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William E. Kennard
Federal Communications Commission
to the
National Association of Regulatory Utility Commissioners
Seattle, Washington

July 27, 1998

(As prepared for delivery)

Thank you.

I am delighted to join you here in Seattle.

As you might recall, my first speech as Chairman of the FCC was at the NARUC meeting in Boston last November. Back then I was very excited to be addressing this group, and maybe a little bit nervous too. Kind of like a first date.

Well, I'm still excited, but now I feel so much more comfortable, because I know so many of you so much better now. I have come to rely on the support and good counsel of a lot of the people in this room, folks like Lynn Butler and Julia Johnson and Bob Rowe and Pat Wood and Joan Smith and many others.

Now I know that when I speak to a NARUC gathering, I am speaking to colleagues who understand the great promise of telecommunications at this moment in time, and who also understand the tremendous challenges that confront us each day in laying the foundation for all of the possibilities of the future.

Last week I was in Brussels at bilateral meetings with our counterparts in the European Union. We had a great exchange of views on a number of telecommunications issues. But the issue that captured a large share of the attention is what we are doing in the United States to create an environment for the creation of high speed, high capacity broadband networks for American homes.

Make no mistake about this: our ability to bring advanced services to the home is and will continue to be an issue that will define our ability to remain the world's preeminent high tech economy. It will unleash electronic commerce, and bring it from Wall Street to Main Street, producing tremendous economic growth for all Americans and preserving our world leadership in telecommunications.

We should remain the world leader. We invented the Internet. U.S. companies dominate the development of both the hardware and the software that drive the Internet. So the world is watching what steps we take in this country to bring the Internet to the next frontier -- broadband access to the home.

When debate on the Telecommunications Act of 1996 took place, 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. If you wanted to buy a book from Barnes and Noble, you had to drive there. Today you can surf there. And even better, on the Net you've got a choice between Barnes and Noble or Amazon.com without leaving your home.

The principal debates leading up to the Telecom Act of 1996 were how to promote competition in the traditional voice markets: local and long distance. The States and the FCC continue to work toward the Telecom Act's goal of open and competitive local phone markets. We must continue to do our job promoting competition and ensuring reasonable rates in the voice telephone market.

Bringing competition to our voice network is also a vital step in the development of the broadband technology of tomorrow. The marketplace of tomorrow will be built on the networks of today. The federal-state partnership has provided the best telephone network in the world, and it will be the primary network for many years to come. Any new network should be complementary to the old one, not seen as a replacement.

But there's a second, parallel challenge before all of us that holds the promise of tremendous benefits for jobs and our economy, for education, for urban and rural communities, and for families. This is the challenge that will make e-commerce a reality and bring new products and services to the home. It's the challenge of speeding up the Internet and ensuring the buildout of high capacity data networks to all Americans. It's a challenge of opening up new telecommunications markets and new services. It is a challenge we must all work together to meet today.

Even as I speak, there are thousands of Americans who already are banking electronically from home, or acting as their own stock brokers, or buying their own airline tickets and choosing their own seats -- all online. 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. In simple terms, this means more jobs and billions of dollars of growth added to the nation's economic output.

This is where the growth is. 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.

We shouldn't be surprised that more than 60% of Americans check their e-mail daily. There are currently 75 million e-mail users in the U.S. sending 225 billion messages each year. In three years there will be 135 million e-mail users sending 500 billion messages.

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? This year, entertainment companies are converging on the Internet. They see the Web as another distribution channel for their entertainment programming. Just this summer, NBC and Disney both bought Internet portals.

Demand for bandwidth doubles every month. But it could grow faster and consumers could see even more benefits if the "last mile" could carry even more. Last week, a reporter observed that audio programming on the Internet "sounds like it is coming in on two dog food cans and twine." That's a problem of too little "bandwidth." It's like trying to fight fires with a garden hose instead of a fire hose. Capacity improves performance.

There is some serious money being bet that all of us will let technology blow open the "last mile." Last week's $1.06 billion initial public offering of Broadcast.com, the astounding growth in the value of audio and video supplier Real Networks, and AT&T's proposed $48 billion purchase of TCI's broadband networks are typical of the serious bets the last mile limitation will be eliminated.

What must the FCC and the States do if we are to end the World Wide Wait? How can we give back residential Internet surfers the 25 hours each year they currently spend waiting for Web pages to load?

How can we ensure that our strong economy continues to grow, improves the way our children learn, enhances the quality of health care delivery to small towns and rural areas, and gives citizens our poorest and rural areas the same opportunities as all other Americans?

In discussing these questions with many of you, I have been pleased to discover the extent to which we are all in sync as to the vision we have for the future. It is an optimistic view, and it reflects a confidence in the direction that Congress set in the 1996 Act -- an open, procompetitive, robust telecommunications market that is freed to meet the demands of American business and consumers in all parts of the country.

Congress has provided the blueprint. Our job is to make sure that competition in the broadband market is fair and open to all those who want to compete.

Now let me set the record straight on what that means when it comes to the deployment of advanced telecommunications services, and what it doesn't mean. First and foremost, in my view, the 1996 Act requires the incumbent local exchange carrier to make all of its network elements available to its competitors. I find no exception in the Act for data as opposed to voice, or for equipment in which the incumbent has invested since passage of the Act as opposed to before the Act.

