MICHAEL K. POWELL
                           Commissioner
                Federal Communications Commission
                            Before the
                     Practising Law Institute
                                
                         Washington, DC
                       December 10, 1998
                                
                                
                    "Letting Go of the Bike"
                                
A Holiday Parable on Communications Mergers in a Season of Competition
                                
                                
                   (As Prepared For Delivery)
                                
                                

     Good morning.  It is my great pleasure to be here and to speak with you today.  I
know you will be hearing a lot of important details from some of the other speakers
today, so I thought I would share with you a little of the "big picture."  I want to start by
speaking with you about the holidays.  

     To many of us, the holidays conjure up childhood memories of vacation,
sumptuous meals joyfully devoured by family and friends, and, of course, presents.  My
nine-year-old Jeffrey has been lobbying for a new BMX bike.  This bike is outfitted with
all kinds of capabilities to jump, to speed through corners and to do a variety of stunts. 
Jeff insists he is going to become a stunt rider or BMX racer, neither of which give his
mother and I much comfort.   But we doubt he will really try any of these things and we
are happy to get it for him, though we sometimes wish, in teaching him to ride a bike,
we had thought to include advanced motocross training.

     My memories of teaching my son to ride a bike have gotten me thinking again
about our move away from a regulatory model to competitive markets in the
communications industry.  And it has me thinking about the pace of competitive forces,
innovation, anxiety and risk.  

     Think of these elements as a sort of regulatory parable:  the child is the Public
Good and we Regulators are his parents.  Mr. and Mrs. Regulator have raised Public
Good, doting on him, feeding him, cleaning up his messes and just protecting him
overall.  One Christmas, his grandfather, Congress, decides to give Public Good the
present for which he has been asking -- a slick, new bike called Competition.  This bike
has all kinds of bells and whistles that will let Public Good do all sorts of things 
he could not do on his old Regulatory Rider.  

     Mr. and Mrs. Regulator are very proud to see their son standing next to his shiny
new treasure.  They take pictures to commemorate the moment -- Public Good standing
next to Competition, grinning from ear to ear, excited about the possibilities of hitting
the street.  As he jumps on and begins toiling around the flat circle just outside the
Regulators' home they have little fear, but Public Good is not content.  He did not ask
for this serious machine just to ride in circles.  He wants to take his bike to the track to
test his potential on Free Market Hill.

     Mr. and Mrs. Regulator do not know quite what to make of Public Good's
restlessness.  They admire their child's ambition, but believe the dangers of riding down
Free Market Hill are great.  They can just imagine him breaking a bone, or worse, his
neck.  They have visions of the emergency room.  The Regulators resist letting Public
Good ride Free Market Hill, but he demands a shot at the rewards that come to those
who can conquer it.

     So, Mr. and Mrs. Regulator agree to take Public Good over to Free Market Hill. 
As the Regulators look down the Hill, they see that it is very steep with a big jump up
the other side, over which they cannot see.  The Regulators know that, as Public Good
goes down the Hill, his speed will be great.  There may be ruts and gravel and who
knows what is on the other side of that hill.  Think of the hill, in our parable, as the
ravaging economic and technological forces of the information revolution.  Those forces
are tumultuous, explosive, and quick changing.  Public Good will have to ride more
skillfully and nimbly than ever before.  But the excitement of riding Free Market Hill
promises to delight Public Good more than he ever would have experienced under the
careful watch of Mr. and Mrs. Regulator.
 
     But despite these opportunities for Public Good, Mr. and Mrs. Regulator cannot
help themselves as their son starts down Free Market Hill.  They run alongside, holding
the handlebars and the seat.  They constantly scream instructions and warnings.  They
insist he stay on the brakes.  And when they get to that jump at the bottom, over which
they cannot see, they are afraid to let their boy try it.

     Mr. and Mrs. Regulator exhibit the understandable and sincere instincts of a
parent.  But it is also the classic parent trap.  As every parent knows, if your child is
going to learn to ride a bike, you must be willing to let go, despite the risks.  If Public
Good is going to reach his full potential, he must be set free.  He needs the ability and
opportunity to put his head down, lean into the wind and soar.  He needs the ability to
adapt quickly and change course as the road becomes bumpy, without the intruding
hand of Mom and Dad.  And Mom and Dad need to resist letting their speculative
anxiety of the unknown get the best of them.  It may be okay for them to insist Public
Good ride with a helmet and avoid being too reckless, but to be truly responsible
parents, the Regulators must let go and must not place too many conditions on Public
Good's ride.

     There are many areas I could now go into based on this parable.  It implicates
many questions about deregulation, forbearance and the balance between consumer
protection and competitive opportunity.  But what I wanted to focus on today are the
lessons this parable holds for our actions under the breathtakingly broad public interest
standard in the context of merger review.

