I want to thank Adam Powell of The Freedom Forum for inviting me to join you today and share with you the Clinton Administration's view of the Telecommunications Act of 1996, a year after passage.

Where are we one year after passage of the Telecom Act of 1996? We are in search of a robust marketplace. And that is where you would expect us to be. To go from regulated monopolies for many telecommunications services to full competition in these markets is going to take time. As Vice President Gore has said, commenting on the Telecom Act a few days ago, this is "the first year of a process of change that will take some time."

We are in a period of transition. Let's remember that transitions are not easy. They are usually marked by a high level of uncertainty and dislocation. That is what we face now in the telecom marketplace.

It's like watching swimmers make their way from the ocean to the shore. Some come crashing in, pulled by the force of the waves; others get caught in the undertow; and others surprise us by riding the crest of the wave and gliding smoothly in.

The Telecommunications Marketplace

There are three dimensions to our search for a robust marketplace. First, we are seeking a vibrant marketplace in the sense of full competition among providers of telecommunications services. The most important aspect of this goal is to open up the local loop.

With respect to promoting local competition, we must strive to get into place both interconnection and access charge rules that provide the right incentives and actually produce a competitive environment, which in turn will bring down prices for companies and consumers. Today, ISDN prices range from more than $1000/month to a few hundred dollars. Competition will force those prices down to the lower end. We need to reform access charges so that we send the right economic signals to firms attempting to build out new networks and offer new services.

The good news is that the States have moved ahead and adopted interim orders and in some cases final orders for interconnection and resale discounts. Over 250 agreements are now under consideration around the country. And its noteworthy that many of the State decisions use forward-looking pricing methodology that is consistent with that advanced by the FCC.

The effects on competition of recent or planned mergers of telecom providers is unclear. Mergers were certainly the big news in 1996 -- Bell Atlantic and Nynex, PacTel and SBC Corporation, MCI and British Telecom. The public benefit of such mergers lies in the possibility that the mergers will allow these companies to tackle the competitive challenges created by the Act and generate more competition. The risk of such mergers is that these companies use their new size and resources to protect their market share and inhibit increased competition. We must be vigilant in this area and ensure that mergers are not anticompetitive.

Competition is not predictable. Indeed, wireless services are offering a lot of the competition to the telephone companies that many persons expected would come from cable television. In the last year, 10 million customers signed up for wireless services. There are now 38 million wireless customers in the United States -- almost 15 percent of Americans. Workers are benefitting from this competition. The wireless industry boasts that it is hiring 1000 employees a month.

The emergence of wireless as a vibrant competitor is becoming a worldwide phenomenon. In Japan, a new type of wireless service called the Personal Handyphone System (P.H.S.) has attracted 4.3 million users in its first 18 months of service offering. The rocketing growth of P.H.S., together with the deregulation and subsequent falling prices of cellular phones, have transformed the Japanese market into one of the world's fastest-growing ones for mobile telephones. Today in Japan, more than one million subscribers sign up for such service each month, or one every two seconds.

And look at Finland, where nearly one-third of the nation's five million people carry mobile phones and the number increases by 27 percent a year. Moreover, most of the Finnish people use phones that also send e-mail and can access the Internet.

The Marketplace of Ideas

Second, the Clinton Administration seeks a robust marketplace of ideas. The Telecom Act eliminated or reduced many broadcast ownership restrictions. In response to the Act, the FCC eliminated the 12-station cap on TV ownership and raised the national audience-reach limit from 25 percent to 35 percent. This led to a buying spree -- $10 billion in television transactions in 1996 (compared with $4.7 billion in 1995).

In the wake of the merger mania of '96 -- purchases of CapCities/ABC by Walt Disney Co., CBS by Westinghouse, the remaining 80 percent of New World Communications Group, Inc. by News Corp/Fox Television Stations, Inc. -- the Clinton Administration continues to be concerned about media concentration. We are especially concerned about the potential disappearance from the market of those stations owned or operated by minorities and women.

And it has been a big year for cable deals. The top cable brokerage firm (Daniels & Associates) recorded 47 cable-related transactions involving mergers and acquisitions, worth $2.6 billion.

Moreover, the FCC is now proposing the relaxation of the local duopoly rule to allow for UHF/UHF and UHF/VHF combinations within a market. I believe that is a profoundly bad idea. The UHF/VHF distinction is almost irrelevant. And now we have digitial television in the bargain. This would mean a huge concentration of ownership.

