NEWS October 11, 1994 CHAIRMAN HUNDT URGES USTA TO WORK FOR TELECOM REFORM AND COMPETITION In a speech delivered yesterday to the United States Telephone Association convention in San Diego, CA, FCC Chairman Reed Hundt urged his audience to work in the next Congress for meaningful telecommunications reform that promotes competition in all phases of that industry. He noted that the FCC is "at the epicenter of the changes in communications that are shaping and shaking the way our country's businesses work; the way we educate; the way we deliver health care; the way we are tied together as a country." Chairman Hundt said that a recent poll indicated that six out of every 10 Americans believed that special interests and lobbyists run Washington and are responsible for what happens on Capitol Hill. He said "they're right to believe that the real power in Washington, DC, is possessed by the 200,000 lawyers, lobbyists and associated employees who ply their trade inside the Beltway." He added "I hope that none of you believes that telephone companies were not in any way responsible for the failure of the reform effort. But I also hope all of you want the telephone companies to be a crucial part of the success of reform in the future." Chairman Hundt said "Our next step should be to commit to pursue legislation in the 104th Congress in each of five critical areas." They are: (1) a national policy that guarantees that there will be everywhere open entry in the local telephone market; (2) establishment by Congress of a uniform approach for bringing greater competition to the long distance market; (3) continued commitment to universal service; (4) a coordinated national approach to competition in the local video market; and (5) a commitment to build the information highway to the next generation, thinking of the highway as a bridge to the young, the poor and the have-nots. - FCC - REED E. HUNDT CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION UNITED STATES TELEPHONE ASSOCIATION OCTOBER 10, 1994 Thank you, Gary McBee, for that kind introduction. It is a great pleasure to be at USTA for the first time. I am very pleased to be here with my fellow Commissioners, Jim Quello, Andy Barrett, Susan Ness and Rachelle Chong and with Congressman Mike Oxley and California PUC Commissioner Greg Conlon. I am also pleased to see my old friend and your new President, Roy Neel. Some people told me back when I was being considered that the FCC was a sleepy little agency. I was misinformed. We're at the epicenter of the changes in communications that are shaping and shaking the way our country's businesses work; the way we educate; the way we deliver health care; the way we are tied together as a country. Not surprisingly, in this job, I receive many letters from, consumers, businesses, and people all over the country. We analyze them, they break down into three categories. First, can I tell them how to program their VCR, second, how people can make cheap calls from a pay phone and, third, from someone who was reading a notice about complaining to the FCC that was on the telephone next to the bed in the hotel, I got a letter saying, "Dear Mr. Chairman, can you please tell me how to make sure this hotel provides me clean sheets." I received a letter from a small cable operator after we finished our rate regulation decision. The writer said "I hope you enjoy this job. Your won't have it for long and after you're out, you'll never get another one." With that kind of prediction, I might as well try to enjoy every minute in this job and I'm doing just that. I want you to know that I'm not the first person in my family to have a job in the communications area. More than 60 years ago, that first was recorded by my grandmother, Wilhelmina Hundt. The communications revolution of her time created thousands of new jobs all across the country. She was a switchboard operator. I wouldn't be surprised if the descendants of her employers were in this room today. If you are, I owe you a debt of gratitude. Now I know all of you are disappointed about the demise of the telecommunications legislation. In the last week, I've seen a lot of finger pointing, and I've heard a lot excuses. The scene in Washington today reminds me of a Ring Lardner story about a fellow whose nickname was Alibi Ike. The opening paragraph goes like this: "His real name was Frank X. Farrell. And I guess the X stood for excuse because he never did anything, good or bad, without apologizing for it." There's a lot of Frank X. Farrells running around Washington these days. But in typical Washington fashion, they're apologizing for the other guy's behavior. I think we ought to stop and look at the record here. The Administration fully supported sensible telecommunications reform as spelled out in major speeches by the Vice President in December 1993 and January 1994. And no one worked harder than the Congressional leaders Chairmen Dingell, Brooks, and Markey, Congressman Fields, Senators Hollings, Danforth and others. Legislation was introduced in both houses in 1993 and many hearings were held in 1994. Great progress was made. A reform bill passed the House by 423 to 4. A different reform bill passed the Senate Commerce Committee 18 to 2. Votes like these are typically for resolutions endorsing National Tooth Decay Prevention Week. We, the Commission, were hoping that we were on a legislative train called the Rose Garden Special. I know from his speeches that Roy Neel felt the same way. Earlier this year, he predicted that on October 7 -- last week -- I'd be getting a ceremonial signing pen from the President. What happened? The same thing that happened to almost every single bill that advanced to the Senate in the last few weeks. Except for the digital telephony bill and the desert parks legislation, noting made it through the gauntlet of partisanship and special interest pleading. Now I have no objection to American businesses and American people forming associations, hiring lobbyists, and expressing their views to Congress. When these associations are represented as ably and responsibly as yours is, the country can greatly benefit from the wisdom and experience that such groups contribute to the legislative process. But telecommunications reform was not only about responsible associations seeking compromise on important points of great public concern. It was and it is still about huge companies in different industries, retaining fleets of lawyers and armadas