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"Internet: The American Experience"
An Address by
William E. Kennard
U. S. Federal Communications Commission
to the Conference on
"Internet & Telecommunications: The Stakes"

Paris, France
January 28, 2000
(As Prepared For Delivery)

Thank you, President Hubert, for that wonderful introduction. It is a great pleasure to be in France.

I would also like to thank you for inviting me to participate in this conference to share our experience with the Internet and telecommunications in the United States.

I understand that this is the first conference on the Internet for the Autorite de Regulation des Telecommunications (ART), and that you have taken an active role in the organization of this timely event. I would like to commend you and your agency for your efforts. The topics of discussion at todayís conference are extremely important.

The Internet and demand for data transmission are transforming the telecommunications industry, and providing tremendous benefits to citizens around the world.

I believe that all countries can benefit from the growth of the Internet, and that greater participation in the information society.

It has been our experience in the United States that the fastest way to expand access to the Internet is to create the conditions for a robust, competitive telecommunications market. An essential element to ensuring that such a competitive environment is created is to have a strong independent telecommunications regulator.

I have had the opportunity to meet on several occasions with my counterpart and colleague at the ART, President Hubert. I am pleased to say that we have had many good, productive discussions thus far, and I have heard a great deal from him about his views on communications policies in Europe.

I am convinced that he has the vision and capacities necessary to lead France into the Internet age. I am committed to providing whatever support we at the Federal Communications Commission can provide to him, and I urge you to do the same.

I also would like to commend the efforts of Secretary Pierret. The tremendous progress towards liberalizing the French market since the 1996 Telecommunications Law was adopted here is due, in large part, to the commitment of the ART and the Ministry of Industry, to make sure that France is poised to take advantage of the information revolution.

I sense a firm recognition by the French government that the world as we have known it -- where distance and isolation have kept people of different cultural, linguistic and social backgrounds apart from each other -- is quickly disappearing. That world is being replaced by a system of global connectivity, in which what happens in France and the United States, respectively, has a real, profound impact on the citizens of both countries, and in which huge amounts of information can be freely exchanged with no more than the stroke of a few keys on a computer.

France, like the United States, has a common vision to promote all that the Internet has to offer.

We all agree that competition is the best way to do this. Competition brings consumers the benefits of choice and innovation at more affordable prices, and is the best way to ensure rapid deployment of the telecommunications infrastructure.

Recognizing our common vision and the globalization of the Internet and e-commerce, I believe it is essential that we work together to find the best way to advance our goals.

For this reason, I have come to France to talk about the telecommunications revolution, and how the Internet is changing the world forever.

I have come to learn about what is happening in your market, and to give you an update on what is going on in mine.

I have come to discuss what we have done at the FCC to promote the deployment of a robust, advanced telecommunications network Ė our successes and our failures Ė and to provide whatever assistance I can to you as you transition this market from one of monopoly to one of competition.

With that in mind, I would like to share with you how the global telecommunications revolution is reshaping the foundations of the United States economy.

Nowhere is this reshaping of U.S. society more apparent than with the Internet. The Internet and demand for data transmission are transforming the U.S. economy.

In 1996 there were 27 million Internet users in the United States. Today there are roughly 80 million, a nearly 200 percent increase.

Our Internet traffic is doubling every one hundred days.

Over 40 percent of American households have Internet access.

In 1998, the U.S. Internet economy generated an estimated $300 billion in revenues, and accounted for 1.2 million jobs.

And electronic commerce, which will be 90 percent business-to-business, is projected to be a trillion-dollar activity in the next three to five years.

Already, directly or indirectly, through our information and telecommunications sectors, the Internet is linked to one-third of my nationís real economic growth. Because costs are decreasing in these sectors and in the Internet, the Internet also has helped reduce the rate of inflation by one-third.

The communications and information sectors, coupled with the Internet, now account for about 15 percent of our gross domestic product.

But these numbers do not adequately express what it is like to be alive in America in the age of the Internet.

There is a fever in the air, a speculation about possibilities, even an expectation as almost every arena of human thinking and ingenuity joins the Internet.

We file our taxes over the Internet. We apply for jobs over the Internet. We check the cinema times, and reserve seats on airplanes over the Internet. We even fall in love over the Internet, although we do not yet know whether the Internet divorce rate will be higher or lower than is normal.

