rejected the approach that has been taken in other countries (such as the United Kingdom) of trying to enshrine into law and rules a "two-wire" industrial policy. Our various separate wire, cable, and wireless networks are too robust and too complete for us to be able to dictate that sort of policy. (By contrast, the United Kingdom could plan to have cable provide an extra phone line only because there was no cable industry in the U.K. when this plan was formed. Here our cable systems, comprising coaxial cables without a parallel phone line running down the conduit, already pass 95% of all homes. It's too late to order them to dig up all those systems just to fit policymakers' "two-wire" vision.) Congress therefore rightly gave entrants in the local exchange markets a range of options for entry -- from service resale, to purchase of unbundled elements, to partial facilities construction, to complete facilities construction. Then Congress trusted the marketplace to govern a new competitor's selection of the mode of entry for different demographic and geographic markets. The second major principle Congress established to eliminate economic barriers to competition was that universal service must be implemented in a manner that is consistent and compatible with competition. Around the world, we have seen over and over that many believe competition is the enemy of universal service. This pernicious myth leads countries to embrace monopoly, and to set up in local exchange marketplaces regulatory barriers against competition. Congress told the FCC to knock down these barriers in the United States. That's why the law prohibits hidden universal service subsidies in interconnection or unbundled network element prices. Congress recognized that competition lowers prices and increases deployment of telecommunications, making it the best friend of universal service, not its enemy. The key proceedings in which the Commission must address these economic barriers to competition are interstate access reform and universal service. This week the Commission issued its Notice of Proposed Rulemaking on access charge reform. This proceeding will examine how, pursuant to the 1996 Act, we end the access charge system's role as a source of universal service subsidies; how we either move, or allow competition to move, to more efficient interstate access rate structures; and whether the marketplace or governmental direction should be the means of transition to economically efficient rate levels. The universal service proceeding addresses the flip side of the golden coin of competition. How do we fund universal service when the law prohibits implicit subsidies and the evolving competitive marketplace undermines those implicit subsidies anyway? We must create an economically sustainable universal service system that explicitly compensates universal service providers for the true costs of providing universal service. We must create a universal service system that allows existing universal service providers -- for now, primarily incumbent LECs -- the capability to respond to competitors by reducing prices to high volume customers (the cream in the cream-skimming strategy of most new entrants), without requiring massive rate increases to other customers in order to pay for the total network. We must create a universal service system that allows companies to compete to provide universal service, so that universal service is provided with the highest quality and the lowest price possible. All this has been endorsed by unanimous vote of the Universal Service Joint Board. Now we have to write the rules that put these principles in operation. We will address both sides of this competition coin -- access reform and universal service -- by April of 1997. I'd like to have the key tenets of the plan in our minds by some date between Groundhog Day and what I hope will be the 21st century national holiday of Alexander Graham Bell's birthday. Working together with our state partners, I believe we have a great opportunity to establish the conditions under which local exchange competition can flourish. And if Congress' three rights are fully implemented and universal service implemented correctly, layers upon layers of regulation can fall away. I am enormously impressed at the way the States have so far exercised the exclusive authority over the pricing of the Three Rights that the 8th Circuit gave them in its stay. I agree with Anna-Maria Kovacs, of Janney Montgomery Scott, Inc., who observed "it is clear that the differences between the states and FCC are over jurisdiction far more than over substance. They appear to agree on goals. Both jurisdictions are moving aggressively to open local markets. Both appear interested in protecting incumbents enough to keep them viable and able to provide Universal Service, but not, necessarily, financially vibrant, or even financially whole. Both sides also appear to agree on economic principles." I also believe, and I think the states would agree with me, that few states have yet fully answered the hard questions of rebalancing, ascertainment of truly unrecovered historic cost, and development of fair and competitively neutral methods of recovery of such embedded costs as may be necessary and appropriate. The new world of competition is one in which state government can greatly reduce retail regulation of incumbent LECs. If the barriers to entry really have been lowered, and competitors can enter using any of the three rights envisioned by Congress, do we really still need firmly to control retail prices of incumbent LECs offerings for, say, multiline business voice service? Or for that matter, for retail business or residential ISDN service? At the retail level -- rather than at the intercarrier pricing level of the Three Rights -- perhaps we can move to pure price cap regulation focused on universal service products (like basic dialtone) and nothing more. To move in this "pro-competitive, deregulatory" direction -- which is ultimately where Congress wants us all to go -- will require a well-working partnership between the FCC and the states. Neither of us can fully implement this vision acting alone; all of us are better off if we act in concert. We also will be asked by private parties to explore the full impact of Section 253 on the constraints Congress meant to place on regulation by state and local government regulation. These Section 253 cases will not be easy. The results will be critical to the development of competition, and to the evolution of a clear view of the federal-state-local government partnership that we must have as we all proceed to implement Congress' pro-competitive, deregulatory vision. As part of that process, the Commission is currently evaluating a number of petitions that ask the FCC to preempt state or local regulations that impose undue burdens or excessive costs on telecommunications carriers, inhibiting their ability to compete effectively. This Chairman and this agency starts from the presumption that state and local officials around the country share Congress' pro-competitive, deregulatory vision and will seek to do the right thing for competition and for our country. But Congress gave us the job of removing all state and local rules, decisions or processes that create operational and economic barriers to competition. This is similar to the mandate Congress gave us with respect to the wireless industry and pursuant to which we preempted a few state retail price regulations of wireless telecommunications services. The FCC did not ask for Section 253, but we read this law and we will follow its spirit and meaning. I'm hereby asking all state commissions and local governments to help us determine how to apply Section 253. There are various other tasks necessary to the creation of a competitively neutral market. For example, the Commission, in 1996, appointed and convened the North American Numbering Council to select, for the first time, a fully-neutral numbering administrator for the United States. And the Commission adopted a number portability order that requires incumbent carriers to provide interim number portability, and sets performance requirements and a schedule for the deployment of permanent number portability. The Commission set a schedule for the implementation of the 1996 Act's dialing parity requirements. This is as critical a component to opening up short-haul toll markets as equal access was for long distance markets a decade ago. (And it is something all countries will need to replicate to open their markets fully to competition.) In 1997, the Commission must finish these jobs. The neutral numbering administrator must be selected and begin operations. The deployment of permanent number portability must start. The Commission must finish its proceeding to determine a competitively neutral cost recovery mechanism for permanent number portability. And dialing parity must be introduced on schedule. If all goes well in court and in the field, by this time next year we will have witnessed the final fall of the numbering wall that historically has buttressed local monopolies. Numbering issues have ceased to be competitive impediments, and instead will be competitive enablers, just as uniform resource locators -- or URLs -- enable competition on the Internet. You won't have to change telephone numbers to change local service providers. You won't have to dial extra digits to use a short-haul toll carrier other than the local incumbent LEC. And new service providers will not continually be fighting off threats to segregate their offerings into separate area codes. In 1997, the Commission also must complete its implementation of the 1996 Act's provisions governing access to poles, conduits and rights of way. In an era of multiple competitive providers, none of these facilities can become the new bottleneck that strangles competition. Congress told us to eliminate all bottlenecks to competition, as we did in the multi-channel video market with the program access rules, pursuant to the Congressional mandate championed by Chairman Tauzin. Of course the momentous and unprecedented Bell petitions for entry into long distance are another key component of the new law's pro-competitive framework. Congress envisioned a full competitive battle in all communications markets: both long distance and local. We will certainly be pressed to assure that the conditions are established that give all parties no more or less than a fair opportunity to compete in all the markets. In the fullness of time we expect to receive 49 Bell petitions for entry. Each will bring us thousands of pages of filings. There will be nothing simple about those proceedings, precisely because Congress rejected the "date certain" approach to entry. No one can criticize us for calling on Congress to assure us the budgetary and other support necessary to discharge fairly our duties to rule on these petitions. The amazingly short 90-day deadlines mandated by Congress exacerbate the enormous pressure on us. But we will grant or deny, with or without conditions, each petition in the timeframe