of lobbyists that battled Congress every hour of every day for months on end. You here are not only important and responsible business people running a crucial American industry. You are also, of course, patriotic and well-informed Americans. And I bet each of you agrees with a recent poll that said 6 of every 10 Americans believe that special interests and lobbyists run Washington. The public believes that on bill after bill, on amendment after amendment, the special interests are responsible for what happens on Capitol Hill. You know what? The public is smart. People can only vote on who's in Congress, but they can't vote to bar the special interests. But they're right to believe that the real power in Washington, D.C. is possessed by the 200,000 lawyers, lobbyists and associated employees who ply their trade inside the Beltway. So, as the New York Times said about the defeat of telecommunications reform, in the end, "special interest lobbying...won the day." When I talk about special interests, I am referring to any specific communications industry. All played a role in the defeat of reform. I hope that none of you believes that telephone companies were not in any way responsible for the failure of the reform effort. But, I also, I hope all of you want the telephone companies to be a crucial part of the success of reform in the future. So where do we go from here? We are at a new crossroads in the building of the information highway. There are two ways to go. Down one way the sign says "To Competition." The other way the sign reads "To Monopoly." As Yogi Berra once said, "when you come to a fork in the road, take it." Maybe Yogi shouldn't be our guide, but I think the right choice is clear. The road to competition will lead to investment and technological progress that will create jobs and help build the National Information Infrastructure. What's more, it will stimulate the development of the Global Information Infrastructure and ensure for the U.S. a position of leadership in the most important part of the world economy. On the other hand, we could travel the road marked "To Monopoly". After all, many other countries are going that route. And if that's the way you want to travel: --You'll want to reaffirm the '84 Cable Act's prohibition of telephone company entry into video; --You'll want to pass new legislation barring video dialtone; --You'll want to enshrine the MFJ as the permanent law of the land; and --You'll want to keep the FCC from deregulating as market circumstances change. Those of you who would follow this path -- either intentionally or unwittingly, either candidly or covertly -- will have to recognize that consumers buying from monopolies will demand -- and deserve -- regulating of rates. This would lead to a lifetime of regulation for everyone here and for our children. Lawyers and lobbyists would only add to their numbers. And maybe the public will never recognize the substantial but largely hidden costs imposed on the economy by even a regulated monopoly. I think all of you should prefer the road to competition. It is a path of risk and change, but it is also a road of opportunity and excitement. Competition is the key to the FCC's decisionmaking. In our competition policy, we follow three guidelines: choice, opportunity, and fairness. The importance of choice is this: communications products and services are more like any other consumer item that they have ever been before. And consumers like to choose among the products they buy and when they can choose they buy more. Choice in telecommunications means that in Hawaii, consumers may be able to choose residential cellular service for about the same price as the traditional wireline local service. Choice in the future will mean that many service providers will offer different products -- voice, video, and data -- and you will let the marketplace, not the government, tell you what to sell. The second aspect of our policy of competition is opportunity. We favor competition because we favor more opportunity. Competitive markets are chockablock with new opportunities. The biggest single current example is PCS. We tailored our auction process to ensure that there would be opportunities for telephone companies of all sizes, including small and rural telephone companies, and I think it will work. The third aspect of the competition policy is fairness. We need to have fair competition. It needs to create a fair contest among the competitors and it needs to generate basic social goods. We especially need to make sure that the telecommunications revolution promotes participation of everyone in our economy. I especially mean women and minorities. One aspect of the road to competition is that in many ways if you don't want to go down that path, you'll be dragged that way by others. For example, here in California, the legislature has passed to landmark laws that are premised upon the theory that all telecommunications markets should be open to competition. The first provides that if any telephone company wins the right to offer cable or video dialtone in its service area, then the cable operator immediately has the right to apply for entry into the local exchange service market in that area. The other -- The Long Distance Telecommunications Consumer Choice Act -- directs the California Public Utilities Commission to seek a waiver from the MFJ court to authorize open and full competition in California for long distance, so that the Bell Operating Companies can provide intrastate interLATA service. Barriers to competition in the intraLATA long distance market in this state will come down beginning next January. Consumers will benefit from significant reductions in their short-haul long distance costs as, in the words of the California PUC, "scores of eager competitors" enter the market. This is the path to economical growth, it is the path to new jobs and it is the path to happier consumers. On the other coast, in my home state of Maryland, state regulators have opened all local services to competition. Some alternative access providers have already been given the green light to provide switched service. Just last week, MCI announced its intention to provide competitive local service in numerous markets around the country. Consumers and businesses in all these states will reap the benefits of lower prices, improved service quality, and innovative new products. While these actions are encouraging, ultimately, we have to a national