released: February 10, 1998
Remarks    of
Commiss                     ioner Susan Ness
before                            the
Washing               tonWeb Internet Policy Forum
Washing                        ton, D.C.
Februar                         y 9, 1998
(As pre                    pared for delivery)
     I saw an e-mail that alerted netizens why they should attend this forum.  It said, in
effect, "The Government has discovered the Internet.  Come find out how they plan to screw
it up."
     That's consistent with a view of government that assumes we take the following
approach to our jobs:  "Step One.  If it moves, regulate it.  Step Two.  If it doesn't move,
kick it.  Then, when it does move, regulate it."
     I'm here to tell you, that's not how this Commissioner thinks -- and neither do my
colleagues at the FCC.
     The e-mail I received was right about one thing.  The FCC has indeed discovered the
Internet.  Don t run away in a panic just yet.  When exactly did we discover it?
     Was it nine months ago, when we created the schools and libraries program to enable
Internet connectivity in every elementary and secondary school classroom in America?  Was
it three years ago, when we began posting every public FCC release on our Web site?  Was
it ten years ago, when we reaffirmed that  enhanced service providers  like CompuServe and
Prodigy should not be subject to per-minute access charges like those the long distance
carriers pay to local telephone companies?  No, it was even earlier than that.
     It was almost twenty years ago that the FCC issued its  Computer II  rules, declaring
that enhanced service providers would NOT be regulated like telephone companies.  Vint
Cerf, one of the founders of the Internet, tells me that he first testified before the FCC on
Internet issues in 1976, over 22 years ago!
      Of course, back then there was no commercial Internet.  But there were academic
research networks, funded and often operated by the U.S. government, culminating in the
NSFNET backbone that formed the basis for the Internet we know today.  Government
supported the growth of nascent technologies that had not yet demonstrated commercial
applicability, and then gracefully stepped back when the Internet was better able to operate
on its own.
     Throughout the evolution of the Internet, the FCC has been careful to tread lightly.
We want to promote investment and innovation, not unnecessary work for government and
unnecessary constraints on businesses or consumers.
     Let me start by listing some of the things we haven t done.  We haven t required
Internet service providers to pay the per-minute  access charges  that are imposed on long-
distance carriers.  We haven t subjected ISPs to any of the other regulatory requirements that
the Communications Act places on carriers -- such as price regulation or tariff filing or
universal service requirements.  We haven t barred providers of software for Internet
telephony from selling their products.  And we haven t applied any of our rules governing
content in broadcasting to the Internet.
     These are all steps that we were asked to take during the past two years -- sometimes
by powerful companies and members of Congress.  But we have remained Internet-friendly.
     I don t believe in blind application of old rules, or in regulation for its own sake.
Our responsibility is to promote the public interest.  I take that responsibility very seriously.
     In some cases, the best way to promote the public interest is to act.  Congress
decided that the only way we would have full competition in telecommunications was to
rewrite the sixty-year old Communications Act.  So they passed the Telecommunications Act
of 1996, in order to break down economic, technical, and regulatory barriers to competition,
particularly in the local telephone market.
     And the FCC has been vigorous in making sure that the market-opening measures are
fully implemented.  We also have consumer protection responsibilities in competitive
markets, as shown by our efforts to combat "slamming" and our new requirement that
payphone operators disclose their rates on request, so that callers aren t ambushed by
sometimes exorbitant rates.
     In other cases, however, we can best promote the public interest by not acting -- or
by deregulating.  In our Competitive Carrier decisions, we have eliminated most of the rules
governing domestic long-distance carriers as the market has grown more competitive.  In the
Computer III docket, we recently proposed to streamline the rules governing provision of
enhanced services by local phone companies.  And way back in Computer II, we decided that
enhanced services would best grow and thrive if provided on a competitive and unregulated
basis.  We not only decided not to regulate enhanced services but also forbade state
regulators from doing so.
      The FCC of the late 1970s and early 1980s couldn't possibly imagine the Internet
and the World Wide Web, as we know them today, but the Commission's decisions of that
era reflect considerable foresight.  My predecessors understood that a whole class of
computer-based services was emerging and that these services were fundamentally different
from the monopoly-dominated telephone industry.  So they fenced off these new services
from regulation.
     Today, we are engaged in a broader effort to implement a pro-competitive and
deregulatory communications policy, following the mandate of Congress in the 1996 Act.  I
strongly believe that the marketplace, rather than regulation, is the best mechanism for
setting rates and determining which services should be available.  However, we can t simply
eliminate all the rules we have today and hope for competition.  As long as the incumbent
local exchange carriers, and particularly the Bell Operating Companies and GTE, retain
significant market power from their control over their bottleneck local loop, we will need a
transitional regime to move from regulation to competition.
