SPEECH BY REED HUNDT CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION ROYAL INSTITUTE OF INTERNATIONAL AFFAIRS LONDON, ENGLAND September 4, 1996 "SEVEN HABITS OF HOPEFULLY HIGHLY SUCCESSFUL DEREGULATORY COMMUNICATIONS POLICY PEOPLE" I'm here on a break from the battlelines of the seminal revolution for the 21st century, the most benign revolution since your Glorious Revolution, the most global since the Russian, the most liberal since the French, and, yes, the most American since the American ---. I'm referring of course to the communications revolution. At the Federal Communications Commission we are rocking around the clock, eight days a week, to write a set of procompetitive rules that will spread this revolution to every city and town, village and farm, market and submarket of our domestic economy. If we do our job right, we will pull off the most successful bit of demonopolization since the breakup of the Standard Oil Trust in 1911; we will boost America's world leading productivity rate; we will stimulate hundreds of billions of dollars in new investment in the next ten years; as a result, we will see as many as a million new jobs created in that time period. And in incalculably important ways our communications revolution will transform our society by radically improving the quality and the equality of educational opportunity, the delivery of cost- effective health care, and enhance participation in our political process. With respect to the communications revolution, and with apologies to Charles Dickens, this is the best of times and this is the best of times. When President Clinton signed the telecommunications reform law in February of this year he started the clock running on dozens of specific rulemakings at the Federal Communications Commission. These are our discrete tasks; we finished for example a crucial order called interconnection during the first week of August. The President, as he said at the Democratic Convention last week, is building a bridge to the 21st century. Our new telcom law, as implemented by the Commission, is part of the structure of this bridge. The new bridge will carry, of course, the information highway. It will span the gulf that Cervantes called the difference between the haves and the have-nots. It will take our children into the information economy. And it will be built of silicon, not of iron. And it will open the fortress of monopoly to the sans culottes of our revolution: these are the entrepreneurs who are gearing up right now to carry the chips and code, hardware and software of the information economy directly into the previously staid, soon-to-be passe world of the traditional telcom monopolies. As one of the design engineers for this communications bridge, I'd like to share with you the secrets of what I hope is our success. How can I call it a success already when we are hardly half done in the rulewriting under our new law? Only because Americans are supposed to be brash when in London; as Oscar Wilde said, America is a young country, and has been for 100 years. And he said that a century ago, so it's increasingly a struggle to shroud ourselves in the mantle of youth. Youth is supposed to be brash, cocky, overconfident, and intrepid. So that's what I'd like to be in today's policy discussion. On a personal level, I'm almost half a century old so there's not much I can be young at anymore except policy discussions. Now if we do succeed in our communications revolution I am going to call, with acknowledgement to Stephen Covey, my subsequent book "Seven principles of highly successful deregulators." In America all books listing not more than seven action items, citing both the Buddha and Adam Smith, and promising spiritual and material heaven on earth for attentive readers are best sellers. If we're not successful, it's not my fault, we were just following the will of Congress. But here's an advance outline of my seven commandments for a successful telcom revolution. These seven principles reflect the most important insight I've garnered from three years at the FCC: Study with scrupulous exactitude all telcom policies of historical tradition and then do the exact opposite. Examine all received wisdom and declare it to be myth. Listen to all assertions of fact and suspect they are fictions. And get yourself a good economist; then do what he or she says. Our current and previous chief economists Joe Farrell and Mike Katz both have English degrees so you know I'm practicing what your academics are preaching. In fact, in very many respects our policies are in striking harmony with your policies, as set by OFTEL and DTI. So here's the list: #1: If a country has a single, strong national telecommunictions firm it has a big problem. Of course the sine qua non of economic development in the 21st century is a robust communications network. Historically governments in all countries concluded that economies of scale and natural monopoly and efficiency all dictated that a robust communications network was best built and maintained by a single, integrated firm. Hence, AT&T in my country; BT here; FT in France; DT in Germany; Telebras in Brazil; and so forth around the globe. We know now this was an extremely unfortunate policy. Any country would be better off with a history of many efficient, innovative, successful communications