SPEECH OF
       FCC CHAIRMAN WILLIAM E. KENNARD
                    TO THE
           ANNUAL CONVENTION OF THE
  NATIONAL ASSOCIATION OF REGULATORY UTILITY
                COMMISSIONERS
                       
              NOVEMBER 10, 1997
                       
          (As prepared for delivery)
                       
     Good afternoon.

     It is a great honor for me to be able to deliver my very first
speech as FCC Chairman to NARUC's Annual Convention.  I am
delighted that NARUC asked me to be here today.

     Being in Boston, I am reminded of Tip O'Neill, who used to
tell the story of his first campaign for public office.  He was a senior
at Boston College and he ran for a seat on the Cambridge City
Council.

     The day after the election, his neighbor told him she voted
for him -- even though he hadn't asked her to.

     Tip said, "I've lived across the street from you for eighteen
years.  I shovelled your walk in winter.  I cut your grass in the
summer.  I didn't think I had to ask."

     She said, "Tip, people like being asked."

     So thank you for asking me here today -- to make my first
speech in my new job.  There is perhaps no organization that is more
important to the FCC in meeting the challenges that we face in the
next few years than NARUC, and I am delighted and thankful to be
here.

     I am also thankful to those members of NARUC's leadership
who reached out to me during the confirmation process to help
educate me on your perspectives on a number of important issues. 
My longtime friend, Russ Frisby, Bob Rowe, Lynn Butler, Cheryl
Parrino and Julia Johnson, in particular.  And of course, Peggy
Welsh and Brad Ramsey of NARUC's Washington office.  I thank
you for your help.
     
     I would also like to congratulate Bruce Ellsworth on a very
successful tenure as President of this organization.  Bruce, you've
kept a steady hand at the helm through rough seas and you should be
proud of your achievements.
     
     And congratulations to Lynn Butler upon taking the gavel
from Bruce.  Lynn, we are both taking on new jobs, and I'll say to
you what a lot of people have been saying to me these past few
months:  I can't imagine why you want to take this on, but if this is
what you want, congratulations and I hope you enjoy it.  Lynn,
you've been a wonderful friend to the FCC during my tenure as
General Counsel, and I couldn't be more delighted that we are
embarking on this new challenge at the same time.
     
     And what a challenge it is -- the challenge to replace
monopoly regulation with competition.  It will be remembered as a
pivotal time in the history of telecommunications.
     
     At another pivotal time in history -- 1942 --- Winston
Churchill went before  Parliament to announce that the British had
won the Battle of El Alemain.  Now, this was a crucial time during
World War II.  The Allied forces had won their first major victory
against the advancing Nazis.  The tide  had begun to turn.  And the
British people felt -- for the first time -- a sense of hope that the War
could be won.  Churchill went to Parliament and said that the world
had come to "the End of the Beginning."
     
     I believe that we have reached a similar place in
telecommunications.  We have reached the end of the beginning of
our journey from monopoly regulation to competition.
     
     Here, at the end of the beginning, much has been
accomplished.  The states have handled hundreds of arbitrations over
interconnection agreements.  The FCC wrote new rules on
interconnection, universal service, and pricing levels and structures
for access charges.  States are addressing these same issues, and in
addition, states have actually set prices for interconnection and
network elements between competing carriers.
     
     Much has been accomplished.  We all know that there is
much to be done.  But the theme that runs throughout all of these
efforts is that they all require that the states and federal government
work together.
     
     Cheryl Parrino once likened the Telecommunications Act of
1996 to an arranged marriage between the states and the federal
government.  That reminds me of a story about another marriage. 
About a husband and wife.  The husband becomes very ill so he and
his wife go to the doctor.  And after examining the husband, the
doctor takes the wife aside and says, "Ma'am, I am sorry to have to
tell you this, but your husband is very, very sick.  And I am afraid
that you are the only one who can save his life."
     
     The wife says, "Doctor, what must I do to save my husband's
life?"
     
     The doctor says, "Well, you must see that he gets lots of rest
every night. Wake him gently each morning and fix him a hot
breakfast.  Send him off to work with a kiss.  Make sure he comes
home for lunch everyday.  Greet him at the door with a kiss and
have a hot healthy meal ready for him.  Then you must do the same
each evening at dinnertime.  Relieve him of all household chores. 
And each evening, rub his back before he falls off to sleep."
     
     So the husband and wife are on their way home from the
doctor's office, and the husband says, "So what did the doctor tell
you about my condition?" 
     
     She looks at her husband and says, "I'm sorry, baby, but you
ain't gonna make it."
     
     Well, I think we will make it.  I believe that by working
together -- state commissioners and federal commissioners -- we can
make this transition from monopoly to consumer choice work for the
American people.
     
