May 7, 1997
Commissioner Susan Ness
Re: Universal Service; Access Reform; Price Cap Review
Today we reach another milestone in our efforts to secure for consumers the myriad
benefits made possible by the Telecommunications Act of 1996. We are steadfastly fulfilling the
tasks assigned to us by Congress in a manner that will prove the wisdom -- and realize the vision
-- of this landmark legislation.
Our pursuit has many facets. We must eliminate impediments to competition, ensure fair rules of engagement for all market participants, safeguard the interests of residential consumers, especially those with limited incomes and those in high cost areas, promote economic efficiency, and lower prices to consumers. Today's orders represent substantial progress on all these fronts.
Much of what we are doing is driven by law and by economics. But the results of our decisions have a human face:
Will a poor family in Appalachia be able to summon the police or fire department in an emergency?
Will a critically ill patient in a remote region of Montana have her tumor quickly and accurately diagnosed?
Will a curious high-school freshman have an opportunity to view Thomas Jefferson's valedictory letter, in his own aged but still powerful hand?
Will an elderly widow be less hesitant to break her loneliness with longer and more frequent calls to her great-grandchildren?
Today brings us closer to a day when these questions can all be answered "yes."
Fifteen months after enactment of the Telecommunications Act, the transition to a new
industry paradigm remains far from complete. The road is not straight, or smooth, or free from
peril. But a steady course -- and a shared determination -- can bring us to the desired destination.
We still have far to travel to resolve issues of support for high-cost areas. I believe we
have a sound plan and a clear timetable for implementation, but we still face two main obstacles.
The proxy models, already impressive feats of cost engineering, still require further refinement
before they can reliably be used to target federal cost support. And a new consensus must be
achieved before support essential to maintain affordable telephone service in high-cost states can
be drawn from states with lesser need, as I believe the Congress of the United States clearly
intended. In the meantime, we can make only incremental changes in the implicit subsidies that
currently support the high-cost services provided by large price cap telephone companies.
For the smaller rural companies, change will come even more gradually. This is
consistent with Congress's expectation that competition would arrive more quickly in the cities
and the suburbs. In the interim, we recognize that rural economies must not face unnecessary
The need to avoid harmful dislocations, while also encouraging beneficial change, is
crucial to much of what we are doing in the access reform and price cap orders. We are
implementing many changes that will help to ensure an orderly transition from monopoly to fair
and efficient competition.
In particular, the recovery of more costs through flat-rated charges instead of usage-sensitive charges will reduce the exposure of incumbent telephone companies to "cherry-picking"
by new entrants, even as they also expand the range of customers likely to be offered competitive
alternatives. Completion of the conversion to a three-part rate structure for tandem-switched
transport will eliminate a historical artifact, but allow time for affected carriers to adjust. The
new X-factor more accurately reflects the productivity gains that can reasonably be expected
from price cap carriers, while avoiding radical reduction of telephone company access revenues
and proposals that would have unfairly penalized those companies that have most assiduously
conducted themselves in accordance with the incentives we deliberately created.
We prefer to rely on marketplace forces rather than regulation to drive investment
decisions and price reductions. Some will fault us for not acting more aggressively; others will
complain that we are too heavy-handed. My own view is that each decision, and all of the many
issues in these orders, has been approached with balance and sensitivity, fairness and principle.
Not everyone will be satisfied. But no one can say that we have not read the law,
considered economic theories and business realities, consulted our consciences, and sought to
achieve as much fairness as is humanly possible.
I readily confess that I cannot muster the same passion for restructuring the arcane and
impenetrable Transport Interconnection Charge as for devising a completely new regime to
provide discounts for schools and libraries to access telecommunications and information
services. Though I am fully committed to full realization of all of the universal service
provisions, the Snowe-Rockefeller-Exon-Kerry provisions reflect an especially bold vision. For
our part, we have used our creativity to harness the magic of competition to reduce the costs of
the support program, created incentives to ensure only prudent use of supported services, targeted
discounts to minimize the danger of a widening gap between information haves and have-nots,
and sought at every turn to maintain our commitment to competitive neutrality.
Even more important, we have sought to leave crucial decisions in the hands of educators
and librarians, scattered throughout the country, rather than in the hands of Washington-based
administrators. And, best of all, we have arranged a smooth take-off that will avoid creating
unsustainable financial burdens on carriers and consumers, allowing competition and growth and
declining prices -- rather than rate increases -- to supply the necessary funds.
In this area, as in the others addressed by today's orders, we have applied all our energy,
and all our skill, to make the best decisions, based on our current knowledge and the law. A
continuing commitment to constructive dialogue by all interested parties -- telephone companies,
long distance companies, wireless companies, small businesses, large businesses, residential
consumers, state regulators, and members of Congress -- is critical to continued progress. At the
end of the day, fairness to all parties and demonstrable benefits to consumers are the standards by
which we will all be judged.