Remarks of William E. Kennard

Chairman, Federal Communications Commission

## United States Telecom Association Annual Convention

## San Francisco, California

## October 18, 1999

(As Prepared for Delivery)

## *"COMPETITION AND DEREGULATION: STRIKING THE RIGHT BALANCE"*

# Thank you, for that very kind introduction. 

I would also like to thank my friend, Roy Neel, for inviting me to your
convention. As you know, Roy is a very effective advocate for your
industry. He does a great job for you in Washington.

I really am very pleased to have the opportunity to attend USTA's
national convention. It is an honor to be here. In part, I am pleased
because I get a chance to travel to San Francisco, one of my favorite
cities in the world. There really is no other city like this one. It is
a city of incredible vistas, amazing architecture, and most of all it
has a wonderful spirit of entrepreneurial energy, a real zest for
invention and ideas and innovation.

It is also a city that has had to rebuild itself. Sometimes when I am
here in San Francisco, I think about what happened here on the morning
of April 18, 1906 -- the day of the Great Earthquake. The earthquake
flattened this city \-- the buildings, the boarding houses, the cable
cars, the telegraph lines --- and for a few critical hours on that
morning, San Francisco, then one of the most wired cities in America was
cut off, literally, from the rest of the world.

Harry Jeffs, the wire chief for the Western Union Telegraph Company in
San Francisco, realized that the city was totally cut off. And so Harry
Jeffs ventured out into the city and started testing wires to find out
how he could restore service. He tested hundreds of wires that day,
trying to find a live wire to the outside world. He tested and moved on,
tested and moved on, until he finally reached a pole at a place called
Land's End.

He tested every wire at Land's End and there he finally made contact
with Sacramento. From his perch on top of a 30-foot telegraph pole,
Harry Jeffs was able to make contact and notify the outside world about
the earthquake. Jeffs began to work on untangling the system. He stayed
on top of that pole for 18 hours.

Single-handedly, Jeffs reestablished the wires that connected San
Francisco to the rest of the country. And as I was thinking about my
remarks for today, I thought about Jeffs, how he reestablished
communications for this city---creating a lifeline, really, for the
people of this community. And I thought so many of you in this audience
are doing for communities across America what Harry Jeffs did for San
Francisco in 1906: connecting communities to the outside world.

Now, thankfully, you do not have earthquakes to contend with, unless
maybe you were in Los Angeles yesterday, or here in San Francisco at
USTA exactly ten years ago. But you are dealing, as we all are, with the
shifting landscape of telecommunications -- the tremors that are
rumbling through your industry with each new merger, or joint venture,
or change in law or regulation. These are the forces that are reshaping
and rebuilding the telecommunications industry today in America.

One of the great joys of my job as chairman of the FCC is the
opportunity to meet with my counterparts from all over the world. I get
the chance to talk with telecommunications leaders from Europe, Asia,
Africa and South America.

Two things always strike me about these meetings. First, these leaders
always marvel at our telephone network in this country. The telephone
network that you have created is the envy of the world. And it should
be. No country has developed a telephone network that is as efficient,
as technically sophisticated, as ubiquitous, and as universally
available.

We should all feel very proud of that. And you, the local carriers,
should feel especially proud of it. You are the ones who built it, you
are the ones who have extended it nationwide, and you are the ones who
will develop it into the next century.

So, in a very real sense, for many millions of Americans, you are their
connection to this marvelous telephone network, bringing basic telephone
service, and now wireless and Internet access, and even cable television
service to millions of Americans. You are the Harry Jeffs of the
Internet age, doing for many Americans what Jeffs did for the people of
San Francisco nearly a century ago -- keeping that lifeline open to the
network and to the world.

The second thing that strikes me when I meet with my counterparts from
abroad is how they are so intently focused on the transformation of our
telecom markets from monopoly to competition. The whole world is
watching how we manage this momentous shift in our law and our policy
and our markets from monopoly to competition.

I want to talk about this transition today. I want to talk about where
we are in that transition; what we can all expect in the future; and how
to strike the right balance between competition and deregulation.