ordered by Congress. We are as impatient as Congress and the private sector in our zeal to do the right thing in telcom policy. The FCC's commitment to competition has already led to radical deregulation and huge welfare gains in the long distance market. The average price per minute, adjusted for inflation, has decreased from about 34 cents in 1985 to about 12 cents in 1995 - a drop of nearly 65%. There aren't too many things that have consistently fallen in price like that. Because of the many pro-competitive steps that have worked in the long distance market, the FCC has eliminated tariffing for all domestic interstate service. Wireless services are another case in point. Here again the FCC has insisted on a policy of competition. As a result, the average cellular monthly bill has dropped by more than 27% in the past three years. We have also had a pro-competition deregulating policy regarding DBS, and consumers have been well-rewarded. As Echostar has entered the DBS market, and as MCI prepares to enter, DBS installations that sold for about $1000 in 1994 retail for as low as $99 in some markets. Still another area where the Commission has pursued a pro-competitive, deregulatory policy is payphones. In September, acting pursuant to the 1996 Act, the Commission eliminated regulatory barriers to entry and exit in the payphone industry. The Commission also eliminated certain subsidies that the Bells were receiving for payphone operations, and we deregulated payphone rates over the next two years. Again, our goal is to let competition, not government, be the regulator of the marketplace. (And again, there was substantial opposition from incumbents to these changes.) In all of these cases, the Commission wrote rules to support competition and then when these efforts by the Commission put the markets on a path to competitively priced offerings, we stopped regulating retail prices. None of these steps is easy. For example, long distance companies vigorously opposed our refusal to let them file tariffs with us. They did not welcome our deregulatory efforts because the tariff filings were used to protect them from certain consumer complaints. But we wouldn't let government be the means of protecting companies from the just grievances of their own customers. To facilitate competition and build the information highway, we also need to make sure we encourage, and do not inhibit, innovation. We will be doing so in a number of ways. The FCC needs to analyze ways to continue to encourage investment and innovation in the networks protected by our dominant telephone companies. In February or March 1997, we will begin a proceeding to do just that. We will be working with manufacturers, incumbents, new entrants and market observers to determine how to promote innovation and investment, without abating the pro-competitive effects of the Act's unbundling and interconnection provisions. We also are looking at what, if anything, needs to be done in response to increased demand for bandwidth for newly emerging services, including the Internet. Over the last three years, the Internet has grown from what was primarily an academic research network into one of the most explosive commercial developments of the last 25 years. The Internet creates new opportunities for all kinds of new media and services that take advantage of increasing computing power and ensure the continued reliability of the network of networks that we rely upon so heavily. But getting to the Internet is not always easy, cheap, and ubiquitously available. Everyone in the country ought to be able to get a URL and have a place to use it, just as my 14-year-old now has an email box at his school so that he and I can communicate during the day about how I can attend his track meet. But the usage generated by that sort of accessibility would potentially bring Internet traffic to a crawl. That's why we are going to be convening a forum on access to bandwidth next month, exploring questions such as what economic and regulatory barriers might be slowing the availability of high-bandwidth technologies and what changes can foster the deployment of packet-switched services. At the same time, we must avoid the trap of applying circuit-switched law to a packet-switched world: we will be looking for new solutions to new problems. On another front, industry groups are constantly coming to the Commission asking us to intervene in industry standards debates. Section 273 of the 1996 Act establishes ground rules for non-accredited standards bodies to establish technical standards for telecommunications and customer premises equipment. It gives the Commission the responsibility both to enforce those ground rules and to eliminate them when competition develops. We need to develop a clearer policy relating to the appropriate role for government -- including the costs and the benefits -- when it comes to setting technical standards. To this end, we intend to consult with a broad range of communications firms, members of the research community, and academics to help us address this question. To date, I have favored tolerating all industry-shaped standards that are open, nonexclusive and evolving. Is that all there is to this issue? We particularly need to examine ways in which small firms and technology developers can participate effectively in the standards setting process, whether it is exclusively industry-based or industry-led within government frameworks such as advisory committees. The electromagnetic spectrum is a unique public resource. It should be used to maximize competition and public goods. For example, it is critical to remove restrictions that unnecessarily preclude wireless licensees from providing the services that are most valuable to consumers. As the Gershwin song has it, "They told Marconi/Wireless was a phony . . . Oh ho ho, who's got the last laugh now?" We certainly don't know yet. Wireless firms may be the "Raiders of the Local Loop." But we must trust the market to decide if that's their destiny. In this regard, allocating and auctioning spectrum presents the Commission with unique opportunities. Indeed, if there is one way in which the Commission has efficacious power to promote competitive, deconcentrated communications markets, it is by putting more spectrum on the market. New spectrum can make new entrants capable of competing with entrenched wireless and wire-based incumbents to create significant benefits for consumers, the same way suburban land let new malls compete with established department stores. We should therefore continue to hold auctions, albeit in an orderly manner, with plenty of advance notice. When we announce a schedule, we should stick to it. Spectrum should be put to its most valued use. The Commission should trust markets to assure this result, although we should act as the "register of deeds" for spectrum licenses -- maintaining information as to which firms hold what licenses. Auctions allow markets to determine who will use the spectrum. We should also rely on markets to determine how the spectrum will be used. The Commission should move away from the old top-down, central planning approach of the past towards a decentralized approach that allows the spectrum licensee, rather than the government, to determine how spectrum will be used. PCS is a case in point. The auctions were a huge success. They put the FCC in the Guinness Book of World Records as the biggest auctionhouse in history. But far more important to the economy than the revenues generated for the Treasury by the PCS auctions is the investment in infrastructure that will permit these firms to offer wireless services in competition with existing wireless and wireline service providers. Wireless investment has increased more than 250% since 1993 and over the next ten years will total more than $50 billion. It is the largest single investment in a new, non-military technology in American history. Building on the PCS success story, our staff is developing a spectrum policy paper that will translate the Commission's successes in the PCS market to guidelines for future spectrum decisions. In my view our spectrum policy should, to the greatest extent possible, permit open entry, allow maximum technical and service flexibility, promote innovation and facilitate seamless networks so that spectrum is rapidly deployed to provide the greatest public benefits. Even with this more market-oriented approach, it is important to be mindful of the fact that markets are imperfect and we need to remember the important role that government -- meaning the FCC -- must play in ensuring public benefits from spectrum use. Therefore, I disagree with those who argue that we should privatize the spectrum and then dispense with an FCC or the Wireless Bureau. For example, the Commission should identify unlicensed shared spectrum uses, maintain registers of licenses, guard against monopoly, study emerging technologies, and enforce interference obligations. In particular, we should prevent anticompetitive behavior in new wireless markets. It would be a mistake to have the FCC let spectrum monopolies be formed and then ask the Justice Department to spend years in litigation trying to break them up. (This is, for example, one of the right ways in which our Competition Division has served the Commission well.) In addition, we should ensure that the public benefits from spectrum use; that, for example, is what free over-the-air broadcast licensing is about. We also have an important role to play in managing the transition to a market-based spectrum policy by establishing the initial geographic scope of licenses, the amount of spectrum per license and the rights of incumbents in reallocated spectrum. On the other hand, licensees should be permitted to alter the scope of licenses in the marketplace through aggregation, disaggregation and partitioning. An analogy is the government's role in making public land available in the West under the Homestead Act. The government made an initial allocation of land to prevent a few from taking an excessive amount, but then let the parties in the market engage in subsequent aggregations and disaggregation of real estate. Our spectrum policy rests on two key principles. First, we should make spectrum available to the private sector in an orderly but expeditious process, while relying on market forces to put spectrum to its highest valued use. Second, where appropriate, we should create public goods by establishing clear, specific, quantified public interest obligations that, like covenants or easements on real estate, remain with the spectrum licenses. By articulating clearly our approach to spectrum policy we will provide certainty to the market, encourage investment in new technology, and promote the public interest. Right now, telcom investors labor under an excess of what Keats called "negative capability." Our policies should try to dispel, or at least not increase, their mystification, doubt, and uncertainty. We are already implementing this spectrum policy to a degree in discrete items. For example, by early next year we will