NewsMay 12, 1996

Commissioner Ness Heralds Beneficial Results of
Communications Competition in Speech to European Audience

FCC Commissioner Susan Ness extolled the benefits of competition in a speech to policymakers considering changes in the Austrian communications market. In an address at the Bruno Kreisky Forum for International Dialogue in Vienna, Austria, to an audience which included Federal Chancellor of Austria Franz Vranitzky, she declared, "Our grand experiment with competition is not yet completed, but thus far it has been a resounding success." She cited the example of AT&T, whose market share has diminished, but whose revenues, profits, consumer responsiveness, and international competitiveness have increased, as a result of competition.

She also suggested that other nations would find it advantageous to pursue pro-competitive policies. "The communications revolution is a global phenomenon. Technology knows no borders. Information knows no borders. Investment knows no borders."

Commissioner Ness cited four lessons from the competitive experience in the U.S.:

"[W]e need to pay attention to the rules of economics . . . mak[ing] sure that the right economic signals are sent . . . ." "[W]e must appreciate the complexity of the technical, social, and political issues that are caused by significant changes in market structure . . . ." "[W]e should be technology neutral. It is not our job to pick winners and losers . . . ." "[W]e need to recognize that competition does not just happen. It takes work."

Commissioner Ness asserted that the U.S. has been served well by relying on private investment to deliver the communications services and features users want. She also described the benefits of having government oversight administered through an independent agency.

Discussing universal service, Commissioner Ness noted that 94 percent of Americans have telephone service." This is a great achievement, but we are neither satisfied nor complacent." The U.S., she said, needs "to develop new ways to support universal service. Subsidies must become more explicit, more efficient, more targeted . . . . Our task is to devise mechanisms that protect universal service but do not retard competition."

Commissioner Ness stressed the need to increase competitive opportunities in international markets. Noting that the U.S. is opening its market to carriers from markets which offer our companies effective competitive opportunities, she observed, "Fair is fair. Opportunity is a two-way street."

For further information, contact Jim Casserly, 202/418-2100.

Remarks of
FCC Commissioner Susan Ness
Before the
Bruno Kreisky Forum for International Dialogue

Vienna, Austria

May 12, 1996

On the Path to the Information Society:
The U.S. Experience

Ich moechte Ihnen, Herr Bundeskanzler Vranitzky, Herr Bundesminister Scholten und Herr Stadrat Swoboda sowie dem Bruno Kreisky Forum sehr herzlich fuer die Einlandung zu diesem Seminar danken. Diese Veranstaltung des Bruno Kreisky Forums ist ein nachhaltiger Beweis in Osterrich, diesen neuen Anforderungen der Technik an den Menschen gerecht zu werdern.

I am deeply honored to have the opportunity to discuss telecommunications competition with you.

This is an exciting time in telecommunications. Technology is changing at a dizzying pace. Consumers and businesses are demanding more and better services -- and lower prices. Governments are increasingly aware of the importance of communications -- and of the inevitability of the changes in market structures and regulations that will be necessary to permit industry to meet user needs.

Many countries around the world are addressing these new circumstances. Of course, I would not presume to suggest that Austria should copy the decisions we have made in the United States. The industries, governments, and other characteristics of our two countries are clearly different.

And yet, to review the U.S. experience is inevitably to draw some lessons that may have application in other countries. Permit me to share some of the highlights of our experience with you -- and then invite a dialogue from which we both can learn.

Competition is the Key

In the U.S., competition has been the cornerstone of communications policy for more than 15 years. Our grand experiment with competition is not yet completed, but thus far it has been a resounding success.

Competition is bringing greater choices, lower prices, and rapid innovation. It is increasing investment, creating jobs, and strengthening our entire economy.

We already have a high level of competition in the markets for long distance, information services, and customer-premises equipment. Our task now is to establish competition in local telephone, as well as video services.

As I am sure you are aware, our Congress recently passed a sweeping new law, the most comprehensive reform in over 60 years.

