Chairman Reed E. Hundt Federal Communications Commission "Communications Technology: Reshaping Jobs and Companies" Intelevent 95 Conference September 27, 1995 I am honored by the invitation to address you today. It is fitting that this year's Intelevent conference is being held here in Berlin, Germany's once and future capital. No country in Europe is engaged in a more fundamental debate about the role and structure of telecommunications competition than Germany currently is. Much hard political labor has gone into this restructuring process already, as Dr. Schwarz-Schilling can attest, and more will be required, as I'm sure Dr. Boetsch would agree. I'm pleased that you'll also have the opportunity, later this week, to hear from my fellow FCC commissioner, Jim Quello. On occasion, we disagree, but always he's one of my finest friends and teachers. And we agree on the need to make way for competition in all the communications markets. As of now, these are among the most monopolized markets in the developed world. In German, DT monopolizes telephone and cable services. In France, FT is the monopolist. In the U.K. it's BT. In the U.S. we have seven regional Bells that monopolize telephone service. And of the 16,000 separate geographical cable markets, all but 200 have a monopoly provider. These monopolies are protected by law, or by regulation, or by the absence of fair rules of competition, or by a refusal to negotiate international treaties, or by a refusal to compromise on legislative reform. By any and all of these techniques the monopolists try to hold on. These monopolies in every country and every sector of the communications industry reduce innovation, cost consumers billions of dollars, lower productivity, and reduce total employment. Yet in an uncanny echo of Karl Marx, one of the chief arguments made by and for the monopolists is that competition will cost jobs. Marx predicted that by investing in machinery, factory owners would create a vast army of the unemployed - - and thereby create the conditions necessary for a political revolution. Similarly, a few social theorists today see dire employment consequences from the communications, or information technology, revolution. They make a number of valid points: First, the communications revolution expands a supervisor's span of control. Instead of directing the activities of eight to nine people, a mid-level manager using communications technology can now supervise fourteen to fifteen. That is because in an information economy the manager's primary role is to gather and transfer knowledge. Personal computers on networks make that job easier. The result is that fewer middle managers are needed. And in the U.S. millions of middle managers have lost their jobs. Second, communications firms need fewer employees to set up and maintain equipment as they convert to digital transmission, sophisticated computer switches, and fiber pipes. Third, competition and privatization force the incumbent companies to focus harder on earnings. The result is an effort to reduce overhead by downsizing. Fourth, cheap worldwide communications makes employment global. A software programmer in Silicon Valley may find that his job is being done in India while he slept. The animation for the TV show "The Simpsons" is done in Korea. The Boeing 777 is designed not by building a mock-up in Seattle but by creating a model in virtual reality. Yet the creators are fewer in number and located around the globe. The results of these trends are dramatic. America's AT&T and Bell operating companies, for example, eliminated 70,000 jobs between 1988 and 1992 in order to take advantage of efficiency gains resulting from digitalization and computerization. Here in Germany, Deutsche Telekom, which at one time was the largest employer in Europe, plans a reduction of similar scope, from 230,000 to 160,000 -- nearly one-quarter of its work force -- as part of privatization and preparing for competition. The job loss in the big communications companies cannot be denied. It's high time for policy makers to talk about it directly. Two developments are inevitable and inevitably painful. The first is that new technologies reduce the number of people who are necessary to maintain communications networks. So when communications companies privatize -- as with DT or,perhaps, FT -- the would-be investors insist on realizing the cost savings of the new technologies by laying off employees. The same thing occurs when privatized former monopolists restructure -- as with AT&T last week. The second inevitability is that firms in already competitive sectors, such as soap, salsa, shoes or software applications, will be driven by market pressures to the low costs solutions that networked computers provide. That means they will downsize. But -- there is a huge but -- two other developments are not inevitable, yet are possible. The first is that innovation in the communications and information sector can create new goods and services that generate new jobs. An example is the VCR. I'm 47 years old. No one my age can program a VCR. And no one any age can remember that the initials VCR stand for. Yet in the United States the rate of penetration of VCRs into the 100 million American residences went from 5% to 85% during the 1980s. VCR penetration both caused, and was caused by, the proliferation of tape rental stores, led by Wayne Huizenga's Blockbuster Video. These stores hired thousands of people. Mr. Huizenga sold out to Sumner Redstone. Then he purchased several sports teams. That is a surefire way to redistribute wealth. So we see a virtuous cycle that even Karl Marx would have liked. A new technology creates many new jobs, and the rich begin to give their money away. The VCR and VCR tapes are part of the so-called "copyright industries." If we take a broader look at what are called the "copyright industries" -- movies, music and recording, publishing, computer software, theater, advertising, radio, television and cable broadcasting - - we also see enormous growth. During the same years (1988-92) that U.S. telecommunications companies were laying off 70,000 people, six times as many domestic jobs were created in the American copyright industries. Similarly, in the software industry, the U.S. Bureau of Labor Statistics has documented a trebling of employment during the same period. Another doubling of jobs for computer systems analysts and programmers is forecast between 1992 and 2005. This sort of job growth in the sunrise industries of the 21st century is not confined to the U.S. A comprehensive 1994 study by McKinsey concluded that annual job growth rate of 5- 10% in film, TV, and video industry employment were experienced in Western Europe and Japan between 1980 and 1991. McKinsey also documents steady growth in software services jobs in Western Europe and Japan as well during the 1980s. I said earlier