**"Competition and the United States Example"**

**FCC Commissioner Kathleen Q. Abernathy**

**Telecommunications Conference: Advancing Egypt's Legal and Regulatory
Framework**

**Cairo, Egypt**

**October 8, 2003**

**(as prepared for delivery)**

First, I want to thank you for inviting me to participate in today's
discussion on the experience of the United States in its creation of a
competitive telecommunications sector. It is indeed an honor to be asked
to speak to you and share some of the lessons we have learned in the
United States in this area. I look forward to your insights on how these
experiences compare to the current process that is on-going in Egypt. I
believe that we have much to learn from one another.

I thought it might be helpful to first provide you with a brief history
of our market liberalization process. Specifically, I would like to
start by focusing on how the United States long distance telephone
market evolved from its monopoly world to the competitive market that
exists today.

The U.S. long distance market, like most telecommunications markets
around the globe in the early 1900s was premised on the theory that it
made economic sense to have a monopoly provider of telecommunications
services. Accordingly, in 1934, when the FCC was created by Congress it
was assumed that AT&T, a private company, would be the sole U.S.
provider of both local and long distance services.

Time passed and technology evolved. Finally new competitors challenged
the FCC to change the monopoly system that was in effect. Initially, the
FCC was very hesitant about any form of market liberalization. In fact,
the FCC even found it illegal to attach to the handset of a wireline
phone a small device -- called a hush-a-phone -- which would simply
allow a caller to speak directly into a handset without being heard by
those in the same room on the ground of harm to the network. Ultimately,
this FCC decision was overturned by the courts opening the first crack
in the door to competition.

The next change came about as microwave technologies became more
promising. And more specifically, private entities sought authorization
from the FCC to use microwaves to create their own private networks. The
FCC hesitantly acquiesced. Overtime, companies began to recognize that
they could move beyond the private networks and use microwave technology
to provide service to the general public. This of course required
interconnection with the public switched network. A long fought battle
at the FCC (and the courts) first led to the opening of the long
distance market for microwave uses.

Now that the door to competition was open, there was no closing it. Soon
companies challenged AT&T's monopoly at the FCC. When the Commission
refused to open the market, the U.S. Department of Justice, our
anti-trust regulator became involved. The Department of Justice believed
that AT&T's monopoly was a violation of U.S. anti-trust law. After a
long fought court battle, the United States finally opened the long
distance industry to competition while simultaneously maintaining the
monopoly for local services.

This court decision dramatically changed the regulatory structure for
basic telephony services. For the first time, the FCC was faced with a
competitive mandate for the long distance industry. The Commission
recognized that in order to ensure that competition would develop we
would need a new regulatory regime; one that would enable new long
distance companies to successfully enter and compete against the
incumbent service provider, AT&T.

How to do this? We created regulatory safeguards primarily aimed at
guarding against abuse by the dominant incumbent carrier. In order to
protect new entrants or "non-dominant carriers" from potential
anti-competitive actions by the incumbent dominant carrier, the FCC
imposed certain requirements such as equal access to ensure that
competitors have the same access to local networks as AT&T, the
requirement for cost-based interconnection, accounting safeguards to
guard against illegal cross-subsidization, and rate regulation. Thus
began the start of many good years for lawyers.

Non-dominant carriers, on the other hand, were subject to more
streamlined regulations -- including no rate regulation, shorter tariff
notice periods and no cost support requirement, and reduced accounting
and reporting requirements.

As the U.S. long distance market was being liberalized, the FCC also
began to examine the market for a range of new non-facilities-based
services, such as facsimile and computer-based services. As early as
1966, the FCC recognized that such services should not be subject to the
same stringent regulations as common carrier services since there were
no dominant incumbent providers of such services. Instead, the FCC
crafted a new category of services called enhanced services, which today
remain largely unregulated by the FCC, except for some safeguards
implemented to protect against cross-subsidization of these services by
the dominant service providers.

And finally, in the mid-1990s, based on the Telecommunications Act of
1996, the FCC moved to open competition in the local telephone markets.
Technological advances once again led us to believe that competition
could some day reduce the need for regulation. In opening our local
markets to competition, our legislature and the FCC have found it
important to rely on several regulatory safeguards, most notably: 1)
non-discriminatory and cost-based interconnection; 2) non-dominant
carrier safeguards; and 3) unbundling of network elements, such as local
loops. These are challenging policies to implement, so not surprisingly
the FCC has found that occasionally it must initiate enforcement
proceedings to ensure that incumbent carriers are in compliance with our
implementing regulations.

Let me give you a snap shot of what our market looks like today in all
sectors, not just long distance. Prices for wireless and long distance
telephone service have fallen dramatically over the past ten years as a
direct result of competition.  Long distance prices (international and
domestic), for example, dropped by 84% in real terms in the 20 years
following the break up of AT&T.  International calls that cost an
average of \$1.01/minutes in 1992 had fallen to an average of \$.35 by
2001 and are even lower today as a result of competition. And remember,
new technology also drove down the costs of providing service.