There are 43 million web sites on the Internet, and few major retail businesses in America today operate without a web site.

Those businesses work directly with their customers, eliminating costly layers of brokers, wholesalers and other middlemen.

Electronic democracy is very alive over the Internet. Out of 535 members of our Congress, only a few do not have web sites, and these representatives are from states or districts where their elections are uncontested.

That tells you something about the power of this medium.

But for the Internet economy to develop to its full potential in your country and mine, there must be an available, affordable broadband telecommunications infrastructure. As you know, this will only happen when there is true and full competition in our communications networks.

That, really, is the blueprint that we think will help these networks thrive and succeed, and it is a vision shared by many of us in America and, Iím pleased to say, by many in Europe also.

To a large degree, the design for this network is already in place in the U.S., with competition taking hold in many portions of the network.

Last week, for example, I attended a conference of competitive local exchange carriers in the U.S. Like many of the start-up companies in France, these companies have been formed to compete against the local telephone monopolies in the U.S. for local telephone customers.

The energy and excitement at this conference was tremendous. These companies invested $18 billion in 1998, garnered six percent of local telephone revenue in the second quarter of 1999, and are adding around one million lines a quarter.

Today, they are poised to take a higher percentage of local telecom revenues, especially in the rapidly growing data market.

We have seen tremendous progress in mobile wireless as well. Since 1994, subscribership for wireless phones has more than tripled in the U.S. Real prices have dropped by 40 percent, and most of our major cities have at least five mobile phone providers, with some having as many as seven.

Long gone are the days when a mobile phone was viewed as a status symbol or something only available to the wealthy. With Third Generation technology on the horizon, wireless is poised to capture a larger segment of the telecom market.

None of this dynamic growth happened by chance. It was a direct result of government policy.

Where competition was present, our policies allowed the market at issue to operate free of government regulation.

At other times, such as when we were introducing competition to monopoly sectors, we had to act aggressively to break open monopolies and promote competition.

These decisions required that we have the independence from political pressures to make the tough decisions. And it meant that we have enough authority to back up those decisions with aggressive and predictable enforcement.

Whether we opt for restraint or active regulation, both types of decisions are subject to significant scrutiny. And in that type of environment it is important that we not shrink from our duty to put the interests of consumers above every other concern. Ultimately, if the consumer wins, the economy as a whole does as well.

For many decades in the United States, the monopoly telephone network retained exclusive rights to provide services and equipment. Beginning in the late 1960s, however, our courts and our Commission determined that, as long as equipment connected to the public telephone network did not harm the network, it ought to be unregulated.

This decision affected all kinds of equipment, such as telephones and answering machines, and eventually computers and even fire alarms. As a result, the market for terminal equipment flourished.

As an unintended by-product, the decision placed into the hands of Americans flexible, inexpensive equipment, such as modems, that they eventually would use to reach the Internet. Even today, the entry price for connecting to the Internet may be dropping from a thousand dollar computer to a hundred dollar palm pilot.

Also in the 1970s, as computers and communications were coalescing, the Commission made an effort to distinguish between the data processing of basic telephone service and the data processing of other, or enhanced, information services provided by commercial computers.

Basic telephone service remained uncompetitive, so the Commission continued to regulate it, but the Commission decided that enhanced services were highly competitive, and should be left unregulated. This decision, of course, contributed to the explosion of computer services in the 1980s, and, ultimately, to the Internet.

In the 1980s, our courts decreed that long distance service (essentially the services that cross state borders) be made competitive, in place of the AT&T monopoly that had provided the service up until that time. As a result, today we have 600 long-distance companies, and rates have dropped 56 percent in real terms since 1984.

But the unintended consequence for the Internet was that these competitive carriers laid the solid, backbone fiber-optic infrastructure upon which our Internet rests today.

Two acts of Congress, a 1993 act giving the FCC authority to auction spectrum, and an extensive 1996 act to break down barriers to competition, made competition the cornerstone of our telecommunications policy.

The 1993 Act gave the Commission the authority to auction spectrum for the provision of telecom services. The Commission used this authority in 1994 to introduce additional wireless competitors to the cellular duopoly.

