**Remarks of**

**Jonathan S. Adelstein**

**Commissioner, Federal Communications Commission**

**"Preserving the Public Interest in a Dynamic Telecommunications
Industry"**

**2004 National Governors Association Winter Meeting**

**J.W. Marriott Hotel - Washington, D.C.**

**February 22, 2004**

\[As prepared for delivery\]

**I. Introduction**

Thank you. It's an honor to appear before so many Governors, including
my very own, Mike Rounds of South Dakota. My Dad serves with him as a
member of the South Dakota State Legislature, so I've got to watch what
I say or I'll hear about it later.....

Coming from a small town, I obviously really care about the role of the
states in the future of telecommunications. And your role now faces a
bigger challenge than it has ever faced in the 100 years since the
invention of the telephone.

The reason is simple: the rise of broadband. All information is
increasingly flowing through fatter and fatter broadband pipes directly
into homes and businesses throughout the country -- by wireline, cable,
wireless, satellite, and other new technologies. Broadband makes
possible the convergence of plain old telephone service, data
transmission, mobile calling, and even transmission of video, whether
television programming or video clips that you record and send with your
wireless phone. And they can all travel over the Internet as
indistinguishable digital packets -- you won't be able to tell if it's a
phone call or a TV show.

This raises big questions about the role of the states. This is because
the Internet is largely interstate or even international, in nature and
has evolved relatively free from government regulation. As anyone who
has gotten spammed email knows, we can't even tell where an email comes
from. Much the same may be true with voice calls made over the Internet.
It challenges our historical tests for determining jurisdiction. Just as
you can check your email from an Internet café in Paris, you may soon be
able to send and receive calls from your home number, no matter where
you are -- even if you are in a city or country far from home. The days
of easy-to-track point-to-point transmissions -- which enabled us to
distinguish easily between intrastate and interstate services -- appear
to be numbered, as tomorrow's digital packets will be routed dynamically
through overlapping networks.

And major fights are now taking place in the states and at the FCC about
whether or how to federalize these burgeoning technologies.

I've already heard from Governors and other state officials who are very
concerned about this push for federalization for at least one big reason
-- the future of a state's economy can depend on the quality of its
communications infrastructure. They are concerned about losing control
over something so central to their economy.

We see that in today's debate over the outsourcing of jobs overseas. Tax
returns are being shipped by broadband to India for processing cheaper
than Americans can do it. Medical scans are being shipped to China for
their radiologists to review. Broadband networks make that possible. The
outsourcing of jobs overseas concerns everyone. But we won't put our
heads in the sand and lock in our communications technologies. Rather,
we've got to give our communities the tools and technology they need to
compete effectively.

Here within our borders, similar "outsourcing" is shifting work from
high-cost areas, often urban areas, to areas with lower costs of doing
business, often less populated areas. I imagine that puts pressure on
you to keep your tax rates and business climate as friendly as possible
to remain competitive. But it also means you need to ensure top-rate
broadband telecom infrastructure throughout your states -- both in rural
states and in the more rural areas of larger states.

As a South Dakotan, ensuring a smooth rollout of broadband throughout
rural America is a real focus of mine. It should be for each of you, as
well, even if you come from a more urbanized state. The broader and
deeper the high-speed networks in this country, the more valuable they
will be for every American consumer and business. And improving our
networks will help our overall economy perform more competitively both
at home and abroad.

*Universal Service*

One area where I work especially closely with my state colleagues is on
the Federal-State Joint Board on Universal Service. This is a panel of
FCC commissioners and colleagues from state utility commissions. We're
working to make sure that the federal universal service fund continues
to ensure that every American has access to the best telecommunications
services at comparable rates. I believe that a critical part of this
effort is to ensure that universal service supports an evolving level of
telecommunications services, especially as broadband becomes the means
by which all communications -- including voice calls -- will travel. All
communities and consumers must have access to these new and innovative
services. On the Joint Board, we're trying to address the future of
universal service without expanding the size of the fund beyond
Congress' expectations.

Particularly when it comes to serving rural and insular communities,
universal service has always supported the development of networks. I'm
concerned with proposals that are gaining traction that would limit
support to just one primary line. That would simply put rural consumers
and businesses at a disadvantage.

Consumers in non-rural areas have access to a variety of telecom
services \-- voice, data, fixed, and mobile. If universal service
provides rural customers with access to just one of these, and to only
one connection at that, it may render their access to other services
unaffordable, and is likely to reduce network investment. This could
undermine small businesses that operate in rural areas and undercut
economic development. So I'm opposing efforts to curtail the scope of
this 70-year old undertaking.

Although I serve on the FCC, we maintain a close partnership with our
colleagues in the state public utility commissions. As Commissioner
Nelson will tell you, state commissions play a key role in protecting
consumers. While that role varies among states, state commissions
generally ensure that companies provide quality telecommunications
service to consumers at reasonable prices, terms, and conditions. And
they play a critical role in promoting competition. They review
interconnection agreements between competing telephone companies and
play a key role in matters such as telephone numbering and 911 service.

