[ Text Version | WordPerfect Version ]

William E. Kennard
Federal Communications Commission
Federal Communications Bar Association
June 24, 1998

(As prepared for delivery)

Thank you.

Well, isn't this always the way things work out? I worked on my speech yesterday. Writing, editing, revising. And then, last night, just when I'm putting the finishing touches on it, I hear the bombshell news. And I have to decide whether to re-write my entire speech to address this latest shocking development.

Well, I decided not to. I mean, it was so unexpected. Who would have dreamed that Norway would beat Brazil in the World Cup?

But I will say a word about the announcement by AT&T and TCI.

I am looking forward to learning more details about this transaction. If it means that these companies will make a real commitment to building facilities to bring residential voice and high speed Internet competition to America's homes, then this merger is eminently thinkable. But only if there are tangible consumer benefits.

That is what I want to talk about today -- what I believe to be the most exciting challenge that we face at the FCC today. It's the challenge to make sure that every American enjoys the benefits of the communications revolution -- bringing the best of the Information Age into every home in America.

But I thought I'd begin by sharing with you a story that may have some special resonance for people in this room, particularly in the wake of yesterday's news about the Microsoft case.

Bill Clinton, Al Gore, and Bill Gates are up in heaven, and God is sitting on a great white throne. God addresses the Vice President first:

"My son, what do you believe in?"

The Vice President replies, "I believe we must ensure that all people have access to technology to improve their lives and that we must protect and preserve the environment."

God thinks for a second and says, "That, my son, is a noble mission. Come and sit by my side."

God then addresses the President. "Son, what do you believe in?"

The President replies, "Well, I believe in democracy and building a better America."

God thinks for a second and says "That, my son, is a noble mission. Come and sit by my side."

God then addresses Bill Gates. "Son, what do you believe in?"

Bill Gates says, "I believe you're in my chair."

A decade ago, few would have predicted the influence that Bill Gates and Microsoft would have on the communications marketplace. Did anyone predict the AT&T-TCI announcement? It's certainly a fast changing landscape.

Consider the debate on the Telecommunications Act of 1996 that took place at a time when the Internet was only just beginning to emerge as a phenomenon in telecommunications. Most anyone who connected to a commercial online service did so at a mere 9600 bits per second. Building Web pages for a living seemed a risky proposition. And "Yahoo!" sounded like a chocolate-flavored drink.

When Congress passed the Telecommunications Act of 1996, we all thought we were setting the stage for competition in the local market for plain old telephone service over the old public switched telephone network. The principle debate about the Telecom Act was about how to promote competition on the analog network: local and long distance.

Cable, long distance and local telephone companies all said that they were going to enter each other's businesses. Entry turned out to be harder and more costly than expected.

But the rise of the Internet has changed business plans again. Companies can now compete to sell high speed Internet access. At the same time, all communications products are becoming digital bits. Whether audio, video, voice or Internet data, they are all computer codes -- ones and zeros. This brings down the cost of competition. Internet and digital technology have the potential to renew the promise of the Telecom Act.

Circuit switches are giving way to packet switches. Instead of keeping an entire circuit open and dedicated to a single conversation for the length of the phone call, packet switching breaks the spoken words into tiny data packets that are disassembled, then transmitted separately over the most efficient routes possible, and then reassembled at the other end of the call in microseconds. The same technique can be used to handle other types of traffic, such as data, image, and even video.

It is an amazing technological advance that greatly expands the capacity and functionality of the network. It's no coincidence that while the market for voice services is growing at around five percent annually, the packet-switched data business is growing at an annual clip of 300 percent. Amazing.

But what does this mean for the average American sitting at home? Should the public be excited about the explosion in data transmission and the expansion of bandwidth capacity? You bet they should. Because when we can harness this new technology and put it to work in living rooms across the country, we will open up exciting new horizons for the American people -- new horizons for entertainment, information, and communications services for all Americans.

It means that the same high speed Internet access that many Americans enjoy in the workplace will be available at home.