Many of these changes may make economic sense, but at what cost to diversity of ownership? Is our nation only about economic efficiency? Or is ensuring that an abundance of viewpoints is available to consumers still the priority that it historically has been? The next few years will be critical in resolving these questions.

Consumers and the Telecommunications and Information Marketplace

The third dimension of a robust marketplace is that of full participation by consumers. The key to this is both increased choice and reduced costs.

Over the last year, consumers have benefitted from greater choice in the telecommunications and information marketplace. DBS added 3 million subscribers last year -- I am one of them (and in fact, my wife and I may soon become a 2-DBS household). New wireless services are now available to consumers. Here in the D.C. metropolitan area, residents have the option of PCS in addition to cellular service.

The issue of cost is the big consumer challenge at this time. While the cost of telephony service kept pace with inflation, cable rates for basic service jumped 7.8 percent in 1996.

Cost considerations also raise the critical issue of universal service. Our national achievement of telephone service for 94 percent of Americans and 40 percent of households owning PCs is admirable, but it masks serious inequities. Today, about one in four American Indian, Eskimo, and Aleut households do not have a phone and over half (53 percent) of the American Indian households on reservations have no phone.

12 percent of African Americans and Hispanics have no phones. This compares with

4 percent of Whites and 2 percent of Asian or Pacific Islanders.

Access to advanced telecom and information services raises critical, but difficult issues. I recently traveled to Newark, New Jersey, to visit a project called "Making Healthy MUSIC." There I met a woman -- Mrs. Johnson -- who really brought home to me the importance of making these services available and affordable for Americans. Mrs. Johnson is a grandmother . . . .

The Telecom Act has a provision that ensures that schools, libraries, hospitals, and clinics will have affordable access to advanced telecommunications services. Last fall, President Clinton announced his support for a proposal championed by Congressman Markey and Senator Dorgan called "E-Rate," or "education rate."

Last November, the Federal-State Joint Board issued its recommendation to the FCC on this issue, incorporating many of the Administration's suggestions, including access to the Internet, deep discounts for schools and libraries with the least resources, a competitive bidding structure, and a technology-neutral support system which will provide schools with the flexibility to access the services they need.

Under the Joint Board's recommendation, schools with the least resources will receive a 90 percent discount on their monthly bill for connections to advanced networks, Internet access, and networking within the school building, among other services. Combined with significant private sector efforts and other funding sources to wire schools, provide hardware and software and training, this will help to connect every school and library and keep them connected.

While the FCC will not make a final decision until May 1997, the Joint Board's recommendation represents a very positive step forward. Last month, NTIA submitted comments to the FCC, in which we offered a number of proposed refinements to ensure that all schools and libraries have accurate price information and an equal opportunity to obtain discounts. These include a recommendation that state regulators play a role in deciding the lowest price that should be available to schools and libraries and that the trigger number at which the FCC prioritizes access to the Fund be lower.

In addition, NTIA urged the FCC to determine how to mitigate the cost of access to the Internet where a long-distance call to the Internet service provider is required, particularly in rural and insular areas. We want to be sure that we give children the ability to enhance their learning experience -- without the burden of high long-distance bills.

Finally, NTIA is concerned about kids in at-risk communities, and is working with business to embrace an "adopt-a-school" program, modeled after "adopt-a-highway" programs, that would establish public-private partnerships to get schools connected to the information superhighway and ensure that students and teachers have the training and resources to use those connections.

Conclusion

It is easy to grown impatient and to say that the Act promised deregulation and decry the failure to achieve it today. Rather, this is the time to move forward in the right direction, with the right rules in place -- to full and robust competition. The worst thing that we could do is to create unregulated monopolies. We must focus on the real value and goals of the act -- to provide consumers with lower prices, greater choices, and a diversity of viewpoints, as well as to spur innovation.

The Telecom Act set the stage for great opportunities in this area. All of us must take the initiative and work through the difficult issues. As President Clinton said on Tuesday night in the State of the Union address: "The new promise of the global economy, the information age, unimagined new work, life-enhancing technology: all these are ours to seize. That is our honor and our challenge. We must be shapers of events, not observers, for if we do not act, the moment will pass and we will lose the best possibilities of our future." Thank you.