Remarks by
FCC Commissioner Susan Ness
to the
Women's National Democratic Club

Washington, DC

October 15, 1994

Full Speed Ahead with the FCC on the Information Superhighway

Good afternoon. Thank you, Josie Bass, for that kind introduction. And let me thank all of you for taking a Saturday to focus on this important topic, the information superhighway. I want to especially thank my two children for giving up their Saturday afternoon to accompany me.

I just returned last night from a week on the West Coast where I spoke before both the United States Telephone Association and the National Association of Broadcasters. As many of you do every day of your lives, I then switched to my most important role -- that of mother to Elisabeth (age 10) and David (age 6). After driving them to rehearsal and to soccer this morning, I hope to convince them that accompanying their mom to a speech on telecommunications is "quality time together."

It is for these children -- and your children and generations that follow -- that we care so very much about the rapid deployment of the information superhighway.

I am one of three Commissioners appointed by President Clinton, and have served on the FCC for less than five months. Thanks to the science of compression technology, it feels like I have already served five years!

I know you have been bombarded with information this morning, from experts in the Clinton Administration, non-profit institutions and the private sector. I will focus on the unique role that the FCC plays in advancing technology and promoting competition in communications nationally and globally.

I also will engage in two-way, interactive, simultaneous, voice and visual communication - -- which is the cyber-speak way of saying there will be a brief question and answer period after my remarks!

As has undoubtedly been stated, our vision of the information superhighway -- or the infobahn -- is a network of networks privately financed, with five "parallel lanes": wireline telephony, wireless telephony, cable television, broadcast, and satellite. There are profound changes taking place in each of these delivery systems as we move toward convergence.

Here's how the FCC fits in. To oversimplify a bit, (and I apologize to those for whom this is old hat) in implementing communications legislation, the Commission performs three principal functions:

One: We allocate spectrum -- that is, determine what part of the vast radio spectrum, will be used for specific services, such as broadcast, cellular telephone satellite, or personal communications networks.

For example, we are working to create high definition television, which among other benefits, will offer a much sharper, digital image. The Commission has decided to allot an additional channel to each broadcaster for this use. Under the rules which the Commission adopted, after fifteen years to convert to digital television, these broadcasters must then give back their old analog channels in favor of the HDTV channels.

Last June, we authorized the establishment of personal communications services, or PCS. At a minimum, it will provide competition for today's paging and cellular services, and could compete as well with the local telephone company for residential switched telephone service.

Two: We create the ground rules for the service. For example, we set limits on the number of radio stations that a company can own, to limit the concentration of ownership in any market. We also set the interference standards for unlicensed telecommunications and computer equipment.

Another example: in the past, telephone companies were regulated at the federal level under a rate-of-return regime, which rewarded companies for spending more money. The more they spent, the more they could charge their ratepayers. We replaced that with price cap regulation which caps prices and requires telephone companies to lower their prices relative to the rate of inflation.

Three: We license those who want to be service providers. For example, in a Section 214 proceeding, we decide whether Bell Atlantic should be allowed to offer a video dialtone service in Alexandria or whether WJLA can broadcast on channel 7 in Washington. We also approve requests to allow foreign companies to invest more than 20% in U.S. facilities based carriers, such as the British Telecom arrangement with MCI.

A decade ago, we tried to decide cellular telephone licensing on the basis of comparative hearings, but this was time consuming and expensive. So we switched to lotteries, which awarded cellular telephone licenses based upon the number appearing on a ping pong ball (I believe we used the same machine that was used by the selective service to select draftees.) In 1993, Congress authorized the Commission to conduct auctions for mutually exclusive applications for subscription-based services, such as PCS, with the proceeds going to the U.S. Treasury. While in the past, there was a private auction for FCC licenses, for the first time, the public would reap some of the benefit of its scarce and precious resources.

In July, we held the first ever PCS narrowband auction, to determine which service providers were going to spend megamillions for small slices of spectrum to provide advanced paging nationally. The total of the ten nationwide broadband licenses commanded over $617 million dollars.