     Transitions are never easy.  And they can be especially challenging in an industry as
dynamic as communications and information, where the lines between one service and
another are constantly blurring.  Nowhere is this fact more evident than with respect to the
Internet.
     The Internet has been able to grow and develop outside the existing regulatory
structure because the FCC has made conscious decisions to limit the application of its rules.
Over the past several years, however, the Internet has become more than a mere curiosity.
The Internet, and the broader constellation of data networking technologies it has fostered,
are nothing less than the future of communications.
     Where once the  enhanced services  industry meant a few small companies, today
every major player in the communications world is heavily invested in the Internet -- and
even some unfamiliar players are placing some very large bets.  Consider:
    AT&T s WorldNet service is one of the largest Internet service providers in the
     country, and AT&T recently announced an Internet telephony service that will
     compete directly against established long-distance carriers.
    Quest & Level-3 are both making multi-billion dollar investments in the deployment
     of new fiber capacity, to offer new Internet services including voice telephony.
    Two weeks ago, all five of the Bell Operating Companies and GTE joined with
     Microsoft, Intel, and Compaq in the Universal Digital Subscriber Line alliance to
     develop a common standard for technology to make faster Internet connectivity from
     the home possible.
    The leading cable operators are all beginning to deploy cable modem services, with
     over 100,000 subscribers already taking advantage of this technology.
    All of the broadcast networks are making significant Internet-oriented investments --
     from MSNBC to CBS Sportsline.  Soon broadcasters in the major markets will begin
     broadcasting in digital format, permitting a variety of data services to be offered in
     addition to video programming.
    In the wireless arena, companies such as Metricom are taking advantage of unlicensed
     spectrum to offer wireless Internet access.   And our upcoming LMDS auction will
     assign a vast swath of spectrum that could be the foundation for even more exciting
     services in the next several years.
    Satellites are but a step behind.  Exciting projects such as Teledesic, Celestri, and
     Skybridge promise to provide broadband communications and Internet connectivity on
     a global basis.
     To a significant extent, these developments have been nurtured by forward-looking,
procompetitive, deregulatory FCC policies.
     Looking to the future, I see the FCC having to grapple with three primary policy
challenges regarding the Internet:
           First, as the Internet grows and evolves, we are being asked to review existing
            regulatory classifications and their attendant consequences.
           Second, we must ensure that homes and businesses have access to the
            bandwidth needed to fully exploit the Internet s potential.
           Third, we must enable our children to take full advantage of this extraordinary
            tool in schools all across the country; and ensure that the benefits the Internet
            can bring to rural communities are fully realized.
     Let me elaborate on each of these points.
1.  Regulatory Paradigms
     Let me give you some concrete examples to demonstrate why we need to address
issues of legal classification.  If present trends continue, data usage of the
telecommunications network in the United States will exceed voice within the next several
years.  Some studies predict that, in less than a decade, voice will represent as little as ten
percent of total traffic, and most of that voice traffic will be carried in digitized form
indistinguishable from data signals.
     Some people see the blurring of boundaries between the Internet and traditional
telecommunications and conclude that the best solution is to expand our existing regulatory
structure to encompass the Internet.  The people who advocate these positions don t do so
because they hate the Internet.  The goals they are trying to achieve are often admirable.
The problem is that these approaches push square pegs into round holes.  If we insist on
mechanical application of old rules to new technologies, we will end up with unsatisfactory
results.
     Our challenge -- and your challenge -- is to develop new models that allow us to
deregulate rather than regulate, while achieving the public policy goals of competition and
universal service.  Congress understands this task as well.  Late last year, it directed the
FCC to draft a report analyzing our implementation of the 1996 Act, and in particular to
review the consistency of our traditional demarcation between "basic" and "enhanced"
services with the new statutory definitions of "telecommunications" and "information
services."  The Stevens Report, which is due on April 10, gives us an opportunity to explain
how our prior decisions in several different proceedings fit together, and also to move
forward to the next stage of analysis.
     We re still early in the process of drafting the report, and I have not made any
decisions about what we should conclude.  I can, however, make a few observations at this
point:
     I continue to believe we made the right choice last May in deciding -- once again --
not to subject Internet service providers to access charges.  These charges are currently set
well in excess of cost, and there is no good reason to expand a regime that collects billions
of dollars in implicit subsidies when our clear duty is to reform that regime, squeeze out the
implicit subsidies, and establish new, explicit, competitively neutral means of universal
service support.
     Indeed, because we have chosen to rely on market forces rather than prescription to
reduce the gap between access charges and their underlying economic costs, Internet-based
services can serve to accelerate the reform process.
     But in addition to the issue of access charges, we also must address issues of
universal service.  Universal service is a societal goal, now codified in law, and we should
ensure that that goal is met in the future as technology evolves.
