Good morning. It’s a pleasure to be back home. Thank you all for coming, and a special thanks to Carroll Cagle for bringing us all together. I appreciate the opportunity to meet with you, so I can learn about your experiences. You can help inform my analysis of matters before the Commission.
Demand for Internet bandwidth continues to grow at 100 percent a year, according to an Insight Research report. As broadband connectivity grows, the Internet will become an increasingly pervasive communications tool. Analysts predict that new services and applications will in turn drive bandwidth consumption. And new methods of delivery - such as smart phones and web-on-tv devices - will spark a content boom enabling all sorts of services, from distance learning to telemedecine. Some expect Internet commerce to grow from approximately 72 billion dollars in 2000 to 2.6 trillion dollars in 2003.
What does the FCC have to do with all this? At the FCC, we don’t regulate the Internet per se. But we do regulate - telephone lines, cable, mobile phones, and satellite, the transmission pipes over which the Internet rides. I’d like to talk today about the status of broadband deployment over each of these pipes and highlight the proceedings at the FCC that may impact that deployment. Just so we’re all speaking the same language, I should clarify that by “broadband,” I mean high-speed services that allow users to originate and receive high-quality voice, data, graphics, and video.
Broadband technologies are the key to unlocking the promise of the telecommunications revolution. And harnessing the promise of broadband technologies will be especially critical for New Mexicans, because broadband capability holds the potential to provide economic opportunity for a rural state like ours.
McKinsey & Company and JP Morgan recently presented an analysis of demand, supply, economics, and industry dynamics in the U.S. broadband market. The report examines what it calls an “industry in transition” - from a new technology for the “early adopter” crowd to a mass-market platform. The report predicts that residential demand for broadband will grow from over 5 million subscribing households at the end of 2000 to mass market penetration levels in just the next five years.
Small and medium businesses - which include businesses with 1 to 500 employees --represent another significant broadband market. Although less than 10 percent of such businesses use high-speed services, the report predicts that 4 million of them will use broadband by 2005.
The report’s most interesting findings relate to how the total broadband industry pie is and will be divided among industry players. According to the study, cable companies still lead the battle for new high speed Internet subscribers in the residential market, but the phone companies are starting to make in-roads. The phone companies’ digital subscriber line -- or “DSL” -- offerings have started to catch up with cable modem service, largely as a result of the ability of DSL customers to self-install their service.
The report also predicts that alternative residential services, such as fixed wireless and satellite services, will continue to have only modest impact on cable and telephone company market share. Nonetheless, wireless and satellite technologies may be critical in bringing broadband to rural and other areas that are underserved by cable modems or DSL, including many parts of New Mexico.
Despite dramatic increases in the number of broadband subscribers in 2000, the McKinsey/JP Morgan report suggests that last year’s pace cannot be sustained, because providers have not yet resolved provisioning and installation issues. A recently published Telecommunications Reports International study bears this out. The study reports that the number of households with DSL lines grew only 2 percent in the first quarter of 2001, to 2.4 million, as compared with 86 percent growth in the previous quarter.
But the analysts’ reports do not tell the whole story about broadband. Each year the Department of Commerce publishes more sobering statistics on what we call the “digital divide” - the gap between those with access to the Internet, computers, and broadband services and those without. The latest survey indicates that Hispanics and African Americans lag behind the national average in both Internet subscribership rates and levels of computer ownership. Moreover, although these minority groups have shown impressive gains in Internet access over the past few years, the gap in Internet subscribership has actually widened.
As the FCC’s own report on the deployment of broadband -- concluded last year, certain groups are particularly vulnerable to not having access to advanced services if deployment is left to market forces alone. These groups include not only minorities, but also rural Americans, inner city consumers; low-income consumers; people living on tribal lands; and consumers in U.S. territories.
So what are we doing at the FCC to facilitate broadband deployment and to ensure access to broadband for all Americans?