providers. But until recent years virtually every government bolstered the state blessed and often state owned monopolies with laws barring competitors, rules creating anticompetitive subsidy schemes, impenetrable (and sometimes dysfunctional) legal regimes, and untractable licensing processes. Europe is still largely this way; Asia is even worse. Yet for more than at least a decade it's been widely understood that technological innovation permits competition in telcom services. Indeed telcom services can be, given certain minimal procompetitive rules and real enforcement of them, like soap or shoes or software: namely, a market in which it just makes no sense at all to have government fix prices. Why is this goal -- the goal of true deregulation of telephony -- embraced virtually nowhere, except here in the U.K., in the U.S., in Chile, and perhaps Sweden, Australia, Canada, New Zealand and a few other pioneers (such as Mexico) just now joining the competition ranks? In most countries an obstacle to change is the political and economic power of the incumbent telephone monopoly. For example, in Brazil Telebras accounts for 15% of the valuation of the stock market; it's nearly a miracle that the Brazilian government is prepared to break it up into multiple companies and introduce competition in selected market segments. But whether those new sub-Telebras companies will be able to compete against each other, the real mark of systematic competition, for the great benefit of their country's economic and social development, is an unanswered question. In the U.S. we are very lucky that AT&T was broken up by court order in the early 1980s. AT&T, the long distance company that was created by the breakup, now has the brandname, reach, and incentive to be a major new entrant in the local telephone market, where in a reverse Oedipus strategy it will be challenging its progeny, the Baby Bells. Yet virtually nowhere else around the globe do we see a repetition of our clearly successful experiment with demonopolization by way of corporate breakup. Indeed countries are pursuing strategies of privatization of state- owned companies that may be dangerously predicated on the assumption that the national phone company will not relinquish its market power. Instead, countries should invite or create as many other companies as markets will sustain. # 2: Any nation that champions a national telcom firm and limits foreign investment is wasting its money and turning down a big opportunity. A favorite European shibboleth is faith in the virtues of national champions. In this respect Asia is even worse. Why should any government support a national telcom and deny foreign investment in the sector? Is there a fear that foreigners, if in control, might someday pull up stakes and leave? Pulling up the phone lines in France is not an option for FT or any telcom provider if state support is curtailed. There is no more immobile business in the world than the business of providing communications services. And there are few businesses that have similar capital costs. Big bandwidth and widespread access require billions of dollars of investment: the World Bank estimates that in the next 5 to 6 years, the global telcom infrastructure won't get built with much less than $300 billion in investment. Since the business is stuck wherever the investment is made and the investment is huge, you'd think it was obvious that all foreign investment would be welcome in the communications networks of every country. Instead almost all governments restrict foreign investment. (And, while I am on the topic, let me note that in 1995 the FCC has liberalized its treatment of foreign investment and the United States has offered to drop its remaining limits on foreign investment as part of the World Trade Organization negotiation on basic telecommunications.) Is the concern national security? In fact, national security is enhanced by investment that builds redundant or more efficient or more robust communications networks. Repeatedly, in the United States we have discovered in the event of natural disasters that we rely on alternative carriers such as wireless or our multiple long distance companies (we have more than 500) to keep calls going through. And certainly foreign owned networks are just as subject as domestic owned networks to any nation's privacy laws or police powers. Foreign ownership in any country's networks should be a concern only to the extent that the foreign investor has the ability to distort the market. In most cases this can only occur if the foreign investor is a telephone company that exercises market power in a foreign country. There are several ways that market power in another country might translate into anticompetitive leverage in your own market. But this concern is addressed by sound competition policy, not the sound exclusion of foreign investment. #3: When governments intervene in markets in the name of guaranteeing universal service, they generally don't make anything universal and they don't enhance telcom service. A very common statement in some parts of Europe -- and especially in Asia -- is that governments should promote universal service. For most of the world this is a purely precatory statement; half the world has never made a phone call. Nevertheless, Proust, who wrote a million words about a madeleine, would