**USTA Annual Convention**

**Remarks by Commissioner Kathleen Q. Abernathy**

**October 7, 2001**

Good afternoon. It's great to be here in this beautiful setting. Now
that I have a new job I have many new friends and I get invited to lots
of conventions, but I'm especially glad to come to the USTA meeting,
because I always enjoyed attending when I was in the private sector, and
it's great to catch up with so many friends. I'd probably enjoy it even
more if I didn't have to get up here and give a speech, but I guess
that's part of my new job description.

Since I'm still relatively new at the FCC, I thought I'd spend some time
today discussing my regulatory approach. I've developed five core
principles that I will rely on to guide my decision making during my
time as a commissioner. Against the backdrop of these broad principles,
I will share some of my views on various proceedings that are currently
pending before the Commission or soon will be on our agenda.

My first guiding principle is that Congress determines the FCC's
responsibilities in the Communications Act, and our job is to implement
the statute, rather than to pursue our own policy preferences.

Second, where the Act gives us discretion, we should rely wherever
possible on market forces, rather than prescriptive regulation. My
experience in the private sector --- working for several different
providers of wireline and wireless services --- as well as my past
experience at the FCC have taught me that competitive markets do a far
better job than regulators of delivering benefits to consumers.

Third, we should regulate with enforcement in mind. Don't cringe. What
this means is we should adopt a small number of clearly written rules
and enforcing them vigorously. It also means *refraining* from enforcing
aspects of rules that exist only in the minds of regulators, and not
within the clear text of the rule itself.

Fourth, the FCC needs to be humble and recognize the limits of what it
knows and can achieve, especially during this time of rapid
technological change. We need to reach out to companies and trade
associations, to consumer groups, state regulators, and others to
improve the flow of information *into* the agency. And we also need to
improve the flow of information *out of* the agency, so that our
processes are more transparent to the companies we regulate.

Finally, the FCC is a service-based organization and we should act like
it. What I mean by this is that the FCC should strive to provide you ---
our customers --- with the same degree of timeliness and responsiveness
that for-profit businesses strive to provide.

I'll discuss each of these principles in turn. And you should feel free
to ask questions at the end of my prepared remarks.

**1. Implementing the Agenda Set by Congress in the Statute**

My first principle --- looking to the Communications Act to determine
our responsibilities and agenda --- may seem obvious. *Of course* we
should take our lead from the statute, right? Well, surprise, it is very
tempting for Commissioner to elevate their own policy preferences above
those established by Congress in the Act.

But we must not do so. While we have discretion to prioritize *among*
congressional mandates, we must not turn this discretion into a license
to define those mandates.

Another surprise, the Act doesn't always tell us precisely what to do.
It does however contain some relatively specific mandates. For example,
section 251(d)(1) of the Act instructs: "Within 6 months after the date
of enactment of the Telecommunications Act of 1996, the Commission
*shall* complete all actions necessary to establish regulations to
implement the requirements of \[section 251\]" --- that is, the
Commission *shall* implement the provisions concerning interconnection,
unbundling, resale, collocation, and the like. Section 254 contains a
similar mandate to carry out congressional policy with respect to
universal service. I call these sorts of provisions the "shalls," and
that means there is no discretion as to whether or not we take action.

There are other provisions in the Act that say the Commission *may* take
a certain action. For example, section 273(c)(3) says that "The
Commission *may* prescribe such additional regulations . . . as may be
necessary" to carry out the purposes of that section, --- as that
section which concerns Bell company manufacturing of customer premises
equipment. I call these kinds of provisions the "mays."

And there are other areas where Congress did not speak at all --- that
is, where the statute is silent regarding the Commission's authority.

I take this hierarchy very seriously when it comes to determining the
FCC's priorities. I believe we should concentrate on fulfilling specific
mandates (the "shalls"), and responding to decisions sent back to us by
the courts, before we devote significant resources to proceedings that
are solely within our discretion (the "mays") --- and certainly we
should take care of the mandates before we launch any initiative an in
area where the statute is silent. Since the FCC has a finite amount of
resources, devoting resources to discretionary matters before we have
implemented mandatory provisions has the potential to subvert
congressional priorities.

