Telecom/1996-04-telecom-walnutcreek.iso/legal-fcc/reed.hundt.reno.speech

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Date: Mon, 21 Nov 94 09:52:24 CST
From: [e-mail] (TELECOM Digest (Patrick Townson))
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To: telecom
Subject: Text of Reed Hundt Speech to Regulatory Utility Commissioners

A special mailing today of interest to Digest readers is a speech made
by Reed Hundt to the Regulatory Commissioners a week ago. Washington, DC
attorney and regular Digest participant Bob Keller forwarded this to us.

PAT

 SPEECH BY REED E. HUNDT
 CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION
 106th ANNUAL REGULATORY LUNCHEON
 NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS
 RENO, NEVADA
 NOVEMBER 15, 1994

Thank you, Nan Norling, for the kind introduction. President Bissell,
thank you also for inviting me to speak at the annual regulatory
luncheon.

So here I am out from Washington, D.C., taking my chances in Reno,
Nevada: the "biggest little city in the world" (as it calls itself).
If the new Congress lives up to its promises to shrink government, I
suppose we'll be calling Washington the littlest big city in the
world.

One of the messages of the election, I read in the paper, is that
people are hostile to government and in particular to Democrats in
government. I'm not too concerned about this.  After all, I regulate
the cable industry: one thing I know is trouble.

But I read in the election results a clear message that the people
want the government to do less -- they want the federal government to
do less, and they want the state government to do less. At the same
time, I've never met a voter who wants to give up our jobs of standing
between monopolists and the people's pocketbooks. So how do we
reconcile the unambiguous call for smaller government with our duty to
make sure that monopolists don't charge unreasonably high prices for
fundamental services like electricity, local telephone service, and
basic and enhanced basic cable?

You might have thought in years past that the FCC was not sufficiently
sensitive to the exigencies of the duty to protect consumers from
monopolies. I can assure you that the 1992 Cable Act has given us an
exquisite sensitivity to the demands and difficulties of this task.

But at the state and federal levels, I think we have all discovered
the solution that results in both smaller government and consumer
satisfaction: Competition for all consumer products, including all
communications services. When consumers have real, price-competitive
choice for local telephone service and basic and enhanced basic cable,
we can start going out of the business of regulating rates and let the
markets generate fair pricing with an understanding that we have done
our jobs well. When new businesses have the opportunity to enter all
communications markets because incumbents with market power have to
play by fair rules of competition, we will know that we can then meet
the voters' demand that we start to shrink the size of government.

At the state and federal levels, we are in a period of transition from
monopoly to competition in all communications markets. For us, the
election of 1994 sends the clear message: Get on with it, and hurry
up. So, at the FCC we are informally changing our name to the FCCC:
the Federal Competition in Communications Commission.

In the last few weeks, we at the FCC began to lay out fair rules of
competition for the telephone companies to enter the video business,
and for the cable companies to add capacity to deliver new channels,
broadband interactive services, wire and wireless telephony, and
multimedia. I am referring to our Video Dialtone and Cable Going
Forward decisions.

Our intent is to set clear rules of competition for the telephone
companies and the cable industry to compete against each other in the
provision of voice, video and data services.

We do not know which has the superior preexisting infrastructure, the
better marketing ideas, the more innovative products, the clearest
insight into the future of the information superhighway. At the FCC,
our view is that we should not pick the winner in any competition in
any of the five lanes of the information superhighway: cable, wireline
telephony, wireless, satellite and broadcasting. Competition in a
marketplace governed by fair rules will itself determine the winners.
But we know for certain that the ultimate winners will be the economy,
consumers, and American working men and women looking for jobs in the
booming communications sector.

The rules of competition, however, cannot be the same for all
incumbent players. We do not have the same rules for telephone and
cable, and everyone who understands these industries thinks that we
should have parallel and harmonious -- but not identical -- rules.

It is also imperative that our rules be simple, clear and as few in
number as possible to meet the objective of fairness to both suppliers
and consumers of communications services.

Lobbyists in my office often criticize our rules by saying they
are complex.

I agree with them that a simple correct answer is better than a
complex correct answer. But a simple wrong answer is unacceptable. It
all events, the real challenge for everyone is to appreciate the
difficulty of the problems of transition from monopoly to competition.
Conclusory caterwauling against alleged complexity cannot simplify the
problems that we must deal with.

