Text Version

CHAIRMAN REED E. HUNDT
FEDERAL COMMUNICATIONS COMMISSION

WORLD AFFAIRS COUNCIL
PHILADELPHIA, PA
October 22, 1997

(As Prepared for Delivery)

FROM BUENOS AIRES TO GENEVA AND BEYOND

Introduction

All of us gathered here today recognize that the recent revolution in information technology has permanently changed the way we do business and the way we live our lives. The digital information age we are entering is not only transforming the communications business itself. It is impacting almost every aspect of daily life -- from education to health care to commerce. It is enabling us to transcend distance and time, and to contemplate linking the world's disparate populations together through a global information highway. As Vice President Gore said at Buenos Aires, "we are on the verge of a revolution that is just as profound as...the Industrial Revolution."

This rapid technological revolution has also been an engine of job creation and economic expansion. Of the 12 million jobs created since President Clinton took office, 8 million have been in the information sector, which now comprises one-seventh of the U.S. economy.

Moreover, a developed information infrastructure is essential to the growth of the vital services sector of all economies. Services already account for 70% of the GDP of industrial countries and 40% of developing countries' GDP. And trade in services is growing on a worldwide basis at twice the rate of trade in goods. The information revolution is a catalyst of expansion in the services sector, and in other sectors of the economy from agriculture to manufacturing. The information revolution is also fueling the creation of a global economy. Improvements in technology and increased competition have led to a dramatic decline in communications costs on a worldwide basis. In real terms, the cost of a three-minute call from New York to London is almost 100 times lower today than it was in 1940. Cheaper telecommunications services and the growth of new services like the Internet have reduced the cost of distance and increased capacity, creating new markets for the long-distance provision of goods and services and expanding the effective scale of markets. Today, commerce is increasingly conducted by electronic impulses. Capital moves around the globe with astounding speed as trading follows the sun, from Tokyo to London to New York. The Internet is fast becoming a worldwide electronic marketplace, and will be a conduit of tens of billions of dollars in commerce by the year 2000. It is clear that the global economy of the 21st century will be driven by the flow of information over the networks we are building today.

The ability of countries, businesses and individuals to participate and compete in this new global economy will be shaped by telecommunications policy. While some benefits of technological advancement are inevitable, governments -- and regulators -- wield great influence over the nature and impact of technological innovation through the policies they pursue. The four years in which I have had the privilege of serving as chairman of the FCC were a period in which the Commission was very much at the forefront of the communications revolution. Many critical issues came before the FCC for resolution, and they required us to make important and occasionally controversial policy judgments. I believe we have helped set the communications revolution on the right course these past four years.

At home, we have rewritten or repealed rules to open up to competition all five lanes of the information highway -- telephony, cable, wireless, satellite and broadcast -- and ushered in a new era of communications competition. We enacted the Telecommunications Act of 1996, the first top-to-bottom overhaul of the telecommunications regime in over sixty years. The Act enshrined a pro-competitive, deregulatory communications policy and opened previously closed local telephone monopolies to new entrants. In implementing the Act, we have established practices and standards for interconnection, unbundling, and universal service that are being studied and copied by countries all over the world. We have completely reformed our wireless market: introducing auctions for spectrum (thus far, we have auctioned 1,164 MHz of spectrum, netting in excess of $15 billion dollars for the American taxpayer), encouraging flexible use of spectrum and ending the local wireless duopoly. We have encouraged competition to cable through new technologies, including satellite and wireless cable. And, we licensed the first private global satellite systems in history.

Just as important as the rules we have written are the ones we refused to write. Few actions have done more to promote economic growth and innovation than our refusal to regulate the Internet or to force onto the Internet the outdated, cumbersome regulatory regime that has so long harnessed circuit-switched telephony.

But, as the communications links that bind us extend more readily around the globe, the international dimensions of communications policy have assumed greater importance. And, as new services like high-capacity satellite systems and the Internet are able to provide seamless global service, the regulation of communications services inevitably transcends national boundaries.

