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Remarks Of
Commissioner Susan Ness
Before the
Consumer Federation of America
Utility Conference
Washington, D.C.
October 1, 1998
(as prepared for delivery)

Consumers First

It is a pleasure to be here.

For me, it's a homecoming. I've worked with many of you on different issues over the years -- at the National Consumer Law Center, the Consumer Product Safety Commission, and the House Banking Committee. From these experiences, two things are clear --- those laboring in the vineyards of the consumer movement are extraordinarily talented and dedicated, and you have woefully too few resources to accomplish all that needs to be done!

Same with the FCC, on both counts.

As an FCC Commissioner, I try my best to be attentive to consumer interests at all times. CFA plays a vital role in helping the FCC in general, and me in particular, in making sure our decisions serve the American public.

These days, our main job at the FCC is to implement the Telecommunications Act of 1996.

You may remember the celebrations that accompanied enactment of that legislation. Many political leaders and corporate chieftains and newspaper reporters heralded the prospects for speeding competition and deregulation, with abundant benefits for consumers.

CFA, I recall, was somewhat more skeptical.

But it is the law, and I for one am committed to make it a success for consumers.

Local competition

Over the long term, what matters most is to expedite competition in the local telephone market. Today, few consumers have a choice of local telephone company. But the future can and should be different.

As we have already seen in long distance, information services, and customer-premises equipment, competition means choice, and choice means better quality, more innovation, and better value for your dollar.

Breaking open an entrenched monopoly is hard. And bringing competition to local telephone service is even harder than bringing competition to long distance.

Replicating the local telephone network is an enormous undertaking. Would-be facilities-based competitors know that construction is both capital-intensive and time-consuming. And, as the cable companies have discovered, converting facilities built for one purpose into ones suitable for another purpose isn't easy either.

To speed things up, the law also enables entry through other strategies. It allows new entrants to resell the services of the incumbent. It also allows them to buy whatever piece-parts of the incumbent's networks they need, at a fair price.

The bad news is, both the incumbents as well as the new entrants need to expend a lot of effort to make these entry strategies work. We've seen complex negotiations, mediations, and arbitrations, in addtion to creation of new computer interfaces for order processing, maintenance, and billing.

The good news is that many of the solutions will be deployed on a regional and not just state-by-state basis.

As you probably know, implementation of the statute has been mired in litigation. The FCC's local competition rules were upset by a pair of decisions by the Court of Appeals for the 8th Circuit. This introduced uncertainty and delay in state public utility proceedings. And many of the state commissions' decisions have been unnecessarily litigated in the federal district courts.

I am optimistic that the Supreme Court will take corrective action after this matter is argued later this month. But, regardless, the FCC and the state commissions have the resolve to persevere -- to work together to ensure that consumers get the benefits they were promised.

We are already seeing signs of healthy progress. Cablevision is offering telephone service to many of its cable subscribers on Long Island. Cox is offering telephone service in Phoenix, Omaha, and Orange County. MediaOne is doing the same in Atlanta, Los Angeles, Jacksonville, and Boston. And that's just the cable companies.

The Chairman of MCI Worldcom has assured me that his company will be offering local service to residential subscribers in multiple dwelling units in the near future. RCN is forging partnerships with power companies to offer packages of local, long distance, video, and Internet services in major East Coast markets.

And, thanks to rapidly growing competition from PCS, wireless service prices are plummeting fast. The day is fast approaching when wireless service may serve as cost-effective alternative to wireline.

So, what can you do to help?

InterLATA Relief

All the major local telephone companies are required to open their markets, but the Bell companies have an added incentive. When they have met a detailed "competitive checklist" and when the public interest would be served, they get to consume the "carrot" and may, at last, offer long distance service within their regions.

So far, the FCC has denied four separate long distance applications filed by three different regional Bell companies. (A fifth application is pending, and of course I cannot comment on that. A decision will be rendered within two weeks.) In the decisions reached to date, our goal has not to prevent the Bell companies from offering these services. To the contrary, I believe that consumers will benefit from having additional strong participants in the long distance market.

Once they are in this business, there won't be many consumers buying long distance at rates of 19 cents a minute, 26 cents a minute, or even more!

But as eager as we are to have the benefit of Bell company long distance competition, we're not willing to approve a Section 271 application that does not demonstrate full compliance with the competitive checklist.

We want to say yes, but won't say yes when the right answer is no.

CFA has urged us to hang tough, and we have. We will continue to benefit from your participation as we consider additional applications.


Another important subject for consumers is mergers.

