# **Remarks by**

# **FCC Chairman William E. Kennard**

# **Before the Federal Communications Bar** 

# **Northern California Chapter, San Francisco, CA**

**July 20, 1999**

As Prepared for Delivery

# The Unregulation of the Internet: Laying a Competitive Course for the Future

Thank you, Rachelle, for that generous introduction.

I had the pleasure of working with Rachelle at the FCC, and I have to
say that the FCC's loss was the FCBA's gain. You are lucky to have
Rachelle bring her toughness and determination to the leadership of your
chapter.

What is truly remarkable is that Rachelle is able to put together events
like this and practice law all while raising not just one, but two
eight-month old girls.

I want to thank Rachelle, Suzanne Toller, and Mary Wand for inviting me
to speak here today. Having a chance to talk about the incredible
changes that are occurring in technology and in our economy is always
welcome.

To get a sense about how much has changed, I see that Senator Gary Hart
is here today. And that is not a surprise since Senator Hart has always
been a visionary interested in not just what is happening now, but what
will happen five, ten, or fifteen years from now.

In fact, in the early 1980's, because of his interest in things
high-tech, he was called an "Atari Democrat." Atari? Remember that? It
was supposed to be the final frontier of computer games -- a giant leap
from the days of Pong. My, how quickly things change.

Yes, it is undeniable and even cliched to say that the United States is
enjoying unrivaled prosperity. We are now living in the longest
peacetime expansion of our economy in history. The stock market reaches
new heights almost monthly, and unemployment is at its lowest in a
generation.

And at the heart of this prosperity is our leadership in the Internet
and in the broad range of the computer and communications fields.
Technological advances that our scientists, engineers, and entrepreneurs
have spearheaded are transforming the world. Technology that was once
found only in our science fiction can now be found on our desktops, in
our cars, and in our pockets.

The effect that this has had on our economy is immense. A recent report
by the Commerce Department found that information-technology industries
account for one-third of our current economic growth. These companies,
in turn, create jobs that pay 78 percent more than other workers, and in
1997, they created 350,000 of these jobs alone.

As the *New York Times* columnist Thomas Friedman writes in his new
book, *The Lexus and the Olive Tree*, in this new age of globalization
where information and capital can zip around the globe in an instant,
the United States is the leader.

He puts it this way: "We're already around the second turn before some
others have laced up their shoes."

We have such a headstart because our businesses adjusted earlier and our
technicians seized on innovations quicker. But there is more than that.
The fertile fields of innovation across the communications sector and
around the country are blooming because from the get-go we have taken a
deregulatory, competitive approach to our communications structure \--
especially the Internet.

Now, I'm not taking credit for our current prosperity or trying to make
the case that the FCC is behind all that is good in America (although
I'm sure I'd get at least one vote on that proposition). But, as
Friedman argues and I agree this competitive approach has served us
well.

For the past 30 years, the FCC has created a deregulatory environment in
which the Internet could flourish.

In the early 1970's, the FCC decided in its first inquiry into
computers' role on the phone network that computer applications were not
subject to regulation. The Commission recognized that the regulation of
data services as a regular common carrier transmission would inhibit
flexibility and in turn the development and deployment of these already
competitive services.

Then, around the same time, the FCC made a decision to allow anyone to
connect a piece of equipment to the phone network as long as it would
not harm the network. In essence, we cleared the way for the rapid
development of a competitive market in and the rapid deployment of the
modem \-- without which we would not have this robust Internet economy.

And then in the early 1980's, just as Apple began to mean more than a
piece of fruit, the FCC determined that enhanced service providers would
be exempt from access charges. This paved the way for the flowering of
thousands of ISP's, and the cheap and easy on-ramps onto the Internet
that millions of Americans now enjoy.

In a paper on the role of the FCC in the development of the Internet
that Jason Oxman in our Office of Policy and Plans put together, he
tested how effective this exemption was in spurring the growth of the
Internet by comparing our ISP marketplace to Britain's. The results are
astounding.

In Britain, you may be able to get a flat-rate to access the Internet,
but you would be subject to per-minute charges for the local call. For
the ISP, because of a lack of vibrant competition, leased lines can cost
upwards of \$64,000 for a mere one megabit-per-second of bandwidth.

Because of these obstacles, fewer people are on-line in the UK and in
all of Europe where similar barriers exist. That is why last year, the
ISP market in all of Europe only generated \$4 billion in income, almost
one-quarter of what it did in the US that same year.

