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William Kennard
Federal Communications Commission
to the
National Association of State Utility Consumer Advocates
February 9, 1998

Thank you for inviting me to speak to this conference of state consumer advocates.

We are all public servants, and we all share a common goal: safeguarding and promoting the interests of the American consumer. I am inspired and encouraged by your tireless work at the state level, and before the FCC. Yours is a noble mission.

I also want to acknowledge and thank Martha Hogarty, the advocate from the Show-Me state of Missouri. Martha has shown us all how important it is to have a consumer advocate member of the Federal-State Joint Board on Universal Service, and she has played a critical role in shaping the Board's recommendations.

Oscar Wilde once wrote that "modern calendars mar our lives by pointing out that each day that passes is the anniversary of some perfectly uninteresting event."

Yesterday, we celebrated an anniversary that to most Americans must seem exactly that: the second anniversary of the Telecommunications Act of 1996.

Last week I had a press conference marking this event. I tried to joke that only in Washington, D.C. would anyone celebrate the second anniversary of a piece of legislation, but since my audience was all from inside the Beltway, nobody thought it was funny.

But anniversaries are good opportunities to reflect on the passage of time -- and what we've learned.

I like the story my mother tells of an older couple who celebrated their 75th Anniversary. They were both in their nineties. So a reporter came and asked, "How did you both live so long?"

The husband said, "We didn't smoke, didn't drink, never argued."

The reporter said, "Neither did my parents and they both died before they were seventy."

The husband said, "I guess they didn't keep it up long enough."

Well, today I'd like to use the occasion of this anniversary to do two things -- to look back to assess how the Act is working, and to look ahead to our challenges that remain.

The Act is all about competition. And with the advent of competition, consumer advocates will be more important than ever. You'll find yourselves drawn into new areas and facing new challenges. There's no question that as markets open to create new marketing opportunities and new products, consumers also face new risks.

So I want to talk today about how the growth of competition will change our role at the FCC, and the role of consumer advocates.

But first let's talk about what the Telecom Act has accomplished to bring competition about. And the work yet to be done.

There are those, of course, who have already declared the 1996 Telecom Act to be a failure. The King is dead.

Well, I say long live the King. Congress got it right: competition beats monopoly as the way to deliver the best telecom services to the American people. And the signs are that competition is indeed coming.

We recently held a hearing at the FCC on the status of local telephone competition. And it was clear to anybody paying attention that the Act has successfully moved us in the right direction -- toward greater competition.

Have we moved far enough? Is competition as broad or as deep yet as we would like? No. But we're beginning to see the early, promising buds of competition.

We need to nurture those buds. Protect them from a premature frost. And make sure that the telecom garden is a hospitable environment for new growth.

I'm convinced that if cared for these buds will spread and bloom -- like wildflowers -- even for residential consumers. And like wildflowers, we won't see competition in just one color, but a multicolored array of choices.

Why am I so optimistic? First, its my nature. Second, and more importantly, there is good cause to be.

What else has the 1996 Act accomplished?

Lower prices.

Wireless telephone prices are dropping rapidly. There was a big drop in the last nine months of '97 -- 12% for low volume users of cellular and PCS services, and over 31% for high volume customers.

Long distance rates fell 5.3% between January 1996 and November 1997. Long distance prices are now the lowest they have ever been. And everyday, yet another long distance company interrupts your dinner to offer you an even better deal.

When we have full competition in all telecom markets, no one will ever have dinner in peace.

There have been setbacks, of course. We have seen Congress's careful design disrupted by judicial rulings that have added uncertainty, slowed investment and planning, and frustrated promising entry strategies.

Without these setbacks, we would be further along. And these decisions threaten to continue to hobble the development of competition and to deny our country the growth that broad telecom competition would create.

But still, to me, the results are clear. Two years after the enactment of the Telecom Act, we are seeing the Act begin to deliver benefits to the American people.

What's ahead?

I believe that we must continue to work hard to promote competition. At the same time, we must continue to reform universal service, ensuring all the while that the essential universal service safety net remains in place. And we must be vigilant to ensure that consumers do not fall prey to unscrupulous practices as markets become more competitive.

At the top of my To Do list is delivering choice in telecommunications -- especially local telecommunications. For the consumer, competition is all about choice. Residential subscribers want, need, and deserve more choice when it comes to local telephone providers and I'm determined that they will have that choice in the years ahead.

A second priority: affordable rates and comparable services for all Americans. We cannot allow our country to be plagued by an ever-widening gulf between information "haves" and "have-nots."

A third, but increasingly important, priority: consumer protection. In every market that becomes competitive, unscrupulous operators will find new ways to bilk consumers. "Slamming", "cramming" and outrageously high priced operator service calls are just a few examples. We have taken steps at the FCC to combat these problems, and will continue to do so. And we all must be ready to meet the challenges of consumer protection in competitive markets.