We have already seen a number of blockbuster mergers since the Telecommunications Act. Bell Atlantic-NYNEX, AT&T-TCG, MCI-Worldcom have already been consummated. And AT&T-TCI, SBC-Ameritech, and GTE-Bell Atlantic are all pending. And these are just the biggest of the deals; there are dozens of smaller ones.

The Justice Department has a major role under the Clayton Act to disapprove mergers that may tend substantially to reduce competition in any relevant market.

The FCC shares Clayton Act authority with the Justice Department, but we have an independent statutory obligation under the Communications Act. Telecommunications construction permits and radio licenses cannot be transferred unless we affirmatively conclude that the transfer serves the public interest.

And clearly the public interest is implicated by these transactions. They involve some of the largest companies in our entire economy -- not just in the telecommunications sector -- and have price tags that place them beyond almost all mergers that have ever been consummated.

In some cases, they involve companies that might have been viewed as potential competitors to one another.

And that is one of our key concerns.

Of course, a merged entity may be better able to serve consumers than either of the pre-merger entities. It may have greater economies of scope or scale. It may be a stronger competitor, better able to challenge others, both domestically and globally.

So consolidation can sometimes advance the goal of competition. But it may also be a way of avoiding competition. I, for one, would have liked to see Bell Atlantic attack the New York market, as a new entrant, and to see NYNEX retaliate. Instead, they combined. That's clearly a loss of potential competition.

On the other hand, Bell Atlantic and NYNEX made a number of concrete market-opening commitments that apply, not only to those markets where we might otherwise have expected them to compete, but also throughout their entire combined region. So, on balance, the Commission was able to conclude that this merger served the public interest.

Two other major combinations of incumbent telephone companies are now in the works. GTE hopes to consolidate with the already combined Bell Atlantic/NYNEX. And SBC -- which has already acquired Pacific Telesis and hopes soon to acquire Southern New England Telephone -- also wants to combine with Ameritech.

I plan to review these proposed transactions carefully. No final decisions can be made before we have the opportunity to compile and review a comprehensive record. But I will say to you what I have said to these corporate betrothed: the burden of proof rests squarely on them.

I have yet to be convinced that the only way we can ever get large incumbent telephone companies to compete against other large incumbent local telephone companies is if they all first reach some gargantuan threshold of size. This is not sumo wrestling.

Why is it that we have seen so few instances of an incumbent telco attacking an adjoining telco's market? Is it really likely that this absence of rivalrous behavior will be cured by reducing still further the number of potential rivals?

I'm not so sure.

We also need to consider the effect of mergers on our ability to "benchmark." How often have we heard from multiple carriers that something is impossible, but then some maverick showed it could be done. Think of the wholesale-retail split that Rochester Telephone pioneered. Or the Customers First deal Ameritech cut with the Justice Department. Or Ameritech's cable over-build strategy.

The Bell companies themselves told Judge Greene in 1987, that there was much less to worry about because there were seven independent regional Bell companies. But now there are only five, and some are saying the U.S. market will be reduced to two "super-carriers."

We must, and we will, review these carefully. We must, and we will, ask hard questions. We must, and we will, center our public interest analysis on the likely effects on competition and on consumers.

As we assess whether these mergers should be approved, approved with conditions, or disapproved outright, I hope we will continue to have the active input of consumer advocates.

Slamming and Cramming

I want to touch also on the subjects of slamming, cramming, and truth in billing.

We are painfully aware that consumers have been assaulted by a triple scourge.

To make matters worse, they are getting bills that are difficult to decipher, which makes the slamming and cramming and line item charges harder to detect.

I want to assure you that I have been working on these problems and, together with my FCC colleagues and our partners in the state commissions, we will solve them. In these and other areas, you'll be seeing a growing emphasis on consumer protection, prevention of misconduct, deterrence, and punishment.

On slamming, we are beefing up enforcement. The Commission is committing extra resources to identify bad actors and to pursue them aggressively. Two fines of a million dollars or more have been levied. Others are in the works. And our rules to prevent unauthorized carrier changes will be strengthened this year, whether or not Congress completes action on proposed slamming bills.

On cramming, Chairman Kennard brought the carriers together to develop "best practices" guidelines. The idea was to avoid the delay associated with rulemaking. We want carriers to move swifty to adopt procedures that reduce the prospect for telephone bills to be inflated with unasked-for services from unheard-of companies.

Many telcos have responded promptly to curtail this abuse. We will watch carefully, and, if more aggressive steps are required, we will take them.