There are plenty of areas where Congress has told the FCC to take
action, yet the Commission has dragged its feet. A prime example is
unsolicited faxes. You may think this is not such a big deal but
consumers and Congress disagree. Even though Congress enacted the
Telephone Consumer Protection Act in 1992 to prohibit that practice, it
took the Commission seven years to bring its first enforcement action.
There may have been lots of reasons for that delay. I hope that none of
them was that the Commission was busy devoting substantial resources to
purely discretionary proceedings, because then the Commission's
allocation of resources ignored the priorities established by the
statute.

This hierarchy of "shalls," "mays," and statutory silence doesn't just
determine the *order* in which the FCC should initiate proceedings; it
also should give us pause in addressing matters that Congress has not
spoken to. The ongoing debate over cable "open access" --- or "forced
access," as opponents would call it --- provides a good example here.
While parties have made some persuasive arguments on both sides of this
issue, a key threshold question concerns our legal authority to regulate
cable modem services. Some proponents of open access have argued that we
don't need to figure out whether cable modem services fall under Title
VI or Title II, or what the legal constraints would be under each Title,
because the FCC has the requisite statutory authority under section 4(i)
of the Act to reach out and regulate --- our version of the
Constitution's "necessary and proper" clause. I'm not going to get into
the question of whether cable modem services should fall under Title II
or Title VI, and I'm not going to address the merits of the open access
debate. But I *will* say that I do not support reaching out and
asserting jurisdiction under section 4(i) alone. If a fair reading of
the Act denies us authority under Title VI, or Title II as the case may
be, we should not grant ourselves supplemental authority through an
expansive reading of section 4(i). I do not think the courts will
tolerate such an approach, and, more fundamentally, I believe we
overstep our bounds as an independent agency, and encroach on
congressional prerogatives, when we look past the Act's substantive
titles and rely on general grants of authority as the sole basis for a
major policy initiative.

**2. Relying on Market Forces**

My second core principle comes from my faith in the ability of market
forces to maximize consumer welfare. Despite our best intentions,
regulators cannot duplicate the ability of markets to allocate resources
efficiently, to spur innovation, and to induce companies to improve
services and lower their prices. Therefore, where Congress has given the
FCC the leeway to choose between market forces and prescriptive
regulation, I will look to market forces to promote consumer welfare.

My experience working in the wireless sector has played a large part in
developing my skepticism toward relying on regulatory mandates as a
means of promoting consumer welfare. When Congress passed Section 332 in
1993, the FCC faced a key choice of how to regulate PCS and other new
wireless services. It could have imposed strict Title II common carrier
regulatory constraints on pricing and service terms and conditions. Some
advocates called for such regulation based on the supposed entrenchment
of incumbent cellular providers. But instead the FCC opted for a
deregulatory framework that freed carriers from traditional regulatory
constraints on pricing and service offerings[^1] The consequences have
been explosive growth, unparalleled choices for consumers, improved
calling plans and service quality, and dramatically lower prices[^2]

I think the Commission has been wise in recent years to apply a
similarly deregulatory framework to cable-based Internet access
services. By refraining from imposing common carrier duties on cable
operators, the FCC has contributed to rapid broadband deployment.
Indeed, despite some hand-wringing in Congress and among some advocates
about the supposedly slow pace of broadband deployment, the reality is
that broadband services have been deployed as rapidly as any other
breakthrough communications technology including radios, televisions,
and wireless phones.

Of course, the Commission's hands-off approach with respect to cable
modem services contrasts sharply with the Commission's relatively heavy
regulation of advanced services provided over the local loop ---
specifically, the decision to require line sharing. The FCC exercised
discretion in extending the unbundling obligations in section 251(c) to
the high-frequency portion of the loop, and it is fair to question
whether its decision to do so has helped or hindered the overall
deployment of DSL services. That's a difficult question to answer, and
I'm not going to try to answer it here, particularly since the Line
Sharing Order is currently on appeal in the D.C. Circuit.

