CTIA WIRELESS '97 CONVENTION AND EXPOSITION
San Francisco, CA
March 4, 1997
(As prepared for delivery)
COMPETITION, WIRELESS DEPLOYMENT,
and NEW SPECTRUM POLICY
Last night, former CTIA Chairman Haynes Griffin and I went to dinner to celebrate the birthday of Alexander Graham Bell, who was born 150 years ago yesterday, on March 3, 1847. We also met to celebrate our own birthdays -- both also on March 3. How did you think I was selected for my job?
On this occasion we discussed the power of names. Bell, as you know, is the reason the conventional telephone rings so pleasantly to attract your attention to an incoming call. If he'd been named Buzz, the experience would be so much more unpleasant.
This caused us to question the names in the wireless world. Cellular One, for example, is a powerful brand, but it does seem more appropriate as a label for a biology experiment.
And Personal Communications Service isn't much of a name either. I've got no objection to PCS, but I think it should stand for Pretty Cool Stuff because of what we see happening in the wake of the PCS auctions.
When I spoke to you last year there was just one active PCS system in
the country. Today PCS is in 29 major trading areas. In Washington, D.C., Sprint Spectrum has captured more than 150,000 subscribers, including my wife and me.
PCS also stands for Pushing Cellular Subscribership. Today total wireless -- cellular and PCS -- subscription is well over 40 million. A year ago it was closer to 30 million. And even though wireless captures only 3% of the minutes of wire communication, wireless revenues are more than 10% of wireline revenues.
And PCS stands for Promoting Competitive Service.
The average monthly bill has fallen to below $50, and in the Baltimore/Washington, DC market, cellular rates have decreased 35% to 55% since the launch of the APC's Sprint Spectrum PCS service.
The development of a robustly competitive, multi-player wireless industry is critically important for the fundamental deregulatory and procompetitive purposes of the 1996 Telecommunications Act. The end of the cellular duopoly requires a New Spectrum Policy at the Commission and will drive change in the industry.
The New Spectrum Policy is already taking shape. Its leading proponent is our wonderful Chief of the Wireless Bureau, Michele Farquhar. At my request, Michele continued in this job long after she promised her family she would return to the private sector. But even I, who have needed her so much, have finally agreed that she deserves to get her life back. So she'll be stepping down in April.
Under Michele's leadership, the Bureau has done six spectrum auctions; more than 30 major rulemakings; and processed more than a half million license and transfer applications. The Bureau has introduced electronic filing and proposed competitive bidding rules for the future. And for the first time in FCC history, thanks to Michele, the Commission published a comprehensive inventory of the 300 different spectrum bands that are available for commercial use.
Michele has devoted eight of the past 10 years to public service, and I know that her family has been longing to see her step down. I thank her for her immense contribution to the public and to my own time in government.
Most important in the long run, Michele's Bureau published the first comprehensive spectrum policy statement done by the FCC since 1945.
All debates about spectrum policy since the 1920s have revisited a fundamental question: should spectrum be treated as public property to be used according to government rule, or should spectrum be treated as private property with minimal government intervention? On the one hand, usable radio spectrum is finite and it is highly desirable to guarantee that some of its uses serve public purposes. On the other hand, maximizing economic benefits from spectrum use requires extensive reliance on the same market-based forces that lead to optimal use of private property. The lessons we have learned over the 70 years since the Federal Radio Commission was created have led to a "third way" that delivers public benefits from this key resource of an information age, but deregulates and relies on private market mechanisms to develop that resource for the good of the economy.
The airwaves belong to the public, and should be used for public purposes. Public safety is an example of a public purpose. The market on its own will underprovide public safety services. In some markets, like broadcast, we expect commercial operators to provide noncommercial benefits such as educational TV and "stump time" for political candidates. These benefits won't come from marketplace competition.
