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"From Boxes to Bottlenecks"

Remarks by
FCC Chairman William E. Kennard
Before The
Fall 2000 Session of the
National Association of Regulatory Utility Commissioners

November 15, 2000
San Diego

(As prepared for delivery)


Thank you, Bob Rowe, for that introduction, and for the opportunity to address your fall session. I'd also like to congratulate the new officers of NARUC, Nora Brownell, Bill Nugent, and Alan Thoms. I look forward to working with all of you.

This is the eighth time as Chairman I have been privileged to speak before NARUC, and I appreciate the opportunity to do so once again.

At the outset, I want to thank a group of people who have made my work with NARUC such a pleasure, and so fruitful.


In reflecting on the past, I also want to reflect on the future.

The FCC's Chief Technologist, David Farber, says that being in telecommunications regulation today is like driving a Ferrarri at top speed in the fog. You can only see 20 feet in front, but you can't stop the Ferrari.

In spite of these risks, those of us in this field must squarely face the challenges, and I want to go through some of them today.

At the top of the list is convergence. Virtually every issue we are dealing with today has to do with converging technologies.

Much of the convergence is the result of the Telecommunications Act of 1996. One of the most important things that Act did was force us to embrace competition as our most important guiding principle. The Act, in effect, stated that we would no longer tolerate monopolies, and that we would usher in new technologies.

As a result, in past 5 years we have seen a major rebuilding of our national networks. We are moving from circuit-switched to packet-switched networks, and now we are integrating voice and data.

But these new networks challenge our old rules. Our old rules created distinct regulatory boxes, and these new networks change that. I call this the problem of boxes and bottlenecks.

Under the old rules, if you knew the technology, you knew the regulatory box. You knew that local telephone service was in the common carrier box, and you knew that cable was in the cable box.

Today many people remain stuck in these old boxes, yet in this new marketplace the old boxes do not fit. In a converging marketplace, the real focus should be, not on regulatory boxes, but on market bottlenecks.

Just about everyone who meets with me says all they really want is a level playing field. But when pressed, they define a level playing field as less regulation for themselves, and more for their competitors.

And if they think they are in a particular regulatory box, what they really want is more company in that box. If they are regulated in the local telephone service provider box, they want cable to join them in that box. If they happen to be outside of the box, like the Internet is today, then they would just as soon stay out of the box, and let everyone else stay in the box.

As policymakers, we need to think outside of these old regulatory boxes. We need to think, instead, about the bottlenecks in the new convergent networks that impede the delivery of services to users.

These issues bring to mind the debate we've had in this country for most of this century. How do we break open monopolies? Do we use structural remedies, like divestiture, or a regulatory solutions, like the one prescribed by the 1996 Act?

In the case of Microsoft, many recommended applying a regulatory solution. Others called for a structural solution, to break Microsoft up like we broke up the Baby Bells.

In the telecommunications field, we've approached bottlenecks in much the same way. Sometimes the solution is a structural one, as with the AT&T divestiture in 1980s. In that case, the structural solution clearly worked.

On the other hand, the 1996 Act imposes a regulatory solution. Congress said that rather than break up the local monopolies of the Bell system, state and federal regulators are empowered with the tools necessary to pry open the local markets.

I am pleased to say that this approach also is working. We've made real progress. Of the three stages of the 1996 Act - - rule writing, litigation and implementation - - we are now in the implementation stage.

We have worked out many of the key physical interface issues, such as those between Operational Support Systems (OSS) and access to network information.

But we still have a long way to go with pricing. We have yet to find a business model that works well for competitors to provide service to residential consumers. I look forward to continuing to work with NARUC on pricing models to make sure we get competing services to residential customers.

We also must work on intercarrier compensation. We must move these intercarrier charges to cost, or to as close to cost as we can get them. The Commission plans to issue a broad-ranging NOI to address these intercarrier issues, and we need NARUC's help in getting there. And one key element of intercarrier compensation is reciprocal compensation.

We must develop guidelines on how to address future issues now on the horizon. For one thing, we should not attack technologies. Instead we need to attack bottlenecks, so that bit streams, whether voice, data or video, flow as freely as possible.

Second, must resist the knee-jerk temptation to impose legacy regulations on new services and new technologies. We must steer clear of the instinctive reaction to shoehorn these new mediums into old regulatory boxes.

Third, we should think in terms of service competition, not technology competition. To the consumer, the important thing is the service, and not the delivery system.

During the transition from monopoly to competition, we must have the courage to pry open bottlenecks. You can see how some of these issues are playing out in some debates we have before us. One big debate in front of us is what to do about broadband transmission over the cable platform. This is a debate that is in so much flux that we cannot even agree on what to call it. ISPs and the public interest groups call it "open access." Cable providers call it "forced access." I just call it a "pain in the access."

But the issue of labeling highlights what happens when you have new uses for old technology, or entirely new technologies and new services. We have to challenge stakeholders to think in a fresh way. We are not going to put these new services and technologies into old regulatory boxes. Instead we are going to look at how they operate, and create a new paradigm. To do this, we need the help of the states.

I do believe that if we break out of old thinking, and think outside the box, we can achieve a vision of what I call a "network of networks." It is a vision of multiple technologies and providers that supply digital services to consumers wherever they are, whether in the car, home or office, or somewhere in-between.

So what's left for policymakers?

I think our role with change dramatically. I think that we will come to view many of our past functions, such as our tariffing and rate-of-return decisions, as relics. Instead, we will place much more emphasis on enforcement. That's why we created the Enforcement Bureau.

We also will focus more on consumer issues. That is why we created the Consumer Information Bureau, or CIB. This new bureau will help address pressing consumer issues, such as slamming and cramming. In these particular endeavors, we have successfully partnered with states.

And there will be a role for us on Universal Service. We know there are pockets of our nation that will not receive service without government intervention - - remote areas, our schools, people with disabilities, and people who use our network for public safety.

I see an essential government role in these and other areas where markets fail to provide needed consumer services. Government is more than an arbiter among the wealthy. It is a voice for people who do not otherwise have a voice in government. For them, it is the difference between being in the haves and the have-nots.

Finally, I believe that when Congress reconvenes next January, we will hear calls to rewrite the 1996 Act. My advice is that we should be very cautious about opening the 1996 Act to amendment.

It took 10 years to get everyone's attention on the original Act. A balanced, pro-competitive document resulted. In the political economy of Washington, an amended document may not be as pro-competitive, because incumbents will be disproportionately represented.

And then there is the problem of litigation. Some parties may feel that any new language will have to be tested in court. That will cause further delay, slowing down the whole implementation of the 1996 Act.

What we have is workable, we should stick to it and make it work, and bring the benefits of competition to consumers.

One of the privileges of my position is to travel the world and explain the virtues of our competitive system. We should be proud of our system - it is the envy of the world - and by explaining it to other nations, we help the world-wide movement to pry open monopolies and bring the benefits of competition to consumers.

We have reached an important point at the end of this century. It is a turning point, when the telecommunications revolution is unleashing the greatest communications investment in our lifetime. Those of us in government have helped make this possible. We have introduced competition to the marketplace, and, where competition does take hold, we have demonstrated the discipline to deregulate. It was not always the easiest thing to do, but it was the right thing to do.

We are fortunate to have had the opportunity to use the power of technology to uplift the world's people. This has been an historic opportunity. I feel very proud and privileged that we will be able to look back and know that we were not only there, but that we also did the right thing.

We fought the good fight, and we got through a tough time together.

I am proud to have traveled this road with you.

Thank you.

- - FCC - -