Federal Communications Commission
Joint Session of the Puerto Rico Legislature
February 11, 1998
I. Personal Remarks
[Personal remarks included only in the Spanish edition of the speech.]
II. Overview of Current Telecommunications Issues in Washington
I would like to begin by giving you an update on telecommunications in Washington. Before I begin, though, I have to say that it feels a little strange to be giving the "inside the Beltway" perspective after being in Washington only three months. But looking back on those three months, I feel like I've had to make about three years worth of difficult decisions. So from that perspective, I suppose I am qualified to offer you some "inside the Beltway" observations.
Any discussion of telecommunications in Washington begins with the Telecommunications Act of 1996. The Act celebrated its second birthday just last week, on February 8. Although the word "celebrated" may be too rosy a word -- endured would be more accurate. The media have done searching evaluations of whether, at the two-year mark, the Act has succeeded or failed. I would ask, "According to what?" If measured against the expectations that were raised when it became law, I'd say the Act has failed thus far. But expectations for this Act were unreasonably high. The communications industry, the media, and the public genuinely wanted to believe the Act was the final ingredient for a "great leap forward" into the Information Age.
If the Act were measured against more realistic expectations, I would say it has been a modest success so far, and it is destined to be a great success. For better or worse, the success of the 1996 Act will be judged on local telephone competition. There is evidence that local competition is emerging. In 1997, new local phone companies increased their number of phone lines by 300 percent, from 500,000 to 1.5 million. That number is projected to double in the next 11 months. New entrants now account for 2.6% of all revenues. And the top 10 new competitors have switches in 132 cities in 33 states and D.C. Although this represents real progress, most of this competition is for business customers, not residential customers.
I have heard anecdotal evidence that residential competition is on the way. Two weeks ago, the FCC held a hearing on the progress of local telephone competition. We heard from a number of companies, two of which are targeting the residential market -- Cox and RCN. These companies are making significant headway in overcoming the obstacles to enter and compete in the local market. They are offering consumers a package of services including local, long distance, cable, and Internet access. As these companies pioneer the residential market, they may increase Wall Street's support for residential competitors. They may also encourage others that there is money to be made in serving the needs of residential markets.
The progress made by new entrants leads me to believe the Act will be very positive for Americans. But even more than the actual progress so far, I base my optimistic outlook on the principles at the heart of the Act -- competition and universal service. Replacing monopoly with competition puts us on the right side of history, and it will help to provide us with a better way of life. New providers of telecommunications will create many new jobs. They will also make American businesses more efficient and productive in countless ways. This will become more evident as the global economy exposes all industries to overseas competition, and our telecommunications system gives American businesses a true competitive advantage.
The second reason I am confident that the 1996 Act will be judged a success is its renewed commitment to universal service. The Act directs the FCC to fix universal service for two related reasons: so that it works well in a competitive market, and so that it does not diminish competition. Reforming universal service requires the FCC and state commissions to shift around large sums of money in the dynamic telecommunications market. This is extraordinarily difficult to do, and I commend my predecessors for the tremendous progress they made with reforming universal service.
I also know there are some difficult decisions yet to be made. But I am energized in this task by my belief that universal service has been one of the most successful programs ever undertaken by our government. In sparsely populated areas where it is extremely expensive to build telephone networks, universal service programs enable average Americans to have phone service. Universal service also enables poor people to remain on the network. In Puerto Rico, the universal service programs have helped bring telephone service to thousands of households. The benefit to these people of having telephone service cannot be measured in dollars. Thus, as I begin my new job at the FCC, I want you to know that I am committed to developing policies preserve the gains already made by universal service, and that our new rules permit fair competition that benefits consumers.
III. Impact of the Act on States and Other Jurisdictions
It has always been important for federal and state regulators to work together, since most of the time they have been regulating the very same network. But the need for cooperation and dialogue between federal and state regulators increased significantly when Congress passed the 1996 Act. The Act revises old responsibilities and creates new duties for the FCC and states.
I anticipate a stronger relationship between federal and state regulators than ever before. In the past two years, the FCC staff has had a great deal of contact with state commissions. I believe these working relationships have laid the groundwork for a close and productive partnership. In addition, four of the five FCC commissioners took office only three months ago. I think now is the perfect time to evaluate how we could strengthen our working relationship with state commissions.
Because of my background as a state commissioner, I am sensitive to the demands and responsibilities of state commissioners. I am also aware of the vast differences among the various state commissions. For example, they have a variety of philosophies on how to serve their citizens; they have varying levels of resources; and the commissioners themselves have different levels of experience and different areas of responsibility. All of these factors influence how state commissions do their work. I believe this diversity is a strength, and the FCC should take care not to stifle states' creativity. We should remember that several state commissions had taken important pro-competitive steps well before the 1996 Act was passed. Those state experiments helped inform the Congress at it drafted the 1996 Act.
