[ text version ]

Remarks of
Commissioner Susan Ness
before the
WashingtonWeb Internet Policy Forum
Washington, D.C.
February 9, 1998

(as prepared for delivery)

I saw an e-mail that alerted netizens why they should attend this forum. It said, in effect, "The Government has discovered the Internet. Come find out how they plan to screw it up."

That's consistent with a view of government that assumes we take the following approach to our jobs: "Step One. If it moves, regulate it. Step Two. If it doesn't move, kick it. Then, when it does move, regulate it."

I'm here to tell you, that's not how this Commissioner thinks -- and neither do my colleagues at the FCC.

The e-mail I received was right about one thing. The FCC has indeed discovered the Internet. Don't run away in a panic just yet. When exactly did we discover it?

Was it nine months ago, when we created the schools and libraries program to enable Internet connectivity in every elementary and secondary school classroom in America? Was it three years ago, when we began posting every public FCC release on our Web site? Was it ten years ago, when we reaffirmed that "enhanced service providers" like CompuServe and Prodigy should not be subject to per-minute access charges like those the long distance carriers pay to local telephone companies? No, it was even earlier than that.

It was almost twenty years ago that the FCC issued its "Computer II" rules, declaring that enhanced service providers would NOT be regulated like telephone companies. Vint Cerf, one of the founders of the Internet, tells me that he first testified before the FCC on Internet issues in 1976, over 22 years ago!

Of course, back then there was no commercial Internet. But there were academic research networks, funded and often operated by the U.S. government, culminating in the NSFNET backbone that formed the basis for the Internet we know today. Government supported the growth of nascent technologies that had not yet demonstrated commercial applicability, and then gracefully stepped back when the Internet was better able to operate on its own.

Throughout the evolution of the Internet, the FCC has been careful to tread lightly. We want to promote investment and innovation, not unnecessary work for government and unnecessary constraints on businesses or consumers.

Let me start by listing some of the things we haven't done. We haven't required Internet service providers to pay the per-minute "access charges" that are imposed on long-distance carriers. We haven't subjected ISPs to any of the other regulatory requirements that the Communications Act places on carriers -- such as price regulation or tariff filing or universal service requirements. We haven't barred providers of software for Internet telephony from selling their products. And we haven't applied any of our rules governing content in broadcasting to the Internet.

These are all steps that we were asked to take during the past two years -- sometimes by powerful companies and members of Congress. But we have remained Internet-friendly.

I don't believe in blind application of old rules, or in regulation for its own sake. Our responsibility is to promote the public interest. I take that responsibility very seriously.

In some cases, the best way to promote the public interest is to act. Congress decided that the only way we would have full competition in telecommunications was to rewrite the sixty-year old Communications Act. So they passed the Telecommunications Act of 1996, in order to break down economic, technical, and regulatory barriers to competition, particularly in the local telephone market.

And the FCC has been vigorous in making sure that the market-opening measures are fully implemented. We also have consumer protection responsibilities in competitive markets, as shown by our efforts to combat "slamming" and our new requirement that payphone operators disclose their rates on request, so that callers aren't ambushed by sometimes exorbitant rates.

In other cases, however, we can best promote the public interest by not acting -- or by deregulating. In our Competitive Carrier decisions, we have eliminated most of the rules governing domestic long-distance carriers as the market has grown more competitive. In the Computer III docket, we recently proposed to streamline the rules governing provision of enhanced services by local phone companies. And way back in Computer II, we decided that enhanced services would best grow and thrive if provided on a competitive and unregulated basis. We not only decided not to regulate enhanced services but also forbade state regulators from doing so.

The FCC of the late 1970s and early 1980s couldn't possibly imagine the Internet and the World Wide Web, as we know them today, but the Commission's decisions of that era reflect considerable foresight. My predecessors understood that a whole class of computer-based services was emerging and that these services were fundamentally different from the monopoly-dominated telephone industry. So they fenced off these new services from regulation.