But I do want to emphasize that, as a general matter, I believe it's
important to focus on the *costs* of forced unbundling, in addition to
the purported benefits. As Congress recognized in section 251(c)(3),
some degree of unbundling was clearly necessary to introduce competition
to local markets, because incumbents' control of bottleneck facilities
otherwise would preclude entry. But Congress also enacted the impairment
standard in section 251(d)(2) so that the FCC would consider whether the
costs associated with forced sharing of incumbent LECs' facilities were
warranted.

The prior Commission, in my view, was overly focused on the anticipated
benefits of unbundling, without considering the costs. Unless properly
circumscribed, forced unbundling can impose costs and distort investment
incentives. Unbundling requirements that are too broad destroy an
incumbent's incentive to invest in facilities. This is because
incumbents will avoid risking capital on new infrastructure if rivals
can piggy-back on their facilities risk-free. By the same token, new
entrants will have diminished incentives to invest in their own
facilities if the incumbent's network is readily available at below cost
rates. Obviously, pricing is key: If TELRIC rates turn out to be set
*below* realistic cost estimates which the Supreme Court will soon tell
us then the distortion of investment incentives are significant.

Where I believe the prior Commission went awry was in effectively
defining the impairment standard out of the Act. The Commission ruled
that a new entrant was impaired, and thus had a right to purchase an
incumbent's network element at TELRIC rates, whenever a lack of access
to the network element in question caused *any* increase in cost or
*any* decrease in quality to the competitor's service. This of course
led to the forced unbundling of the *entire* network. The Supreme Court
rejected that analytical approach, requiring the FCC on remand to give
some content to the impairment standard. The revised standard adopted by
the Commission was not quite as expansive, yet still remains quite
broad. The D.C. Circuit is presently considering whether that revised
interpretation is consistent with the Act.

I don't want to suggest that there is some easy answer regarding the
appropriate scope of the unbundling requirements in section 251(c)(3):
There is not. But when reviewing this section of the statue, I will
focus both on the benefits we hope to achieve *and* the costs of any
regulations we impose. I believe that the impairment standard in section
251(d)(2) of the Act was intended to ensure that the Commission would
not impose unbundling without engaging in this sort of cost-benefit
analysis.

I think we will be forced to grapple with these questions most
immediately in the proceeding involving combinations of high-capacity
loops and transport, otherwise known as enhanced extended links, or
EELs. The Common Carrier Bureau has yet to give me its recommendation on
the ILEC petition to eliminate the obligation to unbundle these elements
or the related question of whether, if these elements must be provided,
there should continue to be prohibition on their use for providing
interstate access services. So I have not yet formulated any firm views
on the appropriate outcome of that proceeding. We may not yet be at a
point where the costs of unbundling these network elements is greater
than the benefits associated with promoting competition; and I am
skeptical of assertions that there is now a competitive market for
loops, particularly in light of the economic downturn we have seen in
recent months. But, in analyzing these questions, I will consider not
only competitors' espoused need for unbundled access, but also the
long-term economic impact on facilities-based competition.

I will apply the same preference for market forces when considering the
continued availability of UNE-P and individual network elements. I may
be persuaded that the market is not yet mature enough to eliminate UNE-P
--- and therefore that continued regulatory intervention is warranted
despite the costs. But I will take those costs very seriously into
consideration in making these judgments because I am confident that, in
the long run, consumers are best served if our policies preserve
incentives for facilities-investment by incumbent LECs and CLECs alike.

Before I move on to my next principle, which concerns the importance of
enforcement mechanisms, I want to point out that adopting a presumption
in favor of market forces applies not only to my consideration of *new*
regulations, but also to the Commission's review of existing regulations
through the Section 11 biennial review process and in the context of
Section 10 forbearance petitions. 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.
Congress enacted Sections 10 and 11 as an antidote to this bureaucratic
inertia: These provisions actually *require* us to eliminate outmoded
regulations.

