Remarks of
FCC Commissioner Susan Ness
CompTel '95
Annual Convention and Trade Exposition

Opryland Hotel
Nashville, Tennessee

February 14, 1995

Thank you, Roy Wilkens, for the kind introduction and the warm welcome.

Today is Valentine's Day. This is one of those special days when the number of telephone calls surges -- not for business reasons but for a higher purpose. Today, millions of us pick up the telephone to call our loved ones.

As we make these calls, most of us don't stop to think about the carrier to which we are presubscribed. Very few of us speculate on the manner in which our call is being routed -- for example, was there an access tandem along the way, or not? The average American doesn't think about serving wire centers, entrance facilities, or interim rate structures.

We just pick up the phone and expect it to work. And it does.

I should mention, however, that the FCC's enforcement division received a complaint just last week from none other than Reba McEntire, captioned "Why Haven't I Heard From You?" She says there used to be

"no problem getting to me;
Baby you can dial direct.
I got call-forwarding, call-waiting;
You can even call collect."

But her phone isn't ringing, so she wanted to report a network outage.

Sorry, Reba, but the telephone network is not to blame. Virtually all of the tens of millions of calls that will be placed today, to loved ones near and far, will be completed. Why? Because of the astoundingly successful way in which the communications facilities of multiple carriers -- including CompTel members -- are connected together. And this brings me to what I want to talk about today: making competition work.

Making competition work. And what government and industry need to do to keep it working, and to make it work even better.

I look at this audience as evidence of the extraordinary progress that has been made in developing competition in interexchange services.

Once, the best way to view the breadth and diversity of the long distance services industry would have been to attend the AT&T company picnic. Now, one comes here, to what I understand is the largest exposition in the history of interexchange services.

You all deserve enormous credit for bringing the industry to its present state of competition.

At the FCC, we occasionally hear that the interexchange market is a cozy, three-firm oligopoly. Such charges can best be evaluated through a careful study of market behavior. But, on an anecdotal level, the very existence and growth of this group suggest that Tier One and Tier Two interexchange carriers had better look over their shoulders. Indeed, I believe they do so already.

You and your industry have made competition work, not only for yourselves, but also for the most important players -- your customers.

What you have accomplished in creating a competitive long-distance market will provide valuable lessons as government and industry move forward with the next logical step -- to open the local exchange to competition.

So let's take a few minutes to discuss the roles of government and industry in making competition work, both in long distance and local exchange services, and the new opportunities that will result for entrepreneurs such as yourselves.

First, competition in long distance. I don't think there is much doubt that competition is working in interexchange services. Let's look at the evidence.

The competitive market has created more consumer demand.

Over the past decade, the total number of switched access minutes (premium and non-premium) nearly tripled, from 37.5 billion to 101.3 billion.

Competition has fostered greater carrier participation in the market.

Over the short span of time since 1986, the number of interexchange carriers purchasing equal access has grown from approximately 170 to 450. During the same period, the number of carriers which purchase equal access in more than 44 states has grown from two to nine.

CompTel's membership has reflected this dramatic growth, expanding from a small band of carriers in the early 1980s to your present membership.

Smaller carriers have flourished in the competitive marketplace.

In terms of subscribers, the Third-Tier interexchange carriers have grown significantly faster than the First- and Second-Tier carriers, to the point where the Third-Tier carriers now serve over 10 million lines. Even during the past year, the growth rate of switched access minutes for Third-Tier IXCs far outstripped the growth rates achieved by AT&T, MCI, and Sprint.

Consumers enjoy more choices and lower rates -- the direct result of all this competition.

AT&T's price for a five-minute, daytime call from Nashville to Washington was $2.34 in 1984, and $1.35 in 1994, a decline of more than 40 percent -- and that's before adjusting for inflation. Moreover, that's just the "rack" rate, not a promotional rate or the price of using an optional calling plan. Those rates, as you well know, are even lower.

Plus, it's a safe bet that more than one company in this room is ready to beat any offer AT&T puts on the table.

