September 26,1994

HUNDT ADDRESSES NETWORKED ECONOMY CONFERENCE

FCC Chairman Reed Hundt today reminded the Networked Economy Conference in
Washington, D.C. that "A year ago, conferences like these were filled with the rhetoric
of removing government from the communications revolution."  He noted that "a
leading executive suggested 'Government should do everything possible to stay as far
away from making any decisions or having any involvement with respect to this
concept, the National Information Infrastructure,'"and that "Another executive said
'government should be mainly a cheerleader' in the communications game." 

But, Hundt said, "being a cheerleader requires taking a side and cheering for one
team to win and one to lose.  For government, there is no one winning team in the
communications competition.  To the extent we're leading cheers at all, we're cheering
for this competition itself."  And, he pointed out, industry continues to ask the FCC to
get involved.

"For example, everyone agrees the telcos should be able to compete against cable. 
But the cable industry has asked the FCC to reject virtually every application that has
been filed by telephone companies to develop video dialtone.  The filings on this issue
have generated a stack of paper nearly 12 feet high, over 33,000 pages."

"Two lessons there: first, competition doesn't come by itself; it often takes a fight. 
Second, like all fights worth fighting, it has to be won.  We have to have competition." 


Hundt said that in order to find the proper role for government in a rapidly changing
industry, the following steps need to be taken:  "First, we need to be straight and
candid with each other about the role business wants and the public needs the
government to play.
Second, business needs to help us find solutions to the many daunting problems of
the communications revolution and to the challenge of taking full advantage of the
opportunities.  Third, we need to reinvent government, and specifically the FCC, to
keep up with the pace of change."

In closing Hundt urged his listeners to,"Come at us with guns blazing -- but stick to the
law and deliver the facts, please.  Let us have your best shot -- but get an economist
to deliver it.  Use all the ammo you've got to blast us when we're wrong -- but tell us
how to do better.  Give us your best ideas as to how to grow the economy, add jobs,
and improve the access of everyone to the communications revolution." 

- FC                               C -




                         NETWORKED ECONOMY CONFERENCE
                          SPEECH BY REED E. HUNDT
                            CHAIRMAN, FEDERAL 
                         COMMUNICATIONS COMMISSION
                            SEPTEMBER 26, 1994

Thank you, Dennis [Gilhooly] for that kind introduction.  And thank you,
CommunicationsWeek International, for inviting me to be with you today.

Since I know everyone here is focused on the future of the communications revolution,
I thought I'd strive for a morsel of originality by speaking of the past, even if only of
the last year since the conference was held here on October 20 and 21, 1993.

At that time, I was merely the nominee for the Chair of the Federal Communications
Commission.  I was the plaything of fate, a piece of flotsam on the Congressional tide.


Finally, on November 29, like a piece of driftwood, an afterthought of legislative
deliberation, I was washed into office just as Congress was recessing.  

Since then I've discovered that I have possibly the best job in Washington you don't
have to get elected to.  The excitement of the opportunities to try to do the right thing
in such an exciting area is as prized by those of us in government, as it is by you in
the private sector, where you have "real jobs".

But no matter what kind of job you have, all of us in this business labor under a heavy
metaphorical burden:  we're constantly described as building the information highway,
or driving on it, or acting as traffic cops, or being roadkill, or speeding past
competitors, or worrying about tollgates, and so forth.

So, giving into this metaphor, I say that there are at least five lanes of the information
highway: broadcast, cable, wireless, wire and satellite.  We at the FCC have
something to do with all of them.  As a result, the range of issues is fascinating.

However, one issue seems never to go away.  Last week I was in Tokyo.  Indeed, I
just flew in from Japan.  

Boy, are my arms tired . . .

Well, they laughed in Tokyo.

Is that what they mean by Japan being a polite country?

At any rate, just several dozen hours ago there I was answering the question of the
reporter from the Nikkei weekly, the Wall Street Journal of Tokyo.  And what pressing
question was on his mind?  Here is what it was:  Why did the FCC break up the Bell
Atlantic-TCI merger?

I'm wondering if all the Wall Street Journals of the world are the same.  They remind
me of that line about the Bourbon kings of France:  after 400 years in power, they
remembered everything and learned nothing.  

I will base my little historical review here on the news I read each day.   Oh boy, let's
start with this -- a year ago on October 13, 1993, TCI and Bell Atlantic announced
their merger plans, and everyone said telco-cable mergers were the only way to build
the information highway.  Cable company executives said if you don't have a telco
partner, you're roadkill on the information highway.  Things change.  

Now we see consolidation in cable so as to provide powerful competition for the
telcos.