I know, for example, that the cable industry appreciated the
complexity of how to set fair rules for telephone entry into video. I
know that because the filings in our video dialtone proceeding
amounted to 33,000 pages, a stack of paper over 12 feet high. These
filings told us that the telcos are going to roll out their big
cross-subsidization guns to blast the defenseless cable companies and
that we have to be the peacekeepers. We were told we didn't have any
regulations in place that could ensure fair competition, even though
we had over 200 pages of rules called Parts 32, 36, 61, 64, and 69 to
ensure fair competition. We were told that our own cost allocation
rules were too complicated to give the telcos guidance on whether the
telephone ratepayer would bear the burden of building video dialtone
 -- and yet we found a way to clarify our cost allocation rules and
explain in no uncertain terms that the telcos will be required to
allocate all incremental costs and a share of common costs, including
overheads, to video dialtone service.

At the FCC and on the state level, we are all asked why we should
bother to allow competition against entrenched monopolies that deliver
high-quality products. We are asked why we should go through the
trouble to set fair rules of competition. We are asked, in effect, why
competition is so important. Here are three reasons:

First, competition is inevitable and the businesses that you hope to
attract and retain in your states will insist on it.  Second,
competition is the only way to discover the lowest cost solutions to
providing communications services. Third, competition creates the
greatest number of new businesses, generates the greatest number of
new product ideas, stimulates network usage, grows the economy to the
maximum degree, and most important, creates the greatest number of
good new jobs for Americans who are in what Secretary Reich calls the
"anxious class." For those of you who are not sure who is in that
group, my view is that they all voted last Tuesday.

There is nothing easy about fighting for competition in communications
markets. Let me tell you the story of how we at the FCC are trying to
promote competition by permitting expanded interconnection of CAPs
with the telcos' local networks. You probably know that earlier this
year the U.S.  Court of Appeals for the District of Columbia Circuit
vacated our physical co-location rules. These regulations required the
largest local exchange carriers to offer expanded interconnection to
competitive access providers that used their own equipment located
within the telephone companies' central offices. The monopoly exchange
carriers fought us in court and won. The Court decided that the FCC
lacked authority under existing law to order the telcos to do that --
a good argument, by the way, for federal communications law reform.

At our very next open meeting, we adopted new rules implementing
"virtual" co-location for expanded interconnection. This satisfies the
Court's ruling by keeping the interconnection equipment under the
telcos' ownership and control but dedicating its use to the
competitive access providers.

Now, getting out these co-location rules was not simple. But
competition was too important for us to throw in the towel. The court
gave us a new problem, and we found a solution. Of course, the story
isn't over yet: the local exchange carriers are now appealing to the
courts our virtual co-location decisions. The battle for competition
goes on.

Even while the telephone monopolies face only limited competition for
CAPs, we want regulation of these monopolies to be sufficiently
flexible to prepare for the coming competition.  That was a key reason
for moving to price cap regulation. Under price caps, LECS have
incentives to reduce their costs. A major item on our agenda in the
next few months is our fourth year review of our LEC price cap
regulatory structure. Your comments in this proceeding will be taken
to heart.

In the reasonably near future we also are going to dig deeply into a
number of local exchange competition plans put before us by the LECs.
I believe we all have a responsibility to set clear rules for number
portability. This is essential to meaningful competition in voice
communications.

We need to make progress on our open proceeding on equal access and
interconnection among wireless and wireline carriers.  Wireless is
another lane of the information superhighway, and a booming wireless
business naturally will lead to competition with incumbent telephone
companies -- provided that we make sure that the new wireless
businesses can fairly connect to the network.

To anticipate the wireless, wire and cable competition in voice
communications we expanded the Network Reliability Council.  Everyone
delivering voice services in this country shares the duty to provide
reliable services.

The FCC is also the Federal Consumer Protection in Communications
Commission. Last week we began a Rulemaking intended to crack down on
the practice known as "slamming". We discovered that consumers are
being sent forms authorizing changes in long-distance carriers but
disguised as contest entry forms, remittances for charitable
endeavors, or negotiable instruments. We will gather evidence in this
proceeding about the nature of these abuses and seek to devise rules
that will put a stop to them and the burdens they place on consumers,
regulators, and legitimate competitors.

At the FCC we are learning a great deal from the growing number of
states that are adopting incentive-based systems of regulation for
local exchange carriers and removing barriers to entry into local
markets. Illinois, Maryland, Massachusetts, Michigan, New York and
Washington have already taken concrete steps toward authorizing
competitive services in intrastate local exchange markets.

