FCC CHAIRMAN REED E. HUNDT ADDRESS TO THE NATIONAL PRESS CLUB MAY 2, 1994 I am here today to talk to you about one of the great events in our history: the development of the information highway. I will explain why I favor vigorous competition as the way to build that highway, and why I hope we all agree to adopt three key principles as a framework for that competition: choice, opportunity, and fairness. At the outset, let's talk about what the information highway is. Never have so many talked so much about something so hard to describe. The biggest problem in discussing the information highway is that you can't see it. It is made up of invisible pulses travelling through cables underground. It is energy waves across the sky. In Gertrude Stein's famous phrase, "there is no there there." And most of what it will deliver to people is, like the intriguing plants I like to order from gardening catalogs, "not yet in stock." Another difficulty is that the term "information highway" is used to describe more than one thing. Let me discuss some of the meanings of the term. First, "information highway" refers to our country's great, familiar, parallel communications networks. These are: - the telephone system that reaches 98% of all homes; - the cable system that passes more than 90% of homes; - the broadcast television and radio stations that provide free programming to everyone; - the cellular telephone system that covers most of the country, and - the satellites that soon will offer video programming on dishes no larger than a big salad bowl Second, the 'information highway' is everything involving communications -- from long-distance to VCR tapes -- on which the average American household now spends almost $2000 a year. This amount has doubled in the past ten years. It continues to rise as our appetite for communications, whether voice, video, or data, continues to grow. - 2 - Third, the 'information highway' is what almost two-thirds of all Americans travel on as part of their daily work. Police and school teachers, homemakers and stockbrokers, sales clerks and even newspaper reporters depend on cheap information and easy communication to be productive and successful. Fourth, the 'information highway' represents the gateway to our future prosperity. When a computer programmer in Massachusetts dreams of developing educational software for the kids in our public schools, she is counting on the information highway; when a graphics designer wants to use a computer to dazzle Hollywood studio executives, he needs the information highway to reach his latest video data base; when a construction worker is hired to string fiber optic cable through Manhattan to introduce competition in telephone service, he or she is building the information highway. The current edition of U.S. News & World Report lists 25 "breakthroughs that are changing the way we live and work." Each -- from paperless manufacturing to voice recognition -- is part of the 'information highway'. Each is going to create a new job or make an old job more challenging, more productive, and ultimately more highly paid. Fifth and finally, the term 'information highway' refers to the technological marvels and investment opportunities associated with two extraordinary developments: convergence and interactivity. Convergence means that each of the parallel networks that I mentioned before can deliver products and services that compete with the products and services delivered by the other networks. Convergence comes from inventions like fiber optics, SONET rings, digitization, compression. We do not need, fortunately, to understand all the technology. We do need to appreciate that the technology can make each network capable of delivering voice, video and data. And after the needed investments are made, these networks can compete. Broadband interactivity is the other extraordinary development. Broadband interactivity means two-way communication of full motion video pictures, data and voice back and forth over all the networks. Instead of the TV delivering a signal just one way, interactivity means two-way communication. That is particularly appealing for someone like me who occasionally talks to the TV, such as during Redskins' games. And the term broadband means that a telephone, already a two-way communication, will be not limited to voice. Instead it can include the two-way video. When you sign off by saying 'see you later', that will be literally true. - 3 - But what is important about convergence and interactivity, is not so much any particular application that they permit. It is that these developments in our networks give us the opportunity to encourage competition in delivering communications. Vigorous, robust competition is characteristic of most of our great industries. The computer industry, for example, has generated great economic growth and tremendous productivity gains through cut-throat competition. But we have only skimpy experience with full competition in communications markets. Nevertheless, we can get a sense of what is possible by reviewing what happened when AT&T lost its monopoly over long distance telephone services ten years ago. MCI, Sprint and 400 other long distance companies have now entered the long distance market. Rates for long distance calls have dropped by two-thirds. AT&T has continually lost market share, yet because of the higher demand coming from lower rates, it increased its revenue. Just as with long distance phone service, we can expect a similar entrepreneurial explosion when competition comes to local telephone service and cable TV. As companies compete in these businesses -- hiring people, buying everything from equipment to programming -- competition will, as competition has always done in our history, lower prices, improve service and value and stimulate economic growth. Not only has invention given us the opportunity to introduce competition in existing communications