Recently, we have continued this competitive, deregulatory approach to
the Internet. Just this past April, we issued rules that made it easier
for competitors to co-locate their equipment in the RBOC central office,
a move that would help competitive DSL providers.

But, as we enter the next century and the Internet revolution matures,
the transmission of data is not limited to the copper wires of the phone
network. Indeed, we have recognized that and have continued our
competitive approach.

Since the early 1990's, the FCC has given holders of wireless licenses
flexibility in their use. This opened the door for wireless Internet
access, which is now available in dedicated modems or even in wireless
phones themselves. We've continued to promote competition by making more
spectrum available and doing so without restrictions as to their use.

And we've taken this approach as we've dealt with the next frontier of
data and the Internet \-- broadband networks. These fat "pipes" can
bring data, video, and audio to you in lightening-quick speeds. They are
the foundation upon which the future business plans that are sitting on
desks and nightstands across Silicon Valley are based. Broadband is the
future of the Internet.

Right now, the broadband market is fertile but still undeveloped. The
future is bright. Indeed, I envision a future in which there are at
least four or five facilities-based competitors offering this service:
from DSL to cable, from terrestrial to wireless and even satellite.

But this competitive future is still glimmering in the distance. We are
about 50 meters into a race that is sure to be a marathon.

Sure, we have seen growth. Around this time last year, less than 100,000
homes had cable Internet hook-ups. Now, close to three-quarters of a
million homes do. But this is just a fraction of the over 30 million
American homes that are on the Internet.

Indeed, broadband is just a nascent industry. The fact is that we don\'t
have a duopoly in broadband. We don\'t even have a monopoly in
broadband. We have a \"no-opoly.\" The bottom line is that, most
Americans don\'t even have broadband.

So how do we get Americans broadband pipes? The answer lies in the
history that I just laid out for you: by letting a competitive
marketplace thrive.

We need an intentional restraint born of humility. Humility that we
can\'t predict where this market is going. Indeed, who among us could
have predicted the incredible advances of the past few years? Who at the
beginning of this decade could have predicted the embrace of e-mail by
all ages, the birth of the World Wide Web, the advances in
communications technology?

In a market developing at these speeds, the FCC must follow a piece of
advice as old as Western Civilization itself: first, do no harm. Call it
a high-tech Hippocratic Oath.

So with competition and deregulation as our touchstones, the FCC has
taken a hands-off, deregulatory approach to the broadband market. We
approved the AT&T-TCI deal without imposing conditions that they open
their network.

We did this because there is no sign that as this nascent market matures
that the cable operator has an incentive to deny ISP\'s access to their
platform. There is no sign that consumers do not have other avenues to
get broadband connections if they don\'t want to use cable. And finally,
it is not clear that the perceived benefits of mandating open access
outweigh their apparent economic and technological costs.

So we decided to let the market forces churn while we carefully monitor
the situation, and the marketplace has responded with enormous
investment in broadband -- and not just in cable.

Now, the Bells say that this decision is unfair -- that they have to
open their networks, but cable doesn\'t. They say that there\'s a lack
of parity. Yet look at the facts.

Taking into account each industries\' unique history, we have put a
proposal on the table for the RBOC\'s to operate advanced services in a
de-regulated environment. In fact, in the pending SBC-Ameritech merger,
the FCC staff has recommended and the companies have agreed to establish
these very subsidiaries. Yet the other Bell companies refuse to accept
it. They refuse to plant the seeds of their own regulatory deliverance.

Instead, they are using their considerable lobbying prowess to have
Congress grant them inter-LATA data relief. They want the ability to
move data outside of their local areas. In effect, they want to enter
the long-distance market. In effect, they want to throw out section 271
of the Telecom Act.

Instead of complying with these market-opening provisions to bring
competition to the local phone markets, they want to make an end-run
around the Telecom Act.

And what is most troubling to me is that in Silicon Valley, the
country\'s bastion of vibrant competition and entrepreneurship, there
are those who are beginning to join with the RBOC\'s in pushing for
inter-LATA data relief.

These people are being seduced by monopoly \-- and they must resist.
Small businesses, entrepreneurs, and consumers of all kinds will be best
served when there is true competition in all our communications services
from local phone competition to broadband. They will not be served by a
gutting of the Telecom Act.