be envious of the ink that is spilled on this subject. The right goal of universal service is little more than, and not less than, making sure that a very high percentage of a country's population has access to telecommunications services. Some should be free: emergency phone calls, the use of a communications network in what we call a public school should not be charged to the students, and big bandwidth at libraries. Other services should be priced at economic cost, which competition always does better than regulation, except for the poor or those who live in acutely remote and highcost areas (Alaska, Siberia, the Shetlands). These consumers should have vouchers that permit them to select a carrier, which in turn would get a subsidy for offering communications services to the poor customer. In truth, the right goals of universal service are not daunting, the true cost in any country is not so very high, and the time frame for success can be very short. If we vote the right rules at the FCC during the next six months, we can get every classroom in the US networked and prepared for education revolution by the beginning of the next century. When I started my job only 3% of classrooms had internet access; less than 10% even had phone lines. In networking classrooms we can go a long way quickly, and so can anyone. But the wrong goals of universal service have dominated policies in almost all countries, including my own. Many nations in the name of universal service have cut a deal with the national telcom firm to protect them from competition if they provide ubiquitous telephone service. And then, because competition is stymied, governments have felt compelled to set the price of service to protect against monopoly pricing. Inevitably politically popular services have been priced at or below true cost (look voters, we deliver), and less immediately popular services have been set way above cost (who cares about the small sets of voters that want these services, or that don't know what's going on). Thus call forwarding, caller ID, and exchange access in the US are all set far higher than economic cost, i.e., what competition would set as prices. The welfare losses for economies and consumers from these policies are staggering. Not surprisingly, they are rarely mentioned in government circles. But it's fair to say that in the US these policies lead to tens of billions of dollars of welfare losses per year. At last we are emerging from the fog of error to the sunny uplands of awareness that competition far better than regulation will promote widespread availability of telcom services. I'm confident that if we truly commit to competition in the US, we would see penetration rates go up, not down. But we would also see the end of government promises to keep local calling area rates especially low. No one would remember this era, if it were gone. After all, with competition and without subsidies basic phone service would cost virtually all Americans less per month than what they are now spending on video cassette rental tapes. But state regulators, and especially those who must be elected to their posts, are reluctant to bet their careers on my prediction. And where subsidies are needed for the poor or the very high cost area, as OFTEL has demonstrated for the U.K., they are modest. That is because telephone operators receive commercial benefits from broader network coverage. The benefits of broader coverage offset some of the costs of uneconomic connections to some homes and regions. Yet even to the degree subsidies are necessary, virtually no country subsidizes wisely or well. Indeed, most countries, including the United States, have no clear idea of how much they are spending in the name of universal service because the accounts are so mingled with other subsidy items in the books of the phone companies. Nor is targeting done with sufficient focus. More than 1/7th of Hispanics and AfroAmericans in the US have no active phone service. But in Aspen, Colorado, the millionaires receive several hundred dollars of subsidies per month for the second and third and fourth and innumerable additional phone lines in their multihouse and square foot palaces of rare device high in the snow and ice. Can anyone tell me a good reason for subsidizing a second telephone line for anyone, much less for millionaires? Isn't at least that a telcom service that is sufficiently unnecessary that it needs no government handout? The key principles for funding universal service should be that any funding mechanism should be public, transparent, competitively neutral, and technology neutral. The recipients should be clearly targeted according to sound social criteria, such as limited income. Some of our colleagues in developing countries, particularly Chile, have other imaginative ideas. Chile, for example, imposes a small fee on all telephone services that it turns into a universal service fund. It then targets funding to specific regions containing many rural towns without significant levels of service. These regional funds would then be auctioned off to firms offering to provide the most new services in the region. Competition and efficient assignment of subsidies to carriers through auctions will extend telephone service while lowering its costs. Sensible universal service policies that square with this