September 19, 1996
Play ball!! That is the announcer's cry at the start of every baseball game. The players are ready. The crowd is ready. The umpires are ready. The game begins.
Play ball!! That's the cry of PCS players. That is also what Congress decreed when it passed the Telecommunications Act of 1996. The players -- or competitors -- are ready. The crowd - - consumers -- are ready. The umpires -- the FCC and the state commissions -- are ready. It's game time.
Robust and fair competition is the name of the game. As in Major League Baseball, it is not the rulebook or the umpires, but the players themselves, that should determine the outcome. Those who are nimble and best meet consumer needs should be the marketplace champions.
I congratulate you as an industry in successfully launching the exciting new business of Personal Communications Services. Unlike Major League Baseball, we have authorized these "expansion teams" in record time through our auctions and licensing.
There are still a lot of bases to cover before PCS can claim a nationwide footprint. However, the first players at bat have scored well with the investment community and the public.
As you construct your networks and begin serving customers, problems inevitably arise. We're working with you to resolve many of them. For example, we changed the microwave relocation rules to promote a smoother transition from fixed microwave to PCS in the 2 GHz band. For antenna tower siting, we've established a task force to work with you and state and local governments to explain the statutory provisions and the importance of wireless service.
Goals
I want to share with you some of the basic principles I apply to my decisions.
Telecommunications Act of 1996
These objectives are consistent with the law passed earlier this year by Congress.
One major consequence of the Telecommunications Act of 1996 is that wireless companies will be let onto the field to compete. You are full fledged players, not just pinch hitters.
Competition in all sectors of telecommunications is the overarching goal.
The old rules of the game provided for government-sanctioned monopoly. It was believed that universal telephone service could be efficiently provided only by a monopoly provider.
Congress has told the FCC and the state public utility commissions to conform our rulebook to a new pro-competitive, deregulatory national policy framework and to umpire disputes. Congress didn't want another season to be played under the old rules, so it required the changes to be completed promptly. Many of the most critical new competition rulemakings had six month deadlines. They were due -- and delivered -- on August 8th.
We designed these rules to permit rapid new entry and fair play. We rejected efforts to give some players advantages not shared by others. Every team has a fair chance to win.
As a result, success will be determined more by skills and competitive zeal than by lobbying regulators. That is as it should be.
Interconnection
To ensure competition in telephony, we are revising the entire system of charges and subsidies in what is fondly known as the trilogy of rulemakings: Interconnection, universal service, and access reform. We issued the Interconnection Order on August 8th, and expect to complete universal service and access reform during the first quarter of 1997.
One of our most important decisions under the Act addresses the right to interconnect a competitor's network with the incumbent's wireline network. Fair interconnection arrangements are crucial to your business.
Before our order was issued, wireless providers paid as much as three cents per minute to terminate calls on the public switched telephone network. Yet wireless carriers generally were not compensated for connections that they provided to terminate calls originating on the wireline network. This violated the Commission's existing rules requiring mutual compensation. Not only were they not reimbursed for the use of their network, but paging companies and some cellular companies were actually required to pay the wireline carriers for the privilege of terminating calls on the wireless network.
It's a "heads-I-win, tails-you-lose" approach to monopoly service. Or, so it was.
On August 8th, we issued an order to correct these disparities and to give new players a fair chance to succeed or fail on their own abilities.
Although the order is long -- 680 pages of light reading -- the rules themselves are only 48 pages in length. Counting words, that's not even 60% of the length of the official rulebook of Little League Baseball!
What does our interconnection order do?
These pro-competitive rules provide a backdrop to private negotiations for interconnection between the incumbent telephone company and new entrants. This is not your typical negotiation, where each party has something the other party wants. To compete, new entrants must have access to the monopoly provider's network. Monopoly providers like being monopolies.
Only if private negotiations fail do the more detailed terms of the Act and the FCC's implementing regulations apply. The states are charged with providing arbitration help in resolving issues and in setting fair, cost-based prices for interconnection in these arbitrations.
Local exchange carriers and others have already challenged our Order in court. However, unless the Court issues a stay -- which I think is highly unlikely -- our rules will remain in effect while the issues are being litigated. Consumers pay if there is delay.
While I will carefully consider all arguments filed in reconsideration petitions, I believe we made the right call. It's my view that our decisions are in the public interest, are consistent with our mandate under the statute, and will withstand judicial scrutiny.
Universal Service
Closely related to the subject of interconnection is universal service.
Historically, wireless companies have not been involved with universal service. It was an obligation of the wireline local exchange carriers -- funded in part with revenues from long distance carriers. But the equation is changing, both in terms of who pays and in terms of who receives universal service support. These changes will affect wireless companies.
Today, there are billions of dollars of subsidies sloshing about in the telephone system. Business lines, interstate and intrastate access services, and the so-called "vertical services" like Caller ID and Call Waiting are all overpriced. Some portion of the difference goes to reduce the charges residential consumers pay for basic dialtone service.
The new competitive environment will create pressures to lower the prices for business lines, access services, and vertical services. The sources of "contribution" no longer will be secure.
