SPEECH BY REED HUNDT CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS (AS PREPARED FOR DELIVERY) FEBRUARY 27, 1996 QUESTIONS AND CONSEQUENCES: HOW DO WE GET TO THE RIGHT ANSWERS? Thank you for that kind introduction, and thank you for the opportunity to speak with you today. I wanted to take advantage of your presence in Washington to talk with you about a truly momentous achievement: enactment of the new telecommunications law. The change from monopoly regulation to competition that the new law mandates is like the change from the Julian calendar to the Gregorian calendar. Only so-called experts thought there was something wrong. Ordinary people observed the seasons to go around just fine. But along came the experts to change the calendar. In 1751, Great Britain's Parliament made the change, effective the next year. So in 1752, the dates went from September 2nd to the 14th. The result: riots in the street under the banner, "Give us back our days!" So . . . in light of the new telecom law, will we next be hearing, "Give us back our AT&T? Give us back our Bells?" Maybe. But not if we get the implementation right. Or so I hope. The Telecommunications Act of 1996 is the first major overhaul of telecommunications law in almost 62 years. It turns communications law on its head. The old law assumed that communications was a natural monopoly. The new law assumes that all parts of the communications marketplace can be made competitive. The new law is intended to end the era of big government in communications and to begin the era of genuine competition. How the new law is implemented will affect every citizen in this country. The country's communications policy is now twofold: We are for encouraging private competition in communications, and for guaranteeing public benefits from communications. In enacting the new law, Congress has presented all of us -- the FCC, the Department of Justice and the states -- with a truly Gargantuan task, with our work focused particularly on rules and decisions this year. The new law raises many important legal, jurisdictional, and economic questions. We all know time is short and none of us have all the answers. In fact, we have to start by figuring out what the right questions are. I am well aware that the states are laboratories for democracy, and for communications deregulation. States have generated valuable economic models and critical economic data. You know as much about local exchange issues as anyone -- a lot more than many of us at the FCC. We ought to agree not to reinvent any wheel. We ought to all agree only to get all the wheels attached to the engine of competition and rolling in the right direction. Some of you may recall a Supreme Court case called Louisiana Public Service Commission v. FCC. In this case, both the FCC and the states likened the jurisdictional dispute at hand to one in which two different people seek to drive one car. Here's my suggestion: let's agree to focus not on jurisdictional debates, but on building the car and getting it going down the road to competition. Congress has told us there is only one road and one direction to drive in, and that is toward competition. And we all need to do it quickly. Many of you already have done much of the work. Some states, such as Illinois, New York, Michigan, Washington, Maryland, California, and Massachusetts, have already taken major steps to guarantee consumers a real choice of competing local phone service providers. And in a half-dozen other states, at least one competing local phone service provider has been certified. But the new law goes even broader and deeper. At the heart of the new telecommunications law is the mandate that requires the FCC and the states, working in partnership with each other, and with the Department of Justice, to open local phone markets to genuine competition. The law does tell us some ways to do it. But the details we must figure out for ourselves. And we can do that only by working together. Sections 251, 252 and 253 provide the broad outline to achieve these goals. Section 251 is about Interconnectivity. Section 252 is about Procedures for Negotiation, Arbitration, and Approval of Agreements. And Section 253 is about Removal of Barriers to Entry to Local Exchange Markets. The details/questions must now be defined. I want our state-federal partnership to get started right away in stating the questions. Just to get started, here's some examples. Congress says the incumbent local phone companies must offer interconnection and must unbundle their networks at any technically feasible point. But what are those points? Congress envisioned, at least, unbundling local loops, switches, and inter-office transport lines. Should others be included? Congress says that interconnection and unbundled elements should be priced based on cost, and may include a reasonable profit. But what cost-based pricing principles should be used? As for pricing unbundled elements, should the focus be on the marginal cost of the extra use of the unbundled element in question, or does the issue turn on the possibility of a contribution to the marginal cost to allow recovery of the joint and common costs of the existing network? What about the price of interconnecting networks, including termination and transport? What are the best principles? What do we need to know about how "resale margins" will affect the possibility of competition? And what about the fair prices of "unbundled network elements?" What do we need to know about that to make the system work? Speaking for myself, I'd like to dig deep into these issues. But digging gets you in a hole -- and if that's my fate as a FCC commissioner, at least I'd like company, I think all the commissioners in all the PUC's, the PSC's and the FCC should be digging through these questions together. If collectively we come through to the other side and find answers, we won't care about who welded what shovel. In the new law, Congress has said: "No more monopolies." But Congress knew that a world without legal barriers to competitive entry is one thing; a world where entry really happens is another thing