The increasingly transnational dimensions of communications policy prompted us to centralize our international functions and create an International Bureau at the FCC three years ago this month. The International Bureau's third anniversary -- and the end of my tenure -- seem a fitting time to review our achievements in the international arena, which have been many, and to look ahead to tomorrow's challenges. Indeed, the policies we have pursued abroad in promoting competition and private investment and in pursuing open markets will bear directly upon our ability to reap the benefits of the information technology revolution at home.

From Buenos Aires to Geneva

It was Vice President Gore who first called upon the nations of the world to join in building a Global Information Infrastructure. Addressing the International Telecommunications Union's first development conference in Buenos Aires in March of 1994, the Vice President envisioned a planetary network that would transmit messages and images across the globe with the speed of light. This Global Information Infrastructure would circle the planet with information superhighways connecting a global community. It would also be the circulatory system of national and international economic growth.

In a sense, the Global Information Infrastructure being proposed is analogous to a Bill of Rights for the Information Age. Inherent in the GII is the idea that access to the information highway is an essential element of citizenship in the digital age. In addition, like the Bill of Rights, the GII is a revolutionary concept whose full implications will unfold over time, assuming greater power and meaning. The first step in this process was the United States' call to end state enterprises and introduce competition and independent regulation into the world market in telecoms services.

The reality is that building a global information infrastructure that would extend to all corners of the globe is a highly capital-intensive endeavor. Even today, about 45 countries in the world have less than one telephone line per 100 inhabitants. It requires billions of dollars to build out the underdeveloped infrastructures that exist in vast regions of the world. These funds will probably not come from multilateral institutions or from national governments. That's why the Vice President counseled reliance on open and competitive markets and flexible regulatory regimes. Under these conditions, the private sector could and would, he suggested, build out a global information infrastructure.

But governments and regulators had to do their part to attract private investment as well as to secure private commercial financing on reasonable terms. In the early 1990's, private commercial financing of the telecommunications infrastructure in developing countries was only 20%, with the bulk coming from the monopoly profits of state enterprises. By 2000, the World Bank estimates that private lending will account for 55% of telecoms infrastructure financing in the developing world. That trend is clearly related to the liberalization that is underway.

Since Buenos Aires, Vice President Gore has consistently exhorted the international community to embrace competition and private investment in the telecommunications sector. In 1995, at the G-7 Global Information Society Conference, he pledged to remove restrictions on foreign investment in the U.S. telecoms sector for all countries willing to do the same. His challenge was quickly taken up by U.S. policymakers and regulators, and his leadership in this area provided the impetus for February's landmark WTO agreement. The enactment in the United States of the Telecommunications Act in February of 1996 provided further impetus and a blueprint for a global accord. The United States had just enacted the gold standard in pro-competitive deregulation and hastened the demise of monopoly telephone service domestically. The United States also sent a clear message to the world that we were fully prepared to live up to the commitments that our negotiators were seeking abroad.

The WTO Agreement on basic telecommunications services that was signed in Geneva last February was, as my esteemed and indefatigable colleague Charlene Barshefsky said, "one of the most important trade agreements for the 21st century." The Agreement exports the American principles of open markets, private investment and competition to nations that together account for 95 percent of the $600 billion world market in telecommunications services. It eradicates deeply embedded traditions of telecommunications monopolies, allowing new entrants to deploy innovative, cost-effective technologies across the globe.

The agreement, which takes effect on January 1, 1998, will allow U.S. companies to enter previously closed foreign markets and develop competing networks for local, long distance and international services. In many cases, these markets have been entirely closed to competition until now. Before the Agreement, only 17 percent of the world's 20 top telecom markets were open to U.S. companies. Now virtually 100 percent will be. Just last year, 94% of worldwide telecommunications revenues still flowed to monopoly providers. This is simply unacceptable, and thanks to the WTO agreement, it has already begun to change.

The range of services covered by the Agreement is broad. From satellites to submarine cables, from cellular phone service to fixed wireless service capable of serving rural and underserved areas, the Agreement's market access opportunities cover the entire spectrum of innovative technologies pioneered by U.S. industry.

The agreement has four principal components: market access, the adoption of regulatory principles, liberalization of foreign investment, and satellite offers. In the area of market access, all 69 countries agreed to permit competition from foreign suppliers, with 52 countries making commitments to provide full market access for all services and facilities. These market access offers account for 97% of all international traffic among WTO member countries.

