SPEECH BY REED E. HUNDT CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION FALL CONFERENCE NATIONAL COUNCIL FOR URBAN ECONOMIC DEVELOPMENT WASHINGTON, D.C. OCTOBER 2, 1995 THE FUTURE IS NOW -- BE THERE! Thank you, Nancy, for that kind introduction. It is indeed a special pleasure to be with you this morning at your Urban Economic Development Summit. As city, state, and economic development professionals, and as bankers, developers, business people, and executives, you know that we are increasingly a communication/information economy. The most dynamic segment of our economy is the communications sector. But will the information and technology revolution cost us jobs and a stable society? And is there a way to ensure that every one of our citizens is included in this revolution, and that no one is left behind? I believe there is, if we create the right conditions in which the entrepreneurial spirit can thrive. And these conditions must exist in our country's urban areas. Cities and towns need and must not be left out of the communications revolution. A few social theorists today see dire employment consequences from the communications/information technology, revolution. They make a number of valid points: First, the communications revolution expands a supervisor's span of control. Instead of directing the activities of eight or nine people, a mid-level manager using communications technology can now supervise fourteen or fifteen. That is because in an information economy the manager's primary role is to gather and transfer knowledge. Personal computers on networks make that job easier. The result is that fewer middle managers are needed. And in the U.S., millions of middle managers have lost their jobs. Second, communications firms need fewer employees to set up and maintain equipment as they convert to digital transmission, sophisticated computer switches, and fiber pipes. Third, competition and privatization force the incumbent companies to focus harder on earnings. The result is an effort to reduce overhead by downsizing. Fourth, cheap worldwide communications makes employment global. A software programmer in Silicon Valley may find that her job is being done in India while she slept. The original animation for the TV show "The Simpsons" was done in Korea. The Boeing 777 is designed not by building a mock-up in Seattle, but by creating a model in virtual reality. Yet the creators are fewer in number and are located around the globe. The results of these trends are dramatic. For example, AT&T and the Bell operating companies eliminated 70,000 jobs between 1988 and 1992 to take advantage of efficiency gains resulting from digitization and computerization. It is inevitable and inevitably painful that new technologies reduce the number of people who are necessary to maintain communications networks. And it is inevitable that firms in already competitive sectors, such as soap, salsa, shoes, or software applications, will be driven by market pressures to the low- cost solutions that networked computers provide. That means they will downsize. But innovation in the communications and information sector can create new goods and services that generate new jobs. An example is the VCR. I'm 47 years old. No one my age can program a VCR. In fact, no one my age can even remember what the initials VCR stand for. Yet, despite such widespread ignorance in the United States the rate of penetration of VCRs into the 100 million American residences went from 5% to 85% during the 1980s. VCR penetration both caused, and was caused by, the proliferation of tape rental stores, led by Blockbuster Video. These stores hired thousands of people. The owner sold out and purchased several sports teams. That is a surefire way to redistribute wealth. The VCR and VCR tapes are part of the so-called "copyright industries." If we take a broader look at what are called the "copyright industries" -- movies, music, recording, publishing, computer software, theater, advertising, radio, television, and cable broadcasting -- we also see enormous growth. During the same years (1988- 1992) that U.S. telecommunications companies were laying off 70,000 people, six times as many domestic jobs were created in the American copyright industries. Similarly, in the software industry, employment tripled during the same period. Jobs for computer systems analysts and programmers will double between 1992 and 2005. I said earlier that job growth due to new goods and services depends on the existence of entrepreneurs. And entrepreneurs require a social, economic, and regulatory environment that rewards risk-taking. Two key factors promote entrepreneurship. The first is dizzying, chaotic, disorderly, stimulating, polymorphous, and ubiquitous flow of information. Here's my thesis: the more brains are bombarded by billions of bits of voice, video, and data, the more brilliant bursts of bedazzling creativity are begotten. Say that three times fast! If you accept my thesis, then you will agree that America's internetted, "networked economy" is the perfect Petri dish for proliferating new visions of profitable products. In addition to entrepreneurship, we need competition as an antidote for the inevitable downsizing of the workforce in the privatized and restructured communications giants. Competition means the creation of alternative networks. For example, MCI and Sprint built redundant networks to compete with AT&T. They hired thousands to overbuild AT&T's network. Similarly, our rapidly growing mobile communications industry is building three or four competing alternative networks to compete against the Bells' wire-based monopolies. One of the new competitors in telecommunications is the cellular industry. Almost $14 billion was invested in this business last year in the U.S., more than double the amount three years earlier. From 1984 to 1994, the number of Americans employed in this industry rose from 1,400 to almost 54,000. Again, half that increase has been just in the past three years. And indirect employment in other fields, such as equipment manufacture, is estimated at 200,000 by the Cellular Telecommunications Industry Association. Now PCS, the next generation of cellular, is on the way. Winners of PCS licenses in the U.S. have begun the process of investing fifty billion dollars to establish their networks, and