For example, competition for advertiser revenue has led to a dramatic increase in self-promotional ads on TV in prime time -- such as Fox advertising on a Monday that you should watch X-Files later that week. This has come at the expense of PSAs, which have dried up and disappeared like rain in the desert. If only a fraction of the time networks devoted to self-promotion were made available for free access by candidates, we'd be a long way down the road to a big solution for the big problem of the campaign reform everyone knows we need. So when the need for ad time forces candidates to dial for dollars instead of ideas, government should consider rules to fix this broken system.
That's an example of using the public's airwaves for public purposes.
Our New Spectrum Policy embraces all airwaves licenses and has four basic principles:
We should get spectrum into the private market in a measured but steady way. We should let licensees use it flexibly, with easy transferability and no artificial build-out requirements, channel loading rules, or efficiency standards.
Last week, Multipoint Distribution Service licensees petitioned the Commission to gain additional flexibility so that they could provide two-way services. Why should this be required? Shouldn't flexible use be automatic?
Initially, the FCC restricted PCS spectrum use. The industry spent time and money seeking flexibility. That should have been automatic.
Several years ago we licensed the Interactive Video Data Service after setting restrictive service definitions, limiting acceptable technologies, adopting buildout requirements, and imposing restrictive spectrum caps. The results: none of the predictions for the business came true. None of the spectrum micromanagement served any useful purpose. We should repeal all our restrictions as pointless.
The Commission did the right thing recently when it adopted flexibility for the Wireless Communications Service. The auction for this service will be held, as Congress required, on April 15. The date was driven by the budget process, not spectrum policy. We would ordinarily give far more advance notice so that potential bidders have a real chance to formulate business plans, interact with the capital markets, and develop sensible auction strategies, and so that manufacturers have time to decide what products would best fit the spectrum.
We may be disappointed by the number of bidders at the WCS auction. But the Commission's decision to set only interference limits and not to restrict use of the spectrum will avoid making a bad situation worse.
Wireless telephones have taken off more quickly in the United States than cable TV. The growth rate for wireless phones resembles the curve for VCRs, which are now in more than 90% of homes. I'm sure that if we follow our New Spectrum Policy wireless phones will be like radios. Almost everyone will have several and many people will have a hard time remembering the number of wireless devices they own.
For wireless to grow, it is going to have to increase dramatically its share of overall phone minutes. And analysts are beginning to predict that it will. About three percent of all phone calls today are wireless based. The Yankee Group predicts that by 2004, just seven years from now, 20 percent of voice calls will be wireless.
Sound quality, functionality, marketing and pricing flexibility all have to continue to improve. Safety issues must be addressed. But already in Finland and other advanced markets there's a major migration of traffic from the wireline network to wireless platforms. And in the U.S., almost two-thirds of wireless users report that they use wireless to make some calls they'd normally make on a landline system.
To grow to its potential, wireless has to serve different purposes. Woodrow Wilson's vice president intoned at the beginning of this century that this country needs a good 5 cent cigar. We're not so crazy about smoking here at the end of the century. But it is true that this country needs a good point-5 cents-a-minute wireless local loop.
Right now in the UK, Ionica's fixed wireless service has undercut British Telecom's local service rates by 15 to 20% and has attracted 20,000 subscribers in its first six months of operation. Telecom Finland, the main long distance provider in Finland, is using fixed wireless to bypass local exchange access providers. And of course now AT&T is fixing to use fixed wireless to enter the local market in Chicago.
Under the New Spectrum Policy there will be enough capacity to support fixed local loop and to take fixed and other minutes from landline providers.
So I think our official industry optimist, Paul Kagan, may be right in predicting that up to 20.5 million U.S. subscribers, or 7.5% of total access lines, will be fixed wireless subscribers by 2005. As always, the world will be watching the United States, and according to one study they'll see that 40% of wireless local loop subscribers will be in the U.S. by the beginning of the next century.
As you make plans to compete for landline minutes, you're going to run up against the age-old telephony bugaboo: in many places local service is heavily and secretly subsidized. You should be rooting for the FCC to follow strictly the '96 Act and to overhaul boldly today's access charge and universal service systems. Our decision is due by May 8.