complete our rulemaking proceedings on 800 MHz, 220 MHz, and Paging. We are trying to create overlay licenses that provide existing licensees with interference protection and the ability to expand their service areas, while making additional opportunities available for new competitors. We should try to develop a general, consensus policy that would guide and expedite our approach to these various proceedings. Another test of our policy is our rulemaking to license 30 MHz of spectrum in the 2.3 GHz band. Congress required us to reallocate this spectrum to a flexible wireless service and begin the auction by April 15, 1997. Many have said that they wish Congress had given more advance notice of this auction to the marketplace. We should not unnecessarily limit the use of the spectrum or adopt short-sighted policies for this auction in order to mitigate the effects of the date set by law. However, we welcome advice and guidance about how to manage this auction, in light of its mandated timing. This spectrum will provide new licensees with important opportunities to provide new wireless services such as wireless Internet access or wireless local exchange services. We also plan to adhere to our previously announced schedule of auctions. Over the next six months we will auction licenses for unserved cellular areas, 454 and 929 MHz paging, 800 MHz SMR (upper 200 channels), IVDS (both the RSAs and defaults), LMDS (28 GHZ), Narrowband PCS, 38 GHz, LMDS and 2.3 GHz. We will continue to give as much advance notice of all auctions as possible. Building on our success with auctions, we are refining, improving and streamlining our auction procedures. Following a notice of proposed rulemaking about possible procedural changes, we aim to adopt the amended, streamlined rules by next spring. We will propose modifications to our application and licensing procedures, our payment rules and other procedural rules to speed the pace of auctions and to deter speculative bidding. We will propose a standard set of auction rules for all auctionable services that will reduce the period of time required for auction rulemakings and ensure consistency across auctions. In the first quarter of next year we will also complete the millimeter wave proceeding by developing the 36-51 GHz bandplan, working with NTIA to develop new ways of sharing spectrum, and proceeding with the Licensed Millimeter Wave Service. We have proposed that the spectrum above 40 GHz be used to provide innovative new services offered on both a licensed and unlicensed basis limited only by the imagination of our scientific community. The last few years have demonstrated that satellite services can significantly increase competition. DBS services are already significant providers of video programming and we are seeking to facilitate the growth of DBS, by negotiating access to foreign markets. We are promoting competition for voice, data and video carriage by pushing for the transformation of INTELSAT and INMARSAT in a pro-competitive manner. In addition, we will be licensing additional satellite systems, including more Little LEO systems. And we are offering the opportunity for foreign-licensed systems to serve the U.S., provided that sufficient foreign market access for U.S.-licensed systems exists. We are bent on reforming the international "accounting rates system." This is the ancient, outmoded, pro-monopoly system of settlement payments between countries that has propped up overly high charges to consumers for international calls and led to a huge outflow of money from the U.S. to foreign countries. Under this system, the United States paid approximately $5.5 billion net in settlements to the rest of the world in 1996, up from $2.8 billion in 1990. This trend must be reversed. We are pursuing a two-prong strategy to bring these costs into line, while providing a smooth transition for our international trading partners. First, for countries with competition in their telecommunications market, we will allow U.S. carriers to negotiate their own arrangements for terminating calls in foreign countries. Second, we are attempting to move accounting rates to an economic cost basis, which is where they would be if competition in the market for international calls existed. We will be flexible in establishing transition periods for developing countries and countries introducing competition to ensure that the transition does not result in a country's inability to invest in telecommunications infrastructure. Our flexibility order lays out rules for the first prong. Our Benchmark NPRM addresses the second, but takes note of special circumstances. We will also work in tandem with lending institutions like the World Bank to develop a transition project to provide technical and financial assistance to developing countries. These policies will promote competition in international telecommunications markets. And they will bring down the international phone bills of U.S. consumers. Ultimately these policies will help build a Global Information Infrastructure that can promote world economic and social development. Meanwhile, we have been working closely for more than two years with USTR on the negotiation of a World Trade Organization agreement to promote liberalization of international communications markets. This was the principal reason for my recent trip to Manila, Jakarta, and Singapore. We hope to see a WTO deal worth signing in February 1997. If unsuccessful, the FCC will step up its continuous efforts to negotiate on a bilateral and regional basis to help open and liberalize communications markets abroad. If we do get a good WTO deal it will inaugurate a new era of international pro-competitive and deregulatory policy in communications. Congress will then have new reason to be proud of the 1996 Act, because that law is showing the new way to the world. We're also pursuing alternative means to break down international telephony cartel arrangements. For example, we are encouraging new services that facilitate competition, such as Internet telephony and call-back services. We also anticipate that in ruling on the anticipated petition to transfer control of MCI's licenses to British Telecom, the FCC will be asked to consider a variety of issues that affect international telecommunications, such as the implications of such a transfer of control on trade policy, foreign policy and national security. Our pro-competition agenda is also at the heart of all our digital television proceedings. Some have viewed digital television as an opportunity to defend the status quo against new competitors. We view digital television as an opportunity for broadcasters to compete in new markets as well as competing more effectively in their core markets. That's why the 1992 Commission NPRM on Advanced Television became out-of-date. That's why new policies are appropriate. For example, DTV (limited and misdescribed by the defunct acronym HDTV) isn't just the same TV shows glossed up to a very high resolution. It opens a whole new world of opportunities for broadcasters to transmit multimedia, including voice, video, data, and software. As Gary Shapiro, the head of the Consumer Electronics Manufacturers Association, recently said, "people like to say this transition is going to be like moving from black-and-white television to color. But I think it's more fundamental, like the change from radio to TV." As Bob Wright of NBC said in describing the possibilities offered by digital television, "People are just beginning to realize the potential of delivering a vast array of services through the broadcast signal." As a result of radical changes in technology and markets, we have pressed significant changes to the FCC's approach to DTV. We should give broadcasters, and not the government, the right to decide whether multicasting or higher resolution is preferable. Broadcasters should make this decision on their own on a market-by-market, channel-by- channel, week-by-week, minute-by-minute basis. Some DTV broadcast should be free. But there's nothing wrong with letting broadcasters also offer subscription DTV. We don't ban subscription analog TV and we shouldn't prohibit or tax away the potential of subscription DTV. If our rules are procompetitive, broadcasters are more likely to have success with DTV and help preserve free TV in a digital age. In the digital age TV broadcasters should have the opportunity to broadcast to everything, including computers and PCTVs. That's why we insisted on a digital TV standard that would accommodate computer software. That's also why we insisted on solid assurances that the DTV transmission standard would not block innovation or interoperability, as the FCC-set NTSC standard has done for at least the last 20 years. I'm very pleased that both the broadcast and computer industries concluded that the DTV standard should be simplified so as to embrace industry-developed data and software applications. These applications can be modified, enhanced and extended far into the future while preserving consumer investments in hardware and services. In effect, we've killed the idea that DTV broadcasts only to DTV receivers. I agree with Eddie Fritts' characterization of the standards deal as a "win, win, win" for everyone. I look forward to the Commission voting the DTV standards items by Christmas. And we should vote the allotment and service rules items earlier than the April 1 date given us by the Congressional leadership. A means to auction the spectrum now allocated to the channels 60-69 and other important issues can be quickly resolved without controversy. In addition to the DTV proceeding, the Commission should protect competition and diversity by means of our broadcast ownership rules. The 1996 Act substantially relaxed the radio ownership limits. There are now no FCC-set limits on the number of radio stations that can be owned nationally, and under the revised local limits a single entity can now own up to eight radio stations in the largest markets. We implemented this provision in new rules adopted last March. We are also reexamining our television ownership rules as called for by the Act. We also are fostering innovation and competition in radio. The Commission is continuing to work with the radio industry to develop a viable terrestrial digital audio standard and a process for a transition to digital in-band. This whole process has taken far too long, although the rejection of the pioneer's preference approach was most welcome. The DARS auction should begin in April of 1997. The Commission has ongoing proceedings examining its national and local broadcast ownership rules. The local rules currently prohibit television duopolies -- the common ownership of two television stations in the same market. They also prohibit common ownership of a television station and a radio station in the same market. The Commission will waive this restriction if the transaction involves one of the top 25 television markets and if there would be 30 separately owned broadcast stations remaining in the market after the proposed transaction is approved. The Commission's