     The Telecommunications Act of 1996 calls upon each and
every one of us to make this transition work for the American
public.  All of us, state commissioners and federal commissioners,
share the common bond of dedicating our lives to serving the
American people.  As we, the public's stewards, proceed to
implement that statute, I believe we should be guided by three
fundamental principles:  competition, community and common
sense.
     
     Competition    
     
     Competition is the cornerstone.  Many people argue over the
best way to get there, but the need for competition is beyond
question.  During the weeks before I was confirmed by the Senate,
not one Senator or member of Congress pulled me aside to extol the
virtues of natural monopoly.  The era of monopoly is over. 
     
     This is true whether you are buying a car, a pizza, a
microwave, or a cellphone. Choice is the engine of our democracy
and our economy.  And in no area do the American people demand
it more than in telecommunications.  That's our job.  
     
     But choice cannot reach only businesses downtown.  Choice
ultimately must be available to all Americans, at work and at home,
in our cities and in our rural communities.
     
     Community
     
     The second principle is community.  The American people
want competition and choice, but they want more.  They want
communications technologies to help build communities -- all
communities.  Whether you live in a bustling metropolitan area, a
rural community, or a distressed inner city, communications
technology should provide you and your community with the same
opportunities and the same benefits.
     
     We cannot allow the information highway to bypass rural
America.
     
     We cannot allow the Information Age to benefit some
Americans more than others.
     
     The American people are counting on us to ensure that the
communications revolution includes everyone -- particularly
America's children.
     
     By the year 2000, sixty percent of the jobs in the country will
require computer skills.  That's three years away.  We must help to
ensure that all of America's children are prepared to compete in the
Information Age.
     
     You know, there's a story of a man who gets lost in the
desert.  And as he wanders through the desert, he comes upon a
Bedouin who is loaded down with goods.  The man is lost and
desperate, so he asks to buy some water.  
     
     The Bedouin says, "Sorry, I don't sell water, I sell coats.  I
can sell you any kind of coat you want -- cashmere, wool, tropical
blend."
     
     The man stumbles on.  He's becoming parched and desperate. 
He comes upon yet another Bedouin loaded down with goods.  He
says to the Bedouin, "Please sir, please, can you sell me some
water." 
     
     The Bedouin says, "No can do.  Don't sell water. But I can
sell you a necktie.  See all those neckties?   I've got silk ties, wool
ties, knit ties -- anything you want."
     
     The man moves on, lonely and afraid.  The sun is scorching
hot.  At last, he comes upon a beautiful oasis, rising from the sand
dunes.  There is a beautiful palace there, and beyond a guarded gate,
he sees a beautiful fountain of sparkling water. He staggers up to the
guard and says, "I'm dying of thirst, sir, please let me in to have a
drink!"
     
     The guard says: "Sorry, sir, but you need a coat and tie to get
in."
     
     In the smorgasbord of 21st century jobs, the coat and tie that
will get American workers access to the American  Dream is
telecommunications.
     
     That is our business.
     
     We cannot leave our nation's children unprepared to make it
in the economy of the Information Age.
     
     Common Sense

     The third principle is common sense.   As Chairman of the
FCC, I will strive to ensure that the FCC always acts with common
sense.  Common sense means writing rules that are clear and
understandable and deal with real problems.  It means finding
practical solutions to problems.    And it means forging a
relationship between the FCC and the states that allows us to do that. 

     
     Let's be candid -- acting alone, the FCC cannot deliver the
choice and universal service promised by the 1996 Telecom Act.  It's
always been true that the Act's success at delivering both choice and
universal service for all Americans depends on your actions.
     
     The Act will succeed as you arbitrate and enforce the right
rules.  And it will fail if you don't.  In some areas, the FCC can help
with its own rules, and in some areas our role is to give advice and
guidance.
     
     Of course, for many of you, passage of the Act only ratified
your own views and work. After all, many of you began the process
of creating local telephone competition even before there was real
hope that the 1996 Telecom Act would actually pass.  Illinois,
Michigan, New York, Florida, California, and many other states
pioneered laws to open up local telephone markets. 
     
     And you all continue to do so.
     
     It is the states that set prices for interconnection and network
elements between competing carriers. 
     
     It is the states that in the first instance are grappling with the
issues of how to create the pro-competitive infrastructure for
competition that, in telecom-speak, is called "OSS". 
     
     And it is the states that will ultimately receive and carry the
greatest burden for adjudicating disputes between competing
carriers.
     
     These are difficult problems.  And common sense requires
that we work together to find the best solutions.
     
     Have we seen eye to eye on every issue raised by the 1996
Act?  No, we haven't.
     
     Have we had our differences on jurisdictional questions?  We
have.
     
     But should we let these differences slow the momentum
toward competition?  Common sense says, No.  We simply can't
afford to slow the delivery of competition to the American public.
     