What proponents of inter-LATA data relief fail to realize is that the
market is working. Consumers -- the people who actually drive a market
\-- deserve and will demand an open platform. They are used to openness
in the dial-up world, and they will not want to be denied it in the
broadband environment. As a result, competition in the broadband
industry is growing and that in turn is pushing its deployment.

Where cable modem service has been introduced, DSL has followed. For
instance, in May 1997, At Home launched service in Phoenix; four months
later US West launched DSL there. That same month, At Home began
offering service in San Diego; soon thereafter Pacific Bell began
offering DSL. In June 1998, At Home entered Denver; that same month so
did US West.

And just last week, Bell Atlantic -- anticipating the roll-out of cable
Internet access in New York City -- announced that it will begin
offering DSL service in the Big Apple. The competitive pattern is set,
and it works.

On top of all this, competitive pressure has led GTE to develop and
field-test a new architecture for cable networks that will permit
multiple ISP connections to cable networks. Competition has fueled
innovation.

Unfortunately, a number of local franchising authorities have decided
not to follow this de-regulatory, pro-competitive approach. Instead,
they have begun imposing their own local open access provisions. As
I\'ve said before, it is in the national interest that we have a
national broadband policy.

The FCC has the authority to set one, and we have. We have taken a
de-regulatory approach, an approach that will let this nascent industry
flourish.

Disturbed by the effect that the actions of local franchising
authorities could have on this policy and on the deployment of
broadband, I have asked our general counsel to prepare a brief to be
filed in the pending Ninth Circuit case so we can explain to the court
why it\'s important that we have a national policy.

In the meantime, the FCC will continue its active monitoring of the
broadband marketplace. And this includes listening to the very real
concerns that local franchising authorities have.

In fact, later this week, the FCC\'s Local and State Government Advisory
Committee will be meeting with my senior staff. Through this meeting and
others, I hope to hear their concerns as well as to explain to local
franchising authorities why I believe it\'s not in the national interest
to regulate this nascent and maturing industry.

We can have openness and competition by allowing this market to develop
unfettered by regulation. We can have openness and competition by
following the FCC\'s tradition of \"unregulation\" of the Internet. We
can have openness and competition by having a FCC vigilant in its
monitoring of anti-competitive behavior and bottlenecks, swift in its
enforcement of the rules of the game, and humble in the use of its
power.

We need to follow this course -- to allow this competition to flourish
-- for if we do, we will have the infrastructure needed to keep our
economy growing. We will be able to construct a future where there are
limitless opportunities.

But our challenge is not just to build an Internet that goes faster, but
that goes farther -- that reaches all Americans from the suburbs of
Marin County to the neighborhoods of Oakland, from the businesses of San
Francisco to the farms of the Central Valley.

We need to make sure that the opportunities that the Internet and new
communications technologies provide are available to all Americans.

That is why last week, the FCC passed new rules to make sure that
telecommunications equipment and services are accessible to the 54
million Americans with disabilities. We want to make sure that these
innovations can be used to help them --as they do all of us -- lead
fuller, richer lives.

That is why earlier this summer, we decided to fully fund the e-rate
program to wire schools and libraries to the Internet. With the funding
levels we approved, an additional 600,000 classrooms will be wired,
touching 40 million schoolchildren, many of them in our poorest and most
rural schools. This funding will help close the digital divide that is
emerging in our country.

In a report released last week by the Commerce Department, they found
that black and Hispanic households are only 40 percent as likely as
white households to be online. That means that of the blacks and
Hispanics who are on-line, they rely on access in places like schools
and libraries.

By fully funding the e-rate, we are laying the foundation for
footbridges across this divide for millions of Americans in thousands of
towns and cities throughout the nation.

And part of this effort to bring the opportunities in these technologies
to all Americans entails paying careful attention to rural America.

That is why I am working with Senate Minority Leader Daschle and a group
of his colleagues from rural states to bring advanced communications
services to the people of our nation\'s small towns and farms, to knit
them into our national community, to give them the opportunities to
enjoy the promise of this technology.

In the end, the opportunities in these wires and webpages are what this
whole communications revolution is about.

It is what we are working toward everyday in our jobs whether it's
representing clients or building new businesses. It is ultimately the
standard by which our success will be judged. And I am confident that by
continuing our competitive course we can meet that standard.

Thank you.