Let me first talk more specifically about competition and what we are doing at the FCC.

Competition is best viewed from the consumer's perspective, and I believe our job is to make sure that consumers have a basic set of rights. I call it a consumer Bill of Rights.

One of the hardest tasks we continue to face is to create incentives to change telecommunications networks, which were built and engineered for a monopoly era, to accommodate these basic consumer rights.

Much of the Commission's efforts over the past year, and in the year to come, will continue to focus on creating this basic infrastructure -- whether in numbering administration, number portability, or operational support systems for local competition.

And we must be able to be sure that the competitive infrastructure is working. We will shortly begin a proceeding to strengthen performance monitoring and reporting mechanisms that are critical to monitoring whether carriers are able to switch customers as easily as customers can sign up with an incumbent.

But unless we create this infrastructure and enforce the consumer Bill of Rights, consumers will not have real choice, and we cannot be said truly to have opened markets to competition.

The Act also provides us all with a mechanism to assist in creating this infrastructure, and to grade its adequacy: the Bell Company long distance entry process under Section 271.

The 1996 Act told the FCC that we are to permit the Bell operating companies into long distance when the Bell's have opened the door to competition in their local markets.

To help everyone get the job done, in December, I invited the Bell Companies, and all of the other interested parties, to join the FCC in collaborative discussions about how to meet the Act's preconditions for Bell long distance entry.

I am pleased to announce that all of the five Regional Bell Companies have taken us up on that offer. We've recently begun a series of what I hope will be constructive conversations with the BOCs, the states, the Department of Justice and others about the requirements of Section 271.

I look at these discussions as a collaborative process. We all are working to clarify the 271 process, to define the issues underlying the statute's requirements, and to help the companies and the Commission develop a better understanding of what is necessary really to create opportunity for choice to come to local markets.

These discussions will help Bell Companies file stronger applications, to be able better to demonstrate the effectiveness of the market opening steps they have taken, and to help the Commission to better understand the technical or business limitations that the Bell Companies and the entrants face.

I'm encouraged by the interest of the BOCs and others to engage in this collaborative effort. That will improve the process. I hope everyone involved participates in good faith and allows sufficient time for meaningful dialogue between the FCC and all interested persons.

That's what those discussions are about.

Here's what they're not about.

They are not intended to prejudge applications, but to build stronger applications and conserve everybody's resources.

Applications will be judged on the basis of what's contained in an application, and in comments filed by other parties. We will make decisions on the merits.

Universal service has been a hallmark of our telecommunications system since the invention of the telephone. The emergence and growth of competition requires that we re-double our efforts to preserve and enhance universal service. We cannot allow rural America to become a "have not" zone in the telecommunications age.

I have talked a lot about competition. But competition is not an end in itself. Competition is important only if it serves to build communities. Because our goal is not simply to bring lower rates and more choices to consumers. Our goal is to use those services and choices to foster the development of a telecommunication system that brings us together as a Nation.

The great federal interstate highway projects of the post World War II era were significant not just because they permitted the flow of commerce and allowed Americans to get more products faster and at cheaper price. The huge investment we made in those highway systems helped bring our Nation together. It connected communities and brought economic and social development.

Today it is the Information Superhighway that can bring us together as a nation. Or it can divide us. It can connect small and rural communities to the world of commerce and culture. Or it can leave them behind. It may be the most important factor in the economic development of our time.

This year, we must finish implementing a mechanism for sustainable universal service support to rural and high cost areas. There will be many difficult issues, such as how much does it really cost to build a network to serve rural America? What capabilities should that network be capable of delivering? And what is the appropriate allocation of responsibilities between the states -- when is it fair to call upon lower cost states to shoulder more of the burden, and how much responsibility must high cost states bear for funding universal service within their own borders.

To help move the debate forward, I propose a set of principles. I assembled these principles as a balanced package to be taken as a whole -- no picking and choosing.

There are eight principles. Here they are.

1. Universal service reform should not reduce the amount of explicit support that the state receives from the interstate jurisdiction. By this, I mean that costs that previously had been borne by the interstate jurisdiction because of the old high cost fund should continue to be borne by federal universal service mechanisms.

2. States have an obligation to take all reasonable steps as promptly as possible to reform existing intrastate universal service support mechanisms to make them compatible with competitive local markets by making the subsidies explicit and portable.

3. States should continue to collect as much of what is currently intrastate universal service support (whether implicit or explicit) from within their own state.

4. Where a state has fully reformed its own universal service mechanisms and would be collecting as much of what is currently intrastate universal service support as is possible, additional federal universal service support should be provided to any high cost areas where state mechanisms in combination with baseline federal support, are not sufficient to maintain rates at affordable levels.

