Remarks of Commissioner Rachelle B. Chong
                    Before the Practicing Law Institute
              and the Federal Communications Bar Association
                         13th Annual Institute on
                 Telecommunications Policy and Regulation
                             December 14, 1995
                             Washington, D.C.
                  "Rudolph's Roadmap to More Competition
                           and Less Regulation"
     Happy holidays to you all.  One of the great things about being an FCC
Commissioner is the people you meet.  For example, Rudolph the Red-Nosed
Reindeer dropped by my office the other day.  You know Rudolph -- antlers, red
nose, flies.  He's the lead Washington lobbyist -- I mean reindeer -- for Santa Claus.
     Rudolph told me that Santa was making his list, and checking it twice,
finding out who's been lobbying naughty or nice -- doing all he can to give the FCC a
new telecom reform bill for Christmas.  I asked Rudolph if Santa could put a little
more competition in my stocking, and a little less government regulation than in years
past.
     I asked for that because this is a topic I've been thinking about lately:
how to bring more competition, and less government regulation to the world of
telecommunications.  You see, the way I see it, there's a revolution going on right
now in Washington, and it's about the role of government in our lives.  At its core, the
current budget debate raging in Washington is about the proper scope of the federal
government in our society.  So, it could be a watershed moment in time.  Moreover,
this revolution has important ramifications for telecommunications policy.
     In this revolution, there seems to be general agreement that there will
be less need for regulatory oversight as competition takes hold.  But people don't
always agree on what we mean by less regulation and how we accomplish this.
     This morning, I would like to present my personal vision of how we
transition to a more competitive communications marketplace with less regulatory
oversight.  I would like to propose a three stage roadmap that will lead us to that
destination:
    Stage One:  Government removes existing barriers to entry, and breaks down
     inherent advantages for incumbents.  This will provide the foundation for a new
     competitive communications world.
    Stage Two:  Government monitors the results and adjusts its policies as
     needed to advance competition.
    Stage Three:  Government steps back and lets the market work.
     As a fundamental matter, I start from the assumption that competition
generally should trump regulation.  Not in all cases, but in most cases.  In Stage
One, there is an important role for government to help jumpstart competition in all
telecom markets.  But as competition increases and gains hold in Stages Two and
Three, I would like to see the government's role shrink.
     As I take you on this journey to more competition and less regulation, I
will discuss where I think we are today, and define where I would like us to be in the
future.  Then I will address the three stage roadmap in a little more detail.
                    WHERE WE ARE TODAY:  THE CHALLENGE
     Our main challenge today is that we are constrained both by outdated
law and by our own thinking.
     First, the law.  The FCC derives its authority from a statute that was
largely written in the time of Franklin D. Roosevelt.  I speak, of course, of the
Communications Act of 1934.  Simply put, the statute is outmoded.  Here we are, in
1995, some sixty years after the Act was passed.  The telecommunications world has
changed dramatically.  We have seen amazing technological advances in sixty years.
We have also seen significant changes in competitive circumstances.  And yet many
of the core common carrier provisions of the statute date back to 1934, and even
before that to the Interstate Commerce Act.
     Some days, particularly those days when I am dealing with convergence
issues such as video dialtone, I struggle with the current law.  I often feel like I am
trying to force a square peg through a round hole.
     Anybody recognize this little fellow?  This is Gumby.  He's green, his
head slopes to one side, and he's very flexible.   He's so flexible, so supple in fact,
that he's able to radically change shape and walk through walls.
     Like Gumby, the Communications Act has been called a "supple
instrument" that gives the FCC wide latitude to respond to rapid changes in
technology and market conditions.  However, the Communications Act is no Gumby --
when stretched and pulled too far, it can tear.
     Virtually everyone involved in the communications field agrees that we
need to reform the Communications Act.  Congress is working feverishly on a new
telecom reform bill even as we speak.  We are all on pins and needles to see if they
achieve a revised law.  So far, they have made unprecedented progress.
     I applaud this progress and strongly support their efforts.  Every time I
speak with a member of Congress, I emphasize that the FCC desperately needs an
updated law to deal with contemporary issues.  Congress could help us quickly
achieve the goal of more competition and less regulation much faster through
legislation.
     I urge the affected industries and companies to work constructively to
help Congress achieve consensus and pass a new law.  After all, you wouldn't want
a lump of coal in your stocking for your work on the legislation!