Equally important, the Telecommunications Act requires that universal service will be funded through new mechanisms. These systems must be competitively neutral, and all subsidies must be explicit.
The principle of competitive neutrality will affect both the collection and the distribution of universal service subsidies. The question of "who pays?" will have a longer and more inclusive answer than it used to. All carriers engaged in interstate telecommunications are likely to participate.
Even non-carrier "providers of interstate telecommunications" are potentially subject to universal service support obligations. Certainly wireless companies -- like wireline companies -- will share in this obligation.
Eligibility to receive universal service support also will be expanded. In non-rural areas, competing carriers may be eligible for universal service support. In rural areas, it will be up to the states to determine whether new competitors are eligible for such support.
Depending on how our rules are written and how the states administer them, cellular and PCS companies may have the opportunity to become universal service support recipients.
I serve on a Joint Board, consisting of federal and state regulators, that will soon recommend a decision on universal service to the FCC. I want to encourage you to work with the Joint Board so that the interests of wireless companies are considered as the rules are written.
Spectrum
Unlike wireline services, wireless services require the use of spectrum.
In March, the Commission met for a day-long "spectrum summit." A broad array of witnesses testified on the FCC's spectrum management policies. The successes and failures of the past were analyzed for guidance on what our policies should be in today's rapidly changing technological world. The Commission is now working on a policy statement setting forth our spectrum policy objectives.
Three overriding spectrum issues are: availability, flexibility, and capacity.
First, availability. Consistent with our goal of opening new markets, the FCC is working to ensure the availability of spectrum through rapid allocation and licensing.
As some of you may recall, during my first two weeks at the Commission I spent much of my time on the final orders that established the broadband Personal Communications Service. And just two years later, I routinely talk with my staff on a PCS phone as I drive to work. That's fast to market! We have already licensed two PCS providers in each geographic area. I expect that licenses will be issued for the four remaining spectrum blocks within six months.
Compare this with just ten years ago. The cellular service order was adopted in 1981. Even using lotteries to speed up the cellular licensing process, the last geographic areas were licensed in 1991, a decade later.
But with PCS, we moved much faster. The fans -- consumers -- experienced no comparable delay of the game.
To ensure that competition remains robust and that consumers receive the services they want, we need to continue to make additional spectrum available. Over the next several years we will be licensing a number of services in different bands that will offer additional competition.
We will finish our auctions of the narrowband PCS frequencies, which will be used for advanced paging and messaging.
I also expect that we will be issuing licenses in General Wireless Communications Services at 4.6 GHz, which could include wireless local loop and other connections.
We are in various stages of rulemakings preparing to license broadband services at 18, 28, and 38 GHz, all of which may provide competitive opportunities for additional voice and data paths into businesses and homes.
The second spectrum issue is flexibility. Once spectrum has been allocated and assigned, how much discretion should licensees have to structure the services that they offer? Our answer -- consistent with our goals of increasing competition and eliminating unnecessary regulation -- is "a great deal."
Flexibility was a major focus of our spectrum summit. Many witnesses praised the Commission's rules governing PCS, citing them as an example of enlightened flexibility. As additional licensees are authorized in the PCS frequencies, this flexibility will permit players to change their game plan and adjust to changing marketplace demands.
This summer we expanded spectrum flexibility to enable PCS, cellular, paging, and certain other CMRS providers to offer fixed as well as mobile services. PCS providers now can freely design their systems to serve the mobile or the fixed market -- or both. By allowing licensees to provide purely fixed local loop connections to the public switched telephone network, we have eliminated a barrier to providing a wireless alternative to the local loop.
So not only will there be competition within existing services, but new spectrum may eventually provide inter-band competition with new products and services.
The third spectrum issue is capacity. Most of the proposed frequency bands I just mentioned are too high on the spectrum chart for mobile services. If consumer demand for mobility continues to grow, capacity at the lower bands may become an issue. We will allocate all the spectrum possible, but technological solutions also will be necessary to meet spectrum demand.
I believe we have established appropriate incentives for development of newer and better transmission technologies and data compression techniques. New methods will permit more intense use to be made of the spectrum and more communications per bandwidth.
I also might add that I hope consumer demand and telecom policy -- will drive spectrum decisions -- rather than budget requirements.
Conclusion
This morning's Supersession panelists talked about what the wireless industry would look like in the twenty-first century. They agreed that the marketplace will look substantially different in five years, but that the killer applications are not yet known. One definite beneficiary, however, will be the advertising community!
In any event, by establishing the regulatory framework for competition in 1996, I believe Congress and the FCC have helped to ensure that prices will be lower and that wireless service will become the functional equivalent of wireline in quality and price.
The FCC has prepared the field for the game.
We have opened markets, established fair, competitively neutral rules of competition, eliminated unnecessary regulatory obstacles, and given spectrum licensees enhanced flexibility.
Now, it's time to Play Ball. With your entrepreneurial spirit, hard work, and your mind focused on the customer, you are sure to bring home the pennant!
Here's to a winning season!