This December, we will begin holding auctions for 120 MHz of spectrum for broadband PCS. Prior to the narrowband auctions, the CBO had estimated that broadband would generate more than 10 billion in revenues for the U.S. Treasury.

In addition to licensing service providers, we also act as traffic cop -- limiting interference and making sure that those with market power do not behave anticompetitively. We approve license transfers, as well as large mergers and acquisitions, such as AT&T's acquisition of McCaw.

All of these activities are conducted under a notice-and-comment procedure in which interested parties can express their views on proposed Commission action. This gives you a quick glimpse of the field upon which the Commission plays.

Speaking of fields, as I mentioned earlier, my son plays on a soccer team for six year olds. Those of you who have had children enrolled in MSI can readily imagine a school yard filled with youngsters just beginning to learn this new game. Before team members went onto the field, my son's coach took each child aside and asked him in which direction on the field he needed to move the ball -- to the goal on the left side of the field or to the goal on the right side. By and large, the children answered correctly, but the question needed to be asked.

In some respects, making communications policy is a bit like playing soccer. The ball is clearly at our feet, but we need to make sure that we are headed in the right direction. The goal toward which we are driving the ball is marked competition, but it is not always easy to determine the best way to get there.

And there are some who like the status quo of monopoly power and who are trying to kick the ball in a different direction. That's why I keep my shin guards at the office.

If the Administration, Congress, and the Commission, had a telecommunications mantra, it would be COMPETITION. Indeed, FCC Chairman Reed Hundt refers to the Commission as the "Federal Promotion of Competition in All Communications Markets and Protection of Consumers from Monopoly Commission."

Competition is not an end in itself but a means to promote benefits to consumers. Economics, and more importantly experience, teaches us that robust competition expands consumer choices, lowers prices, improves quality of services, and fosters innovation. Competition also spurs investment, creates economic opportunities as well as risks, and promotes efficiency.

Competition is also the hallmark of the 1992 Cable Television Consumer Protection and Competition Act. Congress found that the cable industry was highly concentrated and exerted undue market power. It directed the Commission to reduce rates for basic and enhanced basic cable programming services. Once there is competition in the marketplace, however, the rate regulations are lifted.

One vehicle for cable competition is the introduction of video dialtone service. The Commission issued regulations authorizing the service in 1992, and a reconsideration of those regulations is an item on the October 20th open meeting agenda. Because we are in the Sunshine period, my comments on video dialtone therefore must be very general.

Under video dialtone service, consumers would be able to receive multichannel video programming delivered on a common carrier platform. This would be an alternative to the service offered by the cable company -- and the local telephone company will provide it. Since it is a common carrier service, channel capacity must be available at non- discriminatory rates to any programmer wishing to lease one or more channels. The programmers -- not the telco -- determine the price to the ultimate consumer for these services.

Some telephone companies propose to provide service which largely replicates cable programming, including packages of over-the-air broadcasting channels. Others expect to offer a wide array of interactive programming services, including video-on-demand, home shopping, and educational activities.

Video dialtone service poses many intriguing questions. For example:

Should existing telephone ratepayers be asked to absorb any of the cost of construction of the advanced broadband infrastructure necessary to carry the digital video signals to the home? Or does the new infrastructure provide more reliable and better quality telephone service, justifying a partial allocation of cost? What safeguards might be needed?

Should the Commission insist that schools and libraries be connected to this system free of charge or at below market rates? What about the cost to use the system?

Should the Commission allow a telephone company provide its own programming over its video dialtone system?

See me after October 20 for the answers to these questions!

At the same time that telephone companies are pressing to get into video services, cable companies are hoping to compete by offering a two-way switched alternative to the service provided by the local exchange carrier. Cable Labs recently issued a request for proposals for state-of-the-art telephonic switching equipment. In the telephone-cable convergence, both industries will simultaneously play the roles of incumbent and insurgent.

S.1822, the telecommunications legislation that was defeated during the final days of the session, would have enabled cable companies and others to compete in providing local telephone service. Without legislation, these would-be competitors must petition 50 different public utility commissions to try to get in. And in the meantime, the seven regional Bell companies are pressing Judge Greene to permit them to compete in long distance service.

