Remarks of Commissioner Rachelle Chong
                      to Women in Telecommunications
             "Just Between You and Me:"  What's Hot at the FCC

                               May 25, 1995

                        San Francisco, California


     Good afternoon.  It's wonderful to be invited back to my city again.  To feel the
cool fog rolling in and to take in the incomparable views of this city is tonic to my
harried soul.

     I've just come from my hometown of Stockton.  Yesterday, I spent a day with
children from my alma mater, the Lincoln School District, getting their input on
children's television issues.  You know, a lot of adults assume we know what kids
think about TV, but I have found that kids have their own views and opinions that
might surprise us.  They want less violence and more realistic shows, and more
educational shows that are entertaining.  They told me they mostly watch television
unsupervised and that they believe television influences their views.

     I am now on my way to Korea to represent the FCC at an Asian Pacific
Economic Council meeting on issues related to the global Information Superhighway. 

     As a member of both Women in Telecommunications and the CCPUC, it is a
great pleasure to speak to this group.  I've kept in touch with many of you during
what some of my friends call "Rachelle's Totally Excellent Adventure in Washington."  
I thought I would try and tell you what a national telecom view is like before launching
into a summary of some of the hot issues before the FCC that might be of interest to
you.


Merlin's Lesson

     My friends often ask me what it's like to be an FCC Commissioner.  One 
way to answer is to harken back to the days of King Arthur.  (Now bear with me on
this one, because this story does illustrate a point.)  

     According to legend, Arthur was born the son of the King Uther Pendragon.  It
was a time of treachery between the minor kings of Briton as they battled for power,
and this treachery extended to the murder of another king's sons.

     Because of the danger, immediately upon his birth, Arthur was secretly given
into the keeping of Merlin, a trusted magician.  Merlin brought Arthur to Sir Hector
who raised him as his own in safety and anonymity.  As the boy grew, Merlin trained
young Arthur in skills that would make him a great king that would one day unite
Briton.  Arthur studied subjects like tilting, archery, hunting, and chivalry.  (In those
days, chivalry was still a GOOD thing!)

     Given Merlin's extraordinary talents as a magician, Arthur's education was
rather exceptional.  Merlin cleverly used Arthur's love of the forest to teach Arthur
skills that he would find useful as a future king.

     For example, one day, poof!  Merlin turned Arthur into a fish, where he taught
the boy what it was like to live in an underwater world.  Another time, Merlin turned
Arthur into an ant, to learn what it is like to work with a team.

     Finally, Merlin turned Arthur into a hawk.   Merlin urged the startled boy to
spread his powerful new wings and to fly.  And so Arthur did, rising high into the sky
and reveling in his freedom from earth.  Once he mastered the art of flying, Arthur
looked below him and was astounded at how different things looked from above.

     Merlin and Arthur flew to many places that day.  Merlin showed Arthur the
boundaries of the kingdom that would one day be his.  Arthur saw that the forest --
which up to that time had consisted of his entire world -- was only a small part of a
larger county.  And this county in turn was a part of a larger country.

     What Merlin taught him through this exercise was perspective -- so that once
Arthur was the king, he would remember that his job was to unite the country and to
act in the interests of all his people, and not for just a few.

     Before I became a Commissioner, I was like young Arthur, with a view
primarily of the local forest.  I was a foot soldier engaged in the daily battles over
wireless issues before the California Public Utilities Commission.  

     Now, like young Arthur, I feel as if I have been transformed into a hawk,
soaring high above the telecom landscape -- giving me a new perspective, a
nationwide view.  As Arthur discovered, things can look different from this
perspective.

     You see, we FCC Commissioners are charged with serving the public interest. 
Like King Arthur, we must make our decisions for all the people, whether they live in
urban cities, rural counties, a tropical island or in the far reaches of Alaska.  I have
found that a broader view of the telecom landscape has deepened my understanding
of how this all fits together.


Driving Principles

     So you might ask, what does a national perspective lead one to conclude? 
There are a number of basic principles driving national telecommunications
policymakers these days that I wanted to share with you.

     First, there is widespread agreement that competition is the best way to
promote reasonable rates and innovative service offerings.  We are introducing
competitive models in every market we can, as swiftly as we can.

     Second, interoperability and interconnection between telecom networks is seen
as key to promoting a national information infrastructure, which in turn leads to a
global information infrastructure.  After a number of trips abroad representing the
FCC, I note that there is great enthusiasm about the Information Superhighway and
how it can enhance the lives of all people.  