that job growth due to services is possible but not inevitable. Germany's energetic and visionary Dr. Herbert Burda told me on Monday that he would like to build a chain of several hundred Blockbuster video stores in this country. Innovation always depends on the existence of entrepreneurs. And entrepreneurs require a social, economic and regulatory environment that rewards risk-taking. My experience intuition tell me that two key factors promote entrepreneurship. The first is a dizzying, chaotic, disorderly, stimulating, polymorphous and ubiquitous flow of information. Here's my thesis: the more brains are bombarded by billions of bits of voice, video, and data, the more brilliant bursts of bedazzling creativity are begat. Shall I repeat that? If you accept my thesis, then you will agree that America's internetted, "networked economy" is the perfect Petri dish for proliferating new visions of profitable products. Any other country can grow its own ideas. But it will have to embrace the vision of a networked society. In other words, it will need to deliver universal and cheap access to broadband communications. And the best, perhaps only, way to do that is to encourage as rapidly as possible competition. Competition in communications increases capacity. Capacity lowers unit cost. As costs drop, information flows. And the game of growth is won. This is possible but not inevitable. I've learned on this trip to Europe that Germany and France are making some progress to competition in communications. But I do not sense that many people in either country truly appreciate that the policy shift from monopoly to competition in the communications sector is, as I believe it to be, a key factor in curing Europe's chronic employment problem. Competition in communications also is the antidote for the inevitable downsizing of the workforce in the privatized and restructured communications giants. This is the second positive development that is not inevitable, yet is possible. Competition means the creation of alternative networks. For example, MCI and Sprint built redundant networks to compete with AT&T. They hired thousands to overbuild AT&T's network. Similarly, our rapidly growing mobile communications industry is building three or four competing alternative networks to compete against the Bells' wire-based monopolies. One of the new competitors in telecommunications is the cellular industry. Almost $14 billion was invested in this business last year in the U.S., more than double the amount three years earlier. From 1984 to 1994, the number of Americans employed in this industry rose from 1400 to almost 54,000; again, half that increase has been just in the past three years. And indirect employment in other fields (e.g. equipment manufacture) created by the cellular industry is estimated at 200,000 by the Cellular Telecommunications Industry Association. Now PCS, the next generation of cellular, is on the way. Winners of PCS licenses in the U.S. have begun the process of investing tens of billions of dollars to establish their networks, and several hundred thousand jobs are being created. And this evolution in U.S. telecommunications and information technology industries has occurred in a regulatory environment which still presents substantial barriers to TV, cable, publishing and film companies merging and allying themselves with one another. If Congress removes outdated barriers, another 500,000 jobs in these combined sectors could result in three years, according to the White House Council of Economic Advisers. The CEA further predicted that legislative liberalization could add $100 billion to the U.S. GDP in a decade, doubling the share of GDP produced by the telecommunications and information sector. (The catch is that Congress must also prevent overconcentration in this sector. This issue is at the core of the White House's unhappiness with the proposed new law. Our findings have been echoed in the work of multilateral organizations. THE OECD's "Jobs Study," produced last year under a mandate from the G-7 governments, found that "where infrastructure competition had been introduced, it had encouraged greater efficiency in public telecommunication operators and opened up new employment opportunities in and beyond the telecommunications sector." There are two characteristics of free advice. First, it's worth what you pay for it. Second, people pay more attention to advice they pay for. Nevertheless, here's some free advice. As France and Germany slowly progress towards partial privatization of government-owned telecommunications operators, my suggestion is that the best, immediate set off to the downsizing of FT and DT is a rapid, real commitment to competition. I'm told that in the halls of the Finance Ministries the word goes round that the advent of competition will diminish the state's proceeds from privatizing telecommunications operators. It must be true that the economic gains from the new employment generated by competition would be vastly greater than any economic loss from an alleged reduction in share price. The American missionary zeal for the cause of competition in communications should not be understood by any one as indifference to the job losses that the communications revolution causes. The opposite is true. We advocate competition because it's good for the world economy; it's good for our consumers and businesses; and it's good for working men and women. Our deep concern about the employment problem in our country and all other countries in the integrated global economy is behind our significant disappointment in the failure of progress in the World Trade Organization's ongoing Negotiating Group on Basic Telecommunications. A multilateral agreement within the framework of the General Agreement on Trade in Services (GABS) is the firmest possible foundation for global liberalization of telecommunications services. It is critical that the EU submit its offer. It has waited too long. Even more important is that Japan improve its current offer, which is woefully inadequate. A 'minimalist' agreement by the Negotiating Group on Basic Telecommunications -- 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 -- or nothing at all. Enormous changes are being wrought by the information revolution -- in companies, in regulation, and, perhaps most important, in people's jobs. Looking back, historians will regard the changes in worklife to be as momentous as those caused by the Industrial Revolution itself. If governments and societies react with fear of change, if governments and monopolists try to micro-manage competition and limit new technologies in order to preserve jobs, the result will be more job loss, not less. So let us embrace all these changes with optimism and confidence. By doing that we will be opening up a brighter future for all working men and women now and in the future. Thank You.