text version

William Kennard
Federal Communications Commission
Practicing Law Institute
December 11, 1997
Washington, DC

(as prepared for delivery)

Thank you. What a nice introduction.

It's great to be here today. I'm particularly happy to appear on a program with Senator Burns. As the Chairman of the Communications Subcommittee in the Senate, he is an important voice in the debate on these issues.

A couple of weeks ago, in my first speech to the NARUC Annual Convention, I talked about the three principles I hope will guide me during my tenure as Chairman of the FCC: competition, community, and common sense.

Today I'd like to expand a bit on the first of these principles -- competition, with a healthy dose of common sense.

A few years back, I remember reading a Tony Kornheiser piece about Jim Valvano, the late basketball coach from North Carolina State.

After Coach Valvano lost to the Dean Smith's North Carolina TarHeels two years in a row, he got a letter from a fan who said, "We take competition pretty seriously down here -- and if you don't win next year I'll come over and shoot your dog."

He even signed his name. So Valvano wrote the man back. He wrote, "Sorry to disappoint you, but I don't have a dog."

The next day a UPS truck pulled up at his house with a package. Inside was a cute, furry little puppy -- with a note around his neck.

The note read: "Don't get too attached."

Well, in basketball, competition is serious business.

And it's serious business at the FCC.

What exactly do I mean by telecommunications competition?

One thing. That every consumer may obtain any telecommunications service -- local, long-distance, cellular, PCS, or other mobile service -- from a variety of providers.

Why is this so important? Because competition creates benefits for consumers we can realize in no other system.

Like lower prices overall.

Thus, in the long distance market: We now have the lowest long distance prices in history. Since the break-up of AT&T, the cost of long distance calling has fallen 50%. And prices are likely to continue to fall as even more competitors enter this market.

A competitive market also spurs providers to offer new and innovative services to customers. Certainly that was true with customer premises equipment, or "CPE" -- FCC-speak for telephone handsets, PBX equipment, modems and the like.

It wasn't long ago that the term "telephone" meant one thing -- a basic black, rotary dial piece of equipment that appeared to be constructed to survive a direct hit from a nuclear missile. Back then, everybody leased their telephone on a monthly basis from the telephone company.

Then we deregulated. And today, you can go to Radio Shack, or Circuit City, and choose from a wide variety of different types of phones, with different features, at a range of prices.

That's competition.

It's affected consumers in a lot of areas besides their phones. Anyone who picks up the Washington Post's Fast Forward magazine can see that: the October 31 issue listed over 100 Internet service providers serving residential users in the Washington metropolitan area.

Competition means better service. It means efficiency.

You don't have to study much economics to know that. All you have to do is go to Safeway -- or Giant.

Sometimes, when I'm coming home late at night I'll stop off at my Safeway. That late, the aisles are empty. You have a chance to think about what's on the shelf. Like the ice cream freezers, for example. There are times the glass doors are iced over because people keep them open, trying to decide between Haagen-Daz or Ben & Jerry's, between low-fat strawberry and the real thing, between Good Humor on a stick or Klondike, between the generic Safeway and Starbucks.

If you talk to Russian exchange students they say that one of the most bewildering things about America is the supermarket. They are amazed at the size of the stores -- and confused about how to make choices.

Our job at the FCC is to break down barriers to choice -- choice in wireless, choice in long distance, and choice in local telecommunications.

Common sense tells us that where there is real choice, competition is working and the consumer is king. In fact, competition means that the consumer must have certain fundamental rights in the telecommunications marketplace:

1. Consumers must have the right to choose providers -- from as wide a variety of providers as the market will bear.
2. Consumers must be able to move from one provider to the other.
3. Consumers must be able to move without changing numbers.
4. Consumers must not be forced to dial extra digits simply because they choose a competitive carrier rather than an incumbent.
5. Consumers must be able to change carriers without paying unnecessary fees.

