The Long and Winding Road
(or: The Seventh Inning Stretch)
On this one-year anniversary of the signing of the Telecommunications
Act of 1996, many people are looking back and making judgments about
events of the past year.
In my view, this is like writing about a baseball game by only
describing the action after six and a half innings.
It's time to stretch aching brain muscles, but it's too early to declare
whether our competition policy is going to be a success or not, and it is way
too early to declare what firms will be winners or losers. If our competition
policy is a success, then government will never be in a position to declare an
industry or a firm to be a winner or loser: the market will do that.
Nevertheless, what I would like to do today is talk about the direction
of the competition game, and how the first through sixth innings have gone.
Earlier this week, in the State of the Union address, President Clinton
stated that, "[a]s the Internet becomes our new town square, a computer in
every home -- a teacher of all subjects, a connection to all cultures -- this will
no longer be a dream, but a necessity." Telecommunications is fundamentally
about tying together communities, industries, markets. It is about improving
everything that depends on communication: from industrial productivity to
teacher training, from international competitiveness to medical care.
Technological change is unstoppable, but what is not certain is whether
we will as a country take the actions necessary to guarantee that all
Americans, and all peoples of the world, will realize all the benefits of modern
The success of the worldwide communications revolution depends on
assuring that the information highway is built at home and overseas through
competition, while also guaranteeing public benefits from that private sector
competition. These are the two goals of our American dream for the
communications revolution:private competition in communications and public
benefits from communications.
The biggest change over the last several years has been a massive
acceleration in the movement from a monopoly based communications policy
to a competition based policy.
This competition policy is already showing significant results.
In long-distance, average revenue per minute in the US for all long-distance calls (including international and operator services) dropped from
19.6 cents per minute in 1992 to 17.9 cents per minute in 1995. For interstate
domestic direct dial traffic, the average rate dropped from 13.6 cents per
minute to 12.3 cents per minute. Overall, since we opened the long-distance
market to full competition in 1984, long-distance prices are down 70%.
In wireless, we are also already seeing dramatic results.
Declining prices are not the only way that customers see the benefits of
competition. Instead of rates going down, people may just get more for their
money. An example is the fact that people still pay about the same for a PC as
they did five years ago, but what they get for their money now is about ten
times faster and a heck of lot smarter.
So people may end up spending more on new things, like second lines
for modem usage or caller ID, that were rarely in the market before.
The key to our wireless successes has been Congressional and
Commission spectrum and auction policies. We need to continue moving
toward our goals of private competition and public benefits from competition.
Specifically, that means the following: auctioning as many licenses as
possible, and giving purchasers flexibility in ways to use those licenses. In
this way, we will eliminate the artificial scarcity of spectrum that limits
competition. And flexibility is essential to new investment and innovation.
Our recent staff paper, "Using Market-Based Spectrum Policy to Promote the
Public Interest," by Greg Rosston and Jeff Steinberg, provides a brilliant
analysis of why these are the right policies, and I endorse every word of it. I
would invite all my colleagues on the Commission to join in this endorsement.
I can't imagine a better statement of the right policy for the country. That was
what was just stated earlier this week by Peter Passell, distinguished
economics analyst of the New York Times. If anyone has a better policy for
spectrum use, I sure haven't seen it.
Over the past two years the FCC has auctioned thousands of new
licenses. Companies are using the spectrum they have purchased to deploy
new services such as PCS. PCS is already beginning to provide competition
to incumbent cellular providers, resulting in lower prices and new services for
consumers. The January 1997 Consumer Reports has a full-page story
describing the range of special services and deals now available for wireless
services, a far cry from the limited choices of the old two-firm duopoly.
Auctions have dramatically reduced the time it takes for the
government to make spectrum available, and by giving spectrum to those who
want it most, they have also made it more likely that spectrum will be put to
And, by the way, a side benefit of the auctions is the $24 billion raised
for the U.S. Treasury.
But the money isn't really the point. Just as, according to Winston
Churchill, "democracy is the worst form of Government except for all those
other forms that have been tried from time to time," one way you can decide
in favor of auctions is simply to consider all other forms of awarding licenses
to use the public's airwaves. Lotteries and comparative hearings have been
repudiated by all reasonable and objective observers and should not be used by
the Commission in any circumstances that I can imagine.
