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Remarks of
Commissioner Susan Ness
Before the
Computer and Communications Industry Association's
1998 Washington Caucus
Washington, D.C.

June 9, 1998

(As prepared for delivery)

"To Have and Have Not:
Advanced Telecommunications Technologies"

Good morning.

I am very pleased to be here to address CCIA's 1998 Washington Caucus. From my perspective at the Federal Communications Commission, your timing is excellent as we are at a critical juncture in thinking about a host of computer and communications issues.

As the first order of business, I would like to commend CCIA on its long history of participating in the public policy debates surrounding the computer and communications industries. In particular, I applaud your longstanding support of pro-competitive policies. It is a history that goes back over 25 years to a time when the notion of competition and consumer choice in the telecommunications industry was not as well accepted as it is today.

Universal Service: Schools and Libraries

But before addressing the main focus of my remarks, I want to take a few minutes to talk about something that's been in the newspapers over the past few days: the FCC's efforts to support connecting the classrooms to the information superhighway.

First, a word of background: one important principle that has guided telephone policies for many years is that of universal service. This is the notion that telephone service ought to be ubiquitously available and affordable.

For many years, we have had subsidies, embedded in telephone rates, that have helped to make phone service available to low-income consumers and to consumers in high-cost areas.

The Telecommunications Act of 1996 reaffirmed our nation's commitment to universal service, and expanded it. Under the Snowe-Rockefeller-Exon-Kerrey provisions of the law, discounted access to advanced telecommunications and information services should be available not only to elementary and secondary schools, but also to libraries and nonprofit rural health care providers.

This was truly visionary legislation.

The vision of this legislation was sound. And I believe the plans devised by a bipartisan federal-state Joint Board and the Federal Communications Commission appropriately carried out that vision.

But, as you may know, senior Members of Congress have strongly objected to the manner in which this program is being implemented. This culminated last Thursday when leaders in both the House and the Senate requested that the FCC suspend collection of funds for the school and library program.

I don't agree with most of the criticism that has been directed at the schools and libraries program. Columnists and talk-show hosts have egregiously distorted the facts. But we must not ignore the serious concerns that have been expressed.

The dilemma, however, is that it would also be unconscionable to cut off funding for a program on which 30,000 schools and libraries across the nation are counting to bring home the benefits of the information superhighway.

Clearly a third option is needed -- an approach that doesn't eliminate the program, but makes significant modifications to the original implementation plan. A new consensus can -- and must -- be forged that will preserve the vision of this law in a form that Congressional leaders can embrace.

Our nation's most precious resource is our children. We owe it to them, and to ourselves, to develop and implement a plan that will equip them with the tools and skills necessary for life in the Information Age, while also maintaining affordable telephone service for all Americans.

Toward Advanced Telecommunications

Not only does the Act provide for equipping classrooms and libraries with advanced telecommunications, it also leads the way for all carriers to deploy advanced telecommunications services in a competitive marketplace.

It is on this topic that my remaining remarks will be addressed. First, I will outline some of the underlying principles that have guided my analysis of policy issues as an FCC Commissioner. Then, I will relate those principles to our implementation of Section 706 of the Telecommunications Act of 1996, and the availability of advanced telecommunications capabilities, in particular.

Underlying Principles

The first principle that guides me in analyzing policy issues is my underlying faith in the basic efficacy of the marketplace. I believe in competition and consumer choice.

At the time that CCIA was founded over 25 years ago, that simple statement by an FCC Commissioner would probably have drawn a headline in at least the trade press of the day. In those days, the notion of competition in telecommunications was pretty radical.

Indeed, defenders of monopoly and the status quo argued vociferously that competition would be disruptive, lead to cream-skimming, threaten universal service, and generally discourage innovation and investment in new technologies by the incumbent providers of both equipment and services.

Today, I scarcely have to defend my position in favor of competition in telecommunications. As the marketplace has so convincingly demonstrated, competition in telecommunications can produce lower prices, improved services, increased innovation, and more variety. More fundamentally, I don't have to defend it because -- with the passage of the Telecommunications Act of 1996 -- competition in all aspects of telecommunications is now the law of the land.

A second principle that guides me in making individual policy choices relates to deregulation.

At the most fundamental level, economic regulation is intended to protect consumers against market failures and, in particular, against the exercise of market power. However, regulation itself has costs. These costs include not only the direct costs that the regulatory agency and the public incur in participating in the regulatory process, but also the cost of delays, distorted price signals, and chilling effects on innovation.