California's legislature recently passed a significant measure to open
up competition: they gave cable operators the right to apply to offer
local exchange service if telcos win the right to offer cable or video
dialtone. If a carrier files an application to construct a video
dialtone system in a state that allows local exchange competition and
the application does not raise any novel statutory or regulatory
issues, the FCC will act quickly on that application.

State incentive regulation is, like our price caps, a way to give the
telephone companies motive to provide quality services at lower
prices, and to introduce new services that will increase the use of
the public switched network. We at the FCC are very grateful to the
states that are generating innovative solutions to chronic problems
such as the treatment of residential exchange prices.

While I am encouraged by much of what is happening in the state
regulatory arena, I am concerned about a recent development in the
emerging market for wireless communications services. A handful of
states have petitioned the FCC for the right to regulate the rates of
commercial mobile radio service (CMRS) providers, such as cellular and
soon-to-be PCS licensees. Even though the FCC, after an extensive
investigation, found the CMRS market to be competitive, and even
though available data indicate that the price of cellular service is
continuing to fall from Florida to California to Hawaii, as the idea
of PCS competition draws closer to reality, still a handful of states
are seeking the right to continue to regulate rates for CMRS operating
within their jurisdiction. I am concerned about this development
because I believe continued rate regulation in a demonstrably
competitive market disserves the interests of consumers. I am not
prejudging these petitions -- but I would note that the statute
governing CMRS requires the states to meet a substantial burden of
proof to assure us that they would not impose a greater degree of
regulation than is needed to address the perceived problems.

I think that, at the FCC, we have a lot to learn from our counterparts
in the states. I want to be sure you all get to know and frequently
talk to Kathy Wallman, Chief of the FCC Common Carrier Bureau. Kathy
and her staff will be working with you individually and with NARUC.
You'll call us and we'll call you. We need to agree on principles and
not fret about protocol.

Joint Boards are one way that we can work together. But, I'd like to
find a way to make the Joint Board process more productive and more
effective at problem-solving. The voters certainly told us all last
Tuesday that they want the different arms of government to cooperate,
but they also want us to be efficient.

Those of us who are laying out the rules of competition to build the
information highway ought to make sure we use that highway. At the FCC
we're going to figure out how to set up file servers that will enable
state commission staff to directly access ARMIS information via the
INTERNET. I understand this is something many of you believe would be
useful, and we are enthusiastic about making this tool available to
you in a format which is helpful to you. Earlier this year, as you
know, we began making our orders available to you and the public
through the INTERNET.

We need to work together to sort out cost issues on new and planned
network services. Last month, we announced that we will issue a notice
of inquiry on the implications for the jurisdictional separations
process of LEC provision of broadband network services, including, but
not limited to, video dialtone.

In the world of brave new competition, we need to continue to work
together on federal-state joint audits. We are encouraged by our
experience in working with state regulatory staffs in connection with
the audit of Southwestern Bell. We will conduct additional joint
audits in the future. We have augmented our audit staff. Audits are
extremely important tools for safeguarding competition in this era of
non-structural safeguards.

Perhaps, the most critical area for federal-state cooperation is
universal service reform.

Our most recent statistics indicate that approximately 94 per cent of
American households have telephone service. That is a remarkable
accomplishment and state commissions have played a central role in
achieving it. But in thirteen states more than ten percent of
Americans still lack basic telephone service.  Everywhere in the
country the people without active telephone service are disproportion-
ately lower-income families struggling to find good jobs, and families
with children. More than one-quarter of the children in this country
live in poverty.  The adults in these homes need affordable telephone
service to find work. The telephone is part of the road to a better
future for their children. It's essential that, as a country, we do a
much better job in getting everyone access to the networks.

At the FCC we're going to reexamine our universal service
programs.

I've heard it said that competition in telecommunications markets is
incompatible with maintaining universal service. I don't agree.
Competition encourages firms to reduce the costs and prices of
products and services: no result could do more to advance universal
service.

At the same time, we can't introduce competition in the telephone
markets without reexamining the way in which universal service is
funded. In particular, we need to make certain that the collection and
distribution mechanisms do not cause significant distortions in
competitive markets and that the financial burden is spread equitably
among competing providers.

