SPEECH BY REED E. HUNDT
          CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION
                                
                  THE BIG RIVER OF COMPETITION
                                
 Center for Information Infrastructure and Economic Development
                         Beijing, China
                        October 7, 1996

     The communications revolution has led us into the information age. As we are all
aware, communications technology has dramatically transformed the way we send and receive
information and has exponentially increased the quantity of information available to us. I don't
doubt that communications, like oil 100 years ago and coal 200 years ago, will be the most
powerful source of energy for the world economy in the century to come. 

     Telecom will not only bind families together around the world. It will also define how a
bank can serve its customers, how a factory can manufacture high-tech goods, how doctors can
practice medicine, how our children learn in schools, how nations conduct their political
dialogues, how cultures define themselves, and how we in nations separated by geography and
history create our global village. 

     If we are to harness the enormous potential of the information age and allow our
citizens to enjoy the benefits its promise, we must be guided first and foremost by two
principles: open markets and choice. If countries want to obtain the maximum benefits of
communications technology, they will welcome all comers to this sector. And they will relish
and applaud the competition among all communications providers. The competitors will push
themselves to the best of their performance just as our athletes do every four years in the
Olympics.  And, our consumers will benefit from having choices of the services they want, so
that the economic laws of supply and demand are allowed to work.

     No matter how different the history, culture, economy or physical geography of various
countries may be, we cannot let those differences obscure the fact that the laws of physics and
economics do not change.  Light will travel just as fast in the fiber optic cables of China as it
does in Egypt; radio waves will propagate themselves in the same pattern in the United States
as in Indonesia; and the laws of network economics and supply and demand are as compelling
in Europe as they are in India.  

     Where there is competition and choice, producers will work more efficiently and
consumers will reap the benefits.  For many years, we in the United States have reduced the
size of our own communications market by not adhering to this principle. I would like to talk
to you today about the new path of competition and choice that we are trying to follow.  



     The word for competition in Chinese -- jingzheng -- is composed of two characters that
mean to strive for and to compete.  This summer in Atlanta, we witnessed the extraordinary
sight of the world's finest athletes striving and competing in our Olympics.  Among the finest
and most striking of these athletes was a young diver from China, Fu Ming-Xia.  The world
was struck by her poise, skill and grace under pressure, by her ability to compete so
triumphantly against the best divers the rest of the world had to offer.   

     Imagine, for a moment, that Fu Ming-Xia had come to Atlanta from China never
having had to compete against other divers.  She could have been endowed with the highest
level of natural ability, received the very best teaching available, and benefitted from the
highest-tech training equipment.  Yet, unless she had the chance to compete against the world's
best, to push herself to her utmost, to refine and adapt her skills and tactics, to respond to
changing and varied tastes of judges, she could not have completed the remarkable
performance that she did in Atlanta.  It was her opportunity to strive and compete that made Fu
Ming-Xia the best.  

     Telecom is no different.  Only when firms strive and compete against each other, race
against each other to discover new technologies, push each other to offer better services, learn
from each other's mistakes and successes do those firms reach their potential.  Only then do
they make the best use of financial and human capital and ensure that a nation's resources are
being well utilized. 

     Just as important as allowing firms to strive and to compete is allowing customers the
opportunity to choose.  When customers are given the right to choose, they set into motion the
law of supply and demand.  Consumers with the power to choose force suppliers to meet their
demands; with monopoly, consumers must accept whatever the monopoly provides.  We all
know how frustrating it is when our town has only one store that sells a particular good or one
firm that offers a particular good, and we all know the difference when a second shop or a
second service provider comes to town.  While certain laws of economics may be as immutable
as the laws of physics -- in both disciplines such laws are discovered only after trial and error
and hypotheses are from time to time disproved -- I do believe that the law of supply and
demand is just as universal and immutable as the law of physics that reveals the speed of light.

     A key aspect of choice is the ability not only to be able to choose among multiple
service providers but, just as important, having the choice among the goods and services
offered by the providers.  We have found in the United States that it is vital to allow our
providers of telecom services to have the greatest choice possible in the types of services they
provide and the technologies they use to provide them. Only the market can make these
choices, for the law of supply and demand apply with equal force to technology. Hence, with
our new generation of digital PCS systems, we have allowed licensees complete freedom to
choose their technology -- be it GSM, CDMA, TDMA or whatever they choose to invent.  