As the wireless industry goes far beyond its current dimensions, Wall Street analysts are going to have to think about valuation methods. The "per pop" system served its purposes during the salad days of cellular, when we were green of years. But it's not how Wall Street generally values firms in markets that have the competition coming in to wireless. And I think the per-pop valuation may already be dragging down wireless stocks.
To fulfill its destiny, wireless also has to strike a new compact with literally thousands of communities across the country in order to build towers and transmitters quickly and easily. The current piecemeal regulation of towers is one of the biggest hurdles to rapid wireless deployment, hurting new entrants the most.
Local governments have the right and the duty to consider legitimate land use concerns in acting on requests to site wireless facilities. And Congress protected that right in Section 704 of the Telecom Act.
Congress also made clear in the Telecom Act that local governments can't be allowed to frustrate our national competition and spectrum policies.
That is why Congress said that state and local governments can't adopt zoning or other laws that prevent wireless service from being offered or that favor one competitor over another. It's why Congress gave wireless providers the right to have their siting requests processed within a reasonable period of time.
And that is why I wrote two weeks ago to the mayors of 33 localities that, according to information we received from CTIA, have delayed acting on siting requests for six months or more. The federal government has the responsibility to ensure that localities aren't saying no to towers. My letter asked for information on the alleged delays, and Commission staff will work closely with those communities to speed tower siting decisions.
I believe that locating antennas at common sites can be a sensible compromise between community needs and competition's demands: the community reduces the number of towers, and the provider gets expedited approval of its zoning request. Collocation is particularly desirable in communities where available sites are so limited they are virtually a bottleneck.
I've also set up a state and local government advisory committee to discuss these and other possibilities in depth. We need a forum to discuss these sometimes hot issues.
Many states and localities have turned the tower-siting process into an exercise in problem-solving.
I applaud these efforts. These examples of local governments working with wireless providers to bring a valuable new service to their communities are instructive and should be emulated. We will place these and any other positive examples and good ideas on the Wireless Bureau's web site.
And I expect that before long I'll be able to report to you progress on improving the process for securing approval to site towers on Federal property. The General Services Administration has agreed to work with the FCC to develop new and improved tower siting procedures that can serve as a model for how the siting process ought to work on the local and state level. Our staffs are meeting tomorrow.
All of us should be delighted by the recent World Trade Organization agreement, which proves that we can export our spectrum and competition policies.
The World Trade Organization agreement is great news for the country in general and for the wireless industry in particular. The countries in the deal include many of the wireless industries' prime markets in the Americas and Asia, as well as virtually all of Western and Eastern Europe. Under this agreement 55 countries promised to create independent agencies to give new entrants fair, objective and reasonable interconnection prices.
Forty-four countries have agreed to allow 100% foreign investment in their telecom companies, including wireless, and another 12 will allow much increased investment.
For its part, the United States offered to allow 100% foreign indirect investment in wireless companies -- except for broadcast. The FCC will revisit its rules in light of the WTO deal and the U.S. offer. Depending on the outcome of our rulemakings, the WTO deal has the potential to have a significant positive impact on investment in America's wireless businesses and on the development of the wireless industry in the United States.
Wireless has already spent more than $26 billion in capital expenditures, and last year wireless companies raised $20 billion more. But buildout and expansion needs are huge. Everyone knows you can't be the raiders of the local loop without a bankroll.
One of the reasons the Clinton Administration is pleased with the WTO deal is that it means that American wireless companies will be free to build those bankrolls from investors around the world. That money will create jobs, build wireless systems, and promote competition -- all here at home. So bring us whatever new ownership structures you may create.
With new sources of investment, with new solutions to the hard challenges that success naturally leads to, with simple and sensible government spectrum policies, I'm confident 1997 will be a very big year for all of you.
More than a few decades ago George Gerswhin wrote a song called "Last Laugh" that had this line: "They told Marconi wireless was a phony .... oh, ho, ho, who's got the last laugh now." The answer is you will -- and the country will be smiling with you.