It means that the same copper wire that allows families to connect over the phone will permit them not just to talk to each other, but to see each other as well. So instead of gathering around a telephone to sing happy birthday to a relative on the other side of the country, the family will gather around a computer and see their relatives in real time video coast to coast. The technology is here. We just need to get it to America's homes.

It will mean having the ability to download a feature length movie in a matter of minutes, and then watch it when you want to, rather than having to consult the TV guide or worry about late fees at the video rental store. The technology is here. We just need to get it to America's homes.

It means that we'll be able to hop from web page to web page on the net as quickly as we can change channels on the television with the remote. People will no longer have to take a break from their home computer while they wait for it to download data. This is what home computer users call the World Wide Wait on the World Wide Web. The technology is here. We just need to get it to America's homes.

It also means opening a whole new world of electronic commerce.

Let's talk about electronic commerce for a minute -- doing business over the Internet. Expanding bandwidth to the home will make shopping from home easier than shopping from a catalogue, with even glossier photos. This type of home shopping is just the tip of the iceberg when it comes to e-commerce. The technology is here. We just need to get it to America's homes.

The current edition of BusinessWeek has a column on e-commerce that's entitled "You Ain't Seen Nothin' Yet." That title hits the nail on the head. This year, revenues from e-commerce are expected to be around $20 billion. That number is expected to grow to $350 billion in four years. E-commerce is so much more efficient. It can cut retailing costs by up to 10%. That means more jobs and billions of dollars added to the nation's economic output.

So if the technology is here, why aren't Americans seeing these benefits in their homes?

The problem is bandwidth to the home. Imagine trying to fill a backyard swimming pool with a garden hose. There's plenty of water in the city reservoir to fill the pool, and there are huge water mains that can deliver the water down your street. But when you get to the final link in the chain -- the garden hose -- suddenly the water starts flowing a lot slower, because the hose is too small compared to the amount of water you are trying to pump through it to fill the swimming pool. The hose -- the "pipe" -- is just too small.

It's the same way with high speed data transmission. The Internet backbone is a network of networks that has plenty of capacity to pump data all over the country very quickly. But when it reaches that last mile, the copper phone line that runs into your house is a lot like that garden hose. It can't handle the amount of data that needs to be pumped through it to fill up your computer screen quickly.

But all that is changing. Here's one way we can tell. Last year, the pundits were saying that all the bandwidth in the world wouldn't help if the major entertainment companies didn't change their perceptions of the web.

Well, guess what? Entertainment companies are converging on the Internet and buying the web directories that we rely on to surf the 'Net. They see the web as another distribution channel for their entertainment programming. That's why in just the past two weeks, NBC and Disney both bought Internet portals.

Seems like everyone wants to move to a Portals these days.

We recognize that convergence is upon us, and so the FCC is working hard to promote deployment of high-speed transmission across all the media. Cable companies are using their cable lines and high-speed cable modems to deliver data to the home at lightning speed. Two weeks ago the FCC issued rules so that soon Americans won't have to rent their cable modems from the local cable operator, but will be able to buy a standard cable modem from a number of sources, just like you buy a computer modem or a telephone.

We also are seeing changes in wireless technologies. We just issued the first set of high capacity wireless licenses for local multipoint distribution services, or LMDS. We will auction more spectrum in the future that can be used for these types of fixed services, such as our upcoming 39 GHz auction. And within two months wireless cable operators will be able to offer high-speed data.

And broadcast television, for the first time, will be able to use its huge amounts of bandwidth for one-way digital transmission including data and Internet access, as well as stunning high resolution video and CD quality audio.

Now we are confronting another issue with serious implications for broadband delivery over cable and broadcast: must-carry for broadcasters' second, digital channel over cable.

And phone companies and others are investing in ways to transform the copper phone line to work similar wonders for the American consumer. Many companies are chomping at the bits to provide their services to residential customers.

At the FCC, our job is to fire the starting gun and let the race begin. We should not micromanage the race. We simply need to make sure that the race is fair and open to all who want to compete. Because competition always beats regulation as the way to bring consumers more services, better quality, and the lowest prices.