     Those persons who wish to contend that the laws of the market do not apply to telecom
often raise the claim that telecom is different because it is a natural monopoly.  Yet after years
of thinking this oxymoron was a truth in telecom, we know now that the only natural aspect of
a telecom monopoly is that high prices, troubled service, and inefficient use of capital may
come as naturally to it as such shortcomings do to other monopolies. 

     The defense of telecom as a natural monopoly usually rests on one of three
assumptions.  

     The first is that once a network has been built, the job is finished.  This is like saying
that once you have discovered water, there is no need to go further.  Yet, as any of you who
have tasted wine will know, we can do better than water.  

     Second, it is argued that it is wasteful to allow competing providers to build networks
that overlap -- overbuild it is sometimes called.  I am not sure, however, that given the
explosion in bandwidth demand that overbuilding is even theoretically possible, not to mention
a realistic fear.  At any given moment in the US, we use only 9% of our long-distance network
capacity.  Given such a usage rate, do we hear anyone in the US talking about overbuilding? 
No, all the carriers are desperately seeking to provide increased network capacity, both
wireline and wireless, to meet the insatiable demands of users.  Networks seem like roadways,
no matter how fast you build them, users clog them to capacity as soon as they are finished. 
And, surely for developing countries, the possibilities of overbuilding are even more remote.

     The third concern is that of interoperability. One hears the fears that competing
providers might build networks that cannot interconnect amongst themselves.  Yet, just as we
would never allow our highway builders to construct mutually exclusive highway systems,
each only accessible to certain types of vehicles, so we must mandate our networks open
themselves to interconnection.  This is not a technical problem; it is a matter of implementing a
strong and clear interconnection policy.  

     On the subject of interconnection, let me emphasize the importance  of implementing an
interconnection policy that allows new entrants the maximum flexibility and choice in how to
provide service and compete with the incumbent.  Because the law of network economics tells
us that the more extensive a network is, the more valuable it is, we must provide new entrants
with the opportunity to compete against incumbents. 

     New entrants need to have the opportunity to choose exactly which facilities they wish
to build and which elements they wish to provide by reselling the services of the incumbent. 
They should have the right to interconnect at any feasible point in the incumbent's network at a
price that does not include sunk, historical costs but rather focuses on the forward-looking
costs the incumbent would incur to provide the interconnection service.  


     I am pleased that China's leaders have accepted the goal of open competition and
choice.  Minister Wu Jichuan recently said that China is trying to "make conditions right" to
comply with the goal established by APEC, and is "trying our best to make conditions right so
that foreigners can take part in operations of telecommunications."  Minister Wu mentioned the
APEC target date of the year 2020 as the goal. It will be a great accomplishment for China to
meet or beat this goal. To fulfill the minister's plan will  require significant specific steps
every quarter between now and then, as I am sure the minister knows.

     I recognize that China has unique challenges as it moves toward competition and
choice. While China has experienced impressive economic growth over the last two decades,
annual average income and per capita GDP are measured in the hundreds of dollars. 
Telephone penetration is less than 5%.

     But the recent explosion in China's economy in general, and in telecommunications in
particular, convince me that China can play a leadership role.  China's economy has been
growing at one of the fastest rates of any economy in the world, averaging over 12% per year
for the last four years.  That is 70% higher than the rate of growth in India and Indonesia, and
more than 300% the rate of grow in the U.S.  China's economy is already the third largest in
the world, and the World Bank predicts it will surpass the U.S. in the early part of the next
century.  China's exports have grown from under $10 billion in 1978 to over $120 billion
today.

     And while teledensity remains relatively low, it has increased by 200% in the past two
years.  Three-digit increases characterize China's cellular and paging markets, which are or
soon will be the largest in the world.  China's cable systems already have over 40 million
subscribers, a number projected to double within a few years.  

