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William E. Kennard
Chairman, Federal Communications Commission
Legg Mason
Washington, D.C.
March 11, 1999

A Stable Market, A Dynamic Internet

(As Prepared for Delivery)

One day here in Washington, one of the most important officials in our country dealing with technology, innovation, and new ideas, surveyed the technological landscape, and pronounced, "Everything that can be invented already has been."

The man was Charles Duell, the director of the U.S. Patent Office. The year? 1899. Exactly one hundred years ago.

Sometimes, even people in Washington get it wrong. Imagine that.

But then again, who among us could have predicted the future? And I don't mean forecasting what will happen over the next 100 years. Just think about our own lives. Who could have predicted the amazing advances in telecommunications that we are living through today?

Bill Gates? He's a smart guy. In fact, this year the FCC moved its headquarters to a new building in Southwest Washington, D.C. called "The Portals." I looked up the word "portals" in the dictionary. In Latin, it means "gates." You have to admit, the guy is good.

But even Bill Gates doesn't get it right all the time. In 1981, Gates summed up the demand for PCs this way: "640K ought to be enough for anybody."

McKinsey and Company, the management consultants? They're smart, too. Gates pays these guys thousands of dollars for their advice. Well, in the early 1980s, McKinsey and Company predicted that by the year 2000, nine hundred thousand Americans would have cell phones.

Well, it's not yet the year 2000, but almost 70 million Americans own a mobile phone. And that phone fits in your shirt pocket and runs on a service that costs 40 percent less than it did just three years ago.

Of course, I should note that McKinsey made its prediction years before my predecessor, Reed Hundt, joined that firm.

Imagine the changes that we have witnessed in our own lifetimes. When I was growing up, there were three networks that we watched on a black-and-white TV. Now, more Americans are watching cable networks than the big three. They are watching in color, with captions, and soon they will be watching a digital picture clearer than anything they've ever seen before.

And not too long ago, there was one phone company. Choice in service meant one thing: you can choose to have a phone or you can choose not to have a phone. Now, there are over 600 long-distance companies offering any number of pricing plans to fit your calling needs.

But as you know, the most stunning and paradigm-shifting innovation in telecom of the past 10 years, if not the past 100 years, is the Internet.

We all know how this is changing every facet of communications - from radio, to TV, to telephone - and almost every facet of our lives - from shopping, to trading stocks, to even how we value companies. Whether on phone lines, over cable wires, or through the airwaves, millions of people worldwide are going on-line.

And because of spectrum that we have made available, in the coming years, they will have even more on-ramps - satellite and third-generation wireless - onto the Information Superhighway. Yes, it's hard to believe that the Internet is still just in its infancy.

As we enter the networked future, a New Economy powered by information zipping along the web, we need to understand how we got here. How the Internet came to be.

Thirty years ago this October, researchers at Stanford and UCLA, decided that it was time to test the new Arpanet, the Internet's forerunner. Thirty years ago, they sent the very first e-mail message.

And the first message, was not something as profound as Morse's first telegraph message where he asked, "What hath God wrought?" Nor was it as practical as Alexander Graham Bell's, "Watson, come here, I need you."

No, the first word ever sent by e-mail was toward "lo" - "L;" "O."

The reason for this was simple: they were trying to type "login," but the network crashed before they could finish.

Now, I don't know about you, but I'm still having this problem.

Although this momentous occasion was essentially a blooper, I believe that there are important lessons that we can draw from this.

First, think about who was involved in this first e-mail message. Not a government agency, not a regulator, but students and scholars at two universities.

Now, the Arpanet was seeded with government money, but the development of it and the Internet was by people working in our nation's universities, labs, and even garages. By people with big ideas and even bigger dreams. Men and women willing to take risks on the future.

I believe that these fertile fields of innovation in Silicon Valley, in Boston, in Denver, in Northern Virginia, and around the country bloomed because of the open, even chaotic, nature of the Internet.

No one owns the Internet. No one has proprietary control of its language. Together, basic standards are developed and agreed in open processes in which all can participate.

Once the ground rules are established, anyone can develop a new application or a new service using this platform. The Internet protocol is becoming a universal language - a universal language of innovation.

Remember, the World Wide Web - perhaps the most significant Internet development so far - was created after the Internet itself. And now we have Internet Voice, Internet Radio, and on and on - with no apparent end in sight.

I believe that two things are most responsible for the explosion of the Internet, the fastest growing communications tool in the history of the world.

First, this tradition of openness. Second, the fact that the Internet is unregulated.

The Internet grew so fast that regulators hardly had a chance to regulate it even if they wanted to. And that's a good thing.

Now, two weeks ago, the FCC made a decision that addressed the payment of reciprocal compensation for Internet-bound traffic.

Now, in plain English, this means that the decision dealt with the way in which different phone companies pay each other for connecting your call to the Internet.

With this order, it's clear that the FCC, and the FCC alone, has jurisdiction over Internet traffic. It means that no state can impose long-distance charges. And the FCC won't either.

Let me say this as clearly as I can: as long as I am chairman of the FCC, we will not regulate the Internet.

Unfortunately, there are those who, for whatever reason, try to rile up Internet users saying that the FCC is going take all those old phone regulations and dump them on the Internet. That people are going to have to pay long-distance charges to get on the Internet.

