***Donald Abelson***

*Chief, International Bureau*

*Federal Communications Commission*

*Remarks to the Global Forum 2002*

*October 17, 2002*

**[Introduction]{.underline}**

-   As unforgiving financial markets and appalling corporate scandal
    batter the telecommunications sector, people ask:

> What really happened? How did it happen? Did competition fail? What
> role do governments have in restoring confidence in this sector, which
> is so important to our prosperity and quality of life?

# Twin Crises

-   We confront two separate, related crises that have undermined public
    confidence and investor faith.

-   One involves accounting scandals and corporate malfeasance on the
    part of specific and isolated companies.

-   The other \-- the "*telecom meltdown*" -- has resulted in broad
    sectoral distress, marked by overcapacity, high debt burdens, lost
    jobs and precipitous declines in the market value of technology
    companies.

    -   [Over-capacity]{.underline}: According to *BusinessWeek*, the
        capacity utilization in North America of local and long distance
        voice and data networks is 35 percent, while the price of
        high-speed business connectivity between New York and London has
        fallen 95% during the past three years.

    -   [Jobs]{.underline}: U.S. Bureau of Labor Statistics reports that
        136, 000 jobs were lost jobs in U.S. communications services
        sector from May of last year to Sept of this year.

    -   [Market Value]{.underline}: *BusinessWeek* also reports that two
        2 trillion dollars of market value has been lost in the U.S.
        Telecom sector in current bear market.

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-   Despite these challenges, there are reasons to be confident in the
    sector's long term prospects.

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-   Internet usage continues to grow at historically high levels;
    despite economic slowdown, Internet use continues to grow at 4%
    annualized rate worldwide.

-   broadband is increasingly available to residential users;

    -   Most recent FCC 706 report showed a total of 9.6 million high
        speed subscribers in the United States, up 36% in the first half
        of 2001 from the year before.

-   mobile phone penetration in the United States increased by 20%
    in 200. Wireless services are beginning to replace the traditional
    wireline family phone; **and**

-   98% of U.S. schools are connected to the Internet.

# [Role of the Regulator]{.underline}

-   In such times, the continuing role of the independent regulator is
    to:

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-   Safeguard continuity in the provision of essential
    telecommunications services.

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-   Provide a context for the key dynamics affecting the telecom
    industry to decision makers in the commercial, political and social
    sectors.

-   Assess regulatory policies in light of regulatory experience, as
    well as in light of commercial, social, judicial and technological
    developments; **and**

-   Be flexible enough to refine regulatory approaches as necessary.

**[Confronting the Crisis, Restoring Confidence]{.underline}**

-   We have to continue to confront the crisis and restore confidence.

-   It is not the FCC's job to "pick winners and losers."

-   A regulator's job is to understand the market realities facing
    service providers and investors and to be sure its rules don't
    exacerbate any existing problems.

    -   The FCC has redoubled efforts to understand underlying
        commercial, technological and financial market dynamics.

-   Our ongoing work on local competition and access to local networks
    illustrates the continuous cycle of review and refinement.

-   With the 1996 Telecommunications Act, the U.S. Congress sought to
    encourage local competition to mirror the robust competition in
    international and domestic long distance.

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-   Congress focused on interconnection and unbundling requirements in
    recognition of the potential barriers to competition inherent in the
    control of bottleneck facilities. This was groundbreaking work and
    the Commission's initial policies to implement the Act were
    inevitably somewhat theoretical.

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-   Now, however, the FCC has now had almost six years of real world
    experience with interconnection, unbundling, and other local
    competition policies.

    -   We remain fully committed to our competition goals; we also
        recognize that all competition is not the same.

    -   Thus, the FCC is focusing on creating incentives for businesses
        to invest in infrastructure. Redundant infrastructure decreases
        reliance on incumbent networks. It also allows new entrants to
        compete on innovation in services and on real cost differences
        based on superior service delivery.

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-   We are also exploring how to promote facilities-based competition,
    while fostering universal service and the rapid introduction of
    competition to all markets.

-   FCC analysis is also influenced by homeland security concerns, which
    have underscored the importance of facility-based competition.

**Intermodal Competition**

-   More broadly, the Commission's focus is increasingly on the impact
    of intermodal competition.

-   The long-anticipated arrival of convergence is upon us. Formerly
    distinct markets for cable and satellite TV, wireline telephony and
    data services, and wireless and satellite applications are beginning
    to overlap.