     Third, most believe that our current scheme of universal service must be
revised to reflect our movement towards a more advanced telecommunications
system.

     Fourth, the effect of convergence among industries has been recognized. 
There is a commitment to update our sixty year old Communications Act so that a
more competitive regulatory scheme is achieved in which players can compete fairly
and in more than one industry.

     Finally, there is a growing recognition that telecommunications markets are
global, and that we must ensure that our policies promote US participation in foreign
markets.

     These principles are driving Congress to consider new telecom reform
legislation, and the FCC to continue its arduous task of introducing competition
wherever possible under existing law.  There is no question that legislation would be
the faster way to accomplish this reform.  But, given this complex set of industries,
the devil is always in the details.  So, onward to some of the  details of the pending
telecom legislation on the Hill and what's hot at the FCC.


Legislation

     Right now in Washington, it's Congress --  not the FCC -- that is center stage
in the debate about whether our trusty 1934 Communications Act should be
overhauled.  While most policymakers agree that we must update the Act, there is
dispute over how far and how fast we should go.

     Last year's efforts to pass a telecom reform bill came to naught.  But this year,
there is optimism that a bill will indeed be passed.  I am going to focus on the two
comprehensive telecom reform bills that are actively being discussed in the Senate
and the House right now.  You'll see that these bills recognize the convergence of
many up-to-now separate communications industries. 

     Let me start with a caveat -- everything I'm about to tell you about these bills
was current as of the beginning of this week, when I left D.C.  However, negotiations
are continuing, and the House Commerce Committee began its consideration of the
bill yesterday, and is scheduled to continue today.  So, some changes may have
taken place that are not reflected in my comments.

     Let's start with the House bill -- HR 1555.  It was introduced by Tom Bliley,
Chairman of the House Commerce Committee on May 3, 1995.  Joining Chairman
Bliley as primary sponsors of the bill are Congressmen Dingell and Fields.  

     On the other side of the Hill, Senate Bill 652, has been voted out of the
Commerce Committee under the leadership of Senator Larry Pressler.  On Monday,
Senator Pressler said this bill could come before the full Senate as early as June 5
for three days of debate.  However, on Tuesday, Senator Dole said he may hold back
the telecom legislation from the floor if Democrats plan to offer unrelated
amendments.

     I only have time to hit the highlights of these bills.  Let me first tell you how
they are similar.  

     *     Most importantly, both bills open up the local telephone loop to
           competition.  State and local regulations that prohibit a carrier from
           entering into the business of providing interstate or intrastate
           telecommunications or information services are preempted.

     *     Both bills impose interconnection obligations on local exchange carriers.

     *     Both bills lift the MFJ line-of-business restrictions and allow the Regional
           Bell Operating Companies into manufacturing and long distance services
           within their service area, if the FCC determines that it has fully
           implemented a specifically enumerated "competitive checklist."

           This checklist for the RBOCs includes providing equal access and
           interconnection, unbundling of network elements, no discriminatory or
           unreasonable restrictions on resale, number portability, dialing parity,
           and access to conduits and rights of way.

     *     Both bills permit telephone companies to provide video programming to
           subscribers within their service areas, with certain safeguards.

     *     Cable rate regulation is relaxed to some degree in both bills.

     *     Both bills provide broadcasters with some spectrum flexibility, extend
           license terms of broadcasters to some degree, and streamline license
           renewal procedures.

     *     Both bills provide for a joint federal-state board to recommend actions
           on the preservation of universal service.  

     *     The FCC is given authority to forbear from regulation in certain areas
           where it finds that enforcement is unnecessary or regulation is
           inconsistent with the public interest.

     The House and Senate bills differ in the following major respects:

     Video dialtone:  The Senate bill would allow a telco to enter a video market
without having to obtain authority from the FCC or establishing a separate subsidiary,
unless the telco is operating as a cable operator under our cable regulations.  Telcos
that choose to provide video dialtone would not be deemed to be cable operators. 

     In contrast, the House bill requires a separate subsidiary for a telephone
company to provide video programming directly to subscribers in its telephone service
area.  A telco that provides video programming in its telephone service area can do
so in two ways:  first, it could establish a video platform, but must notify the FCC of
its channel capacity for the provision of video programming to meet the bona fide
demand for capacity; or second, it can operate a cable system separate from its
telephone facilities and be regulated under the cable rules.

     Out-of-region long distance:  The Senate bill allows a Bell company to provide
long distance services outside of its service area upon enactment, without having to
go through the competitive checklist process.   The House bill imposes the same
checklist requirements for both in-region and out-of-region provision of long distance
service by a Bell company.