This could be called a Consumer Bill of Rights for Telecom Competition.

The rights of carriers derive from the rights of consumers because competition is not an end in itself. Competition must serve consumers. So, for example, we cannot be so rigid about our techniques for promoting competition that we totally stifle innovation. We must find the right balance.

I believe we can do that.

There are two glaring ways in which consumers don't get the full benefit of this Consumer Bill of Rights in telecom. In local markets, most consumers -- and especially residential consumers -- have no real choice. Incumbent telephone companies -- the historic monopolies -- still have over 98% of this market.

There are some promising signs for business customers. New entrants are popping up to build networks and serve business customers in many of our cities -- even smaller cities. We need to eliminate the barriers to local competition for residential users.

The other way that consumers don't get the full benefit of the Consumer Bill of Rights is that the Bell Companies are not yet permitted to offer in region long distance service. This restriction is a barrier to entry. And I look forward to being able to bring this barrier down too.

In the coming months, the Commission will be considering applications by Bell Companies to enter long distance. The unique feature of these Section 271 applications is that, in simple terms, the Commission determines whether the Bell Company has done everything in its power to implement the Consumer Bill of Rights in local markets, so that consumers can see the last barrier fall in long distance.

This is, of course, an oversimplification. The Communications Act lays out detailed requirements that Bell Companies must meet in order for the Commission to be able to approve an entry petition. The Commission doesn't have the power to rewrite the statute, but must apply its standards.

But it is helpful sometimes to think in simple, common sense terms. And here are a few simple observations:

Some have argued that the best way to create local competition is simply to let the BOCs into long distance, regardless of the market opening steps they have taken. The theory behind this argument is that by letting BOCs into the long distance market, we will create an incentive for the long distance companies to speed their entry into the local market. In other words, as the long distance companies lose long distance revenues to the BOCs, they will be forced to enter the local market to make up those lost revenues.

Neat theory. But wrong.

Certainly BOC entry would create an immediate incentive for long distance companies to enter local markets. But unless the BOC has opened its market -- has taken all the steps in its power to make the Consumer Bill of Rights a reality in its local market -- neither the long distance company nor any other would-be entrant will have the means to enter.

Wishing won't make entry happen. There must be the ability to enter as well.

I am impatient to see real local exchange competition develop throughout this country. And I intend to do everything possible to help bring about local competition as quickly as possible. Including making sure that once the ability to enter is there, that everybody has the incentive.

How do we make local competition happen?

First, I want to talk about process. I believe that it is important for the FCC to work intensively with any Bell Company that plans to file a 271 application before the application is filed. Making this process work involves an open and frank exchange of information before the application is filed. That's common sense. The 271 process should not be a guessing game. It should not be a game of cat and mouse.

Here are a few of the issues we need to discuss.

OSS -- Also known as Delivering the Goods

Section 251 of the Communications Act makes interconnection, access to unbundled elements and resale the keys to opening local markets. But you have to be ready to do more than say you can provide these services and facilities. You have to be ready to deliver the services or elements, fix them when they break, provide necessary billing information. Just as any supplier must do for a customer.

What do we mean when we talk about OSS?

Simply put, we mean access to an incumbent's information systems that enables a competitor to:

-- These information systems are one of the legacies of the incumbent LECs' monopoly over local service. No one else has this information because, historically, no one else has been allowed to offer local telephone service.

Why is this so important? Simply put, because quality, convenience and reputation count -- just as any businessman knows. If a customer knows that the incumbent fixes outages for its own customers in 2 hours, but it takes 2 days to fix the unbundled loop leased by the competitor, the customer will not have real, unencumbered choice.

Or if the incumbent can take down your order in one call, but a competitor trying to sell resold services has to call customers back because it can't get real time access to the customer's service record, the customer will find it unnecessarily difficult to exercise choice.


