January 20, 1999
(As prepared for delivery)
Competition and Deregulation: Pursuing Congress's Vision
Thank you, Larry.
My first speech as an FCC Commissioner was at an FCBA monthly luncheon, more than four years ago. Since then, I have had the pleasure of speaking at FCBA chapter meetings in New York, Chicago, San Francisco, and Atlanta.
As the FCBA has grown by leaps and bounds over the past few years so, too, has its commitment to public service. From Sunday mornings at Martha's Table, to mentoring programs, scholarships, and raising funds for deserving charities, the FCBA Foundation has set a fine example. I applaud your efforts.
Well, we're in Week Two at the Portals. The developers had the foresight -- two decades ago -- to pick an Internet-savvy name for the building. And the FCC is a lot like an Internet portal. There's free access to all our information, but . . . you may encounter delays getting into the site.
In fact, entering the FCC is a lot like some well-known portals. You "Excite" when you approach the building, you wait until the security officer says "Go," and, if the security electronics work right the first time you yell, "Yahoo!"
The Portals move also brought about an upgrade of our computer system. Of course, the number of system crashes is inversely proportional to the time you have to prepare your remarks.
A Transition of Epic Proportions
In my speech four years ago, I spoke of the FCC's responsibility to guide a transition "of epic proportions." This has, in fact, been our mission for the past four-plus years. The FCC stands at Ground Zero in the transition from a world of telecommunications monopolies to global competition. Where are we headed and how far have we come? How sharp is our vision? How refined are our tools to meet these challenges?
As we celebrate the third anniversary of the Telecommunications Act of 1996, the time is ripe to assess our progress -- and prospects for the future.
Progress in Promoting Competition
The vision of the '96 Act is clear: to promote competition, eliminate unnecessary regulations, and secure for all Americans the benefits of greater choice, increased innovation, and lower prices.
I am bullish on the progress that we have made to date, and on the prospects for the future.
Whether you measure from the start of my term in 1994 or from the passage of the Telecommunications Act -- or even if you just look at the past year -- we are experiencing unprecedented change. Everywhere you look, competition is increasing.
Long Distance: Let's start with long distance: Intensive competition in this market took many years to blossom. But it is now in full bloom.
Just three years ago, most residential consumers paid 20 or 25 cents a minute for a long distance call. Now, consumers commonly pay 15 cents a minute, a dime a minute, or even less.
And special offers abound: Five cent Sundays, five cent weekends, free calls on Monday nights, and all-you-can-talk pricing for weekends. Prepaid long distance calling cards are popping up everywhere -- Sprint even included one in a package of Q-Tips. I guess the idea is: clean your ears so that you can hear the pin drop.
Wireless: The benefits of competition have been even more dramatic in commercial mobile radio.
Just a few years ago, a wireless call commonly cost 50 or even 75 cents a minute. You also paid hefty roaming fees. But when the first PCS provider challenged the cellular incumbents, rates plummeted 25%. They dropped even further as the 4th, 5th, or even 6th providers joined the fray.
The biggest breakthrough has been the "one-rate" concept. Now you can buy big buckets of minutes that equate to as low as 10 cents a minute, depending on how many minutes you buy. And these offers allow you to call anywhere regionally or nationally with no roaming fees.
When prices fall, the inevitable result is rapid expansion of the customer base. The number of wireless customers has more than tripled during my tenure, from less than 20 million in June of 1994 to 68 million today. And consumers are spending more time on their wireless phones.
International: We have seen equally dramatic drops in the price of some international calls, accompanied by a rise in volume. Rates on the five international routes with the highest calling volumes are down by as much as 50 percent over the past two years. And thanks to the Court of Appeals decision earlier this month which affirmed the FCC's accounting rates order "in its entirety," this progress will be enduring.
Cable: Cable rates have risen, not fallen. But subscriber penetration is still growing. The number of channels is increasing. System capacity is being expanded for digital cable, Internet access, and telephone service.
Customer service has improved as well. Investment in cable infrastructure has exploded as investors recognize the value in being first to reach residential households with broadband capacity.
