FCC CHAIRMAN REED E. HUNDT FEDERAL
    COMMUNICATIONS BAR ASSOCIATION
                   
            WASHINGTON, DC
            APRIL 30, 1997 

     It is a pleasure to join all the members of the
Federal Communications Bar Association at this monthly
luncheon today.  

     At the outset, I would like to recognize my Legal
Counsel, Julius Genachowski, who will shortly be
leaving my office for the private sector.  He has been a
gifted and marvelous counsel - and a good friend - and I
want to publicly express my great appreciation for his
wisdom and hard work for me, and for  the American
public.  I would also like to introduce Gretchen Rubin, --
she is brilliant,  indefatigable, and you will find her to be
the impossible dream come true: she is a worthy
successor to Julius.
  
     This evening, more than 1,000 of us will gather
at the Omni Shoreham Hotel for a dinner to honor
Commissioner and former Chairman Jim Quello and his
23 years of service to the public and the FCC.  I wanted
to move the site to the USAir Arena to handle the
overflow demand, but Michael Jordan had it booked. 
(That's The Michael Jordan.)

     That Jim's dinner is the hottest ticket in town
(other than a Bullets-Bulls ticket) is a richly deserved
tribute to Jim and to his public service.  I and my
colleagues on the Commission are delighted to host this
event, and we are very pleased so many of you will
attend.

     As is customary with Jim and his friends, there
will be humor aplenty tonight.  But today I would like to
honor Jim's public service with more serious remarks.

     Jim Quello has been a forceful, effective, and
always gregarious advocate for many different ideas and
policies of vast importance to our country.
     
     I met and contested with some of the best
litigators in our country in my 20 years of private
practice before coming to the Commission.  Few, if any, 
have Jim's ability to hone an argument down to its
essentials and to express pungently and persuasively a
clear opinion.  On more than a few occasions I have felt
the sting and admired the force and wit of Jim's
advocacy.

     As you must know, the bulk of our debates has
been about the public interest standard.  What does it
signify?  Does it apply to all users of the airwaves?  Is it
quantifiable and definable?  Fundamentally, is it an
imprecation to the private sector or is it a means of
setting aside public property for a mixture of public,
noncommercial and private, commercial use?

     Jim has also been a fervent advocate of the First
Amendment.  There might not be anything more
important at the FCC than holding tightly to a clear
vision of the First Amendment.  I honor Jim's quarter-
century of clarity and firm grasp of this topic.  He's been
a better lawyer, even absent a degree, than many who
talk about the Great Amendment.

     Is it a violation of the First Amendment to inform
a trustee of the public's airwaves that he or she must use
some of the licensed time for transmitting programming
that meets a certain definition, such as children's TV? 
As Jim has famously asked, if the answer to this is no,
then where are the limits to this sort of requirement? 
Could a licensee be asked to provide programming for
people over 49, since advertisers won't, it's said, support
programming for such an audience?  In about nine
months this is a crucial issue for me.

     What about PSAs, hard liquor ads, free time for
political candidates? Is there a grand unified theory of the
public interest that applies to all these issues?  If not, is it
because one cannot exist or because we just haven't
debated enough about the topic?

     This is what Jim and I have been talking about,
together, in private and in public.

     Private friendship and public debate has
characterized much of our interchange, and I honor Jim
for having taught me a great deal about substance and
style.

     I also want to note that in the last 3 1/2 years, we
have voted on -- as of today-- exactly 1500 items.  On
99% percent we voted the same way.

     Some of the difficult issues that we have faced
(and voted the same way over the last 3 1/2 years):  The
reconsideration of the cable rate regulations and the
going forward rules; all international issues, including
those concerning the ECO test, accounting rate
settlements; the votes on all auctions we have conducted;
and the complicated and interrelated trilogy of decisions
to bring competition to the local telephone market,
including the key interconnection item last summer. 
Even on the television issues, where we have had our
well-publicized disagreements,  at the end of the day we
voted the same way on kids television and digital
television.  

     I naturally focus on Jim's interaction with me
because I never had the pleasure of meeting Jim before I
was appointed to my job.

     But the fact is that Jim has had at least three
careers of distinction: war hero, founding father of
broadcast, and public servant.  That's three more than a
lot of people.  And his next -- as lecturer and writer --
will undoubtedly bring him still more recognition.

     But Jim's 23 previous years at the Commission
demonstrate many of the characteristics that define
honorable service in government and that have won him
the commendations he will receive tonight.

