# **Remarks by**

**Chairman William E. Kennard**

**Federal Communications Commission**

**Before the**

**New York Law Journal and New York City Bar Association**

**February 14, 2000**

#### New York, New York

**(As Prepared for Delivery)**

# 

### "The New York Story: Ain't No Stopping Us Now"

# 

# 

## Introduction

Thank you, Michael Cooper, for that warm welcome. And thank you Ruth
Hochenberger of the Law Journal for inviting me here.

The New York Bar Association has been very gracious in hosting me today.
And I appreciate the opportunity to address you this morning.

I am very honored to be here. It is not every day that I get to address
one of the nation's oldest, most distinguished bar associations. It is
also not every day I get to see my old friend from law practice, Michael
Botein, a professor of communications law at New York Law School.
Michael, it is great to see you again. And let me extend a welcome to
some of his students, whom, I am told, are with us this morning.

## A Brief Shining Moment: Competition Comes to New York

I always love coming to New York. It is a particular joy for me this
week because I have been reading this wonderful Pulitzer-prize-winning
book, *Gotham*, about the history of New York City. I have never come
across a book quite like it. It is massive \--well over 1,000 pages long
\-- and it describes in the most colorful, vivid detail the evolution of
this city from its birth until 1898.

The other day I came across a story in the book that really resonates
with me.

It is the story about the creation of the telephone business in
Manhattan.

In 1878, a company called the Metropolitan Telephone and Telegraph
Company built 33 miles of phone lines in this city.

It was the beginning of a primitive telephone network. It consisted of a
single exchange (located at 82 Nassau Street), a single telephone
directory (a small card consisting of 252 names), and to get phone
service it cost a whopping 60 dollars a year.

To make a call, people had to turn a crank, lift up an earpiece, and, if
they were lucky, they would reach an operator.

Now, the operators at the time were men who had been hired to send and
receive telegraph messages. It was a rowdy bunch. They were young men
who spent most of their time in the switching room, who were in the
habit of drinking beer, fighting, and, with the advent of the telephone,
swearing at their customers.

This was no way to run a business. The phone company knew that to lure
consumers away from the telegraph industry, it would have to improve
service. So it began firing the men and hiring proper, upstanding women
who could give customers the respect and information they wanted.

So the phone company went out and hired a cadre of proper young women to
operate the phones. These women were called---I love this name---"Hello
Girls." And the Hello Girls became the face of the telephone service in
New York City. They were polite; well mannered; and proper. They got to
know their customers and kept them calling.

One Hello Girl---a woman named Miss Katherine M. Schmitt---recalled that
she routinely fielded questions from consumers seeking information and
help. Questions like:

"Where is the fire?"

"Did anyone call me while I was out?"

"How do I get to Central Park?"

The phone network grew with the new entrepreneurial and professional
class in New York City, including, by the way, the emerging class of
corporate lawyers in New York City.

The Association of the Bar of the City of New York was founded in 1870,
which was the forerunner to the American Bar Association founding in
1878. But that, of course, is your story, and another speech.

The point is that the telephone network, like the data networks of
today, became an essential component of commerce in this city.
Businesses that could afford the phones started using them to order
goods and services, and to communicate with coworkers. Managers began
talking to foremen on shop room floors. Contractors on the ground
communicated with foremen on the top of skyscrapers, hundreds of feet in
the air. And long-distance service allowed companies to set up branch
offices in far-flung locales like Chicago, Boston, and Philadelphia.

But soon phones arrived at the doorsteps of the average resident. This
is interesting.

In 1894, the Bell patents expired, and independent companies rushed into
the marketplace, sought out new clients, offered phone service at lower
prices. They helped make phones a more routine part of people's lives.
Here are two statistics: by the mid-1890s 12 exchanges were up and
running; they averaged around 150,000 calls a day.

Switch-boards hummed, the Hello Girls wooed the callers, and for a brief
shining moment, New York had competition in its phone industry.

**The Beginning of the End of Competition**

That moment did not last long.