DBS: And cable is no longer the only multi-channel video program option. DBS is becoming a real alternative.
Four years ago, DBS had virtually no customers. Last year, the number of DBS customers skyrocketed by almost 40 percent, to approximately nine million.
Digital Television: After a decade of planning, debate, and technology development, TV broadcasters have now entered the digital age. Over 30 stations are transmitting digital signals -- considerably more than had been forecast 18 months earlier, with more on the way. DBS systems are also transmitting HDTV programming, so consumers across the country can savor the stunning picture quality and interactive programming of HDTV and enhanced digital broadcasts. And the transition is picking up momentum.
Internet: But perhaps the most profound development over the past four years has occurred beyond the traditional communications industry -- with the Internet.
Today, more than 50 million Americans are using the World Wide Web. According to Vice President Gore, 50,000 people a day are logging on to the Internet for the first time. The newest users are mainstream Americans.
Just think, the first graphic Web browser wasn't introduced until 1993. Electronic commerce began in 1994 with the on-line order of a pepperoni pizza and the transmission of portions of the Rolling Stones' Voodoo Lounge tour.
By last Christmas, on-line shopping generated sales estimated at $2 to $5 billion. On-line sales for this year are projected at $12-18 billion, leaping to over $100 billion within the next three or four years. E-commerce will play a central role in the economy of the 21st Century.
Of course, there are some glitches. Like the man who called his Internet service provider and complained that the screen had instructed him to enter his credit card and now he couldn't get it out of the disk drive!
Broadcast: Meanwhile, radio awaits the introduction of digital satellite radio, and -- finally, after more than a decade -- the digital in-band, on-channel terrestrial radio technology may be ready for prime time.
Radio and television are still healthy, ubiquitous, and free.
Telephony: And local telephone service is still affordable and reliable.
During the ice storm that gripped Washington last week, my house was without power for two days. But, as usual, the telephone still worked.
In short, there is abundant evidence of growing competition and innovation and other consumer benefits. All of this in less than five years. This progress is destined to continue.
Seeds of Competition Need Time to Grow
Now, is this all attributable to the '96 Act? Of course not. Years of private sector ingenuity and risk-taking had a lot to do with it. And many of the seeds were planted earlier, by legislators and regulators who took the long view, who were willing to invest their energy and their political capital in decisions that they believed would lead to enduring benefits for consumers.
The Omnibus Budget Reconciliation Act of 1993, and the PCS bandplan that I approved during my first month at the Commission, launched much of the progress in wireless communications.
The growth of the Internet owes much to the Commission's farsighted Computer II decision two decades ago, which fenced off information services from regulation by either the FCC or the state commissions. As to the recent rumors that the FCC is planning to regulate the Internet, let me be clear: That ain't gonna happen!
Many of the other achievements I listed earlier are attributable to wise decisions in years past, like the advanced television proceeding begun in the mid-80s and the program access provisions of the 1992 Cable Act, which allowed DBS to get off the ground.
In short, the gestation period for major advances in competition and innovation is generally somewhat longer than three years. It takes good business planning, raising capital, provisioning, and investment before the fruits of competition can be harvested. And sometimes companies succeed and sometimes they fail. That's the marketplace at work.
That's why I've been somewhat surprised at the impatience with which some pundits have viewed the level of local competition under the '96 Act.
On the first anniversary, folks were asking "where's the competition?" I observed then that this was like piling the family into the car for a long trip, and, before you've reached the end of the driveway, there is a plaintive voice from the back seat, "Are we there yet?"
No, we're not there yet -- even now, two years further into the journey.
Chairman Bliley uses a different metaphor, but to the same effect. He had a grandchild born about the time the law passed. No matter how bright that child is, you cannot expect a three-year-old to speak Greek or solve quadratic equations.