The Telecommunications Act of 1996, enacted three months ago, reaffirms our faith in competition -- and our commitment to reduce regulation as competition takes root. It also preserves and expands universal service -- recognizing that society as a whole benefits when access to the network is available to all.

The Five Principles

The new law is the product of bipartisan policy choices. The specific provisions of the legislation can best be understood in terms of five principles articulated by Vice President Gore, two years ago. The legislation embraces these principles -- and gives them new life.

These principles may already be familiar to you. Indeed, Vice President Gore presented them at an International Telecommunications Union meeting in Buenos Aires, and suggested that they may also be pertinent to the development of the global information society.

Today I would like to discuss these five principles and relate them to our efforts to implement the new legislation. The principles are: Encourage private investment, Promote competition, Create a flexible regulatory framework, Provide open access to the network, and Ensure universal service. I will discuss each in turn.

Regarding private investment, the United States has a different tradition from many other nations in that our telecommunications network has always been privately owned. The government has regulated communications companies, but capital has come from private shareholders.

This system has served us well.

For one thing, users want certain services and capabilities. This in turn requires new facilities. To build feature-rich broadband networks is expensive, to say the least. Yet government resources are limited, and other demands on the treasury are numerous.

Moreover, government participation in ownership and operation of communications facilities inevitably discourages private investment. Investors are reluctant to invest in companies that face competition from the government. They know that government can favor its own communications operations over those that are privately owned.

Thus, we conclude that investment in the telecommunications infrastructure can best be stimulated if government limits its role to regulation. The separate functions of investment, construction, and operation of communications facilities can be left to the private sector.

Our second principle implies that capital can be deployed more efficiently -- and that numerous other benefits flow to consumers and to the economy -- when the environment is one that promotes competition.

Competition is the engine that drives our communications markets. AT&T, for example, has seen its share of the long-distance market decline from 100 percent to perhaps 55 percent. Yet AT&T's revenues have increased, profits have improved, prices have dropped a dramatic 60 percent, usage has soared -- and AT&T has become an efficient, world-class competitor.

To be sure, at the time, consumers were confused, and organized labor lost some jobs. But consumers adapted to the complexity that accompanies expanded choices -- and soon demanded more of the same. And labor found new, high-wage jobs in a vastly expanded communications and information sector.

I will talk more about competition after reviewing the remaining principles.

A flexible regulatory framework is also central to our objectives.

Our goal is to let market forces replace government strictures wherever we can. Deregulation is not a goal in and of itself, but it can be a valuable by -- product of increased competition. In areas where competition has eliminated market power, the need for regulation is much attenuated.

For that reason, we are grateful that Congress has given the Commission authority to forbear from regulating. In other words, we now have the power - even the duty -- to exempt companies or classes of companies from explicit statutory requirements where competitive circumstances and the public interest so warrant.

Let me also mention my own conviction that our needs have best been served by having the market rules established and enforced by an independent agency.

The FCC is not part of the Executive or Legislative branches of government. It is independent.

The five Commissioners are appointed to fixed five-year terms by the President and confirmed by the Senate. No more than three of the Commissioners may be from the same political party.

This structure provides us with the advantage of diverse points of view. It provides a measure of insulation from political pressures, which is especially important given our oversight of broadcasting in addition to telephony. Of course, the Administration reviews our budget requests, and Congress annually appropriates funds, so we listen very carefully when we receive advice from the other branches of government. The process can at times be intensely political.

Still, we must make our decisions on the basis of a written record, subject to judicial review. Industry and consumers have confidence that they will be treated fairly.

One other point I should make about our regulatory process: in the U.S., some of the authority is vested in the FCC, and some is entrusted to the commissions in each of the 50 states. There is considerable cooperation between the state and federal agencies. However, there is also a degree of tension about the extent to which certain decisions should be made at the federal level, on a nationwide basis, or left to the discretion of the states.

Many of the issues arising under our new telecommunications law will involve both state and federal agencies. It is important that we have a national policy framework. Yet there must also be some room for experimentation and response to local circumstances.