markets now dominated by a single, or at most a couple, of suppliers, but also the 'information highway' can give us competition in markets that are just beginning to be developed, markets we are just beginning to imagine. Soon, companies will be competing to offer you a connection to a two-way voice, video, and data network that will let you visit a doctor, deposit and withdraw in your bank account, play games with people in distant cities, send mail in the blink of an eye -- all without leaving your house or workplace. The race to build the interactive networks that can compete to deliver the new goods and services will not only be fascinating to watch, but more important, it will generate massive economic growth and hundreds of thousands of new jobs. - 4 - Because the term 'information highway' has come to encompass the entirety of our communications revolution, the 'highway' metaphor is clearly overused. Put aside the 'highway' idea for a moment, and join me in focusing on a key fact -- in exploring the full potential of the communications revolution, no other country in the world trusts in private industry and competition to the degree we do. In almost all other countries, governments interfere in the market in many ways, with many excuses. For example, the minister of telecommunications for one of the former Soviet Republics recently told me his country's economy was too poor to permit competition and therefore, he was authorizing monopolies to develop the country's wire and wireless systems. I told him, with respect, that if his country was poor, it was too poor to tolerate monopoly. I said the Soviet Union tried to foster economic growth through state-authorized monopolies and that did not turn out well. Here in the United States, we are blessed with economic strength, and that strength comes from our nation's reliance on competition as the way to promote our economy and increase job growth. But competition means change. And change means risk. That is why, though all praise the principle of competition, when it comes to their own markets, the established incumbents may well resist. For that reason, introducing competition to all aspects of the communications revolution is a lot easier said than done. But it can be done. Competition means permitting new companies to bring local telephone service to your community -- just as the State of Maryland did last week in authorizing a new competitor to Bell Atlantic here in the suburbs of Washington, D.C. Competition means enabling new companies to provide video programming -- just as the Federal Communications Commission did when we decided not to let cable companies lock up programming with exclusive contracts. Competition means finding a way, over time, to let long distance companies into the local telephone markets and local telephone companies into the long distance markets, just as Congressional leaders such as Senator Hollings and Congressmen Dingell, Brooks, Markey and Fields are now doing through their proposed legislation, with the Administration's support. - 5 - The challenge of competition will be difficult for newcomers and for established companies alike in the competition. In the competition there will be winners and losers. But the winners won't be able to stay on top for long and the losers won't be down forever. That's the way it is in a competitive economy. There will also be continuous re-thinking of corporate strategies and investment plans. For instance, a year ago, a race between the two wires of the cable and telephone industries was said to be the way to develop the information highway. Then we went through a period where all progress depended on alliances, joint ventures and mergers between telephone companies and cable companies. Just today, I read in a trade magazine that now the telephone and cable companies will separately invest in their competing networks to see if either -- or neither -- can be the most important pipeline for the information highways. Meanwhile, the wireless and broadcast and satellite networks each urge their own candidacy for preeminence as the essential network for competing in communication. I do not believe that the public wants government to pick its favorite network for development. The public does not want government to choose among different proposals for technological innovation of the networks. I agree with the public. Instead, competition should determine who wins. Our role is to referee the game. As a referee, I prefer -- just as they do in the NBA playoffs -- to let the players play. Let's be clear -- no one can tell how the competition game will turn out. But though we can't predict where communications technology and markets will lead, we can make sure our economy will be the winner -- as long as we make an unshakable commitment to let private sector competition lead us, and the rest of the world, through the information age. As the framework for this competition, I hope we could agree on three guiding principles: Choice; Opportunity; Fairness. Choice will be good for consumers and business. But now, the communications market does not offer enough choice. - 6 - In most places there is only a single local telephone company. There is almost no choice available for video programming. If you want ESPN, preferred by my 8-year-old son Natty, or want cable to improve the quality of the PBS signal for Barney, my 5- year-old Sara's favorite show, in all but 1% of the country you have just a single cable company with which to subscribe. If you don't like their prices or the way they treat you, it's take it or leave it. We all know choice means lower prices for consumers. And no choice means higher prices. For example, the average buyer of basic cable service who had no choice except just take it or leave it -- faced a bill in 1993 that was 240% higher than the bill ten years earlier. It was only the Cable Act of 1992 that broke the back of those continuing price