     First, Jim gave up substantial prospects, financial
gain and a comfortable life in order to become an FCC
commissioner.  When Jim sat waiting all day long in
Senator Vance Hartke's office to have it out with his
chief interrogator, man-to-man, during his first and only
confirmation battle, I'm sure that he wondered why he
was doing such a fool thing.

     When we remind him tonight what his Cap Cities
stock would now be worth if he had held it instead of
going to the FCC,  Jim will think again about his
decision.

     Second, as a commissioner and chairman, Jim has
often showed forthright thinking, independence of
decision-making, and considerable courage.  For
example, in the indecency cases,  he took on Howard
Stern, and brought down on himself calumny of the
foulest kind from that ubiquitous talk show figure and
also very direct attacks from the junior Senator of New
York.  Jim did not back down a bit and won the contests
with each  going away, both in the court of law and in
the court of public opinion.  Jim's seven-page, single
spaced letter to Senator D'Amato is a brilliant defense of
his legal position.  

     And, as Billboard Magazine reported, no one
could "remember an instance of an FCC Commissioner
taking the gloves off on the record with a member of
Congress."   They might have added the fact that he won
by a knock-out. 

     Jim's legal talents were also displayed in the
Supreme Court's recent must carry decision.  His
congressional testimony is cited prominently in the
majority opinion.

     Similarly, Jim took the lead in deciding in the late
1980s that cable TV and other sources of entertainment
had ended the dominance of the three big networks.  In a
memorable phrase, he called the networks' struggle with
the Hollywood studios a contest between "the rich and
the very wealthy."  His dissenting opinion on the topic,
through the Seventh Circuit, reversed the Commission's
decision and led to the Disney acquisition of ABC -- a
big reminder of the lost opportunity of that Cap Cities
stock!
     
     Another example of his leadership was television
violence.  I have often quoted his brilliant and prophetic
1993 speech in which he said: "America's epidemic of
violence  must be brought under control.  And
responsible TV and cable executives and program
producers must take the lead or congress might.  More
and more citizens are demanding government restrictions 
on violence -- and [these] might still be averted by
responsible broadcast and production executives." 
Broadcasters should still heed his words.

     Jim also spearheaded the Temporary Commission
on Alternative Financing for Public Telecommunications
(TCAF), an advisory committee charged with developing
recommendations to improve funding for public
broadcasters.  TCAF's recommendations led to the
modern day enhanced underwriting rules.  These allow
noncommercial licensees to identify corporate sponsors
together with their logos, product lines and services,
without running afoul of the rule against advertising by
public stations.  The enhanced underwriting rules have
allowed noncommercial TV stations to improve their
financial status while preserving their essentially
noncommercial nature.

     Jim was in major part responsible for the fact that
there is a digital television spectrum allocation.  In the
late 1980s, the Fowler Commission was considering
whether to reallocate UHF spectrum to the land mobile
community to meet their asserted needs for spectrum in
large markets.  Jim identified a study that showed that
something like 40% of land mobile spectrum then
allocated for that purpose was not being used to full
capacity.  This discovery, coupled with the rulemaking
petition filed by broadcasters seeking to use UHF for
HDTV, effectively stopped the land mobile-UHF sharing
proposal and ushered in what ultimately became the DTV
allocation.

     As interim Chairman, he led the Commission's
first round implementation of the Cable Television Act of
1992.  Many on the staff remember his tireless leadership
of an overworked staff under difficult deadlines.   In his
continuing effort to "lead the troops," he spent many late
nights working shoulder to shoulder with staff to
implement the many provisions of the new law.  At the
same time, he got the first major increase in Commission
funding in recent memory, in order to accomplish more
effectively the various Congressional mandates.

     For all these reasons and more, I've been proud
to serve with Jim and I'm delighted to honor him tonight.

     Now, as Paul Harvey would say, Page Two. 
Spectrum Auctions.

     Four years ago this summer, Congress authorized
spectrum auctions after more than 10 years of debate. 
The provision has clearly been one of the wisest actions
Congress has taken in the area of spectrum since the stuff
was invented, or more accurately, found.

     George Gershwin wrote, "They all laughed at
Marconi/and said that wireless was a phoney."

     But wireless isn't phoney.  It is one of the crucial
keys to economic development in the information age.