    -   Some overlap, such as broadband delivery by DSL or cable modem,
        was predicted;

    -   Convergence in other markets, like broadband over unlicensed
        ultra-wideband networks, was not unanticipated.

-   The Commission's review of intermodel competition looks at broadband
    policy, spectrum policy and media issues because these will shape
    long-term consumer access options.

**Broadband**

-   Broadband has come to be the center of debate about the appropriate
    roles of the public and private sectors as convergence moves from
    buzzword to business plan. The FCC's role is on the "supply side"
    and it's clear that the challenge of increasing consumer uptake
    rates goes beyond that role.

-   The FCC's guiding principles in the broadband space are:

    -   To [promote the availability of broadband-capable
        infrastructure]{.underline} to all Americans, recognizing that
        infrastructure build-outs take time.

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    -   To [conceptualize broadband to include any technological
        platform]{.underline} that is capable of fusing communications
        power with computing power to provide bandwidth-intensive
        content.

        -   That is, we recognize that broadband is **not** delivered
            **only** by wireline networks via cable modem service or
            DSL. Some of the most promising broadband solutions for
            rural and high cost areas may be over wireless and satellite
            networks.

    -   The FCC also recognizes that at this early stage in the
        development of broadband, the [broadband regulatory environment
        must serve to promote investment and innovation]{.underline}.
        Substantial risk investment is needed to either upgrade legacy
        networks or to develop new networks to support broadband
        capabilities and applications.

    -   Finally, we believe that [sound regulatory policy should, where
        appropriate, harmonize regulatory rights and
        obligations]{.underline} that are attached to the provision of
        similarly situated services across different technological
        platforms.

    -   This relates to what is often called the "regulatory parity"
        issue. The convergence of industries **demands** that we
        rationalize our regulatory regime.

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-   To implement these principles, the FCC has launched several major
    proceedings to clarify the regulatory environment for broadband
    services and lower the costs and risks associated with deployment of
    new infrastructure.

    -   The FCC is asking the question of how to define a "dominant
        player" in a converged world. Could we (and should we)
        deregulate specific carriers or specific services depending on
        relative levels of competition and market power in the provision
        of broadband services?

**Spectrum Policy**

-   For now, broadband access questions continue to focus on wireline
    space. When moving to wireless access, focus inevitably turns to
    radio spectrum management.

    -   There is an increasing demand for access to spectrum, which has
        made spectrum management a difficult task for government. The
        overarching challenge of spectrum policy is to ensure the public
        interest is best served by balancing competing demands for
        access to spectrum while striving to promote competition through
        the deployment of new technologies.

    -   Spectrum policy is not static -- it requires the difficult task
        of predicting spectrum needs not just for today but for the next
        generation.

    -   The FCC is moving toward flexible, technologically neutral
        policies that allow the market to adjust without constant
        government intervention. We believe this will promote
        innovation, competition, and efficiency in commercial wireless
        markets.

    -   [Flexible spectrum use policy]{.underline} emphasizes a
        deregulatory environment, except to prevent interference. This
        includes allowing licensees to develop any technologically
        feasible services that best accomplish their business plans. It
        also allows evolution within existing bands to more advanced
        services (such as from 2G to 2.5 and eventually 3G).

    -   Similarly, [technology neutrality]{.underline} permits multiple,
        evolving standards and technologies while encouraging industry
        efforts to achieve interoperability and harmonization.

    -   Finally, the FCC is encouraging efficient spectrum use through
        secondary markets rules governing the [transferability of
        spectrum licenses and usage rights]{.underline} that would allow
        licensees to buy and sell licenses, subject to competitive
        safeguards.

**Satellite and Broadband**

-   Satellite: spectrum and broadband issues converge in satellite
    policy. In this area as well, regulators are working to understand
    the messages that markets are sending. We are also determined that
    our regulatory regime will facilitate and not hinder provision of
    new services by eliminating backlogs and revamping our licensing
    procedures.

**Final Point**

-   In the coming months, a number of FCC staff efforts will come before
    the Commission for consideration and approval. Right now, the FCC is
    grappling with the full complexity of the issues before us, seeking
    input and ideas. Our aim is to set the best possible regulatory
    framework for the future, with the "public interest" always foremost
    in our mind.