Remarks of
 Commissioner Susan Ness
 as part of the
 Public Policy Forum Series
 The Wharton School of the University of Pennsylvania
 Philadelphia, Pennsylvania

 February 22, 1996

 "The New Telecommunications Marketplace:
 Radical Changes and Golden Opportunities"

It is a pleasure be back at Wharton.

Much has happened since I visited last year. In Washington, we have had a once-in-a-
lifetime viewing of Vermeer paintings, two government shutdowns, and three year's worth of
snow. And for the first time in sixty years, Congress completely overhauled our nation's
communications laws.

What makes enactment of the Telecommunications Act of 1996 so momentous? Why did
Vice President Gore proclaim at the February 8th signing ceremony that "the Berlin Walls"
of the telecommunications industry have crumbled?

 Why are members of Congress, Wall Street gurus and CEOs of communications companies
alike announcing that revolutionary changes in the industry are around the corner?

The new law isn't the end -- or the beginning -- of civilization as we know it. But, for the
communications world, it's as if we just went from black and white TV to color -- overnight.

Just think about it. The core law that has governed the communications industry was enacted
in 1934, more than six decades ago.

When that statute was passed, there were no televisions, no satellites, no cellphones. Sixty
years ago, the latest in telephones was the rotary dial desk set that came in exactly one color
-- black.

Today we are accustomed to wireless phones that fit in our pockets, allowing us to be
reached anytime, anywhere. Now isn't that progress?

Fifty years ago, scientists here at the University of Pennsylvania were turning on ENIAC,
the world's first large-scale, general purpose electronic computer. It weighed about 30 tons
and filled a 30 by 50 foot room.

Today, it could be replaced by one fingernail-size silicon chip. We now carry powerful
computers on our shoulders and in our briefcases. We use them in meetings, on airplanes,
even at the beach.

The telephone network is now a web of thousands of powerful special purpose switching
computers, which link literally millions of phones, faxes and personal computers at home and
at business.

The Internet -- known only to a few a decade ago, is now a household word and a household
window to the world.

Just pick up the newspaper -- or should I say, click on it -- and you are sure to see additional
reminders of the rapid pace of change in computer and communications technology, the
growing variety of services, and creative business strategies.

These changes show no signs of slowing down. Now, finally, the telecommunications laws
are catching up.

Historical Perspective

The debate over rewriting telecommunications law has been underway, on and off, for
twenty years. Significant issues have been considered regularly by Congress, and there have
been amendments to the '34 Act over the years. But attempts at comprehensive legislation
have -- until now -- been unsuccessful.

One so-called "reform measure" was attempted back in 1975. The "Consumer
Communications Reform Act" as it was called, was designed to prevent "wasteful
duplication" of investment in the telecommunications marketplace. It would have addressed
two areas: long distance service and customer-premises equipment. For both, it would have
outlawed competition -- you heard me correctly -- outlawed competition! Fortunately, it
failed to gain the requisite number of votes.

It finally took a lawsuit brought by the Justice Department and the effort of a newly
appointed federal judge, Harold Greene, to direct us down the right road -- away from
monopoly and toward competition. Judge Greene ordered the breakup of AT&T from its
local telephone monopolies, the Bell Companies. He also required the Bell Companies to
offer all long distance companies and information providers equal access to the Bell local
telephone networks. And in light of the Bells' continued market power, he prohibited their
participation in the long distance, information services and equipment manufacturing markets.

Today, the thriving long distance, information service and telecom equipment markets are a
testament to the wisdom of his decisions. The new law has taken an old page from Judge
Greene's book and relies heavily on "equal access" to make local competition viable.

The New Consensus

Finally, after years of wrangling by a host of interested parties, legislation was crafted that
won overwhelming bipartisan support in both Houses of Congress and in the Administration.
The Telecommunications Act of 1996 became possible only because consensus finally was
forged around the central principles that should apply in the new telecommunications
environment. (It helped, too, that multiple sectors of the telecommunications industries,
weary from battle, came to recognize that continuing uncertainty would complicate
investment decisions, hinder access to capital, and ultimately delay their entry into each
other's businesses.)

The overall thrust of the new law is straightforward: increase competition and reduce
regulation. Everyone hopes -- and most people expect -- that this new law will lead to
intense competition in every sector of the telecommunications industry. That's how you spur
innovation, expand consumer choices, lower prices, and increase U.S. competitiveness.