policy that promotes competition in all telecom markets -- interstate, intrastate toll and local -- and a policy that lets all players into voice, video, and data. But, we certainly learned that the path to achieving this competition will not be easy to travel. For example, in the search of simplicity, some advocate that competition policy should be based on a sort of regulatory big bang theory -- just set a future date and let an explosion of competition replace monopoly at that moment. I agree that competition policy needs to be forward-looking and that competition should permit us and our state colleagues to radically reduce regulations. However, every time you turn over the rock of monopoly in search of that gold of competition, you find stony problems underneath. For example, if you just said that as a matter of law in two years all telecommunications markets would be open to competition, what would you do about universal service, interconnection, vertical integration, cross-subsidies, equal access, 1-plus dialing and a host of other issues? All of these issues could generate questions and all of these questions would still require answers. But the only way to travel the path of competition is to put one foot ahead of the other. Our next step should be to commit to pursue legislation in the 104th Congress in each of five critical areas: First, we need a national policy that guarantees that there will be, everywhere, open entry in the local telephone market. It's not good for our country to have a policy where some face real world challenges in the competitive marketplace while others are protected. Second, we need Congress to establish a uniform approach for bringing greater competition to the long distance market. Third, we must ensure that in this new competitive world, we do not forget those who might be left off the information highway. Universal service must remain a cornerstone of our national telecommunications policy. Fourth, we need a coordinated national approach to competition in the local video market. We are all aware that there are numerous legal challenges to the 1984 law that bars telephone companies from competing directly in the video marketplace. Your organization recently filed one of these challenges. That complaint, like these other cases, raises questions about the First Amendment. But, the issue that we must grapple with is not really free speech, but how to fashion a uniform policy that fairly lets telephone companies compete with cable and other multichannel providers given the very different balance sheets of the competitors. Fifth, we have to build the information highway to the next generation. We have to think of that highway as a bridge to the young, to the poor, to the have-nots. In 13 states of the Union, more than 10 percent of households do not have active telephone service. Across the country, of people in the bottom third in income, more than 10 percent do not have active telephone service. These are real problems. You have to have phone service to participate fully in the modern economy. But probably the most glaring example of the need to do a better job in providing telephone service is the fact that there are almost no phone lines at all in buildings where 45 million Americans live, work and play every day. These are, of course, schools and those Americans are, of course, our kids. Only one classroom in 25 has a phone line that connects a computer to a network even though that's all that's required for connecting these kids to the information highway. We've got to give our children the technology that is invigorating the business community and making our workers more productive. We've got to let parents use communications to monitor the day's lessons or to let children work on group projects with their classmates, even after they've come home from soccer practice. At the FCC, we have created a task force that is studying the job of connecting the classrooms to the information highway. We are meeting with educators, public interest groups, state and local officials, and industry to determine the full dimensions of that policy. This effort is being closely coordinated with the Department of Education and NTIA to ensure that we develop consistent federal policy. Good ideas on this subject are appearing all over the country. The Lightspan Partnership, based here in California, is creating interactive educational programming for grades K-6 in mathematics and in reading/language arts that will be available for teachers to use in the classrooms during the school day, and for students to interact with in their homes after school Progress on this and all other issues on the road to competition depends very much on whether the powerful special interests agree to reform our creaky old Communications Act - or whether they combine, intentionally or not, to create gridlock again next year. It is crucially important for all Americans that business make the right choice, that the communications industries of this country commit to resolving their differences and agreeing to terms and conditions of competition in each other's markets. Competition will increase economic growth, add jobs, and make all businesses more productive. I told you earlier about my grandmother's job as a switchboard operator. When she got that job, my grandmother had a son, age 9, the same age as my middle child Nathaniel is today. She was on her own -- her husband had just died. She had no special skills. She had no future. And it was the beginning of the great depression. The communications revolution of that time created the job of switchboard operator. She was hired, she was trained, and she was given a new lease on life. Because of that job she was able to provide for her son, and send him on to college. Later, after the war, on the GI Bill he went to law school. And so he was able to provide for me and my sisters and brothers and give us a life of opportunity. So much depends on a fork in the road, so much depends on the path taken. Because of the new jobs created by the telephone industry of America my grandmother was able to save herself and her future. Your industry gave her a future and I inherited it. You can today give the future to so many Americans just as your predecessors gave my family a future. That's the reason to engaged in the communications revolution; that's the reason to make sure the right policies succeed in Washington. We're counting on you. Thank you very much.