65 of the 69 signatories adopted the transparent pro-competitive regulatory principles set forth in the WTO Reference Paper. These principles, which cover interconnection of competing communications suppliers, competition safeguards, and transparent and independent regulation of services, incorporate the principles that are at the heart of the Telecommunications Act of 1996.

All 69 countries made significant offers on foreign investment, with 48 of the offers allowing full private investment.

Finally, 52 countries made full offers guaranteeing market access for domestic and international satellite services and facilities, with an additional 7 guaranteeing market access for selected satellite services and facilities.

To say that the Geneva agreement will fundamentally alter the landscape of the global telecommunications market is an understatement. But it is also too soon to rest on our laurels. Those who maintained that there was no need for a multilateral approach because liberalization was happening on its own missed a critical point: proclaiming markets to be open is just the first step. There must be pro-competitive rules and independent enforcers to make competition real. The WTO agreement raised the level of international competition standards to the highest common denominator, rather than relegating the market to a hodge-podge of less exacting, less timely national measures.

Implementation of the WTO Accord

Implementing the WTO Agreement will be no less challenging than negotiating it was, and success hinges to a large degree on the willingness of signatories to adopt and enforce pro-competitive deregulatory principles. The United States will issue next month a comprehensive restatement of the rules that will govern foreign entry and participation in light of the WTO accord. The Commission proposed in its Notice of Proposed Rulemaking in the Foreign Participation proceeding that it would no longer use the Effective Competitive Opportunities Test for carriers from WTO countries, but would replace it with a regime that encouraged entry by and competition with carriers from all WTO member countries. The Commission has also proposed a similar framework for non-U.S. licensed satellites. But the Commission has also indicated, and rightly so, that it would implement safeguards in the international market to ensure that competition is free and fair and to prevent carriers with market power from abusing their position -- just as we do in the domestic market.

As we implement our WTO commitments through our forthcoming orders, we must work closely with fellow WTO members to ensure that the market access commitments and fair competition principles enshrined in the WTO Agreement and the Agreement's Reference Paper are realized. First and foremost, competitors must be able to gain access to existing networks at fair prices which will promote competition. And, they must be able to get that access on an unbundled basis. If they cannot, competition will not take hold. So getting interconnection right is key internationally, just as it is key to opening up local markets in the United States.

Second, the transition from monopoly to competitive markets will require the establishment of strong independent regulatory entities abroad. The United States is committed to support the work underway in numerous international fora to help countries develop new regulatory regimes and to turn the principles set forth in the Reference Paper into effective statutes, regulations and rules. These would include, among others, clear and transparent licensing rules and criteria.

Finally, because many of the signatory countries must pass ratifying legislation and develop implementing regulations in order to give effect to their commitment to implement the Agreement in January, we must monitor the timeliness and completeness of this near-term implementation process. We must do the same for the commitments that are phased-in after 1998.

Looking Ahead

Although implementing the WTO Agreement looms large on the horizon, the future presents other challenges as well, many of them driven by rapid technological innovation. A decade ago, national telephone monopolies operating voice networks dominated the scene. Today, the action is shifting to data networks. The Internet, the proliferation of digital wireless networks, and the imminent launch of new global satellite systems are supplementing -- and supplanting -- existing voice networks. Although voice still accounts for 90 percent of worldwide telecommunications, that figure is already significantly lower in the United States and Europe. And, by some estimates, voice phone calls may account for as little as 10 percent of all telecom traffic within five years.

This shift means that it will become easier and cheaper to send vast amounts of data, and ultimately voice and video around the globe on new broadband packet switched data networks. It also promises to bring increased competition to existing circuit switched networks. But, as I know perhaps as well as anyone, no monopoly cedes its privileges easily. Thus, one of the challenges facing U.S. regulators and their counterparts around the world will be to promote emerging global democracy.