Today, we are engaged in a broader effort to implement a pro-competitive and deregulatory communications policy, following the mandate of Congress in the 1996 Act. I strongly believe that the marketplace, rather than regulation, is the best mechanism for setting rates and determining which services should be available. However, we can't simply eliminate all the rules we have today and hope for competition. As long as the incumbent local exchange carriers, and particularly the Bell Operating Companies and GTE, retain significant market power from their control over their bottleneck local loop, we will need a transitional regime to move from regulation to competition.

Transitions are never easy. And they can be especially challenging in an industry as dynamic as communications and information, where the lines between one service and another are constantly blurring. Nowhere is this fact more evident than with respect to the Internet.

The Internet has been able to grow and develop outside the existing regulatory structure because the FCC has made conscious decisions to limit the application of its rules. Over the past several years, however, the Internet has become more than a mere curiosity. The Internet, and the broader constellation of data networking technologies it has fostered, are nothing less than the future of communications.

Where once the "enhanced services" industry meant a few small companies, today every major player in the communications world is heavily invested in the Internet -- and even some unfamiliar players are placing some very large bets. Consider:

a global basis.

To a significant extent, these developments have been nurtured by forward-looking, procompetitive, deregulatory FCC policies.

Looking to the future, I see the FCC having to grapple with three primary policy challenges regarding the Internet:

Let me elaborate on each of these points.

1. Regulatory Paradigms

Let me give you some concrete examples to demonstrate why we need to address issues of legal classification. If present trends continue, data usage of the telecommunications network in the United States will exceed voice within the next several years. Some studies predict that, in less than a decade, voice will represent as little as ten percent of total traffic, and most of that voice traffic will be carried in digitized form indistinguishable from data signals.

Some people see the blurring of boundaries between the Internet and traditional telecommunications and conclude that the best solution is to expand our existing regulatory structure to encompass the Internet. The people who advocate these positions don't do so because they hate the Internet. The goals they are trying to achieve are often admirable. The problem is that these approaches push square pegs into round holes. If we insist on mechanical application of old rules to new technologies, we will end up with unsatisfactory results.

Our challenge -- and your challenge -- is to develop new models that allow us to deregulate rather than regulate, while achieving the public policy goals of competition and universal service. Congress understands this task as well. Late last year, it directed the FCC to draft a report analyzing our implementation of the 1996 Act, and in particular to review the consistency of our traditional demarcation between "basic" and "enhanced" services with the new statutory definitions of "telecommunications" and "information services." The Stevens Report, which is due on April 10, gives us an opportunity to explain how our prior decisions in several different proceedings fit together, and also to move forward to the next stage of analysis.

We're still early in the process of drafting the report, and I have not made any decisions about what we should conclude. I can, however, make a few observations at this point:

I continue to believe we made the right choice last May in deciding -- once again -- not to subject Internet service providers to access charges. These charges are currently set well in excess of cost, and there is no good reason to expand a regime that collects billions of dollars in implicit subsidies when our clear duty is to reform that regime, squeeze out the implicit subsidies, and establish new, explicit, competitively neutral means of universal service support.

Indeed, because we have chosen to rely on market forces rather than prescription to reduce the gap between access charges and their underlying economic costs, Internet-based services can serve to accelerate the reform process.

But in addition to the issue of access charges, we also must address issues of universal service. Universal service is a societal goal, now codified in law, and we should ensure that that goal is met in the future as technology evolves.

All providers of telecommunications services are now required by statute to contribute to a fund that will ensure the availability and affordability of telephone service to low-income consumers and consumers in rural areas, where the costs of constructing transmission facilities is disproportionately high. This obligation is not shared by enhanced service providers such as those who provide Internet access (like Erol's) or Internet content (like AOL). Some suggest this distinction no longer makes sense. Other say it does today but may not tomorrow, as new services -- such as Internet telephony -- become more pervasive and less distinguishable from traditional telephone services.