These indirect costs tend to be exacerbated when, as in the case of telecommunications, the underlying technology and the marketplace are changing so rapidly. Thus, it is particularly important that we not extend or retain regulations when competitive pressures are sufficient to protect consumers against the exercise of market power. Fortunately, the '96 Act gives us the ability to forebear from regulation when there is meaningful competition between service providers.

Finally, a third principle that guides me in making individual policy choices relates to openness and unbundling.

I have a strong faith in openness and unbundling as a way of encouraging competition and limiting the ability of incumbents to leverage their monopoly power into competitive or potentially competitive markets.

My faith in openness and unbundling goes beyond any economic theory. It is rooted in the fact that these principles have served the Nation so ably in the past.

As members of this organization know so well, we unbundled customer premises equipment from the telephone network, opened the market to other suppliers, and created a vibrant, competitive market for everything from inexpensive extension telephones, to sophisticated cordless telephones, to complex business communications equipment. We did the same thing for inside wiring.

We unbundled the provision of long distance telephone service from the provision of local service, opened the long distance market to competition, and saw the benefits that result when competition becomes a reality.

In the Expanded Interconnection proceeding, we unbundled the local transport portion of the local telephone network, opened the interstate portion of that market to competition, and created opportunities for new entrants to offer, among other things, high reliability, high capacity, fiber-optic ring networks in major urban areas.

In drafting the '96 Act, Congress recognized the value of unbundling and incorporated that principle into the law itself.

While the examples I just gave are drawn from the traditional telecommunications field, I would observe that open systems principles have also served us well in related areas. For example, about three weeks ago, the Washington Post carried a long story about the 25th anniversary of the Ethernet technology.

As you know better than I, Ethernet -- that evolving combination of software and hardware that allows the creation of office networks that we all rely upon so heavily --is an open system. That is, no single vendor controls this vital technology. And the necessary standards are developed and agreed to using open processes in which all parties can participate. The result, as the article discussed, is a true open standard. This openness has created a highly competitive market for Ethernet-based Local Area Networks in which (a) performance in terms of speed has increased by a factor of 100 over the 25-year period and (b) prices have been driven steadily downward.

Likewise, the mind-boggling success of the Internet is based in large part upon the fact that it, too, is an open system. As in the case of Ethernet, the necessary standards for the underlying communications protocols are developed and agreed to using processes that are open to a wide range of participants from industry and the academic community.

In terms of the Internet, the result is an open platform upon which everyone -- from the smallest entrepreneur working in a basement or garage, to the largest computer and communications companies -- can create and deploy new services. I don't have to quote all of the impressive statistics on Internet growth to this audience or point out its importance to our Nation's economy. The point I am making here is simply that its overwhelming success is built upon a solid tradition of openness.

Lest I be misunderstood, let me state clearly that I recognize that there are sometimes costs associated with unbundling and openness. Creating, managing, and maintaining open interfaces can take time and effort and -- most important -- cooperation among large segments of the industry. And, in some situations, unbundling and openness can create security and privacy concerns. Moreover, where firms cannot exploit their own proprietary systems in the marketplace, they may be reluctant to invest in research and development and in new facilities in the first place. These costs must be carefully weighed in any policy decision.

If competition were further along in development, and if the incumbent local exchange carriers were showing more interest in competing head-to-head rather than in merging, I would be much less concerned about local providers with market power. I would be less concerned by incumbent local telephone and local cable companies who try to limit consumer choice in (a) what equipment is attached to their respective networks and (b) what services are delivered over their networks. In a truly competitive market, there is less concern because consumers can simply "vote with their feet" in the face of such activities.

The experience that I have just outlined, however, strengthens my faith in unbundling and openness as regulatory tools for encouraging competition and limiting the ability of incumbents to leverage their monopoly power into competitive or potentially competitive markets.

To summarize, the three principles I have come to rely upon most heavily in analyzing policy issues are competition, deregulation and open systems.

Section 706 Issues of the Telecommunications Act of 1996

Now I would like to relate these principles to issues the Commission is facing in implementing Section 706 of the '96 Act. This section directs the Commission to foster the deployment of "advanced telecommunications capability." It goes on to define advanced telecommunications capability as "high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology."

Section 706 also requires the Commission to initiate a proceeding concerning the availability of advanced telecommunications capabilities to all Americans. It further directs us to do so no later than 30 months after the '96 Act was signed into law. If you do the math, that turns out be in just about exactly two months from today. Section 706 also requires us to complete the inquiry within 180 days.

Although this upcoming proceeding has not yet gained a lot of attention within the telecommunications policy community, I believe it should -- and will. Indeed, I think it provides an excellent vehicle to reflect on how well we are doing in achieving the pro-competitive, deregulatory and socially just results that Congress envisioned in passing the '96 Act.