     Foreign ownership:  The Senate bill allows foreign ownership in U.S. common
carriers above the current statutory limit of 25% if the FCC finds that U.S. common
carriers have equivalent market opportunities in the relevant market of the foreign
country.  This is usually referred to as "the reciprocity provision."  Recent press
reports suggest a transaction may be voided for national security reasons.  The
Senate bill does not change the current foreign ownership rule for broadcasters.  

     The House bill, as amended in the Subcommittee mark-up last week, lifts all
restrictions on foreign ownership -- for both common carriers and broadcasters. 
However, this was an area subject to further discussion in the full Committee.

     Generally speaking, there are a few major areas of controversy on the two
bills.  First, some argue that the bills prematurely deregulate cable rates.  

     Second, there is some disagreement about how strictly to limit telephone
companies' ability to buy cable companies in their service area.

     Third, some are pushing for a strong role for the Department of Justice in
assessing the competitive impact of Bell entry into the long distance and
manufacturing markets. 

     Will a version of one of these bills pass?  I think it is quite possible, and I
personally hope so.  Based on conversations I have had with key lawmakers on the
Hill, I can report that they are optimistic that a bill can be achieved this year.  But,
again, they said that last year.

     A wag might suggest that achieving a new telecom bill can be likened to King
Arthur's knights searching for the Holy Grail.  Certainly, the task seems daunting at
times, fraught with trials and tribulations.  But like noble Sir Galahad, we in
Washington do struggle on with the purest of intentions to achieve something good
for consumers.


PCS

     There are a lot of people from wireless companies in this audience, so how
about the latest scoop on PCS?  One of the first things I did when I joined the FCC
was to work on Personal Communications Services.  PCS is a family of wireless
personal devices that promises to deliver telephony, information and advanced
paging.

     The FCC hopes that PCS will provide an opportunity for women and minorities
to be active participants in the development of the Information Superhighway.  The
FCC adopted rules last year to encourage small businesses, businesses owned by
women and minorities, and rural telephone companies to bid for PCS licenses.  

     We call those four groups "designated entities" -- or DEs -- because Congress
specifically designated them in language contained in the 1993 Omnibus Budget Act. 
That's the 1993 Act that gave the Commission auction authority for the first time.

     Congress realized that auctions could result in licenses going only to those
with "deep pockets."  In an attempt to ensure this did not happen, Congress told the
Commission to design a competitive bidding system that avoids too much
concentration of licenses by a few, and instead, disseminates licenses among a wide
variety of applicants, including the four DE groups.  

     To achieve this goal, the statute requires the Commission to consider the use
of tax certificates, bidding preferences, and other procedures for DEs.  I note that
minority tax certificates were done away with by Congress this year.

     So, the Commission compiled a record that confirmed what Congress already
knew -- that the major problem facing minorities and women desiring to offer PCS
was the lack of access to capital.  At an auction, no money translates into an inability
to win a license.  The Commission's "DE" rules are tailored to address this specific
problem. 

     The Commission established entrepreneurs' block licenses to insulate smaller
applicants from bidding against very large, well-financed entities.   We made bidding
credits in the broadband auction available to small businesses, women and minority
owned companies that have demonstrated historic difficulties accessing capital.  

     In the entrepreneurs' block, we adopted provisions which allow the winners to
pay the license price in installments, and pay reduced upfront payments.   Finally, we
established partitioning rules to allow rural telephone companies to get a license for a
portion of a bigger service area in order to expedite the availability of PCS service in
rural areas.

     There's no doubt the Commission took a bold step in adopting these rules. 
We could have done something less risky.  But we took very seriously Congress'
directive.  After vigorous debate among us, we fashioned our rules to create a truly
meaningful opportunity for DEs to participate in the PCS auctions.  

     Now the latest blip on the PCS screen has to do with the C block broadband
PCS auctions.  The A and B Block broadband PCS auctions ended on March 13th. 
By all accounts, these auctions were a great success, because they efficiently and
swiftly awarded our first PCS licenses.  

     As background, the FCC wanted to start the C Block auction -- the first of the
entrepreneurs' block auctions -- for 493 licenses in June.  But, in February, 
Telephone Electronics Corporation, or TEC, a rural telephone company, filed an
Emergency Motion for Stay in the D.C. Circuit Court.  TEC is an entity that is too
large to qualify to bid in the entrepreneur's block.