increases. But when there is choice the Act will not apply, because competition will set the price for cable programming. This is what the public prefers, and so do I. Choice is not just good for consumers. It's good for business. For example, several people from North Carolina recently visited me to talk about their startup company. They showed me a circuit board they believe can greatly expand the use of the telephone system, permitting it to carry not just voices but full motion video. Right now they must negotiate with just a single telephone company in every market. They depend on that one company's say-so for their very existence. Choice would mean they could negotiate with more than one company. Choice would mean they could decide their own business destiny. Our second guiding principle should be opportunity. We must assure that the communications revolution provides all Americans the opportunity to participate. Dozens of examples of opportunity are at hand. To focus on a single one, later this year, we will sell the rights to run businesses that use the spectrum -- the air waves. In the summer we will auction so called narrowband PCS, which is the opportunity to run advanced paging services. Toward the end of this year we will begin auctioning broadband PCS, which is enough spectrum to permit a company to offer mobile telephone services provided by light weight low cost pocket devices. We are almost four years ahead of the Congressional deadline. If we do our job right, analysts estimate that competition could generate 100 million subscribers within ten years: that means 84 million more customers than now subscribe to cellular phones. - 7 - All Americans should have the opportunity to participate in this new market: selling these services, building the systems, doing the marketing, handling the repairs, getting the new job. The legislation permitting the auctions asked us to make sure that small business, women, minorities, and rural telephone companies have an opportunity to participate in this grand economic opportunity. That's why our able staff and my fellow Commissioners and I are analyzing, along with the private sector, how to fulfill the Congressional mandate to provide this opportunity to all Americans. Another opportunity the communications revolution gives us relates to the 45 million Americans who work and play every day in buildings largely cut off from the modern information age. These are our children in schools, kindergarten through grade 12. In only half the classrooms are there computers and in only 4% of the classrooms are the computers connected to telephone lines. Only one of our 25 classrooms has the opportunity to connect to the communications revolution. The President of the United States has called for us to connect all classrooms, libraries and clinics to the networks by the end of the decade. Many telephone and cable companies have promised to meet this challenge. Difficult issues of interconnection, standard setting, and tariffing for schools will have to be debated. But if we all agree to ensure opportunity for all Americans, including especially our children, these issues can be resolved. The third principle is fairness. The competition to build the information highway must be fair. No one wants big companies to take unfair advantage of small companies through prohibited exclusive dealing, illegal discriminatory pricing or other inappropriate trade tactics. Competition for the new entrants will be tough enough; the incumbents will have to play fair. And no one wants to see big companies that dominate markets use their power to charge unfair prices to consumers when those consumers can't go anywhere else for telephone or cable service. These basic rules of fairness in competition that have long been followed in our capitalist economy. They will have to be applied to competition in communications just as they apply in all other sectors of our economy. - 8 - The principles of choice, opportunity and fairness, then, form the framework for our unalterable commitment to competition. When my oldest child, Adam, now in the sixth grade, is looking for a career, I do not know for sure, if he will find his lifework in the communications revolution. But I can say this same revolution has already worked for my family, and millions of other Americans for the last several generations. Let me close by telling you about my father and his mother in 1930, living in an apartment in Milwaukee, Wisconsin, next to the zoo. My father was nine years old; when the windows were left open on summer nights he could hear the elephants trumpet as he went to bed, or so he told me. Then his father died, leaving my grandmother not only a widow, but unemployed and without skills in the depths of the depression. My father's childhood and his future were imperiled. But the communications revolution of that time brought her a job. She became a switchboard operator. That's how she made ends meet. And how she sent her son to college. A generation later because of his education and the good job it gave him, he was able to give me the fine schooling and the training that I need every bit of, to try to do my current job well. That communications revolution is still going on. In most places, it has eliminated the job of switchboard operator, but it is constantly creating other jobs instead. And if we commit now to vigorous competition in communications, guided by the principles of choice, opportunity and fairness, we will see that another parent gets a job that does not now exist. Another parent will be able to make ends meet where hope might otherwise not exist. Another parent will be able to give his or her child a better life. And the cycle of progress will continue. The American Dream will endure. This is what is at stake in communications today, and why I'm very lucky to have the chance to contribute to our country. Thank you. I look forward to your questions.