goal in this proceeding is to further competition, just as we seek to promote competition in other communications industries we regulate. But in our broadcast ownership rules we also seek to promote diversity in programming and diversity in the viewpoints expressed on this powerful medium that so shapes our culture. What would happen to diversity if the Commission's rules allowed TV duopolies? That's a key question in the rulemaking proceeding. Plainly, allowing ownership of two stations would decrease diversity of ownership. But could it possibly increase diversity of viewpoint and diversity of programming, at least in some markets? There's a healthy debate among the Commissioners on the issue of TV duopolies. Adding to the complexity of the question is the increasing turbulence in the competitive world in which broadcasters do business. Broadcasters must thrive in order to continue to serve the public interest while providing a free service to consumers. If free broadcasting cannot compete with multi-channel subscription services, the public interest may suffer. The challenge of DTV increases the business pressure on broadcasters. In the coming months, we will be wrestling with these issues and listening closely to the commenters. As we do so, I will be seeking with my colleagues a unanimous consensus on TV duopolies that ensures competition, promotes all aspects of the diversity policy, and serves the American public. By June 1997, the FCC should conclude its outstanding rule makings on changes to TV multiple ownership and cross-ownership rules. In response to the 1996 Act's elimination of the numerical limit on national ownership of television stations and its increase in the permissible audience cap, the FCC also will conclude its review of these issues, including deciding on any necessary "grandfathering" provisions. In compliance with the 1996 Act, the FCC will also undertake a biennial review of all broadcast ownership rules in 1997 to ensure that they continue to promote competition and diversity in a quickly changing marketplace. As mandated by Congress, review must be completed by early 1998. The Commission also will reform the comparative hearing process for awarding new analog broadcast television and radio licenses. In 1993, the D.C. Circuit struck down the Commission's criteria for selecting among competing broadcast applicants. The D.C. Circuit said that the Commission's criteria were irrational, and few people disagree with that conclusion. The Court ordered the Commission to rethink the manner in which it awards broadcast licenses. One way to decide among qualified competing applicants for new analog broadcast channels is by putting those channels on the auction block. As we've seen repeatedly since Congress granted us auction authority, competitive bidding is the fastest and fairest way of getting licenses into the hands of those who will put them to the best use. Congress, however, has not given the Commission the authority to use monetary auctions in the broadcast context. Unless Congress acts, we have three options. One is to use the selection criteria that have not yet been invalidated. But few think that they make useful, meaningful and effective distinctions among applicants or that they are any more defensible than the one the D.C. Circuit invalidated. Another option is to give new analog broadcast licenses to applicants whose programming will add the most to their communities. These are applicants who show by specific, quantifiable evidence that they are willing to provide free time for candidates, children's educational television, shows for minorities or other underserved segments of the community, and other valuable programming that the market demonstrably does not generate in sufficient amounts. (The assumption would be that the relevant market already provides sufficient entertainment programming). If spectrum is to be given away at no charge, this option at least provides the public with assurance that its property is going to those would return the most in terms of public interest programming otherwise not provided by the marketplace. The last option is the worst: lotteries. The Commission could simply declare defeat and give analog TV licenses away randomly. The Commission has previously rejected the possibility of selecting new broadcast licensees by lottery. I hope the Commission doesn't now change its mind. Lotteries have proven themselves over and over again not to promote the Commission's competition or public interest goals. Indeed, given the Commission's unfortunate history with lotteries, I question whether the use of a lottery as a method to award licenses can ever be anything other than arbitrary and capricious. Shortly, the Commission will release its Annual Report on the status of competition in the multichannel video programming market. In only three years that Report has become one of the most read and respected items the Commission issues. The success of this report is a credit to the sophistication and knowledge of the Cable Services Bureau and the Competition Division. The market has long discounted the effects of rate regulation. However, as the competition report will make clear, the cable industry still has significant market power in providing multi-channel video services. This is especially true for basic cable. Alternative multichannel providers such as DBS, MMDS and SMATV have increased their share of subscribers by approximately 2% a year since 1990, but cable continues to be the dominant provider of multichannel video programming -- serving 89% of all multichannel video programming subscribers. Local markets for the delivery of video programming remain highly concentrated and structural conditions remain in place permitting the exercise of market power by incumbent cable operators. Nationally, concentration among the top cable MSOs has continued to increase. Although full competition has not yet bloomed, we see some hopeful signs. The Commission has done much in the last year to promote competition in the multichannel video programming market. Within six months after the effective date of the 1996 Telecom Act, we adopted streamlined rules for Open Video Systems that will facilitate rapid entry by wireline competitors to cable. In addition, the availability of two-thirds of the OVS platform to unaffiliated video programmers will provide another potential source of multichannel video competition. We have already granted three OVS applications and will continue to consider requests by LECs and others seeking authorization to become OVS providers in the expedited manner contemplated by the 1996 Telecom Act. We adopted rules prohibiting local government and nongovernment restrictions that impair a viewers ability to receive video programming through the use of broadcast, DBS or MMDS antennas. These rules prohibit restrictions that impair a viewer's ability to install, maintain or use antennas to receive an acceptable signal on property that is within their exclusive use or control and in which the viewer has a direct or indirect ownership interest. These provisions will promote competition among video programming providers and enhance consumer choice and assure wider access to alternative communications technologies. In the first quarter of next year we will determine whether and how these provisions should apply to viewers who do not have exclusive use or control and a direct or indirect ownership interest in the property where they wish to place an antenna. A critical element of our competition policy going forward will be the development of a sound policy on inside wiring. The Commission is in the process now of considering how to harmonize our telephone and cable inside wiring rules in light of today's evolving telecommunications marketplace. The inevitable convergence of services and technologies and the entry of new alternative service providers raises questions about our current inside wiring rules. In this proceeding one critical issue we will need to decide is whether moving the cable demarcation point from its current location -- 12 inches outside of a subscriber's individual unit -- will promote competition by permitting alternative service providers to connect to the subscriber's inside wiring at a point that is more accessible to the competitor and less objectionable to the property owner. We will resolve these issues early next year. In March of this year we completed our auction of MMDS licenses in 493 Basic Trading Areas across the United States. This summer we also authorized digital MMDS systems that will allow wireless cable operators to greatly increase their channel capacity. Overall wireless cable subscribership increased 41% between 1994 and 1995 and by nearly 20% in the first half of 1996. Kagan and Associates predicts that wireless cable subscribership will continue to increase 50% per year through 1996 and 1997, reaching 3 million subscribers by 1999. But even if these predictions prove accurate, this level of subscribership is still only a fraction of the 62 million subscribers served by the wired cable industry. Moreover, the LEC commitment to wireless cable appears to be diminishing with Bell Atlantic and PacTel announcing scalebacks in their MMDS investments. A bright spot on the horizon of competition in the multichannel video programming market is LMDS, which has the capacity to provide broadband, two-way video, voice and data services in competition with incumbent cable and LEC offerings. Earlier this year we adopted a bandplan that allocates 1000 Mhz of spectrum in the 28 Ghz band to LMDS. We also proposed to allocate an additional 300 MHz to LMDS in the 31 Ghz band to provide greater technical flexibility to the LMDS industry. We will adopt a final allocation and service rules for LMDS within the next several weeks and auction the LMDS spectrum early next year. Given the unique opportunity of LMDS to provide broadband competition to incumbent cable operators and LECs, we are also considering whether to limit the eligibility of cable operators and LECs to bid on the LMDS license in their service area. Excluding LECs and cable operators from bidding on the in-region LMDS license would afford a significant opportunity for a new entrant to provide multichannel video programming and telephony service in competition with the incumbent LEC and cable operator in every market. Cable operators and LECs would, of course, be free to acquire out-of-region LMDS licenses to expand their service areas and compete head to head in markets where they do not have market power. The competition policy put into place with the program access rules of the Cable Act of 1992 has had a significant benefit on competition by ensuring that new competitors such as DBS and MMDS have access to vertically integrated satellite delivered programming services. Our recent OVS decision extends this right to OVS operators. These rules have prevented strategic anticompetitive conduct with respect to distribution of satellite programming by vertically integrated firms to competitors. The program access rules prohibit