     However, there's another problem besides the law.  I call it "regulator
mindthink."  You see, we have traditionally regulated various industries in different
ways and with different levels of regulation.  Now, this worked reasonably well in a
world where monopolies prevailed, and each industry generally stayed to its core
business.  But today, of course, everybody is a busybody -- they all want to get into
everyone else's business.  If our current market players wrote Santa Claus a letter, it
might read something like this:
"Dear Santa Claus,
     We local telephone companies want to get into video transmission and
programming markets and compete against the cable companies.  And we want to
enter the long distance telephone market, too.
     We cable operators want to provide telephone service, while we wireless
providers and long distance companies all want to take on the local loop telephone
providers.
     We broadcasters want to get into paging and data services.  Oh, and
please please please, we want to transition to digital TV.
     We've all been good boys and girls, Santa.  Honest.
     The Communications Industry"
     As this "wish list" shows, companies want to evolve into full service
providers offering consumers a sleigh full of communications services.
     Given this development, regulators must take a broader view toward
competition and aggressively question current practices that are based on outdated
industry structures.  If you ask the FCC's staff, many will tell you that I am constantly
challenging them to forget how we usually do things, and to "think outside of the box"
-- to think boldly and creatively about our issues without regard to precedent or old
mindsets.
     So, this is where we are today.  We are dealing with a statute that
needs to be updated, and with traditional notions of regulation that need to be
revamped.  And technology and convergence won't wait on us.  To stay competitive
in the world economy, we've got to push forward and help our American companies
stay world leaders in communications.
                            WHERE WE WANT TO BE
     Our next task is to figure out where we want to go.   What is it that we
are trying to achieve?  I would like to see a world where consumers have choices
galore for their communications needs.  In this world, every home and business has
access to multiple communication providers.  The paths that deliver these
communications services may be wired, wireless, or both.
     The hallmark of this new world will be consumer choice and vigorous
competition.  Providers will not fit neatly into the traditional categories of telephone,
cable, cellular, or long distance company.  Instead, they will evolve into
communications companies, offering a broad array of reasonably-priced services, and
competing fiercely with each other.
     In this new competitive world, we can and should take a different
approach to regulation.  We should stop regulating these providers in isolation and
stop relying on old labels for how we regulate them.  Just as they will view
themselves as full service providers, regulators also should view them as competing
communications service providers.
     Hopefully, when competition among these providers reaches a
significant level, regulators can get out of the business of price regulation.  Market
forces will determine fair pricing levels.  And if regulators no longer need to regulate
prices, we won't need to worry about allocating costs among various services -- the
Achilles heel of regulation.
     This is where I would like to be in the future -- increased consumer
choice, increased competition, and, eventually, no price regulation.
                       HOW TO GET FROM HERE TO THERE
     So how do we get there?  I talked it over with Rudolph at length, and we
developed a three-stage process to get from where we are now to a wonderful world
of robust competition and reduced regulation.  Why three stages, you might ask?
Because two clearly are not enough, and four are too many to remember!  So here
we go. . .
     Stage One.  In the first stage, legislators and regulators must remove
barriers to entry and break down inherent advantages of incumbents.  I see this as a
period of intense activity for Congress, the FCC, state regulators, and service
providers.  If we do our job right during this stage, the need for regulatory intervention
and oversight in the future will be greatly diminished.
     Some of the barriers to entry, of course, are beyond the power of the
FCC to address.  To their credit, many states have taken significant steps to remove
existing barriers to entry and to create an environment that will enable competition to
grow.
     Like the states, the FCC is moving forward with a procompetitive
agenda.  We are not waiting for the legislation to pass.  Legislation is not one of
those certain things in life, like death, or taxes, or the argument between spouses
when picking out a Christmas tree.  So, the Commission is pushing ahead to address
issues that are currently within our authority.
     While we do this, we are trying to structure our initiatives and proposals
consistent with the general approaches taken in the pending legislation.  That way, if
and when the statute passes, we will have a running start.  We may have to tweak
things a bit depending on the shape of the final law, but at least we will not be
starting from scratch.  The industry "groupthink" that has occurred during the
legislative process has brought the Commission many insights and approaches that
are helpful no matter what happens.
     The proceedings that we have initiated -- or will soon initiate -- are
designed to advance the goals I mentioned before:  breaking down barriers to entry
and reducing the advantages of incumbents.
     Here are five key areas that the Commission intends to work on:
interconnection, access charges, universal service, pricing, and numbering issues.