The fourth principle, open access, is closely related to our commitment to telecommunications competition. Just as competing carriers need to be able to connect with one another, information services need to be able to connect efficiently to communications networks.

The final principle is that of universal service. To some extent, there is tension between this goal and that of competition. Our challenge is to advance both objectives.

Today, 94 percent of the people in the United States have telephone service. This is a great achievement, but we are neither satisfied nor complacent. The national average masks some real problems for those at the low end of the income scale and those in certain demographic groups.

The Telecommunications Act requires the FCC to ensure that telephone service is available to all Americans at rates that are just, reasonable, and affordable. It instructs us to develop new ways to support universal service. Subsidies must become more explicit, more efficient, more targeted.

Our present system makes telephone service affordable through hidden subsidies; some of the fixed costs of local loops are recovered through traffic-sensitive charges imposed on long distance telephone calls. This kind of subsidy is unsustainable in a competitive market.

But to eliminate these subsidies creates fears that local rates will rise. This is a significant social and political issue -- especially for the state authorities.

We cannot guarantee that all consumers will pay less, but we must ensure that telephone service remains widely available and that everyone who needs subsidized service will receive it.

The new law expands the base of carriers who pay to fund universal support mechanisms. All carriers, including new entrants, should pay their fair share. At the same time, it expands eligibility to receive universal service support. In both respects, the goal is to be competitively neutral. Our task is to devise mechanisms that protect universal service but do not retard competition.

I must also add that our definition of universal service is dynamic. It must evolve over time. Today, touch-tone service has become standard. In the future, high-speed data access -- even at broadband bit rates -- may become the accepted baseline service.

Our new law also requires that we give special attention to schools, libraries, and health care providers.

Anyone who has watched schoolchildren access the Internet knows how communications technologies can stimulate the imagination and feed the hungry mind. President Clinton has proposed to connect all schools to the Information Superhighway by the year 2000. Today's students are tomorrow's workforce, and they need the tools necessary for success in the global marketplace.

Today's workers, and especially those of tomorrow, will need continually to acquire new skills. Learning must become a lifetime exercise. The availability of advanced communications technologies in schools and libraries can play a critical role in enabling workers, in every sector of the economy, to remain on the cutting edge.

For this reason, Congress has directed the FCC to promote the availability of advanced, broadband communications services in these locations.

We also believe that communications technologies hold tremendous potential for improved health care services, especially in rural areas. Lives can be saved.

The five principles outlined by Vice President Gore are interdependent. For example, a flexible regulatory framework promotes, and adapts to, competition. If competition is allowed and regulation is fair, then private investment will be encouraged. We believe universal service can best be achieved through private investment and competition, if regulation protects those who might otherwise be neglected.

Making Competition Work

I now want to focus in greater detail on what it takes to make competition work, with particular emphasis on the local market. Today, in the U.S., local telephone service is provided essentially on a monopoly basis. Only one telephone wire is strung to each home, and only one company can carry local calls.

This is just beginning to change -- and the pace of change may soon become rapid.

Our national law preempted -- that is, struck down -- state laws that prevent competition. It also recognized that merely eliminating barriers to entry will not suffice; specific, affirmative rules are needed to enable new competitors to enter the market.

Needless to say, entrenched incumbents do not yield their monopoly advantages willingly. And there are literally dozens of ways in which incumbents can forestall or impede new entry.

Our law, however, provides strong tools to create competition.

The legislation recognizes that resale will be an important part of the entry strategy for new competitors. All local exchange carriers are forbidden to limit or to unreasonably burden the availability of their services for resale.

More specifically, incumbents must provide their services on a wholesale basis, at retail rates less avoided costs (such as the costs associated with billing). The idea is to get competitors into the local market quickly, without the delays and costs of independent facilities-based entry -- but not at a price that will deter competitors from constructing their own facilities over time.

This is precisely how competition developed in our long distance market: first through resale and then, more gradually, through construction of competing facilities by the new entrants.