As competition arrives -- and hopefully thrives -- the future can and should be driven much
more by the industry -- the strategic planners, the marketing experts, the technology whizzes,
perhaps even some of you in the audience today. The role of regulators will be significantly
reduced.

The new law deliberately blurs lines between formerly discrete sectors of the
telecommunications industry. Bell Atlantic may become your long distance company, or
your video service provider. MCI or AT&T may become your local telephone company, or
your source for wireless services. Cox or Comcast may offer you broadband Internet access,
or wireless local loop.

The New Telecommunications Landscape

In short, every part of the telecommunications landscape will be dramatically changed as a
result of this law. Let me explain how.

Imagine the end of the local telephone monopoly. The law eliminates state barriers to
competition and requires the FCC and the states to create a procompetitive environment for
local telephony. Components of that environment include:

  unbundling of the local loop, so competitors can purchase only those network
 elements they need to create their own service packages;

  interconnection rights at all feasible points in the network;

  number portability -- so customers don't have to give up their telephone identity when
 they change local service providers;

  right to resell local service.

These ground rules will make it possible for consumers to choose their local telephone
company the same way they choose their long distance company or cellular company today.
As a result, we can expect to see lower rates and more "one stop shopping" for local, long
distance, video and wireless services.

Once the local telephone monopoly has been broken, the line-of-business restrictions imposed
on the Regional Bell Operating Companies (RBOCs) will vanish. For the first time since they
were divested by AT&T 12 years ago, the RBOCs will be permitted to provide long distance
service and to manufacture equipment.

Congress recognized that once local competition had arrived, these monopoly-based
safeguards are no longer necessary. Local competition has already been introduced in
isolated pockets in several states. However, time will be needed before competition firmly
takes hold.

We are already seeing inroads to the local cable monopoly from direct broadcast satellite and
other alternative technologies. This law will accelerate that activity.

The new law permits entry by telephone companies into the video programming distribution
business in their own region and with their own facilities. The courts had chipped away at
this restraint. And the Commission had attempted to make sense out of a hodge-podge of
laws to enable local telephone companies to offer what was called video dialtone service.
The new Act establishes once and for all a blueprint for telephone companies to offer video
programming.

Many cable companies, faced with new telephone company rivals for their video business,
are poised to enter the local phone business. Their wires, with their broadband transmission
capacity, already pass more than 90 percent of the nation's homes. However, the cost of
upgrading these wires for telephony, by adding a power source and switching capability, will
require a heavy investment.

In recognition of growing video competition, the new law removes cable pricing restrictions
upon telco entry into video services in the cable operator's market or, at the latest, in 1999.
Rural communities will see the lifting of cable price caps immediately.

Cable and telephone companies are each entrenched incumbents in one business, insurgents
in the other. In their role as new entrants, they will no doubt be adept at anticipating the
likely efforts of their incumbent rivals to thwart new entry. The Commission will have very
little patience with delaying tactics by either industry.

One can only hope that all parties, from every industry sector, will recognize they have more
to gain from getting on with the competition, not playing for advantage by trying to forestall
competitive entry.

Meanwhile, there will be other major changes. Electric companies may seek to enter
communications businesses, capitalizing on their valuable rights-of-way. Wireless companies
will be anxious to build out their systems, having spent billions of dollars at auction to enter
the wireless telecom market. The prospects for successful competition by both of these
industries will be enhanced by the interconnection rights mandated by the new legislation.

For the broadcast industry, the new law offers increased ownership freedom. TV broadcast
groups will be allowed to own stations reaching 35 per cent of the national audience, up from
25 percent. Radio operators may now purchase an unlimited number of outlets nationally,
and greater numbers of radio stations in a single market. Broadcast networks and cable
systems may be owned by a single entity. Many in Congress would have permitted even
greater media concentration, but a consensus was lacking.

At the Commission, we have already seen an increase in mergers and acquisitions in the
broadcast industry, in anticipation of passage of the law, and we expect to see many more.

Consolidation will not be limited to the broadcast companies. Throughout the industry,
companies that previously focused on a single market sector will expand their horizons. I
foresee a growing number of vertically integrated companies that provide content,
distribution, software, and equipment. Some may seek to provide one-stop-shopping by
bundling local and long distance, video, and Internet access services. Some may even throw
in local service for free!

Some mergers or joint ventures may work. Others may suffer from the inevitable clash of
corporate cultures, as traditional regulated utilities adjust to the more entrepreneurial worlds
of entertainment and information.