At the same time, we should condition every wireless license on a promise to serve the public interest. This reasonably could be manifested one way for point to point wireless services like paging and telephony (for example, through some sort of universal service obligation), and another way for point to multipoint services like video and radio (for example, through a meanwhile programming or PSA or live political advertising setaside).
On Wednesday the Vice President called for a clear and commensurate
public interest standard for the new digital television licenses whose holders
will usher in the next generation of broadcasting. Given that the grant of these
licenses is the largest single grant of public property to a single industry in this
century, it would be part of a fair deal for the license holders to pay back the
public for this grant by promising to provide substantial, quantifiable,
meaningful public interest programming, PSA's, or free time for political
debate. In this connection I thought Barry Diller's recent suggestion that
television broadcasters provide over a billion dollars of free time for political
debate in even numbered years was big, brilliant, workable, and fair.
Another area where competition is taking hold is with satellites. We are witnessing a satellite bonanza, beginning with the direct broadcast satellite services that have become one of the most successful new consumer product launches in history.
DBS still serves less than five percent of the video market, but that
represents more than four million homes. DBS may not represent a true
competitor for basic cable services because of its inability to transmit local
over-the-air channels, but even that is changing as new "spot beam" satellites
come on line.
Digital Television may also provide another multi-channel video
provider. According to a respected Wall St. analyst, DTV could take as many
as 7 million cable subscribers in the next few years, almost twice the number
of people who currently subscribe to DBS.
I think the cable industry knows it has to respond to the new competition in prices and service quality. Cable's investment needs may not look good to the short-term investor, but I am convinced that they ultimately will pay off. For example:
These developments over the last year in wireless, long distance and
satellite video are all direct results of Congressional and Commission pro-competition policies, like auctions and the 1992 Cable Act. Auctions fueled
the wireless competition just as the breakup of AT&T kicked opened the door
for long distance competition. And DBS would still just be an engineer's
dream instead of a real business had it not been for Congress' wisdom in
passing the Program Access Rules in the 1992 Cable Act and for the
Commissions implementation of that Act.
The central insight of the Program Access Rules, brilliantly
championed by Congressman Billy Tauzin, is that you cannot have
competition without access to essential programming.
Congress reconfirmed the wisdom of Congressman Tauzin's pro-competition policy in the video market by applying it to the phone context.
Just as access to programming is essential for competing with cable systems,
Congress decided that access to the local telephone network was essential for
competition in the telecommunications market.
In the Telecommunications Act of 1996, Congress described three
avenues for new competitors to gain access to the essential facilities of
incumbent local exchange carriers. They can build their own facilities and
connect to the incumbent's network -- that's called interconnection. They can
lease portions of the incumbent network -- that's called unbundled elements.
Or they can buy the incumbent's existing services at wholesale and resell them
-- that's called resale.
Our rules that set the prices new entrants pay incumbents for the use of network elements are based on fair, forward looking costs that you would expect to see in a competitive market. So far it appears that most states have adopted this same methodology, and Wall Street continues to forecast economic health for the RBOCs.
Over the past year, our insistence on competition has meant the following:
The real secret to our work was the addition of several caffeinated
beverage slots to our soda machine.
No one should expect broad-based competition for all of the nation's
150 million access lines to occur overnight. Although we kept our promise to
meet or beat every single statutory deadline under the Act, in many cases
arbitration proceedings are still taking place in the states to define the basic
terms for competitors to connect to incumbent networks. However, over 240
interconnection agreements have been reached, potentially setting the stage for
competitors eventually to serve as many as 75% of the nation's phone lines.
Of course, the agreements are only the first step toward consumers seeing real
Ameritech's 5,000 page filing for authority to offer long-distance will no doubt be the first of many we will soon receive. This process will be extremely fact intensive, and we are already seeing disputes over such basic questions as whether there is an interconnection agreement in a particular situation. It is incumbent upon the Bell Companies to put before us good, clean factual records.