unfair methods of competition and limit discriminatory conduct, including the use of exclusive contracts. By targeting and eliminating those vertical restraints that can impede entry into the video distribution market, the program access policy has fostered competition in both the video distribution market and in the programming market. In order to further promote competition in the delivery of diverse sources of video programming, we are currently considering modifications to our leased access rules. We will soon complete our proceeding to modify the maximum reasonable rate formula for leased access in the hope of promoting a greater diversity of programming sources on cable, while taking into account the significant economic interest of the cable operator in the value of the channel and the effect of leased access programming on the value of the programming package. Given the significant horizontal concentration in cable industry, leased access remains an important source of access to subscribers for unaffiliated programmers. We will shortly be finalizing our implementation of the cable provisions of the 1996 Act providing for the deregulation of cable rates when LEC or LEC-affiliated competition is present in a market. The challenge here will be to insure that the consumer is protected until actual competition exists. The recent announcement by Bell Atlantic/NYNEX that they are ceasing their investments in wireless cable shows that some caution is needed in this area. In that rulemaking, we will be taking a hard look at bulk discounts by cable for multiple dwelling units. And we will make sure that small cable operators will be receiving the relief that Congress intended. These issues should be resolved in early 1997. One of the biggest surprises from this year's Competition Report will be the revelation that satellite providers DirecTV and Primestar now rank among the top 10 MVPD's in the nation when ranked by subscribership. In the past year, Echostar literally took off like a rocket. At this time last year, they did not have a bird in the sky, and now they have over 200,000 subscribers. DBS is the most successful consumer electronics launch of all time. As we predicted when we auctioned the final national DBS slot, competition is causing price wars to break out. It remains to be seen, however, whether DBS will become a mainstream competitor to cable or will remain a niche market service. This depends to a degree on the long-run future of program access and the success of digital cable boxes. Another issue related to DBS competition is the Satellite Home Viewer Act. This copyright-based law in part attempts to balance the desire of consumers to receive attractive packages of programming with the need for local broadcast stations to preserve their market areas. The tensions created by this Act are heating up as the DBS industry matures, and as dish sizes and prices shrink. Our jurisdiction under this Act is quite limited, but we have been receiving a huge amount of mail from DBS customers who object to what they view as unreasonable restrictions on their ability to receive network programming. We intend to formulate suggestions to the new Congress on this subject. Small and entrepreneurial businesses deserve special attention as we examine ways to remove barriers to their entry into communications markets. Led by the Office of Communications Business Opportunities, and as explicitly required by the 1996 Act, the FCC is examining barriers to market entry for small telecommunications businesses. The pro- competitive role of small and entrepreneurial new entrants will be an important factor in realizing Congress' goal of fostering a diversity of media voices, promoting vigorous economic competition and serving the public interest. Following a Notice of Inquiry we issued in May, we are preparing a policy statement concerning regulatory barriers for small businesses, and the unique issues affecting minority-owned or woman-owned small businesses. We believe Congress will be very interested in our recommendations, and OCBO will be charged to work closely with Congress on this topic. The Contract with America Advancement Act (CWAAA) gave us the opportunity to examine small business concerns through the Small Business Regulatory Enforcement Fairness Act (CBREFA). In each FCC rulemaking, we consider the effect of our actions on small business. OCBO has in effect become the Contract with America office. It makes sure small businesses are aware of opportunities to participate in all rulemakings and licensing opportunities. Through this process, we've changed Regulatory Flexibility from a pro forma statement to a serious analysis that industry and public interest organizations rely upon when reviewing our proposals. On the other hand, the CWAAA is slowing our auctions and creating new increases in paperwork. We intend to recommend modest but important changes to Congress. To enhance opportunities for entrepreneurs, the FCC recently adopted a notice of proposed rulemaking that will make it easier for entrepreneurs to obtain experimental authorization to offer new and innovative services. By refraining from imposing various restrictions on experimental services or technology for limited experiments, we aim to foster the rapid development of new technologies and services. We will also seek comment on applying a similar approach for new cable television technologies. We also plan to review line-conducted emissions standards. Currently, Part 15 and Part 18 of our rules limit intentional and unintentional radio signals entering power lines from electronic devices. The present limits have not been reviewed for far too long and may be unnecessarily inhibiting some high technology products and adding unnecessary costs to others. We will review present rules relating to personal computer power supplies, high efficiency lighting systems, ultrasonic devices, and LANs using carrier current signalling. Changing these rules probably will require a program of field experiments to verify what level can be permitted without causing harmful interference to radio users. This will be done over the next year. We will rely on the private sector to the extent feasible. But we have here further proof of the need for the FCC to have a slim but smart technology capability. We will also act soon to remove barriers and disincentives to the use of "Smart Antennas". Traditional antennas radiate power in a fixed pattern. "Smart antennas" change such patterns in response to the instantaneous environment and demand for communications. They have the potential to increase frequency reuse. Existing FCC rules did not consider this technology and may inhibit its development. A realistic reassessment of this technology may result in U.S. leadership in commercial implementation of this technology. We will establish a public-private sector working group to review present technology rules in order to plan further action. This is an example of the sort of issue that markets do not readily solve due to various externalities. In all these ways, the Commission should act to create more competition in the communications marketplace. Dr. Kovacs of Janney Montgomery Scott recently praised our performance for 1996 this way: "As an investment analyst, and as I look at the scoreboard, I have to give all parties high grades for doing their jobs. The FCC has met its deadlines and its obligations. Its mandate was to promote competition and it has certainly done its best in that area." My hope is the same can be said of us in 1997. II.Public Benefits From Communications The second fundamental task of the Commission is to secure the public interest in communications. Universal Service. This country has long recognized that there are benefits of the communications infrastructure that our society wishes to have but that even a vigorously competitive marketplace may not provide. That is why, for example, we have long had a policy of universal service in telephony. The 1996 Act has forced us to transform these policies in light of the paradigm shift from regulated monopoly to deregulated competition. That is an immense task, and I appreciate all the hard and successful work that the Joint Board has done so far in this process. This re-write of universal service should revitalize the social compact between the communications industry and society. The ability of the communications industry to contribute to the public good is significant and it is vastly increasing in importance. In Section 254 of the Telecommunications Act, Congress gave the FCC the authority to create a durable, efficient universal service system that will meet the three goals of keeping basic phone service low-priced, compensating fairly any company providing basic phone service, and making sure that new entrants and existing telephone companies each carry a fair share of the financial burden of keeping basic phone service affordable. Moreover, in one of the most visionary provisions of the law, Congress mandated making modern communication services accessible to the 50 million students and teachers in the country. Last month a bipartisan federal-state Joint Board made its recommendations to the Commission on universal service, providing for a number of measures to strengthen and renew the current system of universal service, such as strengthening the support mechanisms to get low-income, rural and insular consumers to get connected and stay connected. The Joint Board also gave its unanimous support to a universal service plan that creates a federal-state, national-local partnership providing the funds to ensure that all schools, regardless of income or location, are able to share in the benefits of the Information Age. By providing up to $2.25 billion annually to help schools procure a wide range of communication services, internal network connections and Internet access, the Joint Board's recommendations articulate a visionary social contract between the communications industry and the public. This single issue alone will promote a revolution in the quality and equality of education. It shows America at its best. It makes us the envy of the world. Over the next five months, we will be working to write the specific rules to make this new vision of universal service an efficient, well-administered reality. As mandated by Congress, we will complete the universal rules by May 8. In fact, I've challenged our staff to get this done by the Commission's April meeting. Again, we need comments on the Joint Board recommendations, early guidance from Congress, and wisdom as we pursue the daunting task before us. Because we are dedicated to making sure that universal service truly reaches every individual, we are working concertedly on improving access to communications technology and services for people with disabilities. I am asking the Disabilities Issues Task Force to publish an agenda for 1997 on the Internet by mid-January 1997. This agenda will include a notice of proposed rulemaking seeking comment on proposed rules and an implementation schedule for closed-captioning of video