October 15, 1999

Thank you so much for that kind introduction. I am extremely happy to be here today. Since I was born and raised in Puerto Rico, returning to the islands always feels like coming home. And I am particularly pleased to participate in what I believe is a very important dialogue. In an increasingly global economy, people of all nations need to talk more about how to promote the growth of telecommunications competition. That competition can facilitate business among all the nations, and, as we're talking about today, between U.S. and Caribbean-based companies. Moreover, the growth of competition in the Caribbean Basin should help ensure that the people who live here benefit from the telecommunications revolution.

The telecommunications industry is growing at a breathtaking speed, fundamentally changing the way we conduct business and interact both professionally and personally. I'd like to talk today about what that can mean for the Caribbean. I believe that events over the last year suggest that competition will ultimately grow in the Caribbean Basin, and with that competition will come an opportunity to participate in the increasingly global, digital economy.

As the globe becomes increasingly connected through the Internet and e-commerce, however, we must not lose sight of the risk that some parts of the world may be left behind. The U.S. Commerce Department reports that the "digital divide" increased in the United States between 1994 and 1997. That means that, when it comes to the Internet, there's an even wider gap between the less affluent, Blacks and Hispanics, and rural Americans on the one hand, and the more affluent, non-minority, urban Americans on the other. For example, White households are twice as likely as Black or Hispanic households to own a personal computer and three times more likely to have on-line access. This gap holds true even at income levels greater than $75,000 a year.

This digital divide also is reflected throughout the world. Poorer countries have lower rates of Internet access when compared to richer countries. I recently read that less than 1% of the world's Internet users are in South Asia, home to 23% of the world's population. And in several African nations, the monthly charge for an Internet connection is nearly $100 U.S. dollars, as compared to around $20 dollars in the U.S.

Closer to home, in Mexico, a nation of close to 100 million, only about 1 million people have access to computers and only 10 percent of those individuals presently access the Internet. Access to the Internet varies between the U.S. mainland and the U.S. Virgin Islands as well. ITU data show that in 1996, 7.9% of the U.S. mainland population was using the Internet, as compared to 0.9% of the U.S. Virgin Islands population. Both figures probably have grown significantly since 1996. Indeed, 37% of the U.S. population had Internet access at home or at work in 1998. Although I do not have a similar figure for the U.S. Virgin Islands for last year, I am confident that the mainland figure remains substantially higher.

Indeed, penetration rates - the rates at which households subscribe to telephone service -- and rates of Internet access continue to lag in the Caribbean region. Statistics are rather hard to come by for this region, but the data that are available are startling: in 1996, telephone density was at 37 lines per 100 people in Barbados, 14 lines per 100 people in Jamaica, and a mere .8 lines per 100 people in Haiti. That compares to 64 lines per 100 people on the United States mainland and 56 lines per 100 people in the U.S. Virgin Islands in 1996. Without first increasing basic telephone penetration, these countries cannot hope to connect their populations to more advanced services and the Internet.

The telecommunications sector in the Caribbean is characterized by small markets in terms of population. But high-quality and affordably-priced telecommunications services are important not only for domestic links, but also to support the international businesses on which these economies depend. Resource-based industries such as sugar, fisheries, and mining rely on strong telecommunications networks, as does tourism. Indeed, I recently planned a trip to Anguilla with my husband, and we not only selected a hotel but also reserved a room over the Internet, from our home in Maryland.

The ability of the people of the Caribbean to compete in an increasingly information-based world economy depends on their ability to harness the potential of the Internet. Without necessary investment in facilities and appropriate regulatory reform, developing nations such as many of the Caribbean island states, will find themselves falling even further behind in an increasingly wired world.

As you know, Cable & Wireless is the entrenched wireline provider in the English-speaking Caribbean countries. C&W is the beneficiary of long-terms licenses granted by these island nations in the late 1980s, which generally included very favorable terms, including long-term monopolies of domestic and international services. These monopolies have been very profitable to C&W. Indeed, during 1998, the Caribbean generated minimum profit margins for C&W of over 17 percent. According to C&W's financial reports for 1997-98, its profits in the Caribbean were second only to its profits in Hong Kong.

No doubt the Caribbean island nations did not anticipate the liberalization of the global telecommunications markets. But their governments have, to their immense credit, subsequently recognized the importance of competitive communications markets to healthy economies. Working with the World Bank and the international community, they have begun to lay the groundwork for widespread competition in the Caribbean Basin. For example, they have licensed very small aperture terminal (VSAT) operators and other satellite services to generate competition for international transport.

Indeed, the leaders of many Caribbean states have recently taken courageous market-opening steps. For example, Jamaica's prime minister has reached an agreement with its sole telephone provider, Cable & Wireless. Cable & Wireless Jamaica was granted a 25-year exclusive license in 1988, which was scheduled to run through 2013. The new agreement cuts the remaining term of exclusivity to three years, beginning at the date on which legislation authorizing the changes is signed into law. Within the first 18 months of the three-year transition period, interconnection agreements will be put in place. Two new mobile network operators will be licensed, and data, Internet and other information services will be opened to competition, although competing providers will have to lease international facilities from Cable & Wireless. According to Jamaica's Technology Minister, the second 18-month period of the 3-year transition will see "full domestic facilities-based competition in all services, and the provision of Internet services using infrastructure other than the existing telephone network."