But, just as that child is undoubtedly growing stronger and more capable with each day, we are getting a whole lot closer to achieving robust competition -- even in the local telephone marketplace. Consider: competitive local exchange carriers -- or CLECs -- had revenues of about $500 million in 1996. By 1998, this number had increased between four-fold and eight-fold. Perhaps $20 billion of capital has been raised, and new facilities are being deployed in first-, second-, and even third-tier markets. Focal and MFS (now Worldcom) and Teleport (now AT&T) are laying fiber in numerous markets, while Winstar and Teligent and NextLink are using wireless to give businesses service that is better, or cheaper, or both.
Competition in the residential market is -- shall I say, less robust? But carriers like RCN and McLeod USA, as well as cable companies like Cablevision and Cox, are in fact competing for residential telephone subscribers. Other carriers have focused their strategies on resale and unbundled network elements. These modes of entry have been clouded by (1) the overhang of litigation, (2) the difficulties (on both the ILEC and the CLEC side) of operations support systems, and (3) residential pricing issues -- which I note is outside the purview of the FCC.
These obstacles are being addressed.
The litigation cycle may be drawing to a close. We've had a string of helpful circuit court opinions on Section 271 in the past year -- thereby ensuring that the Bell companies have an incentive to meet their market-opening responsibilities. And the Supreme Court is poised to rule on the interconnection order, which has been tied up almost since it was issued back in August of 1996.
Many state commissions have demonstrated their commitment to the competitive paradigm. Some have been working closely with Bell companies to develop and test the operations support systems that will enable the CLECs to have their resale and UNE orders processed quickly and reliably.
This in turn will help to pave the way for approval of Section 271 applications, bringing formidable new competitors to the long distance market.
Convergence -- The Regulatory Crossroads
Competition brings new suppliers and lower prices for existing services. It also fosters completely new services. Perhaps the most vibrant competition to emerge since the Telecommunications Act is in broadband services.
Broadband has given form and substance to the term convergence. Telcos are finally deploying digital subscriber line, or DSL, services, as cable companies press forward with cable modems.
Both services offer the prospect of ending the "World Wide Wait." Because of the "always on" nature of the connection, it has the power to create a totally different relationship between consumers and the on-line world. As I just saw at the Consumer Electronics Show, a host of new applications are based on in-home networking, as well as connections between home appliances and the outside world.
Convergence presents the question whether disparate regulatory regimes based on historic differences among providers should be preserved. The debate on this pivotal issue centers on some of the most intriguing arguments I have heard during my tenure at the Commission. We confront a dynamic marketplace, characterized by rapid changes in technology, a new business alignment with every passing day, and lightening-speed changes in the flow of capital.
Even electronic scorecards can't keep pace.
Some parties find it anomalous to treat similar offerings differently, just because one service is provided by a telephone company and the other service is provided by a cable company. On the other hand, Congress explicitly rejected a proposed "Title VII" that would have unified the regulatory framework for all switched broadband services.
Also, both innovation and capital formation could be hindered if we too readily apply a Title II regime to the nascent broadband services offered by cable companies.
And what about the broadband services that are being introduced by terrestrial wireless carriers, satellite carriers, and unlicensed providers, or even digital broadcasters? Do these all need to be force-fit into a single regulatory regime? I think not.
Yet the policies of interconnection, equal access, and open architecture have served us well in the wireline context. Indeed, the concepts of connectivity and interoperability and openness are the lifeblood of the Internet. These principles are worth preserving.
Some worry that any mention of these principles portends premature and excessive governmental intervention, jeopardizing investment and deterring build-out. Not so.
No one is seriously suggesting that cable operators ought to be subject to the obligations of unbundled network elements, TELRIC pricing, resale on an avoided cost basis, and collocation. We haven't even figured out what questions to ask, much less what the appropriate answers may be.
But I don't think anyone can responsibly suggest that we ought not to be asking questions of a wide variety of stakeholders. In my judgment, the Commission must better understand how these divergent approaches will promote, or retard, the continued growth of the Internet.
We need to remember that high-speed access to the Internet and related services are still nascent. Fixed and mobile wireless options may soon become part of the equation.
I am listening carefully to the arguments on both sides, but right now I am inclined to believe that, as multiple paths to the home and to the business emerge, the competitive marketplace will safeguard consumers' interests in access and choice and interoperability.
