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William Kennard
Federal Communications Commission
USTA's Inside Washington Telecom
April 27, 1998
(as prepared for delivery)

I want to thank USTA for inviting me to participate in the 1998 Inside Washington Telecom series. And I especially want to thank my good friend Roy Neel, for his good advice and counsel, both during the nomination process and during the first months of my chairmanship.

You know there are an endless number of opinions and ideas about the complex issues we all face these days, and my colleagues and I at the FCC have quite a challenge on our hands as we try to sort it all out. But speaking for myself, I can take some comfort that there are a lot of dedicated, hard working people of good faith outside the Commission who have been helpful to me. Roy Neel is one of them. And so again I say thanks to Roy Neel for his friendship and good counsel.

As you know, we at the FCC have a lot of work in front of us, and although this is an insider's forum, I thought I would share with you a few of the ideas that I will be focusing on in a very public way in the coming months. In particular, I want to tell you about what we are doing with respect to universal service, and also what we are not doing. I also want to tell you about how we will continue to step up our consumer protection efforts. And I want to tell you about my goal of ensuring that the FCC is paving the way for technological innovation, rather than standing in the way of it.

Let me start with universal service and specifically the high cost support mechanisms. The 1996 Act was about competition and deregulation. But it was also about something else. It was about universal service -- about making sure that the whole country is connected and stays connected, not just using the technologies of today, but also with the technologies of tomorrow. The 1996 Act for the first time wrote universal service expressly into the Communications Act. And only through sufficient universal service funding can we attain the goal of keeping all Americans on board the technology train that is hurtling down the tracks.

As you know, next January 1, 1999 is the date that we will implement a federal high cost mechanism for the larger telephone companies, and I will talk more about that in a minute. But first I want to say a few words about the smaller, rural carriers and the implications of universal service for them.

When it comes to our country's smaller, rural telephone companies -- companies that serve one-third the nation's geography but only about 5% of the population -- if it ain't broke, don't fix it. That may not be the way common carrier lawyers are supposed to talk, but that's really the way I feel.

I visited a small rural telco not too long ago and what I saw was a first-rate telecommunications operation. I didn't see anything that was broken and I had no desire to offer any fixes. The Commission has already taken explicit small company support, changed the way that support is collected to be consistent with the 1996 Act, and made that support portable between competing carriers. That's a lot of change for companies that are geographically very targeted and undiversified.

My bottom line is that universal service reform is something the Commission should do with the small rural carriers, not to them. The Joint Board will soon appoint the Rural Task Force, which I fully support as a means of developing a greater consensus on what further actions, if any, must be taken for universal service support to high cost areas served by small companies. But I also want to be clear on this point -- I see no reason why further small company reform must begin in 2001. We should make changes only when it is right to make changes, and not before.

For the larger carriers, we are pressing ahead with our plans to meet the January 1, 1999 implementation date. We are especially focused on continuing our efforts to identify and quantify the amount of universal service support that is implicit in access charges and to move those amounts to the explicit funding mechanisms mandated by the 1996 Act. We are not creating new costs that will increase the amounts collected from ratepayers. For every dollar of new high cost support we identify, we expect there will be a dollar reduction in the current service prices that still contain the implicit support.

This is an essential part of the process, as mandated by the 1996 Act, of establishing a universal service plan that will be consistent with the competitive market that we want to see in local services. And therefore universal service is one of my top priorities for 1998.

Another priority for 1998 and for the years ahead is consumer protection. Consumer protection has always been an important part of our mission, but it is clear that with the advent of competition, the FCC's consumer protection role must change. To be sure, reviewing tariffs of dominant carriers to make sure their rates are reasonable is a consumer protection function. And it is one the FCC has devoted considerable resources to carry out, as all of you know very well. But now consumer protection also means taking steps to ensure that competitors and the competitive marketplace are able to operate efficiently so that informed consumers get the services they want at the prices they are willing to pay.