Where does Internet telephony fit? Does the answer depend on whether the call is terminated on the public switched network? Should the answer hinge on whether the traffic is voice or data? Should it matter whether the call is placed with a computer or a telephone?

We are wrestling with these questions right now. The best answers will be those that are thoughtful, not reflexive; principled, not based on short-term self-interest; forward-looking, not rooted in preconceived notions.

First-round comments were filed on the Stevens Report just last week. I suspect the debate will only intensify as technologies advance and services proliferate. I invite your participation in this important discussion.

2. Broad Bandwidth Deployment

The second great challenge for the Internet is bandwidth. Even though the fiber optic connections that make up the Internet backbone can transmit hundreds of millions of bits per second, Internet users typically see only a fraction of that performance. Part of the cause of this "World Wide Wait" is the backbones themselves, but this is an area in which multiple providers are making massive investments to meet burgeoning demand.

Although some proceedings before the Commission raise issues involving Internet backbones, I see greater urgency in the problem of congestion in the facilities connecting your home to the Internet. Here, I believe that the competition we are working so hard to promote will help.

Today, the vast majority of residential Internet users are compelled to connect to the Internet through circuit-switched Plain Old Telephone Service. They use analog modems that at best deliver 56 kilobits per second of throughput. But the quality and variety of desirable services increases tremendously at higher speeds, and many users hunger for access to greater bandwidth.

The recent announcement of the Universal DSL consortium, as well as other innovative technologies such as Paradyne's Multiple Virtual Lines, suggest that alternatives to analog loops may soon be deployed. Also, competing technologies such as cable modems, wireless, and satellite are becoming increasingly available.

Regulation, whether at the federal or state level, should not hinder the deployment of these much-needed bandwidth boosters. And neither should the fear by incumbents that these new options will cannibalize their existing higher-priced data offerings such as T1 service and ISDN.

The demand for high-speed services clearly exists, and we need to look at ways to unlock the market forces that will bring greater bandwidth to residential users. I believe that the single most important thing we can do to promote bandwidth in the "last mile" to the home is to accelerate competition among multiple providers. The more the telcos worry about losing the bandwidth market to the cable companies, and vice versa, the sooner both will be knocking on your door to offer you the services you want.

So I hope we can enlist your support in breaking open the local telephone and cable monopolies.

3. Providing Universal Service

The final Internet challenge that I would like to discuss is in many ways the most important. As a society, we must bring the benefits of information technology to all Americans, by connecting every classroom and library in the country to the Internet. This will reduce the danger of social and economic divisions between information "haves" and information "have-nots." It will also ensure that, in the future, America will have the skilled workers needed to compete in a global economy that is increasingly dependent on information technology.

The Internet overcomes geography. It allows the tiniest rural communities to access the vast stores of knowledge available on the World Wide Web, and enables the finest medical specialists to serve the most remote health care facilities.

Congress was right to establish requirements that will promote telecommunications and information access for schools, libraries, and rural health care providers. I am proud of the actions the FCC has taken to implement this mandate, and I look forward to continuing the implementation process. The schools and libraries corporation recently opened up a Web site to allow schools to apply for discounts online, making effective use of the very technology we are seeking to promote throughout the country.


There remain many unresolved details in our implementation of the 1996 Telecom Act, and the report Congress has requested will discuss some of them. It is important, though, to step back from time to time and remember what we are trying to achieve. I think we all agree that the Internet can be a wonderfully positive force in our society, and throughout the world. The Internet, however, is only a tool, and it is still subject to both the laws of physics and the principles of economics.

I'll leave the physics to the engineers in Silicon Valley building the next generation of routers. The economics, however, will depend in part on decisions that will be made at the FCC and at state public utility commissions.

Good policy decisions require good information and lines of dialogue between these actors, on the one hand, and investors, innovators, service providers, and end-users, on the other. I welcome your views, and I'm confident that my colleagues on the FCC do as well. I hope that you will take advantage of the opportunity.

Thank you.