There has already been some important activity relating to Section 706. Bell Atlantic, Ameritech, and U S West filed petitions seeking certain regulatory relief to encourage their deployment of high-speed data services. In doing so, they invoked the language of Section 706 to urge the Commission to allow them: (a) to build and operate data networks -- such as packet- and ATM-based networks -- that cross LATA boundaries; (b) not to unbundle "non-bottleneck" network elements used to provide data services such as DSL, and (c) not to make these competitive data services available at a wholesale discount for resale. The Association for Public Telecommunications also filed a petition making similar points as well as raising certain pricing issues.

More recently, the Association of Local Telecommunications Services (ALTS) invoked Section 706 in a petition proposing what it called an "advanced communications network model to propel investment in local broadband networks." For example, they asked the Commission: (a) to revise our collocation rules to make it easier for CLECs to locate equipment in the incumbent telephone company's central office; (b) to require the ILECs to unbundle properly conditioned copper loops for DSL services offerings by CLECs; and (c) to require the ILECs to interconnect CLEC data networks with their own data networks.

From these petitions, one can begin to see the outlines of the Section 706 debate. As I indicated earlier, I would like to comment on this evolving debate in terms of the principles I outlined but, before I do so, I would like to make two points:

First, it is important that the analysis and debate in the Section 706 proceeding not just focus on the more traditional, wired telecommunications network. It should include consideration of other emerging technologies for delivering higher bandwidth services. Therefore, I would strongly urge cable television companies, terrestrial wireless service providers, satellite service providers, and their equipment vendors to participate in our proceeding. That way, we can be assured of getting a much more complete record about the current situation and what the future holds for advanced telecommunications capabilities.

Second, while I will not make a final judgment until I have had the opportunity to review the record in its entirety, I am somewhat skeptical, as a matter of law and policy, whether the Section 706 proceeding is the proper venue for granting any of the Bell Operating Companies InterLATA relief for high-speed packet data services. More generally, it is not entirely clear to me how data and voice services can be distinguished.

In the short amount of time I have remaining, I would like to talk about the emerging Section 706 debate in terms of the three principles I described earlier -- competition, deregulation and openness/unbundling.

To simplify -- perhaps over-simplify -- the debate, I see the ILECs and others arguing, on the one hand, that the data communications market is competitive and that, accordingly, we should lighten our regulatory burdens on their participation in that market. They argue that, by doing so, we will promote the development of the advanced telecommunications capabilities called for in Section 706.

The CLECs, on the other hand, argue that they should be given better access to the ILEC local loops and better collocation rights so that they can compete more effectively in providing the advanced telecommunications capabilities called for in Section 706. That is, they are asking for more intense or detailed regulation of the ILECs, especially to gain access to the loops and collocation space.

In terms of the three principles I outlined, I have some sympathy for both sides. I am sympathetic to the CLECs because they seem to want to compete to create advanced telecommunications capabilities as the Congress envisioned. After all, competition is my first principle. I am also sympathetic to the ILECs because, in a competitive market, we should lighten our regulatory burdens. Deregulation is my second principle. Presumably, this lightened regulation would also lead to the faster creation of advanced telecommunications capabilities.

The policy dilemma is clear. The CLEC proposal would require us to intensify our regulation while the ILEC proposal would require us to lighten our regulation.

I think the answer to the dilemma lies in Principle Three -- openness and unbundling.

The evolving DSL equipment necessary to carry high-speed digital signals on properly conditioned local loops is available to both the ILECs and CLECs. So is the associated multiplexing and routing/switching equipment necessary to create advanced high-speed data communications services.

If competitors can get -- on a truly open and non-discriminatory basis -- access to the local loops for their own DSL equipment and to central office space for their own multiplexing/switching equipment, then I believe that lightened regulation of the service offerings by the ILECs would be appropriate. This lightened regulation could include more pricing flexibility as well as some of the other types of relief called for by the Section 706 petitions filed by Bell Atlantic, Ameritech, and U S West.

Let me hasten to add that I have not reached any final conclusions in any of these matters. After all, we are only at the start of this important proceeding. Rather, as I stated at the outset, my purpose has been to lay out for you some of the basic principles that I rely upon in analyzing policy issues of the type I just discussed.


In conclusion, I would like to thank you once again for inviting me to address your 1998 Washington Caucus. And I invite you to join in the debate on these critical issues -- the provision of advanced telecom services to our nation's schools, libraries and rural health care facilities, and the ability of carriers to deploy advanced telecommunications capabilities in a competitive marketplace.