(As Prepared for Delivery)

Good morning. My heartfelt thanks for inviting me to join you this Valentine’s Day. I love the opportunity to meet with so many companies that are bringing our rural communities the communications tools that will help them to prosper in the Information Age. And I know you care passionately about providing the best possible service to your customers.

As you know, Charles Schulz, creator of the Peanuts cartoon for more than 50 years, died yesterday. His beloved characters – Charlie Brown, Snoopy, Lucy, Linus – resonated well throughout America. At times, when I work to resolve universal service issues, I feel like Charlie Brown….trying for almost as long as he did to kick that universal service football and never quite succeeding. We will all miss him.

The World Outside of Washington

Speaking of beloved people ... your representatives in Washington – Michael Brunner, Marie Guillory and their team – do a terrific job of making your views known during our many proceedings. I have enjoyed working with them.

But I also heartily enjoy getting outside of Washington, D.C. to talk directly with you. I suspect we at the FCC are not always your idea of a Valentine.

Over the last few years, I have had the pleasure of visiting with some of you in the communities you serve. I have seen firsthand the challenges you face providing service in rural, and often remote, areas. Places like Hooper Bay, Alaska, a picturesque town so far west that you can almost see Russia; and Gila River, a beautiful tribal area in Arizona that has vast and rugged terrain.

Visits such as these have made a lasting impression on me. I witnessed the difficulties rural carriers face, such as United Utilities, which serves Hooper Bay, and Gila River Telecommunications, which serves the Gila River Indian Community. These carriers conquer hurdles every day to provide the best possible telephone service to their customers.

Many of you are deploying new communications technologies in your communities. And many of you are providing wireless, cable, and DBS services as well as basic telephony. You have always had a pioneering spirit, finding innovative solutions to overcome obstacles of distance and terrain.

The arrival of telephone service to one rural community early last century is such an example. A rancher in California was perusing the Sears, Roebuck catalogue when she spotted a talking machine. She had moved to a ranch a few miles away from her mother. To keep in touch with her mother, she ordered two of the talking machines and the family strung a wire between the two ranches.

Other families in the area saw this device, ordered telephones from the Sears, Roebuck catalogue, strung wires, and connected to this new network. This was the beginning of the Ponderosa Telephone Company, which still exists today and is a member of NTCA. Today, the company’s president is the granddaughter of the woman who originally ordered the telephones from the Sears, Roebuck catalogue.

Universal Service and Access Reform

One important principle that has guided federal telephone policy for many years is universal service. It proclaims that all Americans should have access to comparable services at comparable rates. Even as Congress sought in the Telecommunications Act of 1996 to promote competition, Congress also reaffirmed our nation’s commitment to universal service. That was the deal. And we must never forget it.

Congress recognized that special measures were needed to ensure affordable telephone service for those living in rural, insular, and high-cost areas. Recognizing the unique circumstances facing rural carriers, the FCC did not adopt a one-size-fits-all mechanism for universal service support.

Rather, we worked with rural carrier associations to establish a separate regulatory track for rural carriers. And we asked the Federal-State Joint Board on Universal Service, which I chair, to convene a Rural Task Force to examine the different cost structures of rural carriers. Several of your members serve on that advisory body.

The Task Force must recommend by October 1st, an appropriate universal service regime that reflects the unique characteristics of rural carriers. As part of its analysis, the Rural Task Force will be examining a number of alternatives, including the forward-looking mechanism that was adopted for non-rural carriers last fall.

Clearly some of the criteria that define the forward-looking mechanism for non-rural carriers will not work for rural carriers. For example, the large carrier mechanism is based on statewide average costs. I highly doubt that a statewide average would be appropriate for rural carriers.

Moreover, I want to underscore what I have said previously – we have reached no conclusion whether the cost model applied to non-rural carriers -- or any model for that matter -- should be applied to rural carriers. This effort is too important not to get it right. I will not vote to apply any model to rural carriers unless and until I am convinced that it makes sense for rural America.

The Rural Task Force has rolled up its sleeves and has identified factors that distinguish rural telephony. It published a white paper entitled, The Rural Difference, which recognizes not only the significant differences between rural and non-rural carriers, but also the vastly different cost structures among rural carriers.

For example, the white paper notes that the population density in areas that you serve varies from less than 1 person per square mile to over one hundred. Also, your service areas are comprised of widely diverse and often rugged terrain. We must take into account these differences as we work on universal service to ensure that any mechanism we adopt for rural America makes both economic sense and common sense.