There is no doubt that achieving competition in the local market is our
greatest challenge, but we are making strides daily. By the end of last
year, competitive local exchange carriers (CLECs) accounted for 24.8
million switched access lines which were 13.2% of all switched access
lines.  That was 26% more than a year earlier.  In the medium and large
business segment of the market, CLECs had more than 22% of all switched
access lines.  And, this does not even include the substitution that
we've seen by subscribers dropping their fixed network telephones
altogether in favor of their mobile phones.

And I always come back to remind myself -- why are we doing this? We are
doing this to ensure that consumers have a choice of innovative
telecommunications services at affordable prices.

Despite the recent economic downturn that negatively affected the
telecommunications sector, I believe that the United States regulatory
model has been largely successful for three main reasons. First, the FCC
has appropriately stepped in to regulate where there are structural
barriers to competition. Second, the FCC has demonstrated its commitment
to a transparent process by adopting clear rules and vigorously
enforcing them. Finally, we have come to appreciate the importance of
educating consumers about regulations so they can make intelligent
choices about their telecommunications services. I would now like to
take a few minutes to talk about each component of the regulatory
framework.

First: clear rules and strict enforcement. I firmly believe that it is
necessary for regulators to intervene if structural barriers impede the
development of competition. Accordingly, as markets transition from a
monopoly to a competitive model, it is important for the regulators to
craft narrowly tailored regulations aimed at curtailing the
anti-competitive behavior of incumbents. Let me provide you with an
example. To achieve competition in the local wireline telephony market
the FCC intervened because the incumbent local exchange carriers' had
control of essential network facilities, and their natural business
incentive was to resist making those facilities available to
competitors. This sharing of the network is required where there is
economic impairment. The key to implementing such an approach is to
preserve a delicate balance that allows competition to flourish while
also maintaining incentives for carriers to invest in facilities.

But it is also important for regulators to continually reexamine these
rules to ensure that they are still relevant. There is a tendency for
regulators to expand and defend their turf, even after the narrow
justification for regulatory intervention in the marketplace has long
since disappeared. Accordingly, while I believe that regulatory
safeguards are key to ensuring that competition can take hold in a
market, overtime, the rules must be continually evaluated to ensure that
they are still appropriate for the market.

Strict enforcement is also essential for any regulatory regime to be
successful. Based on personal experience, I know that the U.S.
regulatory model has only been successful when the FCC has enforced its
rules vigorously. Failure to enforce rules sends the inappropriate
signal that companies may engage in anticompetitive behavior or other
unlawful conduct with impunity.

I also find strict enforcement of narrowly tailored rules to be more
effective than broad prescriptive rules, which prohibit whole categories
of conduct, only some of which may be problematic. By relying more on
enforcement mechanisms, the FCC can tailor its intervention to
particular circumstances, thereby allowing markets to operate with
minimal regulatory distortion.

There is clearly some tension between the goals of streamlining our
rules and strengthening our reliance on enforcement mechanisms: While
refraining from micromanaging carriers has the advantage of making our
rules simpler and more concise, the absence of detail can create gray
areas that may sometimes make enforcement appear unfair.

Regulators can resolve this tension in large part by crafting our rules
with enforcement in mind. If we commit to strict enforcement of all of
our rules, I believe we as regulators will end up adopting very complex
rules only when doing so is absolutely necessary.

It is also important for regulators to be humble about what they know
and can achieve. We need to recognize that we cannot possibly duplicate
the vast knowledge base of the industry we regulate. The communications
industry is perhaps the most technologically advanced sector of our
economy. Regulators cannot keep up with the myriad developments and
innovations by the thousands of communications providers. For example,
we cannot know all the latest research on advances in next-generation
digital loop carrier systems or optical switching. But we *can* put
structures in place that maximize the information available to the
agency in charting its regulatory course.

Regulators need to reach out as broadly as possible to improve the flow
of information *into* the Agency. We as regulators need to reach out to
consumers, licensees, trade associations, and yes, even lawyers.
Regulators also should look at improving their process in order to speed
the flow of information *out of* the regulatory body, in order to
maximize the transparency of our decision making. For example, at the
FCC we make sure to post all of our decisions on a real-time basis on
our website.

This brings me to my last point: the importance of educating consumers.
Today, with so many service and technology choices, consumers can be
overwhelmed and under informed. Thus, in order for customers to
understand what choices are available and what practices are legitimate,
I believe that the role of the regulator---and also industry---is to
ensure that consumers have access to the information they need.
Education is essential to our ability to regulate in the public interest
because only with knowledge can consumers make informed decisions.
Therefore, the FCC has engaged in consumer education initiatives
including issuing newsletters explaining the affect of our rules on
consumers, meeting with various interested parties, to ensure that there
views are taken into account as we formulate our rules, and similar
endeavors.

There are some many interesting ins and outs of the United States
regulatory regime that I wish I had more time to share them all with
you. However, at the end of the day, I believe that the principles we
discussed today are all critical to the creation of a successful
competitive telecommunications marketplace. These are:

1\) Crafting transparent regulations to address structural barriers to
competition

2\) The need to vigorously enforce regulations

3\) and the importance of transparency and consumer information.

If we as regulators can incorporate these principles into our regulatory
regimes, we will be in the best position to bring the benefits of
competition to consumers.

I appreciate the attention you have provided me with and I look forward
to any questions you may have.