Dominica, Grenada, St Kitts and Nevis, St Lucia and St Vincent are likewise pressing forward with the introduction of a competitive telecommunications regime, which is expected to come into effect in 2001. With technical advice from a World Bank-funded Organization of Eastern Caribbean States, the countries have negotiated with Cable & Wireless as a group to terminate their long-term exclusive service contracts and open their markets to competition. The countries are working to develop a harmonized telecommunications policy and new framework legislation. Consistent with the United States' commitment at the Barbados Summit in 1997 to assist economic development in the region through telecommunications and information services, the United States has provided technical support and regulatory policy advice to assist in developing an independent regulatory framework.

Despite the United States' own progress towards injecting competition into local telephony markets, there is still only one wireline carrier providing service in the U.S. Virgins islands -- the Virgin Islands Telephone Corporation. Thus, consumers are not yet reaping the full promise of the 1996 Act, though I am hopeful that they will begin to do so.

I am pleased, however, that schools and libraries in the U.S. Virgin Islands have benefited from over $3.5 million in discounts on telecommunications services, Internet access, and internal connections under the "education rate" or "e-rate" program created by the 1996 Act. Pursuant to the e-rate, primary and secondary schools and libraries can receive such services at discounts ranging from 20% to 90% of commercially available rates. Moreover, I'm told that the Virgin Islands have more international cable facilities than any other place in the Caribbean. Most of the regional undersea cables terminate/originate on St. Thomas, and this should enable them to have access to all types of communications services, both in-region and international.

What impact will increased competition have in the Caribbean Basin? Throughout the region, monopoly rates have depressed the use of international voice and Internet services. Therefore, the advent of competition should bring lower rates and a wider variety of services. I am hopeful that it will also make Internet access more affordable and help increase Internet penetration. Competition should bring the Caribbean more fully into the global economy, helping to close the digital divide and to facilitate the growth of e-commerce in the region.

As the U.S. Department of Commerce has recognized, however, whether businesses and consumers are willing to conduct business on line ultimately depends on many factors, including concerns related to privacy and security of transactions, political and regulatory issues, and, the most frequent deterrent to the growth of e-commerce, the cost of Internet access.

In the U.S., two pricing factors help to make Internet access affordable to a large portion of the country and facilitate e-commerce growth: a flat-rate pricing structure for local residential telephone calls and the popularity of flat, monthly fees for Internet access. The pricing structures of other countries are frequently less conducive to on-line shopping and business transactions.

Another key factor for e-commerce growth is the availability and cost of broadband access. The growth of the Internet has outpaced projections and expectations over the last three years. There is a critical need for a solid telecommunications infrastructure to establish and maintain Internet access. And I believe that the need for broadband Internet connections will only increase given the rapid pace of innovation on the Internet. Future applications -- including streaming video that's starting to be offered -- will no doubt require even greater amounts of bandwidth.

What are the benefits to connecting the Caribbean Basin to the global superhighway? From a business perspective, an increasingly wired world gives both large and small businesses unprecedented access to global markets. Currently, there are 171 million Internet users, as compared to 3 million just five years ago. Internet traffic is doubling every 100 days. By 2003 to 2005 e-commerce revenue is projected to top a trillion dollars.

The ubiquity and reach of the Internet are creating opportunities for first-time, direct connections with customers. Local businesses can no longer afford to focus only on their own communities, because with the Internet, the potential customer base is global. Not only is the Internet growing larger, but also the ways it is used are changing. The Internet provides businesses with access to customers 24 hours a day, seven days a week. Indeed, Internet advertising revenues more than doubled between 1997 and 1998, suggesting the growing importance of the Internet to business customers as a way of reaching consumers. Interestingly, in 1999, the top 15 Internet sites are e-Commerce/business sites, a remarkable change from three years earlier, when the top 15 sites were educational institutions and included no e-commerce sites.

The Commerce Department predicts that as the Internet allows businesses to compete in truly global markets, Internet transactions may grow large enough to measurably impact trade flows. But the size and direction of those impacts are unclear. Many U.S. companies have successfully leveraged their positions in the U.S. market to establish a global customer base by customizing their goods and services to local markets and/or joining with local partners. Firms outside the U.S. are also providing competition in the form of many new products and services, and I encourage the countries of the Caribbean Basin to join in the fray.

In the Caribbean, as in the U.S. mainland, policymakers face challenges in guiding the transition from monopoly to competition. The challenges are tough, as I can tell you. But the pay-off comes in terms of improved telecommunications services, greater customer choice, and the ability to participate more fully in the global economy. So in the end, all of us, regulators and businesspeople alike, know that these are challenges we cannot afford not to face. The telecommunications revolution promises great benefit for our national economies and our citizens, so long as we seize the opportunity.