I believe Congress was quite clear about this in section 251 of the Act. Indeed, it is interesting to note that in passing the 1996 Act, Congress gave the FCC explicit authority to forbear from enforcing almost all of the laws and rules applicable to telecom companies, in appropriate circumstances. But when it comes to the market-opening provisions of section 251, Congress withheld that forbearance authority.

The FCC should not forbear and, in my view, cannot forbear from section 251 until it is fully implemented. Strict enforcement of the Act's market opening provisions is crucial to making the Act a success.

Congress was equally clear that the Regional Bell Operating Companies may enter the market for the provision of interLATA services only when they have complied with the 14-point competitive checklist and the other requirements of section 271. And again, in granting the Commission substantial discretion to forbear from many of the Act's requirements, Congress told us not to forbear from section 271 until that checklist is satisfied.

I have never departed from these bedrock requirements of the 1996 Act. And I would not propose that we depart from them in the future.

So that is my starting point when I think about the challenge we face, the challenge of creating the environment in which advanced telecommunications can flourish. If we are to set the conditions for a competitive marketplace, our top priority must be to ensure that the dominant position in existing services that the incumbents now enjoy is not extended into the market for the new services that advanced telecommunications make possible.

At the same time, to make that environment a reality, we need everybody's resources, everybody's capital, everybody's efforts. I have said before that I can envision the creation of a separate subsidiary by the incumbent local exchange carriers, that would be free of much of the regulation that is still necessary in the case of the parent company.

Now let me be very clear: I am not talking about relaxing any of the obligations that Congress imposed on the incumbents in the 1996 Act. In fact, a competitive market for advanced services depends upon strict enforcement of the incumbent's unbundling obligations when it comes to the basic underlying elements. At a minimum, a competitor must have access to the incumbent's loops and must have access to the incumbent's central offices in the form of collocation. And this is true with or without a separate subsidiary.

Once a competitor has access to these elements on fair and reasonable terms, it can invest the additional electronics needed to offer advanced services. Now some say that the competitor must have access not just to loops and collocation, but also to the new technology used by the incumbent to provide advanced services. They say we must unbundle the DSLAM, just as we unbundle the loops.

Well, if the DSLAM is owned by the incumbent, and thus the incumbent is providing advanced services on an integrated basis along with its switched services, then I agree that the DSLAM and other electronics must be unbundled and offered to competitors. These facilities appear to be network elements, and the Act requires that an incumbent LEC allow its competitors to purchase them.

But what we hear from the incumbents is that they need and deserve the opportunity to make investment decisions with respect to new technology in accordance with the rules of market risk and reward, rather than regulatory risk and reward. Allowing the incumbent to create a truly separate affiliate, that will be in the same position as any other entity seeking to offer advanced services, may offer that opportunity.

If an incumbent forms a separate subsidiary to provide advanced services, than that subsidiary will have access to the incumbent's facilities under the same terms and conditions as every other competitor, 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, value, and service. The obligation of nondiscrimination rests with the local phone companies. It is an obligation that they must take seriously, and the FCC and the states must enforce as strictly and as swiftly as any rule on the books.

There will be those who say "Go slow." Don't upset the status quo. No doubt we will hear this from competitors who perceive that they have an advantage today and want regulation to protect their advantage. Or we will hear from those who are behind in the race to compete and want to slow down deployment for their own self interest. Or we will hear from those that just want to resist changing the status quo for no other reason than change brings less certainty than the status quo. They will resist change for that reason alone.

So we may well hear from a whole chorus of naysayers. And to all of them I have only one response: we cannot afford to wait. We cannot afford to let the homes and schools and businesses throughout America wait. Not when we have seen the future. We have seen what high capacity broadband can do for education and for our economy. We must act today to create an environment where all competitors have a fair shot at bringing high capacity bandwidth to consumers -- especially residential consumers. And especially residential consumers in rural and underserved areas.

Let me be clear: I don't care who wins the race to bring high capacity broadband services to America's homes. Whether it's ILECs, or CLECs, broadcasters, cablecasters, or satellite providers, my goals are simple: get this capacity into America's homes, get it there as quickly as possible, and make sure that every competitor has an opportunity to compete on a level field in getting it there. And most importantly, give Americans a choice in the providers of these services.

I believe we have a narrow window of opportunity here to create a truly competitive marketplace for these new services. If we do not act with dispatch, that window will close.

Another area where we can work together to promote the deployment of broadband services is through the concept of universal service. We should ensure that all areas are served in the most efficient way, rather than mistakenly trying to use universal service support to pay for less efficient technologies in hard-to-serve areas. We must let the network of networks adapt to different environments. Instead of trying to make the same twisted-pair network work everywhere, let's create a world where wireless networks can serve less densely populated areas if that is more efficient, and where satellites can serve the most remote areas. In fact, maybe these technologies will support more efficient deployment in many urban areas as well. The point is that neither the FCC nor the States should be choosing technologies. Instead, we should be clearing away all barriers to entry and letting customers pick from among many different choices of providers.

We have before us a great opportunity and a great challenge. Together we can lay the groundwork for fair and open competition.

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

Thank you.