That Federal-State relationship remains critical even as the line is
quickly blurring between interstate and intrastate communications,
between voice and data, and, indeed, between our computers and our
phones.

*VoIP*

The FCC's debate over the future of telecommunications moved front and
center last week when we considered issues related to Voice over
Internet Protocol or VoIP.

We began a comprehensive rulemaking to examine every aspect of this
growing field. Internet Protocol (IP) transforms information -- voice
calls, data, and video -- into digital packets of information that can
travel over the Internet. It is forcing a technological revolution away
from traditional circuit-switched phone lines to data-centric networks.
The next speakers from industry will discuss this from the front lines.
Suffice it to say that IP is a key ingredient for the explosion of
consumer choices that we are starting to see in the marketplace, such as
video phones, voice through instant messaging-like services, voice mail
converted to e-mail -- you name it.

We are turning our attention to this just in time. Enabled by the rise
of broadband, IP is fast becoming the building block for the future of
telecommunications. VoIP providers have their sights set on the
mainstream residential consumer. Some in the industry are certain that
the whole system will move to VoIP in some form or another.

This transformation holds huge implications for consumers and providers.
It challenges the entire regulatory structure that has been built around
telephony over the last century. It presents a real opportunity --
indeed a necessity -- for the FCC and the states to make it happen in a
way that everyone benefits -- including consumers in every area of the
country.

The FCC has dual roles. First, we need to facilitate the deployment of
VoIP and promote innovative technologies. At the same time, though, we
are charged with ensuring that the goals set out by Congress are
fulfilled.

The Communications Act charges us to maintain universal service
programs, which provide nearly six billion dollars to support phone
service for low income consumers and those in rural areas, and give our
nation's schools and libraries access to the Internet and all of the
opportunity that it brings. State universal service programs, which may
be affected by FCC rulings, provide significant additional support. We
will need to look closely at how IP-enabled services affect our ability
to fund and deliver these services. I fought to ensure that our new
rulemaking asks direct questions on the implications for Rural America
and we will need your input.

As we go forward, we also must understand how VoIP will affect the
provision of 911, E911, and other emergency services. Let's look at its
effect on the ability of people with disabilities to access
communications services -- and the ability of our law enforcement
officials to protect public safety and national security. We also need
to watch out consumer privacy and network reliability. The importance of
public safety is more important than ever in this age where criminals
and terrorists are constantly evolving to evade detection.

We need to reach out to consumers, network providers, and hardware and
software manufacturers in finding answers. We also need to reach out to
you, because you play such a critical role.

*Pulver.com*

I'm not sure we've been reaching out enough to states on this. On the
same day we opened our broad inquiry on VoIP, we also ruled on the
nature of one particular type of service, offered by a company called
pulver.com (Pulver). Pulver's service allows people to communicate by
special Internet phones for free over their broadband connection to
other members of the service.

While I agree that aspects of Pulver's service seem different from the
services traditionally provided by our local phone companies, I
disagreed with that part of the Order that decided the statutory
classification of Pulver's service as an interstate information service.
I am concerned that the FCC got ahead of the game by making declarations
about federal jurisdiction and the "unregulated" nature of the service
that seem to presume the outcome of the broader rulemaking launched that
very same day.

I'm particularly concerned that the FCC already classified this service
as "interstate," and then reached other conclusions limiting the ability
of states to regulate it. I thought we should have deferred these broad
decisions until a more comprehensive record is developed, with the
participation of so many stakeholders, including yourselves, who should
be part of this debate.

But it's not too late. We really need you to weigh in and get involved
in the broader VoIP inquiry.

*Triennial Review*

There are a lot of other areas that need your input, as well. For
example, in our Triennial Review decision, the FCC adopted rules
concerning the local competition provisions of the 1996
Telecommunications Act. One of the primary purposes of the Triennial
Review proceeding was to create opportunity and incentives for multiple
carriers to build networks that can carry the new and innovative
services that are transforming our country. The decision we adopted last
fall uses a key partnership with our state commission colleagues to
preserve the burgeoning competition that so many have worked so hard to
promote. As a result of that hard-fought decision, millions of American
residential consumers have a choice of local phone providers. State
commissions are working through that framework right now to finalize the
rules for competing carriers.

Of course, that order is now on appeal before the D.C. Circuit Court of
Appeals, and I'm hopeful it will be upheld. Critics challenged the
partnership we crafted with the states, but I believe our approach
recognized the critical role that states play in crafting telecom
policy. I'm committed to defending the order strongly.

On all of these issues, my message to you is to stay involved.

On so many fronts, we're in the midst of a transformation that demands
our immediate attention. Let's work together to get it right.

And Governor Rounds, I'm counting on you to send a good report card back
home.