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Commissioner Susan Ness
Federal Communications Commission
Global Information Society Summit
Chicago, Illinois
May 17, 2001

Competitive Opportunity in the Information Age Economy:
the U.S. Experience

I am delighted to be here in Chicago with all of you today.

I want to thank Mayor Daley for his warm hospitality, and recall with pleasure another international gathering he hosted a few years ago -- the Transatlantic Business Dialogue.

Next week marks my seventh and last anniversary as a member of the Federal Communications Commission, as I will be leaving the FCC later this month.

I have had the privilege these past seven years to serve at an extraordinary juncture in the history of communications. We have been a part of the transition to digital technology across communications sectors. We have witnessed the mass acceptance of the Internet and the advent of the World Wide Web. We have stimulated the deployment of broadband communications by wired, wireless, broadcast and satellite systems.

During these past seven years, technology, the marketplace, and government policy have conspired to create a communications milieu that is forever changing -much akin to a kaleidoscope. The fundamental pieces remain the same, but with each advance in technology, each eruption of the financial markets, each enactment of a new telecom law, the pieces tumble and reassemble to display an astonishingly new tableau.

As I look back on these past seven years, I have enjoyed immensely the opportunity to gather with leaders of industry and government to explore how the public and private sectors can best work together so that our citizens can reap the many benefits of the communications revolution as the kaleidoscope turns.

But for some, the response to these changes has been to retrench - to try to preserve the old, comfortable ways of doing business, and of regulating business. They try to squeeze the new technologies and services into legacy regulatory molds. They try to freeze-frame the display.

I am reminded of W.E. Denning's caustic advice. "It is not necessary to change," he opined. "Survival is not mandatory."

Denning was right. The ability to embrace change is mandatory for survival - not just for industry, but for government as well.

But I prefer to see this kaleidoscope of high-speed access to data, voice and video as an opportunity - an opportunity for much more than survival.

If the regulatory roadbed is paved, these kaleidoscopic twists and turns create new markets to reach more people, to develop new services, to solve age-old problems, to improve the quality of life.

The agility with which government officials respond to such changes directly correlates with the intensity of competition, innovation, and service. Conversely, when government fails to adapt, the marketplace responds harshly.

Seven years ago, when I began my tenure at the FCC, the communications landscape was strikingly different. As I conclude my tenure, I would like to share with you some of the lessons we have learned in our efforts to promote competition and extend its benefits to all Americans.

Local Telephone Competition

Fostering local telephone and video competition was perhaps the most daunting challenge the FCC faced. Under the landmark Telecommunications Act of 1996, Congress sought to remove barriers to entry and to pry open the local market to competition.

At that time, the incumbent telephone companies controlled access to more than 99 out of every 100 homes and businesses. We hoped that new platforms for local telephony - such as cable, wireless, and satellites - would propel insurgents into the local telephone market.

Of course, we knew that it would be almost impossible for new entrants in the near term - if ever - to replicate incumbents' "last mile" networks. After all, the incumbents had constructed these networks during the course of a century -- with guaranteed rates of return.

And so Congress provided alternative vehicles for competitive entry. In addition to constructing their own "last mile" networks, competitors could resell incumbent's lines at a discount. They could lease some or all of the incumbent's network elements at forward looking wholesale rates. And they could interconnect with the competitor's facilities.

With passage of the 1996 Act, we awaited robust competition by the CLEC industry. And indeed, competitive local exchange companies -- including cable companies and fixed wireless providers -- invested almost $100 billion to deploy local telecommunications services to subscribers.

The results? Today, five years later, the landscape is littered with the remains of many of the fledgling "CLEC"s. Incumbents still retain the lion's share of the local telephone market. And most of the lines served by competitors are business lines. Only a small percentage of residential consumers have a real choice of local carriers.

Some observers are ready to throw in the towel. They now fear that local telephone service is best provided by a regulated and subsidized monopoly.

But wait. Are we not in Chicago, the home of the Chicago Cubs, who last won the World Series in 1908? I doubt there were many Cub fans who thought that the Cubs would have any chance this year. But today the Cubs are battling for first place in their Division.

Like the Cubs' baseball season and the dream that they will win the World Series, the struggle for a competitive local telephone market should never be over.

We have signs of progress. By the end of last year, new entrants served eight percent of the total access lines. In New York, competitors had garnered sixteen percent of the local phone market. And nationally, competitors' share of local market revenues doubled in two years to approximately nine percent.

Whatever progress we have seen, we all know that we have a long way to go. After all, the local telecom market was deemed - and regulated as -- a natural monopoly since before the Cubs last won the World Series.