5. Federal universal service support should be the minimum necessary to achieve statutory goals.

6. Federal and state universal support mechanisms should collect contributions in a competitively neutral manner.

7. Federal and state universal service support mechanisms should encourage efficient investment in new plants and technologies by all eligible telecommunications carriers.

8. Federal and state universal service support mechanisms should promote service to historically underserved areas -- Native American nations, for example.

I believe that if guided by these principles, we can reform our existing universal service system for the competitive age.

Universal service has always been a shared responsibility of the state and federal governments. The 1996 Act told us to get rid of these implicit subsidies and to make the subsidies explicit. In doing so, there is no reason for the explicit federal contribution to universal service to shrink and I do not intend for it to shrink.

By the same token, each state has the obligation to get rid of its own intrastate implicit subsidies, to make those subsidies explicit, and to recover as much of what is currently intrastate universal service support (whether implicit or explicit) from within its own borders.

The goal is to move from implicit to explicit support without requiring subscribers to pay unaffordable rates. This is not a job that either the FCC or the states can do alone; we need to be -- and are -- working together. And we will need the help of all of you, both through Martha's work on the Universal Service Joint Board, through NASUCA, as an organization, and through the individual efforts of each and every one of you.

But simply creating choice and reforming universal service will not complete the work that all of us face. Consumer confusion and complaints are an inevitable byproduct of competition. The recent UCAN report on competition in San Diego demonstrated that consumers likely will have problems both with the incumbent as well as the new entrants.

How does a customer choose between all these new local service options? What role can NASUCA play along with state commissions in helping to educate consumers on their choices?

Consumer education is a must. For a competitive market to function flawlessly in providing value and choices to the public, consumers must be aware of what is being offered. Therefore, we must strive to provide consumers with the information they need to take advantage of the opportunities that competition provides.

Even today a large number of consumers subscribe to their long distance carriers' basic service plan and spend a lot more on long distance than they need to, because they are unaware that through a single phone call to their carrier they could sign up for another plan and start saving money right away.

NASUCA also could help play an important role by assisting consumers and state commissions in the filing, organizing, and prosecution of complaints. States have limited resources. And this is a problem that's going to get bigger as competition increases. They -- and you -- will have to do some creative thinking.

Perhaps NASUCA and state commissions should group similar complaints together in a single proceeding and have NASUCA assist in the prosecution of the complaint.

But we all also need to do more. We need to think about the basic consumer protections we will need for a competitive world. As tariffs become relics of the past and contracts become the norm, what consumer protections are necessary? How do we keep pace with and address problems not just of slamming, but billing problems such as "cramming"?

We will have to work together to find the most efficient means of addressing these problems and protecting the public.

We are all fortunate to be participants in this revolution in technology that is profoundly changing our Nation and the world. But that also gives us a special responsibility. We must seek to ensure that this booming revolution in communications markets is an inclusive one -- one that creates opportunities for participation by all Americans. We must provide opportunities for employment, access and ownership, particularly for those who remain underrepresented in the ownership and employment ranks of these businesses -- minorities, women, persons with disabilities.

The communications and information industries represent the fastest growing sectors of our economy -- over $800 billion last year. We should create and expand opportunities in every sector of the communications marketplace. We shouldn't leave anybody behind.

Certainly not persons with disabilities. Last August, the Commission adopted rules to increase the amount of closed captioned video programming available to the 22 million Americans with hearing disabilities regardless of whether they receive their television signals from cable, DBS, wireless cable, or through over-the-air broadcast.

This is a vitally important step in making sure that Americans with disabilities get access. And in March, I plan to initiate another proceeding under Section 255 to propose ways to facilitate access to telecommunications equipment by persons with disabilities. I hope I can count on you to help us make sure that this proceeding is a success.

* * *

On this second anniversary of the Telecom Act, I'd like to leave you with one final thought. It's been only two years since President Clinton went to the Library of Congress and signed his name to the Act we've been analyzing today. It was such an appropriate place. Because here was a bill that would make everything in the Library of Congress available to every American with a few clicks of the mouse.

Not everyone was confident that he was doing the right thing.

Not everyone was confident that Congress had done the right thing.

Not everyone was confident that the FCC could handle the job of implementing that ambitious legislation.

Now, after twenty-four months, it's clear that they should have been confident on all counts.

After twenty-four months, the Act has produced important, tangible successes. There is much left to be done. But if we work together, we'll succeed. We will succeed in fulfilling the promise of the Telecommunications Act to bring competition and choice to consumers; to bring advanced services at affordable rates to all Americans; to bring new economic opportunity that can unite our Nation and narrow the gaps that divide us; and to fundamentally improve our country in ways unimagined just two years ago.

Thank you.