prescription are also necessary to eliminate barriers to entry. It's just not possible for a new entrant to compete against a subsidized monopoly. As of now there is every reason to believe that even after Europe officially opens telcom markets to competition in 1998, most countries will fall far short of implementing procompetitive policies. Again, I except the U.K.from this prognosis; in many respects U.K. telcom policy is the best in the world. But without adhering to the recipe I'm laying out there won't be any meaningful residential competition in European telcom markets. And Asia is much worse. #4. Every Country Does Not Need Two Redundant Wireline Networks Many of the demands for competition in my country in the past several years derived from the belief that we needed a new legal framework to permit the information society's version of sumo wrestling--giant local phone companies squaring off against giant local cable television companies to offer multimedia. The two wireline providers would enter each other's service domains in a bitter struggle. It made for great copy in the business press. There's only one problem. The "two wire" story rests on three fictions. The first fiction is the focus on the number "two" as the magic number for competing network infrastructures. Imagine if I told you that the optimal number of airlines or computer makers or automobile firms was "two." The correct answer is: for competition the number of firms is as many as is possible. In some cases the number of network infrastructures nationally might hypothetically even be only one. (I confess to doubting this but let's keep an open mind.) In other cases it would be three, four, five or more. I anticipate in the U.S. that many consumers will be able to choose, in the fullness of time, from as many as nine different communications providers, and maybe more. The market will look a lot like the auto market from the viewpoint of consumers. The second fiction was the obsession with "wire." Wireless technology is going to play a huge role in the networks of the future: wireless local loop like Ionica here in the United Kingdom; wireless "cable television" systems which are booming in the U.S., thanks in part to telco investment; broadband internet services over satellites, such as bSkyB is pursuing here. In many cases these will be the lowest cost, most quickly deployed, and most innovative services available. I would particularly note the promise of wireless infrastructure in developing countries where the advantage of "late network development" will be the ability to reconfigure spectrum use to much more efficient configurations than in industrial countries (but only if we stop giving them bad advice on spectrum policy.) This will be a part of the second speech in my trilogy. The third fiction is that the summum bonum of telcom competition is physically building new and alternative telcom networks. As Europe prepares for what has been trumpeted as open competition beginning in January 1998, the prevalence of this network-building fiction on the Continent is disturbing. Facilities based competition is desirable but so is any form of competition. In any event the view that competition exists when there are two alternative wire based infrastructures might have been once true, although probably not. In any event, it's not true now. With satellite, wireless cable, LMDS -- in short a plethora of over the air technologies-- and with the feasibility of unbundling the incumbent's network, there's no reason to focus telcom policy on the construction of a parallel wirebased infrastructure. Indeed that sort of policy risks dooming its proponents to decades of painfully slow new entry, even while the internet, packet switching, satellites and other wireless systems all revolutionize markets that welcome change. Competition is not inherently about building new, end-to-end networks that essentially duplicate existing infrastructure. Competition is about letting new entrants enter the market and compete effectively with incumbent operators. Incidentally, every American home built since the late 1960s already has a second line even if one is dormant. Similarly, DT already has the capability to deliver as multiple separate phone lines to almost every household in Germany. The problem in developed countries is not that we don't have two wires. The problem is that in almost every country one company controls all the wires and other network elements that exist. And in less developed countries the challenge is not building two wires: it's using competition to build any networks, whether wires or wireless. Competition depends on an interconnection regime that allows new and existing operators the flexibility and opportunity to compete in whatever legal way they deem most promising, including use of the incumbents' facilities and capabilities. New entrants must be able to lease separate elements of the incumbents networks. So AT&T or anyone must have the chance to persuade a customer to switch from a Bell Company as the local provider to AT&T; and if the customer agrees then AT&T must be permitted to lease the loop (the wire to the customers residence or business) or even a portion of the Bell Operating Company switch (so it can handle the customers' traffic). The leasing of separate elements is called unbundling the incumbent's