August 6, 1998

SEPARATE STATEMENT OF COMMISSIONER MICHAEL K. POWELL

Re: Memorandum Opinion and Order and Notice of Proposed Rulemaking, Petition of Bell Atlantic Corporation for Relief From Barriers to Deployment of Advanced Telecommunications Services et al. (CC Docket Nos. 98-11 et al.).

Re: Notice of Inquiry, Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996 (CC Docket No. 98-146).

In this combined statement, I write separately to explain the bases upon which I support this Order/NPRM and Notice of Inquiry.

I am very pleased to support the Order/NPRM. First, I think the item evidences our desire to devise ways that all interested firms can participate in the deployment of advanced services -- even incumbents that possess market power in certain communications markets. Make no mistake: as a strong proponent of vigorous antitrust enforcement, I believe that government must continue and intensify its efforts to contain and ameliorate the negative effects of such market power where warranted. We should, in particular, be sensitive to the power such companies have over truly essential facilities. We should not fail, however, to recognize that these companies also may be well-positioned to provide services of enormous value to consumers. Simply put, we cannot relegate BOCs or other big companies to the sidelines in the data services "race" unless we are prepared to deny the economy and consumers of the benefits of these companies' expertise and capital.

Second, and relatedly, I applaud the Order/NPRM for what it signals. In particular, it signals that the Commission is willing to allow incumbent LECs to provide some services through a separate affiliate on a relatively unencumbered basis, subject primarily to our enforcement mechanisms. I am committed, personally and firmly, to ensuring that this alternative, "deregulatory pathway" is available to the extent permitted under the law.

As I have noted on many occasions, communications policy historically has emphasized prospective, prophylactic regulation. Yet such regulation tends to stifle innovation and impede the beneficial operation of market forces. We should look to performance measurement and vigorous enforcement, more often than prospective regulation, as a means to protect the public against certain identifiable harms. This approach will avoid hindering companies from improving their existing offerings and entering new markets that lie outside their traditional regulatory boundaries, and will usher in a more effective and efficient regulatory process.

The separate affiliate approach, if carefully implemented, offers the prospect of allowing us to police potential anticompetitive conduct more easily. As such, I believe this approach takes the Commission another step away from the traditional regulatory model toward one that is more consistent with a rapidly evolving competitive marketplace. I applaud the Common Carrier Bureau and my colleagues for taking this important, deregulatory step with respect to encouraging the development of competition in advanced services.

Third, I believe the separate affiliate pathway will serve as a good example of how the Commission can promote congruence between our policy goals and private firms' self-interest. There is an unfortunate tendency in communications policy to rely on polices that depend for their implementation upon a company or an industry acting against its self-interest. This reliance is entirely misplaced. Firms are economic actors, not moral beings. Indeed, the market depends for its effectiveness on firms pursuing their economic self-interest. We must accept these premises and craft policies consistent with them. I am committed to pursuing the idea of a separate affiliate pathway because I believe it constitutes an important move in this direction. As the Order/NPRM notes, the requirement that an incumbent treat its advanced services affiliate only as well as it treats its competitors should give the incumbent a greater incentive to improve its processes and provide unbundled elements and collocation space as quickly and cheaply as possible to all competitors.

I should add that I am very cognizant of some of the fears expressed regarding the separate affiliate approach, particularly fears about the continued soundness of universal service support and new entrants' fears that allowing incumbents to use separate affiliates will somehow allow incumbent LECs to leverage their dominance in the local telephone market to control the market for advanced services. These fears are not unfounded. With respect to universal service, however, I would point out that it is my understanding that an incumbent's advanced services affiliate would have the same obligation to contribute to universal service as any other telecommunications carrier. With respect to new entrants' fears, I would urge us to consider the alternative to establishing a separate affiliate pathway. The dynamism and demand in the advanced services market is such that incumbents that do not provide these services through separate affiliates will surely do so on a highly integrated basis. If that happens, our ability to enforce interconnection, unbundling and other requirements with respect to advanced services will be as difficult and, I fear, as uphill a battle, as our enforcement of these requirements for traditional circuit-switched services. Thus, I submit that even if the separate affiliate approach may involve risks -- which I am committed to addressing -- the alternative may not put us in any better position to promote competition in advanced services.

I also support the adoption of this Notice of Inquiry. Encouraging deployment of advanced telecommunications services promises both to challenge our conventional understanding of technology within the existing statutory and regulatory framework and to usher in exciting new communications capabilities for average Americans. The trick is getting from here to there; that is, we must overcome the various technological, legal and economic impediments to deployment in order to let consumers and organizations appreciate fully the possibilities advanced communications services offer. Indeed, section 706 requires not only that these services be deployed, but that the Commission and each state Commission encourage such deployment on a reasonable and timely basis to all Americans. Moreover, we must do so consistent with the deregulatory, market emphasis of the Act.

I invite parties commenting on the Notice to help us conduct a thorough review of where we have been, where we are, and where we need to be in order to encourage the deployment of advanced services. I hope that, in using this information, we will be sensitive to the fact that requiring certain firms to provide access to their facilities or services to other firms or even to end users may have some negative consequences. In particular, I think we should search for ways to promote innovation and competition in the provision of "last mile" transmission to homes and businesses. While mandating access is a useful tool and can bring about short-term gains in retail competition, it also may undermine incentives for developing new ways to circumvent the power of incumbents over distribution.

Both the Order/NPRM and the Notice of Inquiry offer evidence that the Commission understands that neither competition nor innovation is the product of the well-meaning regulatory policies we adopt, even if our policies create the appearance of competition in the short-term; rather, competition and innovation are the result of self-interested actors struggling in the marketplace to provide consumers with new and better products and services. I firmly believe that our policies should continue to take account of this fact. I believe we also must focus more on the longer-term future in carrying out Congress' instruction that we encourage the deployment of advanced communications. I wish to underscore my personal commitment to following this instruction at the same time we seek to promote the deregulatory and pro-competitive goals of the Act.

I praise the Bureau's efforts, as well as those of my colleagues, on this critical and challenging subject. And I look forward to working with everyone at the Commission, in the States and in Congress to help make our effort to encourage the deployment of advanced communications a success.