The Need for Guiding Principles in Public Interest Merger Review

     The public interest standard is the basis on which we assert jurisdiction to review
communications mergers.  Though we do have some express antitrust authority under
the Clayton Act, to my knowledge, the FCC has rarely (if ever) invoked such authority
as the basis for reviewing a merger.  The danger of the public interest standard is that it
is extraordinarily vague and facile too easy a basis to reach out and grab the brakes of
competition.  Consequently, I believe it is imperative that we try to enunciate principles
that will discipline our historically broad discretion.

     On other occasions, I have noted my belief that the first set of limiting principles
must ensure that our public interest considerations are truly germane to our authority
and expertise.  I concluded that the decision whether to attribute significant (or any)
weight to a particular factor in our public interest merger review should turn on:

               (1)  whether the Commission has statutory authority to consider that factor;
          
               (2)  whether the action the Commission would take with respect to that factor
          is part of our core function of setting telecommunications policy; and,

               (3)  whether the action relies on our unique expertise in setting such policy
          and is not more readily handled by other processes or other institutions
          vested with Congressional authority.

     As I stated in reference to the MCI/WorldCom merger, the Commission cannot
command respect as an "expert agency" -- one worthy of the broad public interest
authority Congress has given us -- if our pronouncements turn on subjects in which we
are not expert or which do not rely on our unique capabilities.

Moving Beyond Jurisdiction, Core Function and Unique Expertise

     But even if we apply these general principles, I worry that the public interest
standard is a "place perfect" for nurturing regulators' anxiety about protecting -- often
overprotecting -- the public good.  In terms of our bike parable, I believe that the public
interest standard is insufficient in its basic form to guide Mom and Dad Regulator as to
when to step in and when to let go of the Competition bike and allow Public Good to
realize his full potential by braving the challenges of riding Free Market Hill.  

     Truthfully, the public interest standard can be largely self-fulfilling -- decide what
you want to do and say it is in the public interest to do so.  There need to be some
limiting principles so that the industry, and the markets, know better when regulators
should grab those handlebars and when we should not, remembering that every time
we do grab, we slow competition and may cost the rider the race.  Let me explore some
limiting principles with you today to address these concerns.

1.   Don't Squeeze Just Because You Can

     From the standpoint of applicants, mergers often involve both high risks and high
rewards, which often turn on relatively tight, unforgiving time frames.  Once convinced
of the net benefits of a proposed merger to their shareholders, the applicants may be
willing to trade much to maximize their chances for timely regulatory approval.  Thus,
more than in most other situations, regulators have applicants by the throat.

     There is an understandable impulse that when you have got a company by the
neck you can go ahead and squeeze a little.  That instinct must be resisted.  A merger
event cannot be an opportunity to import any and every concern one has with the
merging parties, nor can regulators use the parties' desire to merge as a chance to
grind every ax.  One constraining principle here would be for regulators to ask
themselves whether they would actually block the merger absent the condition they are
exploring.

2.   Merger Conditions Are Not a Substitute for Rulemaking

     So what are some additional principles I think should discipline the public
interest?  Well, first of all, I believe that merger conditions really need to be merger-
specific.  Mergers may have pro-competitive aspects, anti-competitive aspects or both. 
As regulators, we must consider what the specific effects are as a consequence of the
merger.  Will the merged parties have too much market power when combined?  Does
the merger impermissibly eliminate an actual or, in limited circumstances, a potential
competitor.  Does the merger itself actually produce a problem or does the problem or
issue of concern exist broadly in the industry, irrespective of the merger?  If the answer
to the latter is yes, I would submit that it is appropriate for the FCC to consider that
issue, but only through the traditional mechanisms of administrative practice.  In other
words, through rulemakings or enforcement actions and not mergers.

     Hesitancy in imposing merger conditions as a substitute for rules is well-advised
because of its implications for competitive neutrality. It may seem defensible to require
something of an industry, but it is anti-competitive to impose a condition on one or two
members of an industry simply by virtue of the fact that they have chosen to merge. 
From the applicants' perspective, a condition is a cost.  To raise the costs of one
industry player but not the cost to others to whom the condition rationale also runs,
seems patently unfair and will skew competitive development.

     I must say a word here about so-called "voluntary" commitments.  There has
been a tendency throughout the history of the FCC to seek and rely on voluntary
commitments.  Sometimes we seek to distinguish voluntary commitments from
conditions.  We suggest that, out of the goodness of their hearts, the parties were
willing to address a public interest concern of the Commission.  We try to contrast this
with a condition in which the government hinges its approval on the fulfillment of the
condition.  

     I personally believe that there is absolutely nothing voluntary in a regulatory
relationship.  Merging parties are not altruists.  They accede to commitments solely in
order to get regulatory approval or to accelerate the review.  The government cannot, to
my mind, defend a merger condition (irrespective of what it is or its propriety) on the
supposition that it was voluntarily agreed to by the parties.  One should be troubled that
such "voluntary" conditions allow an administrative agency to evade judicial review of a
government imposed restriction.
 
