[ text version ]

Remarks of
Commissioner Susan Ness
before the
New England Chapter of the
Federal Communications Bar Association
Boston, Massachusetts
May 29, 1997

..And Miles To Go Before I Sleep

I'm delighted to visit with the newest FCBA chapter.

It's great to be back in Boston -- the scene of the crime. As you may know, I received my juris doctor degree from Boston College Law School. Over the years, B.C. Law has spawned an assemblage of communications law notables -- former FCC Chairman Charlie Ferris, Commissioners Anne Jones and Joe Fogarty, and of course, Congressman Ed Markey. Maybe now that there is a New England Chapter of the FCBA in Boston, B.C. law will finally offer a communications law course!

Communications is a wonderful area in which to practice. Just about every industry sector is experiencing sweeping change in both the regulatory and business worlds. It's hard to keep up. The billable hours keep on growing -- which is good news for those of you in private practice, and terrible news for those of you who are clients.

Competition and Deregulation

Competition and deregulation have become the watchwords of the FCC. They are the goals embodied in the Telecommunications Act of 1996. They are at the heart of Commission activities throughout the three year period in which I have served on the Commission.

We have worked tirelessly to introduce competition in every segment of the industry. As competition takes hold, regulation should be reduced or eliminated. Indeed, where feasible, we have used deregulation as an incentive to open a marketplace to competition. But vibrant competition does not occur overnight. Monopolies are resistant to change. New entrants face constraints of capital and changes in their perspectives as to where the capital should be deployed. And just getting the rules in place is a Herculean task.

So there is still much work to be done, and the unfinished work of the FCC's competition agenda is what I want to discuss with you today.

The Transition

Just as the communications world is in transition, so too is the FCC. You've probably heard that on Tuesday, Chairman Hundt announced his intention to retire once the President appoints his successor. In addition, Bill Kennard, our General Counsel who spoke here six months ago, was nominated by the President to fill Commissioner Quello's seat, and Harold Furchtgott-Roth, Chief Economist for the House Commerce Committee, was tapped to fill the seat vacated by Andrew Barrett last spring. And Commissioner Chong's term expires at the end of June.

My term runs through June 1999, so I'll still be there.

While it is a time of change at the FCC, it must also be a time of continuity. We have sharpened the tools to foster competition -- but our work is not yet done.

Today, I'll touch on four areas of the Commission's work where we are fashioning solutions for unfinished business: telecommunications; digital television; federal-state-local relations; and cable television.

A. Telecommunications

First, in the telecom area: We have just completed what some call the "competition trilogy" of rulemakings. These deal with interconnection, universal service, and access reform.

We have met every one of the statutory deadlines. Massive orders have been released. We have made enormous strides in implementing the new framework Congress envisioned. But the job is not yet done.

1. The interconnection order creates opportunities for new telecom entrants to participate in the local marketplace. Congress decreed that entry can be through any of three methods, or combinations of methods: (a) new facilities which interconnect with the incumbent's facilities for transport and termination; (b) resale of the incumbent's services, obtained at wholesale rates; and (c) use of "unbundled network elements," such as the loops and switches that the incumbent uses to fashion its own services.

Our interconnection rules ensure that new entrants are able to operate under the same basic principles in every market. Otherwise, competitors would be faced with a numbing array of vastly different interpretations from a multitude of state utility commissions.

The interconnection rules ensure that correct economic signals will be sent to incumbents and new entrants alike -- encouraging investment and entry where it is efficient, but not when it is inefficient.

Most of all, they were designed to ensure that both established and aspiring market participants would play by rules that deliver fair and robust competition.

High on the list of unfinished business is resolution of litigation in the 8th Circuit. The present stay of our pricing principles has cast a cloud of uncertainty over pricing, especially the pricing of unbundled network elements.

The states are also at work on cost studies necessary to establish permanent prices for interconnection between new entrants and incumbents. At the FCC, we are also launching an inquiry to determine whether the rules established thus far create the right incentives for continued investment and innovation in local facilities, or whether changes are needed.

