CHAIRMAN REED E. HUNDT FEDERAL COMMUNICATIONS COMMISSION "RESHAPING REGULATION" MUNICH CIRCLE CONFERENCE September 25, 1995 (as prepared for delivery) Dr. Witte, Dr. Boetsch, honored guests: I am grateful for the opportunity to share with you the experience of the FCC in reshaping regulation as America moves towards telecommunications competition. Since all of the countries represented here today are engaged in their own restructuring from monopolies to competition -- albeit at considerably varying paces -- there is much we can learn from one another. I'd like to share with you first some thoughts about the role of the FCC within the U.S. government, and then to describe some of my principal goals for it. What Kind of Regulator? According to the brave description of American administrative law scholars, the FCC is called an "independent agency". This means that formally we belong neither to the Executive Branch -- we are not a Cabinet agency nor report to one -- nor to the Legislative Branch. Rather, we follow a statutory mandate from the Congress, and have a staff of civil servants to carry it out. So much for the theory. In practice, there are a couple of additional points worth remembering. First, we depend on Congress for our annual funding. This of course affects rather dramatically our resources and our priorities. Moreover, legislators have been known to try to attach their particular agendas to appropriations bills. A good bit of my time these days is in fact taken up with the difficult question of next year's FCC funding. Second, the President appoints me and my four fellow Commissioners, subject to approval by the Senate. Terms last for five years, so no President chooses the entire Commission. (By tradition, the President does choose the Chairman, however.) So even though I'm not part of the Executive Branch, I am certainly part of the Administration's communications policy structure. America's Founding Fathers christened this mix of legislative and executive control "checks and balances," and regarded it as essential to ensure that neither branch of government assumed a dominant -- or as they thought at the time, imperial -- character. It is a noble concept, but it makes for a very complicated daily existence. I offer this brief civics lesson not because, in the grand American tradition, we think our model should apply everywhere. Rather, because we have learned certain lessons about our "independence" from both legislative and Executive branches that do have more general value. As many of your countries are considering creating, or are in the process of structuring, independent communications regulatory authorities, our experience may therefore be instructive. Exactly how a specialized communications regulator fits into the governmental structure will, of course, depend in part on a country's particular national political institutions. Parliamentary systems have not experienced the same tradition of independent agencies, just as they cannot result in differing parties controlling the legislature and Executive branches. But we all share the same political realities -- powerful, wealthy business interests attempting to influence the regulator. Thus, whoever regulates communications must be given a strong mandate to act independently. This is in large part a negative principle: the regulatory authority must in principle be free from intervention by the Executive and legislature -- and by the dominant carriers. Appointment and appropriation powers are unavoidable aspects of constituting and operating a regulatory agency, but aside from these, additional control mechanisms must be avoided. For example, creation of advisory boards with representation of Executive or legislative officials would only invite micro-management of the regulator's tasks. Further, public confidence in the independence of the regulator will be strengthened if its rulemaking and adjudicatory processes are transparent and available for all interested parties to use. Regulatory decisions should be made in accordance with administrative procedure, and in principle subject to judicial review. These procedural protections both help regulators to reasoned decisions, and keep us honest. I can appreciate that the rigors of U.S. administrative procedure may not be to every non-American's taste, but they do help in creating public confidence that decisions are not made behind closed doors. Administrative process need not be seen just as a necessary burden, but also can serve a pedagological purpose. The FCC regularly uses rulemaking and inquiry proceedings to solicit industry and public views on emerging issues. Much of the technical, economic and legal analysis which figures in our decisions is developed in this way. Industry feels it is participating, and it is right. There is one other feature of the FCC's mandate that I would emphasize: the integration of both broadcasting and telecommunications regulation in one national institution. "Convergence" of these two industries is not just a slogan of the moment; it is a basic force driving business strategies today. The "mega-mergers" that have swept America in recent months -- Disney and Capital Cities/ABC to name just one -- show the progressive blurring of the distinctions between these two branches of regulation. There are obvious efficiencies to unifying regulatory resources in one place to deal with the issues of competition and concentration that convergence raises. I recognize that for some countries, such as Germany, state (as opposed to federal) regulation of broadcasting is even a constitutional prerogative. But rethinking of this separation of broadcasting and telecommunications regulatory authority is essential in light of the onrushing technological and economic changes in the industries. What Is to Be Done? So, secure in our independence, armed to the teeth with legal weapons to protect it, what are the FCC's priorities today? First, some general axioms, then some specific reforms. 1) The New Information Society: Just as the printing press made the Reformation inevitable, so the combination of cheap communications and PCs -- let's call it the networked society -- will reshape all private and public institutions. All countries should accept this change at more or less the same time, even though it threatens the status quo. This is the core of the American mission to convert the G-7 and all the UN nations to the principles of the Buenos Aires Declaration expressed by VP Gore in his farsighted speech a year and a half ago; 2)...And The Existential Crisis: At least outside this room, the curse of the modern age is that people do not feel that they are in charge of their lives. But computer networks have the capability to provide each human with what the brilliant Yale computer scientist David Gelernter calls "topsight.' By this he means the ability to manage the astounding complexities of the modern world. Providing this "topsight" is crucial to solving the crisis of alienation in the 21st century. 