June 6, 1995
Thank you, Donna, for that kind introduction.
Madame Grapin, and distinguished guests of the European Institute, it is an honor to be with you today. The Institute has played a vital role in facilitating a constructive exchange of ideas among European and American telecommunications and audiovisual providers and policymakers.
European nations, individually and collectively, and the United States, are grappling with the difficult issues of transitioning from monopoly to a competitive telecommunications marketplace. No one has all of the answers. But public and private conversations such as this contribute greatly to our mutual understanding of the issues at hand.
I look forward to learning much from our conversation today.
As one who has traveled extensively through Europe over the years, I am particularly impressed with the enormity of the task facing the European Commission and its dedication to achieving the goal of a competitive and open marketplace.
I joined the FCC just one year ago, although it seems like a lifetime. I have taken a great interest in global issues, and was delighted to have been invited to serve as one of the shirpas to the G-7 Conference on Telecommunications last February.
In my view, that Conference greatly advanced the cause of global telecommunications competition and the need to open our respective borders. The participation of CEO's of major communications companies at the onset of the Conference -- and their enthusiastic endorsement of competition -- set the tone for the ministerial proceedings.
Today, I would like to discuss the developing architecture for telecommunications competition in Europe -- one of the most significant works in progress for the European Union and its member states. The timing of this luncheon is particularly good, just prior to the meeting one week from today of the Council of Telecommunications and Industry Ministers in Brussels -- the architects, so to speak, of the new telecommunications order in Europe.
Let me approach this topic in the way that an American traveler arriving at a big European airport would see her destination. Upon arriving at the passport control she notices that there is a line for E.U. citizens, and a line for everyone else. Clearly, the members of the European Union have succeeded in establishing standard entry controls for their citizens. Foreigners get in, though through separate procedures.
If a traveler wanted to transfer at her European entry point to another domestic or international flight, she would find her travel options very limited. Currently, only a country's national carrier can transport passengers between two points in that country, and carriers for onward flights to third countries are strictly limited by bilateral agreements. Fortunately for our American traveler's pocketbook, as well as for Europeans', this situation is set to change soon.
The telecommunications ministers of Europe now have before them the task of how to design the pan-European structures in their sector of the economy. From the perspective of a user, the issues are much like those in air transport: How can I connect within the country and to third countries in Europe? The answers to these questions are important to the competitive future of Europe, and by extension to the global economy. While human travelers can endure some personal inconvenience, imposing excessive costs or constraints on communications, particularly business communications, might impose a far more serious consequence, possibly hampering the entire region's economy.
In the United States, as well as in Europe, communications regulation is very much a "work in progress". One need look no further than Capitol Hill, where the Congress is wrestling with the comprehensive communications reform legislation, to see that fundamental questions are being asked about our entire regulatory regime.
One basic issue before the Congress is foreign investment in communications, currently limited by Section 310(b) of the Communications Act. U.S. telecommunications markets are not entirely open to foreign capital. Indeed, this very perception was a principal motivation behind Vice President Gore's issuance of a challenge to other countries at the Brussels G-7 Telecommunications Ministerial to join us in moving forward to eliminate barriers to entry. He pledged that the United States would eliminate this barrier by the end of 1995, either by law or regulation, for countries which offered American companies open access to their domestic markets. The best means of opening telecommunications markets world-wide, of course, is on a multilateral basis through the negotiations on basic telecommunications liberalization (NGBT) currently ongoing in Geneva under the auspices of the World Trade Organization. The United States is strongly committed to this process of reaching a successful outcome in April 1996, and equivalent support must come from the EU if it is to succeed.
Final Thoughts on the Green Paper
When the design for European telecommunications competition is finally agreed, its building blocks will have been Green Papers -- most notably, the two parts of the recent Green Paper on the liberalization of telecommunications infrastructure and cable TV networks. We at the Federal Communications Commission therefore have read with interest the European Commission's May 3 report on the responses to the Green Paper which it collected during a formal public consultation process.
As an FCC Commissioner, I spend much of my time reviewing comments of others as I reach conclusions and vote on dockets before me. Today, I would like to switch roles for a moment and take the part of an advocate in presenting the views of the U.S. on these extremely important European proceedings.
Licensing: The first issue dealt with in the Green Paper consultation paper that I'd like to address is licensing. My agency has long worked to facilitate the licensing decisions required under the Communications Act. Clearly, there are appropriate reasons for licensing, for example where a limited resource such as spectrum is at issue. There are also inappropriate reasons, such as when unsympathetic regulators use licensing requirements to create anti-competitive barriers to new market entrants. If the number of licensees in telephony is artificially limited, too often political intrigue is the consequence. Regulators may be particularly solicitous of incumbents which have not yet been privatized.
Licensing for new (and by definition non-dominant) carriers should be done in a flexible and streamlined fashion. It is crucial that the process be open and transparent. We see some initial signs that the European Commission is responding to these concerns. It has endorsed the use of general authorizations -- rather than specific licenses -- for resale providers of telecommunications services. This would be an important start in ensuring that licensing becomes an enabler, and not a disabler, of competition.
Regulatory authority: One cannot address the topic of licensing without taking up the question of who is doing the licensing. Many potential providers of pan-European infrastructure or services, including the equipment industry, have urged the creation of a European regulatory authority to award licenses, or at least to coordinate their issuance, at the national level. Incumbent operators, by contrast, prefer to keep licensing in national hands.
We in the U.S. federal government recognize the dilemma Brussels faces over this issue. Balancing the efficiencies of centralized regulation against the desirability of local control is as difficult an issue in present-day Washington as it is in post-Maastricht Europe. So we would not presume to suggest how much centralization is necessary for telecommunications licensing in Europe.