network. Without this, economies of scale will defeat most new entrants. In addition, the price of the elements has to be set at forward looking economic cost. Too high a price for unbundled elements defeats the goal of unbundling. Second, a new entrant must be able to resell the incumbent's services by buying at a discount determined by subtracting avoidable cost from retail prices. At least 15% is appropriate; even higher discounts could be fair. And, third, a new entrant must be permitted to build any network architecture and to connect its network, assembled with unbundled elements leased from the incumbent to any desired extent, to the incumbent's network at any technically feasible point. The charge for connection must be forward looking long run incremental cost. Indeed, our emerging interconnection rates will be roughly 30% of those now available in the U.K., and less than 10% of the cost now available for terminating local services in Germany! Even a developing country like Mexico has promised to cap interconnection costs at about 3 U.S. cents a minute in 1999. Reducing inflated interconnection costs in Europe (which is already planned for UK next year) will be a key indicator of the degree to which January 1, 1998, brings genuine competition in the EC. These rules will give you competition in a reasonable period. They are strikingly similar to the U.K. model. Anything less than these rules will give you something less than competitive markets. And of course any such procompetitive rules need enforcement. Only an independent regulatory authority can do the job. Countries lacking such authorities will not have robust competition in telcom. #5: If you're not awarding spectrum licenses by auction, you're making a big mistake. And if you're not awarding all other licenses in essentially no time and in infinite amounts, you're making a bigger mistake. The FCC is in the Guiness Book of World Records under 'a' for auctions: we've conducted the biggest auction in history and in a total of seven separate auctions we've raised $20 billion. Future auctions of spectrum are part of the budget proposals of both Presidential candidates. But beyond the fairness to the taxpayer of collecting revenues for the commercial use of the public property of the airwaves, the auction methodology is superior to any other form of licensing because it is fast, fair and efficient. Provided that auctioneers are honest and their methods are transparent --I hope that we pass muster on both counts -- auctions jumpstart huge investment. Already investment in the Personal Communications Services (PCS) whose spectrum we auctioned has reached the highest level of any new commercial technology in our history. And how many licenses should be auctioned? As many as can be found in the airwaves. What if the spectrum is already lightly used? Allow auction winners to relocate the existing users at no cost, so that the market can clear spectrum. How should the spectrum be used? Anyway the auction winners want: no restrictions; no rules; total flexibility. All "beauty contests" for selecting winners tend to restrict use of spectrum, tend to restrict the number of licenses, tend to slow the process. The goal of any spectrum assignment method must be to allocate this extraordinarily valuable resource to those who will use it best. This is presumptively the firm that pays the most for the license in a well designed auction that structures the bidding process efficiently. (Like everything else in life you can take a good idea, like an auction, and execute it badly.) Auctions also dramatically reduce the opportunities for political favoritism or corruption in the competition for spectrum. As recent events in India suggest, auctions are not a perfect deterrent because they also can be rigged. Yet auctions make bid rigging at least somewhat easier to uncover. And where there is no question of corruption, any assignment system other than auctions imposes burdens on those who earnestly strive to avoid any appearance of a conflict of interest. One European official wryly told me that he had to avoid playing tennis for an entire summer lest someone think that his tennis partners were swaying the assignment of a cellular telephone license. I don't play tennis and I don't want to play games with license awards: just give me an auction block and I'll sell spectrum. Given our experience with auctions, we have encouraged governments in Europe and worldwide to consider auctions. But they persist in criticisms of auctions that are fictions. The biggest fiction is that auctions penalize new entrants and slow down network buildout because they make the licensee pay for spectrum. But basic economic theory tells us that this is not true because the auction fee is a sunk cost, like money already put into the pot in a poker game, and it should not determine future expenditures, just as the amount already bet doesn't counsel for or against another bet. And if you aren't persuaded by economic theory let me note that in our experience that new entrants with serious market plans like auctions. In Europe most countries have wrestled with assigning two new licenses per area. With our new personal communications service, we are licensing six in each geographic market. Brussels also thinks that auctions will unfairly penalize new entrants competing