programming. We also are working on issues of hearing-aid compatibility of new technologies and more generally on examining a broad range of ways to ensure equipment and services can be made accessible to individuals with disabilities. Under Section 255 of the new Telecommunications Act, the Commission has enforcement authority to press for accessible equipment and technology. In particular, we will actively encourage makers of new equipment and services to incorporate the concept of universal design -- designing products from the outset to be accessible for all needs -- into the original conception of their products. Retrofitting equipment with accessibility options is often costly and unwieldy. Designing in such features from the beginning of the development process is far more economical and leads to elegant solutions that often benefit many people in the general population as well as members of the disabled community. In addition to the funding assistance provided to schools under the universal service proceeding, we are also examining ways that various technologies can benefit schools and libraries. Our Wireless Telecommunications Bureau and our Office of Engineering and Technology are preparing a final report and order establishing rules for an Unlicensed NII Spectrum. This spectrum can be used by unlicensed devices to provide a range of high speed data and multimedia video transmission capabilities within buildings, campus settings and along community networks. Under the universal service provisions of the Telecommunications Act, Congress also charged the FCC with finding ways to provide rural health care providers with affordable access to telecommunications necessary for health care applications. We have spent the past few months working with a stellar advisory committee, which has given us serious, smart and challenging recommendations. We are now in the process of gathering further information on the potential costs and benefits of various services to be offered to rural health care providers and will continue to do follow-up research and analysis through May, when we will issue final guidelines. We need much advice from HHS and from Congress. A revolution in rural health care is possible here, if we develop the right policies. Educational Programming. Last August, we unanimously adopted new rules to strengthen our enforcement of the Children's Television Act, including a processing guideline that calls for television broadcasters to air three hours per week of programming specifically designed to educate and inform kids. Although these new rules haven't gone into effect yet, they already have jumpstarted marketplace forces that promise to bring more educational programming into America's homes. A slew of program producers -- from the established Children's Television Workshop to the upstart JP Kids -- are pitching their educational shows to broadcasters. Robin Schwartz, an NBC programming executive, was recently quoted as saying: "The number of people coming through my door has been absolutely amazing. . . . Not only a lot more people, but a lot of people from outside the entertainment world -- teachers, principals, people at local stations. I've even had housewives call me with ideas." I think this is terrific. It's just what we wanted the new kid-vid rule to do. It's generated the dialogue and creativity that can benefit the nation's children. As Jean MacCurdy, a Warner Bros. television executive, has said, "As much as I find this difficult and imposing, creatively, I welcome this over the 1980's, when every show was based on a toy. That was the nadir in creativity. This is a much better direction to be going." Thanks to our new rules, the marketplace for kid's TV is already responding. The success of that marketplace will ultimately depend on parents and other viewers -- that's why we will work so hard to make our public information initiatives meaningful. The Commission is working on completing a publicly accessible database of children's programming information. We would like to make this database available to the public over the Internet. We are on schedule to complete the database system by the spring. In the future, this system should provide parents ready access to information about educational shows carried by broadcasters throughout the country. That in turn will empower parents and improve the market for educational kids TV. Where necessary, the government should step in with precise rules that fine tune and redirect the powerful engine of the marketplace. That engine, running at full throttle and in the right direction, can deliver great public benefits. V-Chip. Besides giving parents something to choose we need to give them the power to choose what their children watch on television. The television industry will soon submit to us the voluntary ratings system they designed to help parents and responsible adults steer children away from violent programming on TV. We will put this proposal out for public comment. We will also develop a rule requiring the technology for decoding ratings to be in every television. This rule must deal with analog TV, cable, satellite and digital TV. This issue alone will be technically and economically daunting -- and perhaps otherwise challenging. We will give everyone a fair hearing and a fair shake, as the law requires. DBS Non-Commercial Programming. We are also examining ways to promote public interest uses of airwaves through DBS public interest policies. Section 25 of the 1992 Cable Act directs the Commission to impose public interest requirements on DBS providers, and also requires DBS providers to reserve 4-7 percent of channel capacity for noncommercial programming that is educational or informational. In 1993, the United States District Court for the District of Columbia held that Section 25 was unconstitutional, and effectively froze implementation of the DBS public interest requirements pending the FCC's appeal of that decision. However, the FCC prevailed in the Court of Appeals, so we can now move forward to give full force to the public interest obligations that Congress has directed for DBS providers. We are seeking comment on the best way to do this, because we want to write rules that give full meaning to the statute, while being sensitive to the legitimate concerns of the nascent DBS industry. Civic Debate. We also will provide Congress our views on ways to help improve political candidates' access to the public. Any successful campaign reform measure must take into account the fact that candidates need access to the most powerful medium of communication: television. Candidates and elected officials who must dedicate most of their energy to raising money to get onto TV necessarily will not have the time or the freedom to serve those whom they represent. Over the last year, a broad bipartisan coalition led by Walter Cronkite, Senators John McCain and Bill Bradley, former Republican and Democratic party chairs Frank Fahrenkopf and Chuck Manatt, and former Washington Post reporter Paul Taylor have persuasively made the case that political candidates need to have more free and direct television access to voters. It is a great credit to the broadcast industry that so many broadcasters responded with offers of free time to major presidential candidates. In response to a petition by broadcasters, the Commission unanimously approved TV network plans for giving free air time to major presidential candidates. We stressed that broadcasters must include safeguards to prevent showing any favoritism to a specific candidate. Our action allowed broadcasters to inform the public about important election-related news, while ensuring that candidates were treated fairly. The FCC could require that a reasonable percentage of digital television -- 5% -- be set aside for public-interest programming. We could ask that as part of that 5% broadcasters provide time during each election cycle to political candidates. Digital technology will vastly increase the potential of the spectrum, and existing broadcasters will get first crack at this new resource. Isn't it only right that the public should claim for itself a concrete benefit arising from the new, digital use of the spectrum? That's not the only possibility offered by the transition to digital. Another mechanism to generate free political time is suggested by the 1996 Telecommunications Act's requirement that the Commission impose annual fees on broadcasters who offer digital subscription ancillary or supplementary services. What if broadcasters were permitted to pay these fees in kind, in the form of time, to a political-advertisement time bank? Candidates could then use that time for their political ads. As for the current analog system, broadcasters could be asked to set aside some percentage of time for a political time bank, as part of their existing public-interest obligations. The New York Times reported that in the 1996 election cycle political ads (in all races from city council to Presidential) accounted for 1.3% of the total number of TV commercials broadcast in the major markets between April 1 and the end of October. We can assume that some 1.5-2% of total advertising time represents an approximation of the appropriate amount of time taken up by political advertising in a presidential election cycle (some percentage less if an off-year election). Broadcasters could be asked to make available not more than that time to candidates for use for political spots. Such an obligation could be placed on broadcasters as a condition of using the public airwaves. But broadcasters should not be required to shoulder the financial burden of political time themselves. Provision of time should be combined with other innovations to make up for the expense to broadcasters. Congress could provide that broadcasters be given tax credits or deductions for donated time. Or Congress could act to repeal or amend the requirement that broadcasters give candidates the lowest unit charge for advertising time. Public service announcements could be converted to political advertisements. Some of the other new developments in television, such as DBS, may offer other ways to provide candidates with reasonable access to the airwaves. The public interest requirement for DBS should be quantified, and free political time should count towards its satisfaction. As noted earlier, the law requires DBS operators to provide 4-7% of channel capacity for noncommercial programming of an educational or informational nature. The Commission must initiate a proceeding to impose "public interest or other requirements" on DBS operators. When the Commission establishes the rules to set forth the public interest obligations for DBS, free time for political candidates could be included as part of the service that will satisfy the statutory obligations. Many other proposals deserve consideration. A group led by Paul Taylor, Norm Ornstein, and Thomas Mann offers an intriguing proposal making use of the time-bank idea. Their proposal would create a political time bank funded by simultaneously abolishing the lowest