3)Communications and Democracy: In America the mass media threaten the viability of representative democracy for one specific reason: the desperate imperative for politicians to buy advertising time to run for office. The nearly impossible task of doing TV politics has greatly reduced the effectiveness of local, state, and federal government. For democracy to survive and thrive worldwide, the power of modern communication must be used to enhance participation and reasoned debate, not frustrate it. 4)The Jobs Dilemma: We need to admit that in modern economies, modern communications does confront us with the real, chronic, and challenging problem of job elimination. The communications revolution destroys jobs. And it creates jobs. And it creates a better standard of living. But we can't deny that if we are to have a peaceful world those caught in the transition to the information age must be helped, not discarded. 5) Keeping Government on the Job: The communications revolution will permanently alter the powers and performance of government at all levels, from the county sheriff to the United Nations. That is why there couldn't be a course of conduct more shortsighted right now than a repudiation of positive government. Instead we should remember that government, when it is smart and responsive, is the way we act together to improve our common lot. Turning to specifics, here are the top 5 things I believe that the FCC should do, in increasing order of importance: 5) The FCC should reform the access charge and universal service schemes in this country. Neither can survive competition. Each needs total overhaul. In particular we need a tight focus for universal service and the elimination of all subsidies that don't serve an important national goal. Similarly, we should continue the dozen steps we have taken in the last year to treat basic cable more as a universal service, lowering its price in return for having the price of enhanced basic go up. 4) We should move to spectrum auctions and flexible use of the spectrum as the twin paradigms for domestic use of the airwaves. 3) We should continue to deregulate the business dimension of commercial broadcasting, such as by eliminating rules that specify rights to distribute programming in syndication. At the same time we should, at last, after 61 years of operation under a general "public interest" standard contained in the Communications Act of 1934, explain better what this term concretely obliges industries to do in this era of the communications revolution. In 1973, FCC Chairman Dean Burch told a broadcast industry group: "If I were to pose the question, what are the public interest guidelines that are the basis of the FCC's renewal policies, everyone in the room would be on equal footing. You couldn't tell me. I couldn't tell you -- and no one else at the Commission could do any better. It's in this connection that we should have a specific number of hours of children's educational television required of all TV licensees, so that they know clearly what is expected in return for their free licenses to use the airwaves. 2) On the international front, we should continue to press for harmonious rules of open competition in all countries. Our proposed reform of foreign ownership rules will make competitive opportunity abroad a key determinant of whether we allow foreign ownership of our communications properties. It is a conscious attempt to reward like-minded countries. Our preference is for wide-spread market-opening through the WTO's ongoing negotiating group on basic telecommunications (NGBT). A multilateral agreement within the framework of the GATS is the firmest possible foundation for global liberalization of telecommunications services. But a 'minimalist' NGBT -- as some have called for -- is not enough. If we don't tackle the hard questions now, in this forum, we will have achieved very little indeed. In truth, we will only be leaving the real work to another day and another forum -- which undoubtedly will be a less universal one than we can now achieve. These negotiations are heading into crucial months. One of our most important collective tasks will be to work within our governments to see that they succeed. And last, but in truth first: 1) Communications must revolutionize education. We spend $200 billion a year in America on educating 45 million kids without getting a decent return on our investment. The return should be this: these kids are supposed to keep the American Dream alive. But as of now: Sixty percent of the new jobs in the year 2000 will require skills possessed by only 22 percent of the young people entering the labor market. Workers' lack of information literacy now cost business an estimated $25 million annually in poor product quality, low productivity and accident. We need classrooms in which every child and every teacher uses a networked computer to learn, to communicate, to develop. I have seen networked classrooms, and they work. I've been to test schools in Washington. D.C.; Harlem, New York; Silicon Valley; Osaka, Japan; Dallas, Texas. Networks engage children. Attendance goes up, test scores go up, failure rates go down. What a surprise: the productivity gains achieved by the private sectors because of modern communications are entirely possible in the education sector. A market for educational technology will allow businesses to make money bringing classrooms into the information age. Companies like TCI, Time Warner, Apple, AT&T and others have great ideas on the drawing board. But as of now only 1.4 percent of educational spending in America is dedicated to technology. And our kids are getting further and further behind. Communications and education are not part of a nationalist agenda. On the contrary, it is a crucial challenge faced by all of our countries as we strive to prepare our children for a work world that is fundamentally changing. It's up to us -- students of the communications revolution with perhaps a bit more understanding of how radically it is changing our societies -- to persuade our governments of the need for quick action. In the U.S., the Administration believes legislative action is needed to lower the cost to schools of investing in information technology. We also need government action as a catalyst to create a functioning market for communication technology in education. Public-private partnerships should work to build model schools. The government should be a clearinghouse of new ideas learned in these models. Some of your countries, which have a more expansive view of the role of government in society, doubtless will have even more elaborate visions than these. There is room for all of them. This is the right time and right place to pick up and install the best ideas for communications policies in this country and around the world. The idea of a networked economy is untested in history. If, for all its glories, it displaces workers, alienates citizens, widens educational gaps, it will ultimately fail. So now is also the right time and the right place to lay the foundation for a networked society in which the public interest as well as private interests can prosper, and all can have the opportunity to be winners.