Our biennial reviews to date have resulted in some significant
streamlining of outmoded regulations, including the elimination of
significant portions of the Part 68 rules governing the connection of
customer premises equipment to the telephone network and the detariffing
of long distance services. We will soon add to these accomplishments by
adopting an order that eliminates a significant number of Class A
accounts required under the Uniform System of Accounts and various ARMIS
reporting requirements. And to the extent you identify regulations that
you think are no longer necessary, filing a forbearance petition is
always an option.

**3. Enforcement-Oriented Regulation**

My third principle concerns the importance of enforcement. I believe it
is critical to the FCC's effectiveness and credibility to enforce all of
its rules vigorously. Failure to enforce rules sends the inappropriate
signal that companies may engage in anticompetitive or otherwise
unlawful conduct with impunity. As I mentioned previously, years of
inaction in the face of repeated complaints regarding unsolicited faxes
--- in violation of section 227 --- provides a perfect example: Until
the Commission's recent enforcement proceedings, such faxes could be
sent without any fear of penalty. If we succeed in eliminating
unnecessary regulations and are left with fewer regulations that
implement our core responsibilities, it becomes all the more important
that we enforce those remaining rules strictly.

Compared to prescriptive rules, which prohibit whole categories of
conduct, only some of which may be problematic, enforcement mechanisms
have the advantage of being narrowly tailored. 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 beefing up 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.

I believe we 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 will end up adopting complex rules only
when doing so is necessary to carry out our core statutory
responsibilities. So one aspect of an enforcement-oriented approach to
rulemaking is restraint: We need to be sure we're willing to devote
substantial resources toward enforcing a rule before we decide to adopt
it. If we are sure that a rule is worth this effort, then we must not
shy away from full enforcement.

Another aspect of this enforcement-oriented approach is that, where we
*don't* spell out detailed expectations in a rule --- and instead adopt
broad, generally worded principles --- we cannot insist on specific
forms of compliance. While Commission staff may have particular
expectations, we cannot base our enforcement policy on such expectations
unless they are clearly articulated in the text of the rule.

One example of what we should *not* do occurred in a case involving a
radio station called Queen of Peace. The FCC has a rule that requires
broadcast stations to maintain a "main studio." In various orders and
footnotes --- but not in the rule itself --- the Commission stated that
a main studio must maintain full-time managerial and full-time staff
personnel during normal business hours. Because the staffer at the main
studio for Queen of Peace radio was absent from the office after 3:00
p.m. each day, the Enforcement Bureau fined the radio station for
violating the main studio rule. To its credit, the Commission later
vacated this fine, but this episode illustrates the danger of broadly
worded rules becoming empty vessels for regulators to fill with their
own expectations. Going forward, I will attempt to ensure that we do not
bring enforcement actions unless the carrier had sufficient notice that
the conduct in question failed to comply with our rules.

Notwithstanding this incident, I've been very encouraged by the
performance of our new Enforcement Bureau. The Chairman is committing
substantial resources to enforcement activities, and the Bureau has
established several complementary enforcement approaches. These include
formal complaints, some of which can be decided on a "rocket docket"
basis; structured mediation, which has yielded many settlements; and
confidential investigations, which may lead to substantial forfeitures.
While formal complaint proceedings still move too slowly, the Bureau has
done a terrific job substantially reducing its backlog.

### 4. Government Humility

My fourth principle is that the FCC should be humble about what is knows
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.

We need to reach out as broadly as possible to improve the flow of
information *into* the Commission. We need to reach out to consumers,
licensees and other regulated entities, trade associations, and the Bar.
I believe the Commission should only reluctantly invoke its authority to
make proceedings restricted. I have found, based on my experiences at
the Commission and in the private sector, that ex parte meetings are
critical to ensuring a full understanding of all the relevant issues. I
encourage all of you to come see me, or to communicate through USTA and
other associations, when the FCC is considering action that affects your
business. In addition, if a proposed rule would impose significant costs
or burdens, it is extremely helpful if you can provide economic data for
our consideration. Having worked for an ILEC, I know it can be difficult
to compile such data on short notice, but it can often make a
significant difference in rulemaking proceedings.

