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William E. Kennard, Chairman
Federal Communications Commission
Before the
Practicing Law Institute/Federal Communications Bar Association
Policy and Regulations Conference
Washington, DC
December 9, 1999

(as prepared for delivery)

"Fostering Competition in a Converging World"

Thank you, Henry, for that kind introduction.

It is a pleasure to appear here today..

When I started practicing communications law here in Washington, rotary phones were still in vogue, the computer industry was excited about its latest product line, the Apple IIc, and Commodore 64s had less memory than a Palm Pilot. In 1975, an IBM mainframe computer cost $10 million and had about as much processing capacity as high-end video games today.

Let me put this in some personal perspective for you.

When I was a young associate at a law firm in the early 1980s, I liked to work on my documents on computers, then called word processors. Lawyers did not have computers in their offices, so I would walk to the secretary's desk to type my work.

One day a senior partner called me into his office. He said, "Bill, I prefer you don't use the computers. We do not want the clients to see you typing."

How times have changed. Today you can walk into any law firm in America and see computers on every lawyer's desk. In fact, law firm associates are expected to be proficient with computers.

I am sure everyone in this room has a story like that. You probably remember the first time you used a cell phone, wrote an e-mail, or bought a book, a car, or clothes on-line. You might recall listening to your first CD, watching your first movie on DVD, or setting up your own web page.

But the revolution in technology that is so sharply etched in people's minds is changing more than just the way we communicate, listen to music, and watch movies. It is revolutionizing the economy here and around the globe. New technology is eliminating barriers to marketplace entry, opening up new possibilities in global trade, and transforming the sale and transfer of products and services as we know it. It is what people in the computer industry call disintermediation - eliminating the middle-man - and it allows companies to interface directly with their customers down the street, across town, and around the globe.

Software programmers in Seattle are exchanging data on a daily basis with colleagues in Belarus and Beijing. Farmers in Minnesota's Red River Valley use Global Positioning Satellite systems to help till their soils and farm their fields; farmers in North Dakota spend their mornings digesting crop reports, stock prices, and weather forecasts over morning coffee, all courtesy of the Internet.

Phone lines are carrying movies, cable lines are carrying phone calls, the airwaves are carrying both. Changes in technology have helped bring about a new era in the telecommunications marketplace, an era in which convergence is king. Old industry boundaries are vanishing, and companies are doing business in ways never thought possible.

Anyone who watches television or listens to radio in America - which is everybody - has recently been bombarded with dot-com ads. Two years ago only one Internet company, Monster.com, bought advertising during that great American sporting event, the Superbowl. Last year 15 web firms bought ads - at about $2 million per spot. In the first half of this year Internet companies spent $755 million on advertising; in the second half analysts predict the figure will, at a minimum, quadruple.


And in this new era we face a fundamental challenge: how do we foster competition in an era of convergence? How do we pry open monopoly markets and how do we protect competition once we do?

There is a lot at stake here. The communications and information industry accounts for roughly a third of the nation's economic growth; it is pouring billions into the economy, generating enormous wealth and opportunity, and producing innovations that are the envy of the world. And we have to keep this engine of growth going.

Now, competition has a nice ring to it. I hear people paying homage to it all the time. Most of us in telecommunications talk about how wonderful it would be if we had competition across the board. But what do we really mean when we say competition?

When I talk about competition, I am talking about competition in three basic components of the network: in the content, conduits, and intelligence.

Content is the cable, video and other programming that comes over the network; the conduits are the pipes - the wires, cables, and spectrum - that carry content to the consumer; and the intelligence is the machines and software that process content for the consumer - the computers, browsers, set top boxes, and operating systems.

To have a truly competitive marketplace, we must have robust competition in each of these three components of the network. I envision a network of networks freely interconnecting to bring a wide range of services to the American public. Cable companies will compete with satellite systems, fixed wireless with telephone. It is an era when companies view their services differently, when local phone companies are not just phone companies, long-distance not just long-distance, when cable provides telephone service and wireless offers Internet access.

Right now the seeds are being planted to grow this network of networks, so that one day firms will interconnect freely to bring a range of services to consumers. But we have a ways to go before that vision is fully realized, and it is our job to nurture those seeds and make sure they grow.


From day one of my Chairmanship, the FCC has been nurturing convergent competition. We pried open markets by aggressively implementing the 1996 Telecommunications Act and have worked to ensure that mergers do not threaten competition.

Firms that dominate any one element of the network - its content, conduits, or intelligence - can raise prices, stifle innovation, and harm competition. When that happens, there are only two ways to introduce competition in markets: a structural approach, usually involving divestiture, or a regulatory approach as envisioned in the 1996 Act. These are the two ways to break up monopolies and there are no shortcuts.

In the wake of the Microsoft case, policymakers have been debating the merits of these two approaches. Some support a structural solution--the so-called "Baby Bills" approach--which would mean breaking up Microsoft. Others favor a regulatory approach, in which Microsoft would have to make its programming interfaces available to competitors.