     TEC asked the Court to stay the portion of our rules that prohibited TEC from
participating in the auction or to stay the entire C Block auction.  The D.C. Circuit
Court stayed the auction.  This was considered a disaster by our entrepreneur block
applicants.

     Fortunately, TEC reached a private settlement with another wireless company
and has dismissed its suit.  The D.C. Circuit Court promptly dismissed the stay, and 
the C Block auction is now scheduled for August 2, with short form applications due
on June 15.  

     So, we've dodged the bullet, and we hope to see broad participation by a
variety of applicants, especially women and minorities.  


Equal Access, Resale, and CMRS Interconnection

     Another wireless issue that is pending before us involves the question of
whether Commercial Mobile Radio Service providers should have interconnection,
equal access and resale obligations imposed on them.   CMRS providers include
cellular, PCS, paging and SMR service providers.

     First, equal access:  In June 1994, the Commission put out a Notice of
Proposed Rulemaking to address whether equal access obligations should be
imposed on all cellular licensees.  In this Notice, the Commission tentatively
concluded that it was best to require cellular licensees to provide equal access to
interexchange carriers.  We thought it would promote customer choice and enhance
long distance telephone competition.

     But I emphasize that this tentative conclusion was just tentative.  It was based
on our understanding of the current position of cellular service providers in the larger
CMRS marketplace.  I for one have an open mind about what may be appropriate as
to equal access given the evolving nature of the wireless marketplace, for example,
PCS entry. 

     In April of this year, the Commission adopted a Notice of Proposed
Rulemaking addressing the issues of CMRS interconnection and resale.  In this
Notice, the Commission tentatively concluded that imposing a resale obligation on
most CMRS providers would be in the public interest.  

     The reason why I voted for this resale obligation is that I think mandatory
resale was a policy that worked well in the early days of cellular.  Namely, the FCC's
resale policy minimized the competitive advantage that the wireline cellular carriers
had over the nonwireline carriers.  This advantage was due to the fact that the
wireline carrier got its license first, and generally was able to build its systems first
before the nonwireline carrier.

     I also believe that cellular resale by non-facilities-based cellular providers has
been very beneficial to consumers.  Resellers provide vigorous retail competition to
the two facilities-based cellular providers.  So I support the extension of resale
obligations to all CMRS providers as a way to enhance competition.

     On the question of interconnection, the Commission decided it was premature
to impose a general interconnection obligation on all CMRS providers.  

     I supported this decision for two main reasons.  First, the CMRS industry is
undergoing tremendous change, both in terms of technologies and facilities
employed.  At this time, we can't even predict what some CMRS networks -- like PCS
-- will look like.  So, any guesses we could make now about how to interconnect
these networks would be purely speculative.

     Second, I firmly believe that business needs will drive interconnection
agreements to be struck when it's appropriate and necessary.  When traffic volumes
between CMRS systems justify direct connections, the industry will interconnect
because it makes good business sense to do so.

     A status report in closing:  I am told by our Wireless Bureau that the
proceedings on all of these issues -- equal access, interconnection and resale --
should be completed by the end of this year.  


State Petitions to Regulate Cellular

     Another wireless issue that might be of interest to you is the Commission's
recent decision to deny petitions from seven states, including the State of California,
seeking authority to continue regulating cellular and other commercial mobile radio
services.  I note that I was recused from the California case.

     In 1993, in the Omnibus Budget Reconciliation Act, Congress preempted state
rate and entry regulation of commercial mobile radio services.  However, Congress
allowed states that had rate regulation in place on June 1, 1993 to petition the
Commission for continuation of such authority.  Eight states chose to petition the
FCC.

     Several states pointed to the fact that the cellular market is a duopoly and,
therefore, is not fully competitive.  The FCC responded by noting that Congress was
aware of the cellular market's structure when it passed the relevant Act.  Therefore,
we concluded that the legislative intent required more than a restatement of the
duopoly nature of the cellular market. 

     Specifically, the statute requires states to demonstrate that market conditions
fail to protect consumers from unjust and unreasonable rates, or unjustly and
unreasonably discriminatory rates.  After a careful look, the Commission found that
none of the states met this statutory standard.

     In denying the petitions, the Commission pointed to Congress' overall
preference for competition over rate regulation of CMRS.  In addition, the
Commission found that competition from PCS is imminent for cellular providers.  So,
that was our rationale, in a nutshell.


Video Dialtone

     Enough on wireless, and onward to video dialtone -- or VDT.  When I first
joined the Commission, I had no idea what the term "video dialtone" meant.  It is
simply a shorthand name for an FCC policy that will permit for the first time telephone
companies to enter the video market.  There is a twist, and that is that a telephone
company choosing to offer video dialtone service has to act as a common carrier,
providing a transmission conduit for video programmers to reach subscribers.  