On truth in billing, we issued proposals in September to make telephone bills clearer and more accurate. The many changes that are underway in the industry are giving rise to new "line items" on consumers' bills.

I am most concerned about the bottom line -- an industry with declining costs and increased competition should permit consumers to pay less and get more. But we also need to be sure that consumers are given accurate and complete information about any line items that appear on the bill.

And line items should not serve as a smokescreen for unjustified rate hikes. The truth is, the FCC has managed to expand universal service and reform the structure of access charges even while lowering the costs long distance carriers pay by over two billion dollars. Has an appropriate share of those reductions been passed on to all consumers? I'm not so sure.

Would consumers be more likely to see "flow-through" of access charge reductions if carriers must provide complete and accurate information to their customers? I think so.

"Sleeper" issues

Finally, I want to briefly mention three "sleeper" issues -- and encourage you to take a more active role.

One concerns bundling.

We currently have different rules concerning the bundling of one service or product with another -- where the availability or price of one product is contingent upon the customer's agreement to purchase another. Today, telecommunications carriers may not restrict their customers' selection of customer-premises equipment and enhanced services. Wireless carriers, however, are permitted to bundle, and cable service is almost by definition a form of bundled services.

But as the lines between industries blur, and the technologies converge, we need to make sure our rules make sense.

Imagine a competitive local exchange carrier, a new entrant. By definition, it lacks market power. So, should this carrier be permitted to offer its customers only one choice of long distance provider? If the new entrant can do this, why not the incumbent as well?

How about a cable company offering Internet access? Should you have to subscribe to @Home or Roadrunner if you want to use the broadband pipe? Or might it be that the cable company is less likely to deploy broadband data services if it cannot "bundle" its preferred Internet access provider with the high-speed data capacity?

Note that I am presenting questions here, not answers. We need to think these issues through carefully.

As we do so, industry lobbyists will undoubtedly play an important role. I hope, though, that the voice of consumers will also be heard.

Sleeper issue number 2: rate detariffing.

Traditionally, telephone rates were tariffed, and the terms of the customer's relationship with the company were spelled out in tariffs. But the tariffs were one-sided, and the carriers could change the rates and terms without even telling their customers.

In a more competitive market, as long distance is today, we don't need tariffs. The relationship ought to be one in which the carrier tells you directly when it wants to change the terms of its offering. It ought not to be able to file some piece of paper with us and then have you be bound by it.

But -- and this is important -- it ought to have an obligation to provide rate information on request. I was stunned when the "old" Commission voted, over my dissent, to eliminate this requirement. I am counting on you to help educate the "new" Commission on why this requirement ought to be reinstated.

Sleeper issue number 3: privacy.

(I know there are privacy advocates in this crowd, but this still may be an issue you haven't focused on.)

Telecommunications carriers obtain a great deal of sensitive information about their customers. They don't just know your name, address, and telephone number. They also know who you call, and when, and how long you talk. They know whether you pay your bills promptly or not. They know whether you're inclined to buy the high-profit, add-on vertical services like Caller ID and Call Waiting.

Congress understood the growing concern of consumers about their diminishing control of the information vendors collect about them. That's why Congress enacted strong privacy protections.

The law says that carriers cannot use the information they collect about you (the law calls it "customer proprietary network information" or "CPNI") for any purpose unrelated to the service for which the information was collected -- unless you consent.

Our rulemaking to implement this provision of the law was unusual. We saw incumbent local exchange carriers and competitive new entrants and long distance companies and wireless carriers all join together (that's a change!) and argue essentially the same positions.

Unfortunately, none of them was supporting the privacy objectives of the law Congress wrote.

The carriers urged that the Commission construe the silence of the customer as "approval" to use the information however the carriers wanted. They would have had us rule that, if they send you a notice of some sort, and if you threw out the mailing or otherwise failed to respond, that would be deemed as consent to expanded use of your CPNI.

We said, "no way."

They also said that your decision to obtain local, or long distance, or wireless service from a company would be sufficient to permit that company to use your CPNI for marketing efforts associated with any of these other services.

We said "no way" to that too. That's not what the law says.

But like every other decision we made, this one too will be subject to reconsideration and appeal. It would be welcome if consumers would join in the debate. After all, it was your privacy interests that were the paramount concern of the CPNI provision of the law -- and of our implementing decision.


There are lots of other consumer issues we could talk about. But I also know that I'm standing between you and your lunch.

So I'll just close by complimenting your steadfast efforts to advance the interests of the consumer, and urging you to continue to help us pursue a course that will produce enduring benefits for the American public.

Thank you very much.