     In markets where the cellular duopoly is
supplemented by even a single PCS carrier, statistics
show a 25% drop in price.  Thus grows the wireless
business; thus grows the economy; and thus we move
closer to the long-desired Holy Grail of telecom policy:
the substitution of cost-effective wireless communication
for wireline telephony.

     But some are arguing that we should limit the
number of licenses to compete in order to maintain
uncompetitive prices for service and to maintain
artificially high prices for spectrum.   Indeed, someone
recently made the analogy between spectrum scarcity and
diamond prices noting that DeBeers is able to keep the
price of diamonds high by restricting production and,
therefore, maintaining control of the diamond cartel.  So,
should the FCC manage a spectrum cartel by rationing
licenses?  I guess the suggestion is that "FCC" should
stand for "For Cartels and Cooperation" instead of  for
"Fostering Competition in Communication."

     A cartel is appealing for DeBeers or OPEC or
uranium manufacturers or those who would try to corner
the silver market.  But all cartels hurt consumers,
innovation, job creation, and economic growth.

     Every article you read about trouble for C block
licensees in raising money can also be read fairly as a
testament to increasing price competition in wireless. 
The greater the pace of competition,  the lower the
predicted prices, and the tougher the job of making a
business case to be an additional entrant in the market.

     But don't we all agree that the market itself
should set the number of competitors in a market? 
Government should never do that.  No one thinks the
FCC should limit the number of companies in the
software business, or the microprocessor industry, or the
pizza delivery business, or even telephone equipment
manufacturing.  So why should we limit the number of
companies in wireless?

     Yet that is what it would mean to stop or slow
spectrum auctions.  

     Yes, to have more auctions is to lower spectrum
prices over time.  But  the auctions are not -- and this is
absolutely true -- about the money.  At least they are not
about the money raised in the auctions.  

     Instead they are about the money obtained from
economic growth.  The tax revenues from such growth,
after all, would dwarf auction revenues.  

     Indeed, if people valued beads and shells we
would be glad to distribute the licenses based on the
greatest number of beads bid for licenses. We auction
licenses in order to give them to the firms most desirous
of having them.  And the best way to measure the desire
of a firm to make money with a license is to let them set
a price on it in an open auction.

     We also auction licenses in public at the FCC
because if we didn't, they would be auctioned privately,
less efficiently, with none of the sales proceeds going to
the Treasury.  So why not have a public, fair, efficient,
taxpayer-friendly auction if there's going to be an auction
anyhow?

     And why will there inevitably be some kind of an
auction for any license?  Because you can't make
someone own something forever.  My wife and I gave a
rabbit to one of our kids as a present, but after a week he
didn't really want it, wouldn't take care of it, and
insisted that we pass it on to someone else.  And so it is
with all property.  The rabbit is in better hands now, and
licenses should constantly transfer to someone who will
pay money to get better hands on the business
opportunities that every license represents.

     Indeed, more than 85% of all television licenses
and a huge percentage of wireless licenses have already
been sold in private auction -- even though the former
were given out in comparative hearings and the latter in
lotteries.  By 1993, more than 75% of all cellular
licenses had been transferred for money at least once in
the previous 10 years (85 percent of non-wireline and 58
percent of wireline).  If there are no public auctions,
there still will be private auctions.

     Comparative hearing and lotteries are just
preludes to private auctions, in which the public property
of the airwaves is the subject of private speculation, side
deals, inefficiently run markets, and substantial delay
driven by complicated and pointless regulatory
processing requirements.  

     So it was a blessed event when in 1993 Congress
let us dispense in large part with these two horrible
methods of distributing licenses. And it will be a cursed
day for communications policy if our auction authority
lapses on September 30, 1998, and Congress has not re-
upped us.

     Some say auctions shouldn't be related to budget
policy.

     So let's  talk about the money.  The Commission
has conducted 14 auctions resulting in $23.1 billion in
commitments.  To date the FCC has collected
approximately $10.5   billion. (Installment payment plans
account for the difference.)  If felt good to collect that
money. 

     As Sheryl Crowe sings, "If it feels so good, how
can it be bad."  Where is the bad part to this story?  

     Some say that the C block licensees will not pay
the total of their commitments to  installment payments. 
If that is true, they will not hold the licenses any longer.
But still the taxpayers will have received all the
installment payments to that date, and we will reauction
the licenses.  That's a tough trip for C block defaulters,
but not bad for the economy or consumers.

     Moreover, 99.9 percent of PCS payments have
been made on time.  