In 1913, the federal government was considering an antitrust suit
against AT&T. Faced with the unhappy prospect of a government suit, the
company reached an agreement with the federal government. The agreement
was called the Kingsbury Commitment.

It stipulated, basically, that AT&T had to interconnect with independent
carriers, and open the phone network to competition. The agreement made
sense in theory, but in practice it was a bust. AT&T and the
independents agreed to divvy up their territory, and the companies soon
had monopolies in the local and long-distance markets.

Eventually AT&T began to buy the independents, and for much of the
20^th^ century, the story of the phone industry was a story of monopoly
markets, high prices and no consumer choice.

Thus began a half century of monopoly regulation of telephones in the
United States.

In 1978, however, forces were at work that once again would alter the
future of communications in America. President Carter named Harold
Greene to a seat on the United States District Court of Columbia. When
he walked into his chambers for the first time, he found about 140 cases
on his desk; one of them was the United States versus AT&T.

The case had been championed by Bill Baxter, then head of the Antitrust
Division of the Justice Department, who fought to keep the case going,
even when virtually everyone in the Reagan Administration was against it
-- the White House, the Defense Department, the Commerce Department.

Baxter kept the case alive. And Judge Greene threw himself into the
case. He took charge of the case. He forced the parties to negotiate and
forced them to speed up their deliberations. On January 1, 1984, Judge
Greene issued one of the more courageous, landmark rulings in modern
legal history. He approved the settlement that led to the break-up of
AT&T.

Judge Greene died three weeks ago. Bill Baxter has also died. These two
men, courageous lawyers, left an enduring legacy for the American
public.

Since 1984, American consumers have saved over \$200 billion in long
distance charges because these two lawyers had the courage to bring
competition to the long distance marketplace.

But even more important, they set in motion a movement toward
competition that explains why we have in this country a telephone
network that is the envy of the rest of the world. By allowing then
upstart competitors like MCI and Sprint compete in long distance, they
created the conditions for investment in the long distance marketplace
-- in the fiber optic capacity that became the Internet backbone as we
know it today.

It is no secret why America dominates the Internet, and the Internet
economy. It is because the Internet is the function of a privatized,
competitive telephone network. And Harold Greene was instrumental in
making it happen.

## The Spirit of Judge Greene Lives

Four years ago, on February 8, 1996, lawmakers gathered in the Main
Reading Room of the Library of Congress to finish the work started by
Judge Greene. That day, President Clinton signed the Telecommunications
Act of 1996.

The spirit of Judge Greene was in the Reading Room that day. President
Clinton surely sensed it when he took two pens and signed the Act into
law. The first pen was the same one used by President Eisenhower to sign
the Federal Highway Act of 1956, the great law that built miles of
interstate highways to create one of the most impressive road networks
in the world and to speed the flow of commerce and culture in our
country.

The second was a digital pen -- the first ever used to sign a bill into
law. President Clinton signed the Telecommunications Act of 1996, then
launched his digital signature into cyberspace, a strange but fitting
fate for the final step in the law's passage.

## Competition Reborn

In one fell swoop, the Act ended the monopoly franchise of the
traditional local telephone companies, and empowered the FCC to break
open these historic monopoly markets.

Last week, to mark the fourth anniversary of the Act, I issued a report
about the state of competition in the country. The report contains a
graph that shows New York remains the country's bellwether for local
competition.

Nowhere is local competition taking root faster than it is here.

In December of last year, the FCC, by a vote of 5 to 0, approved the
application of Bell Atlantic to offer long-distance service in New York.
It marked a historic moment in communications history. It was a tribute
to the vision of Judge Greene and the wisdom of the 1996 Act.

Why did the FCC approve that application? The answer is fairly simple:
this state is leading the country in local phone competition.

Bell Atlantic had taken a number of steps, required by the law, to open
its local markets to competition. Long before the 1996 Act, New York
state required incumbent networks to interconnect with new entrants. And
local competition began to take root.