Foreign interests too, attracted by the lucrative -- and now open U.S. telecommunications
markets -- will seek ways to enter new global alliances with U.S. companies, just as U.S.
companies will continue to expand their holdings abroad.

As you can see, the new law allows for enormous change and opportunities for
diversification in the industry. The walls have crumbled. But, will it actually happen? Will
competition flourish, or will deregulation result in bigger companies and less competition?
Will it ultimately be good for the American consumer?

The Role of the FCC

Whether this law achieves its laudable goals will be determined to a great extent by the work
of the FCC. We have a tremendous amount of new work to do -- dozens of new
rulemakings, some with very tight deadlines.

It may seem paradoxical that a law intended to reduce regulation will require some 80
rulemakings to implement. But remember that the goal of these rules is to bring about
competition that does not exist today. After all, 95 percent of telephone subscribers today
are served by a monopoly provider. Cable companies still account for more than 90 percent
of multichannel video programming subscribership.

Our goal will be to craft rules that will facilitate the transition to competition in a way that
best serves the public interest. It takes hard work to bring about fair competition. Wishing
does not make it so.

One of the more important provisions of this law gives the Commission increased freedom to
deregulate as markets become competitive. The 1934 Act significantly hampered our ability
to take deregulatory measures which were plainly warranted by the evolution of competition
in certain markets. The new law gives the Commission the authority to forbear from
regulating telecommunications carriers where regulation is not necessary to ensure reasonable
rates and to protect consumers.

Five years from now, I would like to be able to report to you that there is increased
competition for local voice and video services, resulting in increased choice for consumers,
lower prices, and even faster innovation. I would like to report that markets are not
dominated by one or two very large providers.

Universal Service

I would also like to be able to report that we have restructured our traditional approach to
universal service. This is a part of the law that I have not mentioned. The Commission and
the states are instructed to work together to maintain the availability of universal telephone
service at affordable rates for all Americans.

The new law also directs us to promote access to advanced telecommunications services for
schools, libraries and health care providers. This directive provides us with a golden
opportunity to ensure that every school and library is connected to the information
superhighway.

Private industry has already played a key role in meeting this objective. We now have the
tools to reduce disparities between information haves and information have-nots by ensuring
access to quality telecom services at affordable prices in all areas of the United States.

Competition alone cannot achieve this goal. The FCC and the states must work hand-in-hand
to make access to communications services a fact of life for everyone.

Once we have successfully implemented the law, the Commission's role will be to ensure, on
an ongoing basis, that its goals are fulfilled -- that a healthy competitive market with many
players develops and thrives, that consumers are protected, and that the public interest is
served.

Potential Downside

Despite all the euphoria about the new law, there are potential negative effects as well. In
the near term, consumers may see their cable rates go up, particularly in small towns and
rural areas. Competition in the video programming and local telephony markets is likely to
create some of the same consumer confusion that accompanied the introduction of
competition in long distance service. Increased media concentration is likely, giving rise to
concerns that distribution of information will become dominated by a small group of very
large players. Small entrepreneurs may find themselves unable to compete with these media
giants.

Many have rightly hailed this legislation as a job creator. There will be new jobs in many
areas, such as strategic planning, marketing, finance and management, as telecommunications
companies enter new lines of business. There will also be opportunities worldwide as U.S.
companies enter global alliances and foreign companies enter our markets.

But we must be realistic. It is undeniable that, with the many mergers and acquisitions that
have already occurred and will continue, there will be job losses. We have already seen
phone companies lay off more than 140,000 workers since 1993, and AT&T recently
announced it will cut 40,000 jobs over the next three years. The job losses in these
traditional industry areas will likely continue but could be offset by job growth in new areas.

Conclusion

Over the next five years, I believe we will see an increased velocity of change in the
telecommunications and information industries. The transition from ENIAC to the silicon
chip may pale in comparison. Technology will fuel the change and technology does not
stand still. At the FCC, we will seek to encourage, not delay, the deployment of new
technologies.

It will be an exciting time to be involved in those industries, as they face intensified global
competition and accelerated innovation. I believe the role of policymakers will be to ensure
that American consumers are the beneficiaries of all of this change, and that they are not
forgotten as industries race to grow bigger and stronger.

I expect that many in this audience will play a role in the new telecommunications
marketplace. Some of you will help to build it or to shape it. All of you will be affected by
it.

Opportunities abound. I wish you success in making the most of them.