As we rely more on competition and less on regulation, telcos should also have a "pro-competitive, de-regulatory" option for participating in this emerging market. That's why I like the concept of a Section 706 separate affiliate. It lets the incumbent LECs out from under the unbundling and resale obligations mandated by Section 251; and it opens the door to still more competition by unaffiliated broadband providers like Covad and Rythyms. I particularly want to salute Northpoint and Ameritech -- a CLEC and an ILEC -- for finding common ground on this issue.
If convergence presents an intriguing set of challenges, so too does consolidation. The "urge to merge" is alive and well in all of the market sectors the Commission oversees. Much of the consolidation that has occurred in the past three years was permissible, foreseeable, and, generally, beneficial.
Congress gave the FCC the responsibility of insuring that telecommunications and broadcast mergers serve the public interest, convenience, and necessity. We must not hesitate to fulfill our statutory role in cases where the prospects for telephone competition or broadcast diversity are truly imperiled.
At the same time, we must resist entreaties by those who would have the Commission address perceived ills that are beyond our competence. Our consistent record in doing so speaks for itself.
One major change in the landscape is the increasingly globalized nature of communications markets. The procompetitive policies that have brought such great benefits to U.S. consumers are being emulated around the world. Many of these policies are embodied in the WTO Reference Paper, and in the specific market-opening offers other countries affirmed just one year ago.
Our relentless commitment to open markets has created new opportunities for U.S. businesses abroad, and lower prices and greater choice for our consumers at home.
That commitment extends to our efforts to secure adequate spectrum for satellite and terrestrial users. As we seek innovative solutions to allow more efficient use of the spectrum, we must not jeopardize the ability of existing licensees to deploy next generation technologies.
It is both humbling and encouraging to witness other countries model their newly minted independent telecommunications authorities after the FCC. We have much to offer -- and much to learn -- from our international colleagues.
Reinventing the FCC
My final point is that, as the marketplace changes, so too must the FCC.
As competition increases, we must place greater reliance on marketplace solutions, rather than the traditional regulation of entry, exit, and prices; and on surgical intervention rather than complex rules in the case of marketplace failure.
In addition, government often serves best by focusing a spotlight on problems, and prodding parties to work together to design solutions. Public/private partnerships can speed the introduction of new technologies and help pave the competitive way in a global marketplace.
Consumer fraud and abuse are the dark side of competition. We are beefing up our enforcement efforts to empower consumers and to eliminate economic incentives for carriers to defraud.
As markets grow more competitive, unnecessary costs or delays are . . . not killer applications, but application killers. The FCC must render decisions quickly, predictably, and without imposing unnecessary costs on industry. This is true not just for 8th Floor decisions, but also for those on delegated authority.
That's why it's so important that we continue to deploy electronic filing systems and to increase self-certification of equipment. As John Chambers of Cisco observed, product life cycles are so short, a three month delay means you may be out of the game.
Our rulemaking and enforcement activities should give clear and consistent guidance to licensees. That's the only way to reduce the regulatory risk that capital markets abhor.
These "reinventing government" trends began several years ago. I welcome these changes. I believe in government that is smart, efficient, and fair. I don't believe in big government or no government.
In this respect, I have welcomed the opportunity to pursue the public interest missions Congress assigned us. I am proud of our role in increasing the quality and quantity of children's educational television programming and in bringing advanced telecommunications technology to classrooms and libraries.
We achieved these goals by being sensitive to business realities and avoiding excessive regulation. We can bring the same blend of idealism and pragmatism to our other public interest efforts, such as increasing opportunities for minorities, women, and people with disabilities.
In sum, the world of communications is being reborn. Henry Kissinger once said, "My job is to guide the inevitable." Our challenge during this "transition of epic proportions" is to have the courage to know when to intervene and when not; to use creatively and judiciously the wide assortment of tools available as we move from monopoly to competition; and, at all times, to keep the interest of consumers paramount. Only then will we be fulfilling Congress's vision of competition and deregulation for the benefit of all Americans.
Thank you very much.