Incumbent local carriers have additional duties. First and foremost, they have the duty to negotiate in good faith with their competitors. A failure to negotiate successfully can lead to mediation and arbitration by state authorities, but in the first instance the hope is that the incumbents and the new entrants can resolve, on their own, the arrangements necessary to permit competition to emerge.

Our seven largest local telephone companies have an extra incentive to negotiate. Agreements with facilities-based competitors are crucial steps in their winning freedom to enter the long distance market, which currently represents approximately $60 billion per year. Thus, even as competition commences in the local market, we'll also see increased competition in long distance as well.

In addition, incumbents have a duty to interconnect their networks to their competitors' networks at any technically feasible point, on reasonable terms and conditions. They also must provide unbundled access to the components of their networks.

This means that a cable company, for example, which may have its own loops but not its own switch, can arrange to buy switching capacity from the incumbent. Or a long distance carrier, which has its own switch but not its own loops, can arrange to use the incumbent's wires to reach individual subscribers. We also foresee wireless companies offering fixed local loop services. Electric companies may also get into the act.

The issues of interconnection, unbundling, and resale are of special importance and complexity. I understand that Elliot Maxwell will be focusing in greater detail on these matters tomorrow morning.

Carriers have other duties, as well, under the new law. In particular, local telephone companies must provide number portability, dialing parity, access to rights-of-way, and information needed to permit interoperation of interconnecting networks.

The FCC is now formulating regulations concerning all of these requirements. As you recognize, many of these matters raise complex issues. I can assure you that the debate is vigorous and contentious.

International Developments

Many other nations are confronting the same or similar issues. Internally, and in the context of international traffic, the worldwide trend is inexorably towards much-increased competition.

Indeed, the five principles outlined by Vice President Gore have been widely embraced. The U.S. welcomes the favorable response.

In bilateral and multilateral negotiations, we have encouraged privatization and market-opening measures. We are opening our market to carriers from markets which offer our companies effective competitive opportunities.

Fair is fair. Opportunity is a two-way street.

Austria's participation in the EU's GATS offer reflects a welcome intention to open its market to competition by January 1, 1998. We hope that the EU will improve its offer in the GATS negotiations and that Austria will actively participate in the internal EU discussions that are necessary to permit such improvements to be offered. I am pleased to note that Austria was one of 10 countries that the U.S. identified as having made a credible offer along the lines we regard as fair.

Austria has the opportunity to take a leadership role in the EU by aggressively pursuing market liberalization initiatives and expediting those actions wherever possible. To play such a role could enhance your potential to serve as a gateway for international traffic flowing to and from points in Eastern Europe.

Final thoughts

Let me close by offering a few final thoughts about the challenges of replacing monopoly with competition. First, we need to pay attention to the rules of economics. As we require the unbundling of local networks, we need to make sure that the right economic signals are sent. We want to encourage entry by those who have the potential to be lower-cost suppliers but not encourage entry by inefficient providers whose only interest is in exploiting some artificial anomaly.

Second, we must appreciate the complexity of the technical, social, and political issues that are caused by significant changes in market structure. As I mentioned, consumers and organized labor have expressed varying degrees of concern about increased competition; so too have individuals and small businesses in high-cost, rural areas.

These are not reasons to try to prevent change. But they do reflect the need to manage change -- for example, with job retraining programs.

Third, we should be technology neutral. It is not our job to pick winners and losers.

Fourth, and finally, we need to recognize that competition does not just happen. It takes work.

As I am fond of saying, wishing does not make it so.

And though the task is monumental, many nations will find it advantageous to accelerate the process of making competition happen. Changed circumstances -- especially faster technological change, heightened user expectations, and the intensification of global competition -- mean that many nations will need to create competition much more rapidly than we did in the United States.


The communications revolution is a global phenomenon. Technology knows no borders. Information knows no borders. Investment knows no borders.

And so, as each nation develops its own infrastructure, in its own way, it is productive to share our experience and our insights.

Vielen danke. I would be delighted to take your questions.