We also recognize that the FCC model may not be a perfect fit for European governments operating under parliamentary systems. The FCC operates under a legislative mandate -- the Communications Act of 1934 -- as well as being subject to annual appropriations passed by Congress. We are not part of the Executive Branch, but I and my fellow commissioners were appointed by the President, with the advice and consent of the Senate.
There are certain features of the FCC which we do regard as essential in any effective communications regulatory regime, however. Whoever regulates telecommunications must be given a strong mandate to act independently. The regulatory authority must in principle be free from intervention by the Executive and legislature -- and by the dominant carriers. Public confidence in the independence of the regulator will be strengthened if its rulemaking and adjudicatory processes are transparent and available for all interested parties to use. The rigors of U.S. administrative procedure may not be to every European's taste, but they do help in creating public confidence that decisions are not made behind closed doors.
Just as important are clear, common licensing procedures and criteria. If these regulatory minimum standards for licensing telecommunications infrastructure and services are set and enforced, it will be less important who actually issues the licenses. Finally, there must be discipline built into the implementation of the new competitive European telecommunications regime. Commission directives must be promptly translated into national law, national law into regulatory rules, and licenses expeditiously issued.
Business decisions depend on knowing how long regulatory decisions will take. The FCC was very conscious of this need when we structured the process for allocating spectrum for Personal Communication Systems, the next generation of mobile telephony. We wanted to avoid the sort of lengthy, contested proceedings that have sometimes occurred. Auctions offered a way out: they enable market preferences to be expressed quickly and decisively, speeding the arrival of this new technology in U.S. households.
Interconnection: There is increasing recognition among telecommunications regulators and industry officials around the globe that interconnection of all telecommunications networks is one of the key priorities in advancing the Global Information Infrastructure. We at the FCC are pleased that the OECD's Working Group on Telecommunications and Information Service Policy (TISP) has made this topic the central subject of its meeting later this month. Unless new market entrants are assured the right to interconnect with incumbent monopoly service providers' networks on a non-discriminatory basis, and at reasonable prices, the potential benefits of obtaining the opportunity to compete will be lost.
The European Commission's proposed approach to interconnection relies on both new sector- specific regulatory standards and existing general competition rules. The detailed new standards will be laid down in a series of directives adapting the existing Open Network Provision (ONP) directive to voice telephony and creating new interconnection rules. In addition, the Commission's competition directorate will examine under its general competition rules the terms of interconnection agreements, universal service financing schemes, access to rights of way, network cross-ownership issues, and global and regional alliances.
All of this is essential, but it will take hard work if it is to translate into real competition. The FCC's experience with the interconnection of local and long-distance networks is that, so long as a dominant local provider retains substantial market power, then regulatory vigilance and, if need be, intervention are necessary to prevent discriminatory outcomes and to protect competition. Happily, over time, as competition becomes vigorous, this watchdog role can be relaxed. But we urge European governments not to underestimate the difficulty of the task, and to commit themselves, whether at the European or national level, to structuring an effective, specialized regulatory regime to police interconnection.
Alternative Infrastructure: One way to "jump-start" competition in Europe would be to move quickly to license so-called "alternative" infrastructure -- the existing cable television, mobile telephony, and energy and transport networks which could offer limited competition before 1998 to incumbent monopoly providers.
U.S. federal and state regulators see both wireless and cable television as potential competitors to traditional wire-line telephone carriers. The FCC's recent auction of PCS spectrum will allow additional market entrants into mobile telephony, while state regulatory commissions across the country have been gradually, but steadily, opening the field for cable companies and others to provide voice telephony as well.
While the European Commission's Green Paper does not recommend moving up the January 1, 1998, deadline, it does indicate an intention to advance more quickly proposed directives expanding the roles of cable television networks and mobile telephony. Based on our own experience, we would welcome decisions to permit some limited competition to emerge from these directives during the two and one-half year interval before the monopolies are set to expire.
At the same time, we would point out that cable television is not always a competitor to incumbent telephone providers, for the simple reason that in some major European countries the phone company also owns and operates the cable TV network. In Germany, for example, Deutsche Telekom has more cable TV subscribers than TCI, the largest U.S. cable service provider. Opening the door for DT to offer voice telephony over cable will only compound its existing market dominance. Clearly, the Commission will need to address the potentially anti-competitive situation of allowing cable television operators to enter the telephony field, and adopt the necessary safeguards.
Pan-European Networks: Just as the EU is opening up opportunities for European airlines to transport passengers across the continent, so too would pan-European networks be a decisive advance in promoting regional competition in telecommunications. The EU's political decision to end the national monopolies by 1998 was a crucial step, but actual prospects for competing in the various national markets will remain uncertain for some time. Allowing new entrants into pan-European as well as national markets would advance competition substantially.
In America the true galvanizing force for competition was the development of nation-wide long-distance carriers such as MCI and Sprint. In Europe, with its smaller national markets, the equivalent would be carriers which could provide similar long-distance services across national boundaries. Creating such pan-European networks would, in our view, produce several simultaneous benefits. It would be the most attractive market opening for new competitors, and would set a tone for vigorous competition at the national level.
Let me return for a moment to our American traveler, standing in the arrival lounge at Heathrow (or Charles de Gaulle or Frankfurt). While her options for making her way across Europe may be limited today, soon there will be greater choice and, thanks to impending competition, lower prices for such journeys.
Whether such a prospect also awaits the virtual travelers on the telecommunications networks is not yet clear. Certainly the emerging competitive intra-European air transport regime is an encouraging precedent for an open pan-European order in telecommunications. Nor is there any doubt about the rewards, in the form of business efficiencies, economic growth and future employment. The political and regulatory decisions will be difficult. But if they are made, the day is not far off when our American abroad will be able to phone home with the good news, and see the benefits of consumer choice and lower cost as soon as she picks up the phone.