Nothing embodies this shift more clearly than the Internet. And there is perhaps no more important priority than ensuring that this powerful medium remain free of unnecessary regulation. This means, among other things, that the Internet must be kept free from heavy-handed content regulations so that it can continue to thrive as a free forum of ideas and communication across borders and cultures. It also means fostering the growth of electronic commerce by keeping the Internet free of new taxes when it is used to deliver goods and services. We must not make the same mistakes with the new packet-switched technologies that we have made with our existing circuit-switched network. We must allow competition to build the packet-switched network and allow competitors to operate that network using the technologies and standards that the market favors. This network should neither give nor take market-distorting subsidies; it should be governed by the market forces of supply and demand.

Governments should, however, not hesitate to assist institutions like schools, libraries and health care providers from purchasing in a competitive market the wonderful array of new services offered by the Internet. Indeed, I hope countries around the world will adopt their own versions of the landmark Snowe-Rockefeller provisions in our Telecom Act so that students and learners in every country will be presented with literally a world of educational opportunities.

Second, just as the Internet is revolutionizing the world of wireline telephony, so too is the extraordinary variety of wireless services that can provide circuit-switched, packet-switched and every type of service under the sun. New satellite technologies and emerging terrestrial wireless services have the capability to link people within and across countries as never before.

With regard to satellites, the Commission eliminated the regulatory distinction between international and domestic service and provided that all U.S.-licensed satellite services could provide both domestic and international service. The Commission did so in recognition of the fact that the satellite footprint does not recognize national boundaries. It had also already licensed certain satellite services -- for example, the big low-earth orbiting satellites, or Big Leos -- which are specifically designed to provide global services. The providers of such services must still obtain licenses to operate from the countries in which they intend to provide service, but we eliminated any separate domestic regulatory hurdle for providing international satellite service.

Likewise, we must also promote direct broadcast satellite services as an alternative to the cable monopolies. Since this type of service is not covered under the WTO Agreement, the United States must negotiate individual agreements with other countries for the provision of DBS. We concluded a DBS protocol, according reciprocal rights to provide DBS service, with Mexico last Fall. I hope it will be the first of many such agreements.

Third, if we are to succeed in promoting new technologies, it is imperative that we increase capacity. By this I mean getting licenses out in a transparent and timely manner and enabling qualified new services to come to market. The United States must also vigorously pursue spectrum allocations internationally for new services. If we do, we will make it easier for new entrants to bypass existing bottlenecks in the communications infrastructure. We will also facilitate real competition against the telephone monopolies and the cable cartels.

To do this will require better spectrum management. In recent years, the United States has led the way in pressing the international community to allocate spectrum on a global basis for new services like non-geostationary satellite systems. These mobile satellite systems and the newer non-geostationary fixed satellite services have the potential to bring wireless service to rural and underserved regions with poor or non-existent wireline infrastructures. They will make the Internet more readily accessible around the world and will provide enhanced voice, data and video services.

Fourth, if we are to ensure meaningful market access for these new technologies as well as existing technologies, we must deal effectively with the next generation of trade barriers. Now that we have broken the back of traditional market access barriers through the WTO Agreement, we must make sure that countries do not erect new barriers to entry. Unfortunately, the potential for the emergence of new non-tariff trade barriers exits. Let me mention a few areas of concern.

Standards. Our approach to technical standards in the United States is to let the marketplace, not governments, determine the technologies it prefers. The theory is that competition is best served if we allow a thousand flowers to bloom. The Europeans, by comparison, tend to favor the adoption of a single standard. Although this approach allegedly provides predictability, it does so at the expense of competition and choice. It is in many respects a throwback to industrial policy, where governments picked winners instead of leveling the playing field and then getting out of the way.

There is work currently underway in the ITU on the adoption of standards for achieving interoperability in a variety of areas, including the next generation of wireless. The outcome of these deliberations could have significant market access consequences and we must be vigilant in ensuring that standards don't become veiled non-tariff barriers.

Spectrum allocations. As I mentioned, the allocation of spectrum for new technologies like satellites where the United States dominates are often a matter of contention internationally. We must ensure that spectrum be allocated efficiently and according to the needs of the marketplace -- and that new technologies are not held hostage to protectionist and anti-competitive impulses.

Licensing. Global satellite systems are particularly vulnerable to discriminatory barriers. For example, country X could impose national gateway requirements, thereby saying in essence "you are welcome to provide service but you must spend millions of dollars to build a gateway within our borders first." Onerous earth station licensing conditions would be another potential obstacle to entry.

