[ Text Version ]

Speech by
Federal Communications Commission Chairman
Reed E. Hundt

The Institute of Electrical and Electronics Engineers
The Symposium on Hot Chips

The Internet: From Here to Ubiquity

(as prepared for delivery)

August 26, 1997

Taking credit. Getting blamed. Earning your just deserts; getting just what you deserve.

This is the story of American life.

No one knows better than the denizens of the great Valley that America is about success vs. failure; going public vs. going bust; getting an A vs. an F; getting credited or getting debited.

So, because we're here at Valuation Central, the Home of the Rave and the Land of the Screed, I'm willing to pose my test question.

So how has the FCC done in the four years while I've been the chairman?

Let's go to the data points:

Also, while I've been Chairman,

So I don't know about all of you, but I'm running on my record.

It wasn't that hard really.

The Internet stuff I have particularly enjoyed taking credit for.

At any rate, with the market at an all-time, it does seem like a good time to quit.

If it drops now, blame the new guy.

The Senate is preparing to confirm in September four new commissioners, including my successor, the FCC's fine and able Californian, general counsel Bill Kennard.

He will have to go some to top that cloning I invented in some of my spare time.

But as a kind of farewell message to the Valley I want today to talk to you about what no one has yet done, and what needs doing for and by all of us, because none of us can do it acting alone.

It is this: we need a fully developed Internet to give us competition, deregulation, economic growth, social change, high productivity, new record sales of hardware and software: in short, a better America.

We're not getting it fast enough or spread far enough through our country's different geographic regions and demographic groups.

I want to see the Internet grow like kudzu everywhere in this country, with access for poor and rich, seniors and kids, English speakers and people just learning the lingua franca.

I also want to see the Internet provide a key answer to the problem of competition in the local telephone markets. A year and a half after the opening of California's telephone markets only about one percent of consumers are taking phone service from anyone but the traditional monopolist. And many major companies are delaying or cancelling plans to compete. This is totally unsatisfactory. The Internet can change the picture, introducing competition in data and ultimately video and voice.

In short, we need an alternative, packet switched, worldwide network. We can keep the current circuit switched network too; but we need both.

In terms of architecture, we need a highspeed, congestion-free, always reliable, friction-free, packet switched, big bandwidth, data friendly network that is universally available, competitively priced, and capable of driving our economy to new heights." We need a data network that can easily carry voice, instead of what we have today, a voice network struggling to carry data.

In terms of social impact, we need instant access to the libraries of the world at the fingertips of every child in every classroom in every school in the country pursuant to the Snowe-Rockefeller law that takes effect in January. With this step alone we would do more to eliminate inequality in educational opportunity than has ever been done since Horace Mann invented public schools.

And we need the alternative big bandwidth highspeed data network installed in all rural health care facilities, under the same law. Education and health care ought to be primarily dependent on this new digital network.

In terms of media, we need to change forever the anti-individual, exclusively mass market, conglomerate-dominated centralized control model of lowest common denominator (lcd) content. We need to replace it with unrestricted capacity to send and limitless capability to choose.

Are you with me on this folks?

The country's communications network of today is a $300 billion sunk cost circuit switched telco network whale with the tiny market of ISP's circling around like pilot fish.

Today's network is not the new species of communications network that I'm hoping for and that the country needs.

We've built new infrastructures before: a hundred years ago the country needed ubiquitous, heavy trafficked railroad and telephone systems.

The stories of the railroads and the telephone are stories of how bottleneck monopolies built the economy but also choked competition, raised prices, created wealth and pockets of poverty, and sparked government intervention to assure some fairness in the balance between citizens and capitalism.

The construction of the 21st century network, our packet switched Internet, will be equally complicated and challenging. But I believe that we can get this job done better and smarter and fairer than any other major construction project in history. Our successes so far encourage us.

But I see five major threats to the rapid and successful development of this new world of communication.

First, the economics of the Internet at this time are, to use a technical term, wacky.

Demand for bandwidth isn't met; reliability is too uncertain; and prices for many components and services are too high.

The principal reason is that the Internet is for the most part a legacy of the hybrid of regulated monopoly telcos and the anarchic not-for-profit academic world.

This hybrid needs to evolve.

But unless efficient and competitive markets drive the growth of the Internet, its successful evolution is threatened.

Already dangerous signs of congestion appear: the circuit switched network designed for three minute calls is far from ready to handle several hours of Internet traffic per household per day.

There's only one sure way to solve the congestion problem: open and aggressive and efficient competition.

But the key congestion points of the Internet aren't effectively open to competition.

Demand goes unsatisfied. Data, including fax, is the fastest growing segment of telecommunications traffic. But we're not yet able to use the Internet to promote local competition with the telephone company.

And Internet businesses aren't yet able to provide the highly reliable, high-bandwidth services needed to drive the Internet from here to ubiquity.