several hundred thousand jobs are being created. This is the biggest single investment in a new technology in history. If Congress removes outdated barriers to competition, another 500,000 jobs in these combined sectors could result in three years, according to the White House Council of Economic Advisers. The CEA predicts that legislative liberalization could add $100 billion to the U.S. GDP in a decade, doubling the share of GDP produced by the telecommunications and information sector. (The catch is that Congress must also prevent overconcentration in this sector.) A study by the Paris-based Organization for Economic Cooperation and Development agrees. Its report holds that "where infrastructure competition had been introduced, it had encouraged greater efficiency in public telecommunication operators and opened up new employment opportunities in and beyond the telecommunications sector." America's urban centers can benefit from these developments, not suffer from them. Again, there are dire predictions that the ability to work, shop, and socialize through interactive home telecommunications centers will further weaken cities by making everything cities now provide accessible anywhere without leaving home. I don't think so, for several reasons. First, the new communications systems will require huge investments of capital, much of it concentrated in -- and still generated by -- urban centers. Second, for reasons that I'll leave to the sociologists to explain, trends in popular taste and preference seem to be generated in the cities. Just how new communications systems will be used, and what impact they will have, ultimately depend on public acceptance and preferences. How will consumers react to electronic shopping? Will people be willing to bank electronically? Consumer reaction and choice is an important questions in predicting the impact of the communications revolution. But much of that consumer reaction -- whatever it turns out to be -- will be generated from urban environments. But urban areas will surely suffer if they don't lead the way in embracing the communications revolution. The single best step cities could take is to network every school, classroom, child, teacher, and library in towns. Networking means giving everyone a computer on a network as a way to learn, communicate, confer, manage, create. Computer networks are the key to business productivity. They need to be in every school, library, government agency. This is the way to save our schools. They can succeed with today's technology. Today's schools fail using 19th-century chalk-and-blackboard technology. If our children are to remain competitive when they venture into the world, if they are to be more productive, we need to give them tomorrow's skills by hooking up our schools today. We must educate them both with the technology and about it. Here's why: At the end of World War II, the average American needed only a fourth grade education to earn a mid-range salary. In the 1990s, a twelfth grade education is necessary to reach the same goal. One college graduate earns more than two people who didn't graduate from high school. This is the greatest gap between high and low earners in the history of our nation. The gap in wages and education levels is all the more disturbing because it falls along predictable lines. The poor and their children have less access to technology than do the rich. That helps keep them poor. Because they are poor, they have less access to technology. And the vicious cycle continues. In the year 2000, 60% of the new jobs will require skills possessed by only 20% of the young people entering the labor market. Specialized skills will become less valuable as the ability to solve problems through understanding and processing information takes on greater importance. Already more than half of high-wage jobs require the use of networked computers. There is no question that access to the Information Superhighway is now a critical and economic means to full participation in our society. Yet, every day 45 million American children and educators spend their day in an environment in which only 12% of the classrooms have basic phone lines. Only 4% of the classrooms are networked. Whether the networks eventually turn out to be connected by phone wires or television cables or wireless waves, and whether the workstation looks more like a computer or a television, I don't know. But it will be networks that will weave homes, government, schools, hospitals, and businesses into a national community. Computers in the classroom excite children to learn. They spark children's interest and open up new worlds for them. And of great importance for their own future and that of the country, they are developing skills and knowledge they will need in the workplace when they, themselves, are old enough to join the workforce. The Senate recognized all this in the Telecommunications Reform bill when it passed the Snowe-Rockefeller provision advocating networking of every classroom in the country. Two weeks ago in San Francisco, President Clinton reiterated his challenge to America to see that every classroom in our country is connected to the Information Superhighway by the year 2000. But, as he said, government can serve as a catalyst, not a blank check. Business, industry, and local government throughout our country must make a commitment of time and resources to reach that goal. As the President said, "Preparing our children for a lifetime of computer use is now just as essential as teaching them to read and write and do math...We must make technological literacy a standard." Looking back, future historians will regard the changes in worklife and lifestyle today to be as momentous as those caused by the Industrial Revolution itself. But the outcome of our revolution depends on the decisions government and business leaders make today. If we harness these new technologies for education as well as entertainment, they will enhance the quality of our lives in both cities and rural areas. Further, they will provide good jobs and increased productivity that will more than compensate for the cutbacks we are seeing as American industry goes through this transition. But the outcome of our revolution depends on the decisions government and business leaders make today. Those decisions are ours. Thank you. -FCC-