Another major area of unfinished business is the development and deployment of fully functional, non-discriminatory, operational support systems. This is an enormous challenge. Incumbents must adapt the systems that they use for their own internal ordering, provisioning, billing, and repair processes, so that the new entrants -- their competitors -- can use them.

Moreover, these internal systems must be expanded to incorporate unbundled network elements as well as traditional service offerings. This challenge would be formidable even if all parties could be counted upon to cooperate in good faith.

2. Our universal service rules were designed to meet the national commitment to affordable telephone service for all, especially those with low incomes and those living in rural and other high-cost areas. We also extended the universal service regime to schools, libraries, and rural health care facilities. The Snowe-Rockefeller-Exon-Kerrey Amendment discounts telephone costs for connections from classrooms and libraries to the information superhighway. In addition, the amendment upgrades rural health care by eliminating distance as a factor in the use of telemedicine. These provisions may prove to be the greatest legacy of the 1996 Act.

In its May 8th order, the Commission largely adopted the Federal-State Joint Board's consensus recommendations on universal service issues. But unfinished business remains:

3. Our access charge order reformed the relationship between interstate long distance carriers and local exchange carriers. The new rules should reduce cream-skimming by new entrants and drive usage-based charges close to economic costs. This was a major step.

Unfinished access charge issues include a review of incumbents' claims for recovery of "historic" costs in addition to forward-looking costs.

Also, we will consider whether to provide telcos greater flexibility to price access services differently by customer and by location.

We are also working toward the replacement of implicit subsidies in local service with support that is explicit, targeted, and competitively neutral.

We have decided against applying access fees to enhanced service providers. I repeat: We have decided against applying access fees to ESPs. Nonetheless, we have received volumes of e-mail protesting what was mistakenly considered a modem tax.

In any event, having made that decision not to apply access charges to ESPs, there still are many Internet issues to address.

In all these areas, we take pride in the progress we have made, yet the goals Congress established cannot be achieved unless the job is finished. It will take time. Wishing does not bring about competition. And for most American consumers and businesses, local competition remains an unfulfilled promise.

B. Digital Television

Our second major set of accomplishments was completion of the trilogy of digital television rulemakings -- the transmission standard; channel assignments; and service rules -- that ushered in the digital television era.

Last December, we adopted a very flexible digital television transmission standard. It will enable the broadcaster to transmit, over six megahertz, theater-quality pictures and surround sound, or multiple streams of standard quality TV programming, or data. It will be able to deliver Internet information to the home to be displayed either on the television set or the computer. Set manufacturers and computer companies will vie for consumers' attention as TVs become more like PCs and PCs more like TVs.

In April, we adopted both an order assigning specific DTV channels to each full powered broadcaster and the rules underlying digital television service. The latter included a rigorous, rapid, but reasonable roll-out of digital television stations, with some network-affiliates or owned-and-operated stations in the top ten markets pledging to broadcast in digital within eighteen months -- including WGBH and WCVB in Boston and WMUR in Manchester. Within 30 months, 50% of U.S. households will have access to multiple digital television signals, and by spring of 2002, all commercial digital stations should be in operation.

The Commission set the year 2006 as the target year for completing the conversion from analog to digital and requiring return of the analog channel. But we will review along the way the progress that has been made.

Broadcasters can now enter the digital age. It is in their hands. But the Commission still has much unfinished business:

We must decide whether cable will be required to retransmit digital channels and whether cable must carry all of a broadcaster's programming or data streams. These are critically important issues, because cable plays the gatekeeper role for 65% of television households.

What's wrong with this picture? (a) program producers produce shows with high definition audio and video; (b) broadcasters transmit the higher quality network digital feeds; (c) consumers buy top-of-the-line-new-fangled HDTV sets; but (d) cable operators continue to distribute only today's quality pictures.

Won't the public be upset? I think so. That's why I hope that cable companies will configure their systems to pass through the same quality pictures as are transmitted over the air.

The second major piece of unfinished business is determining what public interest obligations apply to broadcasters in the digital age. The Administration will soon appoint an advisory committee to make recommendations to the FCC next year.

Third, as required by the Act, the Commission must establish a schedule of fees for use of the DTV spectrum for ancillary services.