Fifth, at the same time, we must be cognizant of the fact that if we are to establish seamless global networks, we must ensure interoperability among divergent technologies and networks. It is the United States' view that industry should take the lead in establishing voluntary minimum standards for platforms of interface that would ensure interoperability.

Sixth, at the same time that we press forward with the development of new technologies and fight to keep outdated regulatory restraints from being imposed on these technologies, we should examine and eliminate wherever possible the vestiges of the monopoly era. Ranked at the top of this list is the accounting rate system. The accounting rate system is a century-old relic of the era of monopoly to monopoly system of international communications. It has no place in the modern, competitive world. It limits competition, frustrates innovation and forces consumers to pay prices far in excess of what they should. The Commission took an important step in this direction this summer when we adopted international settlement rate benchmarks. Settlement rates are the per-minute fees paid by U.S.-licensed carriers to foreign carriers for terminating U.S.-originated calls. These rates currently exceed foreign carriers' actual costs by multiples ranging as high, in some cases, as high as 10 or 15 times cost. As a result, and because there are more outgoing calls from the United States than there are incoming calls from virtually every single country in the world, U.S. carriers paid $5.4 billion in 1996 to foreign carriers all told. This amount dwarfs the total non-military U.S. foreign aid budget, which is under $2 billion annually. The bulk of these payments constitute a pure subsidy of foreign monopoly carriers by U.S. taxpayers.

These inflated settlement payments have created artificially high international calling rates for both U.S. and foreign consumers. U.S. consumers today pay on average 88 cents per minute for an international long distance call versus 13 cents per minute for domestic long distance. The FCC's Benchmarks Order mandates phased-in reductions in settlement rates, which will bring them significantly closer to cost and ultimately lower the cost of international service. In addition, the benchmarks will also diminish the ability of foreign entrants to engage in anti-competitive behavior. Seventh, we must maximize the utility of the existing multilateral institutions. My friend Martin Bangemann of the European Union Commission has eloquently made the case for greater multilateral cooperation and coordination. There are certainly areas in which this would be desirable. For instance, the world's central bankers meet annually at Basel. These meetings supplement the ongoing dialogue among the world's finance ministries. Perhaps some regular forum should be established along similar lines for telecoms policymakers. We could use that forum to exchange ideas and develop a code of best practices that would put flesh (and teeth) onto the principles established in the Reference Paper.

As I have met with telecom ministers and regulators from around the world over the past few years, it has become increasingly clear to me that we have one thing in common: we are all new at the task of moving from monopoly to competition and we all have much to learn from one other.International institutions can play a role in this process. They could also play a role in monitoring compliance in certain areas. The ITU or the OECD could, for example, monitor national regulatory regimes to assess compliance with WTO principles in much the same way that the OECD's International Energy Agency evaluates national energy policies.

Lastly, if we are to build a truly global information infrastructure, we must make sure it extends to every corner of the globe. More than half the people on this planet have never made a telephone call. There are more telephone lines in the city of Tokyo than on the entire continent of Africa. Does this matter? It certainly does. Let us be clear: communications service is no longer a luxury. It is a key to economic growth and an essential condition of full participation in the modern world.

Conclusion

As I said at Buenos Aires, one of our central purposes in building this global infrastructure must be to end the solitude of hundreds of millions of people around the world. The information highway we are building must therefore span the gulf that separates the haves and the have-nots. If it fails to do so, a majority of the world's population may remain have-nots forever.

We all know that the challenges of achieving universal service on a global basis are many. But so are the opportunities. By exporting the principles of open markets, competition and private investment through the WTO accord, we have paved the way for innovation, efficiency and choice. We have enabled new mobile services to provide alternatives to the wireline monopolies and to reach underserved regions. By developing and exporting rules for free and fair competition, we have unleashed new technologies that will be able to furnish phone service to remote regions of the world that have never had it.

In short, if we provide an open and competitive global market with fair and clear regulatory regimes, the private sector will finance the development of a global telecommunications infrastructure. I believe that if we get it right, we can succeed in building the GII, and that putting us on course to do so will be one of the Clinton Administration's most enduring legacies.

Thank you.