Let's talk about slamming, for instance. With hundreds of long distance carriers battling for the consumers' business, the rigors of competition will cause some to look for a way to cheat. And indeed, slamming has become our number one consumer protection issue.

Well, the FCC is slamming back. Last week we revoked the operating authority of a guy named Daniel Fletcher, and fined him and his companies over five and a half million dollars. That should serve as wake up call to all slammers, and I assure you we are far from finished. We are considering an order that will make our slamming rules even tougher. Our strategy has to be based on the goal of taking the profit out of slamming, by adopting tough rules and insisting on strict and swift enforcement.

Now some suggest that the answer to slammers is to challenge the qualifications of anyone who wants to compete, to make them fill out detailed forms that the FCC would review before allowing the new entrant into business. Under this view, we should bulk up the staff of the FCC for the purpose of putting new entry barriers in the way of would-be competitors. That idea is going in exactly the wrong direction, in my view.

Just imagine if we had a rule that said you have to come down to 1919 M Street and fill out a bunch of forms before you get to compete. What would Daniel Fletcher have done? Does anyone really believe he would have told us that his business plan was to slam thousands of consumers? Of course, not. If slammers will lie to the public, they will lie to us.

In fact, the main impact of stringent entry requirements would be brought to bear on all the legitimate carriers whose entry into long distance would be held up while we at the FCC process their papers. That is not the solution to slamming.

It's like when you're driving down the highway and there's a traffic jam. There will always be one or two drivers who will pull on to the shoulder and pass by all the folks who are being the good guys, and then creating a big mess when they need to cut back into the traffic lanes.

Well, if I'm a cop, I don't think the answer is for me to stop every single car as it pulls on to the highway and discuss whether they are going to drive on the shoulder. That slows everybody down even though most people aren't going to cheat. It's better to let everyone proceed with the understanding that most of them will behave properly, and then the cop can keep a very close eye on the breakdown lane and nail the Daniel Fletchers of the world when they cheat. Well we just busted Daniel Fletcher and we're just getting started.

As we undertake efforts at lessening traditional regulation, it becomes important for the Commission to find innovative ways to deal with issues other than in the traditional way of opening another docket or opening another inquiry. This market is moving too fast for that. We need to find shorter and less formal ways of getting the answers to the public and the industry for questions that need to be answered today.

Last week, for example, I called upon the local exchange industry to come together with the Commission to solve the relatively new, but increasingly serious problem of "cramming." I am sure you all have heard about "cramming"--which is when a customer receives a bill, usually rendered by the local exchange company, for products or services of a different company that he or she did not order. I want to solve this problem--and if at all possible I want to solve it now by working in association with carriers and others, not after however long it may take to complete a rulemaking docket.

So we are going to try something a little different. I have invited representatives of the local exchange community, including competitive local exchange providers, to begin meeting with me and Commission staff in a couple of weeks to see if we can formulate a voluntary code of best practices to eliminate cramming from local bills. The response from the industry has been pretty positive so far and if this test case works, I hope it can lead to other cooperative efforts where we find speedy and innovative ways to solve consumer protection and other issues.

And this leads me to some other opportunities we have this year to make significant progress in streamlining and deregulating portions of this industry.

I want to get rid of any regulations that are not necessary to promote competition or protect consumers. Although I have been a communications lawyer for almost 17 years, I have had an extraordinary education in the last six months as chairman. Much of what I have learned recently is in the area of common carrier regulation, and the mass of detailed, often arcane, rules that have accumulated over the years is staggering to me. The question is not how did these rules get there. The question is how can we best eliminate rules that have outlived their usefulness. As you know, we are undertaking a biennial review of our regulations this year and we have identified a number of our existing common carrier regulations as candidates for overhaul or elimination. I am particularly interested in eliminating barriers to innovation and investment. Here are a few questions I have been thinking about.