And finally, we must fill in the details of when and how to complete the analog to digital conversion, including simulcasting of the analog programs during the later years to ensure a smooth transition.

Will digital television provide competition to multichannel video services? Stay tuned.

C. Federal, State, and Local Government Relations

We recognize today as never before that communication does not stop at the border -- not the municipal border, not the state border, not the national border. Each level of government has an important, unique role to play in the telecommunications field. Necessarily, the competitive communications landscape Congress envisioned may cause conflicts between federal, state, and local governments. We are working with our state and local colleagues to better understand their needs and to resolve our differences.

I serve on two Federal/State Joint Boards with state commissioners and have longstanding relationships with municipal governments. These officials generally share the desire to open markets to competition so that their citizens enjoy greater choice and lower prices. Nonetheless, various state and local actions are perceived as creating new entry barriers, and we continue to receive petitions asking us to take preemptive action.

Congress has treated preemption in different ways in the 1996 Act. Specific preemption sections apply to over-the-air reception devices, payphones, CMRS (wireless service), and cable television. One of the most complex and important preemption provisions directs the Commission to preempt state or local actions that "prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service."

Thus, Congress anticipated that the Commission might need to preempt actions by other government agencies that would frustrate the pro-competitive policies in the Act. Yet the Congress and the Commission recognize that there are also legitimate functions for state and local authorities. These functions include protecting public safety and welfare, managing public rights of way, and promoting universal service.

For the first time, we have established a "Local and State Government Advisory Committee" to help us frame the issues and to enhance intergovernmental communication on the subject of preemption. I expect we will issue decisions providing guidance on a number of these important cases over the next few months.

D. Cable Competition

Finally, we have much unfinished business in the area of cable competition. Here are just some of the many cable proceedings under consideration at the Commission:

1. The 1996 Act directed the Commission to adopt regulations for competitive navigation devices -- to open up the market for cable set-top boxes and other consumer equipment. We must protect signal security as we open up non-security functions to multiple providers. If this is technologically feasible, more manufacturers will be able to build and market devices, providing consumers with more choices.

2. The Act also enhanced the ability of homeowners to receive television. Congress preempted local property restrictions on "over-the-air reception devices" -- antennas -- specifically for broadcast television, MMDS, and DBS. We are now considering whether Congress intended preemption benefits to extend to television viewers in apartment buildings, condominiums, and other "multiple dwelling units."

3. I was surprised to learn that over 30% of Americans live in multiple dwelling units -- MDUs. That figure looms large in another proceeding -- ownership of the "inside wiring" for cable television in MDUs. Access to inside wiring is important for wire-based competition to cable. Competitors claim that MDU residents have no access to competitive video services. Landlords often do not allow other video providers to string a second coaxial cable down the hallways of the building, and many have entered into exclusive, long-term contracts with a video provider. We are trying to work out a mutually satisfactory procedure for cable operators, competitors, and landlords to give consumers in MDUs greater choice among video providers.

4. And, finally, cable reform. In the 1996 Act, Congress added a prong in the definition of "effective competition" to eliminate rate regulation where a local exchange carrier is offering comparable video programming to subscribers in the franchise area. Congress assumed that telcos would be entering the multichannel video business in droves. But what does it mean to "offer" service? And what is "comparable" video programming? Congress clearly wanted consumers to benefit from lower rates, as well as new and better service offerings from effective competition. At what point can we conclude it has arrived?


We have accomplished much during the past three years. We have put in place the tools for local competition in the telecom and video marketplaces. And we are working with state and local governments to eliminate barriers to competition. Much remains to be done.

Even while the Commission undergoes its own transformation over the next several months, I have no doubt that we will accomplish much of the work I have outlined today. We are set on a clear course toward competition. There should be no turning back.

We are not alone. The historic World Trade Organization agreement on telecommunications services concluded this year is evidence of the emergence of global competition. Nations around the world are struggling to put in place rules of the road that will ensure that their citizens partake of the competitive bounty.

Our course of competition and deregulation will ensure that our country continues to enjoy the best telecommunications and video services in the world. I for one am firmly committed to this course.

Thank you.