altogether. In Henry IV, Part I which Glendower says, "I can call spirits from the vasty deep." To which Hotspur replies, "Why, so can I, or so can any man; But will they come when you do call for them?" The same for competition. We can all call for competition, but will it come? That is up to the new entrants, who have billions of dollars riding on their decisions. But they are going to tell everyone in this room that their decisions depend in large part on our decisions. Congress has also decided that opening local phone markets should happen at the same time that we extend our historic commitment to universal, affordable phone service. A report by Alex Belinfante at the FCC says as of November 1995, one out of every 16 households did not have phone service. For households with incomes below $15,000, more than 1 out of 10 do not have phone service. In three states the average is that one out of 10 do not have phone service. One out of eight households headed by an African-American, and one out of 7 headed by a Hispanic, do not have phone service. And almost 11 percent of unemployed adults do not have telephone service. It's not a good idea for unemployed people to lack access to the network, because in an information economy, the network is how they get back to the workforce. And we all know it's not a good idea for children to go to schools that are cut off from the information age. In classrooms phone service is almost nonexistent. In only 9% of classrooms is there Internet access -- although the World Wide Web, invented by the brilliant Tim Berners-Lee -- is the path to equal opportunity in education for all children in our country. These statistics are the background to the law's mandate that our partnership should implement seven Universal Service Principles. These are the seven pillars of our country's new wisdom that communications services are crucial to the success of the democracy, society and economy. We are supposed to guarantee that: (1) everyone in the country will have quality services at just, reasonable and affordable rates, (2) all regions of the country will have access to advanced services, (3) there will be access for low-income consumers and those in rural and high cost areas, (4) all providers of telecommunications services will contribute to ensuring universal service, (5) there will be federal and state support mechanisms to preserve and advance universal service, (6) that all classrooms health care providers, and libraries will have access to advanced telecommunications services, and (7) other additional principles in the public interest shall also be ubiquitous. These principles come with no blueprint to implement them. We should regard that as an invitation to put our collective talents together and come up with the most creative, equitable, sensible ideas we can. Speaking of collective talents, we will be contributing Andy Barrett, Susan Ness and myself to the Universal Service Joint Board. Each of us regards this board as critical to the country. Our decisions will be difficult. Let's not underestimate the scope of the problem. A key contributor to uncertainty is that one day the papers report that cable telephony is around the corner. The next day they report that cable companies are instead focusing on cable modems and linking customers to the Internet. One day reports say it will be some time before facilities for a thriving fixed wireless system are in place. The next day's reports are that cellular phone prices are dropping; the day after, that cellular will not soon be a substitute for landline. I have four suggestions: First, all of us who participate in the Joint Board should try to come to unanimous conclusions. Second, we should each do everything we can not to politicize the issues. The issues we need to grapple with affect every single citizen in this country, and they should not be party-label issues. Third, the FCC and the states should commit significant staff resources to our partnership. I'd like our first staff meeting to occur by March 15. By March 8 we will vote on a notice of proposed rulemaking that kicks off the universal service joint board. This notice should focus on asking everyone's questions opposed to coming to conclusions. I'd like any State commissioner to contact Gina Keeney, Chief of the Common Carrier Bureau, to discuss this in advance. But after the kickoff vote, let's have the staff meet immediately to develop a work plan, with clear milestones and goals. Fourth, with the Joint Board and with respect to all other proceedings, let's agree to share ideas and experiences before coming to conclusions. Ultimately, we all know that our success will not be measured by whether we have pleased one company or another, or one member of Congress or another. It will be measured by whether, five years from now, American citizens, whether in their businesses or in their homes, have a greater choice of communications providers and services than ever before. If, in five years, there are at least a handful of different companies knocking on doors competing to win the business of the households or companies, then our efforts will have succeeded. What people buy, how they pay, what they get, will all be different. But if we do right consumers will get more for their money. And if there are many sellers of services -- and not just monopolies -- then our efforts will have succeeded. And we will also know we have succeeded if, five years from now, there are 100,000 schools and libraries have become communication community hubs where parents, teachers, and students have access to the most advanced communications network in the world. The communications revolution promises to be a great equalizer between the information haves and have-nots. These hubs would help fulfill that promise. We will also know we have succeeded if, of course, we live to tell the tale. I am reminded of something Benjamin Franklin said at the signing of the Declaration of Independence on July 4th, 1776. He said, "We must all hang together, or assuredly we shall all hang separately." Let's all hang together and get the job done right. Thank you. -FCC-