First, can we find a way to permit companies to experiment with new technologies with little or no regulatory pre-approval? I think we ought to be able to. When a service becomes ready for commercial offering, of course, we must ensure that statutory requirements are met, such as non-discrimination. But if we treat every experimental offering just like a full-fledged commercial offering, we will be discouraging innovation. So, we need to look at our rules in this regard.

Second, can we simplify our accounting rules, especially for mid-sized companies, and vastly simplify our separations rules? I believe the Commission should reexamine our accounting rules in the very near future. This should be the principal focus of the Federal-State Joint Board on the separations issues. At the Joint Board staff meetings last month, one of the key proposals under discussion was a USTA proposal to "freeze" in some way our separations allocators. We need to give serious consideration to such proposals -- which have the potential to transform the detailed separations cost studies that have traditionally burdened telephone companies into historical curiosities.

Third, and what really has me excited this year, is the review we must conduct under section 706 of the Act, which is intended to promote the deployment of advanced telecommunications infrastructure to all Americans. With the explosion of Internet and data traffic that is occurring, it has become apparent that new types of networks need to be built over the next several years to more efficiently handle data traffic. At the same time, the industry must employ new technologies to expand the bandwidth available in copper loops so that all Americans, not just businesses that can afford special facilities, will have access to high speed services.

Under section 706, we must undertake an inquiry no later than August of this year. But already several of the regional Bell companies have filed petitions under section 706. We are reviewing the comments on these petitions. But I would like to share my thoughts on the principles we need to apply as we review these requests and consider the larger issues under 706.

First and foremost, I want to rely on competition to have advanced infrastructure deployed. And I do not want to favor one technology over any other. We want to make sure that cable, wireless, and wireline technologies all are given a fair chance to bring broadband services to market.

I, for one, am not afraid of seeing wireline telephone providers have a first mover advantage -- if you make the investments to get to market first and provided that you do not use your control of the local network to stop or hinder others from investing and trying to be the first to market.

I want to encourage the deployment of high bandwidth access to residential customers, particularly underserved areas, as well as schools and health care facilities across America.

And I want to make sure that current regulation does not prevent the deployment of facilities that otherwise would be built. I want incumbent telephone companies to play a major role in the deployment of these services.

At the same time, it is important to ensure that any first mover advantage that an incumbent gains is not a permanent advantage. Where loops remain an essential facility, we also need to consider how that essential facility can be made available to other competitors as well.

If we can ensure that all comers have a fair opportunity to compete to offer these exciting new services, we have before us the prospect of allowing these services to be offered in a virtually deregulated environment. By this, I mean that these new packet networks, when offered in a competitive environment through an affiliate of the incumbent, could be free of retail regulation and exempt from unbundling and discounted resale requirements.

What will it take to achieve this? At a minimum, we must be confident that all competitors will have the same quality of access to the existing copper loops owned by incumbents and we may need to tighten up our collocation policies as well, because loops and collocation will be critical to the development of a truly competitive market.

So I think you will agree this will be a watershed year for the Commission. It will be a year in which we will be trying out new ways of solving industry problems and considering meaningful deregulation of those parts of the industry where such deregulation is justified, while always staying focused on advancing the interests of the consumer. I'm excited by the tasks before us and I hope the local exchange industry will join with us in this challenge.

In fact, I need your help. I need your help in making sure that new advanced services can become pipelines of opportunity not just for the affluent areas, but also for rural and inner city America. I need your help in identifying whether these areas may lag behind as more advanced services are deployed, and in figuring out how we can ensure that this Nation does not suffer from a digital divide between the haves and the have-nots. I need your help in finding out whether there are marketing realities that may hinder access to rural and inner city America, or whether these are just perceptions that need to be overcome.

The great thing about having a communications system that evolves to be a network of networks is that no one network has to do it all. But in totality, we need to provide universal access to the opportunity that communications can provide for everyone. Together, we can make that happen.

Thank you.