The number one disappointment expressed to me during the confirmation process was that residential consumers are not yet able to choose among local telephone companies. Especially in light of recent court decisions, resale is the key to bringing immediate choice to residential customers.

Resale enables competitors to obtain market presence, and begin to achieve brand name recognition. They can begin to provide service to consumers before they invest in network infrastructure. They can add their own facilities when it becomes efficient and economical to do so.

Resale also has another advantage -- it can be used to serve all market segments, even before the FCC and the states have completed reforming universal service subsidies. Provided that the resale discounts are sufficient to allow the new entrant to have a viable business strategy.

And, of course, the incumbent must be able to deliver, repair and provide billing information for resold services. In other words, competitors must have access to the necessary OSS systems, and the incumbent must deliver and repair on time and in a non-discriminatory manner.


One of the Act's clear commands is that loops, switching and transport be unbundled from one another and made available for lease by competitors. The idea is simple. Instead of building a loop, for example, a carrier with a switch can lease the unbundled loop from the incumbent. And the Act expressly permits competitors to lease and combine network elements.

It is difficult to see how these network elements can truly be considered to be available if they are priced far above true economic cost. Moreover, if these prices are broadly averaged, it is likely that they will be far above economic cost in some areas -- and far below cost in others. Both results deter entry.

It is also difficult to see how these network elements can truly be considered to be provided in a manner that allows competitors to recombine them if the only way to recombine elements impose large and otherwise unnecessary costs on the entrant.

* * *

Beyond Section 271, there are a couple of other keys to competition on which we must continue to work.


There have always been those who have said that you can't have competition and universal service. That's simply wrong. Quite to the contrary, we can have competition and universal service. And we will.

Universal service has been part of the telecom social compact since the invention of the telephone. We have, as a country, long recognized that having the ability to call anyone, anywhere was of tremendous social value. To accomplish this, we have built out the finest networks in the world. And we will continue to do so.

Over time, we have seen the concept of universal service evolve. First universal service was a phone in the town. Then it became party lines. Then it became single lines. Now universal service includes the ability to access to advanced telecommunications and information services, from homes, from businesses, from classrooms and from libraries.

And the miracle of technology and competition is that we have been able to achieve universal service, and still see our overall telecommunications rates decline and our choices of service and service providers multiply. This is the miracle of technological improvement, increased productivity and growth.


Finally, I believe that we should also continue to look for non-traditional ways of delivering local telecommunications. As the manager of non-government spectrum, we must continue to make spectrum available rapidly for a variety of application, including as a substitute for wireline loops.

From their inception, CMRS services (commercial mobile radio services, including cellular and broadband PCS) have been valuable complements to wireline telecommunications services.

The use of wireless technology as a substitute for wireline local exchange service could accelerate if CMRS prices continue to decline as CMRS competition increases.

* * *

A lot of issues.

271. OSS. Resale. Network elements. Universal Service. New "loops".

The terms are new.

But the basic issue is not.

You know, there's a new book out about Alexander Graham Bell, who lived in Washington for 43 years.

There's a lot of fascinating material about his life, whether at home, over on Rhode Island Avenue, or in his lab in Georgetown right near what's now the Duke Ellington School.

When he moved here, Bell had just won his fight against the giant Western Union to keep control of telephone patents -- and preserve competition.

Just a few decades before Samuel Morse was also enmeshed in the issue of competition. Then it was he that thought the telegraph should be controlled by government -- and Congress that wanted the system private.

Today the issue of competition concerns us again.

Creating that telecommunications supermarket may mean abandoning some old practices -- practices that no longer fit the revolution that is upon us. When it comes to those, keep Jim Valvano's lesson in mind.

Don't get too attached.

But remain attached to the principle this country has usually adhered to when it comes to business: that competition is good for the consumer, good for business, good for the country.

It is the organizing principle of the Telecommunications Act of 1996. And it is one of the cornerstones of the policy at the Agency of which I'm privileged to be Chairman.

Thank you.