     First, interconnection.  Interconnection is critical to the development of
new communications services and the evolution of competitive markets.  There are
significant public interest benefits to ensuring that our communications networks
interconnect freely with each other.  We don't want individual users isolated because
interconnection is not available.  To the contrary, we want users to be able to reach
customers on any network, no matter where they are or who their service provider is.
     I believe that we must move aggressively to develop a sensible,
efficient, and fair interconnection policy that will advance competition.  New entrants
and existing competitors must be able to secure timely and reasonably-priced
interconnection in order for us to realize the full benefits of a seamless "network of
networks."  Tomorrow, at the Commission open meeting, the FCC will take up
important issues involving wireless to wireline interconnection.
     Second, interexchange access charges.  The Commission's Part 69
access charge rules spell out the rate structure and cost recovery regime for one type
of interconnection  --  how long distance telephone providers interconnect with local
telephone companies.  The rules were primarily designed to ensure nondiscriminatory
treatment of long distance providers so that competition would develop in the
interexchange market in the wake of divestiture.
     It has been clear for some time now that our existing access charge
rules are being tested as the access market begins to move in the direction of
competition.  The reason is simple.  These access charge rules were developed in a
monopoly world, and they assume that the local exchange carrier is a monopolist.
     As competition begins to take hold in local exchange and access
markets, I believe our access charge rules may become counterproductive.
     To the extent that regulation pushes access rates well above the
relevant costs of providing access service, bad things begin to happen.  For example,
regulation creates artificial incentives for new competitors to enter the market and for
existing customers to move traffic off the LEC's network.  This upsets the existing
balance of subsidies built into Part 69 designed to advance universal service goals.
And the key point is that regulation, not market forces, is driving these results.
     The FCC is beginning to address the problem.  We are doing so on a
case-by-case basis through waivers of our access charge rules in areas such as New
York, where access competition is advancing more rapidly than in other locations.
     But this is not a satisfactory or efficient approach to the underlying
problem.  We need comprehensive access charge reform, where everything is on the
table and subject to debate.  The Commission plans to address access charge reform
in the near future.
     Third, universal service.  Like access charges, our current high cost
assistance rules were developed in a monopoly environment.  We have a pending
rulemaking to reexamine and retarget our high cost assistance policy.  While our
commitment to universal service should not waver, we should try to be smarter as to
how we achieve our goals.
     For example,  we should target assistance to those who truly need it.
And as competition begins to develop in the local exchange, we need to ask whether
a broader group of communications providers should contribute to the Universal
Service Fund.  We should also ask whether a broader class of competitors should be
eligible to take from the fund.  My initial belief is that the answer to both questions
should be yes.  Another interesting idea being discussed is whether high cost
payments or credits should go directly to subscribers, rather than the service
providers.
     On the broader topic of universal service reform on a going forward
basis, I think we need to have a thorough debate about what universal service should
mean in a world of converging technologies.  Shouldn't the definition of universal
service be expanded beyond "plain old telephone service" to include new services?
In short, we have to decide what we are willing to strive for as a nation.  The FCC
intends to initiate a separate proceeding on this issue shortly.
     However that debate comes out, I believe that we should move away
from hidden subsidies and make them explicit.  Consumers should know they are
being asked to pay a subsidy, how much it will cost, what it will be used for, and who
will receive the subsidy.
     Fourth:  pricing.  The Commission has been and will continue to be very
active in reforming its price regulation schemes.  For example, the FCC recently
declared AT&T to be a "non-dominant" carrier for domestic purposes, thereby
effectively mooting price caps for the interexchange industry for most domestic
services.  So, in the long distance market, we believe that competition has developed
to the point that we generally can rely on market forces to ensure reasonable rates.
     As for local exchange carriers and access charge pricing levels, the
Commission has much work to do.  It's such a big job, we've drafted Dasher and
Dancer and Donner and Blitzen onto a common carrier task force.
     We currently have an interim price cap regime in place.  First, we must
develop more durable price caps rules, and we have a pending rulemaking notice on
this issue.
     But more importantly, we must strive to tailor our price caps rules so
that they acknowledge and accommodate competition.  Our rules should be flexible
and adaptive.  We should attempt to define various levels of competition, and craft
rules that grant appropriate pricing flexibility and other relief as competition evolves.
We also have a pending rulemaking notice on this critical issue.
     Let me share with you my goals for price regulation at the FCC.
