## Comments of Harold Furchtgott-Roth

Commissioner, Federal Communications Commission

Before the

## 

## MINNESOTA ASSOCIATION FOR RURAL TELECOMMUNICATIONS 

October 14, 1999

> I am pleased to be here in Minnesota.
>
> Everyone in Washington asks me: Are you going to meet the governor?

This was the frontier one hundred and fifty years ago. Back then, people
in Minnesota were proud to be Americans. They fought in wars, they did
great deeds. But when they had difficult decisions to make, they didn't
look eastward to Washington. They looked to themselves, to their
families, to their local communities and they made decisions for
themselves. Good decisions, bad decisions. They had to live with them.
Two centuries ago, Washington was weeks away. Today, Washington may be
technologically closer, but in many respects, it is still very distant.
America is the greatest Nation of all time. We are at our greatest when
individuals make decisions, not when governments make those decisions
for them.

> Individuals are faced with choices. They make decisions, they take
> risks. Sometimes they succeed, sometimes they fail. The role of
> government is neither to ensure success nor failure but to ensure that
> laws and contracts and property are enforced.
>
> There is a relatively new law in the land, the Telecommunications Act
> of 1996.
>
> On balance, I believe it was a very good law. Its implementation has
> been far from perfect. Some apologists say it guarantees a lot of
> "good" things. Some detractors say it guarantees a lot of "bad"
> things. Neither apologists nor detractors have it right. It guarantees
> nothing. Interpreted as it is written, it returns decisions to
> ordinary people to take risks for themselves, and not be told by
> government what they can and cannot do.

These are no doubt dizzying times for local telephone companies. New
technologies, new laws, new competitors, are all coming at dizzying
speeds. It would be easy to give up and sell out. It would be easy to
look for government for help. It would be easy to blame government for
all manner of ills. But there are opportunities here for those bold
enough to seize them. Don't look to Washington. Don't wait for
Washington. You are doomed to failure if you do. Look to your families
and yourselves and your communities. You know them better than anyone
and that alone is of immeasurable value even if you don't know DSLAM
from body slam.

Technology is also part of the future. And you can bring new
technologies to the

market more quickly and with an eye to consumer wants -- better than
most.

Some say that only big companies can win. If that is so, why do big
companies spin off rural assets? Some say only new companies can win. Oh
yea. Some say only governments can provide service. Some say only one
group or another can win. The purpose of government, in my view, is not
to pick winners and losers.

Not to predict the future.

#  Not to force the future by providing services

####  Not to do anything other than implement the law

I have a simple message -- the law is on your side \-\-- at least if it
is followed.

What chance do any of us have if the government will not follow the law?

To whom do we turn to enforce the law?

or contracts?

or property?

I would like to briefly discuss two topics.

##### One related to the future -- the internet

and one tied to the past -- universal service.

###### Every politician in Washington knows his or her lines. We don't regulate the 

Internet.

Many of you are in the Internet business or are considering getting into
it. I

simply want to remove any illusions you may have about the Internet.

The government regulates it every day. It just regulates it less than
other media.

-   content regulated

-   contracts

-   taxes

-   intellectual property

-   e commerce

-   internet back bone

-   internet discovery

-   even ISPs

All of them need regulation.

Go into business, but don't listen to Washington politicians about it
being unregulated.

And now my favorite topic: Universal Service.

Four years ago, Fed. U.S. cost about 2 billion.

Three fourths (¾ )of that went to small telcos, about \$1.5 billion.
Most of the rest

went for low income. Some people in Congress wanted to preserve and
advance

that program.

They went to a lot of trouble to write it into law.

They got more than they bargained for.

Federal Universal service has grown by well over 100 percent. But U.S.
for small

telecos hasn't increased a nickel.

Why?

Let's see the priorities. First, \$.2.25 for SLC. Then nearly a billion
for low income.

Take a pass on rural health care. Big company high cost -- say half a
billion.

Court say put it all on interstate. I guess there is no room to increase
high cost

need.

Too bad. Is this what Congress intended?

How did we get in this mess? Try "cost models"

I spent much of my career making cost models.

Economic cost models.

I know how they work

Their strengths, their weaknesses.

Imagine 20 years ago creating a model of telephone cost structures.

It would have been a great model. Mainframe computer

IBM 370 500 K core. It would take 30 seconds.

We could have known much about cost structure in 1979.

Best practice

Actual practice

There were not many choices

It would have been a grand model

Back in 1979

Few people would have believed it then.

Would anyone think that that model has any relevance today?

Oh, you say, that isn't fair.

How about 1989, 10 years ago.

We could have used an IMB PC.

Perhaps, 1 meg of ram. It might take 3 seconds to run. A few changes in

telephone technology a few new services , but not many. We could have
made a

great model. It would have had its purposes and uses. Would you have
used it to

divide up a few billion dollars in 1989? Probably not. You certainly
wouldn't use

the same audit today.

We are in 1999.

Building a cost model for telephone service is harder today than it was
10 or 20

years ago.

There are many more technologies and technical choices.

It could run in a nano second

Few people would really use it.

Now we come to the FCC

Most people could build a decent cost model that few people believe,
that could

run in a fraction of a second.

Wouldn't want to use it for much.

The FCC builds a cost model that takes 180 nano seconds.

Not 180 seconds

Not 180 minutes

But 180 hours.

Count them.

That's more than a week.

you know, I never had much confidence in computer models that took very
long to run.

For most models, one minute is too long. Much less than an hour.

180 hours?

An ordinary 10 year old could go to school, eat, sleep, play watch TV do

homework, do all the relevant calculations for a telecom cost model and
still

have 160 hours to spare.

Just imagine what people 3 or 5 years from now \-- much less 10 years
from now

will think of us.

It is embarrassing.

What are we getting for 180 hours?

UNE pricing for most conceivable un elements in every c.o. in the
country?

Well now, isn't that interesting!

Countless tens of thousands of price calculations.

What does UNE pricing have to do with large company Universal ?

Of course, the answer is "nothing".

It's just a coincidence.

But why are they there?

There are some who believe that the FCC wants to go into the business of
one-

Stop price regulation.

One-stop in Washington, D.C.

Universal Service.

Access charges.

UNE prices.

LNP charges.

E911 charges.

Resale charges.

Retail charge

ISP charges

You name it, we have a price.

And our price is right.

No need to check with your state.

No need to check with your customers or competitors.

We have a model in Washington that will give you a price for everything
you ever

wanted to know.

And some prices you do not want to know.

I have had a simple universal service proposed that I have kicked around
for a

couple of years.

It hasn't got much support, at least in Washington.

It goes like this in 5 simple steps.

1.  Hold current recipients harmless.

2.  Pick a generous simple tax increase in high cost U.S. above current
    level.

3.  Pick a real simple way of distribution increase among states.

4.  Ship funds to state with instructions to redistribute to etcs.
    primarily small carriers.

5.  Decrease amount slowly over time.

Nothing compicated.

No fancy model in Washington.

I can tell you U.S. recipients would do better under my plan than under
the current

system. I can't tell you whether Midwest telecom would do better under
my plan or

the FCC plan because the FCC plan changes every time they create out a
new model run.

I have been told that many small telecom would do better under the FCC's
135%

benchmark model than they do under the current system. If that is true,
I would

urge them to march on Washington and demand to be treated no worse than
SBC,

BA, BS, U.S.West, or GTE.

At least until the next model run.

I remain firmly opposed to the model. I believe that it is
intellectually

indefensible. But I would understand individuals using it to their
advantage.