What is happening today in New York is not unlike what happened here in
1894 when the first telephone patents expired, and independent carriers
rushed into the marketplace. They drove down prices, spurred
innovations, and made phone service accessible to average residents---no
longer simply a perk enjoyed by businesses.

The numbers tell part of the story.

Today, competitive local carriers serve over 1.3 million business and
residential phone lines. Over 55% of those lines are delivered over the
competitors' own facilities. Competitors have deployed nearly 6,000
network fiber miles and 47 local switches in New York. Nearly 40 local
competitors hold numbering codes. They also have access to more than 10
million local phone numbers in New York.

The competitive future in local phone service is now on the doorstep of
every citizen in this state.

This has been a collaborative effort here in New York. Everyone is
working hard to make the law work for New York \-- Bell Atlantic, the
New York Public Service Commission, and many new telephone competitors.
All are doing the hard work needed to make competition a reality --
opening those networks and designing the interfaces that allow
competitors to use the incumbent's network.

It is ironic that a law that is fundamentally all about competition, is
also fundamentally about collaboration and cooperation. A member of the
state Public Service Commission, Tim Zakriski, heads up something called
the DSL collaborative. DSL is a service that brings high-speed data
service the consumers over the existing copper phone lines. Every two
weeks Tim convenes a meeting of the incumbent telephone company and the
new entrants to work out how DSL will be competitively deployed using
portions of the incumbent's network. Thanks to Tim and the work of the
New York Commission, the '96 Act is working to bring choice to New York
consumers.

Just like 100 years ago in New York, competition in telephone service is
taking root. But what makes today different is that today there is no
turning back. Consumers are beginning to enjoy the benefits of
competition from multiple technologies: wireless and wireline. Our
economy is reaping the benefits of competition and we simply cannot turn
back. At the FCC, we will not allow the clock to turn back. We have
worked to hard to get where we are today. There will be no backsliding
on my watch.

This is one of Judge Greene's great lessons. He taught us that bringing
competition to monopoly markets is hard work, and there is no turning
back.

These are the two ways to break up monopolies.

There is the structural solution invoked by Judge Greene by divestiture
of AT&T. Then there is the regulatory approach, embodied in the
Telecommunications Act of 1996. The 1996 empowers an independent
regulatory agency to do the hard work of prying open historic monopoly
markets. Both approaches involve courage and hard work. And there are no
shortcuts.

It is interesting, that, in the wake of Judge Penfield Jackson's
decision last year in the Justice Deparment's antitrust case against
Microsoft, the debate about remedies is essentially a debate about a
structural versus a regulatory solution.

Some support a structural solution\--the so-called \"Baby Bills\"
approach -- which would mean breaking up Microsoft. Others favor a
regulatory approach, in which Microsoft would have to make its
programming interfaces available to competitors.

Congress decided to invoke a regulatory solution in passing the '96 Act.
It could have opted to divest the Bell companies into their wholesale
and retail businesses. But instead, it directed the FCC to make the
incumbent network accessible to competitors.

It is a tough job, but we will get this job done. We must get this job
done.

We must get it done because competition in this sector is not just about
lower prices and more choices for consumers. It is about building the
foundation for the New Economy. Just as the emerging phone network
fueled commerce in this city 100 years ago, the telephone network of
today is the foundation for the Information Age economy.

Judge Greene understood its unleashing power. President Clinton and Vice
President Gore and the drafters of the 1996 Act grasped its potential
for this country. And I feel very privileged to have the opportunity to
build on their historic work, and implement their vision.

And we will implement it such that 100 years from now, people will not
look back on our work -- as they did with the Kingbury Commitment in the
first decade of the 20^th^ century -- and regret that a brief shining
moment of competition did not endure.

Our challenge is to unleash competition everywhere, in every sector of
the communications marketplace, to keep this engine of growth and
innovation humming. And to tell those around the country and around the
world that competition is working.

And once again, we will say that New York is leading the way.

Thank you.