So our job is to ensure that these bandwidth technologies that can improve the lives of American consumers are deployed in a pro-competitive manner. I believe that this is what Congress intended the FCC to do.

So what does this mean? For openers, it means no price regulation for residential high speed data services. All companies are new entrants when it comes to these services, and I see no need for price regulation.

But we should go even further. To provide the advanced services, telephone companies will have to invest in advanced electronics. But the telephone companies have rightly asked, why should we make this new investment if we simply have to turn around and sell this new service -- or the capabilities of these advanced electronics -- to our competitors? If the telephone company has opened up its underlying networks to competition, the competitors can invest in the same advanced services.

Where networks are open, I see no reason to require discount resale or unbundling of these new services and advanced technologies that are available to all.

But let me be clear that when I talk of deregulation, I am talking about deregulation of advanced technologies. To return to my metaphor, these are the technologies that turn the garden hose into a fire hose so that you fill that swimming pool a lot quicker.

Today's announcement by AT&T and TIC could move us even more quickly to the day when we have another all-star competitor in the race to provide broadband to each home. I want to see if AT&T is committed to investing in advanced facilities and competing head-to-head with local phone companies to provide high-speed voice and data to the home -- if they plan to offer a second, bigger hose. That's what makes this deal thinkable. But the proposed deal does highlight the conflict in the way the Telecom Act treats common carriers and cable operators, especially on how open and accessible their networks are to users and competitors.

But for now, in most areas there is still only one hose -- the copper phone line that runs into the home, what we call the local loop. We may have expanded its capacity, but the question is: who gets to use it to reach the end user, the American consumer at home? The local loop is a bottleneck. How can we promote competition if one competitor owns a piece of the network that others must use if they are to compete?

This leads me to three principles that I believe we must follow if we are to have a competitive, deregulated market for high-bandwidth uses of the local telephone network.

First, we must identify the facilities that are truly critical to the deployment of high bandwidth technology to the home. These are facilities that in most instances, at least until cable television rolls out these services, will be controlled by only one provider -- the local phone company. These critical facilities must be made available to competitors. This includes the local loop and the space in the local phone company's central offices where both the phone company and its competitors can install the new technology. Competitors also must have access to the incumbent phone companies' operations systems -- the hardware and software used to order, maintain and control the critical facilities.

Second, we need to make sure all participants in the market, including the incumbent local phone company, have access to these facilities under the same terms and conditions, with the same information about network technology and interfaces. Open and fair competition means all competitors must be able to buy and take delivery of the facilities in the same way through the same systems. This allows them to compete on the basis of quality, service, and value. The obligation of nondiscrimination rests with the local phone companies. It is an obligation that they must take seriously, or else we will enforce it as strictly and as swiftly as any rule on our books.

Third, competing providers must interconnect their networks so that customers of one provider can interact with the customers of another. This is the concept, as I said before, of a network of networks. Providers that have the lion's share of the total network must permit interconnection by smaller providers. Interconnection of data networks is absolutely crucial if competition is to emerge. We will be watching to make sure it happens.

If these conditions are met, competition and consumer demand will take care of the rest.

Three simple conditions: identify the essential facilities; give competitors access to them; and make sure competing networks can interconnect with one another.

If we do this, there is no need for additional FCC regulation of advanced services, whether offered by the incumbent phone companies or by their competitors. No tariffs to file, no retail price regulation, and no unbundling of the new technologies that must be deployed to make expanded bandwidth to the home a reality. Because that new technology is really a new frontier, one that should not be burdened by regulation.

We have before us a great opportunity and a great challenge. At the FCC, our challenge is to lay the groundwork for fair and open competition, to make sure that everyone has an equal shot at winning the race, and then getting out of the way. To those of you in these industries, your challenge is to race hard and to race fair.

We are at a crucial juncture in the deployment of advanced communications services to the home. The promise and the thrill of the Information Age should not be the exclusive domain of big businesses or of the affluent or those who happen to live in urban areas. I want to create conditions so that all competitors are free to make the very best our technology has to offer available to every community across the country, to every home, to every school, to every library, to all Americans.

Thank you.