The advertising warfare between AT&T, MCI, and Sprint reflects the ease with which customers may choose between carriers. It is also refreshing to see others get into the fray, competing not only on price but also on the basis of innovative marketing approaches.

For example, we have heard how LCI, in direct challenge to the larger IXCs, has begun marketing its services on the basis of billing for 6-second intervals. LCI claims that AT&T, MCI and Sprint all bill on the basis of 1-minute intervals, charging their customers billions of dollars in "hidden costs".

We have heard how another carrier, Working Assets, positions itself as the socially conscious long-distance company -- allowing its 225,000 subscribers to donate a percentage of their phone bills to nonprofit groups.

The FCC does not favor or disfavor any one of these or other approaches. But we applaud the broadening array of choices available to consumers and the constant striving of market participants to outperform, outshine, and outhustle your rivals.

Let me speak for a moment about the role of government. The responsibility to make competition work is shared by federal and state agencies and, at the federal level, by several agencies and even branches of government.

The plenary power, of course, belongs to Congress, which has renewed its efforts to enact comprehensive revisions to Title II of the Communications Act of 1934.

I remain supportive and hopeful of congressional action. It is long overdue.

I am also aware, however, of the repeated efforts to legislate in this area over the past 20 years. Only time will tell whether the 104th Congress will be more successful in this respect than the 10 previous Congresses.

In the meantime, I believe the Commission cannot stand by waiting for legislation. We must move forward. The issues will not wait.

This Commission is committed to competition. We must not forget that the FCC's past efforts to promote competition in the long distance market occurred without the passage of legislation.

The FCC developed the system of access charges that permits competing long distance companies to use the local telephone network to originate and terminate their traffic.

The Commission also supervised the process which enables consumers to select their carrier for "1+" interstate long distance service instead of being forced to use the incumbent monopoly carrier.

In both areas, the Commission's efforts may have been influenced by legislative developments. Nonetheless, in both cases, the Commission acted -- for the good of competition and the American consumer -- without waiting for legislation to be enacted.

So it may be in the coming months and years.

Whether legislation passes or not, there appears to be little doubt that competition is the desired result.

The markets and technology are driving us in this direction. So are legislative and judicial developments.

How to implement competition is the issue and the source of contentious debate.

Certainly the most notable example of this debate is now front and center on Capitol Hill and at the Justice Department, though the FCC will have an important role to play later. This issue, near and dear to your hearts, is the timing of RBOC entry into the interexchange market.

The Competitive Long Distance Coalition, led by Tennessean Howard Baker, argued in a recent letter to Senator Pressler that such entry should not be triggered by arrival of a "date certain.". To use the words of the Coalition, "Deregulating a vigorously competitive marketplace makes sense. Deregulating a monopoly makes none."

Another Tennessean, Vice President Gore, made the same point when he argued that the public policy goal must be real competition, not the assertion of competition, not the illusion of competition, and not the distant prospect of competition.

This debate will play itself out on Capitol Hill. The FCC will implement whatever legislation Congress enacts. But there is no doubt that we share the objective of genuine competition.

We are now trying, to the extent our power permits, to promote competition in the local exchange market. For example, we are considering issues such as number portability, universal service, expanded interconnection, and intelligent network architecture.

In our work on these issues, the FCC's focus must be to create and preserve fair competition, thus fostering new opportunities for industry and new benefits for consumers.

Our goal is not necessarily to guarantee individual, or even industry-wide, success. We merely strive to create conditions in which multiple suppliers have opportunities to succeed. I believe this is consistent with the thrust of Senator Baker's comments yesterday about the need for "mutuality of opportunity."

As the Commission labors to make competition work, industry has an important role to play in the public policy debate. CompTel has been a valued, experienced voice in the effort to develop competition.

Take the Transport proceeding, for example. There, in large part because of CompTel's input, the Commission's initial effort to restructure transport rates reflected a cautious, interim approach. We sought additional comments on the structure to be used over the longer-term.

This interim approach has allowed the removal of the artificial price distortions created by the equal-charge-per-unit-of-traffic rule, while permitting the Commission to develop the record necessary to prescribe a long-term rate structure with greater confidence.