against incumbents who received similar spectrum for free. But, as was the case in the United States, bidders will take their competitors' positions into account, compare their relative forward-looking costs, and bid accordingly. Prices in the end are set by competition, not by auction amounts; retail prices will reflect long run forward looking cost (which I might add includes a reasonable profit). #6: After you auction the licenses, let the market work. When someone buys real estate the presumption ought to be that they can build anything they want on it, and they can if they wish subdivide or combine the lot with other real estate. The same assumptions should operate as to spectrum. When auctioning the licenses for personal communications services we divided up the licenses between larger and smaller geographic units. A bidder could mix and match. Any given region was covered by both types of licenses. We have minimal requirements about interference, safety and health, but they are not problematic for competition. Our system allowed winners of the PCS license discretion about the precise technology they would use and the services that they would offer. Some will concentrate on data. Others on voice. With large numbers of competitors specialization is to be expected. We also gave them discretion over which technology to choose. As a result, we are likely to see national coverage via GSM, TDMA and CDMA (which are roughly analogous to differences in Windows, Macintosh, and Unix operating systems). Systems rivalry will speed technological innovation. The usual response to these facts in Europe is to say that the spectrum problems are different here. It is said that countries are small so interference problems are tricky. Indeed there was no Europe-wide backbone network for telephony prior to the 1980s. All this is true. But it is no different than saying technical standards for electronic equipment and pharmaceuticals differed. It takes some work on coordination to let markets work. But one doesn't doubt that these markets should be allowed to work. Why is spectrum different? It isn't. Nor should countries bar disaggregation or combination of spectrum licenses. What reason is there for governments to manage this business activity, other than to protect against interference or monopolizing control of too much spectrum. #7: The right goal for international communications is the same as the goal for domestic communications: no more regulation of communications services than of soap or software or shoes. If it's just as cheap to send a telephone call from Washington to London as from Washington to Los Angeles, then the price should be the same. It would be, if governments would not stand in the way. Right now in the United States, to simplify, we have two sets of access charges. One charge applies to a domestic long distance company connecting to the local telephone network. The other, much higher charge applies to a foreign telephone company handing off its call to New York to carriers like AT&T or MCI. The concept of a distinct charge for delivering and terminating calls originating from overseas (called the accounting rate by telcom aficionados) is the legacy of a one hundred and fifty years of shared monopoly in the provision of international telephone services. This legacy lives on because it is exorbitantly profitable. Why for instance does Italy insist that AT&T or BT hand off their calls from New York and London to the Italian telephone company for their completion? Not surprisingly, the purpose is: first, to exclude foreign companies from providing services directly in the domestic market; second, to organize international services on an anticompetitive basis; and, third, to tax international calls at extraordinary rates (the accounting rates). And who here is greatly surprised to discover that these special international access charges greatly exceed domestic levels and there is no cost justification for the level of the special international charges? And who would be surprised to hear that the consumer pays dearly? Yet this is the system set by government regulation and the rules of the International Telecommunications Union, the world's oldest international organization. Perhaps no aspect of the international telcom market has received less scrutiny, while causing more harm, than the current system of international telephone service. With the rapid advances in fiber optic technology and satellite compression, the gap today between the cost of providing international service and the prices charged for such service has perhaps never been wider. The cost per voice circuit of sending calls via an undersea cable is less than one one-hundredth of what it was a generation ago, and only one eighth of what it was just six years ago. Within those same six years, however, the average price for an international call has declined by a mere 25%, a figure that many phone companies, ironically, seem to think is worth boasting about. The reductions in cost of international service, which new technologies promise to drive down even further, have brought us to the point where the average accounting rates agreed by carriers are five to ten times the carriers' costs. These rates result in exorbitant prices for callers -- no matter whether the caller is an immigrant calling back to relatives in his