So it turns out that the battle you've been reading about between the long distance companies and the local telco monopolies isn't just about those two sets of players. It's very much about companies trying to build the Internet and about others -- like our glorious software industry -- that will benefit from competition.

And it turns out that the FCC's fight for meaningful local competition isn't just about whether consumers will have a meaningful choice for telephone service. It's also about whether the great mass of American consumers will have a meaningful and affordable and enjoyable opportunity to use the Internet and its services.

Just look at some of the congestion points and what's needed to relieve them.

  1. The Local Loop. Those wires weren't engineered for digital, packet-switched communications, and they are owned by monopolies that want to dictate their use and their users. We need to free up those loops for high-speed digital communications. We need rules that ensure that any competitor can lease them and put them to any new souped up coppercopeia use.

  2. The Local Switch. Local switches are what telcos use to route traffic from users to ISP's. These switches are for the most part owned by monopolies. We need to ensure that any new competitor can share their efficiencies or, better yet, route data traffic around them onto packet networks.

  3. T1 circuits. T1s are the basic data transmission circuits purchased by ISP's. They are usually offered by telco monopolies, and the prices are far higher than they should be. Competition is necessary to lower these prices. In the meantime the FCC needs the power to lower these prices for both interstate and intrastate T1s. This is a $5-10 billion annual business for telcos; decreased prices will threaten telcos, but will have a huge positive impact on the Internet.

  4. The Internet addressing system. We need a new means of managing Internet domain names and other addresses. The current system is not reliable or fair.

  5. Inside and Outside Wiring. The connection to the house and the wires inside the house need to be open to competitors. The existing telcos and cable companies have legitimate rights to some of these facilities, but these rights can't be used to exercise their monopoly power and thwart competition.

So my first point is that for our high bandwidth, packet switched, Internet-friendly world we need the right rules to guarantee competition at each of these congestion points.

My second point is that we can't have the wrong rules written. There are continued efforts to write new rules of law to "help" the Internet. So far they aren't being written right.

The first example is the Communications Decency Act, overturned by the Supreme Court, fortunately.

A new bill introduced in Congress last month called the Internet Protection Act is another example of a grievous misstep. Though the stated aims of the bill are generally worthy, in practical effect the bill would let telcos overcharge ISP's; would stymie access to their loops by the 40 xDSL companies getting going in California alone right now; and would fail to cure any of the market failures that cause Internet congestion today.

Third, even if we have the right rules of law, they can be frustrated and undermined by the rules of lawyers. The 1996 Telcom Act is a right law but the legal process of implementing it is turning out to be a nightmare of delay and distortion by reviewing courts.

So far the monopoly telcos have persuaded judges to hold that the FCC has no power to insist on competition in local telephone markets. We're trying to get this case to the Supreme Court but the telephone companies are fighting for delay.

Here we have a law that everyone thought empowered the FCC to open all communications markets, and the courts are enjoining us, telling us that the states get to decide these matters. When the states' rights agenda is used to help shrink big government I admit to some sympathy. But when it's used to bolster monopolies and stifle interstate commerce and create years of litigation-induced delay, I think something's gone grievously wrong with our legal culture.

I admire lawyers' arguments. But that's because I'm a lawyer. Even worse, I'm a son of a lawyer.

On the other hand, only vibrant competition and not debates about jurisdiction will attract the investment necessary to build our data networks. Only vigorous competition, as opposed to vigorous courtroom advocacy, will alleviate bottlenecks in response to real demand.

Fourth, the new data networks and the new services they will carry depend on big bandwidth. No bandwidth, no business. The faster it's made available the faster it will be used. The spectrum is an enormous opportunity for a bandwidth explosion, and the FCC's economists and spectrum experts have invented a new spectrum policy designed to produce make high volumes of bandwidth available at low cost.

But the pushback against pro-bandwidth spectrum policies has already begun.

Last month Congress nearly passed a law ordering the FCC not to let spectrum licensees have freedom to use their spectrum the way they wanted. That could have stopped us from just getting out of the way, for example, when wireless cable firms and, recently, a Low Power TV licensee decided to use their spectrum for the new and different use of high-speed Internet access.

Congress also nearly required the FCC to slow down the pace of licensing unused spectrum. The big bandwidth networks of the future will use as much bandwidth as we get on the market. But the status quo is threatened by this policy and they're pushing back.

Last spring the FCC distributed licenses for the new over-the-air local medium called digital TV. We refused to mandate computer-unfriendly interlaced high definition TV, which would have forced licensees to devote virtually all of their digital capacity to picture quality -- whether the public wanted it or not; indeed, whether the public could tell the difference between one format or another.

Our view was digital television was an opportunity for big bandwidth -- not big government pushing its bad ideas on business.

Now this fall, with innovators at ABC, Sinclair and other broadcast companies developing new multichannel digital programming and services to broadcast to any kind of digital receiver -- converter boxes, digital TV sets and I hope even laptops -- some in Congress are protesting.