In 1984, the government broke up AT&T with a structural solution. And it worked. Today AT&T is one of some 600 long-distance providers and controls less than 50 percent of the long-distance marketplace.

In 1996, Congress adopted a different approach - a regulatory one - to break up the local phone monopoly. Instead of forcing the locals to divest, Congress gave the FCC the power to pry open the network and make it available to competitors.

More important, Congress said that all firms had to be able to interconnect on non-discriminatory terms and conditions. It said that competitors must have access to all existing phone customers - and without that access, competition would be stifled. Interconnection is fundamental. It makes possible our vision of multiple networks - a network of networks - using different technologies and battling for consumer dollars.

Throughout my tenure, the FCC has used every tool at its disposal to fulfill Congress' vision of a competitive marketplace. When SBC and Ameritech decided to merge, we had some key concerns: that the merger would reduce their incentive to both compete in new regions and open up their network, and that it would eliminate the potential for competition between SBC and Ameritech.

To address these concerns, SBC and Ameritech proffered a comprehensive package of conditions to bring competition to the marketplace. The company will offer advanced services through a separate subsidiary, improve systems to support competitive entry, and compete in at least 30 new markets.

This is the most comprehensive set of market opening conditions ever proffered to the FCC. And we will enforce these conditions.

We have also promoted competition by pumping more spectrum into the marketplace. Look at what we have done with spectrum auctions. We have deployed spectrum for thousands of licenses for new and innovative services - PCS, LMDS, DARS and others. Even now, we are considering rules that will free up 36 megahertz of spectrum, spectrum that firms can use to deploy broadband and other advanced services. We are also seeking ways to make sure that new technologies can effectively compete against the wireline monopoly.


And once markets are opened, we have to make sure they stay open. In 1994, we auctioned PCS spectrum. Before those auctions most Americans had a choice between only two wireless providers, if they were lucky. Today, over three-fourths of Americans have access to at least five wireless providers. This means many more choices for consumers and cheaper phone rates: since 1994, prices have fallen by some 40 percent. And the number of wireless subscribers has tripled.

Now, some wireless companies wanted us to relax a rule limiting how much spectrum they could own. Firms said they needed the extra spectrum for third generation services, called 3G. But earlier this year, we maintained the 45 MHz spectrum cap for most of the country. We said we would not allow consolidation that might reduce competition and jeopardize lower prices. We made clear that we will not trade competition for speculative promises of new services.

Our experience with spectrum underscores the central challenge of the new era: how to encourage firms to enter new markets while also guarding competition in competitive markets? Companies often come to the FCC and say they need to get bigger. They say that if we just let them consolidate, they will be able to deploy broadband, enter new markets, and foster innovation across the board.

And in some cases they may be right. Consolidation can allow firms to take advantage of economies of scale, combine services into "bundled" packages, and develop the financial muscle to enter new markets and take chances on new technologies. And in these cases, consumers win: they enjoy more choices, one-stop shopping, new technologies, and lower prices.

But I have to tell you. We must greet these claims with a healthy dose of skepticism. At the FCC we have great economists. They tell me it is unclear which markets - competitive or monopoly - best foster innovation. And, if anything, history shows that competitive markets are better than monopoly markets at getting new technologies in the hands of consumers.

And let us not forget: competition today can be a precursor to competition tomorrow. When firms merge, they tend to become larger, more entrenched incumbents with deeper pockets: they have already eliminated one competitor, and they can deter future competitors from entering their markets. So firms that want me to trade competition today for innovation and competition in some distant tomorrow should be prepared to make a very compelling case.

These concerns guided us in re-writing the cable horizontal ownership rules earlier this year. The new rules will help cable companies enter new markets. Yet they will also guard competition in the traditional video market. The rules will allow firms to reach more Americans with telephony and other new services, but only if they take no material part in the video programming activities of their partners. The rules will guard competition where it already exists - in video programming - while also promoting competition in telephony and other markets.

This is a difficult balance to strike. But we have to strike it if we are going to allow both incumbents and new entrants to build the network of networks.


Multiple networks freely interconnecting is no distant dream. The forces of convergence are beginning to pry open markets that have been closed for decades. After years of monopolies, high prices, and stifled innovation, we are beginning to see the benefits of competition in many areas. We have an opportunity--not unlike the opportunity policymakers had at the turn of the century--to make these markets competitive.

And I am determined not to miss it. I can promise you we are not going back to the large concentrations of old. We will not let anybody establish a monopoly in exchange for speculative promises of broadband and other perceived advantages.

And make no mistake: robust competition is within reach. Long distance providers, cable companies, wireless operators, incumbent and competitive local exchange providers: all are beginning to compete with one another. And we must make sure they continue competing. We must nurture these seeds of competition using all the tools at our disposal to give firms enough flexibility to compete in new markets while guarding competition where it already exists.

Prying open markets, protecting markets that are already open, letting convergence take hold in the marketplace: this is our challenge. This is our opportunity.

Let us seize it.

Thank you.

- FCC -