unit charge provision -- which is highly unpopular with broadcasters -- and assessing broadcasters and cable stations a surcharge of 50% on all political advertising they sell at prevailing commercial rates. These revenues would be used to create a national time bank, from which vouchers would be distributed to pay for political time. Ideas such as this should get a full hearing. Liquor Ads. One very unfortunate development in the last few months is the introduction of broadcast hard liquor ads. For almost 50 years, the distilled-spirits industry voluntarily refrained from broadcast advertising, in recognition of the plain fact that TV is too powerful a medium to use for the advertising of a product like hard liquor. Recently, however, the distilled-spirits council repealed this laudable ban. Ads for hard liquor have appeared on television -- both broadcast and cable -- and on radio. Hard liquor advertising on TV and radio poses a serious risk to our nation's children. The decision by the industry to place these advertisements on TV and radio is disappointing for parents and dangerous for children. Viewers too young to consume distilled spirits will inevitably be exposed to these ads. I have called on broadcasters and cable operators to "Just Say No" to this aggressive campaign by the hard liquor industry. Broadcast and cable are under no obligation to carry these ads and have every right to refuse to do so. I congratulate and thank ABC, Fox, CBS, NBC, TCI, Time Warner, Gannett, and others for stating that they will not carry the hard liquor ads. I know that this is not a complete list of companies that have already adopted no-liquor policies. Every company must face an individual test of conscience to decide whether these ads are right for our kids. I hope and trust that each will make the right decision. If they don't, the next line of defense is government action. Some have raised the question of whether the Commission has the expertise to evaluate the public-interest repercussions of the introduction of these advertisements. Surely a central component of the Commission's expertise is our ability to evaluate the effect of television on children. That expertise is why Congress entrusted to us the responsibility in areas such as children's educational television, indecency rules, and the V-Chip. Of course, more information is needed before the Commission could decide whether it ought to take action with respect to hard liquor advertising on television. An FCC inquiry would provide a forum to permit interested members of the public, broadcasters, the distilled- spirits industry, the academic community, and others to voice their views on this new use of the public broadcast spectrum. An inquiry can supply the information needed to evaluate the nature and extent of the problem posed by the broadcast liquor ads, and the proper course of action. Members of Congress, a number of states, and members of the public have asked us to look into this issue. Our statutory obligation to safeguard the public interest requires that we do so. Public Safety. We are also working on ways to improve the features and delivery of emergency communications, examining the various ways that we can increase the accuracy and reliability of wireless 911 and enhanced 911 services. In particular, we have a rulemaking weighing whether requirements can be developed for carriers to deliver more precise information about the location of a mobile caller to 911. We should consider whether it is possible to develop standards on how quickly such information must be delivered by carriers. How can that information be monitored and updated to ensure its accuracy? We expect implementation on these topics by the summer of 1997. We are also planning over the next year to work closely with Federal and state law enforcement agencies to identify spectrum and other means of support to facilitate the development of a seamless nationwide interoperable network, capable of delivering voice, video and data transmissions. We will also seek to facilitate greater use of commercial services to assist law enforcement agencies in waging a 21st century war on crime. Consumer Education. Consumer education and outreach is an integral part of our mandate. The FCC soon will issue a notice of proposed rulemaking that will propose the prohibition of slamming by any telecommunications carrier. It will also propose to expand the scope of our verification process and will suggest a "make whole" proposal under which subscribers would be refunded excess charges resulting from being slammed. We will also have an NPRM seeking comment on ways consumers can learn about and avoid high Operator Service Provider (OSP) charges. International. In conjunction with the World Policy Forum, the World Bank and the Peace Corps, we are actively involved in a number of initiatives to help improve the benefits of international communications to people around the globe. In particular, we want to facilitate worldwide seamless networks and dramatically increase access to telecommunications in developing countries. We hope to realize the goals for a Global Information Infrastructure set out by Vice President Gore in Buenos Aires in 1994. There is significant potential for gain by American- flag companies in these initiatives. III.Streamlining and Improving FCC Processes The requirements of the Telecommunications Act undoubtedly constitute the single largest workplan given by Congress to an independent agency in at least a generation. When the Act passed in February, I promised that we would meet or beat the deadlines Congress set for us and that we would do so by unanimous votes. So far, we have accomplished both these goals. In fact, we have taken 116 actions in the past year to implement the Act, including starting and completing 31 separate rulemakings or other proceedings to fulfill our obligations. We have 27 pending proceedings to complete, and we will initiate at least 9 new ones. At the same time, the competitive forces spawned by the Act will increase our workload in ways that are difficult to predict and plan for. For example, how quickly will we receive the 49 Section 271 applications to enter the long distance market that will eventually be filed? How many new broadcast license transfers will be filed as the industry continues to enjoy its new structural freedom? How many new Section 253 preemption issues will we face in the coming months? How many complaints will be filed concerning over-the-air-reception devices? How many disputes will arise over Open Video Systems? The list of corollaries to the Act's changes is very, very long. While busy implementing the Act, we at the FCC must simultaneously continue to streamline and improve our processes and to eliminate unnecessary regulatory artifacts. One question we need to constantly ask ourselves is whether we are doing things we should not be doing. As Thomas Carlyle wrote 150 years ago, "There is endless merit in a man's knowing when to have done." It was asking this question that led to our first Reinventing Government effort in 1994, under the direction of Mary Beth Richards. That effort produced savings in the millions of dollars for the Commission and savings in the hundreds of millions for industry. It was asking this question that persuaded us to eliminate our Review Board. It was asking this question that led to our significantly cutting back on our field operations. We cut the number of field offices from 34 to 16 and reduced that Bureau's employees from 384 to 262. (This was the first reduction-in-force in Commission history.) It was asking this question that led to our making 37 recommendations to Congress concerning functions we believed it was no longer necessary for the FCC to perform. We were delighted that the last Congress adopted 21 of these recommendations. We urge that the new Congress consider adopting the other 16. For example, thanks to the changes we requested in the statute, we have eliminated: equal access obligations on cellular carriers; a 30-day Public Notice requirement on private operational fixed microwave applications; a filing requirement for amateur radio volunteer examiners and coordinators; a requirement that all large cargo and passenger vessels carry a manual Morse Code radiotelegraph installation; and an individual licensing requirement for all recreational ships and aircraft operated domestically. We estimate that deleting that last requirement alone will eliminate the need to issue and track about 710,000 radio licenses. That's about 88% of all ship licenses and 98% of all aircraft licenses. It was asking this question about what we should not be doing that led us to issue a Notice of Inquiry immediately after the 1996 Act became law asking how we could improve our processes. In gathering suggestions responding to the NOI, we worked with the Federal Communications Bar Association. The FCBA gave enormous support and many hours of non-billable work. Indeed, we met with each of the FCBA practice-group committees. The NOI served as an umbrella proceeding under which the public could comment on Commission-wide and Bureau-specific streamlining efforts. In reply to the NOI, the Commission received nearly 60 formal comments, reply comments, letters, petitions and motions. The responses ranged from proposals for major policy initiatives to suggestions for minor adjustments in the way we do business. Many have been adopted. Streamlining actions already completed include: initial implementation of Wireless Telecommunications Bureau electronic filing that decreased processing times for amateur radio service from 75 days to overnight; reduced reporting requirements by more than 50 percent for NECA among others; reduced international tariff notice periods to one day from two weeks; providing status information on audio service applications on the Commission's website (thereby, giving immediate and direct access to that information to licensees and applicants); creating our new call center. It is asking this question of what should we not be doing that leads me now to question whether we should continue to act as both the banker and the regulator of the wireless industry. Congress ordered in Section 309(j) of OBRA in 1993 that we ensure that auctioned licenses are disseminated among a wide variety of applicants and that small businesses and businesses owned by minorities and women are provided the opportunity to participate in the provision of spectrum-based services. The Commission unanimously adopted rules allowing small businesses to pay for their licenses in installments over the term of the license. This approach was necessary to address the very real problems that small businesses and others face in accessing capital in the marketplace. These policies have helped hundreds of small businesses obtain spectrum licenses in our auctions. The services, investment, and jobs that these new competitors provide, of course, benefit our economy and our country. However, these new businesses now owe the Federal government substantial sums for their licenses. It is time for the Commission