There are also a number of improvements we can make to speed the flow of
information *out of* the Commission, in order to maximize the
transparency of our decision making. For example, I would like the FCC
to create an online tracking system to disclose exactly where in the
agency a proceeding is pending whether in the Division, the Bureau, or
on the Eighth Floor. This will cut down on inquiries at the agency and
allow advocates to address the appropriate staff at the appropriate
times. Another simple but effective measure is making sure my staff is
available to discuss the items on our agenda and to answer any questions
you may have. Please take advantage of them; and if you don't want to
come to Washington, you are free to call us instead.

### 5. The FCC Is a Service-Based Organization

My final principle is that the FCC is a service-based organization, and
we should act like it. Your companies, and taxpayers generally, are our
customers. We should strive to provide you with the same high level of
service that a for-profit business would provide.

Our customers deserve prompt, well-informed answers to regulatory
inquiries. We owe you quality process, even if we can't always give you
the substantive answers you seek.

When I was in the private sector, I worried most about long delays. Even
if I got an adverse decision, at least my company or client could move
forward and revise its business strategy as appropriate. It was
regulatory uncertainty that was the most damaging and frustrating. Based
on that experience, I will do everything in my power to push the
Commission to deliver answers as promptly as possible.

I also understand that you may not always *want* the Commission to act.
For example, the Commission has been planning to adopt an order in
response to the MAG Plan regarding rural access reform. Once some
carriers learned that the Common Carrier Bureau was recommending
significant departures from the original MAG proposal, however, many
carriers urged delay. In this case, I believe that we have a complete
record, and there is no need for additional delay. Quite the contrary,
Congress told us five years ago to remove implicit subsidies from access
rates. So I have supported moving forward with an access reform order.
Although this is a hard issue, we shouldn't shy away from it.

Another area where I'd like to see prompt action concerns the EELs
issue. Whether or not the statute permits usage restrictions on these
UNE combinations is a legal question that we should be able to decide
relatively quickly. Yet the FCC's interim rules remain in place two
years after they were adopted. Just because an issue is controversial
and difficult does not justify failing to address it.

On balance, despite the fact that there are some proceedings, like MAG
and EELs, that you would rather us not tackle, I believe all carriers
will be better off if the FCC substantially improves its timeliness.
Even if you don't like the answer, you will have more certainty, and of
course, you can always go to the court of appeals, if necessary.

Perhaps the area most in need of improvement involves petitions for
reconsideration and applications for review. These have been known to
sit at the Commission for interminable periods of time, and often for no
good reason. Such recon. petitions or AFRs frequently present no new
issues and could be decided relatively easily. But the failure to reach
decisions can create needless uncertainty. And where a party's access to
judicial review is frustrated by the long pendency of recon. petitions
and AFRs, delays are even more problematic.

One solution that I am exploring would involve the use of form orders to
deny recon. petitions and applications for review within a fixed time
frame where no new issues are posed. The appropriate Bureau would sort
all petitions into two groups --- those that raise new issues, and those
that don't. The petitions that do not raise new issues would be subject
to a deadline of something on the order of 45 days, which would be
suspended only in unusual circumstances. I have already begun discussing
this proposal with the General Counsel, and I plan to work with the
Chairman's Office and the other Commissioners to see if we can adopt
such procedures to cut delays substantially.

Well, this concludes my summary I will rely on these five principles as
I make decisions as an FCC commissioner. Not surprisingly, all of the
issues we face have at least two sides, maybe more the parties are
represented by skilled lawyers who are very persuasive. And often the
answers presented to us are less than optimal. So I think it's critical
to rely on a consistent set of principles in our pursuit of the public
interest. I welcome your feedback on these principles, more visits with
all of you and I am happy to take some questions.

[^1]: ^.^

[^2]: ^.^