Perhaps our worst failure in providing universal service is to a
population that is right under our noses, or if your household is like
mine, more likely underfoot: school-age children. The communications
revolution is going to generate opportunities for millions of
Americans to find better jobs, be more productive at work, seek new
kinds of achievement, and reverse the decline in real wages that has
plagued our working class. But perhaps more important than any of
these, in the long run, this revolution can change our faltering
education system forever and for the better.

Each of our schools and libraries should be tied into local area
networks. Each should be honeycombed with information pathways,
accessible by teachers and filled with information for students. Our
kids should be able to do research in the Library of Congress without
leaving their schools. Their teachers should be able send their
homework assignments over the networks to parents because we'll never
reform education without bringing the parents into the process.

A long, long time ago, I was a teacher. Like all teachers and all
parents, I discovered that you have taught successfully when you can
spark the ability to communicate in a child, to make connections. The
tools to fan that spark into a wildfire of educational advancement are
the tools of modern communication. We must give these tools to our
teachers -- and we cannot afford to delay.

The Harvards and the Browns and the private boarding schools already
have built the information highway to their students.  They're
installing their networks now. Someone lucky enough to go to those
schools will have to bring a personal computer to connect to a local
area network in the dorm room.

But the 45 million kids in the rest of the country aren't so lucky.
Even though half of the classrooms already contain a computer, in 94%
of the classrooms there isn't even a telephone line to connect it to.

Now, I have seen the future at work. I have seen the virtual
classroom, half in Japan and half in Hawaii, where the kids learn each
others' languages by talking to, listening to and watching each other
"over the phone." I have seen a classroom in Harlem where the kids are
producing a daily newspaper with their class mates in Nova Scotia, via
e-mail. Every kid I have talked to, all over the country, loves this
electronic learning. All teachers want to provide it. All the experts
agree. Everyone wants the information highway to reach the upcoming
generation.

This past January, President Clinton and Vice President Gore called
upon the telecommunications industry to connect every classroom, every
library and every hospital in America to the national information
superhighway by the year 2000. Secretary Riley has made this a
priority of the U.S. Department of Education, which is providing
technology planning grants to the states. Secretary Riley and I will
be meeting later this week with a group of educators and business
leaders to discuss ways to connect the classrooms.

I know that many states are already active in meeting this challenge.
Many of you in this room are responsible for reducing the rates that
schools have to pay for wireline connections.  Nearly every state has
projects underway to promote distance learning or run computer and
video networks among at least some of its universities or public
schools. Many of you are working actively to connect every classroom
in your state. Many telcos have made significant commitments in the
past few years to hooking up the schools in their regions.

And if we fail to accept this responsibility, what will we tell our
kids, our grandchildren? Will we say we didn't have the money, when we
had the money to develop and buy teleconferencing, mobile phones and
voice pagers for business, direct broadcast satellite dishes for our
homes, and mobile faxes for our cars? Will we tell them we had the
money to include our kids in the communications revolution, but we
forgot?

Those in the private sector and those of you who have been active in
this field deserve a lot of credit for recognizing the problem and
coming up with these pioneering, experimental solutions.

As we undertake to connect classrooms universally, we will have much
to learn form these early endeavors -- but we also should consider
whether this approach is the right one, or whether another strategy,
which focuses on the demand for these services, would better serve the
consumer -- in this case, the schoolchildren.

In telecommunications markets like the long distance market, we are
promoting competition but not choosing the winners of that
competition. I think it is time that we consider whether we should do
the same in connecting the classrooms. Why should we deprive our
schools of the choices and other benefits of competition that we seek
to secure for consumers in other markets? Why wireline connections and
not wireless or satellite? Why the telephone company and not the cable
franchisee? My instincts as a regulator and a former antitrust lawyer
tell me that these are choices that the marketplace, not regulators,
should make.

We need to create an education marketplace where supply and demand can
meet. I believe that we can create such a marketplace, in which the
educational sector's demand for telecommunications services generates
the supply to meet it.  This the challenge that we must undertake
together: equipping our learning institutions, including those serving
the most remote and most needy among our population, with the
wherewithal to do this.

Thank you. I'll be happy to answer any questions if your schedule
permits.


- FCC -

Forwarded to the Digest by:

Bob Keller (KY3R)   Robert J. Keller, P.C.   Tel: [phone]
[e-mail]   Telecommunications Law   Fax: [phone]
<ftp://ftp.clark.net/pub/rjk/>      <finger [e-mail]>