to assess whether it is consistent with our mandate to act as both the promoter of wireless competition and as banker to the wireless industry. These roles may conflict. Moreover, some competitors will need temporary financial relief and others may seek to renegotiate the terms of their loans, just as businesses do in every sector of the economy. The Commission, however, does not necessarily have the experience or the staff to assume these responsibilities. Commercial bankers have the ability to assess business plans and tailor financing arrangements to the skills and financial qualifications of the particular borrower. As new businesses develop over time, commercial lenders often reassess the terms of loans to address changes in the marketplace. All debtors need to have such decisions made on the basis of practical financial judgments. Companies that obtain wireless licenses at FCC auctions are no different. As these new competitors develop their businesses and begin making their installment payments, perhaps they should be able to request renegotiation of their financing where it is necessary and appropriate to do so. That request is best made to a commercial lender, and not the FCC. Perhaps the FCC should step out of the role of banker. This can be done in a number of ways. In the recently passed Debt Collection Improvement Act, Congress expressed its desire to pursue privatization of government debt in many instances. In the spirit of that act, we want to work with Congress over the next year to explore private and governmental solutions that will better serve the needs of auction winners. In addition to recognizing things we should not do, we need to make sure we perform our job as effectively and efficiently as any business. One important aspect of any business is communicating with one's customers. We're proud that a computer magazine reported that, "When it comes to communications, the Federal Communications Commission lives up to its name." We've worked on improving our communications by enhancing access via the Internet for the public to get information, to review proceedings, and to file and review comments. Our site hits per day are steadily growing from 30,000 in February 1996 to about 90,000 hits per day now. The number of hosts (an indication of how many individuals are using the site) is up to more than 77,000 a month. We also want to use new technology to help us do our job better. Electronic filing reduces processing time by at least 25%, and in many instances reduces processing time from 30 days to overnight. The Wireless Bureau has been a leader in using electronic communications to speed its work, already having completed Phase I of its electronic filing initiative. The Wireless Bureau has received over 73,500 applications electronically. Its Amateur Radio Service has decreased processing times from 75 days to overnight! This has also led to the Bureau reducing its overall processing time to less than 60 days for almost 90% of all applications. The 1996 Act has led to an explosion of broadcast transactions, most significantly in radio. We anticipate approving over 3600 radio assignment and transfer applications in 1997, far in excess of the record 2026 granted last year. The increase in dollar volume of proposed radio station trades is even more dramatic -- possibly topping $15 billion this year, more than 3 times the 1995 total. The Mass Media Bureau has kept up its speed of disposal rate for both routine and contested applications, rapidly approving the transactions which the Telecommunications Act has made possible. The right way to assure that the Commission can keep pace is by improving technology. The Mass Media Bureau has also recently begun a project to provide for the electronic filing of broadcast applications. Our program will scan for incomplete or inaccurate applications, and provide automatic computer analysis of many things currently processed by hand, such as interference analysis. We need to work rapidly toward the goal of electronic filing for all applications. The International Bureau is also moving to electronic filing for earth station applications. In addition, in March of 1997, we will be conducting a two-day seminar on electronic notification and registration to the ITU for satellite systems. The move to electronic filing with the ITU should sharply reduce backlogs and facilitate coordination of satellite systems. The Cable Services Bureau used rate resolutions and social contracts to resolve over 6,400 rate complaints that had been filed with the Commission by cable subscribers, providing over $45 million in refunds to consumers. In addition to resolving the initial rate complaint, these resolutions and contracts also resolved 50 Petitions for Reconsideration and 31 Applications for Review of Bureau decisions. The Bureau continues to receive approximately 2,500 telephone calls each month from persons seeking cable information. All calls are returned no later than the next business day. The FCC has issued a notice of proposed rulemaking to facilitate still faster resolution of all Section 208 formal complaints by eliminating or streamlining procedures and pleading requirements. Among our proposals are requiring or encouraging certain pre-filing activities to speed the process, changing service requirements, and modifying the form of initial pleadings. Similarly, we are seeking to streamline the equipment authorization program. For a number of types of equipment, we will allow manufacturers to self-declare for compliance and in other areas we will vastly streamline the authorization process. We have already begun using a process whereby applications are electronically filed and licenses are automatically granted by computer, provided all the information is in order. We now use this process for land mobile and microwave renewal requests, amateur licensing and other licenses. This process allows for many licensed services to start within one or two days. We hope to begin electronic payment by credit card by the end of the quarter, so as to provide additional incentive for people to use the electronic method of filing. We will also be working this quarter on implementing a "universal form" on the internet for all electronic filing and renewals. We also will work over the next year to use an applicant certification process for routine applications for assignment, transfer of control and changes in technical facilities; to streamline tariffing for dominant carriers; to complete streamlining Part 22; to identify and eliminate barriers to alternative dispute resolution; to improve information gathering function, to streamline regulation of depreciation; and to streamline ARMIS reporting requirements. We want to use the most modern technology in our policymaking processes. We anticipate a rulemaking in the next quarter that will allow us to accept electronic filings for rulemaking purposes, further democratizing and expediting our procedures. Although we need to use technology wherever appropriate, we cannot forget about the human factor. Like any other public or private sector employer in major urban areas, the Federal Communications Commission must forthrightly address and meet the challenge of managing an increasingly diverse workforce to obtain the highest level of contribution to its workers. Consistent with the best human resources practices, the Commission has found that it can best ensure the highest levels of productivity, a workplace free from conflict and discrimination, and a supportive work environment by taking an active rather than reactive role in providing the leadership to address issues arising within the workplace that may reflect conflict based on gender, race, ethnicity, religion, cultural background or sexual preference. The Office of Workplace Diversity needs to continue its work of conducting mandatory training for all agency managers, helping the agency recruit employees in ways that maximize opportunities for applications from candidates with diverse backgrounds, assisting the agency in conducting hiring and employment decisions in a non-discriminatory manner, and responding to any complaints of discriminatory treatment by employees. We need to focus resources on policy tasks, not on administration. In this regard, over the last three years we reduced the size of the Office of the Managing Director from 16% of the FCC to 9%, even while the Office was picking up major new responsibilities. At the same time, to focus on policy, we must continually re-invent our organization. Our science and economic policymaking has improved radically in the last three years, under the special leadership of Joe Farrell, Mike Katz, Dick Smith, Mike Marcus, Bruce Franca, Mike Buas, Robert Pepper, Elliot Maxwell, Kevin Werbach and others. We have to continue this trend. The Commission will soon act on a proposal to streamline and improve the Commission's ex parte rules. Determining whether a proceeding is restricted for purposes of the ex parte rules should not be a guessing game. The Commission also plans to reform the rules in Part 19 governing disclosure of information. And it is seeking comment on ways to reform the way in which the Commission handles requests for the confidential treatment of information filed with the Commission -- an area that has long engendered uncertainty and confusion. We need to make the move to the Portals in a way that maximizes the efficiency and excellence of the Commission. In this regard, the Commission will be moving in six equal phases beginning approximately November 1, 1997 and ending June 1, 1998. We need to put the entire Commission under one roof. This will facilitate public access for information, for example, by means of one Consolidated Public Reference Room, and increased seating capacity in the Commission Meeting Room. And our new consolidated offices will break down barriers of communication across bureaus and offices. We will promote equality throughout the agency by commingling similar functional units and organizations. The FCC's space is being planned to foster open communication and collaboration between staff, to encourage the exchange of ideas, and to focus on teamwork. Our need for budgetary and other support by Congress will remain high through 1997 and beyond. The changes of the communications revolution always take more time to develop in the marketplace than to be conceived in the minds of policymakers. Conclusion An article in a computer magazine on the operations of the Commission ended this way, "Overall, there's something scary about the dynamism of the FCC. Perhaps the world isn't ready for a government agency that is efficient, creative and works hard to improve customer communication and service. What would comedians have left to joke about?" We're not worried about the comedians. After all, they can always make jokes about lawyers. And we are proud of what we've already done. But we're very excited about the uncompleted agenda. If we can all just keep focused on the hard road ahead, this country will realize the full benefits of the communications revolution.