Let me mention another kind of competition. Personal Communications Services -- the spectrum which we are auctioning this December -- will not only compete with cellular telephone, but eventually with the local wireline company as well. The seven regional Bell operating companies are aggressively pursuing joint ventures to bid for the PCS licenses. You have seen stories about Bell Atlantic-Nynex possibly joining forces with MCI, Air Touch with US West and so forth. The list goes on and changes daily. We are watching these combinations carefully for any anticompetitive behavior that may result.

What comes of this? If we have kept our eyes on the ball and moved down the field in the right direction, there will be robust competition and prices will fall as consumers have more choices of better quality and more innovative services.

Even robust competition cannot achieve all of our societal goals for the telecommunications and information infrastructure. Three important social policies come immediately to mind: universal service, diversity of ownership, and improved education through technology.

As we press for competition, we must be mindful of the impact of competition on the universal availability of telephone service at reasonable cost. Right now, the cost of universal service is funded in part through direct and indirect subsidies. Those imbedded subsidies may be at risk as customers obtain telephone service from alternative carriers.

Thus, the Commission must make sure that universal service is protected in light of changing market circumstances. To the extent that there are subsidies, they should be economically rational and they should address real needs. And as technology advances, we must redefine universal service so that we do not contribute to a country of information "haves" and information "have nots".

A second social policy that cannot be resolved by competition is the desire that communications licenses be held widely and by groups whose ownership reflects the diversity of America. We have structured our PCS auctions to enhance the opportunity for women, minorities, and small businesses to compete for licenses through bidding credits, tax certificates, and installment payments. For broadband PCS, we have established an entrepreneurs' block where smaller companies can compete for licenses. We envision that many female and minority companies will bid on their own, form consortia to bid, or form strategic alliances with other players to obtain licenses. Our rules do not guarantee an outcome, but we hope that we have created an opportunity that will have produced five and ten years after the auction thriving minority and female owned businesses.

Finally, competition alone cannot adequately address the educational needs of our students. Only 7% of our children's classrooms have even basic access to telephone service. Only 4% of teachers have a computer modem for their classroom, and 80% of computers in American schools are incapable of supporting multimedia graphical applications because of obsolete hardware.

While in California, I had the opportunity to have lunch with George Lucas, who has a vision of how we can integrate technology into classroom learning. He is producing a video that will reflect this vision and advance the dialog among educators, parents, legislators, and the private sector.

In Lucas's vision, computers and interactive multimedia are the tools by which kids can develop projects and collect, evaluate, and use data from around the world. Each child would have a computer with a modem. By working on projects with other children, students develop strong social skills that are essential in the workplace. In Lucas's world, companies would encourage their experts to devote an hour or two a week to be on-line for students who call up seeking information. And students could access their classrooms and these data bases from their homes as well.

I also met with Ginger Hovenic, a principal from the Clear View Elementary School in Chula Vista, California. That school is a high-tech demonstration project. The school population is highly migratory and international. The fifth- and sixth-grade students have access to computers, modems, and faxes. Cox Cable provided the school with a broadband "superhighway" connection to San Diego State College, and to resources such as history professor George Mahaffy. He interested her students in the story of Justice John Marshall. Teams of students then worked via this superhighway with college students as advisors to research and write and illustrate a book about Justice Marshall. The enthusiasm and creativity of the fifth- and sixth-grade students is incredible. And I wouldn't be surprised if some of the history students at San Diego State College decide to go into teaching as a result of this experience.

It is gratifying to see folks like George Lucas, Ginger Hovenic, George Mahaffy, and Cox Cable working hard to solve these issues. They know which way to kick the ball. So much more needs to be done, and the Commission has established a task force to see what we can do to improve communications technology in the schools. In addition, one of our best tools is the old fashioned bully-pulpit which can be used with great effectiveness as we educate our regulated industries and the public about these needs.

So, like the kids on the soccer field, we are advancing the ball toward the goal of competition. We must move quickly and with great wisdom. We must not lose sight of where the ball is and where we are headed.

Thank you.