A year ago, conferences like these were filled with the rhetoric of removing
government from the communications revolution.  

For example, at last year's Networked Economy Conference, a leading executive
suggested "Government should do everything possible to stay as far away from
making any decisions or having any involvement with respect to this concept, the
National Information Infrastructure."  

Another executive said "government should be mainly a cheerleader" in the
communications game.  

Extending the metaphor, recently a governor of a big state said that the best role for
government in building the information superhighway would be to stay on the
sidelines.  

I'm personally troubled by the cheerleader on the sidelines metaphor.  First, I can't
jump that high.  

Second, being a cheerleader requires taking a side and cheering for one team to win
and one to lose.  For government, there is no one winning team in the
communications competition.  To the extent we're leading cheers at all, we're cheering
for this competition itself.  

But the idea of a limited government role has great appeal.  It will be a good thing
when multi-channel video competition lets us dispense with cable rate regulation and
throw our 13 pages of rules out the window.  It will be a good thing when competition
in and among all five lanes of the information highway lets us move toward working
our way out of the rate regulation business and lets me do what I thought I was
supposed to do in this job when I read the cheerleader comments.  Even if I didn't
have to jump up and down on the sideline, at least I thought I could take it easy,
perhaps do a little putting on the rug in my corner office.  I thought this would be the
nature of my job based on what everyone said here last year.  After a 3,000-hour year
pace as a litigator for 17 years, I thought it would be a little like going into retirement.  

By the way, here's an inside the Beltway tip on lobbying:  when the person you lobby
talks about retirement . . . .  you're not supposed to clap.

Anyway, there I was, a year ago listening to you.  But when I arrived, it turned out you
were kidding.  You didn't mean it.  You keep asking us to do things.

For example, everyone agrees the telcos should be able to compete against cable. 
But the cable industry has asked the FCC to reject virtually every application that has
been filed by telephone companies to develop video dialtone.  The filings on this issue
have generated a stack of paper nearly 12 feet high, over 33,000 pages.  

Do you remember Ronald Reagan saying in 1981 that the national debt was so big
that if you piled up a stack of $1,000 bills, the stack would reach 67 miles high?  Well,
cable filed so many words that if you wrote them out in one long horizontal line it
would be more than 100 miles -- all the way from here to Philadelphia.  And to borrow
a famous W.C. Fields line -- rather than reading all that, I'd rather be in Philly.  

In any event, these filings ask us to draw a bead on the possibility of the telcos cross-
subsidizing their entry into cable.  They tell us that the telcos are going to come at the
cable industry with the ammunition of cross-subsidization and that we have to regulate
to ensure fair competition.  

Why is it when I think about cable, these gun metaphors leap to mind?

At any rate, the cable industry asks us to review over 200 pages of rules called Parts
32, 36, 61, 64, & 69 so that telcos cannot unfairly use monopoly revenues to subsidize
entry into new fields. 

My point is not that the cable industry arguments are without merit.  Indeed, some of
the arguments are very compelling.  We are taking them very, very seriously and that
is a reason we haven't yet decided the reconsideration of our initial video dialtone
decision. 

Further, the arguments make clear that though we all describe the basis for
competition with the metaphor of a level playing field, this is much easier said than
done.

My point is, if anyone really wants us to be just a cheerleader, why are they sending
us a 33,000 page instruction book detailing how completely to overhaul the rules of
the game?

And video dialtone isn't the only instruction book we're getting.

The local exchange carriers are asking us to change our rules to ensure that all
providers of telecommunication services contribute to the preservation of universal
service.  

Moreover, everyone is sending us their version of the multi-thousand page instruction
book.

Competitive access providers have their own concern.  They have urged us to
regulate to ensure access to the facilities of phone companies through expanded
interconnection.

We're great believers in expanded interconnection.  It fosters competition, leading to
lower long distance rates, more consumer choice, increased technological innovation,
investment in advanced technologies and greater economic growth.

So the Commission decided to require local exchange carriers to provide expanded
interconnection.  The LECs objected, taking us to the Court of Appeals and winning. 
But we were able to continue to work toward our goals by directing local telephone
companies to provide expanded interconnection through virtual, instead of physical,
collocation.  

Two lessons there: first, competition doesn't come by itself; it often takes a fight. 
Second, like all fights worth fighting, it has to be won.  We have to have competition.  
Like the telephone companies and cable companies, broadcasters have also been
busy pressing the Commission to take regulatory actions they say are needed to
ensure broadcasters have a role in building the communications marketplace for the
21st century.