     The purpose of video dialtone is to introduce new competition to cable
companies, who still dominate the video market in terms of distribution.  We think
additional competition will lower rates and provide more customer choice.

     Under the common carrier model of video dialtone, the FCC initially envisioned
a telephone company offering capacity on its network to multiple, unaffiliated video
programmers on a nondiscriminatory basis.  In October of last year, the FCC finalized
the basic rules that will govern this evolving service.  We reaffirmed that video
dialtone was to be grounded in common carrier principles.  

     We then began the process of considering individual applications by telephone
companies seeking to provide video dialtone.  These so-called "Section 214"
applications proposed widely different system architectures and technologies, and we
have examined each of them carefully.  We are almost through with this process.

     To date, we have approved 26 video dialtone applications.  Twelve of these
are commercial systems, and 10 are trial offerings.  We have a few more applications
to consider.  

     The next step -- and it is a critical one -- is to look at the tariffs being filed by
the telephone companies to ensure that video dialtone rates, terms and conditions
are just, reasonable, and nondiscriminatory.  This important task will begin in the very
near future.

     But not all the action on video dialtone has been at the FCC.  There has been
activity in the courts too.

     A provision of the Communications Act -- the so-called "cable/telco cross-
ownership ban" -- completely bars a telephone company from providing video directly
to subscribers in its local telephone service area.  The key concept is that telephone
companies not only want to provide video programming originated by others, they
also seek to provide their own video content over their networks.  

     The cable/telco statutory ban frustrates their business plans, and they have
brought a host of federal law suits against this part of the statute.  To date, they have
won every one of these lawsuits.  

     The lower courts have ruled that this absolute ban on telco "speech" unduly
burdens the First Amendment rights of the telephone companies.  So, this means that
telephone companies who have won their lawsuit can provide their own video content
over their video dialtone networks.  The Justice Department and the FCC have asked
the Supreme Court to review these decisions.  

     In the meantime, as I mentioned earlier, Congress is considering repealing the
cable/telco cross ownership ban.  

     As a result of these court rulings, the FCC is in the process of revisiting its
original video dialtone rules, which again, did not allow the telephone company to
offer its own content over its VDT system.  

     In January, we issued a Notice of Proposed Rulemaking to consider the
complex issues surrounding telephone provision of video content over VDT networks. 
We hope to complete work on final rules later in the summer.  That's where we are
with video dialtone.


Small Cable Operators

     For those of you interested in cable, let me take a minute to talk about an item
the Commission recently adopted.  

     One of the especially difficult cable issues that has faced the Commission
since passage of the 1992 Cable Act is what to do about small systems.  The Act
clearly tells the Commission to reduce the regulatory burdens and the cost of
compliance for small cable systems.  The Commission has adopted several
mechanisms, beginning with its first rate order, to try to help these small operators.  
     
     But, small operators came to us and said, "It's not enough!"   One of the
problems they raised was the definition of small systems the Commission adopted. 
They argued it was not broad enough to include all of the operators who needed
relief.  In addition, the definition was multi-tiered, and very confusing.  Operators had
trouble determining which category they fell into.  And there was different relief for
different categories. 

     This complexity runs contrary to my belief that regulations should be simple
and pragmatic, especially for a small licensee who cannot afford to hire specialized
counsel just to figure out how to comply with our rules.

     So, on May 5th, the Commission simplified its small cable system definition,
and significantly expanded the number of systems that qualify for special relief.  And
what is this special relief?  The Commission adopted a new rate regulation approach
which involves a simple calculation based on a system's costs -- a very simple cost-
of-service showing.

     I certainly hope this new approach relieves the regulatory burden on small
cable operators.


Conclusion

     That's all folks.  We've covered a lot of ground, and I hope it gave you a bird's
eye national view of the telecom world.  Aren't you glad you hang out in California
and not in Washington?  

     I thought I would end with a story about some of the lingering notions about
FCC Commissioners.  A few weeks ago, I was in the FCC ladies room and greeted a
young FCC employee that I see in there from time to time.  

     She told me that the first time we had chatted in the bathroom, she had
spoken to her grandma on the phone that night.  She told her grandma that she had
met a commissioner in the bathroom.  Her shocked grandmother asked her what she
was doing in the men's restroom!  'Nuff said.  The beat goes on.    

     Thank you very much.