In sum, I think the current commission has great confidence in the ability of state commissions to serve the interests of their residents. In fact, it is service to their citizens that is the bond between the FCC and state commissions. That is why I believe we will have a productive relationship with the states in the coming years. And I would add that I particularly look forward to working with Phoebe Isales, Casandra Cardona, and Vicente Iturrino of the Puerto Rico Telecommunications Regulatory Board.
IV. Impact of Act on Puerto Rico
With all of this in mind, what does the Act do for Puerto Rico? In general, I expect the Act will have the same impact on Puerto Rico as many other states -- it will improve your economy by encouraging more companies to provide telecommunications service. That will create jobs, lower prices, and improve the quality of service.
One example in Puerto Rico is wireless telephone service. You have probably noticed the increased availability and lower prices of wireless phones in the past couple of years. That is due in part to the 1996 Act and the FCC's rules, which changed the way the local telephone company and wireless carriers compensate each other for the calls they hand off to each other. And with the frequent traffic jams here in Puerto Rico, I would think more and cheaper wireless service will be extremely popular!
Competition is also coming to the local phone business. Several new carriers are planning to enter the local telephone market here. I am told that they are still making their business plans and constructing their network. Someday soon, I hope you will see the same kind of benefits in local telephone service that you're now seeing with wireless service.
In addition, the 1996 Act created a fund that will help schools and libraries to connect to the Internet. Specifically, the fund will provide discounts of 20 to 90 percent on internal connections and Internet access service. The funds to support the Schools and Libraries Program come from contributions from telecommunications carriers according to their revenues. I believe this program will have tremendous educational benefit for children. I should also mention that the US Department of Education has funded a program that has helped schools in Puerto Rico obtain internet access connections and distance learning capability. Tomorrow I plan to visit two schools here in San Juan to and to hear directly from students how this technology is affecting their education.
I also want to briefly mention two other parts of the Telecommunications Act that have a real impact on Puerto Rico. One is the so-called "rate integration" requirement. It says that a long distance carrier serving an offshore point must employ the same rate structure it uses for its mainland services. The rate integration requirement is vitally important to Puerto Rico. Due to rate integration, it is cheaper to call the mainland U.S. than to call across the island! Without rate integration, rates for long distance service could increase substantially, and the well-being of Puerto Rico -- as well as many other states and territories -- would be diminished. I assure you that I am committed to enforcing the rate integration requirement.
The other part of the Act that could greatly affect Puerto Rico is, of course, the new universal service provisions. Today, 76 percent of Puerto Rican households have local phone service. That represents a great improvement from the 25 percent penetration level from 1974. But 76 percent is far below the 94 percent penetration rate of the United States. I am very concerned about the number of households in Puerto Rico that lack telephone service. This concern is due partly to the fact that I am a native of Puerto Rico, but mostly because I believe no state or territory that is part of the American system of universal service should lag so far behind the others. I will keep the circumstances of Puerto Rico very much in mind as I participate in the FCC's effort to implement the new universal service rules.
V. Other Important FCC Business
Although telephone matters occupy much of my time at the FCC, there are two other issues I want to briefly mention. First, I am concerned that cable television rates are rising too fast, and it is not clear to me that cable rate regulation is adequately protecting consumers. I am also not yet convinced that cable's competitors are truly able to keep cable prices in check. Just last week I was on a talk show that had open telephone lines for the public. The number one complaint I heard was high cable rates. I understand that cable rates are becoming an issue in Puerto Rico as well, although I am not familiar with the details of the situation here. I would like the FCC to explore new policies that promote competition more effectively and that protect consumers from unreasonable rates.
I am also deeply concerned about the level of violence on television, and especially the impact of that violence on our children. The average child watches about 28 hours of television a week. By the time they complete elementary school, children have witnessed about 8,000 murders and 100,000 acts of violence. As many of you know, Congress enacted "V-chip" legislation as part of the 1996 Act. The V-chip will give parents a valuable tool to block out programming that they do not want their children to see. The FCC will soon issue a decision laying out the technical requirements of the V-chip, including a timetable for when the V-chip will be added to new TV sets. We will also be deciding whether the voluntary ratings system developed by the TV industry meets Congress' goals under the statute.
Once again, thank you for the opportunity to speak with you today. This is a great honor for me, and I look forward to working with you in my new capacity at the Federal Communications Commission.