Once the Rural Task Force has issued its recommendation, I will urge the Joint Board and the FCC to move as rapidly as possible to complete the process.

I know from experience that regulatory uncertainty is a major impediment to investment. Before coming to the FCC, I was a banker, financing communications companies across the country, including rural telephone carriers. I may be the only current member of the FCC to have committed funds to this industry.

I felt the impact of regulation on businesses and understood its deterrent effect on capital formation. That’s why I have been so committed to reducing regulatory uncertainty and regulating only where necessary for the public good.

I know that it is taking the Commission a distressingly long time to address universal service for the rural carriers. It is not easy for you to plan for the future when so much of your revenue base is in play. But I’d rather get it right after taking more time than hastily to impose a system that doesn’t work. But that’s not a license to dither around, either.

Access Charges and Universal Service Proposals

If we are going to get universal service mechanisms for high cost areas right, we must concurrently identify high cost support that is implicit in access charges. For rural carriers, access charges comprise well over half of your revenue stream. Although local competition is not yet widespread in your markets, you undoubtedly are feeling pressure to reduce the access charges you impose on interstate carriers to originate or terminate a call in your service area.

Generally, you serve higher cost areas. Many of you have made, or will be making, significant investments to upgrade your networks. These investments are a positive step for your communities. But to do that, you need some comfort that you will be able to recoup the legitimate cost of modernizing your infrastructure.

I encourage you to roll up your sleeves and help us find a workable solution.

Some of you have been working on proposals that would address access charges, universal service, and separations. I applaud your efforts, and hope that you will reach out to consumer groups as you craft your proposals.

Purchased Exchanges and Universal Service

I want to touch upon another issue related to investment in your communities. A few years ago, the FCC adopted what was supposed to be a short-term rule that limits the amount of universal service support you receive when you purchase an exchange. Under the rule, a buyer steps into the shoes of the seller in calculating universal service support. We were concerned that any increase in universal support would simply be captured in a higher price tag for the exchanges.

This is a critical issue for small carriers that purchase exchanges from large companies. The larger carriers can amortize core costs across a greater number of exchanges. Thus, rural carriers may be receiving less funding in some communities than they receive in neighboring communities. That disparity could negatively affect a rural carrier’s modernization plans.

This issue has recently been raised in requests filed to waive or eliminate the rule. As we consider these requests, we should take into account the effect of this rule on people who live in these exchanges and make sure that our rules do not punish those customers by short-changing rural carriers’ ability to undertake necessary investment.

Interim Universal Service Cap

We should also consider the effect on your customers of the overall cap on the growth of the universal service fund. We must not let an inflexible cap hamper your ability to serve your customers. At the same, we must be careful not to unleash opposition to universal service by providing funding where it is not essential to fulfill the statutory mandate of making available to all Americans comparable services at reasonably comparable rates.

Advanced Telecommunications Services

Investment in infrastructure necessarily includes discussion of advanced communications, or broadband deployment. Today, one of our biggest challenges is how to deliver greater bandwidth to consumers at reasonable cost. The “World Wide Wait” is only getting longer as consumers discover more and more exciting Internet applications to access.

In an economy that is increasingly dependent on communications and information, it is critical that advanced services be available -- not only in our largest cities -- but across rural America as well. Indeed, one could argue that our rural communities have even greater need for deployment of advanced services to stimulate economic revitalization.

Just as basic telephone service fostered rural development during the last century, broadband communications will enable new businesses to spring up literally anywhere. And our entrepreneurial daughters and sons can prosper at home rather than migrate to the cities to seek their fortune.

Just as basic telephone service enabled people to call for medical help in an emergency, advanced services can greatly improve medical treatment, allowing the finest medical specialists to serve even the most remote health care facilities.

In Alaska, I remember hearing about an innovative use of telemedecine to treat ear infections. When our children have ear infections the doctor prescribes antibiotics. Of course, one has to visit the doctor to make sure the infection is not something more serious. But for children in remote areas of Alaska, they have to be airlifted to doctors in other cities for this “quick” check-up. That costs thousands of dollars. Now, thanks to telemedicine, and a unique video probe invented by the local health care providers, people living in rural areas can transmit images of the inner ear to specialists far away, thereby avoiding many expensive trips.