     The auctions have also driven huge investment. 
In the case of PCS, systems are being built and
investment in the wireless infrastructure will exceed more
than $30 billion over the next several years.

     By contrast when you give licenses away
sometimes you have to beg or order the recipients even
to use them.  Witness our recent experience with DTV
buildout.  Because existing broadcasters were being given 
the additional 6 MHz of spectrum to make the transition
to DTV, they weren't in a rush to build out their DTV
facilities and get DTV on the air.  In order to compensate
for the lack of an auction to identify those who were
eager to get started, we had to impose construction
requirements on licensees.  

     Moreover, spectrum auctions have done more in
the last two years to distribute licenses to small
businesses, especially minority and women-owned
businesses, than the sum total of all previous FCC
policies.  Small businesses account for 76% of the total
licenses and have won nearly 50% of the licenses
awarded by competitive bidding at the FCC.

     In terms of speed of licensing, the spectrum
auctions have been much quicker than either comparative
hearings or lotteries.  With hearings and lotteries,  it took
the FCC an average of one to two years to award one
"non-wireline" license in each of the top 30 markets by
comparative hearings.  With auctions we get licenses out
in a couple months.

     And the auctions have proven to be an
extraordinarily cost effective means of distributing
licenses.  The total cost (including salaries of FCC staff)
of all FCC auctions to date has been approximately $50
million.  Auction costs run about one quarter of one
percent of auction revenue, and are far less than the
administrative costs of other licensing techniques
historically used.

     The WCS auction closed last Friday raising $13.6
million for the U.S. Treasury.   128 WCS licenses will
be issued. The prices were much lower than in previous
auctions. This auction is being used to criticize auctions
in general.

     What about the low prices paid for WCS licenses? 
The explanation is that Congress required an auction of
the WCS spectrum before normal market and business
processes could take place.  And it did not give the FCC
the flexibility to set the date.  We said this in advance of
the auction.
 
     The law is the reason we could not set reserve
prices, as we have done before.  If we set a reserve price
and it isn't met, the auction doesn't happen. But
Congress said the auction had to begin and end on dates
selected by Congress. 
 
     Therefore potential bidders did not have sufficient
time to analyze market characteristics, including demand. 
They did not have time to develop new technologies for
new services, such as wireless Internet access.  They did
not have time to build alliances and consortia to develop
and deploy such new technologies.  They did not have
time to raise the capital either to build new wireless
systems or to bid on the spectrum.  And they did not
have time to cope with the allegations of interference
from adjacent DARS spectrum users.

     Congress should give us new auction authority
coupled with the decision to set dates of auction
according to our discretion, but never more than two
years from the allocation.  

     A recent study by Bernstein Research bemoans
the dramatic increase in mobile license spectrum the
Commission has licensed, noting that with all the
competition "wireless industry supply growth will
outstrip demand over the next few years.  This...will
drive increased price discounting and promotions as
carriers aggressively seek market share to maximize the
contribution towards their fixed-cost base."  The report
goes on to note that new "capacity-intensive new
applications such as wireless local loop and a variety of
data applications" might actually soak up some of the
excess capacity.

     This is all great news for government policy, yet
some are arguing that there is no need to reclaim analog
licenses in order to make spectrum available for new
services, because auctions allegedly don't work!  The
truth is that an auction of those reclaimed licenses at a
future date is certain to be very pro-competitive.

     What the Bernstein Report is right about is that
with all of the wireless capacity coming on line, wireless
prices will be driven towards wireline prices, and at that
point, we might actually see truly vigorous wireless vs.
local loop competition.

     In short, our spectrum policies are having
precisely the effects Congress intended when it gave us
auction authority in 1993 --- increased efficiencies and
increased competition,  plus returns to tax payers at
auctions and from economic growth.

     We are continuing to obey the good congressional
mandate to bring competition to the telecommunications
marketplace in our access reform and universal service
rulemakings.

     In these two proceedings together we received
more than 50 feet of comments, more than 124, 000
pages from over 1,000 parties.

     We will distill all this down to analysis that will
reflect all comments in 1% of their length, and we will
distill that further to the rules that are truly essential and
total less than 100 pages.  The distillation is hard,
exhausting and important!
     
     On these proceedings, I  and my colleagues have
greatly enjoyed working with Jim Quello and we look
forward to continuing to work with him on all the issues
ahead of us.
     
                 - FCC -