It simply takes lots of time and lots of capital to make inroads. We cannot expect, and should not have expected, full-scale erosion of the monopoly position over the relatively short period of five years since passage of the Act.

Transitions are messy. The capital markets over-stimulated fledgling players to construct networks, and then over-reacted by shutting off their capital when losses mounted as expected. They failed to distinguish between those carriers with viable business plans and those that did not.

Indeed, it has been observed that the pattern is consistent with market behavior following deregulation of the airline and trucking industries. New investment poured in, incumbents used their market dominance to ward off challengers, followed by bankruptcies and consolidation.

Despite some temporary setbacks, I believe competition in local telephony will slowly be realized. Cable telephony is becoming a reality in a few markets, as cable companies complete their extensive upgrades. Remaining fixed wireless providers will reach more businesses. Mobile wireless service will continue to replace the second line into the home. As prices decline, mobile wireless service increasingly will compete with the landline telephone.

And most significantly, as broadband voice over IP technology improves, the economics of providing voice service will shift, and we will see a redefined market for local telecom service.

Broadband Competition

At the same time Congress resolved to pry open the local telecom market, it removed the legal barriers to telcos providing multi-channel video service over the local loop. But the economic barriers were harder to overcome.

Despite our best regulatory intentions, today only a handful of telephone companies are providing video service. Sadly, the Bell companies pioneering cable service were bought out by larger Bells, which abandoned the effort. They claimed that the up-front capital investment was too great, programming was too expensive, and the take-rates were too low.

But video competition of another sort is blossoming.

In 1994, the direct broadcast satellite industry was launched. Today, more than 15 million Americans access digital video programming through DBS.

And consumers are clamoring for high-speed access to the Internet. The Bells already had a highly profitable commercial product --T-1 lines. They were reluctant to cannibalize that product by introducing low cost, high-speed access.

That is, until competition from cable modem service forced them to do so.

Today, both cable and telephone companies are racing to provide broadband access. The cable industry has expended over $40 billion to maintain and upgrade their facilities for broadband, including more than $12 billion in 2000 alone. At year-end, more than three-quarters of cable facilities had two-way capability, compared to only eleven percent four years earlier.

Telephone companies have been deploying high-speed DSL lines at an ever increasing rate. Some project that DSL could overtake cable modem subscriptions in the next few years.

Broadband Internet access is now becoming available from wireless terrestrial and satellite carriers as well. Such services may succeed in rural areas, where DSL and cable modems are uneconomical. Sprint and WorldCom have begun to roll out fixed two-way wireless services operating on the MMDS channels. A joint venture of Gilat and Echostar has begun broadband satellite service, while two-way DirectPC is not far behind.

The advent of competition - from wire, terrestrial wireless, and satellites -- will spur rapid deployment of high-speed broadband service. Such competition may not only cause divergent service providers to enter each other's markets, but it may even cause operators to open their networks to multiple service providers.

So diehard Cubs fans will be able to follow their team's march to the pennant on satellite, on cable, digital broadcast, over the Internet, and maybe even over wireless devices.

The Vision of A Wireless World

While wireless service is not yet a major competitor for the first residential "line," there has been an explosion of mobile services.

When I joined the Commission in 1994, there were only two real mobile telephone service providers in each town - and one was owned by the local telco. At my very first Commission meeting, we approved the first PCS band-plan.

Today, three quarters of the U.S. population can choose between five or more competing mobile service providers.

Between 1994 and 2000, mobile phone subscriptions in the United States have tripled to over 113 million subscribers - more than any other country. And the average price per minute for a mobile telephone call has plummeted, with some consumers paying as little as 7 cents a minute under buckets-of-minutes plans. U.S. cell phone users spend more time on their wireless phones each month than do subscribers in any other country.

What about wireless data? Back in 1994, there was traditional one-way paging. Today, with the introduction of the Palm, RIM, HP Jordana, and Handspring devices, there are now at least four different types of hand-held PDAs on the market with built-in or attachable wireless modems for mobile Internet and data access. But while more than 2.4 million Americans currently use mobile "wireless web" services, only 2% of mobile traffic is now data.

So we have a new vision - the "Wireless Web" or "3G" always on Internet access. Some argue that the United States is behind in the pursuit of this dream. They believe that government should have moved to establish a standard for next generation services, and that we have too little spectrum allocated for mobile wireless services.

I disagree with the assertion that the United States lags behind the rest of the globe in achieving a "wireless Internet world." Cubs fans know that a fast start does not always lead to a pennant. While government-mandated standards may jump-start an industry, just as easily, a head start can become a false start. Despite predictions of early deployment in Europe and Japan, recent reports have acknowledged that the technology and its applications are not completely ready for prime time.