Perhaps most fundamental is the FCC’s schools and libraries program, better known as the “e-rate.” The “e-rate” is the discount off commercially available rates that primary and secondary schools and libraries receive on the purchase of telecommunications services, Internet access, and internal connections. Eligible schools and libraries negotiate with service providers for the best and most cost-effective package of services and then apply for need-based discounts ranging from 20 to 90 percent. The e-rate helps ensure that minorities and low-income children have access to computers and the Internet through schools and libraries, because otherwise they might not have access at all.
The latest report on Internet access in public schools suggests the e-rate has had a significant impact. Among public schools, 98 percent had access to the Internet as of fall 2000, up from 65 percent in 1996. More importantly, 77 percent of public instructional classrooms had access to the Internet, up from 14 percent in 1996. The report found that all schools, regardless of grade level, wealth, and location are equally likely to have access to the Internet. And I’m glad to report that New Mexico schools and libraries have benefited from over 67 million dollars in e-rate funding commitments since the program started four years ago.
In addition to our e-rate, we are engaged in a number of proceedings that impact broadband. The Bell telephone companies’ broadband rollout over the past two years has created numerous issues related to the local competition rules that are part of the Telecom Act of 1996 (the Act). The Act requires incumbent telephone companies to make portions of their networks available to competing providers in order to facilitate competition. Emergence of new network architectures capable of supporting broadband raises a host of questions about incumbent telephone companies’ obligations under the Act, several of which are pending before us.
While defining those parts of the telephone network that the Bells had to make available to competitors in the copper world was tough enough, the new fiber/remote terminal world is even more complicated. In the Next Generation Loop Architecture Proceeding, we are considering what parts of the Bells’ broadband facilities they must provide to competitors at cost-based prices.
Issues related to broadband also arise in our 271-application process, the process by which a Bell company seeks authority to provide long distance service in the regions where it is the incumbent telephone company. In evaluating whether to grant long distance authority, part of our focus is on performance measures related to DSL. For example, we look at whether competing telephone companies are able to obtain DSL-capable loops and whether the applicant is complying with our line sharing requirements.
These issues could become moot, if Congress enacts the broadband legislation sponsored by Congressmen Tauzin and Dingell. That legislation, which has cleared the House Commerce Committee, would free the Bells’ DSL offerings from most of the 1996 Act’s network-sharing obligations. It would grant the incumbent telephone companies access to the long distance data market without first requiring them to meet the competitive criteria of the 1996 Act. Among other things, the legislation would eliminate the requirement that Bells resell their DSL services to competing telephone companies at a wholesale discount.
On the cable side, we have what’s called the “open access proceeding” to explore issues surrounding high speed Internet service provided to subscribers over cable infrastructure, that is cable modem services. We sought comment on the appropriate legal and policy approach to such services and the impact of such an approach on other providers of broadband services. How to regulate cable modem service is a classic convergence issue. We determined to consider adopting a national policy after a spate of federal court opinions classified cable modem services in varying manners, each with different regulatory implications.
As I noted earlier, wireless- and satellite-delivered broadband offers great promise to New Mexico and other rural states where cable modem and DSL technology will extend only so far. Rural communities will benefit greatly as new systems are built out. On the wireless front, providers are offering high-speed Internet services that can extend up to 35 miles from the antenna site. And satellite providers have introduced two-way satellite Internet service accessible from nearly any point in the continental United States.
Finally, across all technologies, our enforcement of existing FCC rules is critical to ensure that broadband providers can compete on a level playing field.
The FCC is currently undergoing a major transition, with three new commissioners about to come on board and a new chairman at the helm. That makes it especially hard to predict what will happen in each of the proceedings that I’ve described. But indications are that the new administration is taking a more laissez-faire approach.
As long as I am on the Commission, however, I will continue to urge my colleagues to adopt policies that promote deployment of broadband beyond major urban centers and into America’s smaller cities and rural areas. As we know too well here in New Mexico, the market alone will not ensure that all Americans have access to the promise of the telecommunications revolution. I urge you to add your voices to the policy debates that I’ve described. For broadband offers an unprecedented opportunity to overcome traditional geographic disadvantages that we in New Mexico cannot afford to pass up.