     All providers of telecommunications services are now required by statute to contribute
to a fund that will ensure the availability and affordability of telephone service to low-income
consumers and consumers in rural areas, where the costs of constructing transmission
facilities is disproportionately high.  This obligation is not shared by enhanced service
providers such as those who provide Internet access (like Erol's) or Internet content (like
AOL).  Some suggest this distinction no longer makes sense.  Other say it does today but
may not tomorrow, as new services -- such as Internet telephony -- become more pervasive
and less distinguishable from traditional telephone services.
     Where does Internet telephony fit?  Does the answer depend on whether the call is
terminated on the public switched network?  Should the answer hinge on whether the traffic
is voice or data?  Should it matter whether the call is placed with a computer or a telephone?
     We are wrestling with these questions right now.  The best answers will be those that
are thoughtful, not reflexive; principled, not based on short-term self-interest;
forward-looking, not rooted in preconceived notions.
     First-round comments were filed on the Stevens Report just last week.  I suspect the
debate will only intensify as technologies advance and services proliferate.  I invite your
participation in this important discussion.

2.  Broad Bandwidth Deployment
     The second great challenge for the Internet is bandwidth.  Even though the fiber optic
connections that make up the Internet backbone can transmit hundreds of millions of bits per
second, Internet users typically see only a fraction of that performance.  Part of the cause of
this "World Wide Wait" is the backbones themselves, but this is an area in which multiple
providers are making massive investments to meet burgeoning demand.
     Although some proceedings before the Commission raise issues involving Internet
backbones, I see greater urgency in the problem of congestion in the facilities connecting
your home to the Internet.  Here, I believe that the competition we are working so hard to
promote will help.
     Today, the vast majority of residential Internet users are compelled to connect to the
Internet through circuit-switched Plain Old Telephone Service.  They use analog modems that
at best deliver 56 kilobits per second of throughput.  But the quality and variety of desirable
services increases tremendously at higher speeds, and many users hunger for access to
greater bandwidth.
     The recent announcement of the Universal DSL consortium, as well as other
innovative technologies such as Paradyne s Multiple Virtual Lines, suggest that alternatives
to analog loops may soon be deployed.  Also, competing technologies such as cable modems,
wireless, and satellite are becoming increasingly available.
     Regulation, whether at the federal or state level, should not hinder the deployment of
these much-needed bandwidth boosters.  And neither should the fear by incumbents that these
new options will cannibalize their existing higher-priced data offerings such as T1 service
and ISDN.
     The demand for high-speed services clearly exists, and we need to look at ways to
unlock the market forces that will bring greater bandwidth to residential users.  I believe that
the single most important thing we can do to promote bandwidth in the "last mile" to the
home is to accelerate competition among multiple providers.  The more the telcos worry
about losing the bandwidth market to the cable companies, and vice versa, the sooner both
will be knocking on your door to offer you the services you want.
     So I hope we can enlist your support in breaking open the local telephone and cable
monopolies.
3.  Providing Universal Service
     The final Internet challenge that I would like to discuss is in many ways the most
important.  As a society, we must bring the benefits of information technology to all
Americans, by connecting every classroom and library in the country to the Internet.  This
will reduce the danger of social and economic divisions between information "haves" and
information "have-nots."  It will also ensure that, in the future, America will have the skilled
workers needed to compete in a global economy that is increasingly dependent on
information technology.
     The Internet overcomes geography.  It allows the tiniest rural communities to access
the vast stores of knowledge available on the World Wide Web, and enables the finest
medical specialists to serve the most remote health care facilities.
     Congress was right to establish requirements that will promote telecommunications
and information access for schools, libraries, and rural health care providers.  I am proud of
the actions the FCC has taken to implement this mandate, and I look forward to continuing
the implementation process.  The schools and libraries corporation recently opened up a Web
site to allow schools to apply for discounts online, making effective use of the very
technology we are seeking to promote throughout the country.
Conclusion
     There remain many unresolved details in our implementation of the 1996 Telecom
Act, and the report Congress has requested will discuss some of them.  It is important,
though, to step back from time to time and remember what we are trying to achieve.  I think
we all agree that the Internet can be a wonderfully positive force in our society, and
throughout the world.  The Internet, however, is only a tool, and it is still subject to both the
laws of physics and the principles of economics.
     I ll leave the physics to the engineers in Silicon Valley building the next generation of
routers.  The economics, however, will depend in part on decisions that will be made at the
FCC and at state public utility commissions.
     Good policy decisions require good information and lines of dialogue between these
actors, on the one hand, and investors, innovators, service providers, and end-users, on the
other.  I welcome your views, and I m confident that my colleagues on the FCC do as well.
I hope that you will take advantage of the opportunity.
     Thank you.