     3.   Merger Review is Not an Opportunity to Substitute the Regulator's Vision of the
     Marketplace for That of Market Participants

     Third, I believe that merger review is not an opportunity to substitute the
regulator's vision of the marketplace for that of market participants themselves. 
Markets are dynamic.  They are churning, evolving, innovating stews that boil to suit
consumer tastes.  The market does not operate according to a recipe.  One cannot
really predict where markets will take you with any certainty.  If one could, Wall Street
would not exist as a sophisticated gambling trade, and a lot more young turks would be
beating the S&P 500.

     Regulators often are into the "vision thing."  They enjoy speculating about how it
all comes out and do so often at events and conferences like this one.  Myself included. 
Of course, being a market pundit is easy when there are no direct harms to us if we are
wrong.  We do not place our hard-earned money on the table and take a chance.  Only
private firms suffer the harm of misplaced bets.  As a consequence, our crystal ball is
much cloudier than theirs.  There simply is nothing like facing financial ruin to focus the
mind.  Moreover, in a market as fast-moving and innovation-driven as
telecommunications, the ability to predict is probably impossible and certainly foolhardy. 

     In addition, regulators are fundamentally followers.  We lag behind market
trends.  Our visions are usually 20 years out of date.  We are mired in tradition, culture,
and bureaucratic inertia.  We are slow to understand, anticipate and adapt our actions
to the leading trends in technology or services.  And we often are vested in the ways of
regulation or deregulation that make us important or relevant. 

     Finally, regulators have a persistent tendency to undersell the ability of market
forces to address social, political and public policy objectives.  The infant years of an
emerging market always trend toward the highest value products and services and the
higher value consumers.  Firms make substantial up-front investments and they
necessarily must pursue the most lucrative markets at the beginning to recover their
costs and to demonstrate to investors that they are, in fact, a good bet.  But I assure
you private firms do eventually go after anyone that has money to spend.  

     Let me give a quick example.  When the FCC earlier this year considered
forbearing from certain regulations that apply to the highly competitive wireless industry,
it declined to forbear in a number of areas.  In part, this was out of a concern about 
limited deployment to certain less lucrative segments of the population.  I understood
this concern, but I questioned the suggestion that this represented a market failure and
that regulation had to protect and facilitate service to those segments.  

     Since that decision, I have made some interesting observations that affirm for me
that competitive markets do ultimately serve the mass market.  I have seen the rise of
national television ads for prepaid cellular plans.  I saw a cellular phone service being
offered at a Seven Eleven store.  And recently I saw a cellular phone vending machine
on a trip to Las Vegas.  To put a cap on my point, the Yankee Group recently found that
wireless phone use among users with an annual income level below $20,000 had
doubled over the past year, from 8.9% in 1997 to 17.4% in 1998!  The market is alive
and well and inclined to reach the mass market.

Permissible Conditions

     Having said all that, I do believe there are permissible merger conditions.  For
example, I believe conditions may be appropriate where necessary to cure
demonstrable anti-competitive effects.  The task of policing such effects is largely
duplicative of the Department of Justice's efforts, but there are some conditions along
these lines that the Commission can administer pursuant to our public interest authority
that would be difficult, if not inappropriate, for Justice to impose.  

     I also believe conditions may be appropriate where necessary to enforce
statutory requirements that are being violated.  Such conditions merely invite regulators
to enforce existing rules and laws.  For example, the Commission might want to
consider the fact that the applicants have refused to pay their required contributions to
federal universal service support mechanisms.  Likewise, the Commission might want
to consider whether incumbent LEC applicants have refused to un-bundle their
networks pursuant to section 251(c) of the Act.

     Our skepticism about imposing such merger review conditions need not be
overly stringent where it is demonstrated that the applicants have already violated the
law.  If the public interest means anything, it should mean that the Commission should
not be seen as endorsing illegal behavior by approving proposed mergers without
conditions designed to discontinue such behavior.  

     With respect to parties' warnings of future illegal behavior, however, I think we
regulators should be more circumspect.  Specifically, I think companies should enjoy a
presumption of innocence, such that if regulators believe it likely that the merged entity
will violate the law, we should be able to point to concrete and persuasive evidence in
the record that supports this prediction.  Moreover, I believe we should have to point to
concrete and persuasive evidence in the record that supports a finding that the merged
entity will be more likely to violate the law than the individual applicants.  

Conclusion

     In closing, if we are true to the goals of promoting simultaneously competition,
deregulation and innovation in the context of merger review, I believe we must
enunciate principles that stay the hand of a paranoid parent.   I have shared with you
some of my own views in this regard that surely will be tested in the coming year. 

     So you can see, though I believe in being careful, I am much more inclined than
some to "let it ride."  I know that young Public Good will reach his full potential if we do. 
I only hope that on Christmas day, I have the courage to take my own advice when my
son Jeff asks for a shot at the hill.