As ABC's President Preston Padden explained in a letter to the Hill, digital technology allows broadcasters to compete effectively in a fractionalized media market while also offering multiple wide-screen pictures of a quality "virtually indistinguishable to the consumer" from high definition TV. Even after hearing that explanation, a Congressional aide said yesterday that Congress wouldn't let broadcasters "off the hook" and would insist on high definition.

Why doesn't everyone want a new high-bandwidth digital medium? Why does anyone want to use government power to promote high-end multi-thousand dollar appliances for the electronics industry to sell?

And as a backup they want the FCC to tax the heck out of any subscription digital use, including Internet access. If you can't ban it, tax it, is the theory from these congressional leaders.

Me, I'm an anti-tax, pro First Amendment, marketplace-oriented guy. So I would love this fight. It almost makes me want to stay in government.

The fifth threat to the construction of a ubiquitous alternative broadband packet switched digital network is the reaction of the status quo. The Internet today is like the buccaneers of England's first queen Elizabeth, jauntily stealing the gold from the galleons of Spain -- that's the existing proprietary networks that rake in north of $200 billion in revenue and don't mind too much losing a bill or two to the ISP's. But eventually the Spanish Armada will set sail on merry England; eventually when the poaching gets rich enough and there's Internet access in every pager, curtain rod, beltbuckle and laptop, the powers of the status quo will mount an army of lobbyists and public relations firms and economists to take on the packet switched threat. So I suspect.

Is it possible that the packet switched technology is that big a threat to the status quo?

As the great poet Wallace Stevens wrote: "By one caterpillar is great Africa devoured, and Gibralter dissolved like spit in the wind."

In my view within five years in some markets and ten in most, packet switched minutes will exceed circuit switched.

And the Armada will set sail.

Already you have seen this year that the telcos combined to seek from the FCC new charges, called access charges, on the Internet. Their idea was that all Internet traffic would generate about six cents per minute in charges paid to the local phone companies that originate and terminate the call on their local loop, the lines to your house or office.

At a couple of hours of usage per day --hardly unusual for Internet folk --- that's about $200 a month.

Prominent political forces told the FCC to agree with the phone companies.

We didn't.

But being in lobbying means never having to say you're sorry.

This and other arguments will return.

If humans can create all these obstacles to rapid, efficient, and private sector development of the future networks of America, then humans can solve them. Here's what should be done: We do need a new law, a Free the Internet Law. It can be blessedly short. Here are its key components.

First, the First Amendment should clearly protect Internet content from government regulation.

Second, the FCC should have the power to order states not to regulate digital packet network services, whether offered by new entrants or by incumbents. There are thousands of pages of rules written by state legislatures and state commissions that regulate investment, pricing, service quality and almost every other aspect of the existing telephone networks. These are the rules the FCC should be able to order the states not to apply to the country's data networks.

Third, the data networks should be free from subsidy. They shouldn't pay into any subsidy pool and they shouldn't take out. Let the markets build them.

Fourth, the FCC should have clear authority to impose in every state policies that open any and all communications bottlenecks to competition.

Fifth, this is America and every citizen has a right to take the government and any other citizen to court. But does every court in the country have to be involved? So far GTE has sued in 30 federal district courts in 23 states arguing that they are entitled to charge competitors for their historic cost of building their networks. All judicial review of the essential issues in the telcom world should be in a single court of appeals. Simplicity is the mother of wisdom. Complexity is the father of confusion and delay.

A short and simple law along these lines would be a real Internet Promotion Act.

The law wouldn't guarantee the Internet's success. Whether we have a ubiquitous high speed high bandwidth packet switched digital network really depends on the brilliant entrepreneurs here in the Valley and elsewhere working around the clock to invent the services and products that will drive Internet expansion.

Washington can't make the Internet succeed. But it can be an obstacle to its success -- through unwise action and unwise inaction.

There are plenty good ideas in Washington. Whether my modest, market-oriented, competition-friendly, deregulatory proposals fall in that category -- you be the judge.

But I'm confident this nation can get its communications policies right and get the real info highway built fast fairly and efficiently all across this land.

One person who added to my confidence, and the market's, lately, is Alan Greenspan.

Some say he deserves credit for some of those economic wonders I mentioned happened during my term at the FCC.

I guess you'll be the judge there too.

But I praise him not only for his steady brilliant monetary management but also for his insights into the power of the Internet. In testimony to Congress last month Chairman Greenspan noted that there have been "increasingly successful and pervasive applications of recent technological advances, especially in telecommunications and computers [that] enhance efficiencies in production processes throughout the economy."

He continued: "An expected result of the widespread and effective application of information and other technologies would be a significant increase in productivity and reduction in business cost."

Central bankers are not given to hyperbole, but I think I can say that the Chairman is forecasting a marvelous era of growth and opportunity driven in large part by the new, widespread, effective networks of the future.

In short, if we build it, the wonders will come.

And any one who had a hand in this fantastic future will get what they deserve: a brighter future for the next generation here and all over the world.