So here is the good news. Everybody I talk to agrees on the ultimate
goal of this transition. No matter whom I talk to -- local exchange
carriers, competitive local exchange carriers, interexchange carriers,
cable operators, wireless providers, consumer groups, members of
Congress -- everybody agrees that competition must be our overarching
goal. So what does competition mean? There is almost universal agreement
here, too. Most agree that competition means the elimination of all
entry barriers, so that anyone who wants to provide a telecommunications
service to the consumer can do so. And to make this possible, everybody
agrees that we need collocation and cost-based interconnection of
networks to allow the seamless and efficient handoff of customers and
services; and, once competition arrives, a significantly deregulated
environment.

Easy so far.

Easy because everybody in Washington these days recites the mantra of
competition and deregulation. It has become the pledge of allegiance to
the digital age. But, like most things, the devil is in the details. So
one of the things that I have come to realize in my job is that most
people talk a good game about competition. Everybody says that they want
open, competitive markets. But too often, when you press people on these
issues, their view of deregulation means less regulation for me, but
more for my competitors -- a playing field that is more level for some
than others.

Most of the controversies that I deal with as chairman do not tend to
focus on what our ultimate objectives should be, but rather on how to
achieve them and when. And today at the FCC, much of the debate
surrounds the question of when there is enough competition in the
marketplace to warrant more deregulation: striking the right balance
between competition and deregulation.

Some say, if you just deregulate, then competition will magically
arrive. Well that theory may work in some industries, but not in a
networked industry where control of the essential building blocks of
competition -- the loops and central offices -- is still in the hands of
only a few established competitors.

I think that most people in your industry accept that view. So the
challenge is finding the right balance between imposing rules to
introduce competition, and eliminating rules that are no longer needed
because competition has taken root. We have to find the right balance.
And it seems that much of the dialogue between the FCC and your industry
in the past few years has focused on where to draw that line. Where to
find the right balance between competition and deregulation.

And let us be frank about it. We have not always agreed on where to draw
that line. I understand this. Many of you feel that competition has
already arrived, and that you are required to confront these new
competitors with one hand tied behind your back, still shackled with
more regulation than any of your competitors.

Some of you may feel that the FCC talks a good game of deregulation, but
you are still waiting to see it. And oftentimes the FCC believes that
you talk a good game of competition, but we are still waiting to see it,
at least the kind of broadscale competition that means choice for all
consumers.

What we need is a better understanding of where to strike the balance
between competition and deregulation. What your expectations are. What
the FCC's expectations are. And what we can both expect from each other.

First, what you can expect from us. You should expect that competition
will bring deregulation. This has happened; it will continue to happen;
and the FCC has a track record to prove it. When competition came to the
long distance business, we deregulated. When competition came to the
international sector, we deregulated. When competition came to wireless,
we deregulated. And as competition comes to the local telephone business
-- as consumers enjoy more and more choice -- we are lifting regulatory
burdens on incumbents and making regulation give way to the marketplace.

A few months ago, Roy Neel and others at USTA wrote me a letter asking
that we lift some of the FCC rules governing your business.

You asked us for greater pricing flexibility. Last August, we adopted an
order that says that in sectors of the market where there is
demonstrable competition, you get pricing flexibility. And this approach
has worked. Access rates are going down; competition continues to
increase.

Last year a group of smaller LECs told us that we shouldn't have a
one-size-fits-all approach to mid-sized companies. They filed a petition
asking for relief. And last May, we granted that petition. We issued an
order that streamlines ARMIS reporting requirements, eliminates Section
214 filing requirements, eliminates some separation requirements for
mid-sized LECs and permits new access services.

I told Roy Neel and others that one of my principal goals as Chairman is
to bring broadband to every home in America as soon as possible. Roy and
others in your industry convinced the Commission that we could create
more incentives for investment in broadband if we did not require
incumbent LECs to unbundle certain equipment needed to deploy advanced
services. So that is what we did.

