SPEECH BY REED HUNDT CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION THE WASHINGTON RESEARCH GROUP THIRD ANNUAL TELECOM WORKSHOP WASHINGTON, D.C. (AS PREPARED FOR DELIVERY) FEBRUARY 2, 1996 THE FUTURE OF COMPETITION IN COMMUNICATIONS INTRODUCTION Thank you for that kind introduction, Scott. Well, yesterday was quite a day -- finally, passage of the Telecommunications Reform Bill. We are on the cusp of a whole new era for the communications industry: the era of genuine competition. In the age of competition, the FCC has a twin mission: We are for private competition in communications, and for public benefits from communications. In both these respects, we look forward to implementing the new law. Who will compete and survive and thrive depends a lot on talent and fortitude. But it often depends on just being in the right place at the right time. Being at the FCC is being in the right place at the right time. I had the chance before. I had a summer job working at a law firm near Seattle. At that very time and in that very place there was formed a company called Traf-O-Data. It monitored traffic flow by using computers: building an information highway literally on top of the real highway. There I was, wandering around Seattle. The right place. The right time. But -- I didn't seize the moment. I didn't call Traf-O-Data and volunteer to do law work for them for nothing for a decade if I could have an interest in whatever they did in the future. It would have been a smart move. The founders of Traf-O-Data were 16-year-old Bill Gates and his buddy Paul Allen. The company's name was later changed to -- you got it -- Microsoft. So there I was at the right place at the right time -- and, well, the rest is water under the proverbial bridge. The fact is that at this very moment all of you are in the middle of the exciting communications revolution. You are at the right place at the right time, and I hope you're better at recognizing it than I was! You'd better be! A lot of investors are counting on you. Who knows which opportunity is the next Traf-O-Data? Who the next Bill Gates? COMMUNICATIONS POLICY Some people are concerned about the impact the Telecom Reform Bill will have on the stock market. Some worry about a negative impact, like the one following passage and implementation of the Cable Act of 1992. But I think there will be no such effect. The Telecom Bill won't rock the boat in such an extreme way. But the effects of the Telecom Bill will spread far beyond the telecom industry. The real winners will be the companies that use information technology. Their profitability will go up as greater competition brings better products at lower prices. But what about the "productivity paradox?" Why is it that so many firms have invested so much in information technology, yet their bottom lines don't positively reflect it? The fault is not in technology, but in the way it is used. To solve the problem we need more, not less, technology. More bandwidth and cheaper products are part of the answer. Superior products increase productivity more than inferior ones. But we also need to learn to use our new tools better. Management techniques must take into account the potential of communications technology. To realize that potential, we must use our tools in a different way. It's as though information technology allowed us to trade in our cars for planes -- yet we still drive and not fly. THE FUTURE The Internet is the best example of this phenomenon. All of us are aware of its vast potential. As Vint Cerf said, "the Internet has gone from near-invisibility to near-ubiquity in little more than a year." Since 1988, the size of the Net and its traffic have doubled yearly. Very few companies or investors would have predicted that. The Internet could change virtually all assumptions about communication. Billing is for the most part indifferent to time and distance. And within only a couple of years there is a likelihood that Internet telephony, Internet radio, and Internet television will all be starting to take off. Even so, we cannot be certain of even the Internet's success -- it may in fact be the much celebrated Information Superhighway -- or, as one industry expert predicted recently, it might end up as the CB radio of the 1990s. If the Internet succeeds in realizing its potential, it will reshape the commercial landscape much the same way the successor to Traf-O-Data did. Indeed, it may change the world. The greatest obstacle slowing the development of the Internet is the limited bandwidth available on the last mile, or the bike path at the end of the information highway as Avram Miller of Intel refers to it. There are great hopes that the competition stimulated by the telecommunications legislation will help bring down the prices and increase the bandwidth to the home. The focus is on cable modems and ISDN and video dial tone and fiber to the home or to the node. While I believe these wired roads will be built, they are not the only roads to focus on. I think our spectrum policies will unleash potential new avenues or flight paths that are hard to envision. It is out of this ether that the next Traf-o-Data may emerge. Our spectrum policy should be to make more spectrum available to the private sector, as quickly as possible, and to provide wide latitude for market forces to guide that spectrum to its highest-valued use. By relying on market forces and flexible uses, we not only foster innovation and competition, but also stimulate infrastructure investment, job creation, and efficient spectrum use. This is the lesson of PCS, and we intend to adopt it as a blueprint for the future. FOUR EXAMPLES Let me give you four examples of what I am talking about: LMDS, 28 Ghz satellites, Millimeter Waves, and DTV. LMDS stands for Local Multipoint Distribution System. If this technology delivers in the way the manufacturers promise, it will be the cellular of the video world. This service, which uses approximately 1000 mhz of spectrum at 28 Ghz on a cellular basis, can transmit in digital form hundreds of TV channels, as well as high-speed interactive data or two-way voice and video. This isn't all that is happening at 28 Ghz. I am sure you've all heard about our recent DBS auction where we raised over $700 million. A couple of days after that announcement MCI, the auction winner, and Microsoft announced a partnership that includes, among other things, distributing Microsoft software products from these DBS satellites. They are able to do this because the FCC provided maximum flexibility in our service rules. They did not have to come ask us for permission, they did not have to reveal their business plans. This is what I mean by flexibility and letting markets work in spectrum. But if they thought DBS in its current configuration was an attractive business, wait until they see the satellite systems being proposed at 28 Ghz. While DBS is one way, these systems will be two way, or interactive. They will be capable of two-way voice video and data communication to dishes similar in size to the DBS dishes. Also, many of these satellites will have spot beams, allowing them to communicate different messages to different parts of the country. This is in contrast to today's systems which provide basically the same programming nationwide. Millimeter-wave technologies are up at 40 Ghz. This spectrum always has been considered beyond the beyond and is not currently occupied. However, technology has advanced and this spectrum may now be usable. We have proposed allocating 18 Ghz of spectrum for this service. Let me put this in perspective. The total amount of spectrum allocated to cellular is 50 MHz, 100 times less spectrum than we have just created. This may allow multimedia communications over short distances or within the home or the office on an unlicensed basis much as today's cordless phones operate. We also soon will be putting out on a licensed basis several more Gigahertz of spectrum at 40 Ghz. The computer industry tells us that it can be targeted for high throughput, short-distance applications such as interoffice LANs or home control networks. In DTV, or digital television, radical new developments in technology over the past 3 years have created a tremendous new, flexible capability: 20 megabits per second with which you can broadcast a beautiful, crystal-clear, widescreen, high-definition picture on 4 or 5 simultaneous channels. Burst transmissions of whole software packages. Seventy-five channels of CD quality audio. One whole multimedia CD-ROM in 4 minutes. A newspaper delivered in mere seconds. The New York City telephone book in 1.2 seconds. Think of how much stock market information you could be receiving on a daily basis! CONCLUSION As I said earlier, we are about to enter a whole new age of competition. Things will move ever faster and more furiously. We need to keep in touch. I don't want anything the FCC does to be a mystery to you. That's why I'm here today. But you've got to be more than well informed about the policymaking process. You've got to be part of it. The FCC is doing all we can to write rules that enhance competition. But we can do even better with more participation from you. Please join in our rulemakings. We want to know ahead of time what impact our actions are likely to have. And we need your experience and knowledge. The idea of a networked economy is untested. If, for all its promise, it displaces workers, alienates citizens, and widens educational gaps it will ultimately fail. But we want it to succeed. And we want to seize this chance to get it right. Together we can create a world where both public and private interests can prosper, and we all have the opportunity to be winners. Thank you. -FCC-