The U.S. has chosen flexibility over mandating a standard for third generation services. We have seen that innovation comes with manufacturers battling it out in the marketplace. And we have not limited the use of specific spectrum to specific technologies. Thus, existing wireless providers may migrate to advanced services whenever the marketplace warrants the move without first getting FCC permission.

We are working hard to find additional spectrum for advanced mobile services. I hope that Commerce Secretary Don Evans will encourage Federal users of spectrum to free up additional spectrum for such use, as we at the FCC are continuing to examine every feasible band to expand the allocation. Government and industry licensees that are capable of using spectrum more efficiently will benefit from rapidly adapting their services and sharing or clearing some of their spectrum.

But at the end of the day, it will be the consumer who will determine whether the proffered services are valuable at a given price, enabling the provider to earn a reasonable return on investment. And that is as it should be.

Unlicensed Wireless Communications

The vision of a wireless future does not rely solely on licensed spectrum. Rather, opportunities are exploding for communication between devices that operate with low power on unlicensed bands. Parties using unlicensed bands share spectrum with a wide assortment of other unlicensed services, and must adapt their technologies to avoid causing interference.

Ever since I joined the FCC, I have believed that judicious use of unlicensed bands would promote the competitive delivery of new services in a spectrally efficient manner.

Almost thirty years ago, the FCC first adopted rules to allow "spread spectrum" transmitters to operate on an unlicensed basis once they were approved under the equipment review process. For years, this technology was largely unnoticed, with requests to approve only 20 to 30 devices a year.

But in the last five years, manufacturers have introduced a flood of spread spectrum products. Cordless telephones, wireless LANs, and other short-range communications devices are everywhere. Requests for FCC approval of unlicensed RF emitters have increased more than tenfold.

Over the past five years, the FCC has expanded opportunities to use such products on an unlicensed basis by making more spectrum available in the 5 GHz band. And we have further relaxed the criteria for operating in unlicensed spectrum to enable other technologies to enter the marketplace.

Bluetooth and WiFi - competing methods to link consumer devises at short range -- are vying for consumer acceptance. Soon people will have broadband access to the Internet in a variety of public places, such as airports, coffee shops, and college campuses. Some folks are exploring ways to daisychain broadband access across whole neighborhoods with rooftop antennas connected to each other by wireless lan. Such applications could impact demand for third generation mobile services.

The Commission is also examining whether novel technologies such as "ultra-wideband" and software defined radios can be deployed without harming existing spectrum users. These approaches raise spectrum policy to a whole new level of thinking.

The Role of the Regulator

Launching all of these new products and services - from competitive local telephone and video service, to mobile service, to unlicensed broadband applications - raises the question of the role of the government regulator in this dizzying marketplace.

For many years at the Commission I have sat between those who argued that we should get completely out of the way and those who argued that it was the Commission's duty to establish rules that rigorously guarded the public interest. And in the end I found that it was never as easy as either contender would have it. Unfortunately, life is too full of gray for us to simply choose black or white.

So I offer four general principles for the moderate regulator to consider. In so doing, I cannot stress enough the importance of the independence of the regulator in liberalized telecommunications economies. It is critical that these officials be completely free of conflict between the role of regulator and the role of protector of government owned investments.

First, we should strive to eliminate any barriers that might exist to the deployment of new technologies or competing services.

Second, we should rely to a greater extent on market forces, and less on legacy regulation, as markets become more competitive.

But third, while we might like to rely on market forces, we should not be tempted to deregulate a monopoly or a dominant provider with market power before the market is truly open to competition.

Incumbent local carriers need incentives to open their networks to their competitive carriers. As a veteran of interconnection and collocation wars, I know that regulators must be clear and resolute. And penalties for failure to obey the law must be severe and swift. Delay kills competition.

Some have argued that deregulation is not the dessert that should be served only after a meal full of competition. Perhaps, but a monopoly player in a market will eat everyone's lunch if it is unregulated before the table is set for enduring competition.

And once there are a variety of platforms that can compete to provide substitutable services to the consumer? Regulators should not apply legacy regulations to these platforms "to level the playing field," but rather, should ensure that barriers are removed so that these platforms can compete against each other.

Finally, governments should strive to eliminate regulatory uncertainty in the marketplace. Financial markets need to know that the regulations will not constantly change, that they will be enforced, and that decisions will be made promptly -- before investors will deploy capital in this sector.


The Information Age economy presents unique challenges and opportunities for the public and private sectors to work together to advance competition and innovation in communications for the benefit of the public.

I have been deeply honored to serve as a member of the Federal Communications Commission for the past seven years. I hope that my experience will enable others to avoid our pitfalls and to rejoice in the magnificent displays at each turn of the kaleidescope.