I want to create an oasis from regulation in the broadband world, so
that any company, using any technology, will have incentives to deploy
broadband in an unregulated or significantly deregulated environment.
And that does not mean just cable companies. We must have fast and
ubiquitous deployment of broadband services and that will only happen if
every sector of the industry has incentives to provide it: wireline,
wireless and cable.

Now, let us talk about what we can expect from you. You have to embrace
competition. Lipservice and footdragging are simply not good enough. You
need to get past narrow, technical interpretations of our market-opening
rules and embrace the spirit of those rules. Competition is here to
stay. Because only by embracing competition can you be sure that you
will not be left behind; that you will be left standing. Those companies
-- incumbents and new entrants alike -- that bring value and innovation
will be the victors as competition sweeps the landscape.

Ultimately, I am confident that we will find the right balance between
competition and deregulation. Just as we have in most other sectors of
the telecommunications business, widescale competition will come to
local phone service, just as it has come to long distance, and wireless
and international. And when it does, deregulation will follow. It is a
matter of time. And I am convinced that it will come faster if we
cooperate and work together to find the right balance.

One of the interesting ironies of the Telecommunications Act of 1996 is
that it establishes cooperation as the essential prerequisite to
competition. It requires federal and state regulators to cooperate in
our efforts to craft policy. It requires incumbents to negotiate
interconnection agreements; to cooperate with their competitors. This is
one of the hard learned lessons of the 1996 Act.

Unfortunately, the first three years of the implementation of the
Telecommunications Act of 1996 were characterized not by cooperation,
but by confrontation. Litigation instead of collaboration. What we got
was uncertainty, confusion and delay. We lost valuable time.

It is time to move on. It is time to bring the benefits of this Act to
the American public. It is time to take the battles out of the courtroom
and into the marketplace.

And it is time for companies like yours to enjoy the benefits of the Act
-- as you form CLEC affiliates to compete in new markets and bring new
services to consumers.

It is also time for us to reaffirm our commitment to ensuring that all
Americans benefit from the communications marketplace.

The new digital economy is being principally defined by its power to
unlock markets, to transform retailing, and to create unimaginable
wealth for a privileged few in our society. But I believe this New
Economy must also be defined by its power to unlock the potential of all
our people---by its power to educate our poorest children, to lift up
people in rural and inner-city communities and Native American
communities, to empower people with disabilities, and to repair and
revitalize the social fabric of our communities.

Some Americans still lack basic phone service; many are still without
basic cable and Internet links. That means that the people in these
communities are more likely to use public institutions \-- schools and
libraries \-- to access the Internet.

Thanks to President Clinton and Vice-President Gore, and many members of
Congress, we have the E-rate program which is making it possible to wire
every classroom and public library to the Internet. We are giving all
children the tools need to compete in this New Economy. We are building
footbridges across this digital divide for millions of young Americans
all across the country.

And I would like to thank you for helping us in this effort. Many of
you, in fact, have been at this long before anyone had ever heard of the
E-rate, and you have been a vital part of our ongoing effort to bring
the fruits of the digital age to the poorest parts of America. And you
are also the ones wiring rural America. You are the primary vehicle for
bringing universal service to our farming communities

People tell me all the time that no one in rural America has access to
advanced telecommunications services. I know better, and so do you. Many
rural companies are providing their communities with state of the art
advanced services over DSL and cable and wireless platforms. And I
applaud those of you who are doing this vital work. The challenge for us
is to make sure that all people in rural America have access to these
services.

Indeed that is a fundamental mandate of the '96 Act: to promote
competition while at the same time preserving and protecting universal
service. Congress recognized that the implicit subsidies that form the
basis of support may not be sustainable in a competitive marketplace so
we are reforming universal service for the competitive age. Later this
week, the Commission will consider an important order to update
universal service support for non-rural companies. I am confident that
this order will help put universal service for these companies on a firm
footing for the future.

We need to make sure that the next century is a century of vigorous
competition, a time of continued innovation in telecommunications, an
era in which this industry continues to be the envy of the world. And I
know that if we all work together, if government and industry continue
to follow the course of competition, and stay focused on serving all of
our communities and our country, then everybody wins.

And I look forward to sharing this victory with all of you.

Thank you again for having me here today.