There are several other proceedings before the Commission in which your participation can make a difference. For example, there are various proposals to adjust the rules applicable to local exchange carriers. Ameritech's Customer First Plan, NYNEX's Universal Service Preservation Plan, and Rochester's Open Market Plan are all under consideration. The Commission is also preparing to address petitions considering AT&T's promotional offerings and optional calling plans and its status as a dominant carrier.

I know there are other proceedings in which you have a substantial interest, such as our latest proposal regarding "slamming." We have recently sought to curtail practices which have become a growing source of complaints: the practice of disguising in various forms a subscriber's authorization to change long-distance carriers. This practice is of particular concern where it takes advantage of consumers' inability to understand English.

You can help us make sure that we balance the need for vigorous, even cutthroat competition with the need to avoid consumer injury caused by misleading or coercive inducements. I have not yet had an opportunity to review the record developed in response to our notice of proposed rulemaking, but I know that CompTel and individual IXCs have worked hard to make sure we have a complete understanding before we make a final decision.

Similar tensions are present in the debate over Billed Party Preference. We welcome your thoughts on how best to balance the objective of untrammeled competition with the goal of consumer protection.

"Caveat emptor" is an inadequate response to the circumstances in which many consumers find themselves paying outlandish rates for a carrier they did not consciously decide to use. But we must evaluate carefully before deciding whether to prescribe a remedy, mindful of the costs of excessive regulation and the pitfalls of unintended consequences.

You have played a vital role in helping us to think through these issues. I know we can count on you to continue to do so.

Finally, I want to say a few words about the opportunities that lie ahead for new ways to make competition work.

This industry has changed a great deal since I, as a banker, lent money in the early 1980s to some of your long distance compatriots. One thing that has not changed about the industry is its entrepreneurial spirit.

To challenge much bigger and longer-established rivals -- as you do -- you must be courageous, hard-working, nimble, and somewhat feisty. Your success is testament to your skills in these areas.

To enjoy continued success, you must find ways to see opportunities from afar, and seize them.

Inevitably, as existing restrictions are stripped away and new technologies create new opportunities, long-distance carriers must be prepared to compete in new industries. You must offer your customers new choices. You must stay on the cutting edge -- or be cut out.

Intriguing opportunities may await in the resale of local exchange services. If customers increasingly want one-stop shopping and if local exchange carriers will be offering interexchange services, you may need to position yourself to provide a competitive, integrated offering that includes resold local service. I can see why this idea is now coming to the forefront of your policy advocacy.

Some of you may be prepared to go further. In states where entry is authorized, and in situations where the economics make sense, you can build your own networks into the local market and offer local exchange services. This could also be accomplished through strategic ventures, much like those between WilTel and MFS in the Boston and New York City markets.

Some of you may find wireless technologies to offer attractive opportunities. Partnerships, similar to the AT&T/McCaw cellular arrangement, may give rise to alternative means of access to the local market.

A few of you are directly involved in the PCS auctions, and I'm sure those of you who are not directly involved are watching with a keen interest to see what new opportunities will result. The bidding just topped $5 billion, but far more important than the revenue is the prospect of increased competition -- and in particular the potential for a way around the local bottleneck.

Are video services in your future? Is it too far-fetched to imagine that some of you will expand into the local market to offer video services? Or, perhaps, a cable company that currently provides video services alone may tomorrow become your chosen vehicle for reaching customers in the local exchange.

And let's not forget international. Much of the growth lies in overseas markets -- and in connections between the U.S. and abroad.

The Commission has just initiated a proceeding intended to stimulate the opening of foreign markets to U.S. carriers and the creation of equivalent market access for foreign investment in the United States. We are saying to the world -- let our companies compete!

It is clear that the future holds the prospect of exciting new opportunities for you and for the consumers you serve. Based on your past record of success, your future looks very bright.

You have made competition work in the long-distance market. There has been tremendous progress over the past decade. This is one industry where we would never ask, as Randy Travis pleads, "Operator, please connect me to 1982." We have come too far to go back.

Let's work together to ensure that competition continues to work for the American economy and the American consumer.

Happy Valentine's Day, and thank you.