The pro-competition agenda has also been advancing in the
Communications has been the primary driver of global development,
and will continue to be for the foreseeable future. The same principles of
competition and deregulation that guided our own telecommunications reform
legislation a year ago should guide the rest of the world in opening their
telecommunications markets as we have. Over the past three years, we have
worked to create the framework for a Global Information Infrastructure that
will foster economic development for all countries of the world, but we have
also insisted on a level playing field internationally. Under the leadership of
the brilliant and indefatigable Charlene Barshefsky, the United States is
insisting on a good deal in the current WTO telecommunications negotiations.
We are pleased to support Ambassador Barshefsky's efforts.
The FCC is now moving to address the five billion dollar annual
subsidy that flows from American consumers to monopoly telephone
companies in the rest of the world because of the antiquated "accounting rates"
system. We have proposed benchmarks to lower those rates so that they more
closely correspond to costs. Our goal is to cut the average international phone
rate from around a dollar a minute to one fifth of that, or less.
PROMOTING THE PUBLIC INTEREST
In addition to competition, we must keep the public interest and public
benefits in mind in everything we do. Not all challenges will be met by
competition. Some take a commitment from policymakers and industry.
I. Education/Health Care
A critical goal in our communications policy is to ensure that, as the
President stated in his Inaugural address, "[t]he knowledge and power of the
Information Age will be within reach not just of the few, but of every
classroom, every library, every child." Leveraging communications
technology for education is essential if we are to train the knowledge workers
that will be needed to fill the high-paying jobs of the 21st century, but
although we've gone from 3 percent of classrooms with Internet access to 9
percent, that still leaves us 90 percent away from our goal. The Federal-State
Joint Board on Universal Service, in a historic decision , has recommended
that we set aside 2.25 billion dollars per year to connect classrooms and
libraries to the information highway. Like the G.I. Bill, the National
Highway Act or the Marshall Plan, it's worth every penny. We must also
make the most of benefits of telehealth to enable more affordable and more
effective health care. Communication about medical treatments can mean the
difference between life and death, especially in emergency situations and rural
areas, and we should use our communications technologies to give all patients
access to the best medical care available.
We have worked hard to ensure that the tools of the digital age accrue
to the benefit of our children. The broadcasting industry has agreed to
provide three hours of educational programming per week. We've also shifted
the debate to focus on how to give parents tools to protect their children from
inappropriate material on television and online. The Telecommunications Act
included the V-Chip requirement, to ensure that parents have an opportunity to
control the programs their children are exposed to. Technology should be
beneficial to our children, not harmful, but we must make the commitment to
always strive for that result.
In some ways, the Internet has been the biggest communications story of the last three years.
This dynamic growth, coupled with the market success of companies
such as Netscape and Cisco, has created enormous wealth for the American
economy. We should know -- the FCC Internet sites get 90,000 hits per day,
and we've received over 200,000 inquires and comments to our main email
Our policy of promoting bandwidth and access depends directly on our
larger pro-competition efforts. Only a pro-competition regime will create the
conditions for the Internet to continue to grow. Some in business believe that
we cannot afford to have competition build big bandwidth networks, that we
need to ask monopoly providers to build them. I totally disagree. To have big
bandwidth networks, we will need to see the kind of competition that
characterizes, for example, the pizza delivery business. Like pizza, bandwidth
will be delivered piping hot to your door, in small, medium, or large size.
You'll be able to get any anything you want on it -- voice, video, or data, in
any combination. No one thinks that pizzas are best delivered by a single
monopoly, subject to the control of the Federal Pizza Commission, and no one
should think that personalized home or business bandwidth needs are best
served by the old regime of regulated monopoly.
There is huge pent-up demand for bandwidth. Competition will satisfy that demand, because it will open the doors for new companies and new technologies to provide bandwidth to end users.
While busy implementing the Act, we at the FCC must simultaneously
continue to streamline and improve our processes and to eliminate unnecessary
regulatory artifacts. One question we need constantly to ask ourselves is
whether we are doing things we should not be doing.
It was asking this question that led to our first Reinventing Government effort in 1994. That effort produced savings in the millions of dollars for the Commission and savings in the hundreds of millions for industry.
If the Commission, the courts, and Congress stay the course on the country's pro-competition policy, I think we can safely predict that we'll make some tremendous strides in the competitive market place by next year. Here are five specific predictions for January 1,1998:
It has been quite a year, and we have much to be proud of. But there is much left to be done. We must remain steadfast in our public and private purposes. If we do so, all Americans will reap the benefits.