Initially, I would like to see us develop workable rules that implement so-called "pure"
price caps and move away from rate-of-return regulation.
     But that is just a first step.   As competition develops in specific areas or
services to a significant degree, price regulation can and should cease.  I would like
to see the day when competition develops to the point that the Commission can
safely step away from price regulation altogether.  Our experience with AT&T price
regulation may be useful as a general model for the LEC industry as we move
forward.
     Fifth, numbering issues.  I think we need to develop an efficient and fair
system to govern the all-important numbering resource.
     In the past, incumbent local exchange carriers have dominated
numbering administration.  This must change.  New entrants must have prompt and
ready access to numbers in order to compete effectively, so it is important to put in
place a framework run by a neutral third party to deal with numbering administration.
The Commission is in the process of getting the North American Numbering Council
up and running to address this issue.
     Similarly, for consumers to easily subscribe to services provided by new
entrants, they should be able to take their telephone number with them when they
switch providers.  Otherwise, the inconvenience of changing their telephone number
will dissuade the switch.  We have a pending rulemaking notice on portability, and we
hope to adopt rules in the middle of next year.
     So these are five major, interrelated areas that the Commission will be
addressing in the months ahead:  interconnection, access charges, universal service,
pricing, and numbering issues.  The pending legislation addresses many of these and
other issues, of course.  But whether the legislation passes or not, the Commission
will move forward to move the industry towards competition.
     One suggestion from me:  As we progress with these parallel dockets,
we must take care not to get so bogged down in the details that we lose sight of our
broader goals.  While we grapple with individual issues, we have to remember to fly
like Santa in his sleigh above all of these proceedings.  We need to hold onto the big
picture to keep our procompetitive perspective.
     If we don't, we will lose an important opportunity to increase competition
and reduce regulation.  As we work through these issues, I urge interested parties to
file comments that help the Commission take a "big picture" approach even in
individual proceedings.
     Enough on Stage One.  That should keep us all busy and out of
mischief for a while.
     Stage Two is very simple.  I see the Commission monitoring the results
of our Stage One efforts, and adjusting our regulations as necessary.  This may
involve tightening some rules in places, and relaxing or removing others.  No doubt
there will be unexpected developments that will have to be addressed.  But in
contrast to the intense work in Stage One, this should be a cakewalk -- if we
successfully negotiated Stage One by adopting clear rules that can be administered
efficiently.  At this point, we should all be able to see the destination clearly and the
benefits will become apparent.
     At Stage Three, competition should be vigorous and thriving.   When it
does, the FCC should step back, get out of the way, and let the market work.  Market
forces will take the place of most regulatory "solutions."  Government involvement
and oversight should be limited to a light regulatory touch, with cost allocation and
price regulation relegated to history.
     In Stage Three, I forecast a reduced role for the FCC.  But unlike some
critics of the agency, I believe that there will still be a need for an independent expert
agency.  The need will be different in some ways, no doubt, and our mission will
need to be adjusted to the new realities of a competitive world.
     One role that I think will always exist for the FCC is that of a referee.  A
good example of this is the recent problem with 800 number exhaust.  In the past
year or so, there has been an unprecedented explosion of demand for 800 numbers
from service providers.  Industry efforts to solve this problem were unsuccessful.
There seemed to be too many competing interests to reach consensus.  The industry
turned to the FCC for help, and the Common Carrier Bureau acted swiftly to slow the
depletion of 800 numbers and accelerate deployment of the new Triple 8 toll-free
numbers.
     This an example of the constructive "umpiring" role the FCC can play in
an increasingly competitive environment.  I envision our role as a limited one in the
future.  The mark of a good umpire at a baseball game is when the fans leave the
ballpark talking about the plays and the players, not flamboyant umpires or
controversial calls.
     Likewise, in areas such as protecting against interference, adjudicating
complaints among competitors, or addressing consumer protection issues, the FCC
should help resolve the issues and make the calls quietly, fairly and efficiently.  We
should step in only when necessary, and not intrude on the competitors.
                                CONCLUSION
     In closing, that's my roadmap for the FCC's challenging journey.  It
won't be easy for any of us, and it does require creativity to find the right paths.
Maybe we should just follow Rudolph's bright red nose to guide us along the path
that leads to more competition and less government regulation.  I pledge to you that I
will be working to make this happen in the months ahead.
     Thank you very much for inviting me, and happy holidays to you all!