Before auctions, the Commission used comparative hearings and lotteries to award spectrum licenses. Comparative hearings took too long, delaying service to the public. Lotteries often resulted in spectrum being assigned to people who were merely speculators, and who had no intention of developing the full use of the licenses.

Auctions decreased by four times the amount of time it took to assign licenses, and ensured that the spectrum went to those who were most eager to use it to serve the public.

Beginning in 1995, we used spectrum auctions to introduce competition to the cellular incumbents. The result has been lower prices and more choice for U.S. consumers.

The Telecommunications Act of 1996 introduced local competition by giving the FCC the tools to break open the incumbentís control over the local loop. The Act did this by requiring the unbundling of the incumbentís network elements, cost-based interconnection; and co-location.

Implementing these requirements has not been easy. Thankfully, however, I have been given the tools to do the job.

Regulators like me need decision-making authority. We also need enforcement authority.

In the past, we have not been always been as aggressive in enforcement. However, we have learned that all the rules on the books will not bring competition if the rules are not honored. It is critical for the regulator to have enforcement authority to step in, if necessary, to stop the inevitable attempts by the incumbent to slow down the pace of competition.

The local exchanges in the U.S. have been monopolies for 100 years, but now, because of unbundling, co-location, and cost-based interconnection, new competitors are beginning to offer local services. As they do, we are unleashing the incumbent providers to compete freely with the new providers, and the telecommunications network is flourishing. The same dynamic can occur here in France as you introduce competition.

I do not want to mislead you into believing that we at the FCC have never made any mistakes. To the contrary, we have made many mistakes.

If I had to sum it up, I would say that the vast majority of the mistakes occurred because we allowed incumbents to convince us to not open markets, or to slow down the introduction of competition from new entrants.

Along the way, for example, we made a mistake in the wireless market when we decided to only allow two licensees to provide cellular services in each market. This was a huge mistake since it created a legally sanctioned duopoly. As a result, consumers paid too much for cellular calls, and the licensees had no incentive to innovate their services.

Luckily, in the 1990s, with our PCS auctions, we changed this policy and allowed many new entrants into the cellular market. As a result, in the last five years, real wireless prices have plummeted 40 percent, and competition has thrived. In many markets, we have five competitors, and in the larger markets we have up to seven cellular providers.

The satellite industry also suffered from our mistakes. We initially denied satellite TV companies the right to offer some programming that cable companies offer after the cable companies argued that this would be too much of a threat for them.
Fortunately, in 1992, we changed our rules to allow satellite providers access to popular cable packages. The result has been robust competition in the industry to the benefit of consumers.

The common theme of these stories is that in every case where we made mistakes, we did not have enough faith in the marketplace.

Whenever we sided with the incumbent, we were on the wrong side of history.

In those situations, consumers were the losers, and our economy suffered because it was unable to expand as rapidly as would have otherwise been the case.

We did not make a mistake, however, with the Internet. As a result, we now have robust competition for the provision of the Internet, and that service is thriving in the United States.

In closing, let me say that France is extremely important to the United States, and our ties are very real and deep.

Therefore, our two countries must work together as partners, learn from our mutual experiences, and support each other as we undertake the challenges of the emerging information society, and build the networks necessary to support this society.

Speaking about our partnership reminds me of a story about another kind of partnership. This one involves a husband and a wife.

The husband was very sick, so he and his wife went to see their doctor. After the examination, the doctor asked to speak with the wife in private about her husbandís condition.

The doctor told the wife that her husband was very sick, but that she could help him get well if she did just a few important things. Upon hearing this, the wife anxiously said, "Please, doctor, tell me what I can do to help my husband."

The doctor said, "All you have to do is make sure that your husband has three hot meals a day and that you take very good care of him. You must relieve him of his chores and avoid quarreling with him at all costs. And when he gets home from work each day, you must relieve him of all his worries."

After hearing this, the wife joined her husband and left for home. While in the car the husband, who had seen his wife talking to the doctor, asked his wife, "What did the doctor say?"

The wife turned to him and said, "Iím sorry, dear, but I think you are going to die."

The moral of that story is that partnership, cooperation and support are essential to achieving our goal of a robust and truly global information society.

I firmly believe we can make it happen, and I pledge to work with you in partnership toward that end.