Broadcasters have been lobbying hard to make sure the Commission doesn't just step
aside and, for example, let digital audio services begin to be delivered by satellite
without considering the impact on terrestrial broadcasting.  

And independent television stations have asked us to retain regulations prohibiting
networks from selling network-produced programming to their affiliates for broadcast
between 7 and 8 pm.

The international arena is another area in which companies have asked for FCC
involvement.  AT&T has asked the FCC to address many of the difficult issues relating
to foreign carrier entry into the U.S. market.  Historically, the United States has
encouraged open markets.  Our open entry standard, however, has not generally been
adopted by other countries.  AT&T requests we require a foreign carrier or its affiliate
to demonstrate, prior to entering or expanding operations in the U.S.
telecommunications market, that its home market offers comparable market access.  

AT&T and other U.S. facilities-based carriers also urge us to take aggressive action to
encourage nondiscriminatory, transparent and cost-based accounting rates. 
Specifically, this is a request not that we stand on the sidelines but that we get into
the international game, playing for the U.S. side.

It's not just the companies we traditionally regulate that are coming to us with requests
for action.  AT&T, the David Sarnoff Research Center, General Instrument, the
Massachusetts Institute of Technology, North American Phillips, Thomson Consumer
Electronics and Zenith Electronics formed a "Grand Alliance" to make a single
proposal for the development of advanced television (ATV) standards.  The Grand
Alliance isn't asking us to stand on the sidelines;  it is asking us to adopt affirmatively
ATV standards and to take other steps to jump start high definition television to enable
ATV to become a new U.S. industry.

Even those who compete in the stratosphere have asked government to act.  We are
being pressed hard to establish a spectrum allocation plan that will enable a new
generation of satellites to offer communications services.

In short, the rhetoric of this conference last year suggesting that government had no
role in the information highway turns out to be not nearly as good a predictor of my
duties as I thought.  Turns out I'm going to have to postpone some more the fulfillment
of my dream of learning to play golf.

But industry is right to ask the question of what is the correct role for government.  For
as Charles Lee of GTE Corp. said earlier this year, rapid advances in technology and
intense demand for new telecommunications products and services have created "a
chasm...between antiquated policies and evolving business reality."  

I agree.  I think we need to bridge that chasm in three ways.  

First, we need to be straight and candid with each other about the role business wants
and the public needs the government to play.  

Second, business needs to help us find solutions to the many daunting problems of
the communications revolution and to the challenge of taking full advantage of the
opportunities.

Third, we need to reinvent government, and specifically the FCC, to keep up with the
pace of change.                                                   
First -- our role.  Our purpose is to introduce competition in every communications
market!  We have three principles that guide us in that purpose -- choice, opportunity,
and fairness.  

We will ensure choices for consumers and businesses among various types of
communications providers.

We will encourage opportunity by stimulating entry into new and existing markets by
companies that have not had market access in the past.  

We must also ensure that all Americans have the opportunity to participate.  Universal
service is not, as some contend, a thing of the past.  It is the way to link our citizens
to each other and to the economy.  As Larry Irving noted last week, "While some
Americans order home-delivered pizza for dinner by modem, 5 million homes in the
United States do not have a telephone."  

But this is not to say the traditional policies used to promote universal service will
succeed in the future.  Opening new markets to competition requires the FCC to
review and revise some existing universal service policies and regulations.  For
example, we need to examine whether obligations to contribute to universal service
should extend to all providers of telecommunications services.

And we need to work vigorously toward bringing the nation's schoolchildren into the
21st century by committing to wiring each and every classroom.

Finally, we will ensure that competition is fair.  We need open access and
interconnectivity for all service providers.  

As Senator Danforth correctly pointed out, "for the past 60 years, the communications
industries have been increasingly limping along under outmoded legislation, legislation
that presumes the existence of monopolies."  As I said in my confirmation hearings
last year, to a degree we want to work ourselves out of a job by establishing the rules
of the game, and then letting the market do its work.

Second, we need your help.  Here's an example of how you have helped.

When I arrived, 67 petitions were on my desk asking us to review the Commission's
earlier decision allocating spectrum for broadband PCS.

Those petitions agreed on two critical points; first, the Commission should take the
time to make a number of changes to improve the plan; and second, above all the
Commission should not delay one second in ratifying the previous plan.

So taking these two contradictory mandates to heart we held an en banc hearing to
force the various industry segments to confront each other's arguments.  

And we held countless meetings, probing, questioning, analyzing each suggested
option.

The result?  We got a plan put forth by Motorola and quickly endorsed by many others
which cut consumer equipment costs 25%, saved approximately one billion dollars in
microwave removal costs and significantly increased the level of competition in each
market.  Industry pulled a rabbit out of a hat -- but we squeezed the hat.