     It is impossible to study China without being impressed with its long history of
inventions and innovations.  The Chinese invented paper, the magnetic compass, the
wheelbarrow and gunpowder.  Chinese technicians were casting molten iron 17 centuries
before their Western counterparts.  Chinese peasants used seed drills to plant several rows of
grain at a time, two thousand years before Europeans.  Chinese mathematicians calculated pi to
five decimal places in the third century B.C., more than a millennium before the Europeans.
And a 12th century Chinese scholar named Zhu Xi was the first to propose a system of
universal public education. I believe that this ancient idea can be fulfilled in a new and
different way in the information age, and that China can show us the way.  

     China has made enormous strides in education, especially in cities.  A child born in
Shanghai today is more likely to grow up to read than a child born in New York. Even in rural
areas there have been impressive successes.  In Xiping County, every village offered special
reading classes, reducing to less than 2% the number of people between 20 and 40 who are
illiterate.

     Despite these successes, more than one-quarter of the Chinese population remains
illiterate, with the percentage in rural areas being much higher. To address this challenge,
China can invent a way to use modern communications technologies to educate chidden in
developing areas.  

     What would this invention look like?  Might it involve finding a way to place a
computer in every village school hooked up to the Internet by wireless technologies?  Might it
involve finding a way to place a television in every village school and then ensuring that some
of the capacity of direct-to-home satellite providers is devoted to educational materials.  In the
U.S., our law requires Direct Broadcast Satellite providers to set aside 4-7% of their capacity
for educational purposes.

     In the last decade and a half, China has figured out how to reduce the number of people
in poverty by 170 million.  Never before in history have so many people -- or even such a
large portion of humanity -- risen from poverty so quickly.  

     Now China can discover a way to bring to all the benefits of education.

     Competition will need to be part of this discovery.  

     I'm told that there is a Chinese saying that "if a big river has enough water, then a
small stream will not be dry."

     For the small economic streams around China to be filled with communications
services, the big river of competition must flow fast and furious.

     One technology that holds tremendous promise for a country as large and
geographically diverse as China is satellite technology.  Satellite offers the opportunity of
bringing information and education to any corner of China without the need for the very
expensive installation of wireline networks.  Already, for example, a number of the new
mobile satellite systems are cooperating with Chinese partners to bring mobile satellite services
to China.  The MSS systems offer the opportunity of connecting any village in China instantly
through the purchase of a local phone booth that can connect with the MSS systems. 

     These MSS systems will also bring substantial amounts of new revenue to China's
existing cellular operators and international carrier, for the beauty of the MSS systems is that
they work with the local cellular systems when within their service areas and only go via
satellite when outside the cellular systems.  As I understand, some of the systems plan to have
gateways in China, the international carrier will also profit by carrying the international calls
on the systems.  For these systems to succeed and for China to benefit from their promise, the
key will be -- as with other sectors in telecom -- to allow for competition, to allow multiple
operators to compete and strive and allow consumers to choose the best. 

     I also hope China will explore the possibility of authorizing multiple, competing
broadcasters.  

     China has experimented with using television and radio in a positive way.  Television
stations in Guangzhou and Shanghai have aired public meetings in which citizens can raise
their concerns. Radio stations have launched call-in talk shows on which people have discussed
issues like poor garbage collection, smoke-belching factories, and divorce.

     Two decades ago, virtually every television and radio station in the world outside the
U.S. was state-owned and operated. This is changing.  Each of the states of the former Soviet
Union, for example, now has licensed at least one independent broadcaster.  The Commission
on Radio and Television Policy, chaired by Jimmy Carter and Eduard Sagalaev and including
representatives from over 30 countries, recently urged all nations to "license multiple
independent broadcasters through fair and open procedures."  

     Countries that have followed this advice have been pleased with the results. 
Independent television stations, and the competition between them and between state-owned
entities, have generated many new jobs and first-rate local programming.

     I have been deeply impressed by the pace and breadth of economic reform in China.
The whole world is in awe of a country that builds a network the size of an American Bell
company every year.
     
     Nowhere in the world is there so much opportunity to raise living standards and bond
society together through the communications revolution than exist here in China. We from the
United States are hoping to see the information highway become a bridge from our land to this
land. I am confident that we can find more ways to design this bridge during our meetings here
this week and during subsequent conversations.


                             - FCC -