Rumors are flying around town and around the Internet itself that the big, bad FCC is ready to regulate.

I know this, because every so often, someone starts this rumor and I get about 600 e-mail messages a day, many from angry Internet users. And let me tell you, the language is not delicate. In fact, if the FCC ever did regulate indecency on the Internet, it wouldn't be hard for me to find the violators. They come right to me, every time someone starts one of these rumors that the FCC is going to regulate the Internet.

Well, if you believe everything on the Internet, then you'd think that Elvis is alive and well and hawking blue-suede shoes on E-bay.

These rumors are nothing but scare tactics of the worst kind, preying on the fears of the American people and bringing uncertainty to this growing market.

Anyone who knows anything about the Internet knows that its freedom is its strength.

And anyone who knows anything about me knows that I am committed to creating a telecom marketplace that is free from unnecessary regulation and full of robust competition.

This is one of my most important priorities as chairman of the FCC. For only with a competitive market, can the innovations we want and the economic opportunities we need happen.

So, let me say it again as clearly as I can. This FCC is not going to regulate the Internet.

Let me also say one more thing about this reciprocal compensation order. It not only allows us to let competition flourish on the Internet. It also takes us closer to the type of competitive and open telecom marketplace that the Congress envisioned when it wrote the Telecom Act. A market where the relationships between carriers are governed by contracts, not government regulation.

Now, I don't invest nearly as much as you do. But, I expect that you would be much more comfortable putting your money into companies who control their own destiny. Business decisions based on contracts. Not on government fiat.

Because for all Americans to access the wonders of new technologies, like high-speed Internet access, we need this transition from a regulated, monopolistic marketplace to a robust, competitive marketplace.

Because if you know that companies are making decisions based on marketplace incentives, rather than regulatory edicts, then you can better predict what companies will do. And more predictability and more stability means: more investment, more innovation, more growth, more jobs, and more opportunity.

Stability is the key to starting this chain reaction of investment and growth. That is why I was so pleased that the Supreme Court, this January, gave the FCC a ringing endorsement of its policies to bring competition to local telephone service.

Now, to paraphrase Winston Churchill, this decision "is not the end. It is not even the beginning of the end, but it is perhaps the end of the beginning."

With this decision, we ended the first phase of the Telecom Act, a phase dominated by lawyers and litigation, and entered what I think is the second phase where consumers and competition shape the telecom marketplace.

The time is now for competitors to take their efforts out of the courtroom and into the marketplace. It's time to move on.

But, in its decisions, the Court did ask the FCC to take another look at one issue. That is: which elements of the incumbent's local phone system must be made available to competitors.

Now, I understand what uncertainty can do for investors, and what that in turn can do to the flow of capital needed to develop these new technologies.

That is why after the decision, I asked the FCC staff to get the regional Bell operating companies and GTE to agree to fulfill their current obligations to provide unbundled network elements while the FCC revisits this key provision of the Act. And I am happy to say that all the companies involved agreed to do this.

And more than that, each company agreed to designate a senior-level contact person that can work with the FCC and phone competitors so that disputes can be settled before they can upset service, upset business plans, and upset the market.

In the meantime, we are working on a list of phone network elements that need to be available to competitors. While we take another look at the list, let me say this.

One thing is clear: the local loop must be at the top of that list. The copper wire that goes from the central office to your home or business is not just the last mile. It's the most important mile. It's the route into the marketplace for competitors and to the Internet for consumers. It's got to be at the head of any list of unbundled network elements.

It's critical for making local phone competition a widespread reality. It's critical to keeping what is a key part of the Internet open and competitive. And it's critical to keeping us on track to the world of competition.

And another thing: to make competition work, you have to get into the central office. The ability of competitors to collocate to the incumbents' networks is absolutely crucial. Without affordable and speedy collocation, competitors can't get access to these loops.

In the three years since the passage of the Telecom Act, we've learned a lot about the challenges of collocation. And at next week's FCC meeting, we will revise and update our collocation rules. Because if you can't get to the loops, you can't get to the customer.

Well, it's been 100 years since Charles Duell said that everything that can be invented has been invented. A hundred years full of inventions and advances that would have blown Mr. Duell's mind. A hundred years has passed, time enough for us to poke fun at poor Charles Duell.

You know, I hope that one hundred years from now, no one is re-reading my speeches - your newsletter -- to a group like you for a few chuckles about our predictions.

I don't think that will happen. I don't think that will happen because the one thing that those of us who work in this field all learn is to be humble when we predict the future.

We all recognize that the inventions and innovations of the next century will be as mind-boggling and revolutionary as those of this past century - if not more.

With an Internet that is open, new ideas will bubble to the surface from the most unlikely places and change this technology that is already amazing us.

With a marketplace open to all competitors, this innovation will flourish and hard-working Americans will have more choices in these increasingly important technologies, and have choices at lower prices.

But more than that, all Americans - and I mean all Americans - will be able to tap into the opportunities that these wires and web pages hold for us.

The unlimited fount of information. The endless ways to communicate with people around the world. And the high-paying jobs of the Information Age.

That is what you are investing in when you place your money into a new company. That is what drives me and the men and women who work at the FCC everyday. That is, in the end, the biggest and most important profit that we can reap in our work.

Thank you.