I am encouraged by other innovative ways you are bringing advanced services to the doorsteps of your communities. At dinner last evening, several carriers told me about their plans to deploy DSL services. Although these carriers serve widely diverse areas from Louisiana to Alaska, each noted that their customers truly want high speed access to the Internet. The technology – not to mention the economics -- of providing such service to rural areas is a real challenge. I applaud these efforts to respond to the demand in their communities.

Providing Support to Schools, Libraries, and Rural Health Care Providers

Although you are doing a great deal on your own to bring these important Information Age services to your communities, there are ways in which the FCC can help to make this a reality.

One way that we can work together is through a program that Congress and the Clinton/Gore administration established in the 1996 Telecommunications Act to promote telecommunications and information access for schools, libraries, and rural health care providers. It is called the E-Rate. These new support mechanisms are bringing enormous benefits to children, rural health care facilities and patients, and to communities across the country.

The schools and libraries program provides discounts for telecommunications services, Internet access, and internal connections to link classrooms and libraries to the Internet. It is essential that we provide our children with the skills necessary to compete in a global economy that is increasingly dependent on information technology. This is the key to our success and prosperity in the 21st century.

Moreover, a high-speed Internet connection to a school or library can be a tremendous resource for the whole community. A school or library can serve as a community access point, providing all citizens with a place to expand their knowledge, gain new skills, and learn more about the world.

This program has special significance for rural communities. It can facilitate distance learning, to enable children to take advanced courses that a small school would never dream of offering on its own. Like the tiny schoolhouse in southeastern Arizona, where the 100 student (K through 12) population can select from a wide assortment of courses. Or a school in the Alaskan bush with only 25 children, served by Matanuska Telephone Cooperative.

When we crafted the E-Rate program, we recognized that schools and libraries in different areas would have different needs. So we provided greater discounts for services to schools and libraries in rural areas, and allowed each institution to select the services it needed, rather than a one-size-fits-all approach. I am especially pleased to report that so far we have provided almost one billion dollars to help connect tens of thousands of rural schools and libraries to the Internet.

By most accounts the program is a great success. In the first two years of the program, over one million classrooms were connected to the Net. Today, more than 50% of our nation’s classrooms have Internet connections.

Section 706

These support programs are just a few examples of how we can work together to bring advanced services to rural communities. But are there other steps the FCC should be taking?

Section 706 of the 1996 Telecommunications Act directs the FCC to promote the deployment of advanced services, and to ensure that all Americans have access to advanced services in a reasonable and timely manner. On Thursday, the FCC will vote on a Notice of Inquiry seeking information on the deployment of advanced services. I encourage all of you to participate in this proceeding. It is an excellent vehicle to assess how well we are doing, and to examine whether there are barriers to rapid deployment that exist.

Our job is to ensure that our rules are conducive to innovation and investment so that you can roll out advanced services. But we intend to rely in the first instance on marketplace forces and private enterprise rather than regulation to drive investment decisions.

Joint Conference on Advanced Services

In addition to the Section 706 Notice of Inquiry, we recently convened a Joint Conference to join federal and state forces in facilitating broadband communications.. The Joint Conference will hold six field hearings in coming months – many of which will focus on rural areas -- to gather information on the deployment of advanced services. We will also seek examples of “best practices” that other communities could use to accelerate the roll out. I look forward to the opportunity to visit your communities and learn more about any impediments you face and the creative solutions you have found to overcome them.

Biennial Review

Finally, we have begun another proceeding that I imagine will be of interest to you. This year the FCC is undertaking a top to bottom review of its regulations. We must ensure that regulations do not create an excessive burden on companies or deter investment in your communities. We must ease regulatory requirements wherever feasible. Our job is to administer the fairest and least burdensome rules we can. We must in every proceeding think specifically about the impact of the regulations on small carriers.

I urge you to get involved as we reexamine our regulations and let us know the steps we can take that will enable you to invest more in your communities.

Conclusion

I welcome the opportunity to talk with you about the challenges that you face. You have been providing quality service to your communities for years. You care deeply about your customers. Your experience can help us make better decisions and take into account the unique circumstances facing small carriers.

I will continue to take into account in every decision its effect on the rural marketplace. And I hope that I will be able to say that we at the FCC have helped to ensure that rural Americans have the telecommunications tools necessary to prosper in the Information Age.

Maybe then Charlie Brown and I will have kicked that universal service football over the goalpost.

Thank you.