     I look at it this way.  The statute gives each of us pieces of
the puzzle to solve.
     
     Too often lately we have both been focused too much on
who gets to solve which pieces of the puzzle, and too little on fitting
all the pieces together -- or even identifying the pieces.
     
     Let's leave these disputes to the courts, and move on to the
task of identifying the pieces and putting the puzzle together, so we
can devote our limited resources to delivering on the promise of
competition for the American people.
      
     Where the courts have said that the FCC holds the piece of
the puzzle, we at the FCC should turn our attention to providing
advice on what the piece is and where it goes.   That's just common
sense.

     Now, if there is a piece of the puzzle that we both hold, we
can at least do more to discuss in advance what it is and where it
goes.  Respectful debate is healthy.  It can ensure that we both stay
focused and find areas of common ground.
     
     When the states and federal government do find common
ground, it makes for a very powerful coalition.
     
     A Magna Carta for Competition
     
     Almost 800 years ago the English barons forced King John to
meet at Runnymede and negotiate a set of principles dividing
powers.  That was the Magna Carta.  
     
     Today, I'd like to propose that we set out to create a Magna
Carta for competition.   Our Magna Carta should not just be
limited, however, to grand principles that are indisputable only
because they are vague.  We need first to define the problems we are
tackling, and then move on to outline the solutions to those
problems.  If all of us, or at least most of us, are diagnosing the same
diseases, we will be much closer to agreeing on cures.
     
     We need a Magna Carta for Competition.  A blueprint, if you
will, which sets forth our common principles.
     
     Here are a few of the problems and challenges that we face. 
     
     First, interconnection requirements.
     
     All of us would agree that we are unlikely to see competition
-- choice for consumers -- arrive anytime soon if new entrants
cannot easily exchange traffic with incumbent telephone companies. 
A carrier that cannot interconnect with the largest network that
presently serves nearly 100% of the population will never
meaningfully get off the ground.
     
     Second, unbundled network elements.
     
     One of the Telecom Act's potentially most powerful
provisions is its requirement that incumbent telephone companies
lease portions of their networks to competitors.  Congress learned
this technique from you.  Several states had already begun requiring
unbundling of network elements.
     
     I think we would also all agree that the greater the costs that
must be sunk before you can begin operating and gaining customers,
the higher the barriers to entry will be.  That's why it is critical that
competitors be able to lease parts of the incumbent phone company's
network and be able to obtain services for resale at adequate
wholesale prices.  It is easier to invest in facilities if you already
have the customers and the revenue stream to justify the investment.
     
     Third, pricing.
     
     Most states have reached the same conclusion on pricing that
the FCC did -- that forward looking economic cost-based prices are
the most pro-competitive prices.  There is much more we could learn
from each other about how these principles should be implemented. 
But we have to implement these principles in a way that will
accelerate choice for all Americans.  
     
     Again, I am not talking about jurisdiction, or second-
guessing.  I am talking about reasoned discussion, reasonable
judgments and persuasion.  Common sense.
     
     I believe that there are other areas where we could all benefit
from shared experience and thinking. 
     
     For example: non-recurring charges.
     
     That's an issue we all need to address.  Are there ways to
minimize the extent to which non-recurring charges become barriers
to entry?  The Commission tried some innovative approaches in its
Bell Atlantic/NYNEX Order.  I understand that New York in
particular, and possibly other states, have been studying the issue of
non-recurring charges.
     
     As a related issue, we all must grapple with how best to
interpret the statutory directive to provide unbundled network
elements "in a manner that allows requesting carriers to combine
such elements in order to provide such telecommunications service." 
Does this mean that an incumbent telephone company can
significantly raise its rivals' costs of entry?
     
     Then there is the question of creating not just fierce
competition but fair competition.  How do we create the
infrastructure for exchanging customers smoothly?  How can we
ensure that competitors purchasing interconnection facilities, leasing
network elements, or buying services for resale can get these
facilities and services up and running in a competitively non-
discriminatory manner?   Will a competing carrier be able to get the
information it needs to order services or elements, or to send out its
bills? Will those services or elements be delivered on time and
reliably? If the service or element breaks, will it be fixed? States
across the country have been tackling these incredibly difficult
operating support systems questions --  and forging innovative and
pro-competitive solutions.
     
     Let me mention three more areas where we should work
together.
     
     Implicit subsidies.
     
     I think we all agree that the current system has to end. 
Implicit subsidies penalize the incumbents in the low cost markets,
and discourage entry in high cost markets.  But the subsidies also
cannot disappear -- to do that would threaten to isolate rural
America, rural medical patients, and our schoolchildren from having
full access to the information and communications revolution.  We
must move the implicit subsidies into competitively neutral, explicit
subsidies.
     