That process, which we're repeating with other issues, requires your help and your
willingness to compromise.

Part of compromise is the recognition that the wisdom of any decision cannot be
judged in the heat of the moment.  Right after the Bell Atlantic-TCI talks broke up, we
read all kinds of statements about how the information highway had been blocked,
bombed, detoured, rerouted and wrecked.  

But look at the record.

While cable consumer prices are down, cable subscribership and customer satisfaction
are way up, and equipment sales are way up.  

Cellular service is exploding beyond all expectations.  With subscriber numbers
already 20 times greater than AT&T predicted for the year 2000, the number of
subscribers still grew 48% from July 1993 to June 1994.  Two out of every three new
phone numbers is now going to cellular customers.  

A year ago, broadcast was supposed to be dying, left out of the communications
revolution.  If broadcasting died, I guess it went to heaven.  Year-to-date TV
advertising sales are up 12% as are second quarter television revenues.  Combined
local and national radio advertising revenue in July was up 9% over last year.  

In addition, all three major networks are investigating the possibility of entering into
new communications services like IVDS and video on demand, and of providing
programming that appears on a corner of a computer screen.  

So let's admit it -- we're all trying to make the best of a great situation.  

Working in the communications business everyone should be called Pollyanna.  So
let's all be sunny and nondesperate as we work together to bang out the fair rules for
a rough and tumble competition fight.  

Meanwhile, back at the ranch, we need to change the FCC.  

One way we're doing it is through fast and fair auctions.  Last year, Congress passed
a law allowing spectrum to be auctioned rather than allotted by lottery or comparative
hearing.  Congress gave us five years to create an auction process.

In less than one year, the Commission held auctions for spectrum for narrowband
personal communications services and interactive video data services.  

We wanted the auctions to run smoothly, the licensing to be swift and the competition
to be strong.

We got all three.

For our swift action and excellent results, Vice President Gore gave the Commission a
"Hammer Award" for its success in working according to the principles of reinventing
government.  

I was a bit surprised when one major metropolitan newspaper suggested the "bubble
burst" and the auctions weren't a success because a few characters didn't pay up.

They just don't get it.  The auctions represent far more than just raising money.

We are changing the old way of doing business where 
licenses were obtained by using lawyer-lobbyists pleading your case or through
lotteries that rewarded speculators -- but at the expense of the American public.

Now in this new, market-based process, there will be defaults and drop-outs, as in any
market.  But that's the way markets work.

We're reinventing ourselves in other ways.

We are creating a bureau devoted entirely to fostering the development and
widespread availability of wireless telecommunications services.

We are streamlining the licensing process.  Within the next several months, for
example, we'll propose changing our rules to reduce the number of antenna
registrations from 850,000 to approximately 70,000, saving the FCC and licensees
huge amounts of time and money.  

We're also moving forward with over 20 electronic filing initiatives just starting to get
off the ground.  

We need the Commission's own employment to reflect the sea change in the nature of
government role.  We continue to employ many lawyers.  But increasingly, we are
hiring economists and MBAs to help with the task of regulating competition, rather
than the competitors.  We are in the process of doubling the number of economists
working at the Commission.   

These efforts can help all of us move together far more effectively to advance the
communications revolution. 

Over the past year, Congress made a valiant effort to provide a new legal structure to
support the future of the communications marketplace.  The product they developed
would have improved the FCC's ability to regulate for the 21st century.  I hope they all
try again, this year and next, until the country get a new Communications Act.  

The Congressional effort underscores the truth of what Dr. Johnson said a long time
ago.  "People agree on ends -- they chiefly disagree on means."  

It is fair to say that on Capitol Hill, in the Administration, in industry, among public
interest groups, and at the FCC, there is agreement on the ends -- more competition.

But as we debate the means, let's engage in a public process that embodies a
commitment to civility, a willingness to listen to what others have to say.  Let us also,
in shaping a consensus, seek true facts and accurate information.  After all, when we
agree on the true facts we are far more likely to agree on matters of opinion.  

So how do we proceed?  Come at us with guns blazing -- but stick to the law and
deliver the facts, please.  Let us have your best shot -- but get an economist to deliver
it.  Use all the ammo you've got to blast us when we're wrong -- but tell us how to do
better.  Give us your best ideas as to how to grow the economy, add jobs, and
improve the access of everyone to the communications revolution.  

And let's remember that in this game we want lots of players.  No one should be on
the sidelines, just cheering.

Except for the public, who will cheer for all of us if we play the game right.

Thank you.  I'll be glad to take questions at this time.