or her home country or businesses engaged in international trade. By substantially raising the cost of international services, the current accounting rate system is a serious impediment to the growth of international trade. It thereby serves as a drag on economic growth worldwide. furthermore, it causes the U.S. to export more than $4 billion a year, as our carriers pay these exorbitant costs for interconnection to foreign markets, and we do not receive similar volumes of incoming calls. This system puts an unfair weight on our trade balance and it has to end, soon. One urgent reform, as Pekka Tarjane of the ITU has courageously demanded, is to bring accounting rates down to the underlying costs of service. But beyond that,we need to transform the international services market into one more akin to a competitive domestic long-distance market. Carriers should be permitted to provide end-to-end service and allow consumers the option of choosing private lines. Carriers should be able to win their share of international traffic flow without government regulations impeding their efforts (or limiting their rewards from pro-competitive conduct). And, just like the domestic market, we must have a proper set of competitive safeguards. Some carriers still retain market power even after the introduction of competition. They control virtually all of the key network infrastructure in their countries. When carriers have market power they can engage in discrimination against their rivals and impede competition in the marketplace. Our task is to make the market for international telecommunications services like competitive domestic markets for these services. The advent of some of these reforms on the U.S.-U.K. market has already produced significant price cuts over the last few years, but these prices can be far lower still if we complete the task of regulatory reform. Conclusion: Many assume that these seven secrets -- if I can call them that in a public speech -- are necessarily part of privatization of the national telephone company, such as Germany, France and many other countries are committed to do. Privatization is necessary for competition, but everyone has stipulated to this proposition for along time. It will improve incentives for management of the company. It will actually make the finances of the telephone systems of developing countries more easily subject to public scrutiny and review than they have been while in government hands. It will open the doors more effectively to borrowing in private capital markets and winning strategic partnerships from foreign telephone companies. All in all the World Bank estimates that the level of investment in telephone networks in these countries must double from $30 to $60 billion annually starting now. And the bulk of the monies must be private. But a private monopoly, even one with foreign investment, is not synonymous with a commitment to competition. Ironically, the experts on privatization will tell you that investors prefer a clearly ordered set of procompetitive rules to be in place for the privatized carrier. That is because they believe that some competition is inevitable, that all competition makes the incumbent stronger, and that investors prefer the certainty of knowing the terms and conditions of competition rather than buying into uncertainty. So privatization doesn't conflict with or substitute for the rules of competition I've described here. Nor is there any reason to believe that developing countries should operate under different rules. As competition spreads we now have the benefits of detailed studies by skilled regulators in countries like Mexico and Chile. Their countries' networks have the same problems with inadequate coverage of the population and modernization that typifies the developing world. But their studies show that like the laws of physics, and the rules of network economics, are the same in every country. So why, then, have the industrial countries not had a more productive discussion with the developing countries about how to achieve widespread access to communications? When I was at the G7 Ministerial on the Information Society in South Africa this spring I was disappointed that in a country whose political courage is a beacon of hope for the world we were not able to get agreement about the imperative of competition as the best way to maximize telephone service in that country. For South Africa, for the U.S., for any country, the communications revolution can build a bridge to hope and opportunity. When I visited Alexandra township, where hundreds of thousands of exiles and immigrants have gone to find a new life, I was struck by the poverty around me and the cellular towers above me. Those towers are a bridge to education, medical care, successful democracy. This bridge can be built in every country sooner than anyone believes, but only if the right answers are delivered by government to their people without delay. We have made enormous progress in reforming the global telecommunications market in the past fifteen years. But if it is to become a bridge to the 21st century, a bridge between haves and have nots, and a bridge between nations and cultures, a bridge to innovation and invention, we have to discover the universal truths of economics and technology and apply them in our policies. Thank you. - FCC -