     Enforcement -- not who, but how. 
     
     Whatever the scope of claims that are within our respective
jurisdictions, we need a set of best practices for timely, fair and sure
resolution of complaints.
     
     Finally, rural America.
     
     We have all heard reports of loops that are of such poor
quality that they can't even support a 2400 baud modem. 2400 baud!
Compare that with the nearly 56 kilobits per second performance
you get in areas with up-to-date networks and off-the-shelf modems.
That puts you in the information Dark Ages.  Instead of the
information superhighway, it's the information dirt road.  
     
     We need to exchange the information we have on the state of
our networks -- where there are superhighways, two lane roads and
dirt roads -- so that we can improve our understanding of the rural
infrastructure and find ways to ensure that the Internet really can be
reached and used by all Americans.
     
     There are many different ways we can pursue a Magna Carta
for competition, some of them formal and some informal.  I would
like to see us pursue greater informal joint information sharing on all
the topics we have of interest.
     
     But we will also need to forge especially close relationships
as we move forward on the proceedings that move quickly under
tight statutory deadlines.  The FCC must decide one pending 271
petition by the end of the year, and another by early February.  The
Commission also has pending before it LCI's petition for rulemaking
on reporting requirements and performance standards for operational
support systems and interconnection.
     
     We also must finish work this spring on a means for
calculating the forward looking economic cost of providing
universal service.
     
     The Commission will address the difficult issues of under
what circumstances pricing flexibility for interstate access charges is
appropriate.  This is a question of when, not whether, greater pricing
flexibility should be permitted.
     
     We also must move forward on access reform for non-price
cap carriers.
     
     We also all face the difficult task of separations reform.
     
     And we will, in the coming months, open an inquiry into the
state of access to advanced telecommunications across the country,
especially in rural America.  And we will be looking to see whether
there are additional ways to promote deployment of those advanced
services.  
     
     Each of these proceedings will be an opportunity for us to
work together to build a new blueprint for competition in
telecommunications:  a Magna Carta for Competition.  I am
confident that if we work together, we can succeed.
     
     The Magna Carta became the blueprint for movements that
changed the course of history.  Our own American revolution, born
in this very city, was a revolution  descended from that great charter. 

     
     I must admit though, as I begin my term as Chairman of the
FCC, I have spent less time thinking about English history than
about personal histories -- the history of my own family.
     
     My father grew up in Los Angeles, and from the time he was
a little boy, he dreamed of designing buildings.  He fought in Europe
in World War II, and thanks to the GI Bill, he went to college and
became an architect.  He loved to design buildings that brought
people together.  He loved to design churches and synagogues,
hospitals, libraries and housing projects.  He loved to build buildings
that in turn built communities.  And much of his work involved
rebuilding communities in California destroyed by the riots.  In his
life, he won many awards for using architecture to improve
communities, especially lower income communities.  He always
believed that one's work should be weaved into the fabric of building
communities that reach out to everyone of all colors, leaving no one
behind, and promoting values that enrich our souls -- not just our
pockets.
     
     My mother grew up in Tulare, California, a small rural farm
community in California's agricultural core.  She grew up playing
with the children of migrant workers, and from them she learned to
speak Spanish at the same time that she learned English.  She also
learned from them lessons that shaped the course of her life.  After
college, my mother earned an advanced degree in bilingual
education and devoted her professional life to teaching English to
the huge population of non-English speaking students in the Los
Angeles School District.
     
     I remember growing up and watching the joy that my mother
gained from helping those kids from around the world learn English,
so that they would have a fair chance to enjoy the wonderful
opportunities of our country.  
     
     My mother learned early in her life the value of breaking
down barriers to communications.  She learned the power of
communications to bring people of different backgrounds together. 
She saw intuitively the link between being able to communicate and
achieving success in our society. 
     
     Two very different stories.
     
     But what I remember about both was how much they enjoyed
their work.
     
     There's a story about Christopher Wren, the great English
architect, who went up to three workmen on one of his projects and
asked them what they thought they were doing.
     
     The first one said, "Laying bricks."
     
     The second said, "Making a wall."
     
     The third said, "Building a cathedral."
     
     My parents never thought they were just designing a building
or teaching a class. They believed they were building community.
     
     And so are we.  All of us in government share that
commitment.
     
     Competition.  Community.  Common sense.
     
     The world is watching.  If we can truly demonstrate that it is
possible to achieve robust competition and meet universal service
concerns, we will demonstrate to the world that there is nothing to
fear from open markets.
     
     If we can be guided by common sense when it comes to the
issues that divide us, we will open the door not only to an explosion
of growth and choice in telecommunications products at home, but
